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Europaudvalget 2000-01
EUU Alm.del Bilag 234
Offentligt

FROM THE COMMISSION

MALTA’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 Malta ..................................... 6

Recent developments under the Association Agreement (including bilateral trade) .. 6

Accession Partnership / National Programme for the Adoption of the Acquis........... 7

Community assistance ................................................................................................. 7

Twinning ..................................................................................................................... 8

Negotiations / screening .............................................................................................. 8

B. Criteria for membership ..........................................................9

1. Political criteria...................................................................................... 9

Introduction ................................................................................................................. 9

Recent developments................................................................................................... 9

1.1. Democracy and the rule of law ...................................................................... 9

The Parliament .......................................................................................................... 10

The Executive............................................................................................................ 10

The Judicial System................................................................................................... 10

Anti-corruption measures .......................................................................................... 11

1.2. Human rights and the protection of minorities.......................................... 11

Civil and political rights ............................................................................................ 11

Economic, social and cultural rights ......................................................................... 12

Minority rights and the protection of minorities ....................................................... 12

1.3. General evaluation ........................................................................................ 12

2. Economic criteria................................................................................. 14

2.1. Introduction................................................................................................... 14

2.2. Economic developments ............................................................................... 14

2.3. Assessment in terms of the Copenhagen criteria ....................................... 16

The existence of a functioning market economy....................................................... 16

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

Union ......................................................................................................................... 19

2.4. General evaluation ........................................................................................ 21

3. Ability to assume the obligations of membership............................. 23

Introduction ............................................................................................................... 23

3.1. The chapters of the

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

Chapter 1: Free movement of goods ............................................................. 24

Overall assessment .................................................................................................... 25

Chapter 2: Free movement of persons .......................................................... 26

Overall assessment .................................................................................................... 26

Chapter 3: Freedom to provide services........................................................ 27

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Overall assessment .................................................................................................... 27

Chapter 4: Free movement of capital............................................................ 28

Overall assessment .................................................................................................... 29

Chapter 5: Company law ............................................................................... 29

Overall assessment .................................................................................................... 30

Chapter 6: Competition policy....................................................................... 31

Overall assessment .................................................................................................... 31

Chapter 7: Agriculture................................................................................... 32

Overall assessment .................................................................................................... 34

Chapter 8: Fisheries....................................................................................... 34

Overall assessment .................................................................................................... 35

Chapter 9: Transport policy........................................................................... 36

Overall assessment .................................................................................................... 36

Chapter 10: Taxation ..................................................................................... 37

Overall assessment .................................................................................................... 38

Chapter 11: Economic and Monetary Union ............................................... 38

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

Chapter 12: Statistics ..................................................................................... 39

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

Chapter 13: Social policy and employment................................................... 41

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

Chapter 14: Energy........................................................................................ 43

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

Chapter 15: Industrial policy......................................................................... 44

Overall assessment .................................................................................................... 45

Chapter 16:Small and medium-sized enterprises ......................................... 45

Overall assessment .................................................................................................... 46

Chapter 17: Science and research................................................................. 46

Overall assessment .................................................................................................... 47

Chapter 18: Education and training ............................................................. 47

Overall assessment .................................................................................................... 47

Chapter 19: Telecommunications and information technologies................ 48

Overall assessment .................................................................................................... 48

Chapter 20: Culture and audio-visual policy................................................ 49

Overall Assessment ................................................................................................... 49

Chapter 21: Regional policy and co-ordination of structural instruments . 49

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

Chapter 22: Environment .............................................................................. 51

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

Chapter 23: Consumers and health protection............................................. 53

Overall Assessment ................................................................................................... 53

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Chapter 24: Co-operation in the field of justice and home affairs .............. 54

Overall assessment .................................................................................................... 55

Chapter 25: Customs union........................................................................... 57

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

Chapter 26: External relations ...................................................................... 58

Overall assessment .................................................................................................... 59

Chapter 27: Common foreign and security policy........................................ 59

Overall assessment .................................................................................................... 60

Chapter 28: Financial control....................................................................... 60

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

Chapter 29: Financial and budgetary provisions ......................................... 62

Overall assessment .................................................................................................... 62

3.2. Translation of the

Acquis

into national language....................................... 63

3.3. General evaluation ........................................................................................ 63

C. Conclusion ...............................................................................66

D. Accession Partnership and National Programme for the

Adoption of the

Acquis:

Global assessment .........................69

1. Accession Partnership ......................................................................... 69

Short-term priorities .................................................................................................. 69

Medium-term priorities ............................................................................................. 71

2. National Programme for the Adoption of the

Acquis

...................... 72

Annexes..........................................................................................73

Human Rights Conventions ratified by the Candidate Countries, September

2000 ......................................................................................................... 74

Statistical data ................................................................................................ 75

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A. Introduction

Preface

In October 1999, following the February 1999 update of the Commission’s opinion on

Malta’s application for membership, the Commission issued its first Regular Report on

Malta’s progress towards accession in view of the Helsinki European Council.

This European Council noted that the next regular progress reports will be presented in

good time before the European Council in December 2000.

The structure followed by this Regular report on Malta is largely similar to that of the

Commission’s 1999 Opinion and of the subsequent Regular Report; however, it differs

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

Report, assessing Malta’s ability to assume the obligations of membership, has been

structured to follow the list of twenty-nine negotiating chapters. Secondly, Part B has

been broadened to cover also Malta’s administrative capacity to apply the

Acquis

under

each of the negotiating chapters (previously discussed in a separate section of the report).

Thirdly, the reports includes for the first time a section assessing the progress made by

Malta in translating the

acquis

into its national language. In line with previous Regular

Reports, the present Regular Report:

describes the relations between Malta and the Union, in particular in the framework

of the Association Agreement;

analyses the situation in respect of the political conditions set by the European

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

assesses Malta’s situation and prospects in respect of the economic conditions

mentioned by the European Council (a functioning market economy, capacity to cope

with competitive pressures and market forces within the Union);

addresses the question of Malta’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. 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 European Council in 1995. At

Madrid, the European Council underlined the necessity for the candidate countries to

adapt their administrative structures so as to guarantee the harmonious

implementation of Community policies after membership. The Feira European

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

capability to implement and enforce the

Acquis,

and added that this required

convincing progress in strengthening their administrative and judicial structures. The

Feira European Council invited the Commission to regularly report to the Council on

the matter.

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

period until 30 September 2000. In some particular 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,

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complementing this assessment of new developments since the last Regular Report, this

report provides also an assessment of the global situation for each of the aspects under

consideration, and sets out for each of these aspects the main steps which remain to be

taken by Malta in preparing for accession.

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

Acquis

criteria (including Malta’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. In contrast, the

economic assessment is based on a longer term evaluation of Malta’s economic

performance.

The report contains a separate section examining the extent to which Malta 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. Their National Programmes for the Adoption

of the

Acquis,

the information provided in the context of the analytical examination of the

Acquis

(screening) and in the negotiations were additional sources of information.

Council deliberations and European Parliament reports and 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 Malta

Recent developments under the Association Agreement (including bilateral

trade)

No particular developments can be reported as far as the implementation of the

Association Agreement is concerned. The establishment of a customs union in two five-

year-stages is a long-standing objective that up to now has not been achieved.

For the European Parliament the

rapporteur

is Ursula Stenzel.

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Since the issuing of the Commission's last Regular Report, the Joint Parliamentary

Committee comprising representatives of the Maltese and European Parliaments met in

May 2000.

The EC remains Malta's major trading partner (65.4% of Maltese imports come from the

EC). Exports from Malta into the Community accounted for

€

905 million in 1999 while

imports from the EC amounted to

€

1,744 million. Malta imports mainly semi-finished

industrial supplies and exports mainly electronic equipment.

Malta has started to implement a plan aiming at dismantling all levies on EC imported

products by 2003, except for agricultural products. Following a request from Malta, the

Commission is proposing a mandate to negotiate with Malta further trade liberalisation

on fish products. A Commission’s proposal for negotiations with Malta for a protocol on

mutual administrative assistance in customs matters is under consideration by the

Council.

Accession Partnership / National Programme for the Adoption of the Acquis

The Council adopted a first Accession Partnership (AP) for Malta on 20 March 2000.

The purpose of the Accession Partnership is to set out in a single framework the priority

areas for further work, the financial means available to help Malta implement these

priorities and the conditions which will apply to that assistance.

Malta has finalised its first National Programme for the Adoption of the

Acquis

(NPAA).

Following consultations with all interested parties, it was published on 18 September

2000. This document, which includes an evaluation of the cost of the different measures,

sets out Malta’s plan for the adoption and implementation of the

acquis.

Community assistance

Following a request by the Council in March 1999 , the Commission proposed in October

1999 a pre-accession regulation for Malta. The Council approved the regulation on the

implementation of operations in the framework of the pre-accession strategy for Malta on

13 March 2000.

It provided for a total pre-accession aid to Malta of

€

38 million for the period 2000-

2004, to be used mainly for institutional capacity building, as well as for participation in

Community programmes.

In 2000, the programme focused on the following priorities:

•

tax & customs change management project (€ 2.33 million);

•

Integrated Administrative and Control System project in agriculture (€ 1.0 million);

•

Technical assistance and administrative co-operation including contribution to TAIEX

(€ 1.77 million); and

•

contribution to the participation of Malta in Community education programmes

Socrates, Leonardo and Youth (€ 0.9 million).

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The implementation of projects financed under 1999 financial co-operation with Malta

started this year, in particular, co-operation with the Central Office of Statistics of Malta

for the alignment of its statistical procedures.

Twinning

As the regulation on pre-accession assistance was adopted only in March 2000, there are

as yet no ongoing twinning operations with Malta.

Negotiations / screening

The analytical examination of the

acquis

with Malta (bilateral screening) was completed

by the end of January 2000. During the first half of 2000, the screening was updated on

23 chapters with due account taken of latest developments in the

acquis

and recent

progress.

Negotiations were officially opened at the bilateral intergovernmental conference held in

February 2000. In March 2000, substantive negotiations started on 8 chapters of the

acquis:

Industrial Policy; SMEs; Science & Research; Education and Training;

Telecommunications; Culture and Audio-visual policy; Common Foreign and Security

Policy and External Relations.

The accession conference held in June 2000 decided to provisionally close all the above-

mentioned chapters with the exception of Culture and Audio-visual policy.

As recommended by the Commission, the Presidency’s proposal is to open the

negotiations for 9 additional chapters: Free Movement of Capital; Company Law;

Competition; Fisheries; Transport; Economic and Monetary Union; Statistics; Social

Policy and Employment and Consumers and health protection.

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B. Criteria for membership

1. Political criteria

Introduction

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 Malta’s progress towards accession, the Commission

concluded that:

"… the institutions are functioning smoothly and there are no particular problems on the

human rights front. Malta's public administration has sufficient personnel, but efforts are

required to make it more effective. The country does not seem to be having any major

problems in adapting its administrative and governmental structures in preparation for

participation in Community institutions."

Below, an assessment is made of developments in Malta since the 1999 Regular Report,

as well as of the overall situation in the country, seen from the perspective of the

Copenhagen political criteria. Developments in this context are in many ways closely

linked to developments regarding Malta’s ability to implement the

acquis,

in particular in

the domain of justice and home affairs. The section below aims to provide a general

assessment of the situation in Malta from the perspective of the political criteria,

including as regards the overall functioning of the country’s executive and its judicial

system. Specific information on the development of Malta’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 of this

Report.

Recent developments

Like last year, EU accession has remained high on the political agenda of the governing

Party, while the opposition continues to express its dissent.

The Government has been seeking to involve all interested parties and representative

organisations in the decision-making process related to the accession negotiations. This

has been done both at the technical level and, more formally, in the context of the Malta-

EU Steering and Action Committee.

1.1.

Democracy and the rule of law

As mentioned in the previous reports, Malta has achieved stability of institutions,

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

developments of the past year.

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The Parliament

The Parliament continues to function in full respect of democratic principles.

Due to a heavier workload brought about in the main by the process of approximating

Maltese legislation with the

acquis,

the House of Representatives has, since September

1999, increased the number of weekly Parliamentary sessions from three to five, and

more recently to eight. Ongoing discussions on the accession process are also held in the

Foreign Affairs Committee of the House of Representatives, with the active involvement

of both main parties.

The Executive

In relation with the need to implement the

acquis,

the Government has started

restructuring and reinforcing some of its Departments. It has also launched 23 quality

service charters committing the Government Departments to provide their customers with

a service responding to quality standards.

Various other measures at different levels have been taken to improve the overall

functioning of the Maltese administration; however, it is too early to assess their impact.

Sustained efforts are required for the reform of the public administration aiming at

improving its efficiency and effectiveness, in line with the short-term priority of the

Accession Partnership.

The latest round of local elections was held in March 2000 to elect twenty-three Local

Councils. The turnout was 71 per cent. This represented an increase of 9.2 percentage

points over the 61.8 per cent turnout in the corresponding elections in 1997.

The Judicial System

As already stated in past reports, the principle of separation of powers is fully applied in

Malta. The members of the Judiciary are wholly independent of the executive. They may

be removed by the President only in the specific cases provided for by the Constitution

(proved inability to perform the functions of their office or upon proved misbehaviour).

The independence of the Judiciary is further ensured by the fact that the judges and

magistrates’ salary is borne by a Consolidated Fund.

In general, however, the slowness of the court system remains a source of concern.

According to a Report of the Ministry of Justice, there were 14,745 pending cases in the

Civil Court in April 2000 compared to less than 11,000 in 1995. This large and

increasing backlog of pending cases has highlighted concerns about the judiciary’s ability

to deliver justice within a reasonable time, a right enshrined both in the European

Convention of Human Rights ratified by Malta and in the Maltese constitution.

The Maltese authorities are trying to tackle this problem through various measures

aiming at reforming the functioning of the justice system, including the revision of the

Code of Civil Procedure and the creation of a Commission for the Administration of

Justice. However, these measures have not yet produced significant results.

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Anti-corruption measures

As pointed out in the last Regular Report, the "Permanent Commission against

Corruption" set up by the Government to fight against corruption in the public

administration seems to work slowly and its effectiveness could be improved.

The office of the Ombudsman, which investigates allegations of corruption, continues to

function well. The Ombudsman is appointed by a two-thirds majority in Parliament, thus

ensuring his / her independence. Some 717 cases were received last year and 361 verbal

inquiries were dealt with. The number of cases closed during 1999 was higher than the

preceding year with a strong reduction in the caseload at the end of the year.

Malta has ratified the Council of Europe’s Convention on Laundering, Search, Seizure

and Confiscation of Proceeds from Crime. However, Malta has not yet signed the

Council of Europe's Criminal Law Convention on Corruption and the Council of

Europe's Civil Law Convention on Corruption opened for signature in 1999. Neither has

it acceded to the OECD Convention on Combating Bribery of Foreign Public Officials in

International Business Transactions or to the United Nations’ anti-corruption programme

for Drug Control and Crime Prevention.

1.2.

Human rights and the protection of minorities

As mentioned in the previous regular reports, Malta continues to respect fundamental

human rights and freedoms. The following section focuses on subsequent major

developments.

Malta has now ratified most of the major human rights instruments, including the

European Social Charter (see Annex). However, it has not yet signed the revised

European Social Charter.

Civil and political rights

Over the past year, the Parliament has adopted an act that abolished the last remnants of

the

death penalty

in Maltese legislation. This Act amended the Armed Forces of Malta

Act, which had hitherto included a provision for the imposition of the death penalty in

time of war in cases of desertion or aiding the enemy.

As regards the situation with regard to

asylum

and the right of refugees, there has been an

improvement since Malta adopted this year an Asylum Act providing a legal framework

to deal with asylum seekers. However, a reinforcement of human resources dealing with

asylum seekers, a strategy to cover the social integration of recognised refugees, suitable

accommodation arrangements, an effective "removals" policy, and adequate

infrastructure are equally needed (see

Chapter 24 - Co-operation in the field of justice

and home affairs).

The Maltese Government has addressed problems related to the conditions of

detention

mentioned in last Regular Report, in relation to the detention of illegal immigrants, by

setting up a new detention centre offering better conditions. The prison conditions are

satisfactory in Malta.

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The

freedom of expression

is enshrined in the Maltese constitution and continues to be

well respected in practice. The same applies to the

freedom of association and assembly.

All persons in Malta continue to enjoy

freedom of conscience

and

freedom of religion.

These rights are enshrined in the Maltese constitution.

Basic civil and political rights continue to be respected in Malta, although arrangements

for refugees need to be improved. The conclusion of the last Regular Report, that there

are no significant problems regarding the observance of fundamental human rights and

freedoms, is still valid.

Economic, social and cultural rights

As regards

equal opportunities,

there is a Department for Women’s Rights in the

Ministry for Social Policy and a Commission for the Advancement of Women. The

principal objectives of the Department for Women’s Rights for 1999 included the

implementation of policies and projects promoting effective equality between women and

men in all strata and in all sectors of Maltese society, in particular in education,

employment, public service and politics. Progress in this area is slow since it depends on

a change in social attitudes. While the situation is quite satisfactory in the field of

education, there is room for improvement as regards gender equality in the field of

employment and access to political responsibilities.

As regards

persons with disability,

the Parliament enacted the Equal Opportunities Act in

early 2000. This act prohibits discrimination against persons with disability on the basis

of physical and/or mental impairments, and formally sets up and gives a legal identity to

the National Commission for Persons with Disability (see Chapter 13 - Social policy and

employment).

Trade unions

are powerful and well organised in Malta and the workers’ right to

undertake collective actions continues to be well established.

Although there is room for improvements as regards gender equality, the overall situation

with regard to economic, social and cultural rights is satisfactory.

Minority rights and the protection of minorities

Immigrants, mainly North Africans, constitute approximately 1% of the population of

Malta. No significant problems can be reported with respect to their status and situation.

Likewise, there are no significant problems related to racial discrimination to be reported.

Section 45 of the Maltese Constitution specifically prohibits any acts of discrimination on

the grounds of race. However, Maltese criminal law does not prohibit racial

discrimination as required by the UN Convention on the Elimination of All Forms of

Racial Discrimination, ratified by Malta, and should be brought in line.

1.3.

General evaluation

Malta continues to fulfil the Copenhagen political criteria. Its institutions are democratic

and function smoothly and there are no particular problems with regard to human rights.

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Basic civil and political rights continue to be respected. The overall situation with regard

to economic, social and cultural rights is satisfactory.

However, special attention should be devoted to the issue of the backlog of civil judiciary

cases. Malta should also pursue and reinforce the implementation of its policies with

respect to the treatment of refugees and gender equality, as well as the reform of its

public administration.

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2. Economic criteria

2.1.

Introduction

In its 1999 Opinion on Malta’s application for EU membership, the Commission

concluded:

“Malta will need to build up a track record in the establishment of a stable and sound

macroeconomic environment and implementation of reform and liberalisation. Given the

small size of its economy, Malta should be able to address these issues in an appropriate

way and hence become successfully integrated with the European economy”.

This finding was confirmed in the 1999 Regular Report. In its 1999 Regular Report, the

Commission found that:

“Malta is a functioning market economy, and should be able to cope with competitive

pressure and market forces within the Union provided it takes the appropriate measures,

in particular by continued industrial restructuring.”

In examining the economic developments in Malta since the Opinion, the Commission’s

approach is 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 pressure 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 Report.

2.2.

Economic developments

After some years of deceleration of the performance of the Maltese economy, the first

indications of an economic improvement became visible from the end of 1999. Positive

signs stemmed from high GDP growth, good export performance and a slight recovery of

domestic demand. Although unemployment increased during the last years, it remains

low compared with the EU average and has decreased in the second quarter of 2000. In

1999, the government’s medium-term fiscal programme generated the first decrease in

the public deficit in four years. Preliminary data for the first half of 2000 confirm this

trend. However, the deficit remains very high and fiscal consolidation, so far, has been

mainly based on additional revenues. The current account balance is worsening after a

good performance in 1999, due to a sharp increase in imports for industry and higher

prices for imported oil. Inflation remains at low levels although it is subject to upward

pressures, mainly from imported inflation and the short-term effects of higher taxes.

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Malta

1996

1997

1998

1999

2000 latest

Real GDP growth rate

per cent

4.0

4.9

3.4

4.2

3.8 Jan-June

Inflation rate (RPI)

- annual average

- December-on-December

Unemployment rate, end-year

per cent

3.1

2.5

2.8

3.1

3.0

2.4

1.9

2.1

2.6 Jan-Aug

2.7 Aug

per cent

General government budget balance

per cent of GDP

Current account balance

per cent of GDP

million

€

4.4

5.0

5.1

5.3

4.4 Sept

-7.7

-10.8

–281

-6.6

-6.2

-180

-11

-5.6

-174

-8.5

-3.5

-119

-9.7 Jan-June

-178

Foreign debt

- debt export ratio

- gross foreign debt

Foreign direct investment in flow

- balance of payments data

per cent

million

€

81.8

1,866

110.0

2,757

229.4

6,301

234.5 E

7,273 E

per cent of GDP

million

€

8.4

218

2.4

7.7

238

24.4

830

5.8 Jan-June

106

E = Estimates

The government is undertaking a number of important structural reforms that are being gradually

implemented.

At the end of 1999, an industrial restructuring programme was launched, including

measures to remove protective instruments for Maltese industry. It is envisaged that import levies on

manufactured products will be phased out in 2003. The sale of Mid-Med Bank to a foreign bank in 1999

and the gradual liberalisation of remaining capital controls, aimed to be accomplished at the end of 2002,

are creating the basis for a more efficient and diversified financial sector. In addition, a far-reaching

privatisation programme has been approved in 1999 which identified a group of enterprises, including

utilities, for privatisation in the next five years. Trade liberalisation and industrial restructuring are

progressing, albeit at a slow pace.

Excluding local authorities.

Series break in 1998: more complete definition.

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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

per cent

388

2.5

1.8

22.8

214.1

per cent

million

€

per head

91.3

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.

Generally there is a broad consensus concerning Malta’s commitment to the principles

of a functioning market economy.

The government is committed to implementing the

required reforms in order to improve the competitiveness of Malta’s industry. However,

there has been a lack of political consensus on economic policy choices in recent years,

e.g. on taxation policy and the introduction of VAT .

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.

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

The 1999 data for foreign debt are estimates.

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Real GDP growth has expanded by 4.2% in 1999. Preliminary figures for the first half of

2000 show an increase of 3.8% in comparison with the first half of 1999.

Higher exports

of goods and services, driven by the pick-up of EU and world economies, were

responsible for most of the growth. Domestic demand has been weak during the last years

but is showing signs of a slight recovery since the last months of 1999. Although import

growth of capital and consumer goods in 2000 confirms this recovery, the short-term

effects of enterprise restructuring and stricter fiscal policy appear to be moderating

domestic demand.

Unemployment remains at a relatively low level, although it has been increasing in

recent years.

Registered unemployment continued a steady upward trend and reached

5.3% of the labour force in 1999, but decreased to 4.6% in July 2000. The main reason

for the recent improvement is the higher employment created by the private sector, which

offset a high non-seasonal increase in labour supply during the first months of the year.

Employment also increased in the public sector. Nevertheless, unemployment might be

subject to upward pressure as a result of enterprise restructuring.

External deficits have increased during the first half of 2000.

Although the current

account deficit improved during 1999, down to 3.5% of GDP from 5.6% in 1998, it

widened during the first quarter of 2000. The main reason was a steep increase of the

visible trade gap. This was mainly due to strong growth in imports, driven by inputs for

industry and capital goods imports for the electronics and paper industries, higher

demand for motor vehicles, and the higher oil bill due to international oil price increases.

The services account surplus decreased due to lower tourist arrivals, while the income

account surplus contracted somewhat. Trade figures up to June 2000 confirm the

increasing trend in imports, leading to a further increase of the visible trade gap.

Nevertheless, the export performance remains strong, with machinery and transport

equipment goods leading the trend. Foreign direct investment easily financed the current

account deficit in 1999, but remained low if one disregards privatisation proceeds and

capital and reserve inflows from international banks.

Inflation remained low at 2.1%in 1999, although it started to increase during the first

half of 2000.

Relatively weak domestic demand, the appreciation of the Maltese lira

against the euro and low wage increases contributed to the decreasing trend in 1999. Tax

changes, such as the introduction of VAT on oil products and telephone services, the

reduction of subsidies on bread and bus transport, and the slight recovery in consumer

demand have been the main reasons for the pick-up of inflation in the first months of

2000. However as the price of oil has been kept constant and has not reflected the higher

world prices for oil, the inflation rate is artificially low.

The main monetary policy objective of the Central Bank continues to be exchange rate

stability, as an instrument to guarantee low levels of inflation and maintain export

competitiveness.

The Maltese lira is linked to a basket consisting of the euro (56.8%), the

US dollar and the British pound (21.6% each). As a result, from March 1999 to March

2000, the Maltese lira appreciated by 5.7% against the euro but depreciated by 5.5%

against sterling and by 7.1% against the dollar. The Central Bank of Malta continued with

the gradual liberalisation of interest rates. The discount and the central intervention rates

were cut several times during 1999, reducing both rates to 4.75%. The Central Bank was

able to lower the rates because of lower international interest rates, low inflation and

relatively low domestic demand.

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The general government deficit decreased to 8.5% of GDP in 1999 from 11% in 1998.

The government aims at a budget deficit of 7.2% of GDP in 2000. The medium-term

fiscal plan, which was agreed in late 1998, has succeeded in increasing revenues, but not

yet in decreasing expenditure. Preliminary figures for the state budget for the first seven

months of 2000 show an increase of 8.5% in ordinary revenue, whereas recurrent

expenditure increased by 6.2%. The higher ordinary revenue is mainly the result of new

fiscal measures, comprising mainly higher income taxes, increases in social security

contribution rates and a wider VAT base. An improvement in tax collection also

accounted for a large part of the increased revenues. Recurrent expenditure increased due

to increases in wages, salaries and personal emoluments together with higher social

security benefits and one-off compensations for the abolition of some product subsidies.

Capital expenditure decreased during the same period by 4.4%. Despite the positive trend

of the public deficit initiated in 1999, further efforts are necessary to decrease

expenditure in order to achieve medium-term fiscal sustainability. Although a

Commission on Welfare Reform was created to propose measures for reforming the

social security system, no agreement has been reached so far.

Government debt continues to increase as a result of the high level of the government

deficit.

Government debt as a percentage of GDP was 58.1% at the end of 1999, up from

56.1% in 1998. Significant privatisation receipts have contained the debt increase in

1999. Up to June 2000, government debt increased faster again to about 60% of GDP. In

addition to the recorded government debt, guaranteed loans and parastatal borrowing are

very substantial in Malta. The largest part of the debt is funded locally through treasury

bills and government bonds, with only about 5% funded through foreign borrowing.

Trade liberalisation is a key element in the government’s economic policy, even though

some sectors still remain very protected.

Import levies on manufactured products will be

fully phased out by 2003, with the exception of some levies on agricultural products.

Although some levies have already been removed (in October 1999 and January 2000),

the bulk of import levy reductions will only start in 2001. In general, the domestically

oriented enterprise sector in Malta is still adapting to the reduction of protection.

The Maltese economy is generally characterised by the free interplay of market forces,

although the price mechanism includes a system of price controls.

This applies to both

imported and locally manufactured products and comprises maximum margins of profit

as well as the regulation of prices through price orders on some essential commodities. A

number of services offered by public companies such as the energy company Enemalta or

the Water Services Corporation are subject to direct price controls by the government.

Social and political pressures have been important factors in price decisions by utility

providers. Enemalta has kept energy prices fixed despite the international oil price

increases, bearing a cost that endangers its profitability. The weight of essential

commodities – except for energy, water and tobacco products – that are subject to price

controls amounts to less than 5% of the retail price index.

A privatisation process was announced in 1999, following the publication of a White

Paper on privatisation.

The government has set up a plan to privatise a number of public

enterprises in the period up to 2005. It includes the privatisation of Malta International

Airport, Malta Freeport Terminal, Libyan Arab Maltese Holding Company, Air Malta,

the Public Lotto Department and the remaining public stake in Maltacom and Bank of

Valetta. Most public utilities are likely to be privatised around the end of the period. The

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Mid-Med bank was sold in 1999, but no specific privatisation plans have been released

during the first half of 2000.

Maltese company law incorporates most of the requirements of the EC Directives.

Property rights are clearly established in Malta. Bankruptcy laws have been in place and

implemented for a long time. There is a competent and independent judiciary system,

corruption remains limited and the entrepreneurial and investment climate is excellent in

that respect.

The financial sector is developing more rapidly as a result of the liberalisation of capital

markets and the privatisation of the main banks.

A gradual shift from traditional deposits

to investment funds is taking place and a few banks are now starting to deal with long-

term products. The securities market is developing as well and there is a more efficient

use of human resources within the sector. The banking regulatory framework has been

strengthened. More competition will be introduced in banking since the Central Bank

issued two licences to foreign institutions. New licenses were issued as well for

investment service companies.

Malta is a functioning market economy. Nevertheless, there is a need to reduce the very

large government deficit in order to stabilise the macro economy in an increasingly open

environment. The consolidation of public finances, including the reform of the social

security system, is required to ensure medium term fiscal sustainability. The completion

of price liberalisation is also required, as the system of price controls distorts relative

prices and produces an inefficient allocation of resources. Overall, the influence of the

state in the economy needs to be further scaled back through the completion of trade and

capital liberalisation, the further reduction of state aids, the introduction of more

competition in a number of sectors and the implementation of the authorities’

privatisation plans.

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

Union

As set out in Agenda 2000, Malta’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 within the Union prior to accession. Both the

volume and the range of products traded with EU Member States provide evidence of

this.

Malta is a functioning market economy with a sufficient degree of macroeconomic

stability for economic agents to make decisions in a climate of predictability.

The

ongoing process of restructuring and privatising state enterprises is paving the way for

more efficient public and private sectors. The liberalisation of prices, trade and capital

controls is leading to a more efficient allocation of human and physical resources,

reflected in employment growth in the competitive sectors and lower capital costs.

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Malta has a well-educated work force and a good telecommunication and transport

infrastructure, which provide a good basis for new and competitive economic activity.

The highly educated Maltese work force has been one important factor for the

establishment and further expansion of enterprises in the information technology sector in

Malta. Low-skilled workers are the most likely to be hit by industrial restructuring and

special attention should be granted to training activities for this category of workers. As

regards infrastructure, the government is currently focusing on increasing the

competitiveness of the port by improving logistics and increasing productivity up to the

levels of competing ports. Malta Freeport has been recently expanded by a new terminal.

The government also plans to restructure the shipbuilding industry, although the industry

continues to be highly subsidised.

It is planned that the two public shipyards will be

merged and restructured and that specialised sections for repair, shipbuilding and other

activities will be created, with the aim of increasing productivity and guaranteeing

commercial viability. The government acknowledges that due to the infrastructure

investments required, these plans will only be implemented over the medium term.

Foreign direct investment depends largely on privatisation.

Other than privatisation deals

and capital and reserve inflows of international banking institutions, it remains lower

than expected. The sale of government shares in Mid-Med Bank in 1999, and a sharp

increase in own capital inflows and reserves received by other newly established small

international banks from their parent companies accounted for most foreign direct

investment inflows in the last two years. However, because these banks have not been set

up to be very active in Malta, such capital and reserve inflows from international

financial institutions have almost no effect on the Maltese economy. The government is

aware that the quantity and quality of foreign direct investment is too low and is

reviewing the package of investment incentives issued in 1988, hoping that new

investments will bring more added value to the country. As the country's economy

liberalises, becomes more open and integrates with that of the EU and prospects for

accession intensify, these factors are likely to have a positive effect on the confidence of

foreign investors, gradually increasing foreign direct investment.

As regards government policy influencing the competitiveness of the Maltese economy,

state aids within several sectors remain high.

Aids are granted to shipbuilding,

agriculture, fisheries, production and distribution of water resources, and tourism. The

manufacturing industry also receives state aid through the package of incentives for

investment administered by the Malta Development Corporation. The main recipients of

state aid are the Water Services Corporation, Malta Drydocks and Shipbuilding, covering

both operational and restructuring costs. The government has already started a

restructuring process for the last two companies, but there are no prospects of

privatisation for the time being. The Ministry for Economic Services set up a State Aid

Monitoring Board in June 2000 that will help to develop an inventory of state aids and to

determine whether they are compatible with EC legislation. In addition the government

influences competitiveness through price controls. The most telling case concerns energy

prices. There is clear distortion of relative prices, putting Maltese producers at a

comparative price advantage with respect to other countries. The price difference paid by

Enemelta is equivalent to a subsidy to energy users.

Malta is well integrated in terms of trade with the Union since the EC accounts for

around 49% of Malta’s exports and 65% of imports.

The export base of the economy is

concentrated strongly in a few sectors, mainly in electronics, machinery and transport

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equipment, which generated over 70% of total exports in the period between the first

quarters of 1999 and 2000. A single semiconductor company, ST Microelectronics,

accounts for over 50% of manufactured exports. Although the small size of Malta is

clearly a limitation, efforts to attract higher and more diversified foreign and local

investment would help to guarantee sustained growth. Due to the composition of the

Maltese lira basket, the competitiveness of Malta’s exports towards the EC is influenced

by the value of the dollar and pound sterling.

About 99% of enterprises are SMEs in Malta, most of them employing less than ten

employees and operating within the services sectors.

Roughly 11% of the working

population are self-employed persons. The Institute for the Promotion of Small

Enterprises (IPSE) is launching some programmes specifically for SMEs and carrying out

studies on the impact of the removal of levies and adoption of EC legislation in SMEs.

The assistance provided by IPSE comprises enhancing management, product

development, environmental protection, promoting innovation, human resources, and

other areas. In order to improve access to finance, the Malta Development Corporation

can now grant loan guarantees to back bank loans to SMEs that would not be granted to

them without such guarantees, and an “Alternative Companies Market” for SMEs has

been introduced in the Malta Stock Exchange, allowing smaller public enterprises that

cannot be privatised via the stock market to be listed. As a way to increase efficiency and

decrease red tape, the government is currently testing a system to offer public service on-

line and a Small Business Efficiency Unit has been established to facilitate interaction

between entrepreneurs and the public administration and private service providers, and to

facilitate communication and provide education to small businesses and self-employed

(see also chapter 16 – Small and medium sized enterprises).

Malta should be able to cope with competitive pressure and market forces within the

Union. Nevertheless, remaining market distortions need to be removed and the structural

reforms envisaged need to be completed in due time. Malta is well integrated in terms of

trade with the EU, although, as it is a very small economy, its export performance relies

on a limited number of sectors. Considerable progress has been made in developing

enterprise restructuring and privatisation programmes and initiatives for entrepreneurship

promotion, but their implementation is slow, especially as regards the restructuring of

loss-making public enterprises.

2.4.

General evaluation

Malta is a functioning market economy and should be able to cope with competitive

pressure and market forces within the Union.

The Maltese economy is showing the first signs of stronger macroeconomic performance.

The government’s medium-term fiscal programme generated a first decrease in the public

deficit. Progress has been made in developing restructuring and privatisation programmes

and initiatives for entrepreneurship.

However, the government deficit remains very high and needs to be further reduced in

order to improve the macroeconomic environment. The remaining price controls distort

relative prices and produce an inefficient allocation of resources. The influence of the

state in the economy is still too high in some areas. The implementation of the

restructuring of public utilities and loss-making public enterprises remains slow.

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The authorities need to complete the consolidation of public finances, including the

reform of the social security system, in order to ensure medium term fiscal sustainability.

Market distortions need to be removed and the envisaged structural reforms need to move

into the implementation phase. The influence of the state in the economy needs to be

further scaled back through the completion of trade and capital liberalisation plans, the

further reduction of state aids, the introduction of more competition in a number of

sectors, and the implementation of the authorities’ privatisation plans.

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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 Malta’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 Malta’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

Malta’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 Malta 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 Malta’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 :

“Since the Commission’s last Report in February 1999 there has been little additional

progress in the internal market area. Malta should adopt a programme for alignment in

this area as a matter of urgency. There has been progress in public procurement where

the national preference clause was abolished but deficiencies remain in the area of

standardisation and certification. There is a need to accelerate alignment in areas such as

protection of intellectual property and data protection. The re-introduction of VAT in

1999 was a positive step although further alignment is still needed. The continuing

imposition of levies on imports from the EC is an anomaly which should be removed

immediately.

There is quite a high degree of alignment in the area of anti trust legislation although

there is no merger law in Malta and undertakings with special or exclusive rights are still

not subject to competition rules. There is no systematic control of state aids and no legal

framework. Alignment in this area should be given priority, particularly in the areas of

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aid to ship building and ship repair. The state continues to play an important role in

agriculture and there has been little recent progress in preparing the sector for the

common agricultural policy. In the transport sector there is a need for greater alignement

especially in the areas of maritime safety and pollution control. Malta needs to adopt an

overall strategy for alignment in the environment sector and to strengthen its

implementation and enforcement capacity. In the area of justice and home affairs Malta

should adopt a law on asylum and lift its geographic reservation. There is a need to

strengthen capacity in areas such as immigration control, data protection, the fight against

drugs and organised crime.

Institutions still have to be set up in the areas of environment, customs, consumer policy,

fisheries, maritime transport and regional policy. Administrative capacity needs to be

strengthened across the board.”

3.1.

The chapters of the

acquis

As indicated, the review of

Malta’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.

Chapter 1: Free movement of goods

Since the last Regular Report, little progress has been made in the area of free movement

of goods.

As regards

horizontal and procedural measures,

a new Standards Authority Act

providing the basis for implementing the

acquis

in the area of

standardisation

was

adopted. The setting up of independent functional directorates, bringing a separation of

roles between

standardisation

and testing has represented some progress in the

administrative capacity of the Standards Authority. The responsibility for testing was

transferred to the Malta National Laboratory, which has been registered as a limited

liability company. This latter has benefited from new equipment purchased and installed

with the assistance of the European Community. However, no other progress can be

reported as regards the new and global approach, the notification procedure and the

interchange of data between administrations.

As regards

sector specific legislation and non-harmonised areas,

no progress has been

made. In the field of pharmaceuticals, the administrative procedures related to veterinary

medicinal products are being introduced.

No legislative progress has been completed as regards

Public Procurement.

The

Department of Contracts, which is an autonomous entity within the Ministry of Finance,

is responsible for the application and enforcement of the different aspects of the public

procurement legislation (26 persons). The General Contracts Committee is enabled by the

Public Service (Procurement) Regulations to become a Committee of Review to hear and

decide on complaints submitted by aggrieved tenderers, acting as an arbiter between the

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recommending Department/Corporation and the tenderers concerned. In addition, there is

legal redress in the commercial courts.

Overall assessment

Although Malta has progressed in aligning with the

acquis,

important work is still needed

as regards the new approach and specific sector legislation.

As regards the horizontal and procedural measures, the new Standards Authority Act

provides a basis for the alignment with the

acquis

in the area of standardisation. It should

allow the Malta Standards Authority to become a CENELEC associate member.

A final list of CEN standards is being prepared as a catalogue; however no specific

information has been made available on the number of European harmonised standards

transposed or endorsed by the Maltese authorities.

Further work in order to complete the legal framework for the implementation of the EC

principles on accreditation, metrology and market surveillance should be undertaken as

well as for the set up an efficient conformity assessment system.

Important institutional arrangements regarding the implementation of the new approach,

need to be undertaken in particular in the area of market surveillance. As regards safety

checks on products at external borders, Malta still needs to establish appropriate customs

and market surveillance infrastructure as well as effective administration co-operation

between competent authorities.

As regards sector specific legislation, regulations for the transposition of Directives on

construction products, lifts, medical devices and active implantable medical devices need

to be published. Directives related to pressure equipment, toys, recreational craft,

metrology and pre-packaging, mechanical devices, personal protective equipment and

appliances burning gas, motor vehicles, chemicals, arms control and restitution of

cultural objects must still be transposed.

Mandatory Orders aiming at transposing the Directives on wood in the rough, crystal

glass, footwear, cosmetics, detergents and textile names still have to be published by the

government.

As regards food safety, there is a good level of alignment with respect to labelling, food

additives, nutrition, food control and hygiene, and foodstuffs for particular nutritional

use. A new Food Act, replacing the Food, Drugs and Drinking Water and the Quality

Control Act still has to be adopted. Laboratory facilities in charge of official control need

to be upgraded.

Amendments should also be made to the laws regulating exports of cultural goods in

order to bring them in line with the

acquis

in this sector.

Maltese legislation conforms partially to the

acquis

in the field of Public Procurement.

Further fine-tuning is needed as regards the procuring entities covered - local Councils

and some private companies with exclusive rights are outside the scope.

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As regards the remedies system, an Appellate Board chaired by a legal person who would

otherwise qualify for appointment as magistrate must be established.

The administrative capacity as far as public procurement is concerned appears adequate

for Government Departments. Particular attention should, however, be paid to the

appropriate training of staff. With regard to bodies governed by public law, local councils

and public undertakings (for utilities), Malta will have to ensure that the existing

structures are strengthened to assume the responsibility for supervising and monitoring

the application of procurement rules by those bodies which would be subject to EC rules.

Chapter 2: Free movement of persons

No significant development can be reported on any of the fields in this area, i.e.

mutual

recognition of professional qualifications, citizen’s rights, free movement of workers

and preparations with a view to the future

co-ordination of social security matters.

Overall assessment

On the whole, a sustained effort will be necessary to ensure compliance with the

acquis.

Particular attention should be given to linguistic requirements (use of Maltese language

in certain regulated professions).

Efforts will need to be stepped up in order to ensure that there are no provisions in

Maltese legislation which contradict Community rules, in particular with respect to

nationality and residence requirements. This is the case in the field of free movement of

workers, where legislation is only partially aligned and efforts are required to ensure that

such provisions are removed.

For the

acquis

in the area of mutual recognition of professional qualifications, legislation

needs to be monitored to ensure that it distinguishes between academic and professional

recognition. Malta is partly aligned with the

acquis

in this area. Legislative changes are

needed in the near future concerning the strengthening of the professional regulatory

infrastructure and the setting up of formal infrastructure for the recognition of specialist

training. Another outstanding issue relates to the question of the need to master the

Maltese language in order to exercise certain regulated professions.

Further alignment to the

acquis

is still needed on the issue of the voting rights of all EU

citizens within the Union. The issue of rights of residence is regulated in Malta by the

Immigration Act of 1970. An amendment to the Immigration Act, which would take into

consideration the requirement of the

acquis

on the right of establishment, still has to be

adopted.

In the field of free movement of workers, Maltese legislation is only partly aligned with

the

acquis.

Malta has ratified the European Social Charter.

Efforts will have to be continued to strengthen public employment services with a view

to future participation in the European Employment System (EURES) network.

Malta has a bilateral agreement with the UK (as of 20/6/96) covering aggregation of

insurance periods. Such agreements facilitate Malta’s compliance with the regulations, as

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they rely on the principles of the social security co-ordination regulations, and familiarise

the administration with the procedures.

Chapter 3: Freedom to provide services

Since the last Regular Report, Malta has made some progress in this area, mainly in the

field of financial services.

In the area of

freedom of establishment and freedom to provide services,

no new

developments have taken place over the past year.

In the field of

financial services,

no new legislation has been finalised with respect to

banking

and the area of

investment services and securities markets

(deposit protection

schemes and investors’ compensation schemes, insider dealing). In the

insurance

sector a

number of regulations relative to prudential provisions and to accounting rules were

issued in June 2000 (entry into force January 2001).

No progress can yet be reported as regards legislation on the

protection of personal data

and the free movement of such data

, an area which has been identified as a short-term

priority in the Accession Partnership, nor in the field of

information society regulations.

Overall assessment

Although Malta is progressing in the adoption of the

acquis

in this area, further alignment

is still required.

As far as the freedom of establishment and the general principles of the freedom to

provide services are concerned, the Maltese Government has recognised the urgent need

to simplify and streamline procedures for permits and licences. In many areas

discriminatory provisions vis-à-vis EU citizens will also have to be abolished.

In the field of financial services, legislation to bring Maltese banking and investment

laws in line with the

acquis

must still be adopted. This concerns in particular deposit

protection schemes and investors’ compensation schemes, as well as insider dealing.

Malta follows the main principles of the Community prudential legislation and the

Banking sector is also assessed against the Basle Core Principles for Banking

Supervision. It still needs to set up a deposit guarantee scheme. The Netting Directive

and the consolidated supervision Directive remain to be fully transposed.

The recent adoption of regulations relative to insurance companies’ prudential and

accounting rules has resulted in a significant alignment to the

acquis

in the insurance

field and further implementation can be achieved through secondary legislation.

Although much of the Community

acquis

concerning investment services and security

markets is already incorporated in the Maltese legislation, the UCITS

Directive, the

Undertakings for Collective Investment in Transferable Securities.

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Post-BCCI Directive

and provisions of the Investment Services Directive still have to be

transposed. Malta also needs set up an investor-compensation fund.

As far as administrative capacity is concerned, the Malta Financial Services Centre

(MFSC) regulates insurance and investment services operators, collective investment

schemes and offshore companies while the Central Bank of Malta regulates and

supervises credit and financial institutions. 66 officials work at the MFSC. The MFSC

issues licences and may suspend, cancel or restrict licences in case of wrongdoing, may

carry out investigations and issue public statements. Subject to resource availability, on

an ongoing basis, both on-site and off-site compliance inspections are carried out.

Investigations are also carried out where necessary. The Insurance and Investment

Services sectors are assessed with international norms. In fact many operators in Malta in

this field are branches or agents of international companies and are therefore subject to

international regulation via their parent companies. Main institutions are in place to

correctly implement the

acquis.

However, reinforcement of resources of MFSC in some

areas of supervision would be needed.

In the field of the protection of personal data and the free movement of such data, new

legislation aimed at achieving alignment still has to be enacted. A public supervisory

authority acting independently to monitor the correct application of the data protection

provisions is yet to be established.

Concerning the information society regulations, the legislation on electronic commerce

and computer misuse still has to be adopted.

Chapter 4: Free movement of capital

Substantive liberalisation measures have been taken since the last report.

As regards

capital movement and payments,

in autumn 1999, the Government initiated

a three-stage approach to abolishing remaining restrictions by 2002, with the first stage

enacted by the beginning of 2000, announced through the budget process.

Within that context, remaining controls on current payments were removed. Concerning

capital movements, for

non-residents,

all exchange controls relating to inward direct

investments were abolished (restrictions stemming from sector regulation were, however,

maintained). For

residents,

outward direct investments in non-financial companies were

liberalised, provided the investor has a controlling interest in the company. Furthermore,

outward investments in real estate and portfolio investments are now free up to an annual

allowance of, respectively, Lm 50 000 and Lm 15 000 (the allowance has been increased)

and the holding of accounts in foreign currency in local banks has become largely

facilitated. Furthermore, the allowances for loans between residents and non-residents

have been increased.

As regards

cross border credit transfer,

an Executive Payment Systems Committee was

set up earlier this year to take over the payment task force to formulate rules and

regulations for the payment systems. No further progress can be reported since in this

field..

Directive on the reinforcement of prudential supervision in the financial services.

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As for the related

acquis

money laundering,

since last Regular Report the list of

predicate offences in terms of the Act has been widely extended to conform to recognised

standards. In December 1999, the Central Bank instructed all credit institutions to close

any remaining bearer deposit accounts by 30 June 2000, which therefore allows all

accounts owners to be identified. This reinforces Maltese legislation in this area, which

was already largely in line with EC legislation.

Overall assessment

In spite of the progress in the alignment with the

acquis

that Malta has accomplished

during the last twelve months, it still has a rather comprehensive system of exchange

controls and other restrictions on Capital movements.

With regard to

acquisition

of real estate, under the present legislation foreigners may be

allowed to purchase immovable property in Malta provided that the said property is used

as a personal primary residence or for business purposes deemed to benefit Malta.

Foreigners are also allowed to purchase secondary residences as long as the price is above

certain thresholds. Outward medium-term capital transactions are free up to the annual

allowances.

The success for the three-stage programme largely depends on how far Malta progresses

in its liberalisation efforts through the 2001 budget process, enabling Malta, according to

plans, to complete the dismantling of the restrictions by 1/1/2002. The acquisition of

certain types of real estate by non-residents and inward direct investments in certain

sectors remain issues of concern as regards the adoption of the

acquis.

Malta has not yet finalised legislation which corresponds to Directives on cross border

credit transfers and on settlement finality. Further efforts are required to implement the

acquis

in this area.

The Central Bank of Malta, on delegation by the Ministry of Finance, regulates and

supervises credit and financial institutions, operates exchange control and oversees the

payment system. It has a staff of 329 officials. The Central Bank and the Ministry of

Finance are deemed to have appropriate competence and capacity to administer the three-

stage liberalisation scheme and to initiate the flanking policies needed to implement a

regime of free capital movements.

Malta has not yet set up a separate financial intelligence unit, replacing the current

structure where the economic crimes unit in the Maltese police is responsible for the fight

against money laundering. The administrative capacity should be reinforced in that

respect.

Chapter 5: Company law

Since the last Regular Report, Malta has made substantial progress in this area.

In particular as regards the

protection of intellectual and industrial property rights,

field which has been identified as a short-term priority in the Accession Partnership, a

number of new laws were adopted.

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In the field of Intellectual Property Rights, the Copyright Act adopted in February 2000

incorporates the provisions of the

acquis

in this area with the exception of the provisions

related to inter-Member State cable retransmission. The Customs Act dealing with border

enforcement was also approved by Parliament in February 2000.

In the field of Industrial Property Rights, A new Patents Act (Act XVII) has been adopted

and should enter into force in September 2000. The Act

inter alia

incorporates the

substantive provisions of the European Patent Convention but does not however

incorporate the recent amendments to the EPC dealing with biotechnological inventions.

The Trademarks Act (XVI) has been adopted and will enter into force in September. The

Act enables the Minister to issue (by regulations) provisions to extend the effect of the

Community Trademark in Malta on its accession to the EU.

With regard to

company and accounting law,

no further developments have been

reported.

Overall assessment

Following recent progress, Malta has achieved high level of alignment in the area of

company law. However, the administrative capacity needs to be strengthened.

The 1995 Companies Act incorporates most of the requirements of the EC Directives on

Company law. However the Directives on co-ordination of safeguarding of employees’

rights in the event of transfers of undertakings, businesses or parts of businesses still have

to be transposed. The Registry of Companies is responsible for the implementation of the

EC Company law. It operates within the structure of the Malta Financial Services Centre

and oversees companies incorporated under the Companies Act, 1995 and partnerships

under the Commercial Partnerships Ordinance, 1962. With a staff of 25 people, the

Registry of Companies is fully computerised and the existing administrative structure

should be adequate to implement and enforce the

acquis.

The same assessment is valid for accounting law, where Malta’s legislation is already to a

large extent in line with the

acquis,

but minor adjustments are still needed,

inter alia,

regards consolidated accounts, voting rights and disclosure requirements for branches. In

this field, the Ministry of Finance is responsible for the application of legislation

concerning Accountancy. Auditors are answerable to the Accountancy Board (Ministry of

Finance). The administrative set up to implement the

acquis

in this area is the

Accountancy Board in the Ministry of Finance, but its human resources need to be

increased.

Joining the

Brussels and Rome Conventions

will be possible only after accession. In the

meantime, Malta is interested in joining the Lugano Convention, which is equivalent to

the Brussels Convention and open to third countries. With respect to the Rome

Convention, Malta has to prepare the necessary legislation in order to allow for swift

implementation of the convention after accession, specifically in relation to the courts,

which may be designated for that purpose.

Brussels Convention on jurisdiction and enforcement of judgements in civil and commercial matters;

Rome Convention on the law applicable to contractual obligations.

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Following recent progress, Malta is now close to alignment with the

acquis

in the field of

industrial and intellectual property rights. Concerning pharmaceutical products,

patent

protection has been provided in Malta since 1900. Malta still has to adopt legislation on

Supplementary Protection Certificates as well as legislation transposing the Community

acquis

on Designs and protection of biotechnological inventions. Regarding

administrative capacity, the Industrial Property Office is responsible for approving

registration of trademarks, patents and for designing records assignments. Once goods

have been released on the local market, the Economic Crimes Unit of the Police Force

enforces intellectual property rights. The Unit carries out regular investigations at retail

outlets and on the open markets. The Investigations Section of the Customs Authority is

responsible for border enforcement. As far as Intellectual Property is concerned, there is

no court specialised in Intellectual Property Rights Cases. Cases are dealt with in the

Civil Courts. Two collective societies for the management of copyrights exist in Malta:

The Performers’ Rights Society and the Kopjamalt-Reprography Rights Society.

The Industrial Property Office would need to be reinforced. Extensive training should be

given to Police and Customs Authorities in charge of the enforcement of the Intellectual

Property Rights. Border enforcement and the co-operation of the enforcement authorities

with the right holders should be further organised and developed. It should be noted that

very few judges and prosecutors are familiar with Intellectual Property Rights legislation,

and training, as well as development of a court practice, would be needed in that respect.

Chapter 6: Competition policy

Since the last Regular Report, Malta has made limited progress in this area.

In the area of

State Aid,

Malta set up a State Aid Monitoring Board in the summer of

2000. The main task of the Monitoring Board is to supervise State aids (i.e. to assess the

compatibility of state aids with the criteria arising from the relevant EC

acquis).

No further developments can be reported in the field of

anti-trust.

The authorities to enforce competition rules (rules on restrictive agreements, abuse of

dominant position and the control of mergers), the Office for Fair Competition

(investigates) and the Commission for Fair Competition (takes final decision) are both

independent from the Ministry of Economic Services. The Office for Fair Competition

has recently been reinforced with the recruitment of additional technical staff and now

has a staff of 7. It has examined a number of cases mainly on the basis of complaints.

Overall assessment

While Malta’s antitrust legislation is largely in line with the

acquis,

much remains to be

done with respect to State Aid.

Malta is at the very beginning of developing a proper State Aid control system. The first

step has been taken with the establishment of the State Aid Monitoring Board in the

summer of 2000.

Malta has also embarked on the task of completing a state aid inventory as well as

preparing a state aid report, which was a short-term priority of the Accession Partnership.

Malta now needs to introduce a framework for the effective application and enforcement

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of the Community state aid rules, including the alignment of existing aid measures (in

particular the system of tax incentives which is currently being reviewed). This was a

short-term priority of the Accession Partnership. State aid in the shipbuilding and ship

repair industry will have to be adjusted accordingly.

Malta’s anti-trust legislation is largely in line with the

acquis.

Amendments to the current

Competition Act are still needed to ensure that all public undertakings and those granted

special or exclusive rights are covered by the anti-trust rules. With a view to ensuring

proper competition on the market, Malta has undertaken to further improve existing

merger control. Further alignment is still necessary, especially in view of developments

of the

acquis

on vertical restraints.

The main challenge now is to ensure the effective application and implementation of the

anti-trust rules and to give priority to cases concerning the most serious distortions of

competition .

Chapter 7: Agriculture

Agriculture in Malta accounted for 2.5% of GDP

in 1999, thus remaining at almost the

same level as in 1998 (2.7%). Also, employment in agriculture has remained stable with a

share of 1.8% in total employment. The Maltese agricultural sector is characterised by a

limited agricultural land surface (approx. 12.000 ha) and by limited productivity and

efficiency due to scarce water resources, land availability and natural disadvantages

associated with an island setting. Agriculture has, however, a multi-functional role in

maintaining environment, landscape, tradition and social structure.

Agricultural production has increased steadily over the past ten years

and did not change

significantly in comparison to last year. The most important agricultural sectors in Malta

are fruit and vegetables, together with potatoes.

In 1999, EC imports of agricultural products originating in Malta increased by about 16%

amounting to

€

5.9 million. EC exports to Malta increased by 5% amounting to

€

185

million. The trade balance in favour of the Community amounted to

€

179 million in

1999, compared to

€

171 million in 1998.

Since the last Regular Report, Malta has not taken major steps as regards its agricultural

policy. Overall objectives of Malta's agricultural policy remain the production of high

quality products at a reasonable price for consumers but providing an adequate and just

income for farmers and the preservation and enhancement of the rural environment. An

evaluation of trends has lead to the formulation of two programmes to prepare Maltese

agriculture for the increased competition due to the single market and for the

implementation of the CAP.

Malta has a fragmented farm structure (12,958 farm holdings), holdings are mostly in

private ownership. There are no specific land consolidation measures.

Source: The source of all agricultura statistics is EUROSTAT unless otherwise specified.

Source: FAO

Source: Uruguay Round Agreement definition of agricultural products, figures taken from

EUROSTAT COMTEXT (see Agriculture in the European Union - statistical and economic

information 1998-1999 Volume I).

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Horizontal issues

As regards the implementation of measures related to the handling of the

European

Agricultural Guidance and Guarantee Fund (EAGGF),

Malta has no experience in

managing such a system. No progress can be reported on this issue. Only for the

establishment of a Paying Agency is a working model being elaborated.

Preparations are under way to establish an

Integrated Administration and Control System

(IACS), based as much as possible on existing elements (e.g. farm registration, databases

of veterinary service on livestock farms and movements of animals). First steps in this

direction have been the setting up of a Geographical Information System for the

recording of holdings. Also, in March/April of 2000, the Central Office of Statistics

started to take aerial photos of the whole country to identify land use and cover.

In relation to

quality policy,

no standards for labelling or rules for indication of origin

currently exist in Malta, but a legal framework is in place establishing a public mark and

allowing the recognition of traditional products and quality.

No progress on organic farming could be identified.

Concerning preparations for Malta’s participation in the

Farm Accountancy Data

Network,

farm accountancy data are not systematically collected in Malta. Only large

operators keep accounts, and there is presently no legislation obliging small farmers to do

so.

Common Market Organisations

Since the last Regular Report, Malta has not made substantial progress as regards the

introduction of a legal framework and administrative structures for the establishment of

Common Market Organisations.

As regards the adoption of specific regulations

organising the different markets covered by the EC

acquis,

no progress can be reported.

Rural development and forestry

No progress can be reported in this area as no specific measures have been set or

prepared to enhance rural development.

Forests cover only a very small part of Malta's territory (32 ha) and are mostly situated

within nature conservation zones. Preservation and maintenance are assured by the Urban

and Rural Landscaping Unit of the Department of Agriculture, which runs also a forestry

nursery. Though the forest is strongly threatened , no further measures to maintain and/or

increase forests have been programmed, in particular to protect them against fire.

Veterinary and phytosanitary issues

Since the last Regular Report, limited progress has been made in the veterinary sector,

mainly as regards

animal health.

In the phytosanitary sector, no progress can be reported.

A veterinary health-monitoring programme has been introduced. Some of the Maltese

testing standards are being put into conformity with EC requirements. However,

slaughterhouse waste disposal is not in line with the

acquis.

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Overall assessment

Since the last Regular Report, Malta has made limited progress as regards the

introduction of a legal framework and of administrative structures for the implementation

of the Common Agricultural Policy. The horizontal issues related to the mechanisms of

the Common Agricultural Policy and the EAGGF are hardly tackled.

Preparatory legislative work in the field of Common Market Organisation is limited to

the wine sector and the establishment of producer associations as well as standards for

fruit and vegetables. Alignment to the

acquis

therefore needs reinforced efforts.

Administrative management of the Common Market Organisations has not yet been

specified. Implementation of trade mechanisms related to Common Market Organisation

is, however, prepared at the administrative level.

Efforts concentrate on the setting-up of the Integrated Administration and Control System

for which preparatory work has gathered a good pace.

In the field of quality policy, the legal framework needs adjustment to Community

definitions for quality designations and preparation of institutional framework for

registration and control. No progress on organic farming could be identified.

There has been no drafting of multi-annual programmes for rural development and

forestry, a short-term priority of the Accession Partnership. While less-favoured areas and

afforestation schemes would be important rural development measures for Malta, and

implementation of agri-environmental measures is mandatory upon accession, no

preparations for these schemes have been started yet.

Continuing of alignment of veterinary and phytosanitary legislation and upgrading of

inspection arrangements, in particular at future external borders, were identified as short-

term priorities in Malta’s Accession Partnership. A lot of work remains to be done in that

sector.

As regards administrative capacity in this field, the veterinary service staff includes 4 vets

and 7 auxiliaries. These services control all relevant activities from the issuing of

licences, certificates for importation/exportation and regular inspections in farms and

slaughterhouses to agri-food processing establishments and retail outlets. The

Department can induce sanctions in case of non-compliance with regulations. As far as

phytosanitary

issues are concerned, Malta must still transpose the

acquis.

Capacity

building is needed to tackle new phytosanitary aspects and reinforce other areas. Three

fully functional laboratories – Chemistry, Biology and a Virology Laboratory – are

available within the Plant Health Division. A project for the upgrading of the facilities

available in the laboratories is currently in progress.

With respect to

control measures,

Malta has an emergency plan which is generally in line

with Community rules.

Chapter 8: Fisheries

Since the last Regular Report, no major legislative developments have taken place in this

domain.

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Malta still has to finalise a fish marketing scheme in order to align with the EC

Markets

policy,

in particular in the field of private storage aid, carry-over and rules on

withdrawal.

No significant progress has been made as regards

resources management, inspection

and control.

In the field of

structural actions

(including fleet registration), data collection was

finalised in July 2000. The database will serve as a basis for new licenses, which were

first issued in the 3rd quarter of 2000.

Though limited,

State aid to the fisheries sector

currently exists in Malta. Whereas

grants are rarely given for the improvement of the fishing fleet, port facilities and

marketing schemes are supported and cold storage facilities are provided.

No developments can be reported as regards

international fisheries agreements.

Overall assessment

The current reforms in Malta to match Common Fisheries Policy requirements still need

to be completed. They cover in particular inspection and control (including introduction

of satellite surveillance), structural policy, and fishing vessel registration.

The enabling Act on Fisheries Conservation and Management, which is currently before

Parliament, must be adopted and Malta should strengthen the staffing of inspectors in the

Department of Fisheries and Aquaculture. Malta needs to align the current fish

parameters with the EC marketing standards.

In order to safeguard stocks, Malta has the intention to maintain the fisheries

conservation zone within the 25 nautical mile limit it has set since 1971. The extension of

the fisheries conservation zone beyond the 12 nautical miles limit is an issue currently

not in line with the EC

acquis.

Malta does not have any bilateral fisheries agreements but is an active member in the

General Fisheries Commission for the Mediterranean (GFCM) and observer in ICCAT

(International Commission for the Conservation of Atlantic Tunas). Malta has signed but

not yet ratified the UN Agreement on Conservation and Management of straddling and

highly migratory fish stocks.

The Ministry of Agriculture and Fisheries through its Department of Fisheries and

Aquaculture is responsible for the fisheries sector and acts as a Fisheries Monitoring

Centre. The Department of Fisheries and Aquaculture is divided into two units: Fisheries

(18 people) and Aquaculture (25 people). The Fisheries unit has regulatory functions with

its executive, operative and security staff totalling eighteen people. The Aquaculture unit

is more oriented towards experiments and training. The health aspect of the Aquaculture

industry falls within the responsibilities of the Veterinary Services.

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Chapter 9: Transport policy

In the field of transport policy, some progress can be reported since the last Regular

Report.

Concerning

land transport,

the Public Transport Authority Bill providing the framework

for subsidiary legislation has recently been adopted.

As regards

air transport,

whilst the air safety situation is advanced, no legislative

developments can yet be reported. There has been some strengthening of the Department

of Civil Aviation through the recruitment of additional professional/technical staff.

As regards

maritime transport,

amendments to the Merchant Shipping Act were passed

in July 2000 for which the objective is to align Maltese legislation with the Community

acquis

on crew qualifications and other maritime standards. Adoption of the maritime

transport

acquis

was identified as a short-term priority in the Accession Partnership.

Although the Malta Maritime Authority is putting effort into capacity building with the

recruitment of 15 additional inspectors, taking the total to 90, the enforcement of

regulations and standards is a major weakness and remains a problem. Particular attention

has to be paid to the implementation and enforcement of international maritime safety

and pollution standards as key safety requirements in the field of maritime transport.

Malta has given priority to Flag State inspections over Port State Control, and has

consequently increased its efforts in this domain.

Overall assessment

On the whole despite some progress in the maritime and road transport fields, Malta still

has to progress in all areas of the transport

acquis

before full alignment can be achieved.

Efforts are also needed to improve the administrative capacity to implement the

acquis,

in particular in the maritime safety field.

Malta has made some progress in the adoption of the Community road transport

acquis

but a considerable body of legislation remains to be transposed.

Amendments to the Public Transport Authority Act, which partially align the Maltese

legislation with the Community land transport

acquis,

were adopted by the Parliament in

August 2000, as were

acquis

provisions for driving licences. Requirements for

roadworthiness appear now to be in line with the Community

acquis.

Further efforts have

to be made to transpose the remaining

acquis,

in particular on the issues of market access,

fiscal harmonisation, transport of dangerous goods and speed limiters.

Due to the size of the country and the limits of the road network on the islands, Malta

may wish to make full use of the possibilities for derogations and exemptions with regard

to social aspects of the land transport

acquis,

e.g. driving hours and rest periods and

tachographs.

Amendments to the Maltese Civil Aviation Act still need to be adopted in order to bring

it fully in line with the

acquis,

in particular with regard to slot allocation and ground

handling. Appropriate legislation on denied boarding, aircraft noise, computer reservation

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systems, air traffic control equipment, Eurocontrol standards and air accident

investigation has been prepared but still need to be adopted.

Through the adoption of the amendments to the Merchant Shipping Act in July 2000,

Malta has aligned its legislation with the

acquis

on crew qualifications and on certain

other maritime safety standards. New legislation expected to be enacted before the end of

the year will also incorporate safety rules for passenger ships. EC rules on maritime

cabotage still need to be transposed.

Malta has also made limited progress with regard to the fleet’s safety record. A full

being improved. Vessels exceeding 25 years old are no longer accepted as new entrants

onto the Maltese register. However significant efforts are still required on maritime safety

in order to meet commitments for full implementation ahead of accession. Particular

efforts are necessary in order to fulfil Community rules on Port State Controls and Flag

State inspections. Efforts on Port State Control are necessary in order to reach the target

of controlling 25% of the vessels entering port in Malta ahead of accession. Care should

be taken that there is a sufficient number of trained inspectors to apply the

acquis.

Improving the frequency of flag state inspections and the establishment of a framework

of co-operation with the classification societies are also necessary since the detention rate

for inspected ships in Maltese register was 10.6% in 1999 as compared with an average

of 3.6% for ships under EU flags.

With regard to

horizontal aspects,

Malta should assess its transport infrastructure needs

to prepare its participation in the Trans-European Networks.

Chapter 10: Taxation

Since the last Regular Report, Malta has made some progress in this area, mainly in the

field of

VAT.

The main efforts relate to the taxation of motor vehicle fuel (petrol and diesel) and cable

telephony, which since 23 November 1999 and 1 January 2000 respectively, have become

taxable at the standard rate of 15%. This has resulted in an amendment of the right of

deduction of input VAT for motor vehicle fuel for commercial vehicles as of 23

November 1999. By 21 December 1999 the provisions on VAT refunds to persons

enjoying diplomatic status were amended and of 1 January 2000 the scope of taxable

persons has been broadened, with the public corporation “Enemalta Corporation”

responsible for energy being considered as a taxable person.

In the field of

excise duties

the main progress relates to an increase in the duty rate for

certain types of cigarettes with the objective of aligning it with the

acquis.

This has

resulted in meeting the Community’s minimum incidence of excise duty of 57% for this

specific category of cigarettes. Furthermore, the definition of volumes for calculating the

excise duty on mineral oils was brought in line with that of the

acquis

by October 1999.

direct taxation,

Malta has as of January 2000 abolished the indirect duty of 0.4% on

the raising of capital, and its legislation in this area should now fully comply with that of

the

acquis.

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The Inland Revenue Department, the Value Added Tax Department and the Customs and

Excise Department, all of them part of the Ministry of Finance, are the bodies responsible

in the field of taxation.

Concerning

administrative capacity,

Malta has appointed as of 1 January 2000 six new

Assistant Directors within the VAT Department. At the same time an Internal Audit Unit

has been established as well as a Customer Care Unit to improve the quality of the

service to taxpayers. Moreover, in May 2000 a Director for EU matters for the Customs

Department was appointed with a brief of co-ordinating and monitoring the

implementation of Customs related business strategy for accession. He will form part of

the Pre-Accession Unit, to be established during 2000, which will be responsible for the

successful implementation of the Business Change Management Plan for Customs and

Taxation.

Overall assessment

Overall, Malta has achieved a reasonable level of alignment with the

acquis

in the area of

taxation, but substantive efforts are still required.

VAT was re-introduced in Malta in January 1999. It provides the necessary framework

for the transposition of the

acquis.

However, substantive further alignment is still

required. The main discrepancies between the Maltese VAT legislation and that of the

Community relate to the application of rates and the scope of exempt transactions. In

particular the excessive application of zero-rating gives rise to significant concern. As

full alignment in these areas is most likely to have a significant impact on consumer

prices, it is important that Malta establishes a structured pre-accession strategy.

Since 1995 Maltese excise legislation has undergone major changes, which brings it more

in line with the Community

acquis.

However, significant efforts are still required both as

regards the taxable scope, the level of duty rates and the tax structure. Although the

Community’s minimum duty rate level of 57% has been reached for cigarettes exceeding

75 mm in length this is not the case for cigarettes below 75 mm in length. Furthermore,

the combined (specific/ad valorem) duty structure for all categories of cigarettes remains

to be introduced. No progress has been made as regards the duty rate levels on the

required alcoholic beverages and mineral oils. Moreover, in contradiction with the

requirements of the

acquis,

Malta continues to tax leaded petrol at a higher rate than

unleaded petrol and to zero-rate cigars, cigarillos, pipe tobacco and beer.

As far as administrative capacity is concerned, the main structures required for the

implementation, control and enforcement of the

acquis

appear to be in place. However,

the implications, including those related to computerisation, of adhering to the

acquis

remain a challenge.”

Chapter 11: Economic and Monetary Union

A detailed assessment of Malta’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 before accession, i.e. the prohibition of direct

public sector financing by the central bank, the prohibition of privileged access of the

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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

the section on

Chapter 4 – Free movement of capital.

Since the last Regular Report, Malta has made some progress in the adoption of the EMU

acquis.

The Minister of Finance removed the possibility for

direct public sector financing by

the Central Bank.

This had the effect of abolishing the Government's overdraft facilities

at the Central Bank. Although the Government had not borrowed directly through this

facility since the beginning of 1995, the elimination of this possibility was required to

align with this part of the EMU

acquis.

In April 2000, the Central Bank of Malta removed the provision relating to the maximum

rate of interest that banks could charge on loans and advances on residential units. This

provision could have been considered as a case of

privileged access of the public sector

to financial institutions,

and its removal represents therefore a substantial progress in

the adoption of this part of the EMU

acquis.

No further progress can be reported in ensuring the

independence of the Central Bank.

Overall assessment

Malta 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.

Overall, Malta has adopted substantial parts of the EMU

acquis.

However, Malta has not

yet aligned its legislation with the requirements of the Treaty concerning the

independence of the Central Bank.

Malta has made progress on the issues of the prohibition of direct financing of the public

sector and the prohibition of privileged access of the public sector to financial

institutions. However, the Central Bank of Malta is also the market maker for the

government debt, and can, in this capacity, subscribe to government debt instruments in

the primary market. Amendments to the Central Bank of Malta Act to explicitly prohibit

the Central Bank from all forms of direct financing of the public sector still have to be

adopted.

As regards the independence of the Central Bank, whilst members of the Board of

Directors are not to receive or accept directions from any person or authorities under the

current legal framework, the Minister of Finance may still, in exceptional circumstances,

give directions to the Central Bank on the conduct of monetary policy. Malta needs to

make further progress in ensuring the full independence of the Central Bank.

Chapter 12: Statistics

Since the last Regular Report, Malta has made good overall progress in the area of

statistics.

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Concerning the

statistical infrastructure,

the Central Office of Statistics (COS) is

responsible for the compilation of statistical data under the Statistics Act of 1955.

Presently the COS is a Department within the Ministry of Economic Services. Its personnel has

been substantially reinforced since the last

Regular Report and two new statistical units

dealing with Environment and Transport statistics have been set up.

Concerning

classifications,

CPA and GEONOM have been adopted, and full compliance

with NACE is achieved.

As regards

demographic and social statistics,

a first Labour Force Survey that

incorporated all of Eurostat’s recommendations and the latest

acquis

on the area was

carried out in May 2000. This provides the basis for the implementation of the

acquis

this area.

Concerning

regional

and geographic information, a NUTS geographical classification for

Malta has been devised together with land area and population data (see paragraph on

regional policy).

Regarding

macro-economic statistics,

work on the introduction of ESA 1995 is ongoing

and covers GDP deflation procedures, GDP estimates and improvement of GDP

coverage.

As from this year, the balance of international payments of Malta is being compiled,

presented and published in accordance with the fifth edition of the Balance of Payments

Manual of the International Monetary Fund.

The COS now produces data within the European Comparison Programme for

Purchasing Power Parity (PPP) purposes.

As regards

business statistics,

as from January this year, the COS introduced its short-

term indicators programme on manufacturing and construction. Much work still needs to

be done in the area of structural business statistics.

Concerning

transport statistics,

the COS is in full compliance with most of the

requirements for statistics on transport of goods by road and sea.

The COS has provided Eurostat with

external trade statistics

which are broadly in line

with the

acquis

requirements.

In the field of

agriculture,

Malta has already achieved quite a good situation as regards

agricultural structures. For crops and animal production, only minor extensions are

needed.

Overall assessment

There has been important progress across most of the statistical areas. Malta is on a good

track to be fully in line with the

acquis

in this area, provided it pursues the important

efforts that it has undertaken. The quantitative reinforcement of the Central Office of

Statistics, as well as the training received by its staff, gives Malta an appropriate

administrative capacity to implement the

acquis

in this area.

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The law that would turn the Central Office of Statistics into an autonomous body

corporate should be enacted by the Parliament.

Chapter 13: Social policy and employment

Further progress has been made by Malta in this area since the last regular report.

In the field of

Labour law,

no legislative progress can be reported.

In the field of

equality of treatment,

Malta enacted the Equal Opportunities (Persons

with Disability) Act in January 2000 and it will be in effect on 1 October 2000. The Act

will prohibit discrimination against persons with a disability in all spheres of life.

The National Commission on Persons with Disability (NCPD) has been set up, as has the

Equal Opportunities Unit, within the NCPD, with a view to investigating alleged acts of

discrimination against disabled persons. The NCPD has already begun investigating acts

of discrimination on an informal level and will proceed with more formal proceedings

once the Act enters into force. All building permits are now being assessed by the NCPD

in order to ascertain whether the building will be compliant with accessibility standards

established between the Planning Authority and the Commission itself.

As regards

Health and safety,

regulations on Signs at Work Places came into force on 1

July 2000. Regulations on Protection of Maternity at Work Places and on the Protection

of Young Persons at Workplaces were enacted in April 2000, to come into force on 1

January 2001 and 1 January 2002 respectively.

In the field of

Public Health,

Malta is fully committed to participating in the surveillance

and control of communicable diseases and is well prepared to collaborate in the

Community Network for the Epidemiological Surveillance and Control of

Communicable Diseases. Malta is currently participating in preparatory meetings of the

Network Committee. In respect of notifications, the main concern regards food

poisoning, as there have been a large number of such notifications of late.

There are two main Ministries responsible for public health in Malta: the Ministry for

Social Policy and the Ministry of Health. The latter is responsible for several

Departments that include public health, health promotion and health information.

Social dialogue

is well established in Malta. There are various mechanisms that are

intended to promote social dialogue. The Government has established, by administrative

decision, the Malta Council for Economic Development (MCED), composed of

representatives of various constituted bodies and Government entities, to provide a forum

for broadly based consultation between all social partners. Also, representatives of the

social partners may sit on the Board of various Government entities, like the Employment

and Training Corporation, the National Employment Authority, the Commission for the

Promotion of Occupational Health and Safety, the Labour Board, and the Social

Assistance Board and the Panel of Assessors. The new legislation also ensures

representation of the social partners in the Occupational Health and Safety Authority. In

addition, there is an ongoing social dialogue in both public administration and in state

enterprises.

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This reinforcement of the Social Dialogue supports social partners’ capacity-building

efforts to develop and implement the

acquis,

which was a short-term priority in the

Accession Partnership.

The

employment

rate is tabled at rather low level of 52.7% but the female employment

rate was very low (30.8%) compared to the male rate (74.3%) in 1999. Unemployment

decreased from 5.3% in the last quarter of 1999 to 4.6% in the second quarter of 2000, as

the upward trend observed in recent years has been halted by the rise in labour demand.

Work on the Joint Employment Policy Review has started in 2000, aiming at the

adoption of a Joint Assessment Paper in the first half of 2001. An intervention Unit was

set up by the Employment and Training Corporation (ETC), the Malta Development

Corporation (MDC) and the Institute for the Promotion of Small Enterprises (IPSE) to

serve as an early warning system for collective or less substantial redundancies resulting

from the restructuring process. Labour market oriented training is provided both by the

ETC and by other institutions. The Employment and Training Corporation (ETC) has

also started its preparation for participation in European Employment System (EURES),

and is already advertising job vacancies over the Internet.

Malta recognises the importance of acceptable

social protection

and is aware of the

principles set out in related Council Recommendations. Malta is a signatory to the

European Social Charter of the Council of Europe and is committed to an adequate level

of social protection and health care.

Overall assessment

Although significant progress has been made in terms of legal transposition in many

areas, much legislative work remains to be done before conformity is achieved in areas

like labour legislation, occupational health and safety, and equality of treatment between

women and men.

In the area of social dialogue, it is important for the state to encourage workers' and

employers' representatives to develop an autonomous social dialogue between

themselves, in particular at sectoral level.

Malta is engaged in a consultation process with the social partners to review its existing

labour legislation with a view to alignment with the EC

acquis.

Following the current

discussions with the Malta Council for Economic Development (MCED), Malta should

adopt legislation related to a substantial number of areas like the Organisation of

Working Time, Collective Redundancies, Transfer of undertakings, Written Statements,

European Works Councils and Posting of workers.

With regard to health and safety, Malta is carrying out an economic impact assessment,

the results of which should make it possible to establish a timetable for the adoption of

legislation on the numerous EC provisions in this area that have not yet been transposed.

In the field of Public Health, Malta still has to adopt legislation on the labelling of

tobacco products and the maximum tar yield of cigarettes. It is awaiting the adoption by

the Council and the European Parliament of the new directive on this subject.

The overall public health situation is satisfactory in Malta. Maltese health indicators and

infrastructure compare well with those in the EU.

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Malta has the essential enforcement structures, which the government plans to strengthen

further. This will in particular be needed with regard to labour inspection services

monitoring health and safety at work, labour law and equality of treatment.

For the implementation of future

ESF-type

measures, the administrative capacity of the

Ministry for Social Policy needs to be strengthened.

So far, there have not been significant problems associated with racism and xenophobia.

However, as mentioned in section B.1.2, there is as yet no prohibition of racial

discrimination in Maltese criminal law, as required by the International Convention on

the Elimination of all Forms of Racial Discrimination. Legislation transposing the EC

Directive based on Art. 13 of the Treaty relative to discrimination on the grounds of race

or ethnic origin will have to be introduced and implemented.

Chapter 14: Energy

Since the last Regular Report, no major legislative developments have taken place with

regard to

security of supply, competitiveness and internal energy market,

and

energy

efficiency.

Measures to transpose the

acquis

on hydrocarbons licensing have recently

been adopted and will take effect from the end of the year. No further progress can be

reported in this area.

Overall assessment

On the whole, Malta still has to transpose most of the

acquis

related to Energy.

As far as

security of supply

is concerned, Malta still does not have legislation

compatible with the

acquis

in terms of minimum oil stocks, nor does it have oil supply

crisis management legislation. Since it is necessary to keep stocks of different products,

some tank building may also be necessary.

In terms of

competitiveness and the internal energy market,

most of the

acquis

still

needs to be adopted with regard, in particular, to the elimination of price distortions. The

separation of the regulatory and service provider functions has to be enacted.

Enemalta, which is the sole producer and distributor of electricity in Malta, continues to

act as the Regulator, since it can grant permission to generate electricity, and it is the

provider of licences for the connection of other electricity producers to the network.

Legislation establishing a Regulator and dealing with other aspects of the internal

electricity market has been prepared but is awaiting final adoption.

The Department of Economic Services is the body responsible for all aspects of energy

regulation, except in the case of energy efficiency issues, where the Department of

Consumer Affairs, together with the Department of Industry, are the competent

authorities.

There are no natural gas or solid fuel markets in Malta. Malta has a small energy market

and considers itself as a small isolated system within the terms of the

acquis.

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With regard to the

acquis

energy efficiency,

Malta still needs to implement this fully.

Appropriate structures to follow-up the implementation of the relevant policies, together

with promotion and training, need to be created.

Malta does not use

nuclear energy

for power generation and has no plans for future

development of nuclear energy. Malta has ratified a number of IAEA Conventions and

has a safeguards agreement with the IAEA. Malta is not part of any bilateral agreements

in this field.

Although Malta does not operate nuclear power plants, due attention should be given to

preparing the implementation of Euratom safeguards.

Chapter 15: Industrial policy

Since the last Regular Report, Malta has made good progress in the area of Industrial

policy.

As regards

Industrial strategy,

the Government published in December 1999 the White

Paper ‘Prosperity in Change – Challenges and Opportunities for Industry’. It provides a

strategic overview for future industrial development and looks at the principal issues

involved, namely attracting foreign direct investment, expanding export activity,

developing high value-added sectors, generating new employment opportunities and

promoting joint ventures. A draft industrial policy document has been presented to the

Malta Council for Economic Development.

The Ministry for Economic Services, which is responsible for the formulation and

administration of the national industrial strategy, is enhancing its capacity to meet the

responsibilities explicit and implicit in EU membership. An Operations Review of the

main entities that support industry in the Ministry has been concluded in order to

strengthen the Ministry’s administration of national industrial strategy and the enterprise

policy as a whole.

Regarding

privatisation and restructuring,

the White Paper ‘Privatisation – a Strategy

for the Future’, published in November 1999, provides an outline of Government’s

privatisation programme over a five-year period. The companies to be privatised over this

period have already been identified. Its aim is to modernise and bring about efficiency in

State-owned enterprises while improving the competitiveness of the Maltese economy.

This will be implemented through wider adoption of modern technologies, formation of

strategic partnerships with international operators and stronger management structures

and practices.

The programme for the dismantling of the import levy regime is being implemented and

the levies on the first and second group of products were removed as scheduled in

October 1999 and January 2000, respectively. The industrial restructuring programme

continues to be implemented with the aim of boosting local industry’s competitiveness.

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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The Institute for the Promotion of Small Enterprises (IPSE) has finalised a study on the

furniture sector and tabled an action programme for the sector in July 2000. It is now

working on studies for the printing industry and the building materials industry.

In March 2000, IPSE also launched the ‘Partners in Business’ Initiatives. It includes

“Business Network”, which promotes networking, “Business Connect” which involves

subcontracting between larger and smaller enterprises, and the “Business Links” initiative

which encourages local enterprises eligible for IPSE’s programmes of assistance to seek

and form strategic business alliances with foreign enterprises.

The Ministry of Finance established a Privatisation Unit, which has the responsibility of

overseeing and implementing the proposed privatisation process.

Overall assessment

Most of the measures taken by the Maltese Government are recent and it is not yet

possible to assess their efficiency. Malta has moved forward with the formulation of an

industrial strategy that addresses the main restructuring challenges and identifies the main

driving forces to developing the competitiveness of Maltese industry. The White Paper

‘Prosperity in Change – Challenges and Opportunities for Industry’ that forms the basis

for the industrial strategy currently under elaboration is in conformity overall with the

principles and objectives of EC industrial policy.

The problem of the state aids to the shipyards remains serious and has not yet been solved

(see also chapter 6 - Competition)

The administrative capacity, i.e. relevant Departments in the Ministry for Economic

Services and IPSE, seems adequate.

Chapter 16:Small and medium-sized enterprises

In the field of

SME policy,

the Maltese Government took steps to further develop

policies aiming at improving the business environment. In parallel to the work on the

industrial strategy, a strategy for entrepreneurship is being developed as announced in the

White Paper “Prosperity in Change, Challenges and Opportunities for Industry” of 1999.

The focus is on increasing the competitiveness of Maltese SMEs.

Concerning the

Business environment,

simplifying and reducing legal and

administrative barriers to enterprise is one of the key priorities of the strategy for

entrepreneurship that is being developed as announced in the White Paper “Prosperity in

Change, Challenges and Opportunities for Industry” of 1999.

A Small Business Unit has been set up within the Ministry of Economic Services. Its role

is two-fold. It acts as a one-stop-shop for individual businesses in their dealings with the

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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administration. It also analyses the existing legal and administrative framework with a

view to proposing measures to simplify and reduce legal and administrative burden.

Overall assessment

Malta’s SME policy is overall in line with the principles and objectives of EC enterprise

policy.

The creation of the Small Business Unit is a step in the right direction. It should provide a

good basis for improvements to the business environment, one of the key objectives of

the enterprise policy currently under elaboration, provided that it is given the necessary

resources and recognition within the administration.

The Institute for the Promotion of Small Enterprises (IPSE) continues to provide its

specific programmes earmarked for SMEs. These programmes target restructuring small

enterprises as well as new start-ups and expansions and provide enhanced assistance to

such restructuring enterprises. It is also undertaking other measures including an

extensive training programme in business planning and related areas and introduction of

the concept of Business Incubation through a comprehensive strategy, this in support of

new business start-ups. There are also several other SME development programmes with

objectives such as increasing management skills and internationalisation, run by different

implementing organisations. Co-ordination between the implementing bodies of the

different SMEs programmes, as well as the new Small Business Unit, is important to

avoid overlaps and promote synergies.

Malta benefits from Community initiatives such as a Euro Info Correspondence Centres.

It is essential that the Business Promotion Act under preparation is developed in

conformity with Community guidelines on state aid for small and medium-sized

enterprises.

Malta has no single definition of SMEs. However, the definitions used by the different

agencies that support SMEs are more restrictive than the Commission’s

recommendations.

Chapter 17: Science and research

There has been progress since the last Regular Report as Malta has formally requested

full association from 2001 with the 5

Framework Programme (FP5). Calls for proposals

closing in September 2000 and beyond are open to Maltese participants.

Since April, the European Union Programme Unit within the Ministry of Education has

been

responsible for the promotion, administration and evaluation of Malta's

participation in EU educational, cultural and research programmes.

The Malta Council for Science and Technology is the

Government

agency responsible for

the management and co-ordination of Malta's participation in the FP5. It has set up a

system of National Contact Points (NCP) for each of the 7 thematic actions.

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Overall assessment

Overall, Malta is making important efforts to participate in FP5 and the situation is

satisfactory in that respect.

Successful implementation of the

acquis

in this area relates directly to the

implementation of the Fifth Framework Programme. The NCP for FP5 needs a more

effective supporting infrastructure. In this respect, it aims to take on the facilitating role

of a “bridging institute” to achieve a higher degree of co-operation and therefore research

and technological development (RTD) and innovation potential and to improve links

between academia and research institutes, and industry and SMEs. Malta is currently

reviewing its statistics relative to gross domestic expenditure on research & development

as a share of GDP, in order to align them with the Community methodology. SME

involvement and SMEs’ role in technology transfer are minimal. Malta has been a

member of COST since 1997.

Chapter 18: Education and training

Since the last Regular Report, Malta has made progress in the field of education and

training, mainly as regards its participation in Community Education programmes.

In June 2000, Malta initialled an agreement on its

participation in the Education,

Training

and

Youth programmes.

This agreement is the legal basis for Malta’s full

participation in the second generation of the European Community programmes, Socrates

and Leonardo da Vinci as from the year 2000, and the “Youth” Community Action

Programme as from 2001. The agreement was signed on 29 September 2000 and entered

into force the same day. In January 2000, the Ministry of Education established the

European Union Programmes Unit (EUPU), a national mechanism aimed at ensuring a

co-ordinated approach to the management of the Community Education and Training

Programmes. As regards Vocational Education and Training, both the Ministry for Social

Policy (through the ETC - Employment and Training Corporation) and the Ministry for

Education (through the EUPU) are responsible for its implementation. Two new staff

members will strengthen the EUPU. Co-ordinating committees have been set up for

Socrates and Leonardo, and one is being formally established for Youth

There has been no progress as regards the question of the

education of children of

migrant workers

and the non-discrimination against EU citizens in the field of

education.

No major development can be reported with respect to the education system.

Overall assessment

On the whole, Malta’s education system is of a good quality and Malta is well prepared

to participate in the Community education programme.

Arrangements and administrative capacity for participation in Community Programmes

and Agencies seem adequate.

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Malta still has to enact legislation on education of children of migrant workers, as well as

on the setting of National Council of Occupational Qualifications, that will provide for

non-discrimination towards EU citizens in the field of education.

Chapter 19: Telecommunications and information technologies

During the past year, Malta has made further progress in adopting the

acquis

under this

area.

The National Plan for the liberalisation of the

telecommunications market

has been

approved by the Parliament, under which the liberalisation will be completed by 1

January 2003. An important contribution to the implementation of the

acquis

in the field

of market liberalisation was the award of a second licence for GSM mobile telephony.

The company is a 100% subsidiary of Maltacom (also with 40% private ownership) and

expects to start operations at the beginning of 2001.

Regulations amending the Telecommunication Act with respect to the licensing regime

were adopted in July 2000.

The Ministry of Economic Services exercises the ownership function of the state in

relation to the public network operator Maltacom. The regulatory functions were

separated from the Ministry of Transports and Communications and exercised by the

Office of the Telecommunications Regulator (OTR) till the adoption of the Malta

Communication Authority Act in July 2000.

This Act creates the new Malta Communications Authority (MCA) which will be

composed of 3 directorates dealing with telecommunications, data protection and

electronic commerce. It will enjoy more independence than the OTR and will regulate the

communication services and monitor competition in the market.

The Telecommunications Appeals Board settles any dispute between the regulator and

operator(s). It consists of a Chairperson and two other members appointed by the

Minister for Transport and telecommunications.

The operational responsibilities in respect of

postal services

are with Maltapost, whose

majority shareholding rests with the Ministry for Economic Services. The Post Master

General, at present the Permanent Secretary within the Ministry of Transport and

Communications, is the Administrative Head of the Postal Services and exercises the

regulatory functions. Under the Malta Communication Authority Act, the regulatory

function for the postal services will eventually be exercised by the MCA.

Overall assessment

Although Maltese telecommunications legislation still is not fully in line with the

Community

acquis,

the necessary framework for the transposition of the

acquis

into

Maltese law is now in place. Draft regulations which would bring Maltese legisation in

line with Community

acquis

in areas like licensing, interconnection, universal service

obligations and numbering still have to be adopted. This applies also to regulations

related to data protection in telecommunications.

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The amendments to the Telecommunication Act adopted by the Parliament in July 2000

have rendered the licensing regime more objective, non-discriminatory, proportionate and

transparent.

The new regulatory authority has yet to demonstrate its independence from Government

and its efficiency by preparing regulation and licenses, and by monitoring competition.

The regulatory function needs to be improved through recruitment of additional qualified

staff and further provision of training.

Further alignment will be needed in relation to Postal Services to bring Maltese

legislation in line with the Community Postal Services Directive.

Chapter 20: Culture and audio-visual policy

Significant progress has been made since the last Regular Report.

As regards

audio-visual policy,

in June 2000, the Parliament adopted an Amendment to

the Broadcasting Act of 1991, aiming at bringing it into line with the

acquis.

The amendments to the Broadcasting Act introduce a system whereby administrative

sanctions replace the penal sanctions used previously in respect of offences by

broadcasters.

In October, Malta ratified the Protocol to the Council of Europe Convention on

Transfrontier Television, to which it is already a party.

Overall Assessment

On the whole, Malta has made significant progress but still has to finalise some

secondary legislation to achieve alignment with the Community

acquis.

The amended Broadcasting Act is in line with the

acquis.

However, Malta’s legislation

on audio-visual policy is still not fully aligned, since a number of issues, including

jurisdiction, promotion of European and independent works, protection of minors and

advertising rules, will be regulated through implementing Regulations, which have still to

be adopted. Thus, the short-term priority in the Accession Partnership for alignment with

the audio-visual

acquis

was partially met.

The Maltese authorities have provided adequate assurances that Malta’s commitments

under the WTO/GATS will not pose obstacles to progressive alignment and full adoption

of the audio-visual

acquis

by the date of accession.

The administrative capacity in the field of culture and audio-visual seems adequate with

regard to the implementation of the

acquis.

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

Since the last Regular Report, progress in this area has been limited. As regards the

territorial organisation

(adoption of provisional NUTS classification), Malta does not

have a regional structure and there is no intermediate level between national Government

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and the 67 municipalities. Gozo (with Comino) has a separate ministry and specific aid

programmes.

Since the last Regular Report, no progress has been made as regards the

legislative

framework (general, and territorial, administrative, and financial aspects),

and with

respect to the

preparation for programming, evaluation and monitoring system.

The Maltese Government has set up a Euro-Assistance Task Force to co-ordinate pre-

accession funding. It programs and co-ordinates the requests of the different spending

ministries as well as the social/economic partners and other interested parties.

The Office of the Prime Minister has been designated as having overall responsibility for

regional policy (with the technical support of other Departments, particularly the

Economic Planning and Central Office of Statistics). The Maltese Government has

commissioned a report to identify the appropriate supporting structures for Malta’s needs.

Limited progress has been made since last Regular Report with respect to

administrative

co-ordination

whether this concerns

inter-ministerial co-ordination, distribution of

competencies

or the

application of partnership principle.

As far as

financial management

is concerned, an Internal Audit Directorate, within the

Cabinet Secretariat of the Office of the Prime Minister, has been set up to function,

inter

alia,

as a domestic interlocutor with OLAF and DG Audit. Part of its functions will be

the implementation of the

acquis

referring to the protection of the EC’s financial

interests. No progress can be reported on the

budgetary procedures

in relation with

Regional Policy.

No statistical data concerning GDP per capita in PPS has been published yet.

Overall assessment

Overall, very limited progress has been made in preparing for managing structural funds,

and urgent and substantial efforts are required, in particular to set up appropriate

structures and to train the staff concerned.

A NUTS geographical classification has been requested by the Commission and should

be made available as soon as possible. Also, GDP per capita in PPS should be published

as soon as possible.

On the legislative side, there is a need to define the framework within which the Regional

Policy will operate, both institutionally and from a budgetary point a view.

On the administrative side, there is an urgent need to define the arrangements for the

programming of the structural policy, and for an appropriate co-ordination within the

Government. In that respect, it should be noted that the Euro-Assistance Task Force is

seriously understaffed with only two senior officials and would need to be urgently

reinforced.

Then there is a need to start preparing appropriate arrangements for programming,

monitoring and evaluation of the structural funds, with an emphasis on the elaboration of

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monitoring and evaluation indicators. Training for those officials responsible for

implementing projects within the spending ministries is also needed.

Chapter 22: Environment

Since the last Regular Report, Malta has made very little progress in the area of

environment.

In the field of

horizontal legislation,

Malta adopted the Civil Protection Act in

November 1999. This facilitates the implementation of the

acquis

related to Civil

Protection.

No legislative progress can be reported concerning

nature protection.

Malta regulates trade in endangered species since it is party to the Washington

Convention on trade in endangered species (CITES). Malta is also a party to the Bern

Convention on the Conservation of European Wildlife and Natural Habitats but has a

reservation and exception under the convention in relation to the hunting season.

With regard to

water quality,

no progress has been made.

In the

air quality

field, no progress can be reported. Malta has signed and ratified the

Convention on Climate Change and signed but not yet ratified the Kyoto Protocol. Malta

is not part of Annex I of the Convention, but has the status of “a small island developing

State”. This does not exclude Malta from the obligation to comply with the Council

Decision related to monitoring and reporting of CO2 and other greenhouse gas emissions,

which is part of the Community environmental

acquis.

Concerning

waste,

no legislative progress can be reported. Malta has ratified the Basle

Convention on the Transboundary Movement of Hazardous Waste. Legislation to

implement the obligations of the Convention is already in place.

No legislative progress can be reported as regards

Industrial Pollution Control and

Risk Management

and

Noise from Vehicles and Machinery

There has been no legislative progress on

Chemicals

or on

Genetically Modified

Organisms.

No progress can be reported with regard to

Radiation Protection

(see

Chapter 14 -

Energy).

As regards administrative capacity, the Ministry for Environment, through its

Environment Protection Department (EPD) is responsible for the drafting and

implementation of most of the legislation related to the

acquis.

The EPD covers

horizontal legislation, nature protection, water and air quality, waste management and

Industrial Pollution control and Risk Management. Its capacity is being strengthened.

Two new Environment Officers have been recruited to strengthen the Waste Management

Section within the Department, while two Legal officers and two Environment Officers

will be engaged shortly for the Legal Office and Biodiversity and Protected Specifies

Section respectively. Since the adoption of the Civil Protection Act in November 1999,

the staff of the Civil Protection Department has been strengthened by an additional 50

employees, bringing it to a total of 230 employees. 20 of these employees work in the

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Pollution Control Co-ordination Unit (PCCU), which is responsible for the monitoring

and assessment of air and water quality. The Malta Resources Authority Act was

approved by Parliament in September. This independent authority will assume the

regulatory functions currently held by the Water Services Corporation in connection with

management of water resources.

The Ministry of Home Affairs, through the Planning Authority (PA), is responsible for

the land use and delivery of environment permits, with the advice of the EPD which does

the environmental impact assessments. The Civil Protection Department in the Ministry

of Home Affairs is responsible for civil protection and for marine pollution in co-

ordination with the PCCU, the Malta Maritime Authority and the Malta Armed Forces.

The Air Pollution Monitoring Programme has been extended by the introduction of a

fully operational mobile Air Monitoring Station and monitoring is being carried out in 31

localities. The bathing water quality programme has been extended by including physio-

chemical parameters as indicated in the Bathing Water Directive. This programme

monitors 36 different sites.

Overall assessment

The existing level of alignment with the

acquis

is very low in Malta. There is no sector

where transposition is really advanced. Substantial efforts will be necessary to adopt and

implement the

acquis

in this field. Harmonisation of national legislation with the

Community environmental

acquis

could progress at a quicker pace if the new

Environmental Protection Act is adopted; which still has to be done.

Malta has not yet adopted a strategy and a directive-specific programme for the

transposition, the implementation and the enforcement of the EC environmental

acquis,

short-term priority in the Accession Partnership also mentioned in last Regular Report.

Malta still has to adopt horizontal legislation on environmental impact assessments -also

a short-term priority in the Accession Partnership-, access to information and reporting.

Extensive legislative transposition is necessary in practical all areas of waste

management legislation in order to comply with the Community

acquis.

Legislation transposing the

acquis

related to air quality still has to be adopted.

With regard to water quality, Malta still has to transpose most of the Community

legislation, in particular in relation with discharges of dangerous substances into the

aquatic environment, nitrates, bathing water and drinking water (at present Malta has

only one wastewater treatment plant). The sewage sludge from this plant, along with the

remaining collected wastewater (85% of the total), is discharged untreated into the sea

through two outlets).

With regard to nature protection, most of the Community legislation has to be transposed,

in particular the wild birds and the habitat directives.

Malta still has to adopt legislation with regard to industrial pollution control and risk

management.

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Malta still has to transpose directives on the contained use and the deliberate release of

genetically modified organisms, as well as the regulations on the import and export of

certain dangerous chemicals, and on the evaluation and control of the risks of existing

substances.

Legislation related to noise and to radiation protection still has to be adopted.

The new Environment Protection Act will, when enacted, provide for the setting up of the

Environment Protection Authority that will act as the competent authority as envisaged in

the environmental

acquis.

A separation of the regulatory functions from service provision functions with regard to

water and drainage services as well as mineral extraction will now be enacted due to the

new Malta Resources Authority Act.

Following the reinforcement of the EPD in the Ministry for Environment, it is difficult at

this stage to assess whether further quantitative strengthening will be needed. In all cases

new competencies will be needed to deal with the different sectors and issues covered by

the

acquis,

and at least a comprehensive training will be necessary in that respect.

The investments needed to implement the

acquis

in the different sectors are certainly of a

large scale, in particular with regard to waste management, water quality, nature

protection (habitat) and Industrial Pollution Control and Risk Management. This makes it

particularly important for the Maltese Government to develop a plan for financing

investments (directive specific) based on estimations of costs of alignment, a short-term

priority in the Accession Partnership.

Chapter 23: Consumers and health protection

No further progress has been made in terms of legal alignment, although new legislation

in this area is under preparation.

The Department of Consumer Affairs within the Ministry of Economic Services is the

authority responsible in the field of consumer policy. A Consumer Affairs Council,

grouping under its umbrella two consumer associations, is an autonomous structure, with

an advisory and consultative role. The Standardisation Authority is autonomous and

responsible for standards and ancillary matters. The Consumer Claims Tribunal allows

speedy and cheap legal redress for aggrieved consumers.

The Malta Tourism Authority has a new enforcement directorate, which is responsible for

the enforcement and the administration of the travel package and timeshare legislation.

Under the

Health Department,

there is an Inspectorate for food safety in restaurants and

hotels.

Overall Assessment

The existing Maltese consumer protection policy is not in line with the

acquis,

but

transposition has started. Malta still has to enact a draft bill amending its existing

legislation with regard to misleading advertising, comparative advertising, doorstep

selling, product liability and unfair contract terms. Provisions concerning the sale of

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consumer goods, associated guarantees and injunctions and product liability rules should

also be included.

Malta still has to finalise and adopt subsidiary Legislation on Travel Packages and

Timeshares.

The existing administrative structures provide a good framework for the implementation

of the

acquis

but they need to be strengthened. This applies in particular to the

Department of Consumer Affairs. An operations review of the structures responsible for

the implementation of consumer policies has been commissioned.

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

Since the last Regular Report, Malta has made some progress in the area of justice and

Home Affairs.

No progress can yet be recorded on

data protection,

a short-term priority of the

Accession Partnership, nor in the field of

visa policy.

Concerning

border control,

the passport system has been upgraded and now includes

several new security features including digitised images and machine-readable passports.

Malta International Airport has prepared a detailed feasibility study on the implications of

the implementation of the Schengen Agreement at the air terminal. The Malta Maritime

Authority is carrying out a similar exercise with respect to the sea terminal, which will be

constructed over the next two years.

In the field of

migration,

the Malta Citizenship (Amendment) Act adopted this year

allows non-nationals marrying Maltese nationals to apply for Maltese citizenship only

after 5 years of marriage, thus acting as a deterrent for marriages of convenience.

As regards

asylum,

the Asylum Act was enacted by the Parliament in July 2000, thus

partially fulfilling one of the short-term priorities of the Accession Partnership. The new

act is largely in line with the

acquis

in this area and with international obligations under

the Geneva Convention on Refugees. Until now, in the absence of an administrative

infrastructure, Malta has accepted the UNHCR’s decisions on asylum and requests have

been processed through a non-governmental organisation, the local Migrants’

Commission.

Notice has been given to the High Commissioner of the UNHCR that Malta will be

lifting its geographical reservation to the Geneva Convention on Refugees. This

reservation must be lifted in order to comply with the

acquis.

No significant progress can be reported in the area of

police co-operation

since last

Regular Report.

The inspection squads engaged in the

fight against fraud and corruption,

have been

strengthened since the last Regular Report, increasing the staff from 15 to 24 members.

As regards

drugs,

the Dangerous Drugs Ordinance has also been amended so that the

Maltese Government is now in a position to ratify, in accordance with the

acquis,

the

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Agreement on Illicit Traffic by Sea. This was a short-term priority of the Accession

Partnership.

Co-operation Agreements in the fight against illegal trafficking of drugs and organised

crime were concluded with Cyprus, Israel and Turkey in 1999 and Slovakia and Hungary

in 2000.

In the field of

money laundering,

in March 2000 Malta ratified the Council of Europe

convention on Money Laundering, Search, Seizure and Confiscation of the Proceeds of

Crime, which was one of the short-term priorities of the AP.

In the area of

customs co-operation,

the Customs Department has created a Directorship

on EU matters, in order to co-ordinate, communicate and monitor the implementation of

the

acquis

relating to Customs under this area. A gaps and needs analysis has been done

and provides the basis for a Customs change project including the development of an

integrated computer system.

Concerning

judicial co-operation in criminal and civil matters,

legislation to enable

Malta to ratify the Convention on the Civil Aspects of International Child Abduction and

the Convention on Recognition and Enforcement of Decisions Concerning Custody of

Children and Restoration of Custody of Children was enacted in the last quarter of 1999.

Malta has now ratified these Conventions and is in line with the

acquis

concerning

international obligations related to the custody of children as well as the enforcement and

recognition of decisions relating thereto.

Overall assessment

On the whole, Malta has achieved a reasonable level of alignment in field of Justice and

Home Affairs.

New legislation on

data protection and privacy,

published in a white paper in May

2000, remains to be adopted by the Parliament. A general law on data protection is a pre-

condition for participation of Malta in Europol. It is one of the short-term priorities of the

Accession Partnership.

In the field of

visa policy,

at present there are no Direct Airside Transit Visas (DATV) as

required in the

acquis

for people not leaving the airport terminal. However, there are

transit visas for non-national passengers who will arrive and depart within 24 hours.

Many countries on the Common Visa List (CVL) do not require visas to enter Malta.

Further alignment is therefore required in this regard.

Concerning

border control,

the Police controls air and sea entrance. At sea, the Armed

Forces act on behalf of the Police, informing the latter. Good co-ordination exists among

competent authorities. The structure of the border control branch/immigration branch of

the Police, including certain units of the Malta Armed Forces (MAF), is sufficiently

effective. However, at present, the maritime squad will not be able to guarantee full

control of pleasure boats or/and domestic fishing boats on their way to the archipelago of

Malta.

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Compared to present Schengen standards, equipment is still poor and generally needs to

be improved, particularly the control line equipment and ship- and land-based

surveillance devices.

The current

immigration

legislation is broadly in line with the

acquis.

However, the

legislation covering specific groups temporarily resident in Malta (e.g. students and

dependent family members) is not in line with the

acquis.

Amendments are therefore

required in this regard.

While the new Act on

asylum

puts Malta largly in line with the

acquis

in this field,

aspects like the taking of fingerprints from asylum seekers will have to be taken into

account. A reinforcement of human resources in this area, a training strategy, a strategy to

cover the social integration of recognised refugees, suitable accommodation

arrangements, an effective "removals" policy and adequate infrastructure are still needed.

Malta has no readmission agreements with any other country.

Regarding

police co-operation,

Malta joined Interpol in 1970. The Malta Police force

has set up an Interpol office to deal with all related requests. Malta wishes to participate

in Europol but it must adopt a law on personal data protection before it can do so. A

Europol liaison office is still to be set up. Malta has to prepare for the setting-up of the

Schengen Information System.

Agreements on the fight against organised crime have been made with many countries:

Italy (1991), France (1998), Spain (1998), Russian Federation (1993), Libya (1995),

Egypt (1997), Israel (1998), Cyprus (1999), Turkey (1999).

In the field of the

fight against fraud and corruption,

The Maltese law is not yet fully

in line with the standards set by the

Convention on the protection of the financial

interests of the European Communities.

There is a "Permanent Commission against

corruption" set up by the Government to protect citizen's rights. However it does not

appear to be very active. The Internal Audit Department in the Ministry of Finance will

also function as the Anti-Fraud Unit, thereby serving as an appropriate interlocutor for

officials investigating suspicions of fraud against financial interests of the EC (OLAF).

Malta has so far not acceded to the OECD Convention on Combating Bribery of Foreign

Public Officials in International Business Transactions, which was one of the short-term

priorities of the AP. Nor has it joined the United Nations anti-corruption programme for

Drug Control and Crime Prevention.

Concerning

money laundering,

a new Computer Misuse Bill, published in a white paper

in May 2000, remains to be adopted by the Parliament. It is needed to provide the penal

framework necessary to prevent and fight computer-related offences.

The Economic Crime Unit should be reinforced in order to deal with the information that

will be available from the future Financial Intelligence Unit. This was a short-term

priority of the Accession Partnership.

As regards

customs co-operation,

Malta still has to develop an integrated computer

system. An agreement on mutual assistance still has to be approved by the Council.

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In the field of

judicial co-operation,

Malta has to amend its legislation in order to be in

line with the

acquis,

mainly for civil matters.

Overall, Malta must continue its efforts to harmonise its legislation with the

acquis.

particular, a law on data and privacy protection, the alignment of Malta’s visa policy with

the EU visa common list and the ratification of number of conventions for civil and penal

judiciary co-operation, are necessary.

It must also reinforce its capacity to implement the

acquis

in the JHA field. In particular,

the building-up of a capacity to deal with asylum seekers, the updating of equipment for

border controls and police co-operation and the reinforcement of the Economic Crime

Unit must be considered.

A training programme on EC legislation for judges, judiciary staff and lawyers would

also be necessary.

Chapter 25: Customs union

Malta has made some progress in this area during the reference period.

In the area of

Customs Code and its implementing provisions,

the new Intellectual

Property (Cross Border) Act entered into force on 23.2.2000. It relates to importation,

exportation and re-exportation of goods in contravention of Intellectual Property rights.

Act XIX of 1999 amending the Import Duty Act entered into force on 1.1.2000. It

Implements the WTO Agreement on Customs Valuation and is almost completely in line

with the E.U.

acquis.

Legal Notice 66 entered into force on 14.4.2000. It sets up a Binding Tariff Information

system compatible with the relevant provisions of the E.U. Customs Code.

Regarding

customs

acquis

outside the Customs Code,

since 1.2.2000 Malta's Customs

Tariff has incorporated the subheadings of the Combined Nomenclature (seventh and

eighth digits).

Concerning

administrative capacity,

Malta has prepared a Business Change

Management Plan based on the EC Customs Blueprints. The aim of the document is to

analyse the current structures as well as related training needs as part of the plan to

upgrade and strengthen existing administrative structures. A Pre-Accession Unit (PAU)

will be responsible for the successful implementation of the Plan. In May 2000 a Director

for EU Matters for the Customs Department was appointed.

Ongoing training is provided to Customs Department personnel and traders in the use of

new IT systems and in the implementation of new operational provisions, systems,

procedures and EC policies.

According to the Maltese authorities, the human resource capacities at the Customs

Department are being consolidated and upgraded, most notably in the areas of post

clearance audit, systems of tariff quotas, ceilings and suspensions, counterfeit/pirated

goods, dual purpose goods, transit and border controls and other procedures.

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Preparatory work has started on the setting-up of a CAP Unit within the Customs

Department to deal with customs-related aspects of the Common Agricultural Policy

(CAP).

A Quality Service Charter for the Customs Administration, to improve trade facilitation

and relations with Business has been drafted.

The computerisation of the Customs Department includes the setting up of an Integrated

Customs Information System based on ASYCUDA ++ and other complementary IT

systems able to interface with EC systems. The project document to make ASYCUDA

fully compatible with EC computerised applications will be finalised by the third quarter

of 2000.

Overall assessment

Despite some progress in this area, much remains to be done both to align Maltese

customs legislation and to develop the administrative capacity to implement it.

The work on the introduction of the Single Administrative Document, on the

implementation of customs procedures with economic impact, on the drafting of a

consolidated customs code as well as all the other priorities identified by the Maltese

Customs Authorities (eg. simplified procedures, free zones, duty relief), should be

completed as planned. It is of paramount importance that the Business Change

Management Plan, including computerisation, is implemented as scheduled and that the

Pre-Accession Unit starts working as soon as possible.

Chapter 26: External relations

As regards the

Common Commercial Policy,

since 1999 there has been some progress

in alignment of Maltese tariffs with those of the EC. The tariffs Malta applied in 1999

averaged 7.6% on all products, 7.1% on agricultural products, 3.9% on fishery products

and 8.0% on industrial products. By comparison the EC tariffs in 1999 stood at 5.3% on

all products, 9.4% on agricultural products, 12.4% on fishery products and 4.2% on

industrial products. Upon accession Malta will be required to align tariffs with the EC’s

Common External Tariff.

The Intellectual Property Rights (Cross Border Measures) Act was enacted in February

2000 in order to implement provisions emanating from the WTO TRIPS (Trade Related

Intellectual Property Services) agreement.

While Malta’s external commercial policy is within the responsibilities of the Ministry

for Economic Services, Malta's relations with the WTO are conducted by the Ministry of

Foreign Affairs, in co-ordination with the ministries concerned. An International

Economic Relations Directorate has been set up within the Ministry of Economic

Services to strengthen its capacity to deal with WTO matters.

Malta has conducted a study on its

bilateral agreements with third countries

in order

to verify whether they are in line with the

acquis.

According to the Maltese authorities,

minor amendments will have to be made to some Investment Guarantee Agreements that

are in force.

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No further preferential trade agreements have been notified.

To date Malta has no

development and humanitarian aid

policy.

Overall assessment

When it joins the EU, Malta will have to renounce its status as a developing country and

will have to subscribe to the multilateral WTO agreements to which the Community is a

party.

In view of the fact that Malta will be required to align its tariffs with those of the EC

upon accession, progress towards full alignment in this area should be pursued.

Furthermore, Malta should amend, where necessary, its bilateral agreements to bring

them fully in line with the

acquis.

The EU and Malta have established a framework for co-operation regarding WTO issues

both at ministerial and at departmental level. Malta has been supportive of EU policies

and positions within the WTO framework. As regards the new round, Malta 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. As regards export of dual-use goods, Malta’s legislation still has to be adapted

to provide the necessary administrative structures and regulations. Malta still has to align

its legislation on export credits with the

acquis.

Malta is a signatory to the Information Technology Agreement (ITA). However, Malta

still needs to become a signatory to the plurilateral WTO agreements on Government

Procurement and Civil Aircraft.

As regards the WTO Agreement on Trade in Textiles and Clothing, Malta 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. Also,

further co-ordination is necessary in order to consolidate the adjustment of the Maltese

list of commitments in GATS with the EC commitments and MFN exemptions.

Malta's administrative capacity to implement the

acquis

has been strengthened and would

appear to be satisfactory, in particular in relation with WTO and commercial issues.

Chapter 27: Common foreign and security policy

Since the last Regular Report, Malta has continued to align its policies with those of the

EU in this area.

As regards

participation in the political dialogue,

in June 1999, Malta resumed the

multilateral political dialogue with the associated Central European countries and Cyprus

within the framework of the Common Foreign and Security Policy, at the level of

Directors, European Correspondents and Working Groups. Malta continues to orient its

foreign and security policy towards the Union.

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Malta follows the developments of the 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.

Malta strives to contribute to regional stability in the framework of the Euro-

Mediterranean Dialogue. It has established strong co-operation with its Mediterranean

neighbours.

As regards

alignment with EC statements and declarations,

Malta 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.

The United Nations Act of

1993 was amended in February 2000 in order to empower the Maltese Government to

adopt sanctions which do not originate from the United Nations Security Council.

Overall assessment

The overall alignment of Malta with the

acquis

in the CFSP is satisfactory. As the

acquis

in the field of foreign policy and security develops further, Malta should maintain the

orientation of its foreign policy in line with that of the Union.

Malta contributes to regional stability in the framework of the Euro-Mediterranean

Dialogue. It has established strong co-operation with its Mediterranean neighbours.

Malta is willing to abide by the EU's code of conduct on arms export. It still has to enact

subsidiary legislation that will provide for the necessary mechanisms concerning the

export of dual-use goods.

Malta is engaged in bilateral co-operation on technical matters in order to strengthen its

capacity in the field of export control.

Concerning the administrative capacity to implement the provisions relating to CFSP,

Malta has the capacity to effectively participate in the Associated Correspondents’

Network both in terms of staffing allocations and in terms of the appropriate information

systems.

Chapter 28: Financial control

Since the last Regular Report, Malta has made substantial progress in this area.

The

Public Financial Control System

has been enhanced by the setting-up of the

General Internal Audit Board (GIAB) within the Cabinet Secretariat of the Office of the

Prime Minister (July 2000). This board replaces the Internal Audit Monitoring

Committee of the Ministry of Finance and ensures complete functional independence for

the Governments' internal auditors. Its executive branch is the Internal Audit Directorate

(IAD), which is at present in the process of recruiting staff. The IAD will be the national

contact point for the relevant Commission services, in respect of both ex ante control and

internal audit functions. The IAD will be responsible for harmonising the methodology of

ex ante control and internal audit standards.

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A plan has been adopted with the aim of establishing Internal audit services in line

ministries which will be directly responsible to the IAD. Their tasks still have to be

determined and training provided.

The ex ante control function will be the responsibility of the relevant line ministries.

These changes contribute to the strengthening of the public internal financial control

system in Malta and to the independence of the internal audit function. Once achieved,

they will fulfil three of the short-term Accession Partnership priorities under this chapter.

External financial control is the responsibility of the National Audit Office. The Auditor

General is proposed by Parliament and appointed by the President of Malta. The

independence of the National Audit Office is entrenched in the Constitution. It reports

directly to the Parliament on the adequacy and procedures of the Government's budgetary

income and expenditure. The NAO has recently substantially reinforced its staff and has

been restructured into sections dealing with regularity, value for money and

investigations. The NAO has accepted the INTOSAI standards and prepared a draft code

of ethics for its officials.

As regards the

structural action expenditure

and

protection of financial interests of

the EC,

the changes made to the internal audit better prepare Malta for the control of

structural action expenditure upon accession. The IAD will be the Certifying Body on

internal control systems and procedures of Paying Agencies.

The IAD will also function as the Anti-Fraud Unit, thereby serving as an appropriate

interlocutor for officials investigating suspicions of fraud against financial interests of the

EC (OLAF).

Overall assessment

The recent changes in the Public Internal Financial Control systems represent a

significant improvement that provides a good framework for financial control in Malta.

However, the establishment of internal audit services in Government spending centres

has not yet been finalised and the harmonisation function of control and audit

methodology by the IAD has yet to be developed. In this respect it will be necessary to

start developing financial management and control manuals for the spending centres as

well as audit manuals for the internal audit services (including audit trails). It will also be

important to give attention to the ex ante control function within the Government's

spending centres. Finally, relevant control and audit staff will have to follow suitable

training programmes.

In view of the decentralisation of the implementation of pre-accession assistance, the

Maltese authorities should start developing, in co-operation with the relevant

Commission services, a plan for the financial management and control/audit of EC pre-

accession funds. This is one of the short-term priorities of the Accession Partnership.

Finally, the National Audit Office will need to provide its staff with appropriate training

to allow it to perform according to the requirements of the

acquis.

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Chapter 29: Financial and budgetary provisions

Since the last Regular Report, there has been progress, in particular in strengthening the

administrative capacity in this area.

As regards

national budget and EC co-financed measures,

the Public Chart of

Accounts, which underlies the budget, has been reformed in order to ensure compliance

with the European System of Accounts (ESA95). It provides for the inclusion of separate

commitments within the Government budget, for the separation in the budget

presentation of EC funds from national funds and for accounting and control.

An Accruals Accounting Task Force has been set up to introduce an accruals accounting

system in Government by 2005. Auditors have been contracted to compile a new set of

financial standards to support the new system.

Additional personnel have been recruited within the Budget Office and within the

Treasury with the aim of implementing respectively the

acquis

in connection with public

financial planning, and the

acquis

concerning Government accounting systems.

New Offices of Review have been established as part of a pilot project on public

management output performance systems. This partly addresses one of the Accession

Partnership short-term priorities. These offices are centrally co-ordinated by a

Management Efficiency Unit within the Office of the Prime Minister.

As regards

own resources

and

administrative infrastructures,

significant progress has

been achieved by the Central Office of Statistics (COS) - in collaboration with Eurostat -

for the harmonisation of its GNP estimates in line with ESA 95 norms, which fulfils

another short-term priority of the Accession Partnership.

Overall assessment

Budgetary legislation in Malta seems broadly in line with the standards found in the EU.

The procedures for multi-annual budgeting, within a comprehensive medium-term

financial framework, should be strengthened. The work already done for introducing a

public management output performance system and value-for-money practices should be

continued and progressively extended to all government entities, including the

management of EC funds.

The Financial Administration and Audit Act must still be amended to take account of the

separate roles of the authorising and controlling officer for Government finance purposes.

As regards the Community’s Own Resources, there is currently no provision in Maltese

law with regard to the levies on trading in and warehousing of sugar. Further alignment

for the calculation of the VAT resource is also necessary.

There is a need to set up and strengthen the central co-ordination for the proper

collection, monitoring and payment of funds to and from the EC budget. The

administrative capacity should be strengthened in the context of the relevant policy areas

such as Agriculture, Customs, and Regional Policy.

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The harmonisation of statistics will need to be pursued, in particular as regards VAT

revenues.

3.2.

Translation of the

Acquis

into national language

Applicant countries are 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 pre-accession

programmes. TAIEX may support the candidate countries who wish so to create a

centralised Translation Co-ordination Unit.

The Constitution of Malta stipulates (Article 6) that “the National Language of Malta is

the Maltese language” and that “the Maltese and the English are both official languages

of Malta and the administration may for all official purposes use any of such languages”.

It also stipulates (Article 74) that “Save as otherwise provided by Parliament, every law

shall be enacted in both the Maltese and English languages and, if there is any conflict

between the Maltese and the English texts of any law, the Maltese text shall prevail.”

No part of the

acquis

has been translated.

3.3.

General evaluation

Since the last Regular Report, the process of aligning legislation with the

acquis

has

gained momentum in Malta, and progress has been significant in most areas, although

uneven across the different fields. Malta has also speeded up efforts to strengthen its

administrative capacity with a view to accession, and the first results are becoming

visible.

There has been some progress with respect to the internal market

acquis.

Considerable

further progress has been made in aligning with the

acquis

on industrial and intellectual

property, and in the area of company law Malta is now close to full alignment. Malta has

adopted a new Standardisation Act, but more work is required to align its legislation with

the New and Global Approach, and to transpose sector specific directives. Some further

adjustments are also needed to put the public procurement legislation in line with the

acquis.

Despite some progress on free movement of capital and services, much remains

to be done to align Maltese legislation in these areas. As regards free movement of

persons, efforts should be stepped up to ensure that there are no provisions in Maltese

legislation which contradict Community rules. With respect to competition, substantial

efforts are still needed to develop a proper state aid control system.

The publication of two White Papers on industrial development and privatisation, as well

as the setting up of the Institute for the Promotion of Small Enterprises, have created a

suitable framework for the development of an industrial and SME policy. However, the

implementation of the privatisation programme remains slow.

While Malta has made progress in the area of social policy, further alignment is still

needed in this field, in particular with respect to labour legislation and occupational

health and safety.

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In the field of taxation, the framework for the alignment of taxation legislation has been

created with the re-introduction of VAT; however, further efforts are required with

respect to both VAT and excise duties. Despite some progress in the area of customs,

continued efforts are needed, not only to align Maltese customs legislation with the

acquis

in this domain, but also to develop the administrative capacity to implement it.

Notable progress has been made in the areas of telecommunications and culture and

audio-visual policy. If efforts are pursued, alignment with the

acquis

in these areas,

through secondary legislation, may be reached in the short-term.

In statistics, the Central Office of Statistics of Malta has made considerable progress and

is pursuing its efforts to fully align its methodologies with EC standards. In the field of

financial control, the reinforcement of the National Audit Office and the reform of the

internal audit system within the Maltese Government have provided Malta with an

adequate institutional framework. This progress should be further consolidated through

appropriate staff training.

In the field of justice and home affairs, there has been significant progress in particular

with the adoption of the new Asylum Act. Efforts are still needed with respect to data

protection, immigration, visa policy and judiciary co-operation, as well as to strengthen

administrative capacity.

In the areas of agriculture, the environment and regional policy, progress has been very

limited. Malta still has to adopt most of the extensive agriculture and environment

acquis.

As regards the environment in particular, an overall strategy for the adoption

and implementation of the environmental

acquis

remains to be developed. As far as

regional policy is concerned, Malta has not yet taken the necessary steps to prepare itself

for managing structural funds. Substantial efforts in these three areas are needed as a

matter of priority.

While the Maltese administration appears to be adequately staffed, considerable

restructuring and staff training is still needed for it to be able to implement the

acquis

many areas. Efforts in this direction have started. Over the past year, the administrative

capacity in the areas of statistics and financial control has been considerably improved.

Important projects have been launched to reinforce the agriculture administration by

setting up an Integrated Administrative Control System, as well as to strengthen the tax

and customs administrations. Work in these areas must be continued.

Overall, Malta's administrative capacity still needs to be significantly reinforced with

respect to market surveillance and certification, the enforcement of intellectual and

industrial property rights, and in the area of maritime transport and safety. Considerable

efforts are required also in the fields of environment and regional policy. Concerning

justice and home affairs, administrative capacity should be strengthened in particular for

the handling of Asylum cases, borders control and in the area of police co-operation.

Particular attention should be paid to ensuring the adequate functioning of the newly

created State Aids Monitoring Board and the Regulatory Authority for

Telecommunications.

The majority of the Accession Partnership short-term priorities have been either partially

or completely fulfilled. Progress has been particularly significant in the areas of

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industrial policy and justice and home affairs. Further efforts are required in particular

with regard to state aids and in the area of the environment.

Malta has already started to address a number of medium-term priorities.

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C. Conclusion