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Europaudvalget 2000-01
EUU Alm.del Bilag 233
Offentligt

FROM THE COMMISSION

BULGARIA’S

PROGRESS TOWARDS

ACCESSION

***********************

8 November 2000

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Table of contents

A. Introduction ..............................................................................5

a) Preface ............................................................................................................ 5

b) Relations between the European Union and Bulgaria ................................ 7

Recent developments under the Association Agreement (including bilateral trade) .. 7

Accession Partnership / National Programme for the Adoption of the Acquis........... 8

Community aid ............................................................................................................ 8

Twinning ................................................................................................................... 12

Negotiations / screening ............................................................................................ 12

B. Criteria for membership ........................................................13

1. Political criteria.................................................................................... 13

Recent developments................................................................................................. 13

1.1. Democracy and the rule of law .................................................................... 14

Parliament.................................................................................................................. 14

The executive ............................................................................................................ 14

The judicial system.................................................................................................... 16

Anti-corruption measures .......................................................................................... 17

1.2. Human rights and the protection of minorities.......................................... 18

Civil and political rights ............................................................................................ 19

Economic, social and cultural rights ......................................................................... 21

Minority rights and the protection of minorities ....................................................... 21

1.3. General evaluation ........................................................................................ 23

2. Economic criteria................................................................................. 24

2.1. Introduction................................................................................................... 24

2.2. Economic developments ............................................................................... 24

2.3. Assessment in terms of the Copenhagen criteria ....................................... 26

The existence of a functioning market economy....................................................... 26

The capacity to cope with competitive pressure and market forces within the

Union ......................................................................................................................... 31

2.4. General evaluation ........................................................................................ 34

3. Ability to assume the obligations of membership............................. 35

Introduction ............................................................................................................... 35

3.1. The chapters of the

acquis............................................................................

Chapter 1: Free movement of goods ............................................................. 37

Overall assessment .................................................................................................... 37

Chapter 2: Free movement of persons .......................................................... 38

Overall assessment .................................................................................................... 39

Chapter 3: Freedom to provide services........................................................ 39

Overall assessment .................................................................................................... 40

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Chapter 4: Free movement of capital............................................................ 40

Overall assessment .................................................................................................... 41

Chapter 5: Company law ............................................................................... 41

Overall assessment .................................................................................................... 42

Chapter 6: Competition policy....................................................................... 42

Overall assessment .................................................................................................... 43

Chapter 7: Agriculture................................................................................... 44

Overall assessment .................................................................................................... 49

Chapter 8: Fisheries....................................................................................... 49

Overall assessment .................................................................................................... 50

Chapter 9: Transport policy........................................................................... 51

Overall assessment .................................................................................................... 52

Chapter 10: Taxation ..................................................................................... 53

Overall assessment .................................................................................................... 54

Chapter 11: Economic and monetary union................................................. 54

Overall assessment .................................................................................................... 54

Chapter 12: Statistics ..................................................................................... 55

Overall assessment .................................................................................................... 56

Chapter 13: Social policy and employment................................................... 56

Overall assessment .................................................................................................... 58

Chapter 14: Energy........................................................................................ 58

Overall assessment .................................................................................................... 61

Chapter 15: Industrial policy......................................................................... 62

Overall assessment .................................................................................................... 63

Chapter 16: Small and medium-sized enterprises ........................................ 64

Overall assessment .................................................................................................... 64

Chapter 17: Science and research................................................................. 65

Overall assessment .................................................................................................... 65

Chapter 18: Education and training ............................................................. 66

Overall assessment .................................................................................................... 66

Chapter 19: Telecommunications and information technologies................ 67

Overall assessment .................................................................................................... 68

Chapter 20: Culture and audio-visual policy................................................ 68

Overall assessment .................................................................................................... 68

Chapter 21: Regional policy and co-ordination of structural instruments . 69

Overall assessment .................................................................................................... 70

Chapter 22: Environment .............................................................................. 70

Overall assessment .................................................................................................... 73

Chapter 23: Consumers and health protection............................................. 73

Overall assessment .................................................................................................... 74

Chapter 24: Co-operation in the field of justice and home affairs .............. 74

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Overall assessment .................................................................................................... 76

Chapter 25: Customs union........................................................................... 78

Overall assessment .................................................................................................... 79

Chapter 26: External relations ...................................................................... 79

Overall assessment .................................................................................................... 80

Chapter 27: Common foreign and security policy........................................ 81

Overall assessment .................................................................................................... 82

Chapter 28: Financial control....................................................................... 82

Overall assessment .................................................................................................... 83

Chapter 29: Financial and budgetary provisions ......................................... 84

Overall assessment .................................................................................................... 84

3.2. Translation of the

acquis

into the national language................................. 84

3.3. General evaluation ........................................................................................ 85

C. Conclusion ...............................................................................87

D. Accession Partnership and National Programme for the

Adoption of the

Acquis:

Global assessment .........................90

1. Accession Partnership ......................................................................... 90

Short-term priorities .................................................................................................. 90

Medium-term priorities ............................................................................................. 93

2. National Programme for the Adoption of the

Acquis

...................... 94

Annexes..........................................................................................96

Human Rights Conventions ratified by the Candidate Countries, September

2000 ......................................................................................................... 97

Statistical data ................................................................................................ 98

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A. Introduction

Preface

In Agenda 2000, the Commission said it would report regularly to the European Council

on progress made by each of the candidate countries of Central and Eastern Europe in

preparations for membership, and that it would submit its first report at the end of 1998.

The European Council in Luxembourg decided that:

“From the end of 1998, the Commission will make regular reports to the Council,

together with any necessary recommendations for opening bilateral intergovernmental

conferences, reviewing the progress of each Central and Eastern European applicant State

towards accession in the light of the Copenhagen criteria, in particular the rate at which it

is adopting the Union

acquis”

… “The Commission’s reports will serve as the basis for

taking, in the Council context, the necessary decisions on the conduct of the accession

negotiations or their extension to other applicants. In that context, the Commission will

continue to follow the method adopted by Agenda 2000 in evaluating applicant States’

ability to meet the economic criteria and fulfil the obligations deriving from accession.”

On this basis, the Commission presented a first series of regular reports in October 1998,

with a view to the Vienna European Council; a second series was adopted in October

1999, with a view to the Helsinki European Council. The Helsinki European Council

noted that the next regular reports would be presented in good time before the European

Council in December 2000.

The structure followed by this regular report on Bulgaria is largely similar to that of the

Commission’s 1997 Opinion and of the subsequent regular reports; however, it differs

from that used in previous years on three minor points. Firstly, the part of the present

report assessing Bulgaria’s ability to assume the obligations of membership (Part

B.3.1.)

has been structured to follow the list of twenty-nine negotiating chapters covering the

acquis.

Secondly, this part has been broadened to cover also Bulgaria’s administrative

capacity to apply the

acquis

under each of the negotiating chapters (previously discussed

in a separate section of the report). Thirdly, the report includes, for the first time, a

section assessing the progress made by Bulgaria in translating the

acquis

into its official

language.

In line with previous regular reports, the present report:

describes the relations between Bulgaria and the Union, in particular in the

framework of the Association Agreement;

analyses the situation in respect of the political criteria set by the 1993 Copenhagen

European Council (democracy, rule of law, human rights, protection of minorities);

assesses Bulgaria’s situation and prospects in respect of the economic criteria defined

by the Copenhagen European Council (a functioning market economy and the

capacity to cope with competitive pressures and market forces within the Union);

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addresses the question of Bulgaria’s capacity to assume the obligations of

membership, that is, the

acquis

as expressed in the Treaties, the secondary legislation,

and the policies of the Union. This part gives special attention to nuclear safety, as

underlined by the Cologne and Helsinki European Councils. It encompasses not only

the alignment of legislation, but also the development of the judicial and

administrative capacity necessary to implement and enforce the

acquis,

as requested

by the Madrid and Feira European Councils in December 1995 and June 2000

respectively. At Madrid, the European Council underlined the necessity for the

candidate countries to adjust their administrative structures, so as to create the

conditions for the harmonious integration of those States. The Feira European

Council in June 2000 emphasised the vital importance of the candidate countries’

capacity to effectively implement and enforce the

acquis,

and added that this required

important efforts by the candidates in strengthening their administrative and judicial

structures. The Feira European Council invited the Commission to report to the

Council on its findings on the matter.

This report takes into consideration progress since the 1999 Regular Report. It covers the

period until 30 September 2000. In some cases, however, measures taken after that date

are mentioned. It looks at whether intended reforms referred to in the 1999 regular report

have been carried out, and examines new initiatives. Furthermore, complementing the

assessment of new developments since the last regular report, this report provides also an

overall assessment of the global situation for each of the aspects under consideration,

setting out for each of them the main steps which remain to be taken by Bulgaria in

preparing for accession.

In accordance with this approach, the assessment of progress in meeting the political and

acquis

criteria (including Bulgaria’s administrative capacity to implement the

acquis)

focuses on what has been accomplished since the last regular report, complemented with

a view of the global situation for each of the aspects discussed. The economic

assessment, for its part, is based on a forward-looking evaluation of Bulgaria’s economic

performance.

The report contains also a separate section examining the extent to which Bulgaria has

addressed the short-term Accession Partnership priorities, and has started to address the

medium-term priorities set out in this framework.

As has been the case in previous reports, “progress” has been measured on the basis of

decisions actually taken, legislation actually adopted, international conventions actually

ratified (with due attention being given to implementation), and measures actually

implemented. As a matter of principle, legislation or measures which are in various

stages of either preparation or parliamentary approval have not been taken into account.

This approach ensures equal treatment for all the candidate countries and permits an

objective assessment and comparison between countries in terms of their concrete

progress in preparing for accession.

The report draws on numerous sources of information. The candidate countries have been

invited to provide information on progress made in preparations for membership since

the publication of the last regular report. The National Programmes for the Adoption of

the

Acquis

of each of the candidate countries, as well as the information they have

provided in the framework of the Association Agreement and in the context of the

analytical examination of the

acquis

(screening) and the negotiations, have served as

additional sources. Council deliberations and European Parliament reports and

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resolutions

have been taken into account in the preparations. The Commission has also

drawn on assessments made by various international organisations, and in particular the

contributions of the Council of Europe, the OSCE and the International Financial

Institutions, as well as that of non-governmental organisations.

b) Relations between the European Union and Bulgaria

Recent developments under the Association Agreement (including bilateral

trade)

Bulgaria has continued to implement the Europe Agreement correctly and contributed to

the smooth functioning of the various joint institutions.

The Association Council met on 16 November 1999 and on 10 October 2000. An

Association Committee meeting was held on 20 July 2000. The system of sub-

committees continues to function as a forum for technical discussions.

The Joint Parliamentary Committee comprising representatives of the Bulgarian and

European Parliaments met twice, in October 1999 and in July 2000. A second meeting of

the Joint Consultative Economic and Social Committee took place in November 1999

and a third in March 2000.

The share of the European Community in Bulgaria’s overall foreign trade rose from 49.6

% of all exports in 1998 to 52.6% in 1999. The share of the European Community rose

from 44.9% of all imports in 1998 to 48.6% in 1999. In 1999, Bulgaria's main exports to

the Community were textiles and base metals, its main import from the EU is machinery.

In March 1999 the Council mandated the Commission to open negotiations with the

associated countries with a view to new reciprocal concessions for agricultural products.

The negotiations, which form a part of the overall accession process, have been carried

out on a reciprocal basis and with the aim of leading to a fair equilibrium between the

interests of the European Community, the EU Member States and those of Bulgaria. The

negotiations have been based on the principle of neutrality with respect to the functioning

of the CAP.

The negotiations with Bulgaria were concluded between negotiators in May 2000. As a

consequence of the new agreement approximately two thirds of bilateral trade in

agricultural products will benefit from preferences. The regime entered into force on 1

July 2000 on an autonomous basis, pending the conclusion of an Additional Protocol to

the Europe Agreement. For processed agricultural products, negotiations are still

ongoing. As the current agreement on trade in wine will expire at the end of 2000,

negotiations on a new agreement are underway.

In July 2000, the Council mandated the Commission to open negotiations with the

associated countries with a view to new reciprocal concessions in the field of fish and

fisheries products.

For the European Parliament the rapporteur is Mr Geoffrey van Orden

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In the steel sector anti-dumping complaint against Bulgaria (amongst others), relating to

imports of hot-rolled coils, which was lodged in December 1998, the investigation was

concluded and a price undertaking reached earlier this year.

In June 1999 Bulgaria and the Commission signed a Joint Assessment of Bulgaria's

medium-term economic policy priorities. The Joint Assessment presents the major

objectives of macroeconomic policy for the next three years and is closely integrated with

the overall medium term economic programme of the country; it is linked to an IMF

extended fund facility. Bulgaria has successfully completed its actions under the medium

term economic programme, although some minor issues are outstanding.

In November 1999, agreement was reached on the early closure of Units 1-4 of the

Kozloduy Nuclear Power Plant. Under the Understanding signed between the Bulgarian

Government and the European Commission, the former committed to the definitive

closure of Units 1 and 2 before 2003, and to early closure of units 3 and 4; the precise

closure date for the latter two units, which the Commission understands will be 2006 at

the latest, will be decided in 2002 in agreement with the Commission. The Commission

for its part offered a substantial multi-annual aid package to Bulgaria’s energy sector,

including grants and a Euratom loan. The joint working group, which was set up in 1999,

has been meeting since November to ensure the timely implementation of the

Understanding. The Euratom loan for the modernisation of units 5 and 6 of the Kozloduy

plant was signed in May, while an International Decommissioning Support Fund under

EBRD management was established in June.

Accession Partnership / National Programme for the Adoption of the Acquis

The Accession Partnership adopted in March 1998 was revised in December 1999. Its

implementation is reviewed in section D of this Report.

In May 2000, Bulgaria presented a revised National Programme for the Adoption of the

Acquis

(NPAA), in which it outlines its strategy for accession including how to achieve

the priorities contained in the Accession Partnerships (see part D below).

Community aid

Since January 2000, there are three

pre-accession instruments

financed by the European

Community to assist the applicant countries of Central Europe in their pre-accession

preparations: the

Phare

programme;

ISPA

finances large-scale infrastructure projects in

the fields of environment and transport;

SAPARD

supports agricultural and rural

development.

In the years 2000-2002, the indicative annual financial allocations for Bulgaria are

€

100

million from Phare,

€

52 million from SAPARD, and between

€

83 and 125 million

from ISPA.

The

Phare

programme has been providing support to the countries of Central Europe

since 1989, helping them through a period of massive economic restructuring and

political change. Its current pre-accession focus was put in place in 1997, in response to

the Luxembourg European Council’s launching of the present enlargement process.

Phare provides the applicant countries of Central Europe with support for institution

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building, investment to strengthen the regulatory infrastructure needed to ensure

compliance with the

acquis

and investment in economic and social cohesion. This

support comprises co-financing for technical assistance, "twinning" and accompanying

investment support projects, to help them in their efforts to adopt the

acquis

and

strengthen or create institutions necessary for implementing and enforcing the

acquis.

This also helps the candidate countries develop the mechanisms and institutions that will

be needed to implement Structural Funds after accession and is supported by a limited

number of measures (investments or grant schemes) with a regional or thematic focus.

Around 30% of the Phare allocation is used for institution building, while the remaining

70% is used for financing investments in the

acquis

and economic and social cohesion.

During the period 1990 to 1999, the Phare programme allocated around

€

1000 million to

Bulgaria.

In the year 2000, the Phare programme for Bulgaria amounts to

€

118 million (including

exceptional allocations from the reserve) and focuses on the following priorities:

−

Economic reform (€ 6 million): projects to restructure the state railway company,

institution building at the Ministry of Economy, and post-privatisation support for

enterprises.

−

Adoption of the

acquis

and strengthening of the regulatory framework (€ 15 million):

projects in the areas of conformity assessment, public procurement, the environment,

maritime safety, and the energy, energy efficiency and telecoms regulatory bodies.

−

Economic and social cohesion (€ 15 million): projects in SME development and

vocational training in the two target regions identified in the National Development

Plan.

−

Strengthening the rule of law and protecting vulnerable groups (€ 22 million):

projects at the public prosecutor’s office, land and maritime border control, the fight

against drugs and the welfare of institutionalised children.

−

Public finance and management of EU funds (€ 13 million): projects in the areas of

public internal financial control and independent external audit, tax administration,

national and agricultural statistics, the CFCU and SAPARD implementation bodies,

and a Phare project preparation facility.

−

Participation in EC programmes (€ 19 million): funding to help Bulgaria meet the

costs of participating in selected EC programmes in 2000 and 2001.

An additional

€

28 million has been allocated for cross-border co-operation mainly

concerning infrastructure projects on Bulgaria’s borders with Greece and Romania.

Bulgaria also participates in and benefits from Phare funded multi-country and horizontal

programmes, such as TAIEX and the Small and Medium-sized Enterprises Facility.

In the framework of the enhanced pre-accession strategy and further to the respective

decisions of the Association Council, Bulgaria participates in the following Community

programmes: AIDS prevention, Combating Cancer, FISCALIS, Leonardo da Vinci II,

Save II, Small and Medium-sized Enterprises, Socrates II, Youth. Bulgaria is also

included in the Fifth Framework Programme for Research, Technological Development

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and Demonstration and the 5

Euratom Framework Programme on Research,

Technological Development and Demonstration. Based on a Commission proposal, the

Council is in the process of adopting a decision on Bulgaria’s participation in the Media

II programme. Furthermore, Bulgaria has declared its intention to participate in the

Culture 2000 Community programme. Following the opening of negotiations regarding

Bulgaria’s participation in the European Environment Agency, an agreement has been

reached. Following ratification and entry into force of this agreement, scheduled for early

2001, Bulgaria will become a member of the Agency.

In addition to its annual Phare allocation, the Commission has offered Bulgaria additional

Phare funding, over and above its normal allocation, in the context of the agreement

reached in November 1999 on early closure dates for units 1-4 of the Kozloduy nuclear

power plant. The agreement foresees additional Phare funding of

€

100 million in the

period 2000-2002 and a further

€

100 million in the period 2003-2007, subject to certain

conditions being met. The funds will be used to restructure and reform the energy sector

and will be largely managed by EBRD. A first tranche of

€

27 million is being made

available in 2000.

Overall, the impact of Phare in Bulgaria has been positive. Effective transfer of know-

how, equipment and financial resources has taken place in a number of important fields

such as economic transformation and structural reform, the modernisation of public

institutions and the judiciary, the adoption and implementation of the

acquis

communautaire,

and important issues relating to social cohesion and the protection of

human rights.

Three examples of successful Phare projects are:

•

The Structural Adjustment Reform Assistance programme (€ 20 million) has since

1997 supported Bulgaria’s economic reform and private sector development

programme. The programme has contributed to major progress in divestment and

liquidation of state-owned enterprises and banks, attracting foreign investment, and

strengthening the capacity of key institutions. It has been instrumental in helping

Bulgaria meet its commitments under successive loan agreements with the IMF and

World Bank.

•

The Beautiful Bulgaria project (€ 3 million) aimed to alleviate poverty in a number of

regions in Bulgaria by generating new employment, training unemployed people and

improving urban infrastructure. 3,500 people were involved in temporary job creation

schemes and over 200 buildings were rehabilitated. The project was implemented in

co-ordination with the UNDP and enhanced the visibility of the Phare programme in

Bulgaria.

•

A Vocational Education and Training (VET) project (€ 3 million) has helped to

develop new curricula for selected professions in vocational schools, building upon

post-secondary module curricula developed in an earlier Phare programme. It also

provided teacher training to apply the new technologies, as well as new technological

and learning equipment.

A reform of the

Phare management system

took place in 1998 and 1999 to improve the

speed, efficiency, effectiveness and transparency of Phare’s activities. The recent Phare

Review Communication in 2000 continues to refine these basic management structures

so as to further bridge towards accession and the structural funds. First, management can

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be fully decentralised from 2002 if the strict pre-conditions set down in the Co-ordination

Regulation 1266/99 are met. Second, Phare’s programming can be moved onto a multi-

annual basis if supporting strategies are in place. Third, the trends introduced in 1997 will

continue with an increased role for Delegations, further streamlining of procedures and,

lastly, increasing emphasis of management on raising the impact of Phare’s projects in

institution building, investment in EU compliance and economic and social cohesion.

Although implementation of the Phare programme in Bulgaria is generally satisfactory,

the authorities need to improve their capacity to assist the Commission proactively and

strategically with programming and developing priority projects. This is particularly the

case in areas that involve inter-ministerial and donor co-ordination, and collaborating

with business and civil society. Phare programming and implementation should be more

closely integrated with ministerial policymaking and administrative structures. Efforts are

needed to reduce staff turnover and provide adequate resources for the contracting,

technical and financial aspects of project implementation.

Concerning

SAPARD,

the Bulgarian National Agriculture and Rural Development Plan

got a favourable opinion from the STAR Committee (EC Management Committee on

agricultural structures and rural development) in September 2000. The Commission

approved the plan in October 2000. The plan’s main objectives are to improve the

efficiency of agricultural production and promotion of a competitive food-processing

sector and sustainable rural development consistent with the best environmental

practices. The Decree for the establishment of the SAPARD Agency was adopted by the

Council of Ministers in July 2000 and came into force immediately. The State Fund for

Agriculture (SFA) has been designated as the SAPARD Agency, and has responsibility

for arranging co-financing of EC projects, as well as for the management of short-term

and medium-term national credits for the farmers. Bulgaria is progressing well towards

establishing a functioning paying agency for SAPARD. Bulgaria’s indicative allocation

under SAPARD in 2000 is

€

52 million.

As concerns the

ISPA

programme which came into operation in 2000 to support large-

scale projects in the environment and transport sectors, Bulgaria’s indicative allocation is

between

€

83 and 125 million a year, to be equally divided across the two sectors.

Strategy papers and a project pipeline have already been established. Following

discussion with the Bulgarian authorities, the Commission has agreed for 2000 to focus

on two projects in the transport sector: road rehabilitation along main transport corridors

and a new terminal at Sofia airport. In the environment sector, preparatory work is

underway on wastewater treatment plants in Sofia and the Maritsa river basin and urban

waste disposal landfills. A decree has been adopted under which the Directorate General

of Regional Development and Administrative and Territorial Organisation in the Ministry

of Regional Development and Public Works is responsible for the co-ordination of the

preparation of regional policy, assistance in preparation of legislation, and programming

and implementation of Phare economic and social cohesion projects. However, inter-

ministerial co-ordination, both at national and regional levels, is still not fully effective

and more attention needs to be paid to this.

Implementation of the ISPA project will follow the same institutional framework as for

the Phare programme, with the National Fund at the Ministry of Finance being in charge

of the overall financial management and a number of Implementing Agencies responsible

for the technical implementation. For the programme and financial management of

SAPARD, a different system will apply which reflects the EAGGF (European

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Agricultural Guidance and Guarantee Fund) rules and is based on a fully decentralised

approach through an accredited paying and implementing agency.

Twinning

One of the main challenges the candidate countries continue to face is the need to

strengthen their administrative capacity to implement and enforce the

acquis.

As of 1998,

the European Commission proposed to mobilise significant human and financial

resources to help them in this respect, through the process of twinning of administrations

and agencies. The vast body of Member States’ expertise is now being made available to

the candidate countries through the long-term secondment of civil servants and

accompanying short-term expert missions. Thanks to the strong support and response

from EU Member States 107 twinning partnerships, funded by Phare 1998 and involving

all candidate countries and almost all Member States are operational. Under Phare 1999 a

further 107 projects are being implemented and the programming exercise for Phare 2000

includes a further 129 twinning projects. It is estimated that around 250 twinning projects

will be operational throughout the candidate countries at any one time.

To start with, twinning focused primarily on the priority sectors of agriculture,

environment, public finance, justice and home affairs and preparatory measures for the

Structural Funds. It now covers all sectors pursuant to the

acquis.

For Bulgaria, eleven projects under the Phare 1998 programme and eight under the 1999

programme are being wholly or partly delivered using twinning. Twinning will be again

an important component under the Phare 2000 programme, contributing to the results of

up to eleven projects. These span a broad range of sectors including economic reform,

the adoption and implementation of the internal market and environment

acquis,

strengthening the rule of law, protecting vulnerable groups, and enhancing public sector

financial control.

Negotiations / screening

The analytical examination of the

acquis

(screening) was concluded for Bulgaria by early

2000, including for the agricultural

acquis

and those parts of justice and home affairs not

previously covered. During the first half of 2000 screening was updated on 23 chapters to

take account of the latest developments in the

acquis

and recent progress. Negotiations

were officially opened at the bilateral intergovernmental conference held on 15 February

2000. In March 2000, substantive negotiations started on six chapters of the

acquis:

science and research, education and training, small and medium-sized enterprises, culture

and audio-visual policy, external relations, and common foreign and security policy. The

Accession Conference in June 2000 decided to provisionally close 4 of these chapters

(science and research, education and training, small and medium-sized enterprises and

common foreign and security policy).

As recommended by the Commission, the Presidency has proposed to open negotiations

for a further five chapters; free movement of capital, company law, statistics, telecoms,

consumers and health protection in the second half of 2000.

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B. Criteria for membership

1. Political criteria

The political criteria for accession to be met by the candidate countries, as laid down by

the Copenhagen European Council in June 1993, stipulate that these countries must have

achieved “stability of institutions guaranteeing democracy, the rule of law, human rights

and respect for and protection of minorities.”

In its 1999 regular report on Bulgaria’s progress towards accession, the Commission

concluded that:

“Bulgaria fulfils the Copenhagen political criteria. However, further efforts need to be

undertaken to strengthen the rule of law and protect human and minority rights,

particularly of the Roma population, where recent government decisions need to be

followed by concrete measures with appropriate financial resources. Particular attention

needs to be paid to the fight against corruption and improving the functioning of the

judicial system.”

The section below aims to provide an assessment of developments in Bulgaria since the

1999 regular report, as well as of the overall situation in the country, seen from the

perspective of the political Copenhagen criteria, including as regards the overall

functioning of the country’s executive and its judicial system. Developments in this

context are in many ways closely linked to developments regarding Bulgaria’s ability to

implement the

acquis,

in particular in the domain of justice and home affairs. Specific

information on the development of Bulgaria’s ability to implement the

acquis

in the field

of justice and home affairs can be found in the relevant section (Chapter

24 – Co-

operation in the field of justice and home affairs)

of part

B.3.1.

of this report.

Recent developments

The political situation remained stable over the past year. The reform-oriented majority

continues to pursue its policy of economic reforms and integration of Bulgaria into the

European Union. All major political forces in the country support the policy of

integration with the European Union. Progress has been achieved in building broad

political support for Bulgaria’s membership of NATO, demonstrated by the Declaration

of the National Assembly on the negotiating position on Common Foreign and Security

Policy, adopted by consensus in May 2000. Bulgaria continues to play a positive role in

all efforts for enhanced co-operation in South Eastern Europe. In 2000 it has taken

initiatives to bring together Prime Ministers from the region in informal meetings to

encourage co-operation. Bulgaria has also been a major supporter of EU policy in this

region and an active participant in the Stability Pact.

At the end of 1999, after the decision at the Helsinki European Council that negotiations

should be opened with Bulgaria, there was a major change of government ministers,

accompanied by decisions on the restructuring of key ministries and the creation of a new

European Integration structure.

Local elections were held in October 1999. The Council of Europe judged these well

organised and satisfactory.

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1.1.

Democracy and the rule of law

As mentioned in the previous Regular Reports, Bulgaria has achieved stability of

institutions guaranteeing democracy and the rule of law. This section focuses on the most

significant developments of the past year.

Parliament

The Parliament has continued to operate smoothly over the past year. It has played an

increased role in the European integration process both at political level and at technical

level.

Following the Helsinki decision on opening of negotiations, the National Assembly set

up a new Council on European Integration, chaired by the Speaker. It is made up of three

members from each of the five parliamentary groups, which are thus represented on an

equal and non-proportional basis. To act, the Council requires consensus between these

five groups. The Council will consider all draft laws related to the National Programme

for the Adoption of the

Acquis

and can give judgements on compliance with the

acquis.

Where the Council members agree there is consensus on a draft law, the Council can

replace the specialised committees and send a draft law straight to the plenary for a vote,

thus speeding up procedures. However, should one parliamentary group object, the draft

law must go through the normal procedures. The Council will also monitor, on behalf of

the National Assembly, the work of the Bulgarian negotiation team and of the Chief

Negotiator. A small pool of experts on EC legislation has been created to support MPs in

their legislative role.

The executive

Since the adoption of the Law on State Administration and the Civil Service Law,

significant further steps have been taken as concerns laying the legal framework for a

modern, professional and independent public administration. Considerable progress has

been made to meet the short-term Accession Partnership priority of implementing the

civil service law.

In the government reshuffle at the end of 1999, the position of Minister of State

Administration was abolished as a separate post, and the Prime Minister took on its

functions.

In early 2000, secondary legislation was adopted on issues including the status,

classification, recruitment, conduct and professional development of civil servants. The

new statute for Civil Servants is intended to guarantee their status even when the political

environment changes. From May 2000, all Civil Servants are appointed under the Civil

Servants Act; their salaries and allowances are public and centrally controlled. The new

laws also make it a civil servant’s duty to act impartially and according to the law and

sets requirements for dealing with the public. A new disciplinary framework has been

created. To monitor the implementation of the civil servants law, a State Administrative

Commission was established in July 2000. Whilst there has been important progress

since last year in particular in the granting of the new civil servant status to staff in

ministries, it is as yet too early to assess fully the impact of the changes in practice.

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The government has completed a review of administrative structures, roles and staffing of

ministries, agencies and municipal administrations. Under the new regulations on the

structure of ministries, each ministry has a special unit on EU integration. The Council of

Ministers has adopted the statute for the Institute for Public Administration and European

Integration and has allocated a budget for 2000. A database of civil servants trained in

public administration and EU integration has been established and information on

training needs collected.

These changes have increased the administration’s capacity on EU issues, which is

illustrated by the work on the opening of negotiation chapters. The Prime Minister chairs

a new Council on European Integration at Ministerial level. Below this, a Co-ordination

Council chaired by the Deputy Foreign Minister brings together the Chairmen of 30

Working Groups (each dealing with a chapter of the

acquis),

generally at the level of

Deputy Minister. Also a new Directorate for EU Integration and Relations with IFIs has

been created within the Council of Ministers, to support this process.

Concerning planning and policy-making capacity, there have been some positive

developments. A new procedure for preparing draft laws was established through a

decree of the Council of Ministers of November 1999 which has improved the

framework. The fact that ministries now have similar structures makes communication

between them easier and there has been some improvement in policy co-ordination.

Whilst the mechanisms have improved, the quality remains variable. In policy areas

which involve several departments and sectors (e.g. those related to preparation for

structural funds), the quality of inter-ministerial co-ordination needs to be further

improved. Also, whilst new laws go through a mandatory impact assessment, this process

often remains superficial. In the early stages of preparing a law, consultation with

affected parties (e.g. social and economic partners) is insufficient. Earlier consideration

needs to be given to how laws will be implemented, to the required secondary legislation

or regulations, to the impact on the budget, to requirements in terms of human resources

as well as to the costs to economic operators. As this is lacking, there are frequently

delays between the adoption of laws and their effective implementation. After new laws

enter into force, more attention needs to be paid to monitoring their implementation and

enforcement, including in the court system. Whilst the capacity for policy and planning at

the level of ministries has improved, there is a lack of strategic co-ordination at the

centre. Further progress is needed before the short-term Accession Partnership priority of

strengthening the capacity to assess the financial and institutional impact of new

legislation can be considered to have been met.

It remains difficult to recruit and retain professional employees in the civil service,

especially where their skills are also in demand in the private sector. Low salary levels

are a factor. This is particularly acute at senior and middle management levels. There is

in some ministries an unjustifiably high turnover at these levels when there are changes at

ministerial level (even when there has been no change of government). The

implementation of the Civil Service law should address these various issues but at this

stage it is not yet possible to judge its effectiveness fully.

Further improvements in these areas are necessary to ensure that legal approximation

contributes to the development of good governance and to the further success of the

reform programme in Bulgaria. Approximation of Bulgaria’s legislation to the EC

‘acquis’ and its correct implementation will benefit the economy and society during the

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pre-accession period. It will also contribute to fulfilling the Copenhagen criterion on

adopting the obligations of membership.

The Police and Ministry of Interior structures are in the process of being de-militarised

but this is not yet complete. The recent incident (the discovery of bugging devices in the

home of the Prosecutor General in July 2000) shows the importance of further reforms in

the Ministry of Interior which must be seen to have adequate control mechanisms in place

to ensure it is seen to act fully on the basis of the law.

Since the creation of new decentralised institutions in the 28 new administrative regions

(oblasti)

in 1998, the Council of Ministers has appointed the 28 governors, in accordance

with the Constitution. Regional councils for regional development have been established

to assist the governors. The governors chair these councils, which consist of the mayors

of the municipalities in the district and one member of each municipal council.

The judicial system

Some further reforms have been made in the judicial system. Since the last report

additional amendments to the Civil and Criminal Procedure Codes have entered into

force. The changes to the Civil Procedure Code are intended for example to minimise the

possibilities for adjourning cases, facilitate quicker proceedings in certain cases and

reduce insolvency proceedings to two judicial instances (district courts and courts of

appeal). One of the short-term Accession Partnership priorities was to strengthen the

independence of magistrates, judges and the efficiency of the court system; little progress

can be recorded on this since the last report.

Amendments to the Criminal Procedure Code were introduced on 1 January 2000. These

are intended to strengthen judicial control during all phases of a case, establish the court

phase as the central stage of the process, and remove a number of unnecessary formalities

during preliminary investigation. Also, investigation has been passed on to the police for

all cases of minor importance (estimated at over 60% of the caseload).

With the introduction of these reforms and the introduction in 1999 of the three-instance

judicial proceedings (first instance, second instance and cassation) as provided for in the

Constitution, the basic legislative and organisational arrangements have been created as

required by the Bulgarian Constitution.

However, whilst reform of the judiciary is recognised as a priority by the government and

has started with the adoption of legal changes, significant further efforts and resources are

needed if the judicial system is to become a strong, independent, effective and

professional system able to guarantee full respect for the rule of law as well as for

effective participation in the internal market.

Several other major issues need to be addressed if judicial reform is to produce

sustainable results in the whole of the judiciary and in all parts of the country:

Firstly, there is insufficient funding for Bulgarian judicial institutions. Whilst the 2000

budget for operating expenditure was raised for most government branches, the budget

for the judiciary received a relatively minor increase, despite the fact, as mentioned in

last year’s report, that there are serious problems with the material conditions of the

judiciary. Court buildings are often too small, and working conditions for both judges and

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administrative staff are often unsatisfactory. Judges often share offices. Physical security

arrangements vary between courts but they are overall very poor.

Secondly, administration in the courts is inefficient. In most courts, procedures for

caseload management are cumbersome. Where computer systems are in use, they have

been developed and implemented as local initiatives without co-ordination between them.

The enterprise register and the criminal records register have been computerised and are

kept at national level, with access available at least to each District Court. However,

important public registers managed by the courts, i.e. the land register and the civil status

Thirdly, the situation of judges and other staff in the judiciary is unsatisfactory. Judges

are appointed to a particular court by the Supreme Judicial Council upon suggestion of

the President of that court. The criteria applied for their selection (except the purely

formal criteria of University education and completion of a legal traineeship) are not

always transparent and there is no national competition for recruitment. There does not

seem to be any system for promotion or for mobility around the country, or any

evaluation of judges' performance. Also, judges’ immunity needs to be clarified, notably

as regards minor offences, for which they apparently cannot be charged, and offences not

related to their work, where the SJC determines whether or not judicial immunity should

be lifted.

There is very little training of staff within the judiciary. There is no compulsory specific

training on entry into the profession, or whilst holding office. The training that is

becoming available is mainly through donor-funded programmes. The Magistrates

Training Centre, an NGO, is currently the central partner for national training

programmes and is almost entirely funded from donor contributions. For judges, training

does not yet include matters related to the functioning of a market economy or European

Community law. The training centre will need to become a public training institution in

the medium term with adequate financial and human resources. Provision for training of

staff in the judiciary other than magistrates also needs to be made.

Also, there are no indications to suggest that there is more than a minor improvement in

the level of backlogs in handling court cases or speed of execution of rulings since the

last report. Likewise, there appears to be no improvement in the problems of access to

legal aid.

Anti-corruption measures

Corruption continues to be a very serious problem in Bulgaria. Whilst it is hard to know

its extent, the persistent rumours about corrupt practices at various levels of the

administration and the public sector in themselves contribute to tainting the political,

economic and social environment. They affect the capacity of the state to guarantee a

predictable and lawful environment for its citizens and economic and social actors.

According to several surveys since the last Regular Report, customs, the police and the

judiciary are considered to be the most corrupt professions in Bulgaria. Other professions

cited include University teaching personnel and public-sector officials who have close

contacts with the general public.

However, a number of positive steps have been taken since last year, especially at

legislative level. These include:

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•

A Public Register Law inviting high-ranking government officials to declare property,

income and expenses was passed in April 2000;

In June 2000, amendments to the Penal Code were adopted by the National Assembly

to criminalise actual or attempted bribery;

The Civil Service law creates tighter controls on the administration and its staff;

The review of licensing and registration regimes finalised in October 1999 led to

abolition or simplification of some regimes;

The new Tax Procedure Code of January 2000 emphasised measures to detect

corruption-generated income;

The start of the implementation of the new public procurement law;

•

A number of projects are under way through NGOs (often with the active support of

the authorities) to collect information about corrupt practices, study the attitude of the

public towards corruption and inform the public about legal remedies against

corruption.

•

Bulgaria deposited its ratification of the Council of Europe Civil Law Convention on

Corruption in June 2000. Bulgaria has ratified the major anti-corruption conventions,

but still needs to ratify the CoE Criminal Law Convention on Corruption.

In recent months corruption scandals have been widely reported in the press. In mid-May,

the Parliament rejected a motion of no confidence against the government for

implementing a policy of corruption and covering up its concrete manifestations.

Whilst allegations of corruption are rife, it is difficult to obtain concrete information on

how the judicial system is dealing with corruption cases. Some information on bribery

cases is available but it has not been possible to obtain clear figures for corruption-related

cases for the last year.

Efforts of law enforcement bodies need to be strengthened to fight corruption. The

legislative framework should be upgraded especially in financial control and areas that

contribute to transparency in public life such as financing of political parties, relations

between officials and business, and the private interests of civil servants and other

officials. The internal control mechanisms against corruption in the various

administrative bodies, including the judiciary, should be upgraded.

The government should further enhance its efforts to create an environment of zero

tolerance of corruption, and to minimise the potential for corruption when drawing up

new legislation. Also, whilst individual measures have been taken to combat corruption

and whilst this is an element of the National Strategy on Combating Organised Crime,

these would benefit considerably from the framework of a global, transparent anti-

corruption strategy with overt backing from government and parliament.

1.2.

Human rights and the protection of minorities

As mentioned in the previous Regular Reports, Bulgaria continues to respect human

rights and freedoms. The following section concentrates on subsequent major

developments.

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Bulgaria has ratified most human rights conventions (see annex). In September 1999, it

ratified Protocol N° 6 to the European Convention for the Protection of Human Rights

and Fundamental Freedoms, concerning the abolition of the death penalty. In June 2000,

Bulgaria ratified the European Social Charter (revised), however it has not yet signed the

original European Social Charter. Protocols no. 4 and 7 of the European Convention for

the Protection of Human Rights and Fundamental Freedoms still need to be ratified.

In January 2000, the Council of Europe Parliamentary Assembly decided to end its

monitoring of Bulgaria. It concluded that Bulgaria was committed to democratic reform

and had made a number of major steps forward on the road to democracy since joining

the Council of Europe in 1992. It mentioned inter alia the abolition of the death penalty,

adoption of the Law on Alternative Service, ratification of the Framework Convention for

the protection of national minorities and the role of the President in the adoption of

legislation in line with Council of Europe standards, including in the spheres of the media

and the judicial system. The Bulgarian authorities were asked to take the necessary

measures to solve remaining problems. Whilst there have been a number of

improvements, Bulgaria needs to pay continuing attention to the issues raised and

reinforce efforts to ensure commitments are fully implemented.

In May 2000, the European Court of Human Rights ruled against Bulgaria in the case of

Velikova v. Bulgaria, relating to the death of a Roma man in policy custody in 1994. It

ruled that it could be concluded beyond reasonable doubt that the man died of injuries

inflicted in custody and that the state had failed to meet its obligation to conduct an

effective investigation.

Civil and political rights

In the period since the last report, some further progress has been made in the protection

of civil and political rights but there continue to be problems with the effective

functioning of law enforcement bodies.

Recent developments can be summarised as follows:

Following the

Refugees

Law of May 1999, a specialised Agency for Refugees has been

created to ensure co-ordination of all administrative and legal proceedings related to

asylum seekers and refugees. However, concerns have been raised by human rights

groups about the implementation of the law and co-ordination between the Refugee

Agency and the Border Police who are the first to deal with an asylum seeker. The overall

administrative capacity of the Agency is limited.

NGOs

generally play an active and important role in Bulgarian society in many sectors

and at national, regional and local level. There are strong think-tank NGOs that are

influential in setting the agenda for civil society and encouraging initiatives to remedy

some of the most acute problems facing Bulgarian society. NGOs working in the field of

protection of the Roma minority have introduced good practices and success stories that

became part of the Government programme. The trend to consult NGOs on issues of

concern is very positive. The legal framework for NGO activity is in the process of being

modified. A significant part of funding of NGOs comes from donors outside Bulgaria,

which has meant some NGOs are over-dependent on those donors. Changes to the legal

framework to make donations more attractive in Bulgaria will help but there is clearly a

link to the economic situation.

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As concerns

freedom of expression,

whilst libel can no longer be punished through

imprisonment, the level of possible fines remains very high despite having been reduced

by the National Assembly after a Presidential veto on the libel law. So far the authorities

have shown restraint as regards implementation, but continuing attention needs to be paid

to ensure there is no undue restriction of freedom of expression.

The National Council on Radio and Television is entrusted by law with protecting

freedom of speech, independence of radio and TV operators and the public interest. It

examines if the principle of pluralism is observed in Bulgarian national television and

radio, and it monitored the behaviour of media during the pre-election campaign for the

local elections in 1999. Given these important tasks, the administrative capacity of this

body still needs to be further improved.

Bulgaria has affirmed its commitment to improve conditions in

prisons

and to align itself

with international requirements. However, as concerns pre-trial detention, conditions are

considered particularly poor. A regulation to the effect that pre-trial detainees should

have the same rights as convicted persons was adopted in April 1999 by the Ministry of

Justice, but more needs to be done to ensure this is fully implemented. Conditions in

prisons and labour correction hostels are reportedly better but there are still problems

such as overcrowding and poor food and sanitary conditions. The legal framework for

placing young offenders into “correctional boarding schools” needs to be revised to

ensure cases have been heard in full conformity with the right to a fair trial before

detention.

A number of human rights organisations have made critical reports in the period since the

last report about

police violence

which provide cause for concern. These indicate that

violence against Roma is higher than against other Bulgarians and that when complaints

are made against law enforcement officials alleged to have been involved in brutal

treatment, very few result in trials.

There remain problems with

trafficking

of human beings, especially women. Recent

sociological surveys show that some women from more vulnerable groups are still ready

to take the risk of being trafficked hoping it will provide a better future. Strengthening of

border controls is not sufficient to tackle this problem. A more effective policy of

prevention and information to vulnerable groups is needed. Significant steps have been

made in this respect through the implementation of a joint EU-US information campaign

carried out by the International Organisation for Migration with the full support of the

Bulgarian authorities.

In line with the Constitution, in October 1999 the National Assembly adopted the Law on

Alternative Service.

One of the provisions of this is that alternative service is double the

length of normal military service. A Commission for Alternative Service is now

operational and following its approval of requests a number of young men are now

undertaking alternative service. However, concern has been expressed that most

alternative service jobs are positions in the Army which do not involve carrying weapons.

In practice,

freedom of religion

is considered as satisfactory by most religious

denominations and NGOs. Jehovah's Witnesses are now registered and benefit from

legislative provision for alternative service. However, on the preparation of a

Denominations Act, concerns have been raised that interested parties have not been

consulted and that elements of the three drafts before the National Assembly in February

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2000 could infringe the Bulgarian Constitution and international commitments to human

rights.

The institution of the

Ombudsman

does not yet exist in Bulgaria, but Ombudsman offices

have been set up in a number of municipalities on a voluntary basis and pilot projects are

being run by a number of NGOs to examine the possibility of introducing the institution

of Ombudsman in Bulgaria and precisely what the role of this would be.

Economic, social and cultural rights

Concerning

equal opportunities,

the Bulgarian Constitution enshrines the principles of

equality of citizens and non-discrimination. These provisions of the Constitution are

directly applicable. However, Bulgaria does not yet have a legislative framework against

gender discrimination or a body responsible for implementing non-discrimination

policies. In the course of 2000, a working group with representatives of ministries, trade

unions, employers’ organisations and women's non-governmental organisations was

established to prepare a draft law, with the main objective of providing more guarantees

against gender-based discrimination and to promote equality between women and men in

all spheres of public life. Bulgaria has signed the Optional Protocol to the Convention on

the Elimination of All Forms of Discrimination against Women.

Whilst the integration of

disabled people

is guaranteed by law, little progress has been

made since last year for the effective integration of disabled people in the economic and

social life, largely due to the lack of sufficient resources.

In June 2000, the National Assembly took a positive step forward in adopting the

Child

Protection

Act, which creates a State Agency for Child Protection. It will be responsible

for child protection programmes at national and regional level. Under the law, children

may be placed in the care of special institutions only when all possibilities of remaining

in a family environment are exhausted. The act covers other areas, for example a national

information system on children in need, the role of municipal social assistance services in

child protection, and the right of children to be heard in proceedings involving their rights

or interests. Implementing regulations still need to be adopted. In July 2000, Bulgaria

ratified the International Labour Organisation Convention concerning the Prohibition and

Immediate Action for the Elimination of the Worst Forms of Child Labour of 17 June

1999. Bulgaria’s ratification is one of the first.

Trade unions and representatives of employers

and other economic groups continue to

play an active role in society. Their impact in society has been increased, but the rules

concerning their consultation before the adoption of policy measures by the government

are not clear and the tendency not to consult Unions remains despite formal obligations to

do so.

Minority rights and the protection of minorities

Bulgaria has made progress in bringing its legislation into line with European standards

and recognises that steps need to be taken to address problems faced by certain

minorities. It is difficult to gain precise up-to-date information about the situation of

different minority groups living in Bulgaria and the population census foreseen for 2001

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should be an important contribution to assessing this, provided that participation of all

parts of the population is facilitated.

The Roma minority, which represents about 5% of the population, continues to suffer

discrimination due to the accumulation over time of factors that have worsened their

living conditions. There is political commitment from the government to remedy their

problems, but more effort must be put into translating this into concrete action and major

efforts and resources will be required to reverse the situation of discrimination, poor

living conditions, economic hardship, chronic unemployment, poor health care, appalling

housing conditions and lack of effective access to education. Also there are practices in

access to social support and health care where particular eligibility criteria can have a

discriminatory effect, making it difficult in practice for Roma to gain access to social

support. A precondition for non-contributory health services is access to social support,

so this also affects access to health services.

Since the welcome adoption of the framework programme for the integration of Roma

into society reported on last year, some progress has been made but in general

implementation of the programme has been progressing slowly, so the short-term

Accession Partnership has been only partially met. Experts of Roma origin have been

appointed in 24 of 28 regions as experts on ethnic and demographic issues; 3 experts

have been appointed to the Ministry of Regional and Urban Development, and 3 at the

Health Ministry. Some training in administrative skills has been provided for these

experts through the National Council on Ethnic and Demographic Issues (NCEDI). Cases

of degrading treatment of Roma by law-enforcement bodies were referred to earlier in

this chapter. The NCEDI is working on a programme against youth unemployment which

includes recruiting 50 young Roma into the Police, which is a positive step. However, the

administrative capacity of the NCEDI to implement the programme remains low, and the

limited financial means allocated for implementation make effective performance of its

task difficult, so the short-term Accession Partnership priority of strengthening the

NCEDI will require considerable further efforts to be fully met.

Concerning participation in political life, in the municipal elections in October 1999,

Roma-led parties achieved some significant results for the first time, gaining over 200

seats on municipal councils. This marks an important step and has motivated some towns

to create departments on Roma issues. For the upcoming general elections in 2001, it is

important to ensure that this trend towards participation in political life is fostered.

The Turkish minority, estimated at about 9% of the population, is better integrated into

political life through elected representation at national and local levels. However,

concerns exist as to the low level of representation in senior appointments in the

administration or as officers in the military. Since the last report, some concrete steps

have been taken to improve education in Turkish in primary and secondary schools,

however further action, for example to ensure there are enough trained teachers, will be

necessary. Also, a news programme in Turkish has recently been introduced on National

public television. Regions where the minority is concentrated continue to suffer from

low investment and high unemployment.

Concerning political representation of minorities, the Constitution forbids organisation of

political parties on ethnic, racial or religious grounds. It could be desirable to clarify these

Constitutional provisions with reference to the restrictions on the establishment of

political parties, as it is important to ensure compatibility with international obligations.

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1.3.

General evaluation

Bulgaria continues to fulfil the Copenhagen political criteria.

Bulgaria has made progress in adopting secondary legislation necessary to implement the

Civil Service Law, and also to implement this. The adoption of the Child Protection Act

in June 2000, which creates a State Agency for Child Protection, is another positive step

forward.

However, very little has been done to upgrade the judiciary, which remains weak. Also

corruption continues to be a very serious problem and a global, transparent anti-

corruption strategy with overt backing from government and parliament would be of

benefit. Since the adoption of the framework programme for the integration of Roma last

year, some progress has been made but the administrative capacity of the National

Council on Ethnic and Demographic Issues to implement the programme remains low,

and the limited financial means allocated for implementation make effective performance

of its task difficult.

Major efforts are needed to develop a strong, independent, effective and professional

judicial system. The fight against corruption needs to be strengthened. In line with the

short-term Accession Partnership priority on Roma, further concrete actions and adequate

financial resources are still required.

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2. Economic criteria

2.1.

Introduction

In its 1997 Opinion on Bulgaria's application for EU membership, the Commission

concluded:

“Bulgaria’s progress in the creation of a market economy has been limited by the absence

of a commitment to market-oriented economic policies; it would not be able to cope with

competitive pressure and market forces within the Union in the medium term.”

This finding was confirmed in the 1998 and 1999 regular reports. In its 1999 regular

report the Commission found that:

“Bulgaria has continued to make progress in establishing a functioning market economy

but further steps are needed and it is not yet in a position to cope with competitive

pressure and market forces within the Union in the medium term.”

In examining the economic developments in Bulgaria since the Opinion, the

Commission’s approach was guided by the conclusions of the European Council in

Copenhagen in June 1993, which stated that membership of the Union requires:

•

the existence of a functioning market economy;

the capacity to cope with competitive pressures and market forces within the Union.

In the analysis below, the Commission has followed the methodology applied in the

Opinion, as well as in the previous regular reports.

2.2.

Economic developments

Since mid-1999 an improved external environment has been accompanied by increased

economic growth.

Bulgaria has maintained a sound macroeconomic performance and

continues to stay on track with its medium term economic adjustment and reform

programme. The currency board continues to deliver stability and low inflation.

Investment in capital equipment is growing, indicating the increased confidence of the

economic operators. Unemployment has increased significantly as a result of

restructuring in the manufacturing sector.

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Bulgaria

Real GDP growth rate

per cent

1996

-10.1

1997

-7.0

1998

3.5

1999

2.4

2000 latest

5.2 Jan-June

Inflation rate

- annual average

- December-on-December

per cent

123.0

311.0

1,232.1

549.8

39.9

1.6

2.6

7.0

7.6

June

11.7 June

Unemployment rate, end-year

- ILO definition

per cent

13.7

15.0

16.0

17.0

17.8 Sept

General government budget balance

per cent of GDP

-15.3

-0.3

1.3

-0.9

Current account balance

per cent of GDP

million

€

0.2

4.2

376

-0.5

-55

-5.3

-620

–467 Jan-June

Foreign debt

- debt export ratio

- gross foreign debt

per cent

million

€

168.9

8,251

165.7

9,200

161.8

8,015

180.7 E

9,292 E

Foreign direct investment in flow

- balance of payments data

per cent of GDP

million

€

1.1

5.0

445

4.4

479

6.3

735

203 Jan-June

E = Estimates

The restructuring of the economy is proceeding and privatisation is entering a second

stage.

Whereas the first stage focussed on enterprises and involved about 63% of all state

owned assets, the second phase of the privatisation programme concerns mainly utilities

and infrastructure. Monitoring results for 154 troubled enterprises show that losses are

still substantial, emphasising the urgency of further restructuring. The privatisation of the

banking sector is progressing, and is expected to lead to a substantial and much needed

improvement of financial intermediation. Important reforms of health insurance, social

security and the pension system are underway and should further support the market

orientation of the economy.

PROXY HICP since 1997 (see methodological notes)

Moving 12 month average rate of change

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Main Indicators of Economic Structure in 1999

Population (average)

GDP per head

thousand

PPS-€

Per cent of EU

average

Share of agriculture

in:

- gross value added

- employment

Investment-to-GDP

ratio

Gross foreign

debt/GDP

Exports of goods &

services/GDP

Stock of foreign direct

investment

(End of 1998)

per cent

8,211

4,749

17.3

26.6p

15.9

79.8

per cent

million

€

per head

44.1

1,369

167

2.3.

Assessment in terms of the Copenhagen criteria

The existence of a functioning market economy

As set out in Agenda 2000 the existence of a functioning market economy requires that

prices, as well as trade, are liberalised and that an enforceable legal system, including

property rights, is in place. Macroeconomic stability and consensus about economic

policy enhance the performance of a market economy. A well-developed financial sector

and the absence of any significant barriers to market entry and exit improve the efficiency

of the economy.

There is continued support for the medium term economic programme and for EU

accession related policies.

The broad support for the currency board arrangement has not

been shaken. While the legislative procedure is relatively smooth and allows for rapid

progress in adopting legislation related to economic reform, this has not always

guaranteed laws to be of sufficient quality and to be the result of a proper consultative

process. There is a need to improve the co-ordination of new policy initiatives between

Figures have been calculated using the population figures from National Accounts, which may differ from

those used in demographic statistics.

Agriculture, hunting, forestry and fishing.

Provisional figures.

Data refer to Gross fixed capital formation as % of GDP.

The 1999 data for foreign debt are estimates.

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ministries. Improved consultation of interest groups is necessary to ensure broad

participation and acceptance. The preparation of a new medium term programme has

started. It is expected to be finalised and agreed with the government after the general

elections, which are scheduled for the first half of 2001.

GDP growth in 1999 increased to 2.4%.

Only the service sector experienced positive

growth throughout the year. Industry contracted in the first half of 1999 as a result of the

Russian and Kosovo crises. This situation was redressed in the second half, when

industrial activity was driven by higher exports. Real GDP growth continued in the first

part of 2000 and is forecasted to reach 4.5% in 2000. Domestic industrial sales decreased

8.6% from January to July 2000, but strong exports continued to drive overall growth.

Unemployment has been rapidly increasing since mid-1999.

The unemployment rate

stood at 17% in December 1999. It further increased in the spring of 2000 and reached a

peak of 19% in April before declining slightly because of seasonal factors. The health

reform had some impact on unemployment because it increased the incentive to register.

Total employment has been reduced by 247,000. This was mainly caused by restructuring

in agriculture and manufacturing. In the same period the labour force declined by

101,000. Economic growth together with active labour market policies are essential to

ensure that labour resources are made available to economically viable sectors to avoid

high unemployment turning into a long-term liability for the public budget.

Consumer price inflation has decreased substantially since the introduction of the

currency board arrangement.

During the first half of 1999, the rise in the consumer price

index was particularly low, but higher energy prices and increases in administered prices

topped up inflation in late 1999. End-year inflation was 7%, while average inflation was

2.6% in 1999. Annual average inflation was 7.6% in June 2000, but upward pressure

appears to be developing.

The depreciation of the euro, to which the lev is pegged, has had an impact on debt

service, fiscal reserves and external trade.

Debt service payments denominated in US

dollars are three times higher than payments denominated in euro and concern 61% of

government debt. The high proportion of dollar denominated exports and the

disbursements under the three-year extended arrangement with the IMF provide a hedge

against some of the currency risk on the debt. In June 2000 gross official reserves (€3.2

billion) corresponded to more than 7 months of imports of goods.

Interest rates have decreased.

By the end of August 2000 the base rate set by the central

bank was 4.01%, down from 4.75% one year earlier. During the same period, rates on 3-

month government securities fell (they actually fell below the corresponding

EUROLIBOR rate, which could point to capital market imperfections or poor liquidity

management by banks.) The commercial interest rates in the meantime moved little and

stayed at around 16%. This indicates that business risks remain high while sovereign risk

appears to be decreasing.

The Bulgarian authorities have reduced the budget deficit to 0.9% in 1999, from 12% of

GDP in 1996.

The deficit target for 2000 is 1.5% of GDP. Expenditure is projected to

decrease to around 39.5% of GDP, while revenues are expected to be 38% of GDP. In the

first half of 2000 the revenue performance was better than expected, which may leave

some room for spending in the second half. For 2001 the government plans a 2%

decrease in personal income taxes, a decrease in profit tax rates by 5%, a reduction of

social security contributions from 35% to 32% of the wage bill and a shortening of the

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time for VAT refunds to non-exporters from 6 to 4 months. These measures are supposed

to stimulate private sector activity.

The mechanism for budget execution enables effective control of government

expenditure.

Whereas the Annual Budget Law allows the Ministry of Finance to limit

discretionary spending to 90% of the budget allocation, if necessary, the continued

reduction of tax and social security arrears and the revenue from privatisation have

ensured that the fiscal reserve remains comfortably above the minimum defined in the

medium term economic programme.

In 1999 the current account deficit increased to 5.3% of GDP, the highest level since the

economic reforms began.

Although the volume of trade has developed rapidly in the first

half of 2000, the current account deficit was almost unchanged compared to the same

period of the previous year. Due to the increase in energy prices on the world market the

value of energy imports almost doubled compared to the same period in 1999. Foreign

direct investments of

€735

million, largely related to the privatisation programme, fully

financed the current account deficit of

€620

million. This coverage could well be

repeated in 2000, provided that the privatisation programme proceeds as planned, but

there is a risk of foreign direct investment inflows falling short of the financing needs

once the current phase of privatisation fades out. The deterioration of the external

balances could become a problem in the medium term.

Substantial reforms of the pension and health systems were initiated in 1999.

The

pension reform aims to establish the long-term viability of the traditional pay-as-you-go

scheme. The legal basis for strengthening this scheme was adopted in 1999 and

implementation has begun. This involves a gradual alignment of benefits and

contributions, an increase in the average retirement age, and a limited eligibility for early

retirement. The implementation of a fully funded compulsory second pillar and a

voluntary scheme (third pillar) will start in 2002. The staged implementation of the

reform aims to avoid a steep increase in contributions. Since July 2000 the new Health

Insurance Fund has started to contract out primary health care provision to competing

agencies, including both public and private providers. Employers and employees both

started to make contributions to the scheme in July 1999. When fully implemented, the

reforms should go a long way towards establishing the fiscal sustainability of the pension

and health systems.

There is a need for careful balancing of short and long-term objectives as regards a

strategy for reducing the debt level.

The high debt burden of the country increases

vulnerability to changes in the external environment. By the end of 1999 total external

debt stood at 79.8% of GDP and gross foreign debt service corresponded to 7.7% of

GDP. Lower external debt would help to ease the budgetary constraints of the

government and reduce fiscal risks. In the short term deferring essential infrastructure

investments is not helpful because this could hamper future growth. Higher investment

can be stimulated, without putting the sustainability of public finance at risk, by careful

priority setting and by involving the private sector. However, a reduction of public debt

in line with the Maastricht criteria is not required before accession and could constrain

economic policy choices unnecessarily at this stage.

The private sector's share of value added amounted to 65.3% through 1999.

By June

2000, 51.7% of total state owned assets had been privatised, including 82.2% of assets in

the industrial sector. The Privatisation Agency reported that 1,224 privatisation deals for

641 entire enterprises and 583 separate parts had been concluded in 1999. This is 13%

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more than projected. Privatisation revenues amounted to 1209 million Bulgarian Leva

(€618 million). While the proportion of enterprises sold to managers and/or workers has

been decreasing it still represents about 40% of all cases. The slow restructuring of the

enterprises privatised by this method in the manufacturing sector demonstrates the

shortcomings of this approach. There have also been setbacks in the privatisation of

larger companies. The sale of the telecommunication company (BTC) ran into difficulties

during the summer of 2000 and is still pending. The privatisation of Bulgartabak Holding

Group has also dragged on, but it is now being prepared for cash privatisation together

with 6 other major companies. Furthermore, the first attempt to privatise Balkancar ended

in failure and the procedure needs to be re-launched. The voucher privatisation

programme is being continued and has been extended to include the state’s minority

stakes in enterprises, which are being sold on the stock exchange. Attention is now

turning to the second stage of privatisation, which will involve public utilities, such as

power and heating plants, and some infrastructure.

Financial recovery programmes and a monitoring system have helped to impose

financial discipline in loss making sectors.

To contain budgetary losses arising from tax

and social security arrears, 29 major state owned enterprises were required to develop

financial recovery programmes that should enable them to operate without subsidies from

1 January 2002. An amendment to the corresponding government decree subjected 154

other enterprises to a monitoring exercise that should provide rapid information about

their development and the possible risks to the government budget. The first results of the

monitoring exercise show a mixed picture with heavy losses in certain industries in the

metallurgical, energy and agricultural sectors.

The restructuring of the energy sector is delayed.

A substantial reform of the energy

sector is essential to establish financial control and an efficient use of resources. The

legal separation of the National Electricity Company into generation, transmission and

distribution entities was completed in June 2000. Problems persist in other parts of the

sector. After a relative improvement in the collection of payments in 1999, Bulgargaz

again began to accumulate large arrears in early 2000 due to financial problems among

customers. District heating companies continue to pose particular problems, as they were

unable to continue operation without additional subsidies. In June 2000 an action plan

was adopted in the context of the medium term economic programme. It foresees a major

rehabilitation of 8 companies while subsidies will be stopped or progressively withdrawn

from 14 other companies following analyses of their long-term viability.

The liberalisation of prices has continued.

(It is only due to a revision of the weightings

that the share of administered prices in the CPI basket went up to nearly 20% in 2000

from 17.2% the year before.) The remaining administered prices are gradually being

brought closer to cost recovery levels as part of the reform programme. Electricity prices

were the subject of some controversy after the Government announced its intention to

freeze prices for an extended period. The freeze was replaced by targeted assistance to the

poorest households. Electricity prices will be raised to full cost recovery levels by

January 2002, when the State Energy Regulatory Commission starts to monitor prices.

Entry and exit in the market place is not yet working properly although the situation is

improving.

There are still too many firms operating at a loss without being forced to

restructure. This leads to a waste of resources and, in some cases, blocks the development

of more efficient enterprises. A poorly functioning judicial system results in long

procedures and weak enforcement of bankruptcy cases. While the appointed trustees may

have a vested interest in this, it is not economically healthy. An increase in the number of

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declared bankruptcies since mid-1999 - as well as progress in solving pending cases -

indicates some improvement but much more progress is needed. Amendments to the

Commercial Code, which aim to simplify and accelerate procedures, were submitted for a

second reading in Parliament in September 2000.

There is a need to improve business conditions and the Bulgarian authorities are well

aware of this.

It is particularly important to encourage the creation and development of

new firms. To lessen the weight of bureaucracy a number of licensing requirements were

abandoned in the past year, but the remaining procedures are still far from business

friendly. Reports by the Bulgarian International Business Association and the Foreign

Investment Advisory Service identify a number of problems. Investors are often faced

with heavy bureaucracy, entrepreneurs spend too much time filling out forms, which

serve little other purpose than data collection, and foreign owned companies complain

about unusually frequent visits from the tax authorities. Remaining licensing

requirements need to be closely examined in light of the burden they impose on

enterprises and the implicit incentive they create for officials to exploit their discretionary

power for their personal benefit.

Unclear ownership rights are negatively affecting the land, housing and construction

markets.

Unclear rights and underdeveloped property markets create problems for

financial intermediation. It can be difficult to establish the real value of collateral and

there are potential problems in liquidating the assets. Recent amendments to the land law

aimed at clarifying legal ownership have only had partial success. While 98% of

agricultural land restitution had taken place by April 2000, the tracking and registration

of titles still needs to be improved.

Bank privatisation is proceeding well.

By the end of 1999 Bulgaria had 35 banks, more

than half of the assets were state owned and 7 banks were foreign owned. The sale of

Express Bank was agreed in November 1999, the contract for the sale of Hebros was

signed in early 2000 and that for Bulbank, the largest Bulgarian bank, on 7 July 2000.

The intended privatisation of Biochim bank has been delayed; after the Bank

Consolidation Company rejected the winning bidder at a very late stage in the process.

The three largest banks (Bulbank, DSK Bank, and United Bulgarian Bank) hold 52% of

the assets in the banking sector. The board of the state owned DSK Bank (formerly the

State Savings Bank) approved a medium term strategy for the privatisation of DSK, but a

timetable for privatisation will not be worked out before 2001. The full government

guarantee for its deposit liabilities has been withdrawn. There has also been progress on

strengthening bank supervision.

There has not yet been a significant improvement in the ability of the banking sector to

channel savings to productive investments in the private sector, despite the increased

penetration of foreign banks.

In 1999, the banking sector’s credit to the private sector

was 13.5% of GDP, only slightly up from 12.7% in 1995. This is low by any standard.

The average spread between lending and deposit rates is around 9%, which reflects the

high costs of financial intermediation and the perceived risks. Longer term financing is

difficult to obtain and private sector loan activity is biased towards financing of exports

and other short-term projects. The lack of access to long-term financing has a negative

impact on restructuring of the manufacturing sector and in particular affects industries

that do not have access to foreign capital. Capital adequacy in the banking sector actually

increased to 41.8% in December 1999. The currency board arrangement, which severely

constrains the possibility of the central bank to act as lender of last resort can only partly

explain this high level. Most assets are held in form of low risk government securities or

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cash, as a reflection of high risk aversion and poor banking management techniques. The

private sector’s lack of experience both as lender and as creditor, the difficulty of

enforcing claims due to shortcomings in the legal system, and the lack of good projects

add to the deficiencies of financial inter-mediation. In July 2000 a reduction in the

minimum reserve requirement from 11 to 8 % brought Bulgaria into line with

international standards. This could improve the market situation somewhat, as banks will

be able to increase their lending.

The capital markets remain underdeveloped.

The turnover on the Bulgarian Stock

Exchange (BSE) remains low. Market capitalisation of listed companies is estimated to

be BGL 1.1 billion (€560 million) but only half of the listings are tradable and fewer

actually traded. The volume traded outside the stock exchange is much larger than that on

the BSE, accentuating the problem of high costs and low liquidity of official trading and

the lack of transparency in the market as a whole. A deepening of the capital market will

be crucial to finance investments and support the growth of the Bulgarian economy.

Bulgaria has clearly made further progress towards becoming a functioning market

economy. It is establishing a satisfactory track record of macroeconomic stabilisation and

performance. The speed and quality of the privatisation process has increased. The

government's commitment to the structural reforms, as well as the improvement of the

regulatory framework, is contributing to the proper functioning of markets. However,

many reforms need to be taken further; the effective implementation and enforcement of

the legal and regulatory framework for a functioning market economy will take some

time and needs to operate in a transparent manner. The shortcomings of the financial

markets and the bureaucratic barriers to foreign and local enterprise creation need to be

removed, as they remain serious obstacles to private sector development.

The capacity to cope with competitive pressure and market forces within the

Union

As set out in Agenda 2000, Bulgaria’s ability to fulfil this criterion depends on the

existence of a market economy and a stable macroeconomic framework, allowing

economic agents to make decisions in a climate of predictability. It also requires a

sufficient amount of human and physical capital, including infrastructure. State

enterprises need to be restructured and all enterprises need to invest to improve their

efficiency. Furthermore, the more access enterprises have to outside finance and the more

successful they are at restructuring and innovating, the greater will be their capacity to

adapt. Overall, an economy will be better able to take on the obligations of membership

the higher the degree of economic integration it achieves with the Union prior to

accession. Both the volume and the range of products traded with EU Member States

provide evidence of this.

The continued macroeconomic stability has contributed to Bulgaria’s track record on

economic reform.

It is a key element in developing the capacity to cope with competitive

pressures and market forces domestically and within the single market. Pursuing reforms

in the coming years, within a medium term economic framework, will be essential to

complete the transition to a fully functioning market economy.

The gradual development of markets is improving the efficiency of resource use.

The

legislative framework for a market economy is close to completion. Yet, the lack of

efficient enforcement mechanisms and the poor functioning of market institutions

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continue to hamper economic development and could undermine public support for the

reform process. Effective implementation suffers from functional deficiencies of the legal

system and weaknesses of the public administration.

In 1999, the investment to GDP ratio (gross capital formation) amounted to 15.9% of

GDP,

which is much below that of other candidate countries. It will be necessary to

increase investment in order to ensure sufficient economic growth and catching up.

After a weak start in early 1999 foreign direct investment accelerated throughout the

year.

The investments are in particular linked to the privatisation programme. It is

expected that the planned privatisation of banks, telecoms and Bulgartabak will increase

these figures substantially before the end of the year, although delays in concluding these

deals cannot be ruled out. Slightly less than a third (€212 million

)

of the foreign capital

inflow was equity investments. There are persistent complaints by foreign investors about

the difficulties of setting up business in Bulgaria. While large firms can overcome these

barriers, they may discourage the establishment of foreign-owned medium-sized

enterprises. Greater legal certainty, a more transparent taxation regime and a more

consistent implementation of the European standards adopted by the government would

be needed to attract investors.

Labour legislation to increase labour market flexibility is under way.

Amendments to the

Labour Code, which aim to bring regulation more into line with EC laws, were approved

by Council of Ministers in June 2000. These amendments will make it easier for firms to

adapt their workforces to changes in the economic environment and introduce greater

flexibility in working hours. They also aim to ensure consistency with EC laws on non-

discrimination and the protection of women.

The standard of education in Bulgaria is generally high, but not sufficiently focussed on

the needs of an open market economy.

The low level of salaries in the public sector

makes it difficult to retain people with market and business skills. Low salaries also

increase incentives to ignore professional standards and integrity. In the medium term,

the ambitious programme of administrative reform should, in combination with economic

growth, continue to alleviate such problems.

Physical infrastructures are not sufficiently developed to foster growth and improve

economic efficiency.

Large-scale investment and restructuring are necessary to enhance

competitiveness. Structural support from the EC will help, but it will not be sufficient to

cover all the needs and will require a considerable administrative effort from the national

authorities. EC funding should be regarded as a catalyst for private sector involvement,

and not simply as a means of financing national efforts that would be made anyway.

The Government's trade policy has continued to support increased competitiveness.

The

progressive lowering of trade restrictions, including new free trade area agreements, has

led to a decrease in average import tariffs from 9.4% in 1998 to 5.9% in 1999. A further

decrease is expected in 2000. The agreements will enable restructured enterprises to

benefit from a larger market and to adjust to competitive pressures before accession. The

new protocol on trade in agricultural products will mean that a majority of the EC’s

agricultural imports from Bulgaria will be free of tariffs from 1 January 2001. The

administration of technical standards and other non-tariff issues continues to be a

problem. Sampling and testing is often required even when EC- certification is

documented. This is a serious barrier for exports to Bulgaria.

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Hidden state aid in the form of non-collection of receivables has decreased due to better

financial discipline and monitoring.

There are however still utilities where the state is

providing significant operating subsidies. The isolation programme has restricted firms'

access to bank credit, but not solved the problem of arrears to other creditors, including

arrears on tax and social security contributions.

Trade integration with the EU is developing rather slowly.

Between 1995 and 1999, the

share of Bulgarian exports to the EC in total exports increased from 37.6% to 52.6%,

while the share of imports increased from 37.2% to 48.6%. In the first half of 2000, the

share of exports to the EC in total exports has remained roughly the same, whereas the

import share has been considerably reduced as a result of the sharp increase in the value

of energy imports. The integration with EC is most evident on the import side, where

imports from the EC have replaced the traditional high share of imports from former

CMEA countries. It is difficult to determine the development of intra-industry trade with

certainty, but available indicators suggest that it has been low due to the lack of structural

reforms up to 1998. Recent increases in FDI and the stabilising effect of the medium term

economic programme will have a positive effect. Low relative labour cost and

improvements in productivity in the restructured enterprises will also support further

trade integration. Minimum and average wages are substantially below the levels at

which the international competitiveness of the enterprise sector would be in danger.

The export composition remains characterised by low value added products

including

raw materials and semi-processed metallurgical products. The share of raw materials in

total exports has increased from 42% to 44.2% between the first half of 1999 and the first

half of 2000. Between 1996 and 1998, the share in exports of products that are intensive

in natural resources decreased by 7 percentage points while the export share of human

capital-intensive goods (e.g. information technology products) and labour-intensive

products (e.g. textiles) has increased by 17 points. From the second half of 1999 exports

in the categories of energy and metallurgical products have increased.

The importance of small enterprises in the Bulgarian economy remains high.

Data on

small and medium-sized enterprises (SMEs) is of poor quality, but more than 90% of

SMEs appear to be enterprises with less than 10 employees and in 1998 more than half of

total employment was in SMEs. Available data and surveys also suggest that labour

productivity and wages are lower in SMEs than in the larger enterprises. Problems related

to the difficult business environment, constrained access to capital and petty corruption

are a particular burden for small companies. Special credit lines, supported by EC

funding, are available through private sector banks to address credit constraints.

However, it is too early to assess the effect of such measures

(see also chapter 16 – Small

and medium-sized enterprises).

Bulgaria is not yet able to cope with competitive pressure and market forces within the

Union in the medium term. Progress in macroeconomic stability has helped to improve

the functioning of domestic markets, thereby increasing the ability to become

competitive. However, key parts of the private sector are still underdeveloped and

enterprise restructuring needs to be advanced. A sustained implementation of the existing

reform programme, higher levels of investment, including foreign direct investment and

particular attention to implementation and enforcement of legislation and improvement of

financial intermediation are key requirements for developing the enterprise sector and

building up competitiveness.

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2.4.

General evaluation

Bulgaria has clearly made further progress towards becoming a functioning market

economy. It is not yet able to cope with competitive pressure and market forces within

the Union in the medium term.

Bulgaria is establishing a satisfactory track record of macroeconomic stabilisation and

performance. Good progress has been made in privatisation, especially as regards banks,

and a major reform of health and pension systems has begun.

However, structural reforms still need to be taken further and enterprise restructuring

needs to be advanced. Financial intermediation continues to be weak, and much remains

to be done in areas such as the functioning of the land market, or the enforcement of

bankruptcy cases.

Measures to address the weaknesses in the implementation and enforcement of the legal

and regulatory framework need to be taken to improve the business climate. Bureaucratic

barriers to foreign and local enterprise creation must be eliminated. A sustained

implementation of the existing reform programme and higher levels of investment are

key requirements for continued growth, developing the enterprise sector, and building up

competitiveness.

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3. Ability to assume the obligations of membership

Introduction

This section aims to update the Commission’s 1999 regular report on Bulgaria’s ability to

assume the obligations of membership - that is, the legal and institutional framework,

known as the

acquis

by means of which the Union implements its objectives. Alongside

an evaluation of relevant developments since the 1999 regular report, this section seeks to

provide an overall assessment of Bulgaria’s ability to assume the obligations of

membership, and of what remains to be done. This section has been structured to follow

the list of twenty-nine negotiating chapters, and incorporates also an assessment of

Bulgaria’s administrative capacity to implement the

acquis

in its various aspects (in

previous regular reports this had been covered in a separate section). Furthermore, for the

first time, a separate section has been included assessing progress made by Bulgaria in

translating the

acquis

into its official language.

The European Council in Madrid in December 1995 referred to the need to create the

conditions for the gradual, harmonious integration of the candidates, particularly through

the adjustment of their administrative structures. Taking up this theme, in Agenda 2000

the Commission underlined the importance of incorporating Community legislation into

national legislation effectively, and the even greater importance of implementing it

properly in the field, via the appropriate administrative and judicial structures. This is an

essential pre-condition for creating the mutual trust indispensable for future membership,

which has become a central issue in the negotiation process.

The European Council in Feira in June 2000 recalled the link between progress in the

negotiations and the candidate countries’ capacity to effectively implement and enforce

the

acquis,

and added that this called for important efforts by the candidate countries in

strengthening their administrative and judicial structures. The Feira European Council

invited the Commission to report to the Council on its findings on the matter. Building

on the assessment of Bulgaria’s administrative capacity provided in the 1999 regular

report, the present report seeks to add further depth and detail, focusing on the main

administrative structures which are required for implementing the

acquis

in its various

aspects.

In the 1999 regular report, the Commission concluded that :

“Bulgaria has made determined efforts in the past year to put in place the key elements of

internal market legislation. For example, a new law on public procurement sets out the

basic principles of the

acquis

and there has been legislative progress in the area of

standardisation, although further legislative changes will be needed before specific new

approach directives can be implemented. Substantial improvements can be noted in the

fight against piracy and amendments to the copyright law widened the scope of

administrative violations and increased the level of fines. Bulgaria has made significant

progress in alignment of audio-visual legislation and is continuing to liberalise its

telecommunications market. The new VAT and excise laws have brought the country

closer to alignment with the

acquis.

In all of these areas there is a continuing need to pay

A description of the

acquis

for each chapter can be found in the Commission’s 1997 Opinion on

Bulgaria’s application for EU membership.

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particular attention to the capacity of the administration to implement and enforce

legislation.

There has been no significant improvement in the area of state aids, There is no

systematic control of compatibility, the monitoring authority needs to be re-inforced and

responsibility for state aid control should be further clarified. Despite some progress in

alignment in agriculture there are problems of implementation, partly due to lack of

funding. Veterinary inspection needs to be re-inforced, including at border posts and

there is a need to speed up land restitution so as to create an active and transparent land

market which can encourage investment in agriculture.

Important steps have been taken in establishing a basis for regional policy but there has

been less progress in the social sector where there is widespread poverty and cause for

concern in terms of public health. There has been some legislative progress in

environment but the lack of an overall strategy and sectoral strategies which are needed

for the identification of investment projects continues to pose problems. Bulgaria has

made substantial progress in the area of justice and home affairs, particularly in

immigration and justice. There is an ongoing need for investment in staff and equipment

and to redouble efforts to fight against corruption.

Although Bulgaria has taken some steps in energy policy it has made no progress in

committing itself to a realistic timetable for the closure of Units 1-4 at Kozloduy nuclear

power plant, despite the fact that this was a short term priority of the Accession

Partnership.

The adoption of a Civil Service law is a welcome indication that the government intends

to pursue its efforts to strengthen administrative capacity. Important progress has been

made in establishing the legal framework for setting up the institutions responsible for

the application of EC legislation and many of the necessary structures have been set up.

However, the shortage of human and financial resources has hampered the capacity of

these institutions to effectively implement the

acquis.

It is important that progress be

made in setting up financial control mechanisms and transparent public procurement

systems, particularly with a view to absorbing increased EC financial resources.

Bulgaria needs to sustain progress in improving border management. The overall pace of

transposition has improved but this will increase the challenge of effective

implementation for the administration and it is too early to assess whether there will be a

corresponding increase in capacity.

Bulgaria has made progress in meeting all of the short-term priorities of the Accession

Partnership except in the nuclear sector. "

3.1.

The chapters of the

acquis

As indicated, the review of Bulgaria’s ability to assume the obligations of membership

that is provided below has been structured in accordance with the list of twenty-nine

negotiating chapters. Accordingly, this section opens with an assessment of progress

related to the so-called “four freedoms”, the cornerstones of the internal market, and

continues with a systematic review of progress on each of the chapters, to cover the

acquis

in all its various aspects: sectoral policies, economic and fiscal affairs, economic

and social cohesion, innovation, quality of life and environment, justice and home affairs,

external policies, and financial questions.

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Chapter 1: Free movement of goods

Since the last Regular Report, Bulgaria has made further progress in this domain in

particular with the adoption of the framework law implementing the New and Global

Approach principles.

In the area of

horizontal and procedural measures

the adoption in September 1999 of

the Law on Technical Requirements for Goods established a horizontal legal framework

to take on board all the principles of the ‘New and Global Approach’. This Law,

however, is not entirely in line with the

acquis,

an issue which will need to be resolved

soon. Together with the Law on National Standardisation in force since September 1999

and the Ministerial Decree creating the Bulgarian Accreditation Service in December

1999, the legal framework has been established for the functional independence between

technical regulation, standardisation, accreditation and certification (including testing and

control). Mandatory prior controls of industrial goods (including border control on

import) was abolished as of 1 January 2000, providing for free access and equal treatment

on the basis of a voluntary standardisation regime. The adoption of European Standards

is proceeding at a good pace. The State Agency for Standardisation and Metrology has

been appointed as National Enquiry Point for technical regulations, standards and

conformity assessment procedures.

Progress on

sector specific legislation

has been mixed. In the areas covered by the

New

Approach Directives

little progress has been made on actual transposition. Only the

directive on gas-burning appliances has been implemented so far. No progress can be

reported in relation to legal metrology and pre-packaging, toys, mechanical devices,

personal protective equipment, medical devices, pressure vessels, recreational crafts and

construction products. Some limited progress can be reported in the electrical equipment

sector. As regards sectors covered by the

Old Approach Directives

progress has been

made in relation to motor vehicles, foodstuffs, chemicals, and pharmaceuticals.

Transposition is still pending in relation to cosmetics, glass, textiles, and footwear.

The Law on Foodstuffs was adopted on September 1999, setting up the framework for

the adoption of secondary legislation. The transposition of directives on labelling,

hygiene, official controls, contaminants and material in contact with foodstuffs is under

preparation. The administrative capacity of the Ministry of Health, which is in charge of

preparing secondary legislation, should be strengthened.

Since the last regular report, no new developments have taken place as regards

non-

harmonised areas.

The elimination of indirect barriers to trade, including the

introduction of mutual recognition clauses in the legislation, will require continuous

efforts.

Some progress can be reported in the field of

public procurement,

where the

implementation of new legislation adopted in June 1999, has started.

Overall assessment

On the whole, the transposition of the

acquis

on the free movement of goods is

progressing. However, major work remains to be done in order to start and complete

transposition in a number of sectors. Only one New Approach Directive has been

transposed so far. The adoption of European harmonised standards should be accelerated.

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In the non-harmonised areas information is required on the internal legislative screening

with regard to possible barriers to trade.

It is difficult to assess administrative capacity, as institutional reorganisations and

transpositions have taken place only recently. However, it appears that much work

remains to be done to build up and consolidate capacity. While functional separation of

standardisation, certification and market surveillance activities has been provided for, it

is not clear how this will work in practice and when it will be implemented to ensure

appropriate independent administrative capacity. The creation of an effective network of

independent certifying bodies and laboratories needs to be promoted. The abolition of

border and ex ante controls calls for reinforced market surveillance, which remains weak

and not yet fully established pending the approval of New Approach Directives. Work is

still required for the Bulgarian Accreditation Service – created as an independent agency

within the Ministry of Economy - to become a full member of the EA (European

Accreditation). The Committee for Standardisation and Metrology will be the National

Enquiry Point (NEP) in charge of notification of national technical rules to the

Commission.

As regards safety checks on products at external borders, Bulgaria still needs to establish

appropriate customs and market surveillance infrastructure as well as effective

administrative co-operation between competent authorities.

In the area of public procurement the legislation is partially in line with the

acquis

and a

number of amendments will be required, including clear rules on legal remedies for

unsuccessful bidders. Substantial work is required in order to ensure that legislation is

fully and properly applied by the public authorities/utilities concerned throughout the

country. The administrative capacity of the Directorate responsible for public

procurement needs to be strengthened in order to ensure effective implementation.

Chapter 2: Free movement of persons

Bulgaria has made moderate progress in this area since the last Regular Report.

In the area of

mutual recognition of professional qualifications,

further progress has

been made with the amendments to the National Education Act, the Higher Education

Act and the Vocational Education and Training Act. These aim

inter alia

to promote

freedom to provide services related to regulated professions. In addition, the Lawyer’s

Act has been amended to allow lawyers who are not Bulgarian citizens to practice.

However, this Act cannot be considered to transpose the relevant Directives as it appears

that the ability of a non-Bulgarian to practice law is submitted to a reciprocity agreement

at government level.

Progress has also been made on alignment with the

acquis

in relation to

citizens’ rights

primarily with amendments to the Civil Regulation Act and the Foreigners Act. Further

alignment regarding students’ rights through the Higher Education Act means that

foreigners can now apply to study in higher education establishments if they have

diplomas that would entitle them to access to higher education in the country where they

acquired their diploma. However, these amendments do not address the discriminatory

practice of applying higher academic fees to students from the European Union.

In the field of

free movement of workers,

Bulgaria has a bilateral agreement with

Germany on workers in the hotel and catering industry which came into force in

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September 1999 and an agreement with the Czech Republic, which was concluded in

December 1999. With a view to the future

co-ordination of social security,

Bulgaria is

continuing its efforts to establish the necessary administrative structures.

Overall assessment

Transposition on the whole is progressing but will need to be sustained in order to ensure

that there are no provisions in Bulgarian legislation which contradict Community rules, in

particular with respect to nationality, residence or language requirements. In the case of

the mutual recognition area, further work is required in relation to architects and health

professions. Furthermore, a certain overlap remains between academic and professional

recognition. As concerns citizens’ rights further alignment is required in particular with

regard to family reunification.

In the area of free movement of workers, provisions will need to be put in place

concerning work permits and the right to work as a self-employed person.

In terms of administration and inter-institutional co-ordination, there is a need to

establish or strengthen capacity across all the areas concerned.

Steps will have to be taken to strengthen public employment services with a view to

future participation in the EURES network, with particular emphasis on language training

of staff.

Chapter 3: Freedom to provide services

Since last year’s Regular Report, Bulgaria has continued to make progress in this domain.

In the area of

freedom of establishment and freedom to provide services,

progress has

been made in alignment with the

acquis

through the Law on Consumers and Rules for

Trade in relation to traders that entered into force in 1999. However, this law requires

non-residents to establish themselves in Bulgaria, therefore preventing the free provision

of services.

In the field of

financial services

Bulgaria has made good progress. New regulations in

the

banking sector

have been adopted. Procedures for the issuing of permits for

performing banking activity were published in February 2000 and for the regulation of

the supervision and control of large exposures in November 1999. In July 2000,

provisions on consolidated supervision were issued, in line with the relevant

acquis

these areas. All this legislation has given the banking supervision department of the

Central Bank additional powers and expanded legal scope for action. Progress in the

insurance sector

includes the introduction of a legislative framework in relation to annual

accounts of insurance undertakings, insurance agents and brokers, as well as a revision of

rules on motor vehicles. In the area of investment services and securities markets, the

entry into force of the new Public Offering of Securities Act in January 2000 provided for

substantial alignment with the

acquis

in this area.

No new legal developments can be reported with regard to

protection of personal data

and free movement of such data.

As concerns the

information society,

no new legislative developments can be reported

since the Council of Ministers adopted a Strategy on the Development of the Information

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Society in October 1999 which set out the overall vision and institutional structures for

the elaboration of legislation in this respect, aligned with the relevant

acquis.

Overall assessment

Whilst Bulgaria has on the whole made considerable progress in aligning its legislation

with the

acquis

in this area, further progress is still required. As for freedom of

establishment and freedom to provide services, some modifications will be necessary in

relation to legal protection of designs and biotechnological inventions. In the area of

financial services, the insurance sector in particular needs the addition of measures in the

field of motor insurance, while in the securities sector the introduction of an investor

protection scheme is needed.

The EC directive on data protection still needs to be implemented in Bulgarian legislation

with a separate legislative act.

The legal framework relating to the Information Society still needs to be developed and

put in place. Bulgaria also needs to adopt and implement legislation in relation to the

Community framework for electronic signature.

With regard to institution building, the accent should be placed mainly on the insurance

sector, for which the creation of a stronger and independent authority would seem

necessary.

Chapter 4: Free movement of capital

Since the last Report, Bulgaria has made significant progress in liberalising capital

movements with the adoption of two new laws, the Foreign Exchange Law and the Law

on Public Offering of Securities, which entered into force in January 2000.

In the field of

capital movements and payments,

the most important development has

been the entry into force of the Foreign Exchange Law, adopting the general principle

that all transactions involving residents and non-residents may be conducted freely unless

otherwise stipulated in the Law. A limited number of transactions between residents and

non-residents must be registered with the Bulgarian National Bank prior to being

conducted. In turn, the Bank is required to issue a statement on the applicant's request

within 10 days. The registration requirement is waived, however, in several specified

cases. Import of national and foreign exchange cash by residents and non-residents is

free, while export of over BGN 20,000 or its equivalent in foreign exchange requires a

permit by the Bank. However, the main remaining restriction on capital movements

concerns the acquisition of land by foreigners, which is forbidden by the Constitution.

This prohibition does not apply to legal persons with foreign participation registered in

Bulgaria since, according to the law, they are considered to be Bulgarian legal persons

irrespective of the size of the foreign capital participation.

The Bulgarian National Bank and the Ministry of Finance are the authorities responsible

for the implementation of the Foreign Exchange Law. Institutional adjustments have been

made in order to facilitate the implementation of the new Law.

The Law on Public Offering of Securities, which stipulates all requirements for the

activities of market participants, applies equally to local and foreign persons.

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Furthermore, this Law explicitly provides for the admission of foreign securities to the

Bulgarian capital market.

An Amendment to the Bulgarian National Bank Regulation on payments adopted in July

2000 is linked to the introduction of a modern payment infrastructure. Little progress can

be reported in relation to the transposition of the

acquis

cross-border credit

transfers

and settlement finality. The Bureau of Financial Intelligence (BFI), which was

charged with the implementation of the 1998 legislation on

money laundering

and was

formerly a directorate within the Ministry of Finance, is being restructured into an

Agency as a separate administrative structure responsible to the Minister of Finance in

order to strengthen its independence and effectiveness. A Special Supervision Directorate

of the Bulgarian National Bank – supporting the work of the BFI – has undertaken

organisational measures including on-site inspections in the banking system for the

implementation of the law on money laundering.

Overall assessment

Bulgaria has already achieved substantial progress in the process of aligning to the

acquis

in capital movements. Although some uncertainties with regard to the regime still exist,

the main outstanding issue concerns the constitutional ban on the acquisition of land by

foreigners.

The implementation of the new Foreign Exchange Law requires the upgrading and

strengthening of the present administrative framework.

Bulgaria has started preliminary activities to modernise payment infrastructure. However,

substantial work is required in order to transpose and implement the

acquis

in relation to

the payment and security settlement systems.

In the area of money laundering, the results achieved so far by the BFI have been limited,

especially due to a number of weaknesses in the present legislation. These need to be

addressed so that the BFI can play its role in full. Further institutional reinforcement is

also required at the Bulgarian National Bank in this respect. The existing legislation is

too recent for a valid assessment of implementation to be made.

Chapter 5: Company law

The past year has seen some further progress in harmonising Bulgarian law with the

acquis.

With regard to

company law,

no new legislation has been adopted over the last year.

In the area of

protection of intellectual property rights,

new legislation implementing

acquis

came into force in 2000. This has

improved alignment with the

acquis.

It also contains specific provisions on border

enforcement.

The general requirements of the

acquis

with respect to

protection of industrial property

rights

were largely transposed in 2000 with the adoption of a law on industrial designs.

Legislation on supplementary protection certificates for pharmaceutical and phyto-

sanitary products is still pending.

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Overall assessment

Bulgarian legislation in the areas of company law, accounting law, industrial and

intellectual property is to a large extent in compliance with the

acquis,

though some gaps

remain.

In company law, legislation is largely in compliance with the

acquis.

The Commercial

Law needs to be amended to implement the requirements of the 1

, 2

, 11

and 12

Directives on Company Law. Further amendments will be needed in respect of merger

and division of companies to ensure compliance with the 3

and 6

Directives.

Intellectual property legislation is largely in compliance with

acquis

as far as copyright

and neighbouring rights are concerned, though further alignment is needed in respect of

sui generis

databases and software protection.

The provisions of the Civil Procedure Code (CPC) are partially in accordance with the

Lugano Convention but full implementation of the Convention will require changes in

the Bulgarian procedural legislation, in particular the CPC.

As regards administrative capacity, the main authorities are the courts (company law) the

police, the customs authorities, the Ministry of Culture and the Patent Office (industrial

and intellectual property rights), and the Ministry of Finance and Bulgarian National

Bank (accountancy law).

The main challenge now is to strengthen the bodies responsible for applying the law, so

that it is enforced in an accurate, timely and transparent manner. Particular attention

should be given to strengthening the effectiveness of the administrative and judicial

bodies involved in enforcement and strengthening co-ordination between them.

Whilst the new Copyright Law contains specific provisions on border enforcement,

further legislation on the procedure for and implementation of the border control

measures is necessary. Whilst in recent years Bulgaria has made substantial progress in

the fight against domestic CD piracy, further reduction in the number of pirated CDs on

the Bulgarian market will require strict border controls of imported goods. Attention

needs to be paid to strengthening the administrative and judicial capacity to ensure

effective enforcement of legislation. Bulgaria also needs to remain vigilant with regard

to its domestic market as regards “pirate” production capacity (audio- and videotapes).

Also in the field of industrial property law, further alignment is needed in particular in

the form of the introduction of supplementary protection certificates. Enforcement of

industrial property rights remains a matter of concern.

Chapter 6: Competition policy

Since the last Regular Report, Bulgaria has made some progress in this area, but

achievements on state aid control remained insufficient.

In the field of

anti-trust,

the Commission for the Protection of Competition (CPC) re-

organised its internal structure in May 2000 by adopting new rules of Organisation and

Procedure. The number of economists and lawyers was increased from 39 to 50.

The CPC made 132 decisions in 1999, of which 63% concerned unfair competition, 15%

related to abuse of dominant position, 13% were associated with merger control, and 8%

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concerned agreements and concerted practices. An important trend is the increase in the

number of merger notifications.

The judiciary needs to be better able to deal with competition cases. CPC decisions can

be appealed before the Supreme Administrative Court but this body works slowly and

does not seem well equipped to handle competition dossiers. In 1999, the Court ruled on

only 11 of the 50 appeals submitted on CPC decisions.

State aids

monitoring has been separated from state aids control. State aids monitoring is

mainly the responsibility of the Ministry of Finance whereas state aids control is the

responsibility of the CPC. A memorandum of understanding on co-operation between

these two bodies was signed in September 1999 but practical difficulties seem to persist.

The CPC has not substantively implemented its control powers: in July 2000 it

announced that it had launched only two “own initiative” cases on state aids.

An annual report on state aids in 1999 was transmitted to the European Commission in

July 2000. There has been a significant improvement in the report's quality compared

with the previous version. It largely fulfils the transparency requirement of Article 64 of

the Europe Agreement, though further clarity is needed in respect of state aid to the

financial, shipbuilding and steel sectors.

Overall assessment

Bulgaria needs to make significant further efforts to take on the EC

acquis

competition.

As regards anti-trust, Bulgaria’s legislation is largely in line with the

acquis.

Further

alignment is still necessary, especially in view of developments in the

acquis

on vertical

restraints. Concerning administrative capacity, the independent Commission for

Protection of Competition (CPC) is the body responsible for implementing and enforcing

competition policy. The CPC has broad investigative powers and has examined a large

number of cases, raising public awareness of the role of competition policy. The main

challenge is now to apply and enforce effectively the anti-trust rules, focusing on the

most serious distortions of competition.

As regards state aids, Bulgaria is still only starting to develop and implement a legal

framework and control system for state aids, and cannot yet be considered as complying

with the

acquis.

The broad legal framework is contained in the Law on the Protection of

Competition but proper implementation is lacking.

Clarifying institutional

responsibilities in order to be able to ensure effective monitoring and control of direct

and indirect state aids at national and regional level must be addressed as a matter of

priority.

The CPC has not yet made clear how and when it intends to align old aid measures (i.e.

those cases where aid continues to be granted and which existed before Article 20 of the

Law on the Protection of Competition was implemented) with the

acquis.

A state aids notification system has been established using forms identical to those used

by the European Commission. However, the extent to which the CPC actually receives

notifications on a systematic basis from all planned state aids projects at national,

regional and local level is unclear. In the absence of a comprehensive system, the CPC

appears unable to authorise, forbid or impose conditions on state aids projects in line with

the

acquis.

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With regard to the obligation to establish a comprehensive state aid inventory, Bulgaria

has updated its 1996 inventory to cover the years 1996 to 1998. Rather than using such

periodic updates, the inventory should be based on a system of continuous updating,

thereby ensuring that information on all aid measures can be retrieved at any time from

the database.

Regional state aids maps need to be adopted with a view to differentiating aid intensity

levels according to the severity of the regional problems being addressed, in consultation

with the European Commission.

A lack of administrative capacity underlies many of the deficiencies in state aids

monitoring and control. In the CPC, a director of the state aids division has only recently

been appointed, while only one person has been assigned to handle state aids cases. The

state aids department at the Ministry of Finance has a staff of four people and its ability

to influence policy even within the Ministry is limited.

Chapter 7: Agriculture

Since the last Regular Report, Bulgaria has made significant progress in terms of

approximation of legislation, especially in the wine and cereal sectors.

Agriculture in Bulgaria accounted for 17.3% of GDP in 1999, as opposed to 21.1% in

1998

. Employment in agriculture and forestry has slightly increased over the past year

accounting for 26.6% of total employment in 1999, compared to 26.2% in 1998

In 1999, EC imports of agricultural products originating in Bulgaria increased by 10% to

amount to

€

264 million. EC exports to Bulgaria decreased by 14% to

€

211 million.

Bulgaria's trade surplus amounted to

€

53 million in 1999, compared to a deficit of

€

million in 1998

. The most important product groups in terms of EC imports (76.8%)

from Bulgaria are alcoholic beverages and oil seeds. As far as EC exports to Bulgaria are

concerned, the most important products are meat and edible meat offal. Exports of

Bulgarian wine represent approximately one third of the total agricultural exports of the

country.

Negotiations for further liberalisation of bilateral trade with the EC were concluded in

May 2000 and entered into force on 1 July 2000 through autonomous measures. As a

The source for all agricultural statistics is EUROSTAT unless otherwise specified.

In order to improve consistency and comparability, the employment figures presented are now defined

according to Labour Force Survey definitions (LFS). Agricultural employment is defined in LFS terms

as economically active persons who gain a significant part of their income from agriculture. The

agricultural census, which was previously a source of employment data in many countries, takes into

account all persons nominally active on a farm. There are therefore some significant differences

between previous and new figures. Fuller information can be found in the Eurostat publication “Central

European Countries’ Employment and Labour Market Review” available free of charge through the

Eurostat Data Shops.

Uruguay Round Agreement definition of agricultural products, figures taken from EUROSTAT

COMEXT (see Agriculture in the European Union - statistical and economic information 1999 p. 36

for definition of the products).

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consequence, two thirds of EC imports of agricultural products from Bulgaria are now

exempt of duties (see also section on bilateral relations).

The share of the food-processing industry in GDP has grown slightly to almost 4%

GDP in 1999. Over-capacity remains a problem and it is estimated that the processing

industry presently utilises only 40% of its capacity. About 75.8% of the fixed assets have

been privatised. Investment in the food processing industry accounts for 30% of the total

foreign investment in Bulgaria.

Stimulating private enterprising in agriculture, releasing credits, rural development

including through use of EC SAPARD funds according to the adopted National

Agriculture and Rural Development Plan for 2000-2006 (NARDP), and harmonisation of

Bulgarian legislation with EC standards have been identified as main priorities of the

Ministry of Agriculture and Forestry (MAF) in the updated 2001 government programme.

A National Agriculture Advisory Service (NAAS) has been established as a legal body

under the MAF. It is composed of an office in Sofia and 28 regional representations. It

provides support, expertise and consultancy to farmers, and ensures a close link between

research, agricultural policy objectives, and agricultural activities.

A Cadastre and Property Register Act was adopted by the Parliament in April 2000. This

Act allows for the creation and the administration of a unified cadastre and property

and Public Works. As regards land reform, 98% of agricultural land is privately owned,

with the remaining 2% under legal dispute. Forest ownership restitution is underway. A

land market information system was created at the end of 1999 in the MAF. The land

market is not yet developed and banks do not generally accept land as collateral. The

constitutional prohibition on acquisition by foreigners of direct ownership of real estate

(including land) remains, but 100% foreign-owned firms registered in Bulgaria may

purchase land and real estate, including agricultural land.

Horizontal issues

Since the last Regular Report, the Council of Ministers has accepted the National

Agriculture and Rural Development Plan for 2000-2006 (NARDP) and entrusted its

implementation to the Minister of Agriculture and Forestry. The main objectives of the

Plan are twofold: 1) Improvement of the efficiency of agricultural production and

promotion of a competitive food-processing sector by better market and technological

infrastructure and strategic investment policies ultimately aimed at reaching EC

standards; 2) Sustainable rural development consistent with the best environmental

practices by introducing alternative employment, diversification of economic activity and

establishment of the necessary infrastructure. This in turn will improve the living

conditions and standards of rural communities, generate fairer income and open up

employment opportunities. The SAPARD plan has been formally approved by the

European Commission

(see section A.b – relations between the European Union and

Bulgaria).

Source Bulgarian National Agriculture and Rural Development Plan 2000-2006

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A Co-operative Act was published in December 1999, defining a co-operative as a

voluntary association of natural persons, with variable capital and variable number of

members who carry out trading activities on the basis of mutual aid and co-operation. A

co-operative can use the agricultural land of its members only in the framework of a

written leasing and hiring contract.

Good progress has been achieved in aligning agro-statistics capacity and procedures for

statistics on basic crops and land use with EC requirements. A feasibility test for farm

structures has been carried out and will be repeated at the end of 2000. The structures in

charge of the preparation of agro-statistics, under the MAF, need to be reinforced in order

to become sustainable.

Concerning organic farming, Bulgaria adopted framework legislation in August 1999 but

this has not yet been implemented.

Common Market Organisations

In the cereals sector, legal acts have been adopted on the warehouse register, the

management of the Grain Compensatory Fund, and the new organisation rules of the

National Grain Service. These rules contribute to creating the administrative capacity

necessary for exercising control over domestic grain market.

A new Law on Wine and Spirits has come into force. Subsequently, five Ordinances

were adopted in April 2000 concerning production, quality, licensing and commercial

presentation of wines and spirits. The basic administrative structures (the Vine and Wine

Agency as a State monitoring body within the MAF, and the National Vine and Wine

Chambers have been established, and key personnel appointed.

The Law on Vineyard Cadaster entered into force in January 2000 and secondary

legislation is under preparation.

The MAF is working on a strategy to prepare Bulgaria to apply the Common Agriculture

Policy (CAP). Detailed feasibility studies on the mechanisms under some of the key

common market regulations (milk and dairy, fruit and vegetables and grain) are under

preparation. These studies will use cost-benefit analysis to identify options and

recommend plans for gradual introduction of the agricultural

acquis,

policy mechanisms

and practices that will create favourable economic conditions. The studies should also

recommend what is best for Bulgaria in order to prepare for accession.

Substantial priority is being given by the MAF to the development of policies and support

for the strengthening of the role of producers' groups and organisations with the view to

implementing CAP-related measures. Measures are currently being prepared to lay down

EC-related criteria for the recognition of farmers' groups and regulations providing

support to producers' associations, meeting EC requirements.

Rural development and forestry

Since the last Report, the first stage of structural reform in the forestry sector has been

completed. The institutions responsible for the implementation of the Forest Act have

been established. The National Forest Board carries out state forest management and

related activities. The new laws on the restitution of forests require that they should be

returned to their rightful owners and, to date, about 56% of the forest stock has been

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claimed by former owners or their heirs. The first decisions on forest restitution to private

owners were issued in April 2000. The Bulgarian Chamber of Forestry, established in

1998 to represent and defend the interests of private forest owners, was admitted as a

member with observer status to the Confederation of European Private Forest Owners.

The Chamber provides practical assistance and training to future forest owners and

promotes the set ting up of forestry co-operatives, which is of particular importance as

small owners with an average of 0.3 ha of forest predominate.

A Code of Good Agricultural Practices has been prepared setting minimum obligations

for farmers to be eligible for the SAPARD ‘development of environmentally friendly

agricultural practices and activities’ measure .

Veterinary and phytosanitary issues

Approximation of legislation in the veterinary sector is progressing well, with the

adoption of secondary legislation necessary to implement the Law on Veterinary Activity

(published in May 1999), and the adoption of Ordinances concerning, in particular,

minimum requirements for animal welfare, control of African swine fever, veterinary

sanitary measures for prophylactics and control of zoonoses, and veterinary sanitary

requirements and control on wholesale markets of animal and fishery products, and

veterinary sanitary and hygiene requirements for factory vessels processing fish and fish

products. Further legislative work is ongoing and will be focused on animal-waste

treatment, residues and zoonosis control.

In April 2000, the National Veterinary Service (NVS) launched a general survey on all

meat-processing enterprises in the country, which will determine their level of

compliance with the legislation and will set deadlines to fulfil the requirements.

The NVS has also taken measures for the improvement of epidemiological control over

exotic diseases by preparing annual prophylactics programs that include annual

implementation of the surveillance programme on certain exotic diseases along the

border with Turkey, diagnostic tests for bovine tuberculosis, bovine brucellosis,

ovine/caprine brucellosis, bovine enzootic leukosis, classical swine fever, avian influenza

and Newcastle disease, and obligatory vaccinations against anthrax, classical swine fever

and Newcastle disease. Structures for enhanced epizootic control in the regions at risk

have been set up.

Animal welfare is included in the Veterinary Law. Regional animal health units have

been authorised to exercise animal welfare control. Implementation of the requirements is

an important issue due to the farmers’ lack of finance for the specific investments

required.

An Animal Breeding Act, setting up conditions for the sustainable development of

animal breeding, efficient production of livestock and preservation and support for the

national gene bank, and providing the legislative framework for the introduction of EC

standards, came into force in September 2000. The Act introduces EC requirements

concerning the recognition of breeding associations which establish or maintain herd

books for pure bred breeding animals.

As regards administrative capacity, the NVS has stepped up its operations and is

constantly improving as a result of stimulation from enactment of new legislation and for

economic reasons (export ban, competition from foreign firms). However, much remains

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to be done in the field of training of decentralised staff to enforce veterinary/hygiene

control standards and animal welfare. Training is required for the industry to set up its

own control systems and compliance with EC regulations.

A Unit responsible for animal identification and registration of animal breeding holdings

has been established within the NVS. The great majority of big ruminants in the country

and all small ruminants along the border with Turkey are ear-tagged and registered. The

hardware needed for the information system is already installed in 12 border regions in

the country. Data entry in the information system will then start. Preparation for the

introduction of the Animal Disease Notification System (ADNS) and ANIMO systems

are under way. A general policy on border inspection posts has been approved and plans

for upgrading the Kapitan Andreevo post (main border crossing for animals with Turkey)

have been prepared. Stricter controls over illegal imports of animal products are being

carried out at border inspection points.

An inter-institutional Milk Commission has been established with regional links to carry

out checks on the milk chain. As a result, around 187 milk-processing enterprises (mainly

small operations) have been closed. Five monitoring programmes to monitor residues of

harmful substances (in red meat, white meat, fish, milk and honey) are being

implemented.

The National Service for Selection and Reproduction was merged into the administrative

structure of the National Veterinary Service as a directorate entitled the 'Control of

Breeding Activity' Directorate. Although the National Reference Laboratory of the NVS

is accredited, the analysis performed cannot be considered to be reliable due to the fact

that there is insufficient quality control and no validation data available. Plant passports

are being introduced, and a register of producers and importers of plants and plant

products is being established. These legislative and administrative acts transpose some

key EC directives and regulations.

A Feed Act, adopted in September 1999, aims to preserve and improve animal

productivity, to ensure the use of quality and suitable feed and to provide the legal

framework for the introduction of other standards into Bulgarian legislation. It sets the

conditions for production, circulation, import, export and use of products and substances

intended for animal consumption, and establishes the Directorate on Feed Control within

the National Grain Service. The Service includes 7 regional offices and laboratories, 3 of

which are accredited. An Ordinance on registration of producers of animal feed was

adopted in October 1999, but the relevant administrative structures have not been

established yet.

The National Service for Plant Protection, Quarantine and Agrochemistry (NSPPQA)

covers all the administrative needs for Bulgaria to meet EC requirements in the area of

plant health, however further improvement of the human resource capacity as well as

equipment at laboratory and Border Inspection Points are needed. In the last year the

capacity of the NSPPQA has been improved through provision of necessary equipment,

in particular for laboratories.

An Executive Agency on variety testing, field inspection and seed control has been

established. The Agency co-ordinates the Variety Testing Directorate (testing of new

plant varieties and their recording on the National Variety List) and the Field Inspection

and Seed Control Directorate (certification of seeds and planting material and checks on

the implementation of the marketing rules). The first stage of the restructuring of the

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Field Inspection and Seed Control Directorate has been carried out, and the number of its

regional structures has been reduced to from 26 to 21. Of the variety testing stations, 9

are state-owned, 12 privatised and a further 11 under privatisation.

Overall assessment

Bulgaria has made generally good progress in terms of approximation of legislation,

especially in the wine and cereal sectors. However, further efforts are needed to address

the lack of capital and investment in agriculture from the private sector.

Land restitution is close to completion and the adoption of a Cadastre Law is an

achievement. However, despite the adoption of legislation and creation of administrative

structures, a functioning transparent land market is still not in place, and banks still do

not accept land as collateral. Much needs to be done to create a complete unified cadastre

and the administrative structures need to become operational. Improvement is still needed

in implementation of laws, as well as developing an adequate and transparent

administration.

Preparation of agricultural statistics according to EC requirements is progressing well

through the implementation of the Plan for the Development of Agricultural Statistics for

the period 1997-2002, in line with EC standards.

As regards

common market organisations,

Bulgaria will need further adjustment of its

agricultural policy to conform to the CAP. Conclusions on measures to implement to

come into line with EC requirements will be drawn up on the basis of on-going feasibility

studies.

Forests

restitution is ongoing. An Ordinance of August 1999 laying down rules for

organic production of agricultural products is currently the only basis

for agro-

environmental measures.

As regards

veterinary and phytosanitary issues,

significant progress has been made in

terms of adoption of legislation for the sectors, but implementation capacity remains a

serious problem. Veterinary and phytosanitary laboratories need further equipment and

training. Animal identification and registration is progressing, however the identification

system should be improved in order to assure traceability of animals back to the farm.

Programmes for the improvement of hygiene requirements in slaughterhouses and

processing plants have been prepared but still need to be implemented. Veterinary

inspection services need to be reinforced and further trained, especially at the regional

level. Animal welfare legislation needs to be implemented.

Chapter 8: Fisheries

Bulgaria has made some progress in this area since the last Regular Report.

As concerns

market policy,

in April 2000, Ordinances entered into force on veterinary-

sanitary and hygiene requirements for production and placing on the market of fishery

products, and on minimum hygiene rules applicable to fishery products processed and

stored on board certain vessels. These are in line with the

acquis.

The National Plan for

Agriculture and Rural Development (2000-2006) referred to in the agriculture chapter of

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this report also covers work to reach compliance with EC requirements and standards on

production, processing and marketing of fishery products.

Regarding

resources management, inspection and control,

since last year, the National

Agency for Fisheries and Aquaculture (NAFA, formerly State Fisheries Inspectorate) has

been strengthened somewhat through the start of computerisation of systems for purchase

of vehicles and laboratory equipment. However, its control equipment, in particular

control vessels and launch boats, is still inadequate.

In 1999, the equipment of research institutes was improved. Equipment was provided for

the laboratories of the Fish Resources Institute in Varna, the Freshwater Fish-farming

Institute in Plovdiv, the fisheries section at the Central Veterinary Institute, and the Fish-

farming and hydro-biology Department at the Sofia State University. A laboratory for

genetic tests is already functioning at the Fish Resources Institute in Varna.

In the area of

structural action (including fleet registration) and state aids,

the

Bulgarian state does not provide financial assistance to the sector, except limited aid for

the purpose of conservation of natural resources. Restructuring of the sector is taking

place mainly by privatisation. The State Fund for Agriculture has been tasked with

managing future aid for the fisheries sector, however it needs to be sufficiently equipped

and trained to perform such functions in compliance with the EC structural action

requirements.

The fishing fleet registration system does not conform to Common Fisheries Policy

(CFP) requirements and needs to be reformed. Fishing vessels are registered on the

general State Shipping Register (at the Maritime Administration of the Ministry of

Transport and Communications). The registration is updated annually and verified by the

State Shipping Inspectorate. Preparatory work for the setting up of the fishing vessel

Concerning administrative capacity, the State Fisheries Inspectorate was replaced by the

National Agency for Fisheries and Aquaculture (NAFA) in May 2000.

Overall assessment

Considerable further work will be needed for Bulgaria to be able to implement the

Common Fisheries Policy (CFP). This concerns in particular the further adaptation of the

legislative framework, the implementation of administrative reform, the upgrading of

inspection and control bodies and the establishment of a fishing vessels register in

conformity with the Common Fisheries Policy.

Bulgarian legislation is currently only partially compatible with the

acquis

communautaire.

Work is underway and the new framework Fisheries and Aquaculture

Act, which is currently under discussion in the National Assembly, will mark a major

step ahead in incorporating EC requirements in the sector.

There is currently no market intervention in fisheries in Bulgaria. There are no state aids

for the improvement of transport and storage conditions. Consistent and regular market

(including price) information is lacking. Bulgarian organisations of fishermen and fish

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producers, and fisheries and aquaculture associations exist, but are weak. A market

survey on the demand for fish and fishery products is currently underway.

The fishing fleet registration system does not conform to CFP requirements and needs to

be reformed. Fishing vessels are registered on the general State Shipping Register at the

Maritime Administration of the Ministry of Transport and Communications.

The present Bulgarian administrative structures in the fisheries sector are not able to cope

with the requirements of implementation of the

acquis.

Work on this has started recently

but further substantial improvement of the technical capacity and human resources are

necessary if compliance with the

acquis

is to be achieved.

Chapter 9: Transport policy

Bulgaria has made promising progress compared to previous years on aligning its

legislation to the

acquis.

Bulgaria has approved the final report on Transport

Infrastructure Needs Assessment (TINA) of October 1999; this should form the basis for

extending the trans-European networks to Bulgaria. On this basis the Bulgarian

authorities have elaborated a medium-term investment programme for development of

the national transport infrastructure and a Transport Sector Strategy for 2000-2006,

setting out project priorities and costs of necessary investments relating in particular to

the Pan-European transport corridors. The long-standing issue of a second bridge across

the Danube to Romania has been resolved, with an agreement between Bulgaria and

Romania in February 2000 regarding its location. A technical agreement on financing,

organisation and design was signed in June 2000. The resolution of this issue was greatly

facilitated through the Stability Pact process.

In addition to the

Road Transport

Law which entered into force in September 1999, a

new Roads Law regulating ownership, operation, management, construction and repairs

of road infrastructure came into force in April 2000. In the framework of the 1999 Road

Traffic Law, a number of secondary acts have been issued over the last year, related to

the

acquis

on road traffic safety, drivers’ qualifications, roadworthiness tests for vehicles,

registration and statistics. It should be noted that Bulgaria does not yet comply with the

EC weight limits for trucks, as it provides both for lower axle weight limits and for lower

total weight limits compared to those in the EC. In January 2000 the Road Transport

Administration was reorganised. An inter-agency Commission on Road Traffic Safety

has been established to facilitate co-ordination among the authorities involved in this

area.

After several years of negotiations, a bilateral Agreement on Carriage of Goods by Road

and the Promotion of Combined Transport between Bulgaria and the European

Community was signed in July 2000. In April 2000, the multilateral INTERBUS

agreement on occasional bus services was initialled by Bulgaria. Its implementation will

result in partial alignment with road passenger transport

acquis.

The second phase of the

railway transport

restructuring was completed at the end of

1999 by division and accountancy separation of the 'Railway Infrastructure' enterprise

within the State Railway Company (BDZ), which brings Bulgaria closer to the

requirements of the relevant

acquis.

As full harmonisation with the railway and combined

transport

acquis

forms part of the third phase of restructuring, which started only at the

beginning of this year, no progress has been yet achieved in these fields.

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As regards

inland waterways,

a law on Maritime Spaces, Inland Waterways and Ports

was adopted in February 2000. The Bulgarian fleet continues to be negatively affected by

the Danube being split in two parts, upstream and downstream of Novi Sad. The

Commission is working with the Danube Commission on the reopening of navigation

along the Danube.

Bulgaria has made considerable efforts to align legislation in

air transport

and has

adopted 8 aviation regulations in the past year. Negotiations between the EC and Bulgaria

on the multilateral Agreement to establish a European Common Aviation Area (ECAA),

which will result in a significant progressive alignment with the

acquis

prior to accession,

have been concluded by signing the bilateral protocol. This includes commitments

aiming at full ECAA implementation by the end of 2005. In May 2000 the Council of the

Joint Aviation Authorities (JAA) accepted the request of Bulgaria to become a candidate

member. The fact that Bulgaria has not ensured that the privatisation of Balkan Air

complies with the conditions of majority ownership and control as laid down in the third

EC liberalisation package needs to be given further attention.

The above-mentioned Law on Maritime Spaces, Inland Waterways and Ports also

provides the framework for further alignment with the

acquis

maritime transport,

particular on maritime safety issues. Thus progress has been made on the short-term

Accession Partnership priority of aligning legislation on maritime safety. However, the

safety performance of vessels under a Bulgarian flag remains a matter of concern this

year, despite some measures taken by the Maritime Administration to strengthen

maritime safety. The level of Bulgarian vessels detained under the Paris Memorandum of

Understanding on Port State Control system has decreased from 12.5% in 1998 to 8.1%

in 1999. This is to be compared with an average of 3.6% for EU-flagged vessels.

In April 2000 a Memorandum of Understanding on Port State Control and Flag State

Control implementation in the Black Sea Region was signed on Bulgaria's initiative. The

Memorandum aims at gradual removal from operation of substandard vessels by

strengthening the training of inspectors and creating (by 2001) an Information Centre to

which all Black Sea countries will have access. Furthermore, a vessel traffic control

system (VTS) is being introduced on the Bulgarian Black Sea Coast with assistance from

the Phare programme.

The administrative structure comprises 3 executive agencies: the "Maritime

Administration" in Sofia and its 4 regional offices at the coast and on the Danube,

responsible for Port State Control, Flag State Control and Coastal State Control; the

newly established "Port Administration" at the same sites and the "Study and

Maintenance of the Danube" in Rousse, responsible for the navigation situation along

Bulgarian inland waterways.

Overall assessment

Overall, Bulgaria continues to make encouraging legislative progress and take wide-

ranging institutional measures in preparation for accession. However, further work will

be required to complete the alignment process and strengthen institutional capacities in

order to ensure compliance. Significant investments will be needed over the coming

years in infrastructures and by operators to ensure conformity of their vehicle and vessel

fleets.

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On land transport further progress is required in relation to transparency, simplicity and

equality of application of road taxes and charges. Present Bulgarian fiscal legislation still

does not comply with the EC

acquis:

the legislation remains complicated, lacks

transparency and some of its aspects appear discriminatory toward Community operators.

While Bulgaria has taken encouraging steps in rail restructuring, the delay in new

legislation is slowing the speed of this.

As regards air transport further alignment is required in the fields of air safety, technical

harmonisation, market access rules and tariffs. As far as the privatisation of Balkan Air is

concerned, compliance with the ownership and control conditions of the

acquis

needs to

be ensured. In terms of administrative capacity Bulgaria needs to continue the

strengthening of the aviation organisation and infrastructure, including increased

financial and human resources.

In maritime transport further alignment and institutional strengthening is required in

order to reach full compliance with the

acquis.

Bulgarian vessel detention rates as a result

of State Port Controls remain high.

Improving the performance of maritime safety administrative institutions firstly as a Flag

State and then as Port State must be a priority. Care should be taken that there is a

sufficient number of trained inspectors to apply the

acquis.

In addition, important

secondary legislation needs to be adopted and implemented in relation to maritime safety,

including rules for issuing ship certificates, carriage of dangerous goods and ship

registers.

Chapter 10: Taxation

Bulgaria has continued to make legislative progress in the field of

VAT

since the

previous Regular Report. Several important legislative amendments were introduced in

January 2000, including special schemes for travel agents and investment gold, a repeal

of the zero-rate on supplies of precious metals supplied to the Bulgarian National Bank,

and broadening the scope of taxable persons so that public authorities who are engaged in

radio and television of a commercial nature are considered taxable persons irrespective of

the scope of their activities. In addition, the annual turnover threshold for voluntary VAT

registration has been increased, and goods dispatched or transported outside Bulgaria by

or on behalf of the purchaser have been recognised in the VAT Act as export

transactions.

No further progress has been reported in the area of

excise duties

since the major reform

at the beginning of 1999. No progress has been reported in the area of

direct taxation.

Concerning

administrative capacity,

Bulgaria has started a process of completely

modernising tax administration. In January 2000 the new Code of Tax Procedure was

implemented, which allowed for a restructuring of the tax administration on functional

basis, accompanied by extensive training of tax officers in the new procedures. The Code

also consolidates all previous regulations regarding tax collection procedures. Under the

Code, a State Receivables Agency has been established under the Ministry of Finance,

with the aim of improving enforced collection of public receivables. Furthermore, a Tax

Policy Directorate was established in April 2000 to co-ordinate future legislative

alignments. Finally, in October 1999 the Council of Ministers took the decision to

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establish a semi-autonomous Unified Revenue Collection Agency, which will be

responsible for administering and collecting most taxes and social security contributions.

Overall assessment

Following the important legislative progress made in the field of both VAT and excise

duties in January 1999, Bulgaria has continued to fine-tune its VAT legislation so as to

comply even further with the

acquis.

However, further substantive legislative alignment

is still required in the area of VAT, particularly for exempt transactions, right of

deduction of input VAT, the introduction of a VAT refund scheme for foreign taxable

persons not established within the country, and a special scheme for second hand goods.

Although Bulgaria is in the process of establishing a timetable for further legislative

progress in the field of excise duties it is of some concern that no progress has been made

in this area since the previous Regular Report. Particular attention should be addressed

to the taxable scope and level of excise duties, which for most product categories remain

well below the Community’s minimum levels. It is important that efforts are

concentrated on a well-structured pre-accession strategy for further legislative alignment,

including any intermediate steps, in the field of indirect taxation. Although some

important steps have been made to start modernising Bulgaria’s tax administration, the

results of these efforts have yet to be seen. Staff turnover is high, many posts are vacant

and the level of tax arrears is high. In order to ensure that Bulgaria is capable of fully

implementing, monitoring and enforcing the Community

acquis

in an adequate manner, it

is necessary that it accelerate the reform of tax administration. The success of the new

Unified Revenue Collection Agency will depend partly on early definition of its role,

enhanced inter-ministerial co-operation and an integrated information systems strategy.

Chapter 11: Economic and monetary union

A detailed assessment of Bulgaria’s economic policy in its various aspects has been given

above, in the chapter discussing the economic criteria (B-2). Therefore, the present

section is limited to a discussion of those aspects of the Economic and Monetary Union

acquis--as

defined by title VII of the EC treaty and the other relevant texts--which

candidate countries should implement by accession at the latest, i.e. the prohibition of

direct public sector financing by the central bank, the prohibition of privileged access of

the public sector to financial institutions, and independence of the national central bank.

As to the process of liberalisation of capital movements, upon the completion of which

compliance with the EMU

acquis

is conditional, this aspect has been covered above, in

Chapter 4 – Free movement of capital.

Since the last Regular Report, Bulgaria has not made any major moves to adopt the EMU

acquis.

Overall assessment

Bulgaria will participate in EMU upon accession with the status of a country with a

derogation under article 122 of the EC treaty. It will need to implement the necessary

changes to its institutional and legal framework by the date of accession.

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Overall, Bulgaria is well advanced in implementing the

acquis

in this area including

economic policy co-ordination, track record in terms of flexibility of fiscal policy and

mechanisms in order to improve the expenditure management and control.

Bulgaria has consistently maintained (and plans to continue maintaining) the Currency

Board Arrangement ensuring strict monetary, exchange rate and fiscal discipline as well

as the independence of the monetary authority and the exclusion of direct financing of the

public sector by the Central Bank.

The main outstanding problem concerns the composition of the Board of the central

bank, which will require an amendment to the Law on the Bulgarian National Bank.

There is also a need to improve the comparability and comprehensiveness of budget data.

While the administrative capacity of the authorities concerned (Council of Ministers,

Ministry of Finance, Ministry of Economy and the Bulgarian National Bank) has been

strengthened there is a need for further human resource development and strengthening.

Chapter 12: Statistics

Bulgaria has made considerable progress over the past year in this area as a result of the

implementation of the new Law on Statistics of June 1999.

As regards

statistical infrastructure,

the statistical law has improved compliance with

EC standards in areas including statistical confidentiality and transparency. The adoption

by the National Statistical Council of a Strategy for the Development of Statistics from

2000-2006 is also a positive step in long-term programming. The National Statistical

Institute (NSI) is the main body in a decentralised statistical system. It has an adequate

number of staff in the Central Office, 28 Regional Statistical Offices, and a specialised

training centre. The recent law on the civil service covers staff working in the NSI. Inter-

institutional agreements have been made with the Agriculture Ministry and Central Bank

which set out the respective tasks of these bodies in the statistical system. The statistical

system works on the basis of an annual national programme set by the National Statistical

Council and approved by the Council of Ministers. Two consultative bodies, the High

Statistical Council and National Statistical Council, supervise the system.

Concerning

demographic and social statistics,

further progress has been made. In

February 2000, a Law on a Census of Population, Housing Fund and Agricultural Farms

was adopted. An experimental census was carried out in March 2000 and the census will

take place in March 2001. There have been improvements in the frequency of the Labour

Force Survey, which is now conducted quarterly in line with the

acquis.

As regards availability of statistics at

regional

level, NUTS II and III are defined and

efforts underway to ensure statistics are available at these levels. Some business statistics

data and social data are available at regional level. GDP at regional level is now available

for 1996-7.

In the field of

macro-economic statistics,

some progress has been made to bring macro-

economic statistics more into line with EC methodology.

For

business statistics,

there has been progress in harmonising the scope of the business

have been made. As concerns tourism statistics, whilst progress has been made to ensure

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definitions are compliant, improvements in monitoring long-term tourists and tourism

expenditure are necessary.

A pilot project has been conducted on

external trade,

which has led to improvements in

this area. Although exchange of data on external trade with Eurostat has started, there

remain problems in coverage and quality which need to be solved in co-operation with

other administrations.

For

agricultural statistics

considerable progress has been achieved. A survey on crop

yields is underway and the first part was completed in June 2000. A new structure for

collection of statistics with a central unit within the Ministry of Agriculture and 9

regional offices has been established.

Overall assessment

Overall, Bulgaria has made progress in statistics. The censuses and surveys planned

should help further improve this. However, in a number of areas, in particular

macroeconomic statistics, much more work is needed on methodology, quality and

completeness of data to achieve compliance with the

acquis.

Whilst the administrative organisation of the statistical system has been substantially

developed and improved in the last year, further efforts are needed in areas including

setting of priorities, staff training, and ensuring appropriate staffing in departments

working on areas relevant for EU integration. Concerning resources, it is a positive sign

that resources have been made available for the census and labour force survey but for

some other more costly surveys, extra funding may be necessary. If this is sustained, full

compliance should be attained in a reasonable time.

Chapter 13: Social policy and employment

Bulgaria has made little progress in this area since the last Regular Report.

As regards

labour law,

no progress in the adoption of the

acquis

can be reported.

Concerning

equality of treatment,

there is little evidence of concrete enforcement of

existing legislation. An inter-institutional working group (including NGOs) is preparing

further legislation including the establishment of a National Council on Equal

Opportunities.

Progress has been made in the area of occupational

health and safety,

inter alia

by the

adoption of legislation in the area of minimum safety and health requirements at the

workplace and for the use of work equipment. However, further legislative work is

necessary, including the transposition of directives in the field of personal protective

equipment, physical agents, explosive atmospheres and the amendments recently made to

the work equipment directive. A General Labour Inspectorate at the Ministry of Labour

and Social Policy as well as regional inspectorates have been created as enforcement

bodies for both labour and occupational safety and health legislation. Furthermore, some

sector and regional Councils on Working Conditions as well as a considerable number of

company based Committees and groups on working conditions (including workers and

employers representatives) have been established.

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The Ministry of Health is undertaking major

public health

reform based on

democratisation and decentralisation. Through the introduction of primary health care

general practitioners, the number of beds in hospitals has been significantly reduced. A

health insurance system is being established at national, regional and local level in order

to implement important legislation adopted in this area; the National Health Insurance

Fund manages relations with service providers. Amendments to the Act on Tobacco

Products were adopted in April 2000 which pave the way for secondary legislation on the

labelling of tobacco products and on the maximum tar content. Bulgaria is participating

in the Community Programmes “Combating Cancer” and “Prevention of Aids” and has

communicated to the Commission its intention to join two further programmes, namely

“Health Monitoring” and “Pollution-related diseases”.

Bulgaria has ratified the European Social Charter (revised) of the Council of Europe,

which includes articles related to Social Dialogue. However,

social dialogue

is still

weak; this goes particularly for the collective bargaining ability of private sector

employees. The situation does not seem to have progressed at enterprise level, either in

the public or private sector (including some foreign-owned companies), especially in

small and medium private enterprises, where there is frequently an absence of individual

labour contracts and of collective agreements, and non-payment of overtime. A

strengthened Social Dialogue would also be helpful in dealing with the social tensions

caused by the privatisation and restructuring process. Through a Decree of the Council of

Ministers in January 2000, a formal mechanism for the consultation of social partners as

regards accession negotiations was established, but it still needs to prove its

effectiveness. Moreover, there are regularly complaints about the lack of social dialogue

in the public sector. More generally, at sectoral level, the development of autonomous

social dialogue and collective agreements still has a long way to go before the

government’s commitments in this area are fully realised and social partners are ready to

assume their role in the sectoral social dialogue at European level.

As for

employment

and labour market policies, Bulgaria has started the process of Joint

Employment Review with the European Commission and is has prepared a National Plan

on Employment, which takes strong account of the EC Employment Guidelines. This is

to be discussed by the National Council for Tripartite Co-operation. Although the

regional set up has been improved by the establishment of Regional Employment

Councils (including employment commissions) further steps need to be undertaken to

effectively decentralise as well as co-ordinate employment policy and promotion,

including the National Employment Service. More frequent training and retraining as

well as employment programmes, particularly including socially vulnerable groups, are

necessary and a functioning monitoring and assessment system for the impact of

measures on the labour market has to be developed, since unemployment remains one of

the main problems of Bulgaria. At the same time, mainly due to constant lack of funding,

the share of unemployed people covered by active labour market measures as well as

unemployed people receiving unemployment benefits is decreasing. Social dialogue and

NGO involvement in this sector needs to be strengthened. Bulgaria is still facing severe

problems on the labour market with rising unemployment rates (17% in 1999).

The capacity of the Ministry of Labour needs particular strengthening with a view to the

implementation of future

European Social Fund

type measures.

Major reform has been introduced in the area of

social protection.

A three-pillar pension

system was introduced at the beginning of the year 2000, including a public mandatory

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pension system, an additional mandatory pension system, depending on the amount of the

participant’s security contributions, and a voluntary pension system. The Compulsory

Social Security Code which entered into force in January 2000 also strives for unified

social security administration. There is a chronic lack of funding in the area of social

insurance since all three insurance funds (the Social Security Tax Fund, the National

Health Insurance Fund and the Professional Qualification and Unemployment Fund) have

been in deficit.

Overall assessment

Further alignment with the

acquis

is necessary in all areas of the social

acquis.

Amendments to the labour law are currently under preparation which – if adopted - could

represent progress in the adoption of the

acquis.

In order to enforce legislation on equal opportunities and labour law, efficiently operating

labour and social courts are needed. The principle of compensation for hazardous work,

which is not compatible with the EC

acquis,

needs to be replaced by an approach aiming

at the prevention of health risks. The General Labour Inspectorate needs further

strengthening. Social partners need to be involved on a more structured basis; activities

would be needed to better structure social dialogue at intermediate levels (sectoral,

regional) and better prepare social partners at these levels. The government’s

administrative capacity on social dialogue should be reinforced and it should better

follow and motivate autonomous social dialogue, in particular at sectoral level, for

instance by encouraging the development of appropriate structures, and by monitoring of

collective agreements and their contents. Inter-ministerial co-ordination as well as the

administrative capacity of and the relationship between national and regional

administration needs to be improved with a view to future ESF type activities.

The country is still confronted with widespread poverty. Tackling this problem is not

helped by persistently high unemployment levels and by large social security deficits. The

National Social Security Institute – which plays a key role in the management of social

security schemes – needs to reinforce its administrative structures and to establish those

required for co-ordination of social security.

In the area of public health, the managerial and policy development capacity of the

Ministry of Health needs to be improved. Funding allocated to the public health sector

needs to be increased and further institutional strengthening of a financially viable

National Health Insurance Fund is indispensable for a solid insurance system. Further

steps in implementing the requirements for labelling of tobacco products and tar content

in cigarettes need to be closely monitored.

A law on equal opportunities for men and women has not yet been adopted and there are

no independent commissions or ombudsmen which oversee policy development in the

field of equal opportunities and the fight against racism. Legislation transposing the EC

Directive based on Art. 13 of the Treaty on discrimination on the grounds of race or

ethnic origin will have to be introduced and implemented.

Chapter 14: Energy

The restructuring of Bulgaria’s energy sector has made some measured progress during

2000 on the basis of the 1999 Energy and Energy Efficiency Law, the institutional

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framework accompanying it and the National Energy Strategy adopted in 1999. The

overriding objective is to establish a market-based, efficient, sustainable and competitive

energy sector aligned with the

acquis

and allowing for full integration into the internal

market.

As regards

security of supply,

limited progress has been achieved in preparing for

adopting the EC oil-stock

acquis.

In terms of

competitiveness and the internal energy market,

the institutional

restructuring of the National

Electricity

Company is being finalised in 2000 with the

separation of production, transmission and distribution activities. New regulations on

power prices have been adopted; this is considered essential for successfully completing

the restructuring and privatisation process with the ultimate objective of liberalising

prices by the end of 2001. Progress has been made in establishing the State Energy

Regulatory Commission which was created under the 1999 law as an independent

regulator subordinated to the Council of Ministers; it is responsible for permits, licenses,

price regulation etc. However, this body is seriously understaffed. The market based

restructuring of the

gas

sector is ongoing and since last year steps have been taken to

implement the financial recovery plan for ‘Bulgargas’ and the ‘unbundling’ of activities.

‘Bulgargas’ has maintained the role of a transmission company while a number of

regional distribution companies have been established. Cross-subsidies have been

eliminated and prices are established under the same regulatory framework as for

electricity.

A restructuring plan for the

coal-mining

sector was adopted in June 2000 aiming at

accelerated privatisation and liquidation of unviable mines over the period 2000-2001.

Coal prices have been liberalised since 1999 and cross-subsidies are not allowed.

Production subsidies will be phased out by the end of 2001.

Progress has been made in

energy efficiency.

Since the policy framework was

established with the 1999 law, a State Energy Efficiency Agency has been created with

the task of implementing energy efficiency measures as outlined in the strategy and

national plan, which are presently being updated.

As regards the issue of

nuclear energy,

the EU has repeatedly emphasised, most lately at

the European Council in Helsinki, the importance of a high level of nuclear safety in the

candidate countries in the context of the Union’s enlargement. The Union has also asked

for the earliest practicable closure of candidate countries’ nuclear power plants which are

deemed non-upgradeable to international safety standards at a reasonable cost.

Responding to a request by the Cologne European Council, the European Commission

reported in its 1999 Regular Reports and Composite Paper on the issue of nuclear safety

in the candidate countries. Concerning Bulgaria, it noted that insufficient progress had

been made in reaching an agreement on a realistic timetable for the closure and

decommissioning of ‘non-upgradeable’ units 1-4 of the Kozloduy Nuclear Power Plant

(K 1-4), consistent with Bulgaria’s international obligations under the Nuclear Safety

Account (NSA) Agreement. On that occasion, the Commission also stated that the

opening of accession negotiations with Bulgaria should be conditional on a decision by

the Bulgarian authorities before the end of 1999 on acceptable closure dates for K 1-4.

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The 1999 Accession Partnership for Bulgaria includes as a short-term priority the

adoption and implementation of a realistic timetable for closure and decommissioning of

K 1-4.

Following high-level discussions between the Commission and the Bulgarian authorities,

and a new mandate from the Bulgarian National Assembly to the Bulgarian government

concerning the Kozloduy issue in early November, agreement was reached on the early

closure of K 1-4 on 29 November 1999, on the occasion of a meeting between PM

Kostov and Commissioner Verheugen in Sofia. An Understanding was signed to that

effect on the same day between the Commissioner and the Bulgarian Foreign Minister.

Under the Understanding, the Bulgarian Government fully endorses the conclusions of

the Cologne European Council on the importance of high standards of nuclear safety in

the context of the European Union's enlargement and declares its commitment to

definitively closing units 1-4 of the Kozloduy Nuclear Power Plant at the earliest possible

dates. Units 1 and 2 will definitively close down before 2003. Definitive closure dates for

units 3 and 4 will be decided on in 2002 in agreement with the Commission and taking

account of the NSA Agreement and other relevant factors. These dates will be before the

presently envisaged closure dates of 2008 and 2010, respectively. The Commission’s

understanding is that the definitive closure of these units will take place in 2006 at the

latest.

The Commission welcomed these decisions, which it saw as a further sign of Bulgaria's

European integration efforts and as meeting the relevant condition for the opening of

accession negotiations with Bulgaria stipulated in its 1999 Composite Paper. It also

considered that the closure dates detailed above corresponded to a realistic closure

timetable, consistent with the NSA Agreement, as requested by the EU.

Taking into account the financial implications of early closures, as well as the need of a

competitive energy sector, the Commission offered under the above mentioned

Understanding a multi-annual assistance package for Bulgaria's energy sector. The

package includes:

a) Grant assistance from the Phare programme of

€

200 million over the period 2000-

2006. The provision of the second half of this amount will be confirmed by the

Commission in 2002, depending on the confirmation of the understanding on

definitive closure dates for units 3 and 4. This assistance could include the

construction of a radio-active waste disposal unit; other nuclear safety-related projects

(including for decommissioning); measures to address the social impact of closures;

energy efficiency improvement measures; measures for the modernisation of the

electricity sub-sector; interconnection of energy network projects; and environmental

projects related to conventional energy sector, to the extent that they are not eligible

for financing by ISPA.

b) A loan (Euratom) of up to

€

250 million for the modernisation and safety upgrading of

Units 5 and 6 of Kozloduy NPP to be signed in 2000.

The Commission also undertook to mobilise the International Financial Institutions and

other international donors for additional funds in 2000.

The elements of the Understanding form an integral whole. The Bulgarian Government

undertook to take all the appropriate measures so that its decisions, as well as the

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Commission's assistance commitments, would be reflected in the country's energy policy

and planning.

Since November 1999, the Bulgarian authorities have been co-operating closely with the

Commission for the implementation of the Understanding. The Joint Working Group

established in March 1999 held new meetings in February and June 2000.

In July 2000, the Bulgarian authorities established, in co-operation with the Commission,

a Work Plan which identifies the activities leading to the closure of units 1 and 2 by the

end of 2002, including a detailed timetable and indications on the related costs. A

‘Strategic Plan’, which provides a framework for the multi-annual assistance package,

identifies priorities and measures, and includes an indicative list of projects, is being

prepared by the Bulgarian authorities, in co-operation with the Commission. Preparatory

work for the identification and adoption of the first projects in the areas of

decommissioning, energy efficiency and institution building are well under way.

The Euratom loan of

€

212.5 million for the modernisation, including safety upgrading,

of K 5-6 was signed in May 2000. The Loan and the related Guarantee agreements are

linked to the implementation by Bulgaria of its closure commitments for K 1-4.

The bulk of the Community grant assistance pledged under the Understanding will be

channelled through an International Decommissioning Support Fund, which will be

managed by the European Bank for Reconstruction and Development (EBRD). The

Commission took the initiative for the establishment of such Funds for Kozloduy, as well

as for Bohunice, Slovakia and Ignalina, Lithuania, for which there are similar

commitments for early closure. The Kozloduy International Decommissioning Support

Fund was established by decision of the EBRD Board of Directors in June 2000. Its

Rules, adopted on that occasion, stipulate that financing will be conditional on the

compliance of Bulgaria with its closure commitments for K 1-4. The Fund is expected to

commence operations in November 2000.

In the past year, the nuclear safety authority has been strengthened and measures have

been taken to enhance its independence.

Overall assessment

Bulgaria’s energy sector is dominated by electricity generation and accounts for some

15% of GDP. Per capita energy usage is three to four times higher than the EU average.

70% of Bulgaria’s primary energy is imported. Indigenous energy resources are limited to

hydropower and coal deposits of poor quality. Total electricity generating capacity

exceeds demand but inter-connection and plant inefficiency problems limit exports.

Around 42% of electricity production comes from the Kozloduy Nuclear Power Plant.

Gas and oil transit capacity is substantial and expansion is planned.

The energy sector restructuring process has now gained momentum. The completion of

this process poses a major challenge and will require determined and consistent efforts by

the Bulgarian authorities. Furthermore, an important amount of secondary legislation still

needs to be put in place.

The Accession Partnership priorities relating to the energy sector on implementation of

legislation, pricing policy and energy efficiency have been only partially meet.

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Despite evidence of some limited preparatory legislative activity in relation to the oil-

stock

acquis

considerable additional steps will be required and planned for, including

access to information on stock levels (which still is considered a state secret). A crisis

management law which foresees the creation of a State Agency for management of stocks

in line with the

acquis

is only now under preparation.

In the electricity sector, there is a need for further implementing legislation to

complement the Energy and Energy Efficiency Law if Bulgarian legislation is to be

compatible with the

acquis.

The Regulator needs to define eligible customers. While

prices will be liberalised from 2002 it is essential that the gradual phasing in of cost

based and transparent prices be maintained. Furthermore, cross-subsidies need to be

eliminated and the growing problem of unpaid bills must be seriously addressed. While

Bulgaria is committed to the gradual opening of the electricity market it is essential that

preparatory steps are made to this end, also including efforts to assure full

interconnection to the Interconnected European Power Exchange Network (UCTE)

system. The State Energy Regulatory Commission remains seriously under staffed and

has difficulties fulfilling its present tasks. Reinforcement of its personnel and means is

considered a matter of urgency, not least in view of its extended responsibilities in

eventually applying the new price regulations. It also needs to be given sufficient

independence from outside pressures to carry out its tasks.

As concerns the

gas

sector, secondary legislation needs to be adopted and effectively

applied to regulate the implementation of pipeline operation and consumer access.

Despite some encouraging steps in

energy efficiency,

Bulgaria still has no active and

well-resourced policy in this respect. The Energy Efficiency Agency has been given little

support.

In the area of nuclear safety, the commitments for early closure of K 1-4 made by the

Bulgarian government under the November 1999 Understanding mark an important step

forward in Bulgaria’s pre-accession course. They also constitute an adequate response to

a short-term priority of the Accession Partnership. Developments since November 1999

testify that progress was made in the implementation of the Understanding, but further

efforts will be needed to ensure that the closure of units 1 and 2 by the end of 2002 will

take place under optimal safety, technical and economic conditions. The Bulgarian

authorities should also start taking all the necessary measures so that a satisfactory

decision on definitive closure dates for units 3 and 4 of the Kozloduy plant will be

reached in 2002, in accordance with the Understanding.

The Nuclear Safety Authority, while having largely improved its capacity over the last

years, still needs further attention and support including in terms of means and resources.

Due attention should be given to preparing the implementation of Euratom safeguards.

Chapter 15: Industrial policy

Some progress has been made since the last Report but a number of significant gaps

remain.

Developments in industrial policy should be seen in relation to developments in the context of SME

policy (see

Chapter 16 – Small and medium sized enterprises).

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Industrial policy

is driven largely by the ambitious agenda of structural reform

supported by the international financial institutions and the EU. The government’s

industrial policy has been set out in the National Economic Development Plan. It aims at

sustained economic growth, the completion of privatisation and restructuring, improved

competitiveness and the development of small and medium-sized enterprises. However,

it is unclear to what extent these statements of industrial policy act as an operational

framework for policy decisions.

1999 saw the biggest wave of privatisation to date. The share of privatised long-term

fixed assets reached 49% at the end of 1999 (up from 30% a year earlier), and that of

privatised assets excluding infrastructure rose to 78%. However, there remains a difficult

residual group of state-owned enterprises, notably the energy, transport and

telecommunications sectors. The privatisation process still suffers on occasion from a

lack of transparency, and some new owners of privatised enterprises have untested

management skills.

There has been some progress in restructuring the steel sector, though the process

remains incomplete. Majority stakes in the two largest steel plants were sold in 1999 to

private investors, while a third plant remains in state ownership but is being operated

with foreign participation under a court-supervised leasing arrangement. The viability

plan for the largest plant foresees a significant reduction of capacity and employment

over the next few years. According to the authorities, none of the plants is receiving any

ongoing state aid, though the insolvent plant continues to make significant operating

losses.

A factor that hinders restructuring in other sectors is the lenient financial discipline in

enterprises. Some measures have been taken to improve the legislation regulating the

sale of assets to ensure efficient and transparent procedures for liquidation and

insolvency. Further efforts are needed to streamline these procedures. An important

event of the past twelve months was the creation of the Ministry of Economy in

December 1999, by merging the former Ministries of Industry and Trade and Tourism.

The Minister of Economy is also Deputy Prime Minister. This administrative reform aims

inter alia

at lending new momentum to structural reform and the adoption of a coherent

industrial policy that focuses on the opportunities for, and obstacles to, economic growth.

Overall assessment

Bulgaria continues to make good progress with the structural reform of its enterprise

sector, though some difficult challenges remain to be tackled, notably with respect to

state-owned utilities and the steel sector.

Further efforts need to be made to establish a coherent market-oriented industrial policy

which will be in line with the concepts and principles of EC industrial policy. Other

areas for improvement are the business environment, bankruptcy and liquidation

procedures, enterprises’ access to loan and equity capital. Systematic and regular

independent audits of the business environment would help identify the significant

remaining administrative obstacles to business development and inward investment.

Strong efforts also need to be made to improve corporate governance, including the

stringent enforcement of international and EC accounting standards.

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An important dimension of industrial policy that has so far received insufficient attention

is the monitoring and control of state aids

(see chapter 6, competition).

Regarding administrative capacity, as the agenda of privatisation and restructuring nears

completion, the new Ministry needs to re-orient its role and equip its staff to focus

increasingly on developing and implementing a pro-active and market-oriented industrial

policy, creating a favourable business environment and pursuing appropriate regional and

sectoral strategies. This will require the Ministry to collaborate increasingly with other

ministries and develop and consult with private sector business organisations.

Chapter 16: Small and medium-sized enterprises

Since the last report, the Government has introduced a number of important measures to

increase the impact of its SME policy, including in the area of administrative capacity.

As regards

SME policy,

the Agency for SMEs has been transferred from the Ministry of

Industry to the Council of Ministers to act as a central point for co-ordinating and

promoting SME-related policies. The Agency needs now to build on this strategic move

to maximise its influence. The Agency has started to build a national SME support

network including the Euro Info Centres, the European Innovation Centre, the regional

development agencies, business centres and NGOs.

With a view to facilitating the access of SMEs to finance, the state-owned

Encouragement Bank, which specialises in SME lending, has commenced operations.

Numerous donor-supported initiatives will complement this action.

The creation of a new Ministry of Economy in December 1999 should lend fresh

momentum to the government’s efforts to improve the business environment. Some

administrative procedures have already been simplified; e.g. each company now has a

single identification number.

Overall assessment

Bulgaria’s SME policy is overall in line with the principles and objectives of EC

enterprise policy.

However, Bulgaria still needs to develop a more favourable business environment for

SMEs. A coherent strategy for SME development should be drawn up and implemented.

The government should address more systematically and energetically the major

obstacles to SME development including unhelpful aspects of the tax, registration and

licensing regimes, lack of business expertise among SME managers, restricted access to

finance on appropriate terms, and petty corruption in public administration. The EC

definition of SMEs, and notably the aspects relating to the size of micro-, small and

medium-sized enterprises, should be included in Bulgarian SME legislation.

The basic administrative capacity for implementing the SME policy is in place but needs

some strengthening. The Agency for SMEs now needs to receive proper funding from

Developments in policy towards small and medium sized enterprises should be seen in relation to

developments in the context of industrial policy (see

Chapter 15 – Industrial policy).

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the national budget to enable it to implement appropriate policies. The administrative

capacity of the Agency for SMEs should be strengthened, and the national SME support

network needs further development and better co-ordination. In general, more active

consultative links need to be forged between the public sector and business

representatives.

Chapter 17: Science and research

Further progress has been made in this area since the last Regular Report.

A number of legislative acts adopted during this reporting period have some impact on

science and research: amendments to the Higher Education Act will enhance links

between education and research; an Act on the Establishment of the National Centre for

Agricultural Science aims at structural reform in agricultural science; and the new Law

on Small and Medium-sized Enterprises favours appropriate conditions for technological

transfer and the development of a modern product environment.

In November 1999, the government approved a National Strategy for High Technologies.

The strategy seeks to establish and support a dynamically developing market of high

technologies and related activities, and defines the role of high tech parks in their

promotion.

Since its association with the Fifth Framework Programme, as well as the Euratom

Framework Programme, in September 1999, Bulgaria has established the National

Contact Point (NCP) system and appointed experts to the Programme Committees. Initial

results for the first year indicate a very high level of participation. However, much more

training and experience in exploitation of the programme is still required. Bulgaria is now

also a full member of the COST programme.

Overall assessment

After its successful launch, participation in the Community programmes could be further

enhanced through strengthening of administrative capacity and technological

infrastructure, and by encouraging greater participation of the enterprise sector, including

SMEs.

The level of the existing gross domestic expenditure on research and development is

relatively low (0.59% of GDP in 1998). Further concrete measures are required to

increase the financial support for this sector, and particularly to stimulate the business

enterprise expenditure on research, and to favour fresh capital investment. Priority should

be given to the development of a national strategy and programme for the development of

science and technology policy. Funding mechanisms should be aligned with the redefined

priorities. Measures are needed to promote and enhance the rate of research and

development, to further encourage research that supplies relevant technology to small and

medium-sized enterprises, and to increase European co-operation in this field. Legislation

to facilitate the creation of high tech industries is necessary, in particular to attract foreign

investment.

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Chapter 18: Education and training

In the past year, Bulgaria has continued to participate in the

Community programmes

(see

bilateral part A).

In addition, the Association Council adopted a decision in August

2000 to allow participation in the second phase (2000-2006) of the Socrates and

Leonardo da Vinci programmes. Preparations have been made for participation also from

2000 in the new Youth programme, which incorporates European Voluntary Service

activities.

The Education Degree, General Minimum Education and Curriculum Act adopted in

1999 addresses – together with the already previously adopted National Education Act -

the requirements of the

Directive concerning education of children of migrant

workers,

by regulating the conditions for learning the mother tongue as well as the

acquaintance with the culture of origin of children of migrant workers. This legislation is

a good starting point for full approximation with the

acquis

in this area.

As regards the issue of

non-discrimination toward EU citizens in the field of

education,

the above mentioned amendments to the Higher Education Act ensure

foreigners can now apply to study in higher education establishments if they have

diplomas that would entitle them to access to higher education in the country where they

acquired their diploma. However, these amendments do not address the discriminatory

practice of applying higher academic fees to students from the European Union.

Bulgaria has made progress in reforming its

education and training system

and in

introducing European standards. The amendments of July 1999 to the Vocational

Education and Training Act introduce a legal framework for licensing vocational training

institutions as well as for the de-centralisation of administration to regional, municipal

and school level. The National Agency for Vocational Education and Training is

responsible for the monitoring of standards in vocational education and training.

However, there are financial and human resource capacity constraints which impede the

implementation of this Act and the adequate functioning of the Agency.

The improvements introduced into the system for certification of professional

qualifications and the accreditation of institutions for vocational training through the

amendments to the Vocational Education and Training Act are an important step forward.

Overall assessment

Participation in the relevant Community programmes is satisfactory and the established

national agencies are functioning. The Directive concerning the education of children of

migrant workers still has to be fully transposed and implementation has to be ensured.

The discriminatory practice of applying higher academic fees to EU students will have to

be abandoned.

In the area of continuing vocational training, the economic crisis resulted in very

restricted funding. The training infrastructure is relatively good, but the necessary legal

basis which provides incentives for employers to ensure continued training for employees

needs to be further strengthened. An overall coherent continuing training policy is still

missing.

Despite recent progress, there is a need to further strengthen the administrative capacity

of the Ministry of Education and Science, to further decentralise the educational system

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to the regions and municipalities, as well as to develop a framework for dialogue with

social partners. The co-operation between the Ministry of Labour and Social Policy and

the Ministry for Education and Science still needs to be improved.

A clear link between the needs of the labour market and the skills acquired by the

graduates of vocational schools is needed. Further steps need to be undertaken to develop

a flexible system of vocational education and training including a strategy for gradual

raising of teacher’s qualifications. An overall framework for vocational qualifications and

their relationship with academic professions is still missing. Moreover, policy measures

need to address the issue of early school leavers.

On the whole, Bulgaria has achieved considerable progress so far, but efforts to further

reform the sector and to substantially increase financial support need to be undertaken.

Chapter 19: Telecommunications and information technologies

During the last 12 months, progress has been made in the liberalisation of the

telecommunications market

through the issuing of an Order which brings Internet

Service Provision under a free regime. There has also been progress in planning for the

Information Society through the approval of a strategy and the establishment of a Co-

ordination Council.

There has been progress in the development of licensing systems for Professional Mobile

Radio Networks, Payphones, the Maintenance and Operation of Networks of Fixed

Microwave Lines and for using “Industrial, Scientific and Medical” frequency bands.

There has also been progress through the adoption of principles for a revised Numbering

Plan.

At the beginning of 2000, the Committee of Posts and Telecommunications (CPT) was

merged with the Ministry of Transport to form the new Ministry of Transport and

Communications. The new Ministry has taken over all the tasks of the CPT, including

ownership of wholly or partly state-owned enterprises in the sector and the development

of sector policy.

Concerning

postal services,

a new Postal Services Act entered into force in August 2000.

Under this Act, the Minister of Transport is responsible for regulation of the postal

sector. The Act provides for liberalisation of postal services on the basis of licenses or

registration, depending on the type of service (universal or non-universal). The Act

introduces a temporary state monopoly until the end of 2002 over a reserved sector of the

universal service for items up to 350g. This is provided by Bulgarian Posts (a 100% state-

owned company), which is under an obligation to provide universal service in the

territory of Bulgaria. Otherwise the postal market is

de facto

practically liberalised and

the new legislation introduces a new framework for operation of existing firms providing

postal services, obliging them to apply for a licence or for registration by the end of 2001.

Full liberalisation of the postal market can therefore be expected after January 2003.

The Ministry of Transport and Communications is responsible for state management and

regulation of postal services under the new act, with two Departments under the same

Directorate, one for postal services and the other for market regulation.

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Overall assessment

Although there has been little overall progress in this sector during the last year, this

needs to be set in the overall context of the good progress in the previous period when a

new telecommunications law was passed in which the most important developments were

the reform of the institutional structure, the bringing forward of the date of full

liberalisation to 1 January 2003 and the establishment of a licensing regime for the sector.

Progress in the past 12 months has been affected by the attention paid to the attempt to

privatise BTC and to identify a second mobile operator.

The decision to bring Internet Service Provision into a free regime is an important step

forward.

Considerable further progress is needed before Bulgaria has adopted the

acquis

in this

sector. The most important steps which must be taken are to review the frequency plan to

make more frequencies available in conformity with European standards, to develop the

independence of the State Telecommunications Commission and to implement the

existing licensing regime using general authorisations in line with Community

legislation. Operators with Significant Market Power should be identified and the

appropriate regulations applied to them including especially the requirement for cost

orientation. Transparent arrangements should be made for the provision of Universal

Service.

The new administrative set up in the Ministry of Transport and Communication needs to

be clarified, especially how the split between postal service management and market

regulation can be ensured between two departments in the same directorate.

Chapter 20: Culture and audio-visual policy

During the period since the last Regular Report, Bulgaria has made further substantial

progress in aligning to the Community

audio-visual

acquis.

A Law Amending the 1998

Law on Radio and Television was adopted by the National Assembly in September and

came into effect in October 2000. The amendments achieve a high degree of alignment

with the Television Without Frontiers Directive. Bulgaria’s accession to the Council of

Europe Convention on Transfrontier Television entered into force in July 1999. In March

2000, Bulgaria also ratified the Protocol amending the above Convention.

Some progress was made in strengthening the administrative capacity in this domain. The

administrative staff of the National Radio and Television Council was increased from 13

to 30. Around 200 radio and television licences were issued from 500 applications. The

Council adopted 40 infringement statements and 12 of them resulted in sanctions and

fines.

Steps towards liberalisation of the audio-visual market have been taken and, following a

tender, the first private national television operator started operations in June 2000.

Overall assessment

Bulgaria’s legislation has been brought into line with the audio-visual

acquis.

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In the field of audio-visual policy, the relevant administrative bodies have a good

understanding of the

acquis,

and the monitoring and sanctioning powers of the Radio and

Television Council have been strengthened by the amended Law. However, the Council

suffers from insufficient funding and infrastructures, which adversely affect its capacity

to fulfil its tasks.

Bulgaria has demonstrated effective administrative capacity for implementing the

acquis

in the area of culture, also through its participation in the Raphael programme.

On the whole, Bulgaria has made substantial progress and reached a high degree of

alignment with the Community

acquis.

Chapter 21: Regional policy and co-ordination of structural instruments

Since the last regular report, no substantial progress has been achieved.

Bulgaria has adopted a new

territorial organisation,

through the adoption of a decree on

the territorial organisation of the country for six planning regions corresponding to level

II statistical units. The Ordinance sets up 6 NUTS II-type macro-regions in Bulgaria, and

defines the inter-ministerial Commissions for Economic and Social Cohesion, set up at

macro-regional level. The classification has been accepted by Eurostat; this does not,

however, prejudge in any way the subsequent decision concerning NUTS due to be taken

at the time of accession. The relevant Commissions have a consultative role, in particular

in the process of preparation of the regional operational programmes.

With regard to the

legislative framework,

Bulgaria adopted a decree in November 1999

which defines the structure and the functions of the Ministry of Regional Development

and Public Works (MRDPW). Under the terms of this decree, the Directorate General of

Regional Development and Administrative and Territorial Organisation is responsible for

the co-ordination of the preparation of regional policy, assistance in preparing legislation,

and programming and implementation of Phare economic and social cohesion projects.

Concerning

preparation for programming,

the Directorate General of Regional

Development and Administrative and Territorial Reform at the MRDPW has continued

its efforts to build its administrative capacity. The process of recruiting necessary staff is

underway centrally and in the new structures in the six macro-regions. In addition,

capacity to manage the ISPA and SAPARD pre-accession funds is being built up in the

relevant Ministries, with Phare assistance.

The Bulgarian authorities submitted a Preliminary National Development Plan (PNDP)

for Bulgaria 2000-2006 in October 1999. The National Plan for Regional Development as

well as district development plans for level III statistical units are currently being

updated.

These exercises reflect the determination of the Bulgarian authorities to improve their

planning capability. However, more work will be needed to gain the necessary capacity to

produce planning documents. Also, the establishment of participatory and sustainable

planning processes still needs to be tackled. The integration of these various

programming exercises into a comprehensive national economic development framework

for Bulgaria remains a major challenge.

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Concerning

administrative co-ordination,

a decree of November 1999 created a new

administrative structure in the Council of Ministers and established a new Regional Co-

ordination Directorate. However, not all staff foreseen for this have been recruited. An

inter-ministerial co-ordination body, the Central Co-ordination Unit (CCU), was set up

by decree in January 2000. The CCU is chaired by the MRDPW at Deputy Minister level.

The MRDPW is responsible for the preparation and implementation of the National

Development Plan with the support of the CCU. Mid-level representatives of the various

line ministries involved staff the Central Co-ordination Unit. However, inter-ministerial

co-ordination, both at national and regional levels, is still not fully effective and more

attention needs to be paid to this. Very little progress has been achieved in the preparation

evaluation and monitoring systems.

The newly created Department for Economic and Social Cohesion at the MRDPW is in

charge of the

financial management

of programmes and projects. The recruitment and

training of staff is ongoing, and requires considerable effort in the coming months. With

respect to allocations for co-financing in the national budget, there is as yet no clear

indication of how this will be managed.

In February 2000, a separate division responsible for

regional statistics

was set up in the

National Statistics Institute (NSI). It will carry out methodological co-ordination

concerning the collection, analysis and supply of data at regional level and ensure

Eurostat requirements are met.

Overall assessment

Substantial problems remain and Bulgaria needs to strengthen considerably its efforts to

prepare for the structural funds. It should speed up the implementation of administrative

reform and further develop its administrative capacity to be ready to cope with the

management of the funds.

The Preliminary National Development Plan does not yet provide a sufficient

development strategy for the country. It needs to be a key policy tool for Bulgaria, with a

concomitant commitment of the Bulgarian authorities regarding implementation. There

needs to be a closer link between the PNDP and the provisions of the National Budget. In

addition, the relationship between the PNDP and other programming documents as the

National Regional Development Plan and the Public Investment Plan needs to be

clarified. Inter-ministerial co-ordination as well as public consultation in the preparation

of the PNDP remain issues of concern.

In the administrative structures recently created under the MRDPW, there is a lack of

clarity in the role and competencies of civil servants and technical experts responsible for

regional administration. In particular responsibilities at regional level are not very clear.

The administrative capacity of the Ministry remains very limited. Financial and budgetary

management for regional policy require further improvement. Regional statistical data is

poor at present in Bulgaria and the creation of a database for regional data storage will

require significant investment of financial resources.

Chapter 22: Environment

Bulgaria has achieved further progress in terms of transposition of the EC environmental

acquis

and for the preparation of the implementation of EC directives.

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Progress has been made towards meeting the short-term Accession Partnership priority to

continue transposition of framework legislation in the water, air and waste sectors,

prepare and implement detailed directive specific approximation programmes; strengthen

implementation structures, particularly at the regional level

New framework legislation or amendments to existing legislation have been enacted

since the last Report. Details are given under the relevant sectors below. In September

2000, a National Programme for the introduction and implementation of EC legislation

was adopted by the Council of Ministers. This aims to give an overview of the full range

of issues related to taking on the environmental

acquis.

Bulgaria has also developed five

national sectoral programmes: a national waste management programme, a national

programme for priority construction of urban waste water treatment plants, a national

biodiversity conservation strategy, a national programme for phasing out the production

and use of leaded petrol and a national programme for phasing out the use of ozone

depleting substances. Other strategies are under development.

Concerning

horizontal legislation,

an amendment to the Bulgarian Regulation on non-

mandatory environmental impact assessments was adopted in December 1999. Further

legal changes will be needed to fully transpose EC requirements on environmental impact

assessments. In October 1999, the Convention on Trans-boundary Environmental Impact

Assessment entered into force. However EC requirements are more stringent than the

Convention, so further changes will be needed.

Since the last Report, Bulgaria has set up a Permanent Commission for the Protection of

the Population, an inter-ministerial co-ordination structure to handle disasters, accidents

and catastrophes. Its tasks include analysing information on potential risks, setting up a

unified information system and identification of priorities for prevention of accidents.

Concerning

air quality,

good progress has been made in legislative alignment with the

acquis.

The Ambient Clean Air Act was amended in March 2000 and now includes

definitions of pollution and threshold levels for emissions. A new Regulation on storage

and distribution of petrol entered into force in July 2000 and is in line with the

acquis.

addition, regulations limiting the content of harmful substances in fuel, and on regular

roadworthiness testing of the motor vehicles have come into force.

In December 1999, Bulgaria signed the new UN

Protocol to Abate Acidification,

Eutrophication and Ground-level Ozone

to the Convention on Long-range Transboundary

Air Pollution.

As reported last year, Bulgaria has established a national air monitoring system but as

concerns implementation, it lacks the necessary monitoring capacity at national and

regional levels to monitor air quality.

Work on

waste

management has continued but gaps remain in Bulgarian legislation as

concerns the definition of waste and waste hierarchy. The infrastructure for disposal and

recovery of hazardous waste needs to be further developed.

Concerning

water quality,

the Water Act that came into force in January 2000 is partly

in line with the Water Framework Directive. Work on secondary legislation has started;

programmes at national and local levels for implementation of the legislation are being

developed. Bulgaria still needs to address approximation with EC directives on different

water categories.

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For

nature protection,

some progress has been made both in legislation and

implementation. In April 2000, the Protected Areas Act was amended, and a Medicinal

Plants Act came into force. A Regulation on development plans for the management of

protected areas was published.

Bulgaria has identified 140 sites, covering 12% of Bulgarian territory, as special

protected areas. The requirements of the ‘Birds’ and ‘Habitats’ directives have not been

fully integrated into Bulgarian legislation.

The institutional strengthening of the Directorates of the 3 national parks is continuing,

and 80 additional persons have been appointed.

As regards

industrial pollution control and risk management,

the 15 Regional

Inspectorates of the Ministry of Environment and Water started an inventory of

enterprises and sites concerned by the directive. The directive on control of major

accident hazards (Seveso) is partially transposed in the Regulation on organisation of

activities for the prevention of large hazards, the Environment Protection Law, the

regulation on hygiene requirements and health protection of the population, and is

supplemented by the Law on chemical substances. Implementation of the IPPC and the

Seveso directives is still problematic; the Ministry has developed a multi-annual

implementation plan and implementation has started but an increase in provision of

information, equipment and training are needed if this is to be successful. No progress

has been achieved on the approximation of the large combustion plants directive.

For

chemicals,

an Act on Protection from the Harmful Impact of Chemical Substances,

Preparations and Products came into force in February 2000. Laws on management and

control of ozone-depleting substances were published in January 2000.

An ordinance has been adopted partially transposing the directives on the contained use

and the deliberate release of

genetically modified organisms.

A Council for safe use of

genetically modified higher plants has been created in the Ministry of Agriculture and

Forestry.

Concerning

nuclear safety and radiation protection,

in December 1999, the Council of

Ministers adopted a Decision on a programme for the development of a basis for safe

management of spent nuclear fuel and radioactive waste (see

also chapter 14 on Energy).

Regulations came into force in August 2000 on contributions to the Radioactive Waste

Safety and Storage Fund.

As regards

administrative capacity,

the Ministry of Environment and Water is

responsible for national policy in the environmental sector, the preparation of the legal

basis, management of protected areas which are state property, distribution of water

resources, issuing of permits for use of natural and mineral resources and EC-related

matters.

Under the Ministry, 15 Regional Inspectorates for Environment and Water and 3

Directorates of National Parks have been established. The National Environment Agency,

a specialised body of the Ministry, is responsible for monitoring and scientific activities.

It provides methodological guidelines for Regional Inspectorates. It also collects and

processes information about the state of the environment and issues information. Other

state bodies with responsibilities for different aspects of environmental protection are: the

Ministry of Health, the Ministry of Agriculture, Forests and Land Reform; the Ministry of

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Regional Development and Public Works implements the national policy in the area of

territorial planning and public works, development of the water supply and sewerage

systems, develops the National Plan for Regional Development. The municipal bodies

play an important role in the implementation of the policy in the environmental sector.

Overall assessment

Bulgaria has made progress in transposing the EC environmental

acquis.

However, the

ability of the Ministry of Environment and Water to develop and promote policy and

strategies is still weak.

Further progress is necessary in the field of waste, nature protection and industrial

pollution. The level of transposition of EC environmental directives of a horizontal

character also needs to be improved.

Implementation of legislation adopted remains a problem. Investments remain limited.

The structures needed for monitoring the enforcement of legislation are not yet adequate

and further training is needed to ensure staff have the necessary knowledge to implement

legislation. The mechanism for data collection, analysis and reporting is also very new

and not well developed. The Ministry of Environment and Water and its Regional

Inspectorates are generally understaffed. The newly appointed EU Integration Unit of the

Ministry needs training.

Progress has been made in the development of investment programmes for waste and

waste water, but more work is needed on financing plans. Capacity to make financial and

economic evaluations needs to be reinforced.

Whilst the “polluter pays” principle is generally accepted, it is not clear how it will be

applied. Also, as mentioned last year, the principle of sustainable development needs to

be integrated into other sectoral policies.

The industry should be further consulted and informed about its future responsibilities

and obligations.

Chapter 23: Consumers and health protection

Bulgaria has continued to make good progress in this area.

Progress has been made in the adoption of secondary legislation following the entry into

force of the Law on Consumer Protection and Trade Rules in July 1999, e.g. Regulations

for consumer protection in price indication of products and services as well as on the

requirements for labelling of non food products. As a consequence, as regards

safety-

related measures,

the existing legislation introduces the main elements of the relevant

acquis

in the area of general product safety and product liability.

Also in the area of

non safety related measures,

notable progress has been achieved

concerning the

acquis

on indication of prices on products and services; main elements of

the

acquis

in the field of misleading advertising, unfair contract terms, doorstep sales and

(partially) the provisions on distance selling have been transposed.

The existing legislation provides for a considerable institutional set up in the area of

Consumer Protection. Although the implementation record is short, the main enforcement

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body dealing with

market surveillance,

the Commission on Trade and Consumer

Protection at the Ministry of Economy, remains largely unreformed. Data on the number

and nature of checks performed by this Commission remain unclear. Further

strengthening of the Conciliation Commissions (set up with nine regional units of this

Commission) which have been set up for out of court dispute settlement and the

consumer protection units of local authorities – which can be granted competence in the

area of control and product safety of products - is necessary. There is a lack of

information on the functioning of Conciliation Commissions and of the number of local

consumer protection units. The National Council for Consumer Protection set up as a

consultative body has so far failed to fulfil its task of being a consultative body at the

Ministry of Economy and of allowing for formal consumer participation in the decision

making process. Although the explicit right of independent consumer organisations to

take part in the protection of consumer rights has led to a number of consumer

associations (currently six) which have contributed to an increased consumer awareness,

NGOs in the sector still need to be further developed.

Overall assessment

Although a considerable part of the relevant

acquis

has already been transposed, further

efforts for alignment are needed in a number of areas. As regards safety related measures,

the Directives on certain aspects of the sale of consumer goods and associated guarantees,

Directive on injunctions for the protection of consumer interests as well as the

acquis

dangerous imitations still have to be transposed. With regard to non-safety related

measures, the

acquis

on comparative advertising, package travel, timeshare, consumer

credit and distance contracts is still not transposed.

Progress in administrative capacity remains limited although considerable institutional

infrastructure has been set up since the last Report. The administrative capacity of the

various institutions, in particular the Commission on Trade and Consumer Protection

needs to be strengthened in order to enforce the considerable

acquis

already adopted, to

improve consultation mechanisms (including the drafting of legislation), out of court

settlement and especially in order to establish and co-ordinate a functioning market

surveillance system. A functioning system for an exchange of information in cases of

discovery of dangerous products has to be further elaborated. More emphasis need to be

put on the co-ordination of different enforcement bodies and independent consumer

protection organisations.

Chapter 24: Co-operation in the field of justice and home affairs

Activities in terms of approximation of legislation and producing new legislation have

continued but not at such a significant pace as mentioned in the last Report. However,

there has been sustained progress and more focus on implementation.

An inter-ministerial working group has been created to draft a Personal

Data Protection

law and consultations are underway but as yet Bulgaria has not yet adopted a law, so does

not have a system of protection of personal data compatible with the

acquis.

This means

that the short-term Accession Partnership priority of adopting a law and establishing an

independent supervisory body has not yet been met.

As far as

visa policy

is concerned, Bulgaria has continued to make progress. It has

rescinded agreements on visa-free regimes with Belarus, Moldova, Kazakhstan,

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Kyrgyzstan, Tajikistan and Turkmenistan with effect from January 2000. A readmission

agreement was signed with Romania in June 2000. Negotiations on readmission

agreements with the UK and Ireland have started. The administrative, organisational and

legal measures taken by Bulgaria in the past years to counter illegal migration have been

further consolidated since the last Report. The special software programme developed for

visa issuing and passport control is now operational in 59 Bulgarian diplomatic and

consular missions, providing an online link to the Visa Centre at the Ministry of Foreign

Affairs. Bulgaria has amended the Bulgarian Identity Documents Act to accelerate the

issuing of new documents, bringing forward from end March 2001 to end December

2000 the date by which documents must be replaced with new ones that cannot be forged.

Some progress has been made towards meeting the short-term Accession Partnership

priority of implementing effective border management control systems. Through

amendments to the Ministry of the Interior Act in April 2000, a new definition of

border

control

was adopted, of “guarding and controlling” instead of “guarding and protecting”

state borders. Demilitarisation of the border police is ongoing and since 1999, progress

has been made as planned with the programme to reduce the number of conscripts by

2,000 and the procedure has been launched to replace them with 1,300 professional

police officers. To compensate for the reduction of personnel, the Border Police is in a

process of modernising its equipment, giving priority to the border with Turkey and the

Black Sea maritime border. Progress has also been made to improve border control

facilities at Sofia International Airport to prepare for compliance with Schengen

requirements, and new equipment for passport control has been installed at 10 major

border crossing points. Statistics from the Border Police show that the attempts to

illegally cross the borders have increased from 18,329 attempts in 1998 to 22,733 in

1999. Citizens from Romania (2,933), Turkey (2,561) and Moldova (912) lead the list of

attempts at illegal border crossing.

migration and asylum,

Bulgaria and the International Organisation for Migration

signed a Co-operation Agreement on 12 November 1999 in Budapest. A specialised unit

/sector for combating transborder networks dealing with illegal migration and trafficking

in human beings was set up with the National Service for Combating Organised Crime

(NSCOC) in November 1999. In the field of asylum a National Action Plan 2000 (NAP

2000) was elaborated in April 2000 during the Second Round Table in Bucharest. It

envisages the opening of refugee transit centres at the busiest border checkpoints – Sofia

Airport and Kapitan Andreevo and possible future legislative changes e.g. in view of

setting a clearer distinction between the excluding and terminating provisions in

accordance with the Geneva Convention 1951. The Foreign Nationals in the Republic of

Bulgaria Act was amended in May 2000 and implementing regulations were adopted. The

law regulates the conditions of entry, stay and controls on foreign nationals in Bulgaria

and the implementing regulations provide more detailed regulation of the control over

foreign nationals staying illegally in Bulgaria. However, several provisions are still not in

accordance with the relevant

acquis.

The conditions for family reunification, which was

already mentioned as a weakness in last year’s Regular Report, have not been clarified.

The short-term Accession Partnership priority of implementing and enforcing a new

legislative framework relating to migration and asylum procedures has therefore not yet

been met.

In the field of

police co-operation and the fight against organised crime,

some more

steps in international police co-operation have been taken. In June, the Council of

Ministers approved and proposed to the National Assembly for ratification an agreement

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on co-operation in the fight against cross-border crime signed in Bucharest in May 1999

by Albania, Bosnia-Herzegovina, Bulgaria, Greece, FYROM, Moldova, Romania,

Turkey and Hungary. Sustained attention needs to be given to the problem of trafficking,

especially in women. In November 1999 a new specialised unit for combating illegal

trafficking in women for the purpose of sexual exploitation was created within the Border

Police. Amendments to the Penal Procedure Code have brought some changes with

regard to the procedure of investigation, increasing the role of the Police in investigating

criminal cases. Additional training has been provided to police officers for this new task.

Concerning the fight against

fraud and corruption,

in June 2000, the National

Assembly passed the Amendment to the Penal Code, which,

inter alia,

criminalises the

appropriation of revenue funds or target funds for purposes other than the legal ones. The

legislative change is based on the definition of “fraud” set forth in the Convention for

protection of the financial interests of the European Communities of 1995.

Bulgaria ratified the Council of Europe Civil Law Convention on corruption in June

2000. Customs officers, police officers and professionals working in the judiciary are

quoted as being among the most corrupt professions in Bulgaria. Since the last Report the

Bulgarian Customs Administration has taken some steps to combat corruption in its

ranks, improving co-operation between the General Customs Directorate and the other

competent state bodies - Court, Prosecution, Investigation, Ministry of Interior, Tax

Administration and others, and starting a project to fight corruption and illegal activities

in the customs service in April 2000.

money laundering,

instructions for improving the internal rules of banks for control

and prevention of money laundering have been developed. To ensure the actual

establishment of criminal liability in cases of money laundering under the Criminal Code,

a number of laws and statutory instruments have been adopted.

In the area of

drugs,

the Drug and Precursor Control Act entered into force in October

1999. Significant increases in drug seizures have been made since 1999. In particular,

reported heroin seizures for the first 8 months of 2000 are more than the total seizures for

the past 6 years. Furthermore, the Penal Code was amended in March 2000 to align

Bulgarian criminal legislation to the UN Convention against the Illegal Traffic in

Narcotic Drugs and Psychotropic Substances. The Amendment provides for significant

changes increasing the sanctions for drug-related crimes and drug producing plants.

judicial co-operation,

in criminal and civil matters, there are no major new

developments to report but on criminal matters Bulgaria has already achieved a high

degree of alignment.

Overall assessment

Progress in the field of justice and home affairs, both with regard to further

approximation of legislation and with regard to the administrative capacity to implement

the

acquis

has continued since last year but significant further efforts are required in this

area and further resources and investment in modern equipment will be needed to ensure

success.

Bulgaria has not yet adopted a law on

data protection,

so does not have a system of

protection of personal data compatible with the

acquis.

In 1998 Bulgaria signed

Convention No 108 of the Council of Europe for the Protection of Individuals with

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regard to Automatic Processing of Personal Data, but the Convention is still awaiting

ratification.

Bulgaria has already largely aligned its

visa

regime but maintains visa-free regimes with

Ukraine, FYROM, Russia, Georgia, Yugoslavia and Tunisia. Readmission agreements

have now been signed with all the EU member states except the UK and Ireland, where

negotiations are currently underway.

Demilitarisation of the

border

police is ongoing and is scheduled to be completed in

April 2002.

Regarding

migration,

the law relating to the entry, stay and controls on foreign nationals

in Bulgaria still needs to be amended to comply with the relevant

acquis,

in particular the

conditions for family reunification. The Refugees Act referred to in the last Report has

still not been amended to bring it fully into line with some basic principles of the Geneva

Convention. The administrative capacity of the Refugees’ Agency remains weak, and co-

ordination between this and the Border Police needs to be improved. The infrastructure to

receive asylum seekers and refugees is only partly in place and needs to be fully aligned.

However, the problem of refugees and asylum seekers in Bulgaria remains very limited.

In the past eight years, only 4,800 people have sought refugee status in Bulgaria.

Regarding

police co-operation and the fight against organised crime, the

establishment of a national information system compliant with the standards of the

Schengen Information System (SIS) is necessary and has not yet been achieved. Police

brutality remains a matter of concern, especially towards minority groups and the Roma

in particular. Whilst Bulgarian authorities provide much training to all levels of police

officers, further training in areas such as respect of human rights is needed, as are

specialised training programmes to continue to build up the skills required to effectively

investigate and counter new types of crime, especially economic crimes and money

laundering as well as organised crime and corruption. There are shortcomings regarding

police equipment where technology (modern means of communication) and motor

vehicles are concerned.

Concerning the fight against

fraud and corruption,

Bulgaria has ratified the major anti-

corruption conventions, notably the Convention on Laundering, Search, Seizure and

Confiscation of the Proceeds from Crime and the OECD Convention on Combating

Bribery of Foreign Public Officials in International Business Transactions. In January

1999, Bulgaria signed the Council of Europe Criminal Law Convention on Corruption.

Regarding

drugs,

secondary legislation is needed in areas such as terms and conditions

for seizing and destroying drugs, operation of specialised drug testing laboratories and

precursor control. Bulgaria still does not have a comprehensive national strategy against

drugs covering issues such as supply and demand reduction, which defines the overall

policy of the country and the linkage between the agencies.

Concerning

money laundering,

a law was adopted in 1998, and in 1999 the Law on

Banks was amended setting out the obligations of the National Bank in prevention of

money laundering. However, weaknesses in the current legislation need to be addressed

so that Bureau of Financial Intelligence can play its full role.

In the field of

judicial co-operation and human rights,

as far as the joint action on legal

assistance in criminal matters is concerned, Bulgaria is encountering difficulties in

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handling incoming requests and in making outgoing requests. Regarding judicial co-

operation in criminal matters, Bulgaria is to a large extent aligned with the

acquis.

date, Bulgaria has concluded 40 bilateral agreements on legal assistance: 19 agreements

on legal assistance in civil and criminal matters (and extradition), 9 on legal assistance in

civil matters, 4 on legal assistance in criminal matters, 2 on legal assistance in criminal

matters and extradition, 5 on extradition and 1 on transfer of convicted persons. As far as

judicial co-operation in civil matters is concerned, further legal amendments are needed

for alignment. . Efforts are still needed especially in terms of strengthening

administrative capacity, including improving co-operation between different agencies.

Also, staff turnover in the Ministry of Interior as been high at all levels, which could lead

to a weakening of administrative capacity.

Chapter 25: Customs union

Bulgaria has made further progress in the field of customs since the last Regular Report.

Concerning legal alignment with the

EC Customs Code and its implementing

provisions,

the Bulgarian Customs Act of January 1999 and the related implementing

provisions are, to a large extent, compatible with the

acquis

but considerable further

efforts are needed to ensure full compliance. During the last period, there have been

further steps in approximation of legislation. The National Assembly adopted

Amendments to the Customs Act. These concern issues including the application of trade

measures for agricultural goods and the control of drug precursors and of counterfeit and

pirated goods. The short-term Accession Partnership priority to ensure enforcement of the

new customs code and its implementing provisions has been partially met.

As regards the

customs

acquis

outside the customs code,

Bulgaria adopted its Customs

Tariff for 2000 in November 1999, including preferential rates in the framework of

international agreements (including the Europe Agreement). On the basis of bilateral

agreements, joint customs control at border crossings with Romania, the Former

Yugoslav Republic of Macedonia and Turkey has been introduced. Regarding the pan-

European system of origin, Bulgaria has agreed to the amendments to the system which

will come into force in January 2001. For the system to be complete, Bulgaria needs to

sign free trade agreements with Estonia, Latvia and Lithuania.

Concerning

administrative and operational capacity,

some progress has been made.

The amendments to the Customs Act include the transformation of customs into an

agency (Bulgarian Customs Agency) acting under the Minister of Finance. It has about

3800 employees on three levels, central, regional and local. Also, progress has been

made on the use of information technology in particular as concerns computerised

handling of documents, where the Bulgarian Integrated Customs Information System now

covers a substantial part of the document turnover of the administration. Project planning

to introduce a system which is EC compatible was done during the first half of 2000.

Training of customs officers is progressing and the network of customs laboratories is

being expanded. Corruption in Bulgarian Customs remains a widespread problem. The

customs service has taken some steps to combat corruption. A project has been started to

fight against corruption in the Bulgarian Customs Administration (see

Chapter 24 on

Justice and Home Affairs).

In relation to border management, efforts have focused in

particular on improving the facilities at Sofia Airport to improve monitoring and security

checks and work on a strategy to rationalise national border posts in line with the

requirements of EU membership.

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Overall assessment

As mentioned in the last Regular Report, Bulgarian legislation is in large part identical to

the Community Customs Code so a high degree of legislative alignment has already been

achieved. Some further adaptation is needed, for example in customs debts appeals

procedures.

Regarding the customs

acquis

outside the Customs Code, Bulgaria has concluded

customs co-operation agreements with Armenia, Austria, Azerbaijan, Greece, FYROM,

Mongolia, Romania, Russia, Turkey, the United Kingdom, Yugoslavia and Ukraine.

Bulgaria is member of the World Customs Organisation. Bulgaria is a contracting party

to the TIR Convention (since 1978) and to eight Annexes to the Kyoto Convention. Since

1990 Bulgaria has been a member of the Convention on the Harmonised System. Since

1996, Bulgaria has applied the Combined Nomenclature, as required by the Europe

Agreement. Bulgaria already applies the Single Administrative Document (SAD). In

most areas of the

acquis

Bulgaria has achieved a considerable degree of legislative

alignment, however in some areas, such as duty relief, legislation is only partially in line

with the

acquis.

The main problem for Bulgaria concerns the administrative capacity to implement the

acquis.

As acknowledged by the Bulgarian authorities, there are insufficient resources,

remuneration is not adequate, co-operation with other law enforcement bodies needs to

be improved, infrastructure at borders needs to be upgraded and equipment needs to be

modernised. Major efforts are needed to stabilise the staffing situation. Issues of high

staff turnover, lack of adequate training and the need to introduce ethics have to be

tackled, in order to increase efficiency and ensure procedures are correctly carried out.

Whilst work has begun to fight corruption, this remains a matter of considerable concern

as mentioned in previous Reports. Whilst more needs to be done in the introduction of

computerised systems, Bulgaria is successfully using the Asycuda system.

Chapter 26: External relations

As regards the

common commercial policy,

Bulgaria has further liberalised its trade

with the Customs Tariff introduced in 2000. Trade with the EC has also been further

liberalised on the basis of the Europe Agreement and a unilateral decision of the

Bulgarian government of 20 February 2000 giving exemption from tariff duties for 143

tariff headings covering imports in particular of industrial goods originating in the EC

and EFTA needed by investors. The negotiation of the additional concessions in

agricultural trade also concluded successfully and negotiations on a new wine agreement

are progressing. The Bulgarian authorities are aware of the differences in the preferential

treatment principles used by Bulgaria and the EC, and they are currently reviewing these

differences with a view to adopting the EC GSP on accession.

Bulgaria’s tariffs currently average 15.1% on all products, 24.4% on agricultural

products, 13.5% on fishery products and 12.6% on industrial products. By comparison,

EC tariffs currently stand at 5.3 % on all products, 9.4 % on agricultural products, 12.4%

on fishery products and 4.2 % on industrial products.

With a view to the new round of WTO negotiations, close co-operation is taking place in

order to co-ordinate standpoints with a view to ensuring convergence with the EU’s

commercial policy. To this end the EU and Bulgaria have established a framework for

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co-operation regarding WTO issues both at ministerial and at departmental level and

Bulgaria has been supportive of EU policies and positions within the WTO framework.

Bulgaria is at present an observer to the plurilateral Agreement on Government

Procurement and has presented an offer on GPA. It is also preparing its accession to the

Information Technology Agreement within the WTO

The EU and Bulgaria have

established a framework for co-operation regarding WTO issues both at ministerial and

departmental level. As regards the new round, Bulgaria concurs with the EU on the need

to launch a comprehensive trade round as soon as possible and shares the view that the

results of work under the built-in agenda would be less substantial in its absence.

Concerning arms export control, existing legislation needs to be revised to ensure tighter

controls on trade in arms and clearer division of responsibilities between institutions to

eliminate potential sources of conflict of interest. Proposals to amend and supplement the

Foreign Trade in Arms and in Potential Dual-Use Goods and Technologies Act have

completed the first reading in the National Assembly. The revision of the legislative

framework is intended to tighten controls in both licensing arms-trading companies and

clearing individual transactions.

As regards

bilateral agreements with third countries,

in July Bulgaria requested

consultations in accordance with the Europe Agreement on the possible establishment of

a Free Trade Agreement between Bulgaria and Croatia. It has also requested

consultations concerning its negotiations on a Free Trade Agreement with Israel. Bulgaria

has a Free Trade Agreement with FYROM, which entered into force on 1 January 2000.

In April 2000, Bulgaria finalised expert level talks on an FTA with Lithuania. It is

conducting negotiations with Estonia, Latvia and Morocco. Adoption of a schedule for

aligning all bilateral agreements concluded by Bulgaria with the

acquis

is a priority of

Bulgaria’s NPAA.

Within CEFTA, the member countries, including Bulgaria, signed the Additional

Protocol No. 8 on the updated version of the Pan-European cumulation of origin of

goods.

Overall assessment

Bulgaria’s progress over the reporting period has been generally good, particularly as far

as negotiation and signature of bilateral FTAs with EC preferential partners is concerned.

It is noteworthy that Bulgaria is conducting a review of all bilateral agreements with a

view to bringing them into compliance with the

acquis.

Bulgaria has concluded an FTA

with FYROM which entered into force on 1 January 2000. Bulgaria is a member of

CEFTA and is in the process of conducting negotiations for free trade agreements with

Lithuania, Latvia, Estonia, Israel and Morocco. Further progress will be necessary to

achieve full alignment with the EC’s international trade obligations. Bulgaria should keep

the Union fully informed about existing trade agreements or negotiations aimed at the

conclusion of any new trade agreements with a third country.

The progress made in the area of arms export control in both legislative improvement and

implementation has been insufficient.

As regards the WTO Agreement on Trade in Textiles and Clothing, Bulgaria needs to use

the third stage of integration under the ATC to align its integration programmes on those

of the EC, while notably avoiding integrating products not yet integrated by the EC. As

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concerns alignment with EU policy within the WTO, Bulgaria should join the two

plurilateral agreements on Government Procurement and Civil Aircraft upon accession.

Attention should be paid to the importance of co-operation to ensure the alignment of

Bulgaria’s GATS commitments with the EC commitments and MFN exemptions.

Where medium and long-term export credits are granted, further alignment to the

acquis

is necessary.

Bulgaria’s alignment with and future participation in the Common Commercial Policy is

administered by the Ministry of the Economy (Multilateral Trade Policy Directorate), the

Ministry of Foreign Affairs and the Export Insurance Agency. Co-ordination on issues

relating to EU membership is ensured through the Working Group on External Relations,

which is part of Bulgaria’s co-ordination mechanism for EU integration. Following a

restructuring of ministries, this group is now chaired by the Ministry of Economy.

Bulgaria has sufficient resources of good quality in this area including expertise in WTO

and Common Commercial Policy issues. Co-ordination between the institutions has

improved since the last Report. However, one area where administrative capacity is

insufficient is capacity to ensure control of arms exports. Whilst authorities have stated

their intention to increase staff and create a special agency for export control, this has not

taken place and there is no clear timetable for the establishment of the new agency.

Administrative infrastructure, which needs to be in place as regards customs services, is

addressed under the chapter relating to the Customs Union (Chapter

25 – Customs

Union).

Decisions on development and humanitarian aid are made by the Council of

Ministers. At this stage no specific issues are to be highlighted in terms of administrative

capacity over and above the analysis presented above in this report (Section

B.1.1. –

Democracy and the rule of law – The executive).

Chapter 27: Common foreign and security policy

The regular

political dialogue

established by the Europe Agreement is proceeding

smoothly and Bulgaria continues to orient its foreign and security policy towards the

Union. It continues to participate actively in the framework of the Common Foreign and

Security Policy (CFSP), including the meetings at the level of Political Directors,

European Correspondents and Working Groups.

Bulgaria has shown a keen interest in the development of ESDP (European Security and

Defence Policy) as part of CFSP and has actively participated in the exchanges in this

context with the EU, in EU + 15 format (i.e. non-EU European NATO members and

candidates for accession to the EU).

As regards

alignment with EU statements and declarations,

Bulgaria has regularly

aligned its positions with those of the Union and when invited to do so has associated

itself with the Union’s joint actions and common positions. During the course of 1999

Bulgaria associated itself, together with the other CEECs, with a joint action of the EU

concerning the contribution of the EU to the fight against accumulation and the

destabilising proliferation of lightweight and small calibre firearms.

Bulgaria continues to play a positive role in all efforts for enhanced co-operation in South

Eastern Europe; it was also a major supporter of EU policy in this region and an active

participant in the Stability Pact.

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Following the Kosovo crisis, Bulgaria has participated in the international police force of

the UN civil administration by sending 48 police observers. Since February 2000, a

Bulgarian Unit has been deployed within the Dutch KFOR contingent. In addition,

Bulgaria provided assistance to FYROM through setting up and fully financing a refugee

camp in Radusha.

Bulgaria has been an active participant in the Stability Pact from its start, presenting a

number of projects. With the support of the Pact, agreement was reached between

Bulgaria and Romania to build a second bridge between these countries across the

Danube.

Bulgaria’s activities have not been limited to support for EU activities in the region and

its active policy which aims at strengthening mutual confidence, security and stability in

the region and developing all forms of regional co-operation has continued. Bulgaria’s

own initiatives in the region included a second meeting of Prime Ministers of countries

bordering on the FRY, in which the Secretary General/High Representative of the EU for

CFSP, the Special Co-ordinator of the Stability Pact and NATO Secretary-General

participated. Bulgaria remains an active participant in existing regional co-operation

initiatives such as the Southeast European Co-operation Initiative (SECI), the Royaumont

process for good-neighbourly relations and stability, BSEC, CEI, and CEFTA.

Concerning relations with neighbouring countries, Bulgaria is also active in bi- and tri-

lateral co-operation and enjoys good or excellent relations with all its neighbours. Tri-

lateral co-operation has involved Bulgaria-FYROM-Albania; Bulgaria-Greece-Turkey;

Bulgaria-Turkey-Romania, and Bulgaria-Greece-Romania.

Regarding arms exports, Bulgaria has adhered to the EU Code of Conduct on Arms

Exports, but there is concern that Bulgaria needs to make more effort to ensure respect

for sanctions and weapons exports to conflict zones (see

also Chapter 26 on External

Relations.)

Overall assessment

Bulgaria’s overall progress in alignment with the

acquis

in the CFSP is very good. It

continues to contribute actively and with its own initiative to regional stability and also to

develop further the good or excellent relations with FYROM, Greece, Turkey and

Romania.

As regards administrative capacity to implement the provisions relating to CFSP,

Bulgaria’s capacity is satisfactory. The Ministry of Foreign Affairs, its staff and

representative offices abroad as well as the broad range of relations with a large number

of countries around the world mean that Bulgaria is already an active participant in this

area of policy.

Chapter 28: Financial control

Significant progress has been achieved since the last Report, particularly in the legislative

domain.

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Bulgaria has partially met the 1999 Accession Partnership short-term priorities relating to

the completion of the legislative framework and strengthening of internal financial

control and independent external audit.

As regards

public internal financial control,

the Ministry of Finance produced a policy

paper on the future development of internal financial control in February 2000. This

embodied a number of key principles including proper internal audit mechanisms in line

ministries and other government spending centres, the possibility of ex ante control, a

central role for State Financial Control in the Ministry of Finance in harmonising audit

and control methodologies, and functional independence of internal audit. On the basis

of this policy paper, a new law on public internal financial control was prepared and was

adopted in October 2000.

As regards

external audit,

the National Audit Office has continued to implement the

Strategic Development Plan drawn up in 1998. A new National Audit Office law was

prepared in consultation with the European Court of Auditors to harmonise the legal

framework with EU practice and improve audit quality in conformity with INTOSAI

standards, and sent to the National Assembly but it has been withdrawn by the Prime

Minister for further amendments to reinforce the role of the NAO in legal aspects of

accounting, economic, financial and banking matters. The main challenges remain to

continue strengthening the professionalism of the National Audit Office and ensure

smooth implementation of the new legislative framework.

Working relations between State Financial Control and the National Audit Office have

improved, following the clearer definition of their respective roles in the new legislation.

Overall assessment

There has been considerable progress over the past year in strengthening the policy and

legislative framework for public sector internal financial control and external audit.

These achievements now need to be followed up by a prolonged and determined effort to

implement the new framework, and establish the authority and institutional capacity of

both State Financial Control and the National Audit Office.

Public internal financial control is performed by State Financial Control, which will be

part of but functionally independent from the Ministry of Finance, and internal audit units

in line ministries and other government spending centres. Independent public external

audit is performed by the National Audit Office, which has a court-type structure with

collegiate decision-making procedures.

The main challenge will now be to implement the new legislative framework. The

priorities include developing secondary legislation and implementing regulations,

organising internal audit services in line ministries and other government spending

centres, introducing adequate ex ante control mechanisms, establishing a central capacity

for setting audit and control methodologies, and improving the arrangements for auditing

and controlling use of EC funds. The present practice of financing the State Financial

Control partly out of funds recovered as a result of control and audit findings needs to be

reviewed since such funding risks infringing on the functional independence of the State

Financial Control. These activities will need to be supported with a substantial

investment in training the staff of State Financial Control and audit bodies in line

ministries.

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Chapter 29: Financial and budgetary provisions

Bulgaria has made some progress in this area since the last Regular Report in particular

as regards

the national budget and EC co-financed measures.

Work done on budgetary

reform, in close co-operation with the European Commission and the IMF, is aimed at

improving the structure of the state budget, enhancing the budget preparation and

execution process, and strengthening reporting and control functions.

A single account treasury system has been adopted, which is planned to cover all

budgetary and extra-budgetary accounts by 2003. A strategy for managing government

debt has also been adopted. A new financial management information system is being set

up. The Ministry of Finance has completed an internal reorganisation.

Responsibility for the management of EC funds rests with the National Fund in the

Ministry of Finance. Arrangements are being made to strengthen the capacity and

effectiveness of the National Fund, as well as the Central Finance and Contracts Unit that

is responsible for tendering and contracting out a large proportion of Phare assistance.

Overall assessment

Whilst Bulgaria has made some progress in this area, considerable further efforts will be

required. The ongoing reform of the budgetary system should allow the basic legislation,

procedures and instruments required for managing public expenditure to be established in

line with EC standards. This reform should be fully implemented across all budget

entities. Fragmentation of budget preparation should be reduced, a multi-year budgeting

approach developed, top-down mechanisms for making budget decisions in a medium-

term perspective strengthened, and procedures for monitoring and evaluating

programmes improved, including programmes supported by EC funds. The restructuring

of the Ministry of Finance should be completed, with a particular emphasis on training of

staff and developing the Ministry's capacity for strategic public expenditure management.

In relation to

Own Resources,

there will be a need for adequate central coordination for

the proper collection, monitoring and payment of funds to and from the EC budget. In

addition,

administrative capacity

will have to be strengthened in the context of the

relevant policy areas described elsewhere in this Report, such as agriculture, customs and

regional policy.

3.2.

Translation of the

acquis

into the national language

Applicant countries are required to translate the various legal texts constituting the

acquis

into their national languages by the time of their accession. The

acquis,

consisting of

primary and secondary binding legislation, represents at present a considerable volume of

acts, roughly estimated at 60,000-70,000 pages of the Official Journal. To help the

candidate countries in this process, assistance is being provided under the Phare

programme. With the help of TAIEX, a centralised Translation Co-ordination Unit has

been created in each of the ten candidate countries of Central Europe.

In Bulgaria, a Central Translation Unit was created in 1997 within the Ministry of Justice

and Legal European Integration. A strategy on the priorities of translation of the

acquis

the process of accession to the EU has been elaborated. This strategy provides four stages

of translation: first translation, linguistic revision, legal revision and final revision.

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For primary legislation, as at 15 June 2000, the following Treaties had been translated:

Treaty Establishing the European Community, Treaty on European Union, Treaty

Establishing the European Coal and Steel Community and EURATOM.

Of the secondary legislation, 10,646 pages of the Official Journal have been translated,

2,500 of these fully revised. It is a priority to translate a further 6,000 pages by the end of

2000. The Central Translation Unit is continuing the revision of the already translated

texts.

According to the strategy, by 2001, a minimum of 17,000 pages of the OJ will be

translated each year.

Further efforts are required in this area.

3.3.

General evaluation

Since the last Regular Report, Bulgaria has maintained a good pace of alignment of

legislation with the acquis but needs to pay more attention to how this will be

implemented and enforced. Progress on public administration reform, in particular to

implement the Civil Service law, is a positive sign. However, very little has been done to

upgrade the judicial system, which remains weak and needs to be strengthened, in

particular to ensure future effective participation in the internal market.

Regarding the

internal market,

Bulgaria has made further progress in most areas. In

particular in free movement of goods, progress has been made in standardisation to

introduce the New and Global Approach principles. Bulgaria has made good progress in

liberalisation of movement of capital with the adoption of laws on foreign exchange and

securities. Nevertheless, the poor functioning of the land market remains an obstacle for

potential investors. Substantial progress has been made on legal alignment of industrial

property rights. Good further progress has also been made in consumer protection and

statistics. However, further efforts will be needed in the area of data protection, where

Bulgaria lacks a framework compatible with the acquis. State aids remain a matter of

concern and Bulgaria is still only starting to develop and implement a legal framework in

this field, an issue that needs to be addressed as a matter of priority. Bulgaria’s progress

to achieve a substantial degree of alignment on the audio-visual

acquis

can be

commended.

In agriculture, Bulgaria has made significant progress in approximation of legislation and

some progress on implementation, but as mentioned last year, this remains problematic

partly due to lack of funding. Further work is needed on veterinary inspection. Bulgaria

has made good progress for the start of the SAPARD programme where it has moved

swiftly towards accreditation for its paying agency. Concerning regional policy, Bulgaria

has adopted a new territorial organisation, for six planning regions corresponding to level

II statistical units. However, more attention needs to be paid to co-ordination and

implementation both at national and regional levels. Bulgaria has achieved further

progress in terms of transposition of the EC environmental acquis and for the preparation

of the implementation of EC environmental directives.

Progress in transport has accelerated compared to previous years. Steps have been taken

in all sectors and work has started on maritime safety. The long-standing issue of a

second bridge across the Danube to Romania has been resolved with an agreement

between Bulgaria and Romania in February 2000.

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The restructuring of the energy sector has gained momentum during 2000. Particular

attention must be drawn to nuclear safety. The commitments for early closure of

Kozloduy Units 1 to 4 made by the Bulgarian Government in the Understanding of

November 1999 mark an important step forward in Bulgaria’s pre-accession course.

In justice and home affairs, further progress has been made on legislation and there has

been more focus on implementation. Further resources and investment in modern

equipment will be needed to ensure success.

In general, the capacity of the Bulgarian administration and judicial system to ensure

application of the

acquis

is still limited. Efforts are focussed on preparation and adoption

of legislation with insufficient attention on how this will be implemented and enforced.

This means that in areas where an adequate legal framework has been adopted,

implementation and enforcement of laws remains poor because of weak administrative

and judicial capacity and lack of preparation for implementation.

Bulgaria has fulfilled partially the large majority of short-term Accession Partnership

priorities relating to the acquis. Concerning administrative capacity, Bulgaria has

advanced on priorities with the exception of those on building the capacity to assess the

financial and institutional impact of new legislation and on strengthening the judiciary,

where little progress has been made.

Bulgaria has already started to address some of the medium-term Accession Partnership

priorities.

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C. Conclusion

Bulgaria continues to fulfil the Copenhagen political criteria.

Bulgaria has made progress in adopting secondary legislation necessary to implement the

Civil Service Law, and also to implement this. The adoption of the Child Protection Act

in June 2000, which creates a State Agency for Child Protection, is another positive step

forward.

However, very little has been done to upgrade the judiciary, which remains weak. Also

corruption continues to be a very serious problem and a global, transparent anti-

corruption strategy with overt backing from government and parliament would be of

benefit. Since the adoption of the framework programme for the integration of Roma last

year, some progress has been made but the administrative capacity of the National

Council on Ethnic and Demographic Issues to implement the programme remains low,

and the limited financial means allocated for implementation make effective performance

of its task difficult.

Major efforts are needed to develop a strong, independent, effective and professional

judicial system. The fight against corruption needs to be strengthened. In line with the

short-term Accession Partnership priority on Roma, further concrete actions and adequate

financial resources are still required.

Bulgaria has clearly made further progress towards becoming a functioning market

economy. It is not yet able to cope with competitive pressure and market forces within

the Union in the medium term.

Bulgaria is establishing a satisfactory track record of macroeconomic stabilisation and

performance. Good progress has been made in privatisation, especially as regards banks,

and a major reform of health and pension systems has begun.

However, structural reforms still need to be taken further and enterprise restructuring

needs to be advanced. Financial intermediation continues to be weak, and much remains

to be done in areas such as the functioning of the land market, or the enforcement of

bankruptcy cases.

Measures to address the weaknesses in the implementation and enforcement of the legal

and regulatory framework need to be taken to improve the business climate. Bureaucratic

barriers to foreign and local enterprise creation must be eliminated. A sustained

implementation of the existing reform programme and higher levels of investment are

key requirements for continued growth, developing the enterprise sector, and building up

competitiveness.

Since the last Regular Report, Bulgaria has maintained a good pace of alignment of

legislation with the acquis but needs to pay more attention to how this will be

implemented and enforced. Progress on public administration reform, in particular to

implement the Civil Service law, is a positive sign. However, very little has been done to

upgrade the judicial system, which remains weak and needs to be strengthened, in

particular to ensure future effective participation in the internal market.

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Regarding the

internal market,

Bulgaria has made further progress in most areas. In

particular in free movement of goods, progress has been made in standardisation to

introduce the New and Global Approach principles. Bulgaria has made good progress in

liberalisation of movement of capital with the adoption of laws on foreign exchange and

securities. Nevertheless, the poor functioning of the land market remains an obstacle for

potential investors. Substantial progress has been made on legal alignment of industrial

property rights. Good further progress has also been made in consumer protection and

statistics. However, further efforts will be needed in the area of data protection, where

Bulgaria lacks a framework compatible with the

acquis.

State aids remain a matter of