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Europaudvalget 2000-01
EUU Alm.del Bilag 240
Offentligt

FROM THE COMMISSION

LATVIA’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 Latvia .................................... 7

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

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

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

Twinning ................................................................................................................... 11

Negotiations / screening ............................................................................................ 13

B. Criteria for membership ........................................................14

1. Political criteria.................................................................................... 14

Introduction ............................................................................................................... 14

Recent developments................................................................................................. 14

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

The parliament........................................................................................................... 15

The executive ............................................................................................................ 15

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

Anti-corruption measures .......................................................................................... 18

1.2. Human rights and the protection of minorities.......................................... 19

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

Economic, social and cultural rights ......................................................................... 20

Minority rights and the protection of minorities ....................................................... 20

1.3. General evaluation ........................................................................................ 24

2. Economic criteria................................................................................. 25

2.1. Introduction................................................................................................... 25

2.2. Economic developments ............................................................................... 25

2.3. Assessment in terms of the Copenhagen criteria ....................................... 27

The existence of a functioning market economy....................................................... 27

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

Union ......................................................................................................................... 32

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

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

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

3.1. The chapters of the

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

Chapter 1: Free movement of goods ............................................................. 36

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

Chapter 2: Free movement of persons .......................................................... 39

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

Chapter 3: Freedom to provide services........................................................ 40

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

Chapter 4: Free movement of capital............................................................ 42

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

Chapter 5: Company law ............................................................................... 44

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

Chapter 6: Competition policy....................................................................... 46

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

Chapter 7: Agriculture................................................................................... 47

Overall assessment .................................................................................................... 51

Chapter 8: Fisheries....................................................................................... 53

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

Chapter 9: Transport policy........................................................................... 55

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

Chapter 10: Taxation ..................................................................................... 57

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

Chapter 11: Economic and monetary union................................................. 59

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

Chapter 12: Statistics ..................................................................................... 59

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

Chapter 13: Social policy and employment................................................... 61

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

Chapter 14: Energy........................................................................................ 64

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

Chapter 15: Industrial policy......................................................................... 66

Overall assessment .................................................................................................... 67

Chapter 16: Small and medium-sized enterprises ........................................ 68

Overall assessment .................................................................................................... 69

Chapter 17: Science and research................................................................. 70

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

Chapter 18: Education and training ............................................................. 70

Overall assessment .................................................................................................... 71

Chapter 19: Telecommunications and information technologies................ 72

Overall assessment .................................................................................................... 72

Chapter 20: Culture and audio-visual policy................................................ 73

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

Chapter 21: Regional policy and co-ordination of structural instruments . 74

Overall assessment .................................................................................................... 75

Chapter 22: Environment .............................................................................. 75

Overall assessment .................................................................................................... 78

Chapter 23: Consumers and health protection............................................. 79

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

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Chapter 24: Co-operation in the field of justice and home affairs .............. 80

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

Chapter 25: Customs union........................................................................... 87

Overall assessment .................................................................................................... 88

Chapter 26: External relations ...................................................................... 89

Overall assessment .................................................................................................... 89

Chapter 27: Common foreign and security policy........................................ 90

Overall assessment .................................................................................................... 91

Chapter 28: Financial control....................................................................... 91

Overall assessment .................................................................................................... 92

Chapter 29: Financial and budgetary provisions ......................................... 93

Overall assessment .................................................................................................... 94

3.2. Translation of the

acquis

into the national language................................. 94

3.3. General evaluation ........................................................................................ 95

C. Conclusion ...............................................................................97

D. Accession Partnership and National Programme for the

Adoption of the

Acquis:

Global assessment .......................100

1. Accession Partnership ....................................................................... 100

Short-term priorities ................................................................................................ 100

Medium-term priorities ........................................................................................... 103

2. National Programme for the Adoption of the

Acquis

.................... 104

Annexes........................................................................................106

Human Rights Conventions ratified by the Candidate Countries, September

2000 ....................................................................................................... 107

Statistical data .............................................................................................. 108

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A. Introduction

Preface

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

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

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

The European Council in Luxembourg decided that

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

together with any necessary recommendations for opening bilateral intergovernmental

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

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

is adopting the Union

acquis”

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

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

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

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

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

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

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

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

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

council in December 2000.

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

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

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

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

B.3.1.)

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

acquis.

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

capacity to apply the

acquis

under each of the negotiating chapters (previously discussed

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

section assessing the progress made by Latvia in translating the

acquis

into its official

language.

In line with previous regular reports, the present report:

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

of the Association Agreement;

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

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

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

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

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

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addresses the question of Latvia’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 and Feira European Councils in

December 1995 and June 2000 respectively. At Madrid, the European Council

underlined the necessity for the candidate countries to adjust their administrative

structures, so as to create the conditions for the harmonious integration of those

States. The Feira European Council in June 2000 emphasised the vital importance of

the candidate countries’ capacity to effectively implement and enforce the

acquis,

and

added that this required important efforts by the candidates in strengthening their

administrative and judicial structures. The Feira European Council invited the

Commission to report to the Council on its findings on the matter.

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

period until 30 September 2000. In some 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,

complementing the assessment of new developments since the last regular report, this

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

under consideration, setting out for each of them the main steps which remain to be taken

by Latvia in preparing for accession.

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

acquis

criteria (including Latvia’s administrative capacity to implement the

acquis)

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

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

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

performance.

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

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

medium-term priorities set out in this framework.

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

decisions actually taken, legislation actually adopted, international conventions actually

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

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

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

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

objective assessment and comparison between countries in terms of their concrete

progress in preparing for accession.

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

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

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

the

Acquis

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

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

analytical examination of the

acquis

(screening) and the negotiations, have served as

additional sources. Council deliberations and European Parliament reports and

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resolutions

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

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

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

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

b) Relations between the European Union and Latvia

Recent developments under the Association Agreement (including bilateral

trade)

Latvia has continued to implement the Europe Agreement and contributed to the smooth

functioning of the various joint institutions.

The third meetings of the Association Council and the Association Committee were held

in February and June 2000 respectively. The system of sub-committees continues to

function as a forum for technical discussion.

Since the issuing of the Commission’s last regular report, the Joint Parliamentary

Committee comprising representatives of the Latvian and European Parliaments met in

January and September 2000.

Latvia’s trade with the EC has continued to increase. In absolute terms, trade between

Latvia and the EC decreased slightly, and the rate of growth declined in 1999. Latvian

exports to the EC accounted for 62.5% of total exports during 1999. In the first quarter of

2000, it accounted for 68%. Imports from the EC amounted to 54.5% in 1999 and 53.5%

in the first quarter of 2000. Latvia’s main export products to the EC were wood and

textiles, while the most important import products from the EC to Latvia were machinery

and agricultural goods.

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

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

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

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

interests of the European Community, the EU member states and those of Latvia. The

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

of the Common Agricultural Policy.

The negotiations with Latvia were concluded between negotiators at technical level in

May 2000. As a consequence of the new agreement, approximately 75% of the bilateral

trade in agricultural products will benefit from preferences. The new regime entered into

force in July 2000 on an autonomous basis, pending the conclusion of an Additional

Protocol to the Europe Agreement. For processed agricultural goods, an agreement

between the negotiating parties at technical level was reached in July 2000. In July 2000,

the Council mandated the Commission to open negotiations with the associated countries

with a view to new reciprocal concessions in the field of fish and fishery products.

In mid-1999, Latvia introduced a temporary safeguard measure on imports of pig-meat on

erga omnes

basis, which was transformed into a permanent measure for a period of

For the European Parliament the

rapporteur

is E. Schroedter

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two years later during the year. The Community stated that by imposing and applying the

safeguard measure, the Latvian authorities were in breach of several articles of the

Europe Agreement. After several rounds of discussions between the Community and

Latvia, the Latvian authorities decided to abolish the safeguard measure as of June 2000.

Current discussions in the institutional framework of the Europe Agreement focus

particularly on the implementation of the Accession Partnership (see

below)

and seek to

achieve progress in areas like the internal market, agriculture and justice and home

affairs.

At the end of 1999, the transitional period (as foreseen in Article 3 of the Europe

Agreement) expired. Latvia undertook to achieve compliance with the obligations

stemming from this, and notably eliminated restrictions on capital movements in the

sectors of radio and television, lotteries and gambling, and logging. As concerns public

procurement, previously existing discriminatory restrictions in Latvian legislation were

eliminated automatically by the end of the transitional period.

At present, the direct investment regime applicable for security services and for the

acquisition of land are incompatible with the Europe Agreement.

In the area of conformity assessment and acceptance of industrial products, a Framework

Agreement for a Protocol on European Conformity Assessment (PECA) was initialled in

July 2000, and negotiations on individual sectoral annexes continued.

During the last year, Latvia undertook to meet the commitments made in the Joint

Assessment on medium term economic policy priorities, which had been concluded

between the Commission and Latvia in February 1999.

Accession Partnership / National Programme for the Adoption of the Acquis

A revised Accession Partnership was adopted in December 1999. Its implementation is

reviewed in chapter D of this report.

In June 2000, Latvia presented a revised National Programme for the Adoption of the

Acquis

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

the priorities of the Accession Partnership (see

chapter D below).

Community aid

Since January 2000, there are three

pre-accession instruments

financed by the European

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

preparations: the

Phare

programme;

SAPARD,

which provides aid for agricultural and

rural development; and

ISPA,

which finances infrastructure projects in the fields of

environment and transport. These programmes concentrate their support on the Accession

Partnership priorities that help the candidate countries to fulfil the criteria for

membership.

In the years 2000-2002 total financial assistance to Latvia will amount annually to

€

million from Phare,

€

22.2 million from SAPARD, and between

€

36.4 and 57.2 million

from ISPA.

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The

Phare

programme has been providing support to the countries of Central Europe

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

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

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

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

building, investment to strengthen the regulatory infrastructure needed to ensure

compliance with the

acquis

and investment in economic and social cohesion. This

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

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

acquis

and

strengthen or create institutions necessary for implementing and enforcing the

acquis.

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

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

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

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

remaining 70% is used for financing investments.

During the period 1992 – 1999, the Phare programme allocated

€

248.2 million to

Latvia. The

2000 Phare Programme

for Latvia consists of a national allocation of

€

24.75 million concentrated on the following priorities:

−

priority 1 : Political Criteria

Promotion of integration of society in Latvia (€ 1.1 million)

−

priority 2 : Internal Market

Latvian national quality assurance project (€ 2.0 million)

−

priority 3 : Agriculture and Fisheries

Strengthening Latvia’s fishery administration to meet the requirements of the

Common Fisheries Policy (€ 2.0 million)

priority 4 : Justice and Home Affairs

Development of integrated Latvian border management and infrastructure (€ 3.16

million)

Development and implementation of Latvian drug control and drug abuse prevention

masterplan in accordance with EU requirements (€ 1 million)

−

priority 5 : Reinforcement of Institutional and Administrative Capacity

Public expenditure management project (€ 3 million)

Upgrade the Latvian statistical system in accordance with EC requirements (€ 2

million)

priority 6 : Economic and Social Cohesion

Development of capacity for regional development (€ 1.5 million)

Economic and social cohesion measures in Latgale (€ 6.21 million)

Economic and social cohesion measures in Zemgale (€ 2.79 million)

An additional

€

2 million has been allocated for the Baltic Sea Region Cross Border Co-

operation Programme. Latvia also participates in and benefits from Phare funded multi-

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country and horizontal programmes, such as TAIEX, the Small and Medium-sized

Enterprises Facility and the Supplementary Investment Facility.

Furthermore, Latvia participates in the following Community programmes : Leonardo,

Socrates, Youth, SAVE II, 5

EC Framework Programme on Research and

Development, and 5

Euratom Framework Programme. The procedure for Latvia’s

participation in the Third Multi-Annual Programme for SMEs has been finalised. Latvia

has declared its intention to participate in the Culture 2000 programme. It has been

selected as one of the hosts of the European Cultural Month in 2001. Following the

opening of negotiations regarding Latvia’s participation in the European Environment

Agency, an agreement has been reached. Following ratification and entry into force of

this agreement, scheduled for early 2001, Latvia will become a member of the Agency.

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

equipment and financial resources has taken place in a number of important fields such as

environment, transport and justice and home affairs. Phare has furthermore provided

support to strengthen capacities of institutions such as the European Affairs and Legal

Committee in the Latvian Parliament (Saeima), the Ministry of Finance and to prepare

Latvia for future participation in structural funds.

In Latvia, Phare has played a particularly important role in areas including:

Providing technical assistance to the tax sector (€ 1.8 million). The project has

contributed significantly toward ensuring that Latvia meets a number of essential

requirements in the area of taxation (VAT, excise taxes and income taxes). As one of

the most significant results, the application of the tax law and the harmonisation of

VAT should be mentioned. As regards the excise tax, progress has been made in the

harmonisation of the three existing laws (on tobacco, alcoholic beverages and mineral

oil products) with the EC Directives. New audit techniques have been introduced to

emphasize the management accounting approach and strategic planning.

The field of legal approximation. A large scale (approximation of Latvian legislation)

project (€ 4 million) came successfully to an end in December 1999. The project

delivered substantial assistance to the line ministries and the European Integration

Bureau (EIB). It assisted in drafting specific laws, assessing Latvia’s headway in law

approximation in order to help develop the database of the European Integration

Bureau, training the respective staff within each line ministry, as well as delivering

support to the Legal Department of Parliament. In total, the scope of the project

covered 929 EU-related legal acts in all sectors.

In the area of social integration, Phare has been the most important supporter of the

Latvian Language Training Programme (a total of

€

2.5 million since 1996), a multi-

donor programme so far administered by the United Nations Development

Programme (it will be fully managed by the Latvian authorities in the future). The

programme has focused on enhancing Latvian language training in minority schools,

providing language training opportunities for targeted groups of adults and promoting

social integration at community level. During 1999, about 15 000 students and adults

benefitted from language training.

A reform of the

Phare management system

took place in 1998 and 1999 to improve the

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

Review Communication in 2000 continues to refine these basic management structures

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

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

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

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

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

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

institution building, investment in compliance with the acquis, and economic and social

cohesion. Significant further efforts by the Latvian authorities in terms of staff and

resources will be necessary in order to be able to adequately programme the pre-

accession instruments, especially Phare.

As regards

SAPARD,

the Latvian Rural Development Plan got a favourable opinion in

the STAR Committee (EC Management Committee on agricultural structures and rural

development) in September 2000. The plan has been approved by the Commission in

October 2000.

The plan is based on three priorities, namely the development of sustainable agriculture

(54% of EC funds), integrated rural development (36% of EC funds), and improvement

of the environment (4% of EC funds). The average annual expenditure will amount to

€

54.8 million during the period 2000-2006, of which

€

22.2 million (at 2000 prices)

represent the Community contribution.

The Rural Support Service has been established and preparations for its accreditation as

the SAPARD Agency are underway.

As concerns the

ISPA

programme, the Latvian government has elaborated strategy

papers for transport and environment. The Commission and the Latvian authorities have

together established a shortlist of priority projects for ISPA funding in the transport and

environment sectors over the period 2000-2006. For transport, these are likely to cover

four sectors (roads, railways, ports and airports) and will mainly involve the upgrading of

Road Corridor I (Via Baltica) and the modernisation of the East-West rail corridor. In the

case of the environment, the projects can cover the four sectors of drinking water,

wastewater, solid and hazardous waste and air pollution and will mainly relate to the

development of water services in the big cities and solid waste management in several

regions of the country. The Commission adopted the first Latvian project (upgrading of

the Gauja-Lilaste section on the Via Baltica with an ISPA contribution of

€

4.7 million)

and is likely to adopt three other transport projects (€ 38.4 million) and three environment

projects (€ 37.7 million) before the end of the year 2000.

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

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

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

the technical implementation. For the programme and financial management of

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

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

approach through an accredited paying and implementing agency.

Twinning

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

strengthen their administrative capacity to implement and enforce the

acquis.

As of 1998,

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the European Commission proposed to mobilise significant human and financial

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

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

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

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

from EU Member States 107 twinning partnerships, funded by Phare 98 and involving all

candidate countries and almost all Member States are operational. Under Phare 99 a

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

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

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

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

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

structural funds. It now covers all sectors pursuant to the

acquis.

For Latvia, there are currently eight projects being implemented by twinning. One project

is in the field of veterinary and phytosanitary control with the participation of Germany

and France. Sweden and Denmark are working with Latvian partners on two projects to

strengthen the country’s capacity to enforce legislation on water and on hazardous waste.

Germany, together with the UK, is helping the Latvian Ministry of Finance develop its

capacity to assume the obligations of the Internal Market. In the area of justice and home

affairs, the reform of the Latvian court system is supported, and the Frontier Guard of

Finland is co-operating with its Latvian counterparts to develop training in border control

procedures. Finland is also leading two projects to prepare for the administration of

structural funds.

Further projects for twinning financed under the 1999 programme are being prepared and

are scheduled to start soon. They include support to enhance the administrative capacity

in the State Revenue Service with partners from Sweden (together with Belgium),

capacity building for food control bodies at national and regional level with a counterpart

from Germany, and capacity building to improve the law approximation process in

various line ministries with a twinning team from Sweden. Under the Consensus III

programme a twinning project is planned to enhance institution building for occupational

health and safety with a Spanish counterpart.

Under the 2000 Phare programme, six projects include significant twinning components

(with a total Phare contribution of

€

6.4 million). The projects concern the following

fields :

administrative and institutional capacity in the fisheries administration

development of integrated border management

development of a drug control and drug abuse masterplan

public expenditure management including public administration

capacity building in the Latvian Statistical Office

development of administrative and institutional capacity for regional development.

The European Integration Bureau (EIB), which has taken over the responsibility for

twinning (National Contact Point) since last year, has an essential role to play in the

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development and co-ordination of twinning activities. It will be important that the EIB

take a more active co-ordinating role vis-à-vis the ministries and other bodies benefitting

from twinning in order to make the best use of the twinning instrument as an important

tool for preparing Latvia’s administration for accession.

Negotiations / screening

The analytical examination of the

acquis

(screening) has been concluded for Latvia with

meetings for agriculture and Schengen held in late 1999 and early 2000. During the first

half of 2000, the results of the screening were updated for twenty-three chapters.

Negotiations were officially opened at the bilateral intergovernmental conference held in

February 2000. In March 2000, substantial negotiations started on eight chapters of the

acquis:

competition, statistics, small and medium-sized enterprises, science and research,

education and training, culture and audiovisual policy, external relations and common

foreign and security policy. The accession conference held in June 2000 decided to

provisionally close all the above chapters, with the exception of competition policy,

culture and audiovisual policy, and external relations.

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

for eight further chapters (free movement of services, free movement of capital, company

law, fisheries, industrial policy, transport, economic and monetary union, consumers and

health protection) during the second half of 2000.

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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 Latvia’s progress towards accession, the Commission

concluded that:

"Latvia fulfils the Copenhagen political criteria. Although significant progress has been

achieved in the integration of non-citizens it will be necessary to ensure that the final text

of the Language law is compatible with international standards and the Europe

Agreement. Areas which still need attention are the strengthening of the judiciary and

increasing its efficiency, the fight against corruption and the promotion of Latvian

language learning among non-citizens."

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

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

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

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

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

implement the

acquis,

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

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

acquis

in the field of

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

24 – Co-operation

in the field of justice and home affairs)

of part

B.3.1.

of this report.

Recent developments

Last year, a new government came into office in Latvia. The Prime Minister, who had

taken up his post in July 1999 following the resignation of his predecessor, resigned in

April 2000. Supported by the former three-party coalition and one additional party, the

new Prime Minister was appointed, and a new government was approved by Parliament

in May 2000.

No major shift in government policy has taken place over the last year, and EU and

NATO membership are still among the government’s key objectives.

1.1.

Democracy and the rule of law

As mentioned in the last regular reports, Latvia has achieved stability of institutions

guaranteeing democracy and the rule of law. This section therefore describes the most

significant developments of the past year.

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The parliament

The Parliament continues to operate smoothly. It, and in particular its European Affairs

Committee, has undertaken to further strengthen its role in matters related to European

Integration, including in the formulation of Latvia’s positions for EU accession

negotiations, and a change in the Parliament’s rules of procedure to codify these changes

is foreseen.

The Parliament adopted its own "Strategy for the Integration into the European Union" in

February 2000, which will be subject to regular reviews.

The executive

One of the greatest challenges Latvia faces in preparing for EU membership is to upgrade

the functioning of its administration in order to be in a position to efficiently and

effectively manage and implement the

acquis

upon accession. The 1999 regular report

concluded that while Latvia had continued to demonstrate good progress in aligning its

legislation with the

acquis

and in setting up the structures required to implement it in

most areas, the delays in implementing general public administration reform had

weakened its capacity in this respect.

The 1999 Accession Partnership with Latvia included "accelerate reform of the public

administration including strengthening of the relevant administrative institutions " as a

short-term priority. Since the last regular report, some progress has been made at

conceptual level, as well as in adopting framework legislation, improving the institutional

set-up and implementing practical steps.

In March 2000, a senior external adviser supported by EC Phare reported to the Prime

Minister that the current situation was characterised by three main weaknesses, namely

the lack of political consensus regarding the reform process, a policy vacuum at the centre

of government, and the absence of a unified public service. Due to the lack of an adequate

status, there has been a notable lack of qualified and experienced personnel, whilst at the

same time there has been constant pressure over the past years to downsize the civil

service and outsource core activities. The lack of career prospects and the low salaries in

the public sector have made it difficult to retain qualified staff.

The new government has demonstrated its commitment to continuing the reform process

by according the issue a prominent place in its declaration of May 2000 and by

maintaining the post of a Special Minister in charge of Public Administration and Local

Government Reform in the Cabinet.

To address structural deficiencies, several new legislative acts have been prepared over

the last few years. In September 2000, a new Civil Service Law was adopted. This had

been a short-term priority in the 1999 Accession Partnership. In January 2000, a

conceptual document was adopted, foreseeing the introduction of a unified remuneration

system by the end of the year.

Further key legislation has, however, still not been adopted. At the time of completion of

this report, a Framework Law on the Institutional Structure of the Public Administration,

and a Law on State Agencies were still awaiting adoption by Parliament. The latter aims

to address the problem posed by the exponential growth in the number of semi-

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autonomous agencies (approx. 170) whose legal statute and systems of staff remuneration

are not transparent and which are not subject to proper financial control.

To rationalise and improve the institutional set-up, several steps were taken. Firstly, the

Bureau of Public Administration Reform and the Secretariat of the Special Minister for

Public Administration and Local Government Reform were merged in January 2000 to

create a single unit, the Secretariat of Public Administration Reform with the task of

steering the reform process. Secondly, in accordance with the March 2000

recommendations of the senior external adviser, a policy planning and review unit was

recently set up at the State Chancellery (with a staff of 6) to improve the co-ordination of

policy objectives and priorities at the central level. Thirdly, the 1999 Regular Report had

referred to the need to improve the internal audit system within ministries. Since then, the

setting up of internal audit units in all line ministries has been completed (see

chapter 28

– Financial control).

Several practical measures have also been undertaken to improve the situation of the staff

in the administration. Under the 1994 Civil Service Law, civil servants have remained as

‘candidates’ subject to special state exams being held. While there had been several

delays in the start up, by mid-September 2000, 807 candidates had received civil servant

status (out of total of 6,793 in the central administration), as compared to 84 in June

1998. In November 1999, the Civil Service Administration drew up a Strategy for the

Development of Personnel Management, foreseeing the development of appraisal

procedures.

In September 1999, the European Integration Council decided on a training strategy on

EU issues for staff in the public administration, the implementation of which has started

in the form of compulsory courses organised by the Latvian School for Public

Administration. The School manages and co-ordinates the training process for state civil

servants. By May 2000, 2,320 persons had already undergone such training.

In accordance with the short-term priorities of the 1999 Accession Partnership, it will be

important during the coming period that the momentum of public administration reform

be maintained in order to carry forward the necessary institutional changes. Once the

remaining pending legislation to create the legal framework for the reform has been

adopted, it will have to be enforced rigorously.

No major changes in the structures related to European Integration have taken place

during the last year. The European Integration Bureau, which is the central administrative

institution for the co-ordination of the internal integration process, saw its budgetary

allocation for information activities on the EU cut significantly this year.

The judicial system

Progress in improving the functioning of the judicial system in Latvia has been

forthcoming, albeit rather slowly. During the last year, some efforts have been made,

including some improvements to the legal and institutional framework and the promotion

of training of judges.

Concerning the legal and institutional framework, several developments can be reported.

In January 2000, a division for legal methodology was created within the Ministry of

Justice in order to improve the quality of legal drafting, which is one of the main

functions of the Ministry. The Law on the Prosecutor’s Office was amended in June

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2000, establishing more stringent requirements for candidates to the post of the

Prosecutor General and introducing two new grounds for the dismissal of the Prosecutor

General (deliberate non-fulfilment of duties and violation of the code of ethics for

prosecutors). Within the Prosecutor General’s Office, a new division for international

relations and a specific unit for customs were recently established.

However, legislation to codify the transformation of court bailiffs into an independent

legal profession has still not been adopted. The co-ordination between court bailiffs and

the court system needs to be improved in order to ensure the proper enforcement of court

decisions, which currently continues to be a serious problem. The high number of

complaints from individuals received by the Department of Bailiffs continues to put a

heavy burden on its staff.

The status of judges had been enhanced with the adoption of relevant legislation as well

as an increase in their salaries at the end of 1998. The overall level of salaries remains

low, however. At present, 24 out of 325 judge posts still remain vacant (compared to 26

in July 1999).

Some efforts have been made to improve the professional qualifications of judges. In

1999, the Judicial Training Centre (NGO) held courses for all judges, and it is in

principle foreseen that all judges should also follow courses in EC law in accordance

with a 3-year plan (2000-2003) drawn up by the Centre. Training courses were also held

for legal professions other than judges, such as bailiffs, court personnel and others. While

increased funds for the training of judges were made available in 2000, the Training

Centre nevertheless continues to suffer from lack of financial resources and has to rely to

some degree on external assistance. Overall, judges are generally not yet well qualified,

and the training of judges, in particular also in EC law, should be continued and

expanded during the years to come.

Considerable delays in court proceedings continue to exist despite the adoption of a new

‘Law on Civil Procedure’ last year, which provided the legal basis for shortening the

duration of proceedings. In mid-2000, the total number of pending criminal court cases

amounted to 5,516 and of pending civil cases to 24,940 , compared to 5,837 criminal and

26,232 civil cases in mid-1999. A new Law on criminal procedures is still in the drafting

stage. Concerning prison sentences, sentencing to community service rather than

detention is still uncommon. A probation service has not yet been established.

As regards structural issues related to the court system, the Ministry of Justice drew up

guidelines for the maintenance of court buildings in March 2000 with the aim of

preventing corruption in the judicial system (which continues to be a serious problem,

see

below section on ‘Anti-corruption measures’)

improving public service and ensuring the

protection of witnesses. It will also be important that the security of court buildings be

enhanced.

The publication of court decisions has started, as has the development of a centralised

index. This problem should be partially resolved with progress in the computerisation of

the courts, which has so far covered ten courts. Full use of these new facilities should be

made.

Overall, while some of the deficiencies of the judicial system have started to be

addressed, sustained further efforts will be necessary. The legal framework needs to be

completed (including the adoption of laws on court bailiffs and on criminal procedures),

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the training of judges needs to be expanded and intensified, and the infrastructure of court

buildings needs to be further improved.

Anti-corruption measures

Corruption continues to pose a serious obstacle to the proper and efficient functioning of

the public administration in Latvia. Since the last regular report, some positive steps can

nevertheless be noted both at the conceptual level and in creating the necessary structures

to implement anti-corruption measures.

In April 2000, the government adopted an anti-corruption programme, which updated and

revised the previous programme from 1998. The new government is committed to further

improving the legal framework and its implementation, as well as the performance of the

police and the State Revenue Service in the fight against corruption in the administration.

It adopted a concept paper on the fight against corruption in August 2000, foreseeing legal

and institutional changes.

An action plan on the prevention of corruption is being implemented in the State Revenue

Service. As concerns the police, following changes in the relevant legislation, state police

officers can no longer levy on-the-spot fines when discovering an offence.

Several relevant institutional changes have also taken place. They include the creation in

December 1999 of the Secretariat of the Corruption-Prevention Council (the Council itself

has existed since 1997, is charged with overall co-ordination, and is chaired by the

Minister of Justice), in order to ensure the implementation of anti-corruption measures,

and the establishment, in early 2000, of a special unit within the security police to address

the problem of corruption in law-enforcement bodies.

In 1999, 43 cases of passive bribery and 15 cases of active bribery were detected in state

institutions. In these cases, 23 sentences for passive bribery (compared to 12 cases in

1998) and 9 sentences for active bribery (compared to 5 cases in 1998) were handed

down. During the first half of 2000, 1 person was sentenced for passive bribery (out of 25

cases registered since January 2000) and 4 for active bribery (out of 6 cases

registered).There are no prosecutors specialising in corruption cases.

Latvia ratified the Council of Europe Convention on Laundering, Search, Seizure and

Confiscation of the Proceeds from Crime in 1998. It signed the Council of Europe

Criminal Law Convention on Corruption in 1999, and the government prepared the

necessary legislation for the ratification, including amendments to the Criminal Code, in

August and September 2000 for adoption by Parliament. Latvia joined the Group of

States against Corruption (GRECO) in June 2000 but has not yet signed the Council of

Europe Civil Law Convention on Corruption, the 1997 OECD Convention on Combating

Bribery of Foreign Public Officials in International Business Transactions, nor the UN

anti-corruption programme for Drug Control and Crime Prevention.

Further sustained efforts will be needed to complete the legal framework and to ensure

effectiveness in the fight against corruption in order to achieve concrete results and to

reduce the overall level of corruption in Latvia. The effective functioning of law

enforcement institutions needs to be ensured. Various institutions have investigative

capacity, including the state police, the financial police and the economic police, and co-

ordination amongst all bodies involved needs to be improved to avoid overlaps in

functions. Training for affected staff in the public institutions, such as auditors, needs to

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be organised in order to sensitise them to the problem. Activities aimed at fostering

awareness and changing perceptions amongst the public should equally be carried out.

1.2.

Human rights and the protection of minorities

As mentioned in the last regular reports, Latvia continues to respect human rights and

freedoms. The following section focuses on subsequent major developments.

Latvia has acceded to most of the major international human rights instruments and

abolished the death penalty in 1999 with the ratification of the 6

Protocol to the

European Convention for the Protection of Human Rights and Fundamental Freedoms,

and the relevant Latvian legislation (the Criminal Code) was amended in May 2000. The

Council of Europe Framework Convention for the Protection of National Minorities and

the European Social Charter have still not been ratified.

Civil and political rights

In February 2000, the Parliament decided to abolish 16 March as official commemoration

day, thereby eliminating the controversies surrounding this date in previous years and

dissociating the authorities from all commemorative events held by war veterans on the

day.

There are indications that prostitution and the

trafficking

in women and children for

prostitution abroad are increasing. A National Programme for Preventing Sexual

Violence Against Children 2000-2004 was adopted in January 2000; its implementation

will be supervised by the National Centre for the Protection of the Rights of the Child.

The process of aligning refugee and

asylum

legislation on international standards as well

as the Community

acquis

has continued but needs to be carried on. The new Refugee

Reception Centre at Mucenieki, which was officially opened at the beginning of 1999,

housed a total of six asylum seekers and five refugees at the end of 1999 ; its total

capacity is 250 persons. A total of seven persons have been granted official refugee status

in Latvia, three of them during 1999 (total number of applications in 1999 : 22 persons)

and one in early 2000.

Efforts to improve

prison conditions

continued in the last year, including renovations of

buildings and training of guards, and measures to address the problem of tuberculosis in

prisons have shown first results. In January 2000, the administration of prisons was

transferred from the Ministry of Interior to the Ministry of Justice. Additional resources

have been allocated in the national budget for the construction of a new prison in Olaine.

Nevertheless, the situation in some prisons remains substandard, especially as concerns

health and sanitary conditions and overcrowding. This equally applies to the two existing

centres for illegal immigrants. There is a continued lack of personnel and equipment, and

some prison facilities are still awaiting renovation. While there was a slight decrease in

the overall number of prisoners in 1999, the proportion of pre-trial detainees increased,

and pre-trial detention periods continue to be long. The situation is particularly serious

for juveniles, who are sometimes not accomodated separately, and where the length of

pre-trial detentions is not always in conformity with international standards. The

implementation of social rehabilitation programmes has continued, but needs to be

introduced on a wider basis (in particular for juvenile delinquents). Some structural

problems still need to be resolved , including the fact that some prisons are guarded by

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conscripts from a special regiment of the Ministry of Interior rather than by professional

guards.

Economic, social and cultural rights

Concerning

equal opportunities,

it appears that women often face discrimination in the

workplace in terms of hiring and pay. In February 2000, a first court case concerning

equal treatment and in particular equal pay was examined, and the requests of the

claimant (a female employee) were satisfied. However, the employer subsequently

successfully appealed against the decision, and the case was taken to the Supreme Court.

Several initiatives related to the protection of

children’s rights

were undertaken in 1999.

Latvia ratified the Council of Europe Convention on Adoption of Children in May 2000

and signed the European Convention on the Legal Status of Children Born out of

Wedlock in September 1999 and the European Convention on Recognition of Decisions

and Enforcement of Decisions Concerning Custody of Children and Restoration of

Custody of Children in October 1999.

Concerning the treatment of

disabled

persons, legislation to protect the rights of the

mentally ill has yet to be adopted. While the government has undertaken to address the

problem, the substandard conditions in some of the facilities for the mentally ill have

continued to give raise to some concerns. A Strategy on Psychiatric Assistance 2000-

2003 was adopted in July 2000.

As to

unemployment

benefits, the 1999 Regular Report had reported that a very high

number of employees in Latvia would not be eligible for unemployment benefits because

no social tax had been paid by their employers. To address this problem, amendments to

existing legislation on social insurance are under preparation.

Minority rights and the protection of minorities

Latvia acceded to the 1954 UN Convention Relating to the Status of Stateless Persons in

September 1999 but has introduced reservations concerning the application of the

Convention’s provisions on social security and identity papers. The Latvian Parliament

decided in May 2000 not to ratify the Council of Europe Framework Convention for the

Protection of National Minorities for the moment due to inconsistencies between Latvian

legislation and certain provisions of the Convention.

The naturalisation procedure

Of Latvia’s total population of about 2.43 million, around 570,000 persons were non-

citizens residents in mid-1999. While Latvian citizenship had previously been rather

difficult to obtain, amendments to the Law on Citizenship entered into force in November

1998 following a referendum. The previous " age windows " system was consequently

abolished and stateless children born in Latvia after 21 August 1991 became eligible for

citizenship. Practically all non-citizens residents of Latvia are now entitled to apply for

citizenship.

During the second year following the liberalisation of the Citizenship Law, rapid

increases in the numbers of requests for naturalisation were observed. However, a

decrease in the numbers of requests per month was registered in the first half of 2000 as

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compared to the previous year (780 applications in April 1999 compared to 1,176 in

April 1998 ; 865 applications in May 1999 compared to 1,564 in May 1998). Since

February 1995, a total of 38,340 persons have applied for naturalisation, and 34,866 of

these have been granted citizenship (in comparison, at the time of the last regular report,

25,717 applications had been received and 18,089 had been granted citizenship)

Several measures to simplify the procedures had already been taken by last year,

including making the history test easier and reducing the fees. The pass rates continue to

be around 95%. Nevertheless, the lack of language proficiency and the application fees

remain obstacles to naturalisation. Pilot projects combining the obligatory tests for

naturalisation with centralised final school exams carried out in the summer of 1999 were

not continued, and no changes in any government regulations to make the combined tests

possible were adopted.

Additional funds were allocated to strengthen the Naturalisation Board in 1999 in order

to deal with increased requests. In the national budget for 2000, the allocation was again

decreased, and some staff members (both in Riga and in regional branches) had to be

dismissed. Despite the increases in the number of applications for naturalisation and the

reduction in funds for the Naturalisation Board, the Board has succeeded in keeping the

time period for processing applications for citizenship within reasonable limits. The

naturalisation process takes approximately six to seven months in Riga and four to five

months in all other parts of Latvia. These waiting times are expected to be reduced

further with the completion of the computerisation of the Naturalisation Board branches

both in Riga and its regional offices, which is presently underway.

In the meantime, the Naturalisation Board has also been allocated additional functions

(from the Citizenship and Migration Board), including registration, deprivation, and loss

of citizenship. The provision of adequate funding for the Naturalisation Board is vital in

order to permit the proper implementation of all these responsibilities.

As concerns stateless children, even though all children born after August 1991 are

eligible (around 19,000), the number of applications has remained low. Altogether, 437

children had been granted citizenship by the end of August 2000. This is mostly because

parents wish to naturalise at the same time as their children.

Latvia continues to fulfil all recommendations expressed by the OSCE in the area of

citizenship and naturalisation. However, it remains important to increase the distribution

of information on the citizenship requirements, since surveys indicate that many non-

citizens are hesitant to apply for citizenship because of lack of information on the

procedures.

Special passports for non-citizens

The total number of special passports printed since 10 April 1997 amounted to 563,892

by the end of July 2000, representing almost 97.9 % of eligible non-citizens (compared to

78% by mid-September 1999).

The original expiry date of the old Soviet passports was extended from 31 December

1999 to 31 March 2000. Before the end of the deadline, the Latvian authorities ran a

publicity campaign to encourage applications. Special efforts were also made to assist

with the procedures, for example by visiting elderly persons at home. Following

amendments to the Law on the Status of the former USSR Citizens who are not Citizens

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of Latvia or any other State adopted by the Parliament at the end of March, non-citizens

who missed the deadline of the end of March did not lose their legal status and could still

apply for the document but might be subject to a fine, depending on the reasons for the

delay. It should be noted that travelling to Russia is easier with a non-citizen passport

than with a Latvian passport.

Integration of minorities

In the 1999 Accession Partnership, short-term priorities included " implement further

concrete measures for the integration of non-citizens including language training and

provide necessary financial support". A number of important relevant developments

have taken place during the last year.

The framework document of a National Programme for “The Integration of Society in

Latvia” of September 1998 was revised based on comments received during a public

hearing phase in the spring of 1999. The final version was adopted by the Cabinet in

December 1999 and covers civic participation and political integration, social and

regional integration, education, language, culture and information. The new government

has demonstrated its commitment to the integration process by including the drawing-up

of an integration programme in its May 2000 declaration and adopting a short version of

the programme in mid-May 2000. The original schedule of developing concrete projects

by March 2000 was postponed to October 2000. A decision was also taken on the

implementation structure, foreseeing the establishment of four new institutions : a co-

ordinating institution responsible for the overall implementation (to be placed under the

Ministry of Justice), an Integration Council, an Advisory Council and an Integration

Foundation, charged with attracting funds to finance the implementation. The government

decided in July 2000 that legislation to set up the Integration Foundation should be subject

to Parliament’s approval. It will be important to allocate sufficient funds in the national

budget to guarantee the proper running of these new bodies. Some initiatives have also

been launched at regional and local level, where several regions and cities have started to

develop their own integration programmes.

Since currently, about 43% of the population has a language other than Latvian as a first

language, language training will remain one of the key instruments for the integration of

ethnic minorities in the years to come, as reflected in the National Programme on ‘The

Integration of Society in Latvia’. The Latvian Language Training Programme (1996-2006)

presently operates at three levels, including conceptual dialogue, capacity building in the

education system and training operations, and the promotion of integration at community

level (summer camps, youth clubs etc.). During 1999, about 15000 students and adults

underwent language training. The language training programme was expanded in

September 1999 due to increasing demands for Latvian language courses. EC Phare is

currently the largest single contributor to this multi-donor programme. It is foreseen that

as of 2001, the government will take over full responsibility for the management of the

programme. There is still a significant shortage of language teachers, and the Latvian

government should continue to earmark more funds for language training in the coming

years.

As foreseen by the Education Law of 1998, the government has started to implement the

transition to bilingual education on the basis of four bi-lingual teaching models or,

alternatively, genuinely developed models, subject to approval. Teachers at minority

schools had to demonstrate a certain level of proficiency in Latvian. As of 2004, all state-

funded schools will provide secondary education (from 10

grade onwards) in the state

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language only. Minority education will continue to be available at public schools until 9

grade. Some problems have been encountered in the transition, including the lack of

sufficient training for teachers (as concerns language and methodology of bilingual

teaching), as well as of teaching materials. The allocation of additional funds in the 2000

national budget to allow for increases in the salaries of language and bilingual teachers is

a welcome step.

The Language Law was adopted by the Parliament in July 1999 but not promulgated by

the President following concerns voiced, including by the OSCE, the Council of Europe

and the European Commission during the first half of 1999 as to the possible

incompatibility of the text with international and Community standards as enshrined in

the Europe Agreement. The Law was reconsidered by Parliamentary Committees, and the

final version was adopted in December 1999. Following the adoption of implementing

legislation in August 2000, the Law and these regulations entered into force in September

2000. At the time of adoption of the implementing regulations, the Latvian government

also committed itself to introducing further amendments to the regulations before

November 2000, and specifically amendments concerning the language requirements for

the performance of professional duties in order to further delimit their scope.

In the 1999 Accession Partnership with Latvia included " align the Language Law with

international standards and the Europe Agreement" as a short-term priority. Both the

Language Law and the implementing regulations are now essentially in conformity with

Latvia’s international obligations. Furthermore, neither the Language Law itself nor the

implementing regulations contain provisions that are manifestly incompatible with

Latvia’s obligations under the Europe Agreement. However, some of the provisions are

worded such that they could give rise to different interpretations.

It will therefore be important that the competent authorities only apply and enforce the

Language Law and its implementing regulations to the extent required by a legitimate

public interest, having regard to the principle of proportionality, as contained in Article 2

of the Language Law, and in view of Latvia’s international obligations, as well as the

rights and freedoms guaranteed under the Europe Agreement. These include, for example,

the exercise of business activities for enterprises from the European Union (see

chapters 2

and 3 – Free movement of persons and Freedom to provide services).

Following the entry into force of the Language Law, some initiatives were started to

facilitate the implementation of the new provisions. For example, the Daugavpils City

Council decided to make translation of official documents available free of charge for

persons not able to pay for translation into Latvian.

Linguistic restrictions are also apparent in legislation other than the Language Law. The

Law on Television and Radio holds that all films to be shown on television must be

dubbed into the state language or have Latvian subtitles. The Election Law prescribes

language requirements for Members of Parliament.

Several other elements limiting the integration of non-citizens still persist in the

economic sphere. Non-citizens are still not allowed to practise some professions (lawyer,

armed security guard and private detective) on the grounds of state security.

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1.3.

General evaluation

Latvia continues to fulfil the Copenhagen political criteria. The last year saw progress in

carrying forward the Public Administration Reform process, including the adoption of a

new Civil Service Law; in improving the functioning of the judicial system; and in

designing the framework for the fight against corruption. Several important steps were

taken to support the integration of non-citizens into Latvian society, including the

adoption of a Language Law and implementing regulations that essentially comply with

Latvia’s international obligations and the Europe Agreement, as well as a Programme for

the Integration of Latvia’s Society. Latvia has thereby advanced in addressing the short-

term priorities of the 1999 Accession Partnership.

It will be necessary to continue and accelerate the Public Administration Reform process,

in particular with the adoption of key legislation; to further strengthen the judicial

system; and to continue the fight against corruption on a broad scale. On the basis of the

new Civil Service Law, Latvia needs to develop a professional and stable civil service

and to improve the capacity of the public administration to implement and manage the

acquis,

as suggested by the relevant medium-term priorities of the 1999 Accession

Partnership.

To facilitate and promote the integration of non-citizens, the effectiveness of the

Naturalisation process needs to be maintained and Latvian language training needs to

continue and be expanded in accordance with the relevant medium-term priority of the

1999 Accession Partnership. It will also be important to ensure that sufficient resources

are allocated to measures promoting the integration of non-citizens. The Language Law

and its implementing regulations need to only be applied and enforced to the extent

required by a legitimate public interest, having regard to the principle of proportionality

and in conformity with Latvia’s international obligations and the Europe Agreement.

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2. Economic criteria

2.1.

Introduction

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

concluded:

“Latvia has made considerable progress in the creation of a market economy”; it “would

face serious difficulties in coping with competitive pressures and market forces within

the Union in the medium-term”.

Further progress was noted in the 1998 regular report. In its 1999 regular report, the

Commission found that:

"Latvia can be regarded as a functioning market economy. It should be able to cope with

competitive pressures within the Union in the medium term, provided that it maintains

macroeconomic stability and commits itself to completing structural reform."

In examining the economic developments in Latvia 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 and the previous regular reports.

2.2.

Economic developments

Latvia's macroeconomic situation has improved in the past year.

The economic recession

in the wake of the Russian crisis in 1998 was followed by an important recovery starting

at the end of last year. Real GDP growth jumped to 5.1% in the first half of 2000. Trade

with the EC has been growing continuously. The still sizeable current account deficit has

been showing modest improvements since the end of 1999. Foreign capital inflows have

continued to increase, partly offsetting the shortfall on the current account. Low inflation

and a stable financial sector have allowed stable monetary conditions. However, inflation

has accelerated somewhat from low levels in recent months, while unemployment

remains high. In 1999, the stagnation of economic growth resulted in a general

government deficit of roughly 4% of GDP. The budget for 2000 envisages that tight

spending limits and increases in tax revenues arising from the recovery in growth will

yield a general government deficit of 1.9%.

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Latvia

Real GDP growth rate

per cent

1996

3.3

1997

8.6

1998

3.9

1999

0.1

2000 latest

5.1 Jan-June

Inflation rate

- annual average

- December-on-December

per cent

17.6

13.2

8.4

7.0

4.7

2.8

2.4

3.2

2.7

June

2.4 June

Unemployment rate, end-year

- ILO definition

per cent

18.3

14.4

13.8

14.5

General government budget balance

per cent of GDP

-1.7

0.1

-0.8

-3.8

Current account balance

per cent of GDP

million

€

-5.5

-220

-6.1

305

-11.7

-632

-10.6

–602

-5.7 E Jan-June

Foreign debt

- debt export ratio

- gross foreign debt

Foreign direct investment in flow

- balance of payments data

per cent

million

€

20.1

414

20.8

526

30.4

847

45.4E

1,214E

per cent of GDP

million

€

7.5

301

9.2

460

5.9

318

5.9

335

E = Estimates

The government has continued to address the structural deficiencies of the economy.

Considerable progress has been made in the area of fiscal reform and in the financial

sector. First steps to implement urgently needed adjustments in the pension system have

been taken. In February 2000, the Law on State-Funded Pensions which constitutes the

legal framework for the second pillar of the pension system was adopted. Measures to

improve the business climate in Latvia are underway. Among other things, they focus on

reducing the costs of creating new businesses. Privatisation and enterprise restructuring

slowed down in 1999, whereas active labour markets policies and adjustments in the

agricultural sector gained in political importance.

PROXY HICP since 1999 (see methodological notes)

Moving 12 month average rate of change

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Main Indicators of Economic Structure in 1999

Population (average)

GDP per head

thousand

PPS-

€

Per cent of EU

average

2,432

5,786

Share of agriculture

in:

- gross value added

- employment

Investment-to-GDP ratio

Gross foreign debt/GDP

Exports of goods &

services/GDP

Stock of foreign direct

investment

End of 1999 data (Eurostat)

per cent

million

€

per head

4.0

15.3

25.0

21.2

46.7

1,773

729

2.3.

Assessment in terms of the Copenhagen criteria

The existence of a functioning market economy

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.

The inauguration of the new coalition government in May 2000 did not imply any major

changes in the area of economic policies.

The conduct of economic policies remains

consistent with the strategies previously adopted. Important objectives are: to continue

fiscal consolidation and pension reform, to complete the privatisation of large-scale

companies within the coming year, and to reduce the unemployment rate to 8% in the

course of one year. In February 1999, Latvia signed a Joint Assessment of Economic

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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Policy Priorities with the European Commission services, based on its medium-term

economic strategy, which covers the period to 2003. It establishes the framework of

economic policy measures in order to maintain macroeconomic stability and accelerate

progress in structural reforms. Whilst there is a broad consensus on most important issues

of economic policy as well as on speeding up preparations for Latvia´s EU accession,

privatisation continues to be the most controversial political topic.

At the end of 1999, the IMF approved a 16-month stand-by arrangement for Latvia.

The

Latvian government agreed on a tough reform agenda, which includes some difficult

measures in the public sector. The programme focuses on reducing the consolidated

budget deficit from about 4% of GDP in 1999 to 2% in 2000 and 1% in 2001. As the

social insurance sector accounts for nearly one third of the consolidated general

government budget, the government committed itself to curbing the deficits in this area.

However, latest developments indicate that the government might not manage to meet the

agreed deficit reductions.

In 1999, real GDP increased by 0.1% year-on-year and it continues to increase in 2000.

The first half of 1999 was still negatively affected by the Russian crisis, but the results of

the last two quarters were increasingly positive, confirming that the recession has

bottomed out. Overall, industrial production output fell by 9.8% year-on-year, but

towards the end of the year production recovered to the levels of 1998. This carried

through into the first half of 2000, with industrial output increasing by 5.5%, compared to

the corresponding period of the previous year. Real GDP growth in the first half

amounted to 5.1% year-on-year, which was higher than expected.

The pick up in growth has been driven mainly by external demand.

Private consumption

grew only modestly in 1999 by 0.8 %, while public consumption was reduced by 6.7%.

Considering the positive economic developments of recent months, the government has

revised its economic forecasts, and now expects 3.5 to 4% growths in 2000.

There are no clear signs of falling unemployment.

The rate of jobseekers, which is

broadly equivalent to the ILO definition of the unemployment rate, has shown a slight

upward move since the last quarter of 1999 and amounted to about 14% in the first

quarter of 2000. Unemployment shows large regional differences. The eastern parts of

Latvia are still particularly affected, with unemployment rates higher than 20%.

Throughout 1999 inflation in Latvia was low at an average of 2.4%, but it picked up to

3.7% in April 2000.

This reflects higher energy and transport prices and an increase in

administered prices and excise tax rates. Since May, inflation has decreased again.

Producer prices dropped by 4% in 1999, but have shown a slight upward tendency in the

first half of 2000.

The monetary policy responses have been appropriate.

Low growth and low inflationary

expectations, in an environment of financial sector stability, led to an easing of monetary

policy until the first half of 2000. With the economy showing accelerating growth rates,

the Bank of Latvia tightened monetary conditions in the middle of the year. The Latvian

currency has been pegged to the Special Drawing Rights (SDR) basket of currencies

within narrow bands since 1994, and over the years this arrangement has served well in

maintaining monetary stability. The Bank of Latvia has announced that the exchange rate

peg of the lats to the SDR will probably be maintained during the pre-accession period.

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However, the Bank considers itself to be technically prepared to switch the peg to the

euro at any time.

The consolidated general government deficit was 3.8% of GDP in 1999.

Economic

stagnation in 1999 resulted in very low (0.3%) growth of general government revenues

while expenditure increased by 9.9%. Increased social spending and pension outlays,

because of pre-election commitments in late 1998, made fiscal policy strongly

expansionary in 1999. The 2000 budget envisages a reduction of the general government

deficit to 1.9% of GDP, which the government plans to achieve by tight spending limits

and an increase in tax revenues arising from the recovery in growth. Significant changes

were made in the state budget planning. The government has become concerned about the

potential conflict between the use of special budgets and the objective of improving

budgetary planning. Certain earmarked revenues will be abolished, and some special

budget revenues will be incorporated into the basic budget. In line with earlier proposals

to broaden the tax base and simplify the tax system, the rate of social security

contributions paid by employers was lowered by one percentage point (from 28.1% to

27.1%), the property tax was eliminated, and the multiple rates for real estate taxes,

which ranged from 0.5% to 4%, were harmonised at 1.5% of real asset values. These

measures should also help to reduce the size of the shadow economy. In an effort to

improve tax collection, the state revenue service is being reformed.

The latest developments in the area of fiscal policy suggest that Latvia will not meet its

targets and fiscal consolidation will proceed more slowly.

In the summer of 2000, the

government submitted a supplementary general government budget for the current year.

According to this draft budget the fiscal deficit is expected to increase to 2.7% of GDP,

which is clearly higher than the target of 2% agreed with the IMF. Moreover, the budget

draft for 2001 envisages a general government budget deficit of 1.75% of GDP, whereas

the agreement with the IMF foresees a further consolidation bringing down the deficit to

1% in 2001.

Despite a rise of 26% year-on-year, total government debt remains at a low level,

amounting to 13.9% of GDP at the end of 1999.

Lower than expected privatisation

receipts contributed to the greater than expected financing gap, since the government was

compelled to rely heavily on borrowing. Privatisation receipts will continue to play an

important role in terms of financing the budget. However, there is a need to continue

fiscal consolidation in the medium term, as privatisation revenues will gradually

decrease.

The current account deficit remains the key vulnerability of the Latvian economy.

deficit of 10.2% of GDP was recorded in 1999, compared to 10.6% in the previous year.

Imports declined faster than exports, resulting in a trade deficit lower than in 1998. While

the trade and the services balance improved, the balance on factor income and current

transfers deteriorated remarkably in 1999. The financial and capital accounts showed a

surplus; net foreign direct investments covered more than half of the current account

deficit. In the first quarter of 2000, the current account deficit improved further to 4% to

GDP.

Market forces freely determine the prices of a majority of goods.

Administered prices

represent 22.3% of the consumer price basket and, where they concern prices for services

of natural monopolies, cost recovery is generally aimed for by the introduction of new

payment schedules. Trade and foreign exchange regimes have been liberalised.

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Overall, the private sector accounts for 68% of GDP.

It employs about 70% of the

economically active population of Latvia. In industry, agriculture and trade, more than

90% of companies are privately owned. Privatisation of land has progressed - based on

the reform of the Land Books and on the completion of land registration in the State Land

Cadastre.

Enterprise privatisation is close to completion in Latvia, but there was hardly any

progress over the year.

Plans for privatising the few remaining large-scale enterprises

have been delayed for the last two years. This means, in fact, that some of the most

lucrative assets of the largest enterprises in utilities and infrastructure are still in state

hands. This applies to the Latvian Shipping Company (Lasco), Ventspils Nafta,

Latvenergo and Lattelekom. In March 2000, the Latvian Privatisation Agency (LPA) sold

26,85% of the gas utility Latvjas Gaze via the Riga Stock Exchange. This was Latvia´s

biggest privatisation deal so far; its revenue amounted to about

€40

million. After the

sale, the Latvian state owns only 10% of the company. However, after the failure of the

sale in June 1999, further attempts to find a suitable strategic investor in the Latvian

Shipping Company (Lasco)

–

Latvia´s second largest enterprise

–

were unsuccessful. This

can be attributed to the poor preparation of the deal and the government's intention to

keep a golden share in the company. The sale of the 44% stake of the state has been

scheduled now for the first quarter of 2001. In February 2000, the Latvian government

approved a plan of restructuring and partial privatisation of the energy supplier

Latvenergo. In August 2000, Parliament nullified the decision of the government by

adopting amendments to the energy law which block the - even partial - sale of

Latvenergo. Finally, the sale of the state´s majority stake in Lattelekom, Latvia´s

telecommunications supplier, is complicated by the renegotiations of the end of

Lattelekom´s fixed-line monopoly, which is set to be moved forward from 2013 to 2003.

Aiming to speed up completion of enterprise privatisation, the government decided to

involve international investment banks and consultants in the divestiture of the remaining

large enterprises. The support of independent professionals should help to increase the

transparency and efficiency of privatisation, as well as take enterprise-related economic

decisions out of the political sphere.

The environment for developing the ownership and corporate governance system still

needs further strengthening.

This concerns in particular the financial system and the

implementation of the legislation on competition, bankruptcy, registration, transfer and

enforcement of ownership rights. Results for economic performance suggest that

restructuring has been deeper in companies with foreign ownership, in terms of their

capacity to develop new products and markets and introduce new management and

production techniques. Domestically owned enterprises are characterised by lower

investments, lower wages, and difficult access to finance, although they show good

results for profitability and factor productivity.

The legal framework for enterprises is broadly in place.

In the spring of 2000, a new

Commercial Code was adopted, streamlining administrative procedures, bringing

commercial regulations more in line with EC requirements, and simplifying business

registration. The simplifications may remove some of the shortcomings with regard to the

inconsistent interpretation and application of commercial laws by the authorities. The

company register is functioning well. In 1999, more than 8,200 new enterprises were

registered, whereas nearly 2,400 were liquidated. Figures for the first half of 2000 show

about 3,900 registered start-ups and around 1,100 enterprise liquidations.

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The restructuring of the Latvian banking sector is virtually completed, with nearly all

assets in private hands.

The state owns only one commercial bank. In 1999, the total

number of banks was reduced to 23 as two mergers took place and two banks were

closed. Non-residents hold 62% of the banking sector’s total assets and foreign banks run

six subsidiaries and one branch in Latvia. In May 2000, Rigas Komercbanka, which, after

having been hit severely hit by the Russian crisis, was re-capitalised and re-opened in

October 1999, was sold to a foreign bank under its new name Primas Latvijas

Komercbanka. Though the banking sector has been well restructured, further

consolidation is expected to take place in the near future. In August 2000, another foreign

bank announced plans to buy 100% of its three subsidiaries in the Baltic region, which

includes Latvijas Unibanka. That will create the region's largest financial group.

Currently, five banks dominate the Latvian banking scene accounting for 61% of total

assets; the two largest for 38%. Small domestic banks increasingly face problems on the

interbank market, which limit their liquidity and hence their ability to extend credit.

In recent years, the Latvian banking sector has strengthened considerably, and has

contributed positively to macroeconomic stability.

The introduction of prudential

regulations and tough banking supervision has set up an appropriate framework for

banking operations. As a result of the Russian crisis in 1998, supervision and regulations

have been tightened further. Overall, the banks in Latvia are well capitalised. Whereas

the Law on Credit Institutions requires a minimum capital adequacy ratio of 10%, the

capital adequacy ratio reached 15% at the end of 1999, and has been rising since then to

its recent level of 16%. The shares of non-performing loans have been decreasing to

about 7% of total loans, excluding the burden resulting from the Rigas Komercbanka

crisis. Only 1% of total loans is classified as lost. Moreover, two thirds of the non-

performing loans are covered by provisions. In 1999, the Latvian banking sector returned

to a small profit of about

€20

million, which indicates that it has overcome the impacts of

the Russian crisis. Direct exposure to Russia was reduced to 2.5% of total assets. Total

assets rose by 21.4%, total deposits went up by 23.8%, while loans grew by 16.1%. These

positive trends have been continuing this year.

Financial intermediation has been growing with the improved conditions of banks, even

though from low levels.

Banks are increasingly starting to channel savings towards the

private sector. Domestic credit accounts for about 26% of GDP, up from 20% a year

earlier.

The non-bank financial sector has been expanding, although it is still underdeveloped.

number of insurance and leasing companies have successfully entered the Latvian

markets. The capital market has also developed. At the Riga Stock Exchange, more than

70 enterprises are quoted, with a total capitalisation value of 14.2% of GDP. The

privatisation of attractive state-owned enterprises such as Lattelekom is expected to push

up this ratio.

Latvia will merge financial sector supervision into a single institution.

In June 2000, the

Latvian Parliament adopted the Law on the Financial and Capital Market Supervision

Commission, which provides the legal basis for merging the existing financial sector

supervisors into one single entity, including the supervision department of the Bank of

Latvia. This measure aims at enhancing stability and safety of the financial markets,

although it is too early to judge implementation.

Latvia can be regarded as a functioning market economy. Latvia has preserved

macroeconomic stability. However, the current-account deficit must be kept under

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control and, given Latvia’s exchange rate arrangement and its degree of capital

liberalisation, continued fiscal discipline will continue to be the main instrument. Fiscal

consolidation should be pursued with high priority. Progress has been made also on

structural reform. The legislative framework for a market economy is largely in place and

market entry and exit mechanisms function in an increasingly satisfactory manner.

Completion of enterprise privatisation should be carried out without any further delays

and in a transparent manner. The financial sector is currently functioning well, but

financial intermediation needs to increase.

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

Union

Latvia's ability to fulfil this criterion depends on the existence of a market economy and a

stable macroeconomic framework, allowing economic agents to make decisions in a

climate of predictability. It also requires a sufficient amount of human and physical

capital, including infrastructure. State enterprises need to be restructured and all

enterprises need to invest to improve their efficiency. Furthermore, the more access

enterprises have to outside finance and the more successful they are at restructuring and

innovating, the greater will be their capacity to adapt. Overall, an economy will be better

able to take on the obligations of membership the higher the degree of economic

integration it achieves with the Union prior to accession. Both the volume and the range

of products traded with EC Member States provide evidence of this.

The existence of a market economy, with sufficient macroeconomic stability and progress

on structural reforms, has established a favourable environment for stronger economic

growth and competitiveness.

On the whole, economic policy has been conducted with a

sufficient degree of predictability to allow proper decision making by economic agents.

Macroeconomic stability has improved but sustainability must be secured. The Latvian

economy remains externally vulnerable and fiscal consolidation is not fully achieved.

Latvia has a relatively well-educated workforce, representing an attractive factor for

foreign investment.

Nevertheless, strong investments in human resources are needed to

address the challenge of deepening structural unemployment. The restructuring of the

remaining large enterprises and the adjustments in the agricultural sector, as well as

permanent technological changes, will result in an increasing number of temporarily

unemployed people who need to be trained or re-trained before they can be re-employed.

In this respect, active labour-market policies are needed to improve the response of the

labour market to growth. The regional disparities in unemployment need also to be

addressed in a larger economic development context.

Investment rates have declined from the high levels reached until 1998.

Latvia

experienced adequate growth rates for investment, though starting from a low level.

These rates reached about 20% per year in 1996 and 1997, and accelerated to 27.3% in

1998. Strong inflows of foreign direct investment related to privatisation and greenfield

investments were the main contributing factors. In 1999, in the wake of the Russian

crisis, total investments decreased but at the same time foreign direct investment showed

a modest increase. The total share of fixed investment to GDP amounted to 25% in 1999

and would need to be raised again to enhance the productive capacity of the Latvian

economy. Pursuing fiscal consolidation, the government decided to reduce the public

investment to GDP ratio to 3.6% in 2000, whereas it was originally planned to be 4.8%.

However, government will need to assess expenditure cuts in a medium-term perspective,

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because cuts in investment projects in the public sector reduce the conditions for greater

economic growth in the future.

The Latvian authorities have undertaken serious efforts to improve the business climate

in Latvia.

Based on the Report on Administrative Barriers to Investment in Latvia

prepared by the Foreign Investment Advisory Service of the World Bank Group in 1998,

the government approved in 1999 an Action Plan in order to remove barriers to business

activities. The initiative was backed by the work of the Foreign Investors’ Council in

Latvia. Meanwhile, the efforts of both have been pooled, resulting in a revised Action

Plan, which was approved in February 2000

(see chapter 15 – Industrial policy).

The agricultural sector has been declining dramatically.

Currently it has a share in GDP

of only 4.4% but employs 15.3% of the total work force. Low productivity, quality

problems and increasing external competition have put the Latvian agricultural sector

under constant and severe pressure. While recognising the serious implications for people

who depend on the sale of farm output, the restructuring of the sector, where possible

accompanied by compensatory measures, is urgently needed.

Latvia has made further progress in reorienting its trade towards the EC.

Trade relations

with the

have deepened considerably, but Latvia has also successfully extended its

trade with other Western partners. The share of exports to the

has been increasing

strongly over the last years to 68% of total Latvian exports in the first quarter of 2000. In

1999, the

absorbed 62.5% of Latvian exports, compared with 56.6% in 1998 and

48.9% in 1997. Although this partly reflects the contraction in exports to CIS countries,

productivity gains, particularly in manufacturing, do also play a role. More than half of

Latvia’s exports to the

are wood (and articles made of wood), followed in second

place by textiles, which formed nearly 20% of total exports to the

in 1998 and 1999.

On the import side the share of the

was 53.5% in the first quarter of 2000, and 54.5%

in 1999, which is slightly down from the previous year The largest categories of imports

from the

have been machinery and equipment with 27% in 1999 (28% in 1998) and

agricultural goods (11% in 1999; against 15% in 1998). There is thus little evidence of

intra-industry trade.

Supported by foreign direct investment, the Latvian industry is on its way to upgrading

its productive capacity.

A large part of the production devoted to exports is still based on

relatively low unit labour cost. In sectors where Latvia benefits from comparative

advantages, such as the wood processing and paper industry, efforts are being made to

move up the value-added chain. Improved product quality and marketing skills support

the increasing competitiveness of Latvian goods. The differences in the types of exported

and imported goods reflect the state of ongoing industry restructuring, and indicate that

there is room for substantial productivity gains.

Latvia’s good trade performance is evidence that some of its production is competitive on

Western markets despite a real appreciation of the exchange rate.

In 1999 the CPI-based

exchange rate of the lats appreciated by 4.7% against the currencies of the major trade

partners. In the first quarter of 2000, it appreciated by 3.8% compared to the

corresponding period of the previous year. However, the exchange rate based on unit

labour costs declined.

One of the most dynamic parts of the economy is the services sector.

It contributes almost

one third to the total exports of goods and services mainly based on Latvia´s role as a

transit route between Western Europe and Russia. Transit trade represents one of the

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most important features in Latvia´s growing services sector. In 1999, transit trade and

related services contributed a share of about 14.5% to GDP.

Small and medium sized enterprises form the backbone of the Latvian economy.

They

produce about two thirds of GDP and employ nearly two thirds of the workers and

employees. The government has committed itself to supporting SME development by

pursuing an SME-related National Programme, which was adopted already in 1997 and is

currently under review. This programme includes measures to endow management with

entrepreneurial skills, to enhance the qualifications of workers, to make relevant

information more easily and widely available, and to improve SMEs’ access to outside

finance. Insufficient access to appropriate financing resources remains one of the main

problem. Though a number of loan projects for SMEs have been established, enterprises

often fail to secure finance because banks require high levels of collateral, especially

from start-ups

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

Latvia should be able to cope with competitive pressure and market forces in the Union

in the medium term, provided that it completes and maintains the pace of its structural

reforms. Macroeconomic stability has been maintained, although continued fiscal

discipline is needed. Latvia has deepened its trade integration with the

EC.

Productivity

gains and higher standards in product quality have improved the competitiveness of some

sectors of industry and of services. In order to accelerate and spread this favourable

development to the whole economy, considerable efforts are needed to encourage private

and public investments and to enhance the market oriented skills of the workforce.

Labour market flexibility should also be enhanced. In addition to its action plan to

remove barriers to business activities by foreign investors, Latvia should continue to

foster domestic enterprise creation by making entry procedures simpler and more

transparent, and by improving the access to finance.

2.4.

General evaluation

Latvia can be regarded as a functioning market economy and should be able to cope with

competitive pressure and market forces in the Union in the medium term, provided that it

completes and maintains the pace of its structural reforms.

Latvia has preserved macroeconomic stability. Progress has been made also on structural

reform. The legislative framework for a market economy is largely in place and market

entry and exit mechanisms function in an increasingly satisfactory manner. The financial

sector is currently small but functions well.

However, the current-account deficit must be kept under control. Enterprise privatisation

has not yet been completed. Considerable efforts are needed to encourage private and

public investments and to enhance the market oriented skills of the workforce.

The authorities must continue a policy of fiscal discipline and fiscal consolidation should

be pursued. Completion of enterprise privatisation for the remaining large companies

should be carried out without any further delays. Latvia should continue to foster

domestic enterprise creation by making entry procedures simpler and more transparent,

by further improving the environment for foreign investors, and by enhancing

infrastructures and access to finance. Financial intermediation needs to increase. Labour

market flexibility should also be enhanced.

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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 Latvia’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 Latvia’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

Latvia’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 Latvia 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 Latvia’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:

“Latvia has made important progress in aligning further its legislation to the internal

market

acquis,

in particular as regards sector-specific legislation for the free movement

of goods, free movement of services, competition and state aids. Competition and state

aids authorities have become operational and function well. Steady progress have been

made also in taxation, energy and rail transport. Important improvements can be noted in

environment, in particular on environmental impact assessment and air quality. In the

field of justice and home affairs, there have been positive developments, notably as

regards visas and asylum.

Significant work remains to be done on intellectual and industrial property protection, in

particular on the enforcement side, on data protection and company law. Substantial

A description of the

acquis

for each chapter can be found in the Commission’s 1997 Opinion on Latvia’s

application for EU membership.

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efforts need to be made in telecommunications, agriculture, and fisheries and regional

policy where structures need to be adapted to the requirements of the

acquis.

Much

remains to be done to establish an adequate financial control system. Attention needs to

be paid to developing the capacity to implement the social

acquis

and to ensure a well-

functioning customs administration. The impressive programme of alignment and

strategic planning in environment needs to be translated into concrete steps in

implementation and enforcement. Police capacity and coordination of the fight against

organised crime have to be strengthened.

Latvia has continued to address the Accession Partnership short-term priorities in a

satisfactory manner demonstrating good progress in aligning its legislation to the

acquis

and in setting up the structures required to implement it in most areas. However, the

delays in implementing general public administration reform have weakened its capacity

in this respect. The implementation and enforcement capacity priority should be

addressed in a more systematic manner, with an emphasis on telecommunications,

agriculture, customs and tax administration, maritime safety and financial control."

3.1.

The chapters of the

acquis

As indicated, the review of Latvia’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, Latvia has made good progress in aligning its legislation

with the

acquis

and in strengthening the relevant administrative structures.

In the area of

horizontal and procedural measures,

an important step forward in the

alignment with the

principles of New and Global Approach

was the adoption by the

Parliament of the Amendments to the Law on Conformity Assessment in October 1999.

This had been a short-term priority of the 1999 Accession Partnership. The amended law

has been developed in accordance with the EC principles on a global approach to

conformity assessment and constitutes the basis for the Conformity Assessment system in

Latvia. The adoption of two implementing regulations respectively in April and May

2000 incorporating the EC regulations on conformity assessment procedures completes

the overall conformity assessment legislative structure. In the field of standardisation

there is a sustainable development, which corresponds to the 1999 Accession Partnership

priority. By September 2000, 2752 standards were adopted, including 282 International

standards and 2280 European standards. In the area of

market surveillance,

the Product

and Services Safety law was adopted in June 2000 and constitutes the basis for the reform

of the market surveillance authorities. The further development of the market

surveillance system was a priority of the 1999 Accession Partnership.

Progress can also be reported on the adoption of

sector-specific legislation,

which had

been a short-term priority of the 1999 Accession Partnership. In the areas covered by

New

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Approach Directives,

since the last regular report, progress has notably been made in the

implementation of the

acquis

on toys, lifting equipment, machinery, electrical equipment,

medical devices and pressure vessels. Regulations on the safety of toys and on conformity

assessment of designing, manufacturing and installation of lifts and their safety

components were adopted in April 2000. Regulations on safety of machinery, on the

electrical safety of equipment, on the electromagnetic compatibility of apparatus, on

safety equipment and protective systems intended for use in potentially explosive

atmospheres and on pressure equipment and their accessories were adopted in May 2000.

Moreover in order to improve the process of the adoption and implementation

requirement for medical devices, the amendments to the law on medical treatment were

adopted in June 2000. Since the last regular report there has been no significant progress

in the field of appliances burning gas and recreational craft.

As regards sectors covered by

Old Approach Directives,

progress has been made in the

implementation of the

acquis

on chemicals. Regulations on restrictions and limitation

and on the marketing and use of dangerous chemical substances and dangerous chemical

preparations were adopted in April 2000. In the field of pharmaceuticals the general

framework has already established a considerable degree of alignment with the

acquis.

The law on pharmaceutical activities, adopted in 1997, was amended in 2000. This law

provides the general legal framework on issues such as manufacturing, development,

classification, registration, testing, prices and price control, distribution, labelling and

advertising. As concerns food safety, regulations on foodstuff labelling were adopted in

February 2000. They partially transpose directives on labelling and also include

provisions for the labelling of genetically modified foodstuffs. Regarding glass,

regulations on the labelling of crystal glass were adopted in February 2000, thereby

implementing the

acquis.

Since the last regular report there has been no significant

progress with regard to wood, textiles and cosmetics.

As concerns the development of Latvia’s administrative capacity for the implementation

of horizontal and procedural measures and sector-specific legislation, further progress has

been made in strengthening the necessary framework institutions in particular in

accreditation, standardisation and metrology in regard of assuring their independence and

the quality of their functioning. The Latvian National Accreditation Council was

established in March 2000. It takes an advisory role in this area. The Council consists of

representatives from industry, consumers, science, trade, Government institutions,

standardisation, metrology and accreditation bodies. Since the new Law on Conformity

Assessment came into effect in March 2000, the Latvian National Accreditation Office

has become an independent non-profit organisation, but remains under state ownership.

The change in status should allow the Office to increase collection of fees and to employ

more personnel. Currently, the number of permanent staff is 11 and external assessors are

still being used. By July 2000, the Latvian National Accreditation Office had accredited

115 testing laboratories; 1 personnel certification body; 3 product certification

institutions; 5 calibration laboratories, 6 inspections and 1 quality system certification

body.

In the field of standardisation, a substantial increase in the budget allocation to Latvian

Standards Ltd as well as an increase in its staff from 17 to 22 can be noted. In the field of

metrology under the new Law on Conformity Assessment, the Latvian National

Metrology Centre is to become a state agency under the supervision of the Ministry of

Economy. As regards sector-specific legislation, the Chemicals Bureau was established at

the beginning of 2000 in the Latvian Environmental Data Centre. The Bureau is

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responsible for collecting information for registration purposes and is the competent

authority for the notification of new substances (see

chapter 22 – Environment).

Since the last regular report, no important developments have taken place as regards

non-

harmonised areas.

Progress can be reported in the field of

public procurement.

The 1999 Accession

Partnership mentioned continuing alignment, in particular of legislation on utilities and

remedies, as a short-term priority. The main Latvian legislation in this field, the Law on

government and municipal procurement was amended in March 2000. The amendments

have improved the information flow. The Law on works, supplies, lease and services

procured by entities operating in the public utilities sector was adopted in November

1999 and entered into force in July 2000. The new law foresees the creation of a Public

Procurement Surveillance Bureau (see

A.b – Relations between the European Union and

Latvia).

Overall assessment

Over the last few years, progress in establishing or rather upgrading the general

framework for the New Approach and Old Approach remains steady and the Latvian

authorities continue the transposition of sectoral directives respecting their commitments.

The main challenge remains to upgrade the quality of the existing legislation in order to

assure a high quality transposition of the

acquis

as well as to implement a coherent policy

for efficient market surveillance.

The basis for the reform of the market surveillance authorities has now been established

with the adoption of the Product and Services Safety Law in June 2000. The

establishment of the Market Surveillance Council is planned to be accomplished at the

end of November 2000.

In the area of public procurement, there are still a number of issues where the Latvian

legislation deviates from the

acquis

and a greater centralisation of the procurement

system is needed. Following the entry into force of the relevant legislation in July 2000,

the Public Procurement Surveillance Bureau now needs to be set up.

As to the administrative capacity, the Latvian accreditation and standardisation bodies

have been in place for years and the Latvian authorities continue strengthening their

administrative capacity. The Accreditation Council together with the Latvian National

Accreditation Bureau and the Technical Committees constitutes the accreditation system.

Despite being a full member of the European Co-operation for Accreditation since June

1999 and having undergone an assessment according to the European Co-operation for

Accreditation requirements in December 1999, the Latvian National Accreditation Office

has not yet signed any Mutual Recognition Agreements with other European Co-

operation for Accreditation members. However the perspectives are very positive. Mutual

Recognition Agreements are needed for mutual recognition of certificates of conformity

for products and services.

In the field of metrology, progress continues to be slow and metrology remains an area of

weakness. The absence of sufficient national budget allocations has meant that national

metrology is inadequately equipped and trained. State metrology supervision is carried

out by the State Metrology Inspection. The central inspection office is currently

understaffed with only 4 persons. There are metrology centres in 5 regions, employing 20

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to 30 persons each. Further improvement and efficiency would be necessary. The

measurement system is still too weak to be aligned with internationally recognised ones.

A major issue is also the use made of measurements. A large number of professional

bodies still mainly use previous standards.

In the field of market surveillance the need for co-ordination between the different bodies

has been recognised. At present, the Consumer Rights Protection Centre is responsible

for the surveillance of almost all non-food products for which specific requirements exist

- electrical products, construction materials and toys (see

chapter 23 – Consumers and

Health Protection).

However besides the Consumers Centre there are several state

institutions involved in market surveillance activities. The establishment of the Market

Surveillance Council at the end of November 2000 will ensure co-ordination between the

market surveillance authorities.

For the non-harmonised areas, the administrative structures and notification procedures

need to be strengthened in order to comply with the requirements of the

acquis.

particular, more emphasis needs to be accorded to improving administrative co-operation

and to a full internal screening of the legislation in force which affects the

implementation of the relevant

acquis.

As regards safety checks on products at external borders, Latvia still needs to complete

the establishment of the appropriate infrastructure, as well as effective administrative co-

operation between competent authorities.

Chapter 2: Free movement of persons

Latvia has continued with the preparation of legislation and the required institutional set-

up, but no legislation has been adopted since the last regular report.

Regarding

mutual recognition of professional qualifications,

the Latvian law on

regulated professions and recognition of professional qualification, including the

necessary sectoral regulations, is still pending, however preparations for its

implementation have started.

As regards the preparation of national legislation on

citizens’ rights

no progress has been

reported.

No new developments were reported in the field of the

free movement of workers,

with

the exception of new regulations to simplify procedures for receiving work permits.

With a view to the future

co-ordination of social security

systems, Latvia has acquired

some experience through the implementation of bilateral agreements in this field.

Continued progress has been made through the International Services Division within the

State Social Insurance Agency which is co-ordinating all activities in this area.

Overall assessment

Latvia has made little progress in the area of free movement of persons.

As regards the field of mutual recognition of professional qualifications, the relevant

legislation still needs to be adopted. It will be important that a clear distinction be made

between the respective procedures for academic recognition and for professional

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qualifications, in particular in the case of the sectoral directives that foresee automatic

recognition.

On citizen rights, legislation should be prepared in order to enable Latvia to implement

this

acquis

upon accession. Moreover, implementation will also require certain changes to

Latvia’s Constitution.

In the field of free movement of workers, Latvia will have to ensure that EU nationals

receive equal treatment upon accession. It should therefore start to prepare itself in order

to be in the position to guarantee rights for family members, access to civil service

employment, rights to remain after having exercised an economic activity as well as

supplementary pension rights for workers moving within the Community.

As concerns preparations for participation in the EURES network, steps must be taken to

strengthen public employment services.

With a view to the future co-ordination of social security systems, Latvia has reached a

good level of understanding in order to cope with the challenge of accession in this field.

However, actual implementation will require further institutional strengthening as well as

further training and generally more information.

The Language Law and its implementing regulations foresee certain linguistic

requirements in areas related to this chapter.

Chapter 3: Freedom to provide services

Since the last regular report, Latvia has made some progress in this field, notably as

regards horizontal legislation, on insurance (accounting rules) and institutional

strengthening.

In the field of

freedom of establishment and freedom to provide services

progress was

made in adopting the Commercial Code in April 2000 which will enter into force in

January 2001. No progress was made, however, regarding the 1999 short-term Accession

Partnership priority with a view to eliminating the prohibition on the establishment of

branches by foreign insurance companies (see

also chapter 5 - Company Law).

As regards

financial services,

alignment with the

acquis

in the

banking

sector has

reached an advanced stage. In March 2000, capital charges for market risks were

introduced in line with the

acquis

requirements on capital adequacy. The administrative

capacity and implementation structure in banking supervision (55 staff) have been further

improved. A substantial degree of compliance with the Basle Core Principles for

Effective Banking Supervision has been attained.

In the

insurance

sector progress was made with the adoption of legislation transposing

the Directive on Annual Accounts and Consolidated Accounts of Insurance

Undertakings. Amendments to other laws in the insurance sector aimed at further

alignment of the Latvian legislation in fields such as ancillary insurance, calculation of

own financial resources, matching rules and investments of technical provisions.

The administrative capacity of the Insurance Supervision Inspectorate (now 22 staff) was

further strengthened which resulted in an increased number of audits and on site visits in

insurance companies and pension funds. The Inspectorate has actively developed

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international contacts and a number of co-operation agreements with neighbouring

countries have been signed.

Regarding

investment services and securities markets,

some progress was made in

adopting legislation concerning the capital adequacy of brokerage companies in June

2000 to come into force in July 2001. The Securities Market Commission now employs

23 staff members.

As regards other

institutional developments,

in June 2000 Latvia adopted a Law on

Financial and Capital Market Supervision, which will merge the functions of the

Supervisory Board of the Bank of Latvia, the Insurance Inspectorate and the Securities

Market Supervision, and which will start to be operational in July 2001. In addition, this

body will be responsible for the supervision of the Social Insurance Fund.

Latvia has made progress in adopting the law on

personal data protection

in March

2000. This had been a short-term priority in the 1999 Accession Partnership. Under the

law a State Data Protection Inspection was established which will start its operations in

January 2001 (see

also chapter 24 – Justice and Home Affairs).

As regards the

information society regulations,

no progress was reported on the

adoption of legislation. A working group was, however, set up to prepare draft

legislation.

Overall assessment

Overall, Latvia has made good progress in this field and is broadly in line with the

acquis.

A very good level of alignment and implementation has been achieved in the

banking sector. Further progress is needed concerning particularly the opening of the

insurance sector, the lower level of coverage in the Third Party Motor Liability Directives

in the insurance sector as well as the implementation of the securities Directives.

In the field of freedom of establishment and freedom to provide services progress was

made in adopting the Commercial Code, but implementation and enforcement of

company law should be addressed more vigorously in parallel with a more rigid reform of

the judicial system. It will be important that a clear distinction is made between the

respective procedures for establishment and the provision of services, for which a simple

and speedy procedure should be applied. With regard to the freedom to provide services

for craftsmen, traders and farmers, continued attention has to be paid to the constitutional

prohibition for foreigners to acquire farmland. The Language Law and its implementing

regulations foresee certain linguistic requirements in this area.

As regards financial services, the supervision of the

banking

sector appears to be well

organised and transposition of the

acquis

is almost completed. Alignment has been

achieved with the banking directives with the exception of the quantitative requirements

for the deposit guarantee directive where the current level of coverage is well below the

EC minimum.

The

insurance

market has still not been opened to foreign competition, thus no progress

was made in complying with the 1999 Accession Partnership priorities in this sector. In

order to provide services, foreign insurers are still required to establish a locally

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incorporated subsidiary and to obtain a licence from the Insurance Supervision

Inspectorate.

Whereas the main principles of the Third Party Motor Liability Insurance Directives are

implemented, the main outstanding problem relates to the limits for the minimum cover

to be guaranteed by insurance contracts.

Regarding

investment services and securities markets,

further work needs to be done to

implement the securities markets directives, particularly as regards investment services

and investor compensation schemes. The Securities Market Commission currently

employs 24 persons and needs to be further strengthened.

Regarding institutional developments, the banking supervision under the present structure

appears to function adequately. The adoption of the new law on supervision is a positive

step, but Latvia needs to ensure a satisfactory standard of supervision within the future

Single Supervisory Authority for each of the three sectors and to ensure that the new

authority can act in an independent manner.

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

legislation was adopted. Further amendments are still necessary as well as adequate and

careful preparation to ensure its proper implementation through the State Data Protection

Inspection. The independence of the Inspection might not be sufficiently ensured by the

new law and it will therefore have to be closely monitored as soon as it becomes

operational.

Latvia has made some progress in harmonising with the

acquis

in the field of information

society regulations. However, the process of actual adoption and implementation of the

relevant legislation, including the process of institution building, is still at an early stage.

Full and effective implementation of the planned legislative measures will require close

monitoring.

Chapter 4: Free movement of capital

Since the last regular report, Latvia has made good progress in aligning with the

acquis.

In particular as concerns capital movements, substantive liberalisation measures have

been taken and only few restrictions remain. For payment systems, important steps to

implement the

acquis

were carried out.

In the area of

capital movements,

the amendments to the law on radio and television

were adopted in October 1999, whereby previously existing restrictions on foreign

ownership were abolished. Similar amendments were adopted in November 1999

concerning the law on lottery and gambling. With the new forest law, adopted in

February 2000, all formerly existing restrictions on foreign ownership in logging were

lifted. Thus, Latvia has made progress in terms of the priorities of the 1999 Accession

Partnership, namely to align laws on direct investment in sectors still restricted (see

also

A.2 - Relations between the European Union and Latvia).

Regarding

payment systems,

the Bank of Latvia has implemented a real time gross

settlement (RTGS) system, which has been operational since September 2000. A series of

regulations in this area was adopted, notably amendments to the regulations for inter-

bank settlements and on securities settlement systems.

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As concerns

cross border credit transfers,

no further important developments have

been reported.

Regarding prevention of

money laundering,

the reporting system and particularly the

Office for Prevention of Money Laundering has become more operational. The office has

been further strengthened (17 staff), but needs continued financial support in order to

strengthen its effectiveness. In 1999, the Office received 1111 reports, and 1791 in the

first four months of 2000, due to a new regulation bringing down the threshold for

reporting transactions from

€

80500 to

€

64400 (LVL 50 000 to LVL 40 000) whereas

reports are still mainly coming from banks. In 1999, 31 cases were handed over to the

Prosecutor’s Office, but no convictions have been made so far. The creation of a special

unit in the Economic Police in order to investigate money laundering is foreseen.

Since May 2000, the Office is a member of the Egmont group. Agreements exist with the

financial intelligence units of Lithuania, Belgium, the Czech Republic, Bulgaria and

Finland. In practice, the Office is also working with other financial intelligence units

without formal agreements.

Overall assessment

During the last years, Latvia has progressed well with aligning with the

acquis

of this

chapter, as well as with its implementation.

In spite of the further alignment achieved during the reporting period, there are still a

limited number of areas where restrictions for foreign investors and on capital

movements still exist. Latvia is therefore encouraged to abolish the restrictions on the

acquisition of land for business purposes. Further restrictions exist regarding the

acquisition of land, as well as direct investments in the security sector, special rights

maintained by the state in privatised companies, investments in foreign assets by private

pension funds and insurance companies, and provision in tax legislation concerning

companies’ dividends.

In addition, further amendments are necessary in relation to existing restrictions

regarding rules and procedures on privatisation in cases where the state or municipalities

act as entrepreneurs.

Regarding payment systems, Latvia has achieved a considerable degree of alignment.

Concerning the payment infrastructure, a multilateral net settlement system for retail

payments (automated clearing house) was introduced in 1998. The introduction of the

RTGS system in September 2000 is an important accomplishment. As concerns

implementation of legislation, Latvia has partially transposed the Cross-border Credit

Transfer Directive. Although further work is still needed to completely implement the

acquis

in this area (including the establishment of an adequate and effective redress

scheme for the settlement of disputes), good overall progress has already been reached.

The Bank of Latvia, which assumes the overall responsibility as a supervising authority

for credit and financial institutions, operates exchange controls and oversees the payment

systems. It has established an adequate regulatory framework and possesses the required

administrative capacity for its enforcement.

The implementation of an effective money laundering prevention system on the basis of

legislation adopted in 1998 has progressed, but requires further improvements concerning

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co-operation with police and other economic or legal bodies as well as continued

strengthening of the Financial Intelligence Unit. In particular, co-operation between the

Office, the police as well as the commercial sector, including the Latvian Privatisation

Agency, should be further improved.

Chapter 5: Company law

Since last year's regular report, Latvia has made good progress in aligning its legislation

in this area, in particular with respect to company law and the transposition of the

company law directives as well as regarding industrial and intellectual property rights.

Some progress was also made in respect of its administrative capacity in this field.

In April 2000, the new Commercial Code was adopted. The new law implements the 1

, 3

, 6

, 11

and 12

company law

directives and simplifies the legal framework by

decreasing the number of types of legal entrepreneurial entities from 17 to 5. The law is

to come into effect in January 2001. The process of computerising the companies register

within the State Enterprise Register and the Patent Registry in order to meet the

requirements of the

acquis

is underway. The Latvian Enterprise Register signed

agreements with the European Register of Businesses in October 1999 and April 2000

with a view to membership. Latvia has made good progress in this field which was one of

the short-term priorities of the 1999 Accession Partnership.

In the field of

accounting law,

the Law on Consolidated Annual Accounts which aims at

full alignment with the 7

accounting directive came into effect in January 2000. In

December 1999, amendments to the law on annual accounts, in line with the 4

directive

were adopted.

As regards

intellectual property rights,

good progress was made in adopting the new

Law on Copyrights and Neighbouring Rights in April 2000, which came into force in

May 2000, in order to bring Latvia's legislation in line with the

acquis

in this field. In

addition, the Laws on joining the WIPO Copyright Treaty and the WIPO Performance

and Phonograms Treaty were adopted in February 2000 and Latvia acceded to both

treaties in March 2000.

Regarding

industrial property rights,

the law on accession to the Protocol relating to

the Madrid Agreement Concerning International Registration of Marks entered into force

in January 2000. In December 1999 the Trademark Law Treaty of 1994 was ratified.

However, little progress was reported concerning the enforcement of copyright and

trademark legislation, which was one of the short-term priorities of the 1999 Accession

Partnership.

As regards administrative capacity, since January 2000, an Intellectual Property Rights

Division is in place within the Ministry of Culture, which is now staffed with three

persons The main tasks of the division are of a legislative nature, and with the adoption

of the new law, the Ministry of Culture is also in charge of supervising collecting. The

State Police and the Customs Board in the State Revenue Service are both responsible for

enforcement of the legislation.

Since September 1999 an Intellectual Property Rights Division is operational at the

National Customs Board. Encouraging first results were that 11 criminal cases were

prosecuted and an increasing number of CDs, videotapes, audio tapes, software CDs were

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seized since 1999, thus giving an indication of the increasing awareness of the authorities

of the piracy issue, but also the size of the problem. Nevertheless, Latvia has made only

little progress as regards the enforcement of intellectual property rights legislation,

including the strengthening of its implementation capacity at the border and the judiciary

which was one of the 1999 Accession Partnership priorities in this field.

As concerns the 1988 Lugano Convention, Latvia is seeking adherence, and a working

group has been established at the Ministry of Justice to prepare Latvia’s accession.

Overall assessment

Overall, Latvia has reached a good degree of alignment with the

acquis

of this chapter.

Efforts will now need to concentrate on the proper enforcement of the legislation,

especially as concerns intellectual and industrial property rights.

Latvia has made good progress by adopting the Commercial Code. Its legislation is now

closely aligned with the

acquis

in the field of company law which has consolidated a

number of provisions contained in different legal acts. Further efforts are now needed to

fully implement the computerised business register where progress was made. Particular

attention has to be paid to the quality of the data registered.

Concerning

accounting law,

Latvia's legislation needs to be further aligned in respect of

the 8

directive which lays down important legislation concerning higher professional

auditors, quality control and state supervision over auditors and audit companies. This

legislation is important for the other laws on accounting to become effective and to

overcome the at present existing legislative vacuum on accountancy. Regarding the 7

directive and the recently adopted new law, a few shortcomings as regards the internal

compatibility with other laws regulating accountancy need to be addressed. The Latvian

legislation on accountancy has to be further harmonised in some other areas, including in

the field of deferred taxes. Regarding administrative capacity and taking into account the

shared responsibility between the Ministry of Finance and the Ministry of the Economy

concerning accounting issues close co-operation needs to be ensured.

Regarding implementation of accounting legislation, Latvia’s administrative capacity

needs to be improved particularly concerning enforcement of auditing and accounting

standards as well as its supervision. Close co-ordination needs to be ensured.

In the field of intellectual property rights, the main concern remains the unsatisfactory

level of enforcement. Despite some progress made regarding the institutional set-up,

administrative capacity in particular in the Copyright and Neighbouring Rights Division

of the Ministry of Culture, the Ministry of the Interior, the Economic Police, Customs

and the Judiciary should be strengthened. Increased training is required for the staff of the

law enforcement bodies and the judiciary. An adequate level of legal sanctions, fines

provisions under Criminal Law and swift legal procedures need to be put in place in order

to increase deterrent effects.

As regards industrial property rights, Latvia;s trade-mark law is to a large extent in line

with the

acquis.

However, as concerns implementation, the protection of trademarks

remains a matter of concern. Further amendments are also necessary with respect to

patent law.

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In order to improve the fight against piracy and counterfeiting, enhanced co-operation

between the institutions involved is necessary. Adequate financing has to be ensured.

Chapter 6: Competition policy

Since the last regular report, Latvia has continued aligning its legislation with the anti-trust

and State aid

acquis,

and the Competition Council and State Aid Surveillance Commission

have continued to develop their enforcement practice.

In the field of

anti-trust,

further block exemptions for a number of different categories of

restrictive agreements have been introduced since last year to bring Latvia’s legislation

closer in line with the

acquis.

These included notably the insurance sector and air transport.

In 1999, the

Competition Council

investigated 58 cases (compared with 78 in 1998) and

completed 48 of them. Most of the cases were related to unfair competition (25) and abuse

of dominant position (18). There were 5 restrictive agreement cases and 4 merger cases. In

three cases, administrative fines were imposed. More than 90% of the cases initiated in 1999

were according to applications of legal persons (in 1998 – 72%), indicating a growing

awareness of competition rules by the enterprise sector.

Since January 2000, all

State aid

schemes are covered by State aid control legislation.

Previously, this had not been the case for tax extensions and the capitalisation of old tax

debts.

In 1999, the

State Aid Surveillance Commission

took three decisions (compared to 8 in

1998). During the first half of 2000, two decisions were adopted. One concerned the

capitalisation of tax debts accumulated before privatisation by an enterprise in the

pharmaceutical sector and the other one aid to an enterprise producing automated electronic

devices. Due to budgetary restraints, this decision has not been implemented.

Overall assessment

The process of legislative alignment nears completion and the necessary institutions have

already gained valuable first experiences. Latvia now has to ensure the proper enforcement

of competition rules.

In the field of anti-trust, Latvia has made significant progress over the last few years. Its

Competition Law, which entered into force at the beginning of 1998, is largely in line with

the Community

acquis.

Some further fine-tuning will be necessary to achieve full

compliance concerning the definition of dominant position and merger control. Further

alignment with secondary legislation is still necessary, especially in view of developments in

the

acquis

on vertical restraints.

The Competition Council and its executing body, the Competition Bureau, has broad powers

to enforce competition rules. Given the increasing complexity of cases, there might be a

need for more training of staff and eventually also an increase in their number (at present, 35

staff members). The most important challenge is now for the Competition Council to show

that it can assure the effective application and enforcement of the anti-trust rules, whereby

priority should be given to such cases that concern the most serious distortions of

competition. At present, many cases concern less serious infringements.

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In the State aid field, Latvia has also made significant progress over the last few years.

Latvia has adopted a Law on State Aid in 1998 under which the assessment of the

compatibility of aid can be carried out by way of direct application of the Europe Agreement

and thus the Community

acquis.

Priority must now be given to bringing existing aid

measures in line, most notably as regards Special Economic Zones (by eliminating the

export aid elements) and Free Ports, as well as State aid to the steel sector.

As regards transparency of aid, Latvia has produced annual reports for 1997 and 1998,

which broadly follow the methodology and the presentation of the European Commission's

survey on State aid in the EU. Latvia has also established a State aid inventory, and it will

have to ensure that it continuously covers all existing aid measures. The regional aid map

needs to be finalised to ensure a differentiation of maximum aid intensities in assisted areas,

according to the severity of the regional problems being addressed.

The State Aid Surveillance Commission has already taken decisions on new aid measures

and appears to be empowered to exercise a regular and systematic ex-ante control of

compatibility of all State aid measures. However, the relatively small number of aid cases

decided upon by the State Aid Surveillance Commission still leaves some doubt as to

whether all aid cases are, in fact, being notified. The State Aid Surveillance Commission

will have to show that it can assure the effective application and enforcement of the State

aid rules. Some reinforcement of the staffing level of the secretariat of the State Aid

Surveillance Commission (under the auspices of the Ministry of Finance) might be

necessary, as there are only three staff members at present.

Chapter 7: Agriculture

Agriculture in Latvia accounted for 4% of GDP in 1999, of which 1.4% were constituted

by forestry and related services. The share of agriculture in GDP has declined slightly in

comparison to 1998 where agriculture made up 4.4% of GDP.

Employment in

agriculture (including forestry, hunting and fishing) has remained relatively constant over

the past years, accounting for about 15.3% of total employment.

The situation in 1999 was particularly difficult for the agricultural sector and saw a

decline in total agricultural output by 9.7% as compared to 1998. The sectors mostly hit

were pig meat, milk, fish and sugar production. The reasons for this situation can be

partially found in the negative impact of the aftermath of the Russian crisis, as well as

increased exposure to international competition and low productivity. In the livestock

sector, meat production declined by 12% whereas crop production showed a less

significant decrease of 3.3%.

The source for all agricultural statistics is Eurostat unless otherwise specified.

In order to improve consistency and comparability, the employment figures presented are now defined

according to Labour Force Survey definitions (LFS). Agricultural employment is defined in LFS terms

as economically active persons who gain a significant part of their income from agriculture. The

agricultural census, which was previously a source of employment data in many countries, takes into

account all persons nominally active on a farm. There are therefore some significant differences

between previous and new figures. Further information can be found in the Eurostat publication

“Central European Countries’ Employment and Labour Market Review” available free of charge

through the Eurostat Data Shops.

Source: FAO.

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In 1999, the value of EC imports of agricultural products originating in Latvia decreased

€38.6

million (€42.3 million in 1998). EC exports to Latvia decreased from

€229

million in 1998 to

€189

million in 1999. The trade balance in favour of the Community

amounted to

€150

million in 1999, compared to

€187

million in 1998.

In this context,

the new reciprocal concessions for agricultural products negotiated under the Europe

Agreement will allow for 75% of bilateral trade in agricultural products to benefit from

preferences (see

A.b – Relations between the European Union and Latvia).

Since the last regular report, no important changes in Latvia’s agricultural policy have

taken place.

In 2000, the state agricultural budget will amount to approx.

€29

million, of which about

3% will finance direct support schemes to farmers. On the basis of a medium-term

agricultural support concept (1998-2002), the following types of support will be granted

during the year 2000: support for soil improvement, for the increase of farm productivity,

to dairy farms fulfilling EC requirements, for the development of livestock and crop

farming and fisheries, for the education of farmers, reduction of sowing risks and

technical up-grading of agricultural production.

With respect to land reform, limited progress has been made since the last regular report.

Whereas registration in the Cadastre has been virtually complete for several years,

registration in the Legal Register (Land Book) progresses only slowly and presently

stands at 45%.

Horizontal issues

As regards the implementation of measures with a view to preparing for future

participation in the

European Agricultural Guidance and Guarantee Fund (EAGGF),

Latvia has made some progress during the last year. The final version of the Rural

Development Plan as adopted in October 2000 describes the main lines of Latvia’s rural

development strategy and the main objectives to be attained by SAPARD assistance (see

A.b – Relations between the European Union and Latvia).

In April 2000, a law on the

Rural Support Service was adopted, which will also provide the legal basis for the

implementation of SAPARD.

In November 1999, a Rural Support Service was set up to manage both national

agricultural support programmes and to act as the implementation and paying agency for

SAPARD funds. It is subordinated to the Ministry of Agriculture and co-operates with

nine regional offices. Training for the staff both at central and regional level has started.

Work continued on preparing the introduction of the

Integrated Administration and

Control System

(IACS) in Latvia. Legislation for animal identification and registration

had already been adopted in 1998, and during the last year, the system was further

refined. As of June 2000, the identification and registration of all bovine animals has

become compulsory. Detailed instructions for the identification of pigs, sheep and goats

were also issued in June 2000.

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

COMTEXT (see Agriculture in the European Union – statistical and economic information 1999, p. 36

for definition of the products).

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Concerning the implementation of

trade mechanisms

relevant for the Common Market

Organisations, the responsibilities of the Rural Support Service include the issuing of

licenses and the management of tariff quotas.

No important developments in the area of

quality policy (designation of origin etc.)

took

place during the last year.

As to preparations for Latvia’s participation in the

Farm accountancy data network,

Latvia has continued to work on improving data collection and data processing. In

preparation of the Agricultural Census planned for 2001, pilot projects were carried out

in two regions. Work on an electronic farm register was completed at the end of 1999

(see

chapter 12 – Statistics).

During 1999, a general

restructuring of the Ministry of Agriculture

and its subordinated

bodies was launched. The reform aimed at separating analysis and strategic planning

(including legal approximation) from administrative functions. The new structure now

comprises eight departments: forestry policy and strategy, forest resources and

economics, budget and finance, legal affairs, agricultural policy and EU integration,

agricultural branches and processing development, veterinary and food, and rural

development. A new information centre was established in the Ministry, which is also

responsible for information relating to EC agricultural policy.

Common Market Organisations

Since the last regular report, some progress has been made in introducing EC

requirements and mechanisms for a limited number of products.

As concerns

arable crops,

during the last year Latvia continued practising intervention in

the grain market, which was first introduced in 1998, based on legislation for the

stabilisation of the cereals market. For the moment, market intervention is carried out on

an annual basis. The Cereal Trade Agency was transformed from a state stock company

into an Intervention Agency in September 1999.

Intervention has also been introduced for

sugar

in January 2000 by amendments to the

law on sugar. The new sugar law and three implementing regulations, adopted in

February 2000, lay down rules for sugar production quotas and their allocation

procedures as well as for sales of sugar produced in excess of quotas. Customs duties will

be levied on imported sugars.

For

specialised crops,

the introduction of quality standards for

fruit and vegetables

continued and 33 have been adopted to date.

In the area of

animal products,

new legislation was adopted in April 2000 on the quality

and labelling of honey in order to conform with Community marketing standards.

Rural development and forestry

During the last year, Latvia continued to implement its national Support Programme for

Agriculture (1998-2002), as well as investments under the Public Investment Programme,

and other activities aiming to promote rural development. In the framework of the

restructuring of the Ministry of Agriculture, a Rural Development Department was

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created. It is responsible for the rural environment, education, science and research, and

land use.

A Law on Forestry entered into force in March 2000. The law lays down stricter

conditions for felling than previously existing legislation and also envisages activities for

forest development. Restrictions on foreign investments in the area of logging were lifted

in March 2000 (see

chapter 4 – Free movement of capital).

An inventory of state forests

was set up. At the administrative level, a State stock company was established and the

forestry department of the Ministry of Agriculture reorganised. A concept for the

reorganisation of the state institutional structures for the forestry sector was also

elaborated.

Veterinary and phytosanitary issues

Continuing alignment and upgrading of inspection arrangements, in particular at the

future external border, as well as modernising the meat and dairy processing plants, were

identified as short-term priorities in the 1999 Accession Partnership.

Since the last regular report, some progress has been made in aligning with the

veterinary

acquis.

As concerns

common measures,

in December 1999, a law on animal

protection was adopted in order to implement the basic EC requirements in the area of

animal welfare.

It covers the protection of agricultural animals, pets, animals used for

experimental and research purposes, and wild animals. In March 2000, the existing law

on pedigree activities was amended, and several pieces of implementing legislation were

issued.

In May 2000, a framework law on veterinary medicine was adopted. The law introduces

parts of the

acquis

on veterinary medicine and will also serve as a framework for

incorporating all veterinary requirements of the

acquis

into national legislation. In June

2000, the identification and registration of all bovine animals became compulsory, and

detailed instructions were issued for pigs, sheep and goats, thereby improving the

framework for

veterinary control and the control of animal diseases and animal health.

Work on animal diseases in particular has continued, and contingency plans for several

diseases have been developed. In order to align with EC standards,

hygiene requirements

were introduced for milk in October 1999 and meat in June 2000.

In 1999, three milk processing enterprises, five fish processing enterprises and three

refrigerator ships were granted permission to export to the EC. During 1999, efforts were

made to reinforce the administrative capacity of the

State Veterinary Service.

reorganisation was launched, which included the central body as well as the State

Veterinary Medical Diagnostic Centre and the regional laboratories. Additional

laboratories were accredited. Training of staff was carried out, and the computing

infrastructure was improved. The sampling equipment of the veterinary inspectors was

also upgraded with a view to improving veterinary surveillance and centralised

transportation of samples.

As concerns sanitary border controls, the instalment of computer programmes to meet EC

requirements in the area of veterinary border controls has continued during the last year,

and several control posts were equipped. Currently, 25 control posts are connected to the

centralised network.

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In the

phytosanitary sector,

the process of alignment has continued during the last year.

In October 1999, several pieces of legislation were adopted to further align with the

acquis,

including framework legislation on the seed chain and amendments to the law on

the protection of plant varieties. Concerning

plant health (harmful organisms and

pesticides) and plant hygiene,

regulations covering plant quarantine and plant protection

products were also adopted in October 1999. Following the adoption of the regulation on

plant quarantine, the registration of producers and importers of certain plants and plant

products started in January 2000.

In the area of

animal nutrition,

the Government adopted several regulations to introduce

EC requirements in relation to control of pesticide residues and radioactive pollution of

animal feedstuffs.

During the last year, the

State Plant Protection Service

underwent a complete

reorganisation. The responsibilities of the Service were enhanced with the transfer of

responsibilities previously assumed by separate bodies, such as the State Seed

Inspectorate and the State Plan Comparative Centre. Two new departments were created

in the Service, namely a department for seed control to deal with certification, and a

department for plant variety, in charge of recognition, registration and evaluation, as well

as plant variety rights. The staff of the Service was practically doubled from 130 to 258

persons. The National Seed Control Laboratory was accredited in May 2000.

Overall assessment

The preparations for the integration of Latvia’s agricultural sector into the European

Union are still in the early stages. During the last few years, only limited progress has

been achieved in aligning with the

acquis

and in setting up the necessary structures.

While land reform and the privatisation of agricultural land are progressing, land

consolidation is less advanced. A concept paper on land use has, however, been prepared

with a view to developing legislation to consolidate agricultural and forest lands.

Concerning

horizontal issues,

preparations for the future participation in the

European

Agricultural Guidance and GuaranteeFund (EAGGF)

need to be continued in order to

be in a position to fully implement the

acquis

upon accession. The establishment of the

Rural Support Service as SAPARD agency is a first step to familiarising with EAGGF

rules and procedures. However, a clear long-term strategy for the extension of the role of

the Rural Support Service to become the single paying and implementing agency for all

agricultural support under the Common Agricultural Policy and its main executive body

is missing.

Progress in preparations for the introduction of the

Integrated Administration and

Control System (IACS)

is partial and concerns some of the basic elements of the system.

Existing data bases and networks need to be improved further. Particular attention also

needs to be devoted to the digitalisation of land parcels according to EC requirements.

As for

trade,

some basic mechanisms exist but need to be complemented.

Latvian legislation already incorporates some of the EC requirements concerning

quality

policy,

but the necessary definitions concerning products of specific origin and

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geographical indication still need to be introduced and the relevant registration and

control bodies need to be set up.

For

organic farming,

the preparations for appropriate control have started. Legal

adjustments and the setting-up of the necessary certification and control bodies according

to EC requirements still need to take place.

Preparations for the participation in the

Farm accountancy data network

have progressed

well, but the respective efforts to be fully in line with Community rules should continue.

As regards the implementation of

Common Market Organisations,

efforts have been

limited to certain products and mechanisms, in particular intervention. The intervention

system applied in the cereals and sugar sector needs, however, further adjustment in order

to be fully in line with Community requirements. Supply management instruments have

been set up for sugar. Alignment with the

acquis

marketing standards have been limited

to honey and fresh fruit and vegetables. Thus, for all common market organisations,

significant legislative work remains to be done.

The recently established Rural Support Service will be the main body responsible for the

administration of tasks connected to Common Market Organisations. Significant

upgrading and a final decision on the eventual attribution of management tasks to other

bodies will be necessary with a view to future participation in the Common Agricultural

Policy.

In the area of

rural development and forestry,

the institutional framework has been

prepared, in particular by setting up the Rural Development Department and the Rural

Support Service and by reorganising the 9 regional offices. For the implementation of

agri-environmental measures,

which will become mandatory upon accession,

preparations are in the pilot project stage. For the classification of less-favoured areas, no

progress has been made to date. The existing Latvian legislation on forests already

incorporates some elements of the

acquis

but further adjustment and investments will be

necessary to meet all requirements.

In the

veterinary field,

some progress in aligning with the

acquis

has been made to date,

but Latvia needs to make further efforts with the adoption and implementation of

legislation. In the area of

veterinary control in the internal market,

work on introducing

both the internal computerised system linking veterinary authorities inside the country

and an external movement control system (ANIMO) needs to continue. Although the

system for identification and registration of bovine animals has almost been completed (it

is estimated that 96% of bovine animals are identified and registered), further progress

needs to be made for pigs, sheep and goats. Controls at the future external border of the

EU are not yet carried out in full compliance with the

acquis.

As concerns the

control of animal diseases and animal health,

Latvia’s legislation on

outbreaks and eradication is in line with the

acquis.

Latvia needs to continue the work on

establishing contingency plans and to create a reserve fund covering expenses for

compensation in the event of an outbreak of an infectious disease. The existing animal

disease notification system needs to be further developed in preparation for participating

in the animal disease notification system (ADNS). Serious gaps still exist in Latvian

legislation with regard to the trade regime of live animals, semen, ova and embryos.

Concerning the

treatment of animal waste,

Latvia has so far no establishment for high-

risk treatment, and none of the existing low-risk establishments meet EC standards.

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Further work on both approximation and implementation will also be required

concerning

animal welfare.

The process of bringing food processing establishments in line with EC requirements is

far from being completed. Currently, 9 milk processing enterprises (total: 73 enterprises),

9 fish processing enterprises (total: 117 enterprises) and 4 refrigerator ships (total: 4

ships) have been approved for exporting to the EC.

In the

phytosanitary sector,

despite the adoption of a number of legislative acts with a

view to incorporating

acquis

requirements, much still remains to be done. With regard to

plant health (harmful organisms and pesticides)

a number of

acquis

provisions have not

yet been transposed, and differences between Latvian and EC lists of harmful organisms

and quarantine requirements persist. Alignment in the area of

plant hygiene

is so far

limited. Further alignment in the area of

animal nutrition

will equally be necessary, and

in particular concerning quality aspects, labelling, composition, packaging, registration

and approval of establishments as well as sampling, analysis and administrative matters.

Out of 25 feeding stuff establishments, only two comply with EC standards to date. A

phytosanitary emergency fund and specific budget allocations will have to be set up.

Registration of data needs to be improved, as well as practical official control and

sampling.

For both the veterinary and the phytosanitary sector, the limited number of staff in charge

of preparing primary legislation still lacks expertise. Further strengthening of the existing

administrative structures (including laboratories), better co-ordination between the

different authorities involved, as well as significant further upgrading of the border

control posts will be necessary. Out of a total of 26 border posts, only four were

constructed in compliance with EC standards. It should, however, be noted that not all 26

posts will be kept upon accession to the EU. In addition, continued training of staff and

the allocation of sufficient financial resources will be required in order to fully implement

the

acquis.

Chapter 8: Fisheries

Since the last regular report, the process of legislative alignment has continued, and some

improvements were made to the administrative structures in charge of controls in ports.

Concerning

market policy,

no new legislation was adopted and no new administrative

structures were created.

With regard to

resource management, inspection and control,

to advance with the

alignment with the

acquis,

the Fishing Law was amended in March 2000. The

amendments aim at establishing an information system in fisheries (including a fishing

vessel register), defined the National Board of Fisheries as the competent authority, and

readjusted the norms of the Law to vessels fishing in international waters and flying the

flag of Latvia. In order to comply with EC requirements for vessels fishing in EU waters,

Latvia has started preparations for a pilot project for the introduction of the satellite

monitoring system for the fishing fleet. Due to budgetary constraints, this project has not

yet been initiated.

The capacities of the administrative body in charge of carrying out fisheries controls in

Latvian waters, the Marine Environmental Board, have been enhanced since last year by

adding 11 inspectors to the Board’s staff (now a total of 69 persons) to improve in

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particular controls in ports (landings and first sales). Over the last few years, good

progress has been made in improving the control record of the Board, and in 1999, 8370

inspections were carried out and 159 violations detected (compared to 1438 inspections

in 1996).

As concerns

structural actions

(including fleet registration), Latvia started to work on

complying with EC requirements for the fishing vessel register, and continued to

implement its National Fisheries Development Programme, covering fishery, aquaculture

and fish processing.

As concerns

State aid to the fisheries sector,

for the year 2000, limited support is

envisaged for the modernisation of fishing vessels and refrigerator ships to comply with

EC requirements and the installation of satellite monitoring on fishing vessels.

Overall assessment

Latvia has made progress in aligning with the

acquis,

but further work will be necessary.

The existing administrative structures are at present only partially able to implement the

Common Fisheries Policy.

The Latvian fishing fleet consists of 220 vessels fishing outside two nautical miles, as

well as a number of small boats fishing in coastal waters. Outside the Baltic Sea, 12

vessels fish mainly in the Central and Northern Atlantic.

So far, no market intervention mechanism for fish products has been established, and

regulations on producer organisations corresponding to EC requirements do not yet exist.

While the installation of satellite monitoring equipment on fishing vessels is envisaged

on a small scale, substantial further work is needed for the establishment of a vessel-

monitoring centre and for completion of the equipment of all vessels.

Following the amendments to the Fishery Law of March 2000, the legal framework for

the implementation of structural policy, in particular for vessel registration, needs to be

complemented by secondary legislation concerning vessels measurement, and the fishing

vessel register needs to be brought in line with Community requirements. It is estimated

that around 400 licensed vessels will eventually be included in the register.

The administrative structures in charge of fisheries will need to be strengthened with a

view to the future implementation of the Common Fisheries Policy. The National Board

of Fisheries of the Ministry of Agriculture is responsible for fisheries sector management

and overall development strategies comprising also the development of structural policy.

The Ministry of Environmental Protection and Regional Development and its structures –

the Environmental State Inspection, the Marine Environmental Board (MEB), and the

Regional Environmental Boards – perform the functions of fish resources protection and

fisheries control.

State aid to the fisheries sector consists of subsidies mainly used for structural purposes,

including modernisation of fishing vessels. There are no State aids for vessel

construction.

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Latvia is a member of several international fisheries organisations, in particular IBSFC

and NAFO, and has bilateral fisheries agreements with the Faroe Islands (Denmark),

Russia, the United States, and Canada. An agreement with Estonia has been signed.

Chapter 9: Transport policy

Following the National Transport Development Programme (2000-2006), alignment with

the

acquis

progressed further in the areas of road and maritime transport. To meet the

requirements of the

acquis

as concerns administrative structures, an independent

investigation authority for civil aviation accidents was established. First steps were

undertaken to improve the performance of the administration in the area of maritime

safety.

Latvia continued to progressively take into account the objectives and priorities of the

Community guidelines for

Trans-European Transport Networks

in the framework of

investments in the priority road and rail infrastructures in North-South (Via Baltica) and

East-West direction. Latvia has approved the final report on Transport Infrastructure

Needs Assessment (TINA) of October 1999 that should form the basis for extending the

trans-European networks to Latvia.

As concerns

land transport,

a number of secondary legislative acts were adopted during

the last year. Amendments to the Regulation on Control in Road Transport, based on a

broader “Government Concept on control in Road Transport” from December 1999

stipulate a subdivision of functions between the various controlling bodies of the Road

Transport Administration as well as police, customs and boarder guards. Several

regulations relating to the carriage of dangerous goods by road were adopted in

December 1999 and March 2000. As to the

acquis

requirements on checks for transport

authorisations, Latvia has started to install equipment to control weights and dimensions

at several posts along its borders with Belarus, Russia and Estonia. Legislation

concerning roadworthiness tests was issued in February 2000. The Road Transport

Directorate, responsible for ensuring control of the sector, organised training activities for

the control of dangerous goods transport (24 persons) and for the control on weights and

dimensions of vehicles (7 persons). Latvia initialled the INTERBUS agreement in April

2000.

No new legislation was adopted in the area of

railways.

The restructuring of Latvian

railways has continued, and competition has started to be introduced in the sector with

the granting of licenses for freight transport to two private companies, although they

could not yet start to operate pending the safety certificate to be delivered by the State

Railway Inspectorate. In October 2000, the Law on Public Service Regulators was

adopted, which foresees the establishment of a regulatory authority covering

inter alia

the

area of railway transportation.

The responsible Latvian authorities decided not to transpose the legislation on

inland

waterways,

since Latvia considers that its inland waterways can in principle not be used

for navigation except for a short stretch behind the sea ports, and its networks are not

linked to any EU member state or candidate country. In the area of

combined transport,

no legislation was adopted either. As concerns

State aids

in the transport sector, no new

developments can be reported. Concerning

public service obligations,

legislation on

concessions in public transport was adopted in November 1999.

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With regard to

air transport,

no new legislation was adopted. However, in order to meet

the requirements of the

acquis,

an independent investigation authority for civil aviation

accidents was established in January 2000 and staffed with 2 persons, although the law

has not been adopted yet. Latvia continued the effective harmonisation of technical

requirements and administrative procedures according to Joint Aviation Authorities

requirements. It continued to prepare for membership of Eurocontrol, for which it has

already started to apply the relevant standards. Negotiations between the EC and Latvia

on the multilateral Agreement to establish a European Common Aviation Area (ECAA),

which will result in a significant progressive alignment with the

acquis

prior to accession,

have been concluded by signing the bilateral protocol.

Concerning

maritime transport,

the 1999 Accession Partnership refers to the need to

align legislation on

maritime safety

as a short-term priority. Since last year, Latvia has

adopted legislation requirements for vessels carrying dangerous goods and passenger

registration on ships both in April 2000. A process of restructuring the Maritime

Administration was launched with the aim of improving its functioning in the light of the

comments made in the last regular report. On the basis of legislation adopted in May

2000, several of the functions previously carried out by the Maritime Administration

were transferred to the port authorities. These were in particular related to Vessels Traffic

System (VTS), pilotage and port captain services. As a consequence of this

rationalisation process and redistribution of work, the number of personnel of the

Maritime Administration will be reduced. As regards Flag State control, the number of

detained registered Latvian vessels continued to be very high with a detention rate of

14.6% for 1999 (EU average: 3.6%), compared to 14.7% in 1998. Moreover, in its

capacity of Port State, during 1999, Latvia only detained 6 vessels out of 396 inspected

ships. As of June 2000, Latvia now only cooperates with classification societies that are

recognised by the EC in the area of Flag State Control.

Overall assessment

The alignment of Latvian legislation in the transport sector with the

acquis

has

progressed significantly in some areas.

For horizontal issues, with regard to transport infrastructure, substantial work on

reconstruction and modernisation is needed to ensure the completion of the priority road

corridors on Latvian territory.

In the area of land transport, Latvia has made considerable progress in aligning with the

acquis

on road transport, but some further work will be necessary including on market

access and pricing, fiscal harmonisation, technology, safety and environment, and social

legislation. For the transportation of dangerous goods, legislation is in force but is

confronted with implementation difficulties. It is, for example, unclear where the safety

advisers will be appointed and the type of training they should receive. Furthermore,

administrative capacity needs to be further strengthened, also as regards the regulatory

work by the Ministry of Transport. It should be noted that Latvia does not yet comply

with the EC weight limits for trucks, as it provides both for lower axle weight limits and

lower total weight limits compared to those in the EC. The railways sector is already

largely in line with the

acquis,

and only a few issues remain to be addressed, including

the transport of dangerous goods by rail. Concerning inland waterways, Latvia, as a state

with a non-connected network, will, upon accession, be under the obligation to transpose

all inland waterway directives, with the option to exempt – after consulting the

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Commission – its carriers, boatmasters or vessels from the application of these

requirements.

Latvia has made considerable progress in air transport in the last years and efforts to

achieve market liberalisation in this field have been noteworthy. As to maritime

transport, while some efforts have been made during the last year, these need to continue

in order to ensure a satisfactory degree of compliance with EC requirements, especially as

concerns maritime safety.

The administrative structures needed for the implementation of the

acquis

have been

established. The Ministry of Transport is the central institution and comprises

departments for road, rail, aviation, maritime and passenger transport respectively.

Several specialised bodies for the individual sectors exist under the supervision of the

Ministry of Transport, such as the Road administration, the Railway administration, the

Civil Aviation administration and others.

In some areas, significant efforts will still be required to ensure the effective enforcement

of the

acquis

provisions. Concerning road-side checks and the control of social rules in

road transport as well as checking transport authorisations at border check points, an

increase in the number of inspectors and an upgrading of the available equipment seems

necessary. Following the establishment of the new investigation authority for civil

aviation accidents, some staff reinforcement for the air transport administration might be

necessary. In the area of maritime transport, both Flag State and Port State control need

further strengthening. Latvia needs to establish the necessary capacity within its maritime

administration in order to further align with the

acquis

and to reverse the adverse trend

regarding the still high detention rate of its own fleet. Additionally, Latvia needs to

improve its performance in Port State Control. It will be important that a sufficient

number of trained inspectors is available.

Chapter 10: Taxation

Since the last regular report, Latvia has made some progress in the field of both indirect

as well as direct taxation. Progress was also made in developing the administrative

capacity in the field of tax collection.

Regarding

indirect taxation,

since the 1999 regular report, some progress was achieved

in the field of

VAT

with the adoption of amendments to the Law on VAT cancelling a

provision which allowed budget institutions not to register for VAT purposes if they

carry out taxable transactions. Latvia has therefore started to address the 1999 Accession

Partnership short-term priorities in this area. However several exemptions remain in

place.

As regards the

excise

field, progress was achieved in adopting the law on excise tax on

beer in November 1999 as well as regulations concerning alcoholic beverages and

tobacco. Latvia has now partly fulfilled the 1999 Accession Partnership priorities in this

field.

Some progress has been reported concerning the situation on

direct taxation.

Latvia has

adopted regulations and methodological guidelines which aim at improving tax collection

through tax auditing and controls during the last year. No visible progress was reported

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with a view to the application of the Code of Conduct for business administration which

was one of the short-term priorities under the 1999 Accession Partnership in this area.

Latvia has undertaken a number of encouraging steps to improve the

administrative

capacity

for tax collection and thus has taken clear actions in order to fulfil the 1999

Accession Partnership priorities in this field. A comprehensive modernisation programme

for the State Revenue Service (SRS), an independent legal body under the supervision of

the Ministry of Finance, for the period 1998 – 2002 is being implemented. The structure

of the SRS has been reorganised according to functional principles. During the last year,

the Excise Goods Department was reorganised and integrated into the SRS and an

Internal Audit Division was established which started its operation according to adopted

internal audit strategic plans. Since the last regular report, an Internal Control Division,

responsible for all tax administration, has started operation within the frame of the

National Tax Board. In addition, an appeal division has been established to administer

disputes and complaints on all tax decision. Regarding computerisation, a single register

of legal persons between SRS and the register of enterprises is being established in order

to avoid double registration. Co-operation between the regional offices and SRS was

improved through the implementation of a first stage tax recording system in all SRS

regional offices and all offices are interconnected via the national SRS network.

Overall assessment

Overall, Latvia has made steady progress in aligning its legislation with the

acquis,

and

important steps have been undertaken to improve the administrative capacity, which,

nevertheless still requires important further strengthening.

Since the comprehensive tax legislation reforms initiated in 1995, Latvian law has been

amended several times to eliminate all remaining discrepancies with the

acquis.

The

present VAT law is generally in line with the EC principles, but the remaining

differences need to be addressed. In particular, the list of VAT exemptions is still too

broad.

As regards excise tax, reforms started in 1997 and are continuing in order to reach full

alignment with the

acquis.

While progress was achieved concerning excise tax on beer,

further alignment is needed with respect to tobacco and tobacco products as well as

certain fuels.

Regarding direct taxation, Latvia needs to ensure the application of the Code of Conduct

for business taxation in order to fulfil the 1999 Accession Partnership priority in this

area.

Despite the positive initiatives taken recently, Latvia still faces a serious capacity

problem in the tax administration. Increased efforts are necessary to address tax evasion

and cases of corruption more effectively (see

B.1. - Political Criteria).

Until now, the

reform of the tax administration has been rather slow, but recent developments regarding

internal reorganisation, restructuring and improved co-ordination between policy making

and implementation as well as strengthening of human resources are goods steps in the

right direction. They need to be completed and speeded up in order to guarantee an

adequate process with a view to the full implementation of the Community tax system.

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Chapter 11: Economic and monetary union

A detailed assessment of Latvia’s economic policy in its various aspects has been given

above, in the chapter discussing the economic criteria (B-2). Therefore, the present

section is limited to a discussion of those aspects of the Economic and Monetary Union

acquis--as

defined by title VII of the EC treaty and the other relevant texts--which

candidate countries should implement by accession at the latest, i.e. the prohibition of

direct public sector financing by the central bank, the prohibition of privileged access of

the public sector to financial institutions, and independence of the national central bank.

As to the process of liberalisation of capital movements, upon the completion of which

compliance with the EMU

acquis

is conditional, this aspect has been covered above, in

the section on

Chapter 4 – Free movement of capital.

Since the last regular report, no new legislation has been adopted.

Overall assessment

Latvia will participate in EMU upon accession with the status of a country with a

derogation as per 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, Latvia has adopted substantial parts of the EMU

acquis.

Latvian legislation is

largely in line with the

acquis.

Its legislation is in line with the

acquis

requirements

concerning the prohibition of

direct public sector financing by the central bank

and of

privileged access of the public sector to financial institutions.

The basic provisions of the Law of the Bank of Latvia largely comply with the

requirements of the Treaty, and the Law ensures the

independence of the Bank of

Latvia.

The Act on the Bank of Latvia defines price stability as the primary objective of

the Bank.

The applied definitions of general government debt and deficits still need to be reconciled

with EC requirements. At present, the accounting procedure in respect of the fiscal deficit

of the budget and public debt does not yet fully comply with EC requirements. In this

respect, co-ordination between all involved institutions and in particular between the

Ministry of Finance and the Central Statistical Bureau should be improved.

Latvia is developing its administrative capacity to be able to implement the EMU

acquis.

This is most important in the area of economic policy co-ordination. For several years, an

economic policy aimed at creating the conditions for long-term macroeconomic stability

and promoting integration and convergence in the EU has been pursued.

Chapter 12: Statistics

Latvia has made some progress over the past year concerning

acquis

and institution-

related alignments.

regards statistical infrastructure,

compliance with EC standards has further

increased, including statistical confidentiality and methodology. The law on protection of

personal data was adopted in March 2000 (see

also Chapters 3, 5 and 24 – Freedom to

provide services, Company law, and Justice and Home Affairs).

The Central Statistical

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Bureau (CSB) has carried out a systematic assessment of its alignment with the

acquis

and new legislation has been adopted. In addition, an agreement on fighting against

fictitious companies was signed with the Latvian Enterprise Register, the National Police

and the State Revenue Service. The reform and rationalisation of the CSB, the main

statistical body, under supervision of the Ministry of Economy, is still ongoing, in

particular concerning the reduction of its regional offices from 28 to 5. There are about

239 officials in the central office and 175 in the regional offices. During the past year

most officials have undergone training.

Concerning

demographic and social statistics,

further progress was made in adopting a

law on Population Census and its execution. The Census was taken in compliance with

the United Nations Organisation and EC standards to ensure internationally comparable

data. The preliminary results of the Census have been published in October 2000.

As regards

regional and geographic information,

5 planning regions are defined at

NUTS III levels. The respective GDP estimates were calculated for 1999 on the basis of

1997 data. Demography, unemployment, agriculture, labour force and energy data are

available for the REGIO database for 1995-1997.

In the field of

macro-economic

statistics, some progress has been made to bring these

statistics more in line with EC methodology. Responsibility for Balance of Payments as

well as foreign direct investment statistics has been handed over to the Bank of Latvia.

Regarding

business statistics,

progress was made in analysing the economic activities of

small enterprises. An innovation pilot survey and labour force and labour cost surveys

have been conducted. Statistical methodology was further developed in areas such as

statistical business registers, household surveys and surveys of prices of goods, tourism

and innovation.

Latvia has begun to address the harmonisation of the significant discrepancies in

external

trade statistics.

It has started to introduce the customs declarations registering and

processing system ASYCUDA, but the general quality of customs statistics remains a

serious problem (see

also Chapter 25 – Customs union).

Latvia has made progress in

harmonising with the EC requirements and classifications on the customs declaration

document.

As regards

agricultural statistics,

an agricultural pilot census has been conducted in

order to prepare for the envisaged agricultural census in 2001. Progress was achieved in

establishing a data basis for a Farm Register which was finalised at the end of 1999 (see

also Chapter 7 - Agriculture).

Overall assessment

Overall, Latvia has made some progress in statistics. The planned strategies on the

structural reforms as well as censuses and surveys planned should help to further improve

this. However, in a number of areas and in particular trade, macro-economic, real estate

and regional statistics, much more work is needed to improve methodology, quality and

coverage of data in order to comply with the

acquis.

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While progress has been made regarding product classification and industry statistics,

more work is needed on improving the business register, structural business statistics and

tourism, where progress is mainly hampered by the lack of financial resources.

Regarding the administrative situation, and despite further inter-institutional co-operation

envisaged with a view to forthcoming surveys, a clear positioning of the CSB within the

administration has still to take place and its independence should be strengthened. A

major point of concern remains the budgetary situation of the CSB, the institutional set-

up as well as the still insufficient level of inter-institutional co-operation where however

some progress was achieved. More emphasis has to be put on prioritisation, training of

staff and allocation of adequate resources in order to carry out the statistical surveys

which are of key importance to the European Integration process.

Chapter 13: Social policy and employment

Since the last regular report, some progress in aligning with the

acquis,

mainly in the

areas of health and safety and public health, has been made. The main efforts to upgrade

the administrative capacity in this area included the establishment of a European

Integration Unit in the Ministry of Welfare, changes in the organisational structure of the

National Tri-partite Council, and the setting-up of a Training Centre to prepare for the

European Social Fund.

In the area of

Labour Law,

no new legislation has been adopted. The adoption of the

new Labour Code is a short-term priority of the Accession Partnership.

Concerning

equality of treatment for women and men,

progress has been made with

regard to social security. Amendments to the Law on State pensions and to the Law on

State Social Insurance of November 1999 foresee the equalisation of the respective

pension ages for women and men at 62 in the future, as well as equal conditions for early

retirement. In February 2000, a first court case concerning equal pay was brought by a

female employee, whose requests were satisfied. The employer, however, successfully

appealed against the decision and the case was taken to the Supreme Court (see

also B.1.

– Political Criteria).

A comprehensive analysis of all legislation from a gender

perspective was also started with a view to devising a national gender strategy during the

year 2000.

With regard to

health and safety,

further alignment was achieved with the transposition

of the

acquis

provisions concerning manual handling of loads, work equipment and

personal protective equipment. Previously adopted legislation on risks related to exposure

to asbestos came into force in January 2000. To improve coordination between the

different institutions involved (Ministry of Welfare, State Labour Inspectorate,

Environmental Inspectorate and Maritime Inspectorate), regular meetings have been

introduced. For the employees of the State Labour Inspectorate, training courses were

held both at national and regional level, and the equipment of the Inspectorates was

upgraded.

In the field of

public health,

amendments to the relevant Latvian legislation of October

1999 brought it in line with the

acquis

requirements on the maximum tar yield of

cigarettes and on labelling of tobacco products. Reforms of the health care system are

underway, focusing on institutional changes, improvements to the financial flows,

increasing the quality of health care services, and establishing the concept of family

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medicine. Latvian health indicators continued to be low compared to those in the EU. An

informal inter-ministerial commission on Public Health was created at the end of 1999 to

improve coordination between the various institutions involved in the public health area

and has started to work on a strategy for the sector.

A new organisation structure for the National Tripartite Co-operation Council was

approved in November 1999, foreseeing the establishment of sub-councils for vocational

education and employment, labour affairs, and social insurance. The support of social

partners' capacity-building efforts in developing and implementing the social

acquis,

notably through bipartite

social dialogue

is a short-term priority of the Accession

Partnership, but no visible progress has been achieved in developing bipartism during the

last year, especially at sectoral level, but also within enterprises. The Cabinet of Ministers

approved a White paper on Mechanisms of Labour Dispute Settlement in January 2000

with a view to preparing the necessary legislation.

Concerning

employment,

the magnitude of underemployment and hidden unemployment

is such that the overall unemployment rate appears to be as high as 14.5% (ILO figure for

1999), with large divergences between the different regions of the country. A high

proportion of job-seekers is made up by the long-term unemployed and the young. A

short-term priority of the Accession Partnership is to complete the national employment

strategy with a view to later participation in the European Employment strategy. In line

with the provisions of the Accession Partnership, Latvia is in the process of carrying out

an employment policy review (jointly with the Commission), which is to identify

challenges and progress in adapting its labour market and employment systems to

transitional adjustment. In February 2000, the Cabinet of Ministers adopted the National

Employment Plan for the year 2000. Programmes for special groups, such as for the

disabled and long-term unemployed, continued to be carried out. Based on the National

Employment Plan, the procedure for the Joint Employment Review was launched in July

2000. The Latvian State Employment Service was transformed into a non-profit joint

stock organisation in 1999 to improve its financing system. Measures to improve the

information flow between the different branch offices were introduced.

Concerning the necessary preparations for future participation in the

European Social

Fund

(ESF), a National Training Centre has been set up in co-operation with the School

for Public Administration, and training of staff has begun. A European Integration Unit

(3 employees) and an internal audit unit (6 employees) to supervise and audit internal

control systems for state and EC funded programmes and projects were created in the

Ministry of Welfare in 2000.

Regarding

social protection,

amendments to the Law on insurance against

unemployment were passed in January 2000. In February 2000, the Cabinet of Ministers

approved a Concept Paper with a view to improving existing legislation in terms of

guaranteeing a unitarily applied minimum income level. The reform of the pension

system continued, and in February 2000, a Law on state funded pension was adopted,

which will introduce a second tier pension scheme, thereby completing the reform (the

first and third tier had already been introduced earlier).

Overall assessment

Latvia’s legislation in the area of social policy and employment is at present only

partially in line with the

acquis.

It is foreseen that the majority of outstanding provisions

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will be transposed with the new Labour Code and the new Law on Labour Protection,

both of which are pending in Parliament, as well as other individual pieces of legislation.

Administrative capacity will require significant attention in order to be able to effectively

implement the

acquis.

The short-term priorities of the 1999 Accession Partnership have

not all been addressed yet.

While legislation in the area of public health is already broadly in line with the

acquis,

the majority of the

acquis

requirements in the area of labour law and equality of treatment

for women and men have yet to be transposed. As to health and safety, the framework

directive, as well as several other provisions, still need to be adopted.

While tripartite social dialogue is fairly well established in Latvia, bipartism is still

underdeveloped and needs to be strengthened significantly. The administrative capacity

for social dialogue should be reinforced to better motivate and follow autonomous social

dialogue, for instance through the encouragement of appropriate structures at sectoral

level, and through regular registration, analysis and monitoring of collective agreements

and their contents.

The main preparatory activities in the coming years in order to prepare for participation

in the European Social Fund will have to include the definition of competencies and

strategic priorities, the improvement of staff qualification and specialisation through

training, and the development of monitoring and evaluation structures for ESF funds

management.

The key institutions in the context of implementation and enforcement of

the labour law

acquis

are the Ministry of Welfare, the State Labour Inspectorate and its regional offices,

the civil courts, the trade unions and employers` organisations. For the

health and safety

acquis,

the Sanitary Inspectorate for hygiene issues, the Environmental Inspectorate, and

the Maritime Inspectorate are equally involved. Key institutions in the

public health

area

are the Department of Public Health within the Ministry of Welfare, the Latvian

Certification Centre, the Consumer Rights Protection Centre, the National Health

promotion centre and various specialised centres as well as several other ministries.

Given the large number of actors involved, the creation of the inter-ministerial

commission for public health at the end of last year is a welcome development. In the

area of

employment policy,

the Ministry of the Economy and the State Employment

Service under the supervision of the Ministry of Welfare are also involved.

Latvia is still confronted with significant parts of the population – both unemployed and

employed – living under subsistence levels. Labour market and social policy, through

appropriate institutions, will have to address this issue and guide a largely well-educated

Latvian labour force through employment, education and vocational training and benefit

reforms. Attention is to be paid to the fact that such policies should be inclusive as

regards all groups in Latvian society.

While some measures have already been taken to strengthen the existing institutions and

to train their staff, significant further efforts will be necessary in order to develop the

necessary capacity to effectively enforce legislation in the social field. In particular,

further steps should be taken to strengthen the Labour Inspectorate. Given the large

number of actors and their varying reporting lines to the Government, it will be important

to ensure adequate co-ordination and co-operation. Once the relevant new legislation is in

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force, the Guarantee Fund for Employees’ Claims will have to be set up. The ability to

participate in the European Social Fund upon accession also has to be developed.

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, Latvia has continued the process of aligning with the

acquis,

and relevant legislation was adopted in particular in the areas of electricity, oil, and

energy efficiency. No important changes in the administrative structures were undertaken

during the last year.

In November 1999, the Government decided upon a global policy for the energy sector,

covering areas such as electricity and heating and foreseeing a diversification of energy

sources, as well as proposing an action plan to contribute to opening up the electricity

market in accordance with EC internal energy market provisions and to the establishment

of a competitive Baltic energy sector. With regard to

security of supply,

the Government

adopted a strategy document on the establishment of

oil stocks

in February 2000, and

confirmed that energy supply companies would become responsible for the establishment

and maintenance of oil stocks.

Concerning

competitiveness and the internal energy market,

Latvia, Estonia and

Lithuania decided in February 2000 to create a Common Baltic Electricity Market

(CBEM) as well as to strengthen power transmission links between the three countries. In

Latvia, steps to prepare the restructuring and privatisation of the state-owned energy

utility, Latvenergo, were taken. In May 2000, the Latvian and Estonian Governments

signed a co-operation agreement between Latvenergo and Eesti Energia. The content of a

possible co-operation is under negotiation. However, the Latvian Parliament adopted

amendments to the Energy Law thereafter in August 2000, stipulating that Latvenergo

would have to be restructured before any changes in ownership could take place.

Subsequently, the Ministry of Economy took over responsibility for the company from

the Latvian Privatisation Agency.

The Energy Regulation Council made further steps towards

competitive

conditions, by

accepting in October 1999 a methodology for tariff calculations for transmission and

distribution system networks. In December 1999, tariffs for electricity were approved

according to the new method. In October 2000, the Law on Public Service Regulators

was adopted, which foresees the establishment of a regulatory authority covering

inter

alia

the area of energy.

In the

electricity

sector, Latvia further aligned its legislation with the

acquis

with the

adoption of Government regulations relating to eligible consumers in September and

December 1999. The Energy Regulation Council issued guidelines regulating access of

producers and eligible consumers to electricity networks in May 2000.

No important developments have taken place in the areas of

gas and solid fuels

during

the last year, nor for

electricity and gas transit.

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As concerns the

oil

sector, Latvia partially aligned with the

acquis

requirements on

hydrocarbons licensing in February 2000 with the adoption of a number of regulations.

In the area of

energy efficiency,

the Government adopted a regulation concerning

household refrigerators and freezers in March 2000.

As regards

nuclear energy,

in Latvia, there are no nuclear power stations. There is one

pool-type research reactor in Salaspils, which was closed in June 1998.

In October 1999, the Government adopted a decommissioning strategy for the Salaspils

reactor, setting 2008 as the target date for the full dismantling and assessing the cost at

€

19.3 million (LVL 12 million) To prepare for the signature of the Joint Convention on the

Safety of Spent Fuel Management, the Government adopted a decree in February 2000.

Funds have been earmarked in the national budget for the year 2000 to set up a Radiation

Safety Centre (see

chapter 22 – Environment).

Overall assessment

In the area of energy, Latvia’s legislation is partially in line with the

acquis,

with varying

degrees of advancement in the individual sectors. For key aspects of the

acquis,

such as

oil stocks and the internal energy market, Latvia should step up its efforts.

As concerns oil stocks, Latvian legislation, as well as the available stock, are not yet in

line with the

acquis.

Latvia considers that it will need a period of 10 to 25 years to build

up the required oil stocks equal to 90 days’ consumption. For crisis management, an

Emergency Situation Committee exists, which has the powers to create a Crisis Centre

for managing an energy crisis, as specified in the Latvian Energy Law.

In preparation for the internal energy market, Latvia needs to make basic choices for the

full implementation of the electricity and gas directives. As a first step towards market

integration, Latvia co-operates with Estonia and Lithuania towards a Common Baltic

Electricity Market, which is to be welcomed. As concerns gas, Latvia still needs to align

with the

acquis.

The State retains a 37% share-holding in

Latvijas Gaze, the

natural gas

company

and contractual obligations of the State to foreign investors provide for a 20-

year monopoly in the gas sector in Latvia. In order to comply with EC requirements, this

monopoly will have to be reviewed. No special legislation is foreseen to regulate the coal

market. Latvia’s legislation has not yet been aligned with the

acquis

on electricity and gas

transit, nor on transparency. Current legislation in the oil sector needs to be amended

further to comply with the EC reporting requirements for products and prices. Legislation

on hydrocarbons is in line with the

acquis

since February 2000.

In the area of energy efficiency, the transposition of the

acquis

has begun but is not yet

completed. Efforts to improve energy efficiency and promote renewable energy sources

should be increased.

As to nuclear energy, further alignment with the

acquis

will also be necessary. For the

decommissioning of the Salaspils research reactor, fuel, and both low-level and high-level

waste management need to be undertaken. Due attention should be given to preparing the

implementation of EURATOM safeguards. The new Radiation Safety Centre, once set up,

will be responsible for the implementation.

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The necessary institutional set-up has been created to ensure administration and

regulation of the sector, but further strengthening as well as independence will be

required to meet all EC requirements. The Ministry of the Economy and its Energy

Department are responsible for the sector’s development strategy and policy. Licence

awards for energy sector operators are undertaken, and tariff setting is monitored by the

Energy Regulation Council, which is independent of the Ministry. In the planned reform

of the regulatory regime, it will be important to ensure that sufficient resources are

allocated to the regulatory body, and that existing expertise is not lost in the transfer.

Enforcement of energy labelling measures will be undertaken by the Consumer Rights

Protection Centre. Energy saving measures regarding energy saving in buildings fall

under the responsibility of the Ministry of Environment and Regional Development.

Specific energy efficiency programmes are being carried out by the Energy Department of

the Latvian Development Agency.

Following the adoption of legislation on hydrocarbons in February 2000, a State

supervisory body for Petroleum Exploration and Production that will guarantee full

implementation of the legislation now needs to be established.

Chapter 15: Industrial policy

Since the 1999 regular report, the Government has mainly concentrated its efforts on

foreign investment promotion. Less has been achieved as concerns the privatisation of the

remaining large companies and the restructuring of enterprises.

The preparation of a long-term

industrial strategy

advanced during the reference period

with the drawing-up of an industrial policy concept paper in December 1999. This

document served as a basis for a wide consultation between governmental institutions

and representatives of the industry. However, its adoption by the Government, which was

initially scheduled for end 1999, is still pending.

Since last year Government policy has mainly focused on

investment promotion.

The

1999 Accession Partnership included taking measures to stimulate domestic and inward

investment, in particular through simplification of legal and administrative procedures, as

a short-term priority. The most significant measures during the last year continued the

work initiated in 1998 on the removal of barriers to foreign investment. Attention has

focused on the main issues of concern for foreign investors, i.e. the availability of a

qualified work force, access to long-term finance, the fight against corruption, and the

improvement of border crossing and tax appeal procedures. A Steering Committee

composed of senior Government officials was set up at the end of 1999 to find solutions

to these issues with members of the Foreign Investors’ Council. Consultations led to the

adoption by the Government in February 2000 of a second Action Plan, which

complements the Action Plan to Improve the Business Environment approved in May

1999. According to a June 2000 report prepared by the Latvian Development Agency,

main achievements so far concern taxation policy. One difficulty identified in the course

of implementation was the lack of a mechanism to ensure uniform application of

regulations at local level. The Development Agency was also given the responsibility to

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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assess the overall impact of the Government’s policy, and results of the first annual

survey on business environment in Latvia were presented in February 2000.

Another significant step was the approval by the Cabinet of Ministers in March 2000 of a

concept paper “On Enhancement of Investment Projects Significant for the National

Economy of Latvia”. It identifies vocational training, business infrastructure, and

incentives in support of hi-tech sectors as essential factors to further attract Foreign

Direct Investments and increase competitiveness. The process of adopting the secondary

legislation that is required before initiating the implementation of the projects has started.

Foreign investment in most manufacturing sectors continued to increase in most

manufacturing sectors in 1999, despite the after-effects of the Russian crisis on the

Latvian economy and an overall relative stagnation of Foreign Direct Investment. This

would suggest that the Government efforts are bearing fruit.

A cluster approach to business development is progressively being taken in such sectors

as wood and metal processing.

Since last year,

privatisation and restructuring

have made further, but slow progress.

The 1999 Accession Partnership included completing privatisation of the remaining large

companies as a short-term priority. The privatisation process is close to completion in the

industrial sector (the private sector accounted for 81.5% of industrial output in 1999

against 75% in 1998). In large companies there is currently a tendency to consolidate

corporate ownership to overcome the fragmented ownership structure resulting from the

privatisation process. In the last twelve months the Government continued to focus its

attention on the privatisation of the four remaining large enterprises in utilities and

infrastructure, which should have an impact on industrial restructuring. However, the

process has advanced slower than anticipated.

The 1999 Accession Partnership defined the promotion of competitiveness through

market-based enterprise restructuring as a short-term priority. So far, privatisation and

Foreign Direct Investment promotion have not led to the expected in-depth restructuring.

Progress in restructuring the manufacturing sector remains unbalanced and depends on

the branches. Sectors such as wood and metal processing continue their development,

while food processing and chemicals lag behind significantly.

It should be noted that an important element of any industrial policy is the control of

State aid and that the compatibility of support schemes with EC rules, including the

restructuring provisions of the ECSC Treaty, will have to be examined (see

chapter 6 –

Competition policy).

Overall assessment

Overall, Latvia’s policy towards industry is by and large in line with the principles of EC

industrial policy, i.e. market-based, stable and predictable. The current industrial policy

mainly consists of export and investment promotion. However, the structure of exports is

still very much oriented towards low value added segments and too little attention is paid

to building on Foreign Direct Investments through sub-contracting activities. The lack of

financing hinders the implementation of effective business support mechanisms.

A main challenge for the country will be to strengthen its competitiveness with a view to

integrating its enterprise sector into the European Union. The Government now needs to

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focus on implementing a future-oriented strategy based on an in-depth analysis of

competitive advantages and market failures. Measures such as further developing

public-private partnerships, re-balancing the split of public investment between Riga and

the regions, as well as pro-active steps to attract new investors, both foreign and

domestic, should be envisaged. Innovation has to be fostered and developed in parallel

with clear strategies in the fields of employment, education, research and science.

Activities aimed at improving the business environment should be further sustained in

2001.

The central body responsible for the formulation and co-ordination of industrial policy is

the Ministry of the Economy. The line ministries that are responsible for managing

specific industrial branches take part in the policy-making process. A wide range of

agencies and governmental bodies are involved in the implementation process. The main

ones are the Latvian Privatisation Agency, the Latvian Development Agency, the

Competition Council, the Latvian Standards Organisation, the Regional Development

Council, and the Latvian Technological Centre. The Ministry of the Economy has also set

up a structure for improving consultation with industry in the form of 19 sectoral Expert

Councils.

While the necessary administrative bodies have been established, the administrative

structure in this area is too fragmented. Due to insufficient resources, the Ministry of the

Economy externalises to a great extent its core functions (policy-making) to agencies. As

a result, it faces difficulties to play the role of a driver of a long-term industrial policy as

well as that of a strong co-ordinator of the various measures that have a bearing on

industrial development.

Chapter 16: Small and medium-sized enterprises

Since the last regular report, Latvia has started to review its current National Programme

for the Development of Small and Medium-size Enterprises (SMEs), to reform the state

support system for business promotion including in the area of access to finance, and to

further improve the business environment.

SMEs employ about 65% of the active population, and produce about half of Latvia’s

GDP.

As of yet, measures in support to SMEs have not had a significant impact on SME

development. Several initiatives undertaken recently are, however, a positive sign of the

Government’s willingness to address shortcomings of the current

SME strategy and

implementing policies

and to increase its support to SMEs.

Firstly, the Latvian Government has launched an evaluation of the activities under the

SME Development National Programme 1997-2001, since it considers that the measures

outlined in this Programme no longer correspond to the needs of the SME sector. A

survey is being conducted to assess the impact of the various activities, and to identify

successful actions and areas for improvement.

Developments concerning SME policy should be seen in relation to developments in the context of

industrial policy (see

Chapter 15 - Industrial policy).

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Secondly, since the 1999 regular report, efforts have been made to reform the state

support system to entrepreneurship, as well as to improve the access of SMEs to finance.

In January 2000, the Cabinet adopted a decision on the co-ordination and operation of

business support funds. So far, the impact of this decision seems rather limited. Access to

finance remains one of the most important obstacles to the development of SMEs. The

main progress achieved last year was the allocation of

€5.2

million (LVL 3.2 million)

under the 2000 budget for the implementation of loan schemes for start-ups and SMEs

through the Latvian Mortgage and Land Bank.

In March, the Cabinet of Ministers approved a concept paper defining priorities for

investment projects. Priorities include vocational training, business support

infrastructure, and incentives for developing hi-tech sectors. Implementation has not yet

started.

Progress in simplifying the

business environment

has continued. Most efforts have

focused on removing regulatory and administrative barriers to foreign investment.

However, further efforts are still required to simplify the operating environment in a way

that would meet the needs of local small business. The adoption of a new Commercial

Code in April (see

chapter 5 - Company law)

is a positive step.

No progress have been made over the last year in relation to the

SME definition

applied

by Latvia, which is not yet fully in line with recommendations of the European

Commission.

Overall assessment

Latvia’s policy towards SMEs follows the approach promoted at EC level. However, lack

of funding and insufficient information for SMEs hinder the effective implementation of

policy. The current policy rightly puts emphasis on the development of business support

services, the improvement of the business environment and better access of SMEs to

finance. It fails, however, to address the need to promote the development of

management skills that are essential for small business to survive. The implementation of

appropriate support policies in education and training should be a key element in the

process of strengthening the national SME strategy. In order to be in line with the

recommendation on the definition of SMEs, the legislation pertaining to SMEs should be

amended to include the notions of the independence criterion and of micro-enterprises.

The central body responsible for the formulation and co-ordination of enterprise and

SME policy is the Ministry of the Economy. A wide range of agencies and governmental

bodies are involved in the implementation process, such as the Latvian Development

Agency, the Latvian Guarantee Agency, the Regional Development Council, the Business

Advisory Service Centres, and the Business Innovation Centres. The Government is

envisaging options to reform the Guarantee Agency, which is currently under the

management of the Ministry of the Economy. In addition, a number of funds have been

established over the last few years.

While the basic implementation bodies both at national and regional level have already

been established, significant improvements in their functioning will still be necessary in

order to prepare Latvia’s SME sector for integration into the European Union. The

administrative structure for this sector is too fragmented and the future of most

institutions and funds is highly uncertain due to insufficient levels of funding. The

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operation of the funds for SME development could be improved if the responsibility for

their management were handed to the financial sector, with the participation of line

ministries limited to the provision of advice and assistance in terms of criteria for

utilisation. The business support infrastructure needs further strengthening. This should

be made on the basis of an evaluation of the existing services to enterprises as well as a

gap analysis and implemented through the National Development Plan.

Chapter 17: Science and research

Since the last regular report, Latvia’s efforts in this area focused mainly on the

implementation of the Fifth Framework Programme. A decision was taken to establish

two scientific research centres, namely the Centre of Material Science and the Centre of

Wood Science and Technologies.

Latvia is fully associated to the

Fifth Framework Programme

since August 1999, as

well as the Euratom Framework Programme. The relevant infrastructure for assisting the

research community at national and local level has been established under the Ministry of

Education and Science, notably a National Contact Point (NCP) system (with a

permanent staff of 8 persons) to disseminate information on the programme and to assist

researchers in the preparation of proposals. Representatives to all programme committees

have been nominated.

Latvia also participates in the EC programme for co-operation in the field of scientific

and technological research (COST) and, since 2000, in the EUREKA programme.

Overall assessment

Latvia’s association to the Framework Programmes has been relatively successful;

however, the management capacity of the existing structures for association to these

programmes should be further strengthened.

For the further development of the sector, it is essential to have an increase in the gross

domestic expenditure in research and development as percentage of GDP, which is

relatively low (0.22% in 1999).

Through co-operation between all involved institutions, the links between research and

development policy and industrial and SME policy should be strengthened in order to

devise activities to encourage research relevant for industrial development. Links

between research institutes and industry and SMEs should be promoted (see

chapters 15

and 16 on Industrial policy and SMEs).

Chapter 18: Education and training

Since the last regular report, Latvia has concentrated on the implementation of previously

adopted legislation.

Latvia continued to participate in the

Community Programmes

(see

part A –

Introduction).

In addition, an Association Council decision was adopted to allow

participation in the second phase of the Socrates and Leonardo da Vinci programmes

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(2000-2006). Preparations have also been made for participation, as of 2000, in the new

Youth programme, which includes European Voluntary Service activities.

Given that Latvia had already transposed the

Directive on Education of Children of

Migrant Workers,

no further legislative developments took place.

Non-discrimination towards EU citizens in the field of education

had equally already

been ensured before the reference period.

Latvia has started

reforms in the fields of education and training

during the last year

based on previously adopted legislation, including the Law on Education of 1998 (see

also B.1 - Political Criteria),

and the Law on Vocational Education of 1999. The

development of national standards has begun. For vocational training at regional level,

two pilot projects have been set up. Work on a new concept for Higher Education was

completed by the Ministry of Education in June 2000. With a view to enhancing the

mobility of students and lecturers between the Baltic States, an agreement on recognition

within the Baltic Higher Education space between Latvia, Estonia and Lithuania was

signed in February 2000.

Overall assessment

Latvian legislation is already in line with the necessary provisions of the

acquis,

and

efforts should now concentrate on strengthening the institutions involved and on

continuing the reform of the education system in Latvia.

The requirements of the Directive on Education of Children of Migrant Workers had

been transposed by the Law on Education, and EU citizens temporarily resident in Latvia

and their children thereby have access to education. Regarding non-discrimination

towards EU citizens in the field of education, the legislative framework contains

guarantees for foreign students in Latvia. For EU citizens and their children, fees for

education are the same as for citizens and permanent residents of Latvia. In accordance

with the provisions of the

acquis,

the Law on Vocational Education contains provisions

on qualifications and on social dialogue.

Participation in the relevant Community programmes is satisfactory and the established

national agencies are functioning.

The administrative structures in charge of education and training issues are the Ministry

of Education and Science, the Ministry of Welfare (and the State Employment Service),

and the Ministry of the Economy. In addition, various more specialised bodies exist

under the supervision of the Ministry of Education and Science, such as the Agency for

Vocational Education Development Programmes, the Academic Information Centre and

the Centre for Quality Assessment of Higher Education. Co-ordination between the

ministries, as well as other relevant actors, needs to be improved and responsibilities

clearly defined in order to develop a coherent approach to the development of the

education and VET (vocational education and training) systems, that cater to the needs of

the labour market.

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Chapter 19: Telecommunications and information technologies

Since the last regular report, no new legislation has been adopted in this area and no

significant changes in the regulatory regime have taken place.

No concrete results have been reached on the issue of the liberalisation of the

telecommunications markets.

It is to be noted that, according to a Government policy

plan as well as the commitments Latvia has made at the WTO, the monopoly in the

telecommunications sector will be terminated in 2003 instead of 2013, as originally

foreseen. The current monopoly provider, Lattelekom, is 51% state-owned and 49%

foreign-owned. A decision to privatise the remaining shares of Lattelekom was taken by

the Government in October 1998, and before this can happen, the contractual basis of the

monopoly must be renegotiated.

The new Law on Telecommunications, meant to transpose a set of core EC

telecommunications directives, still needs to be adopted by Parliament.

As to the current

regulatory

system, this appears not to meet the independence

requirement, and only covers parts of the regulatory role. At present, regulatory tasks are

carried out by the Department of Communications of the Ministry of Transport and the

Telecommunications Tariff Council (TTC). The Communications Department is

responsible for quality, licensing, interconnection, certification and standardisation. The

role of the TTC is limited to approving tariffs on Lattelekom basic services; in doing so,

the TTC does not use tariff setting methodology. Conflicts might arise with the

Communications Department if the TTC fails to properly take into consideration the

quality requirement. The TTC suffers from being understaffed and under-resourced.

Despite these apparent handicaps, tariff rebalancing in Latvia has progressed further and

can no longer be seen as an obstacle to liberalisation.

In the meantime, to prepare the implementation of the future regulatory regime, an inter-

ministerial working group was set up in January 2000 to elaborate an implementation

plan for the public service regulation commission. As a first step to creating the necessary

legal basis, in October 2000, the Law on Public Service Regulators was adopted, which

foresees the establishment of a regulatory authority covering

inter alia

the areas of

telecommunications and postal services.

As far as mobile phones are concerned, the market is shared between two operators, one

of whom also runs an analog network. A third GSM license should to be granted as soon

as possible to increase the effectiveness of competition, and the licensing of UMTS

(Universal Mobile Telecoms System) standards and technology ought to be considered at

the same time. Licensing of a third mobile operator is still restricted by Government

commitments to respect a delay of 5 years after licensing the second operator (in 1996).

No significant developments are to be reported as regards the liberalisation of

postal

markets.

There is as of now no independent postal regulatory body. Tariffs are set by the

Government, and the Communications Department of the Ministry of Transport carries

out policy making functions and some regulatory activities (licensing).

Overall assessment

Latvian legislation in the area of telecommunications is not yet in line with the

acquis.

Further changes will have to be introduced as concerns public voice telephony and the

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liberalisation of the operation of related infrastructure, the separation of regulatory from

operational functions, the availability of permission to enter markets, the cost orientation

of tariffs, the right to interconnect networks on reasonable terms, the availability of

numbering capacity, the availability of leased lines, the provision of universal service,

and less regulation for companies that do not have significant market power.

While legislation concerning licensing in the postal sector is almost in line with the

acquis,

other important issues, such as tariffs, quality of service, separation of accounts

and the scope of the reserved area still need to be harmonised with EC requirements.

The existing regulatory agencies for the telecommunication and postal sectors do not yet

have the full powers required by the

acquis.

In the reform of the regulatory regime, it will

be important to ensure that sufficient resources are allocated to the regulatory body, and

that existing expertise is not lost in the transfer.

Chapter 20: Culture and audio-visual policy

Since the last regular report, Latvia continued the process of legislative alignment, and

some measures were taken to enhance the powers of the regulatory body for the audio-

visual sector.

To advance with the alignment with the

audio-visual

acquis,

the Radio and Television

Law was further amended in October 1999. The modified provisions, which entered into

force in November 1999, addressed some of the outstanding issues.

In October 2000, Latvia ratified the Protocol to the Council of Europe Convention on

Transfrontier Television, to which it is already a party.

Since last year, several measures were taken to enhance the powers of the regulatory

body, the

National Radio and Television Council.

Following the entry into force of the

Law on Advertising in January 2000, the Council now has the right to directly ban the

broadcasting of illegal advertising material. In March 2000, legislation was amended to

extend the liability for violations of advertising rules to legal persons (previously, only

physical persons could be held responsible). The level of fines imposed by the Council

was also raised. The Council took one broadcaster to court for illegal retransmission.

Overall assessment

On the whole, Latvia has made some progress in this area but still needs to complete the

process of legislative alignment with the

acquis.

The amended Radio and Television Law represents progress in Latvia’s alignment with

the audio-visual

acquis.

However, some further amendments will still be necessary

concerning jurisdiction, public access to major events, the promotion of European and

independent works and certain advertising provisions. Draft amendments have been

submitted to Parliament in October 2000 (see

also B.1 - Political Criteria).

Though progress was accomplished last year, the powers of the National Radio and

Television Council are not yet fully in line with the requirements of the

acquis,

and

further improvements to the monitoring and sanctioning system will be necessary. An

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upgrading of resources will also be necessary in order to ensure an effective enforcement

of the EC requirements.

Latvia has demonstrated effective administrative capacity for implementing the

acquis

the area of culture, also through its participation in the Raphael programme.

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

Since the last regular report, progress in the area of regional policy and co-ordination of

structural instruments has been limited.

Regarding

territorial organisation,

the Government decided in April 2000 to establish

five planning regions (Latgale, Kurzeme, Zemgale, Vidzeme and Riga) by January 2001,

which correspond to the NUTS III level. This classification has not yet been presented to

the European Commission. The main functions of the planning regions would be regional

development planning, project implementation and monitoring. In each planning region,

decisions would be taken by a Regional Development Council, which would include

representatives of the participating districts and/or city councils. The voluntary

amalgamation of the high number of municipalities has begun.

As concerns the

legislative framework

for regional development, no legislation was

adopted.

In preparation for

programming

of regional development, a first version of Latvia’s

National Development Plan was approved in October 1999. The revision of the National

Development Plan started in January 2000 under the leadership of the Special Tasks

Minister for Cooperation with International Financial Institutions, and in April 2000, a

National Development Plan Steering Group was formed to monitor and manage the

preparation of a revised Plan in close co-operation with regions and partner institutions.

Latvia has also elaborated programming documents for ISPA and SAPARD. Details are

included in the section on Community assistance.

With regard to

administrative co-ordination,

a Regional Policy Working Group was

established in June 2000 to prepare a conceptual proposal on harmonisation of

competencies, institutional framework and legislation. The group is chaired by the

Special Tasks Minister for Cooperation with International Financial Institutions. This is a

first step towards co-ordination and co-operation between all the national actors involved

in regional policy and towards the designation of an entity that would be responsible for

EC Structural Funds.

Concerning the financial and budgetary

management

structures, it was decided that

international assistance, including EC financial assistance, would be integrated into the

national budget. In addition, work has started on introducing the principle of medium-

and long-term budget planning in the budgetary process (see

chapter 29 –Financial and

budgetary provisions).

As to

statistics

for the implementation of the structural funds, the

compilation of regional data has started (see

chapter 12 – Statistics).

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Overall assessment

As Latvia has made limited progress in this area, a number of serious difficulties remain,

and efforts need to be continued, both with regard to the legislative framework and as

concerns administrative capacity.

The Law on administrative and territorial reform of 1998 established the independent

role of regional and local governments. On its basis, the amalgamation of municipalities

should continue to create more viable units.

The present framework for regional development consists of a Regional development

policy concept of 1996 and a Law on assisted regions of 1997. Legislation with a view to

creating the necessary framework for the future participation in EC Structural Funds

should be elaborated and adopted as a matter of priority.

Concerning programming progress, the revision of the National Development Plan

should lead to the elaboration of a comprehensive national planning tool, which is

developed in coherence with other strategic documents. The decision of the Government

of March 2000 to use the Plan as a medium-term intersectoral planning document, to

determine priorities for the coming years, and to serve as a basis for awarding public

investment is a positive step in this direction.

Responsibilities for regional development within the Latvian administration at central

level, as well as its different levels, still need to be delimited properly, and an institution

at central level responsible for EC Structural Funds should be nominated in order to

guide the process. The structures need to be rationalised and strengthened in order to

upgrade the level of programming and project approval, monitoring and evaluation of

pre-accession instruments and activities preparing for future Structural Funds assistance.

The strengthening of regional structures should focus on the establishment of local and

regional partnerships, which may contribute to planning and project design within the

overall partnership structure to be established with regard to the preparation and

implementation of any Structural Funds assistance. To this end, it is of the utmost

importance that the necessary structures for co-ordinated programming, management,

monitoring, evaluation, financial management and control of Structural Funds assistance

are established at the central level, before a stand is taken on whether a further

decentralisation is feasible or advisable.

In particular, effective financial management structures in line with the requirements of

the Structural Funds regulations need to be put in place. It is important that Latvia

establishes procedures for the effective management of payments, as well as a fully

operational and transparent financial control and internal audit system in order to be able

to properly manage EC funds as well as national resources.

As to statistics, most of the key indicators are available at national level, with some

shortcomings in the fields of social indicators, employment statistics and structural

business statistics. No regional data are available yet for GDP, social indicators and

structural business statistics.

Chapter 22: Environment

Further progress relating to the adoption of legislation in line with the

acquis

has been

achieved since last years’ regular report, in particular as concerns environmental

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information, nature protection, waste management and GMOs. Some measures to

strengthen the administrative capacity in the sector have also been taken.

With regard to the

integration of environment into other policies,

over the past year

Latvia has started to implement the action programme for sustainable development

adopted by all Baltic Sea countries in the framework of ‘Agenda 21 for the Baltic Sea

region’.

Concerning

horizontal legislation,

amendments to the existing Latvian legislation on

Environmental Protection of June 2000 brought it in line with EC requirements on

environmental information. Legislation on environmental impact assessment is, except

for one requirement, already in line with the

acquis.

The necessary body to implement the

directive, the Environmental Impact Assessment Bureau, was set up in 1999 and has

gained the experience and capacity to implement the obligations. The Accession

Partnership referred to the need to complete the transposition of and enforce the

environmental impact assessment directive as a short-term priority, and this priority has

partially been met.

The 1999 Accession Partnership also included the need to accelerate the transposition

and enforcement of framework legislation (in particular in the fields of waste, air, water

and nature) as well as industrial related sectoral legislation concerning integrated

pollution prevention and major industrial hazards as a short-term priority.

In the field of

nature protection,

a new law of March 2000 on the protection of species

and biotopes brought Latvian legislation closer in line with the EC requirements on Birds

and Habitats. A detailed plan has been adopted for the transposition of the remaining

obligations, and some training courses with a view to the implementation of the new

provisions have been carried out. Several laws on nature reserves and national parks were

also adopted in March 2000. In May 2000, the Government adopted a National

Programme for Biodiversity. A new department responsible for nature protection was set

up in the Ministry of Environment and Regional Development.

As concerns

water quality,

no new legislation was adopted during the last year. Water

management projects for 60 towns are underway, with six having been completed so far.

In four towns, compliance with EC standards in the preparation of drinking water has

been achieved. The Government decided to consider the whole territory of Latvia as a

sensitive area in relation to the urban wastewater treatment directive.

In the area of

waste management,

following legislation adopted in January, February

and April 2000, Latvia’s provisions were brought further in line with the

acquis

classification of hazardous waste and hazard criteria, landfills for municipal waste and

municipal waste incineration. In 1999, a new hazardous waste interim storage plant

became operational. The Environmental Impact Assessment process for the establishment

of a permanent facility has started.

With regard to

industrial pollution control and risk management,

no new legislation

was adopted. Previously adopted legislation for large combustion plants entered into

force for new plants in July 2000. This legislation also contains emission limit values for

existing plants. The main installations covered by the

acquis

relating to IPPC and Seveso

have been identified. Concerning administrative structures, a decision was taken that the

Environmental Impact Assessment Bureau would be the central institution in charge of

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the sector. Several measures to raise public awareness were undertaken, including the

publication of information material and holding information seminars.

In the area of

air quality,

no further legislation was adopted, as Latvia’s legislation was

already largely in line with the

acquis.

Efforts during the last year concentrated mainly on

drafting further amendments to fully complete alignment, notably as concerns fuel

standards], and on preparing the implementation of the new provisions.

No legislation in the area of

noise from vehicles and machinery

was adopted during the

last year. A working group comprising the ministries of the environment, economy,

welfare and transport has been set up to prepare draft legislation.

Concerning

GMOs,

legislation was adopted in October 2000 in order to further align

with the

acquis,

and a decision was taken to set up an advisory committee. In the area of

chemicals,

a regulation on the use and marketing of dangerous chemical substances and

products was adopted in April 2000. In November 1999, Latvia signed the Montreal

Amendment to the Vienna Convention for the protection of the ozone layer. A Chemicals

Bureau within the Environmental Information Data Centre was set up in January 2000 in

order to gather information for registration purposes and to deal with notifications of new

substances (see

chapter 1 – Free Movement of Goods).

The Law on Animal Protection of

January 2000 partly transposes

acquis

provisions regarding the protection of animals

used for experimental or other scientific purposes.

Concerning

nuclear safety,

no new legislation was adopted in the last year, as the

necessary legal framework already existed with few remaining issues to be addressed. In

October 1999, the Government adopted a decommissioning strategy for the Salaspils

nuclear research reactor (closed in June 1998), setting 2008 as the target date for the full

dismantling and assessed the cost at

€

19.3 million (LVL 12 million) (see

Chapter 14 –

Energy, including nuclear energy).

The 1999 Accession Partnership foresees the strengthening of the

environmental

administration both at national and regional level

as a short-term priority. A decision

was taken to reinforce the Environmental Impact Assessment Bureau (also with a view to

the additional functions the Bureau will assume in the area of pollution control), to

strengthen the regional environmental boards, and to establish a radiation safety centre as

a matter of priority. Funds for this purpose have been earmarked in the national budget

for 2000. In September 2000, a decision was taken to rationalise the collection and

reporting of environmental data. Two existing institutions, the Environment Consultation

and Monitoring Centre and the Environmental Data Centre, were merged to create a new

body, the Latvian Environment Agency.

Work on

cost

estimates for the different environmental sectors in order to comply with

EC environmental standards started last year and have been further refined since then.

They are based on investments in different sectors through the Latvian Public Investment

Programme, official prognoses for GDP, possible bilateral grants and financial support

from the EC pre-accession funds. Latvia plans to reach the necessary level of investments

by the year 2014. The cost of public investments are expected to be

€

1.2 billion.

Financing for environmental protection from the Public Investment Programme has

gradually increased over the last years and stood at a total of

€

46 million in 1999,

representing 0.7% of GDP. The Accession Partnership refers to the implementation of the

plan for financing investments (directive-specific), based on estimations of costs of

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alignment and realistic sources of public and private finance year-by-year, as a short-term

priority, and this priority has started to be addressed.

Overall assessment

Latvian legislation is partially in line with the environmental

acquis.

While Latvia seems

well aware of the challenges posed by this sector at the conceptual level - implementation

programmes including preliminary cost assessments for all environmental sectors have

been prepared – there continue to be important discrepancies between the relative stage

of advancement of the individual sectors.

As concerns horizontal legislation, the Latvian legislation on environmental impact

assessment is largely in line with the

acquis,

but further amendments will be necessary as

concerns transboundary impacts. Latvia has signed an agreement with Estonia on

Environmental Impact Assessment, and discussions with Lithuania with a view to an

agreement are ongoing. Further work will be required concerning civil protection and

reporting requirements. Latvia has ratified the Convention on climate change and signed

the Kyoto Protocol.

Alignment is well advanced in the sectors of air quality, GMOs and nuclear safety. For

nuclear safety, the main gaps in the existing legislation concern medical exposures and

information to the public. In the sectors of water quality (including framework

legislation), waste management, industrial pollution control, and risk management,

progress has been less forthcoming. In the sectors of noise from vehicles and machinery,

chemicals and biocides, work on transposition has only just started. Latvia has acceded to

the Vienna Convention for the protection of the ozone layer and its Montreal protocol on

ozone depleting substances. The Copenhagen and London amendments have also been

ratified. Overall, the pace of transposition should be accelerated in view of Latvia’s target

to complete the alignment in the whole environmental sector by 2003. In several of these

sectors, however, draft legislation has been prepared during the last year and is presently

awaiting adoption.

Compared to the Latvian programme on legislative work and investments, plans to

strengthen the administrative capacity are less developed and should be accorded priority.

The Ministry of Environment Protection and Regional Development is the main

competent body. It is responsible for the majority and most important issues of

environmental protection but also shares some responsibility with several other ministries

such as the Ministry of Welfare, Agriculture, Interior and Transport. The Ministry

operates at three levels: the central administration, the state agencies and the enterprises

under the responsibility of the Ministry. About 30 bodies are subordinated to the Ministry

of Environment and Regional Development with varying levels of independence. The

work on the approximation of environmental

acquis

is integrated via inter-ministerial

groups with representatives from all involved ministries and other institutions. In terms

of controlling and enforcing the environmental legislation, the most important institutions

are the eight Regional Environmental Boards together with the State Environmental

Inspectorate. Some tasks regarding environmental protection are delegated to local

municipalities, the most important being management of non-hazardous waste and

organising the water supply and wastewater treatment.

The total number of institutions involved in the implementation and enforcement of

environmental legislation is high. Having identified the need to restructure and clarify the

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respective responsibilities, some first measures have been taken over the last years. The

Ministry of Environment has increased its staff working on EU integration, and new staff

has also been allocated to prepare and support project implementation in the waste and

water sector. Some new institutions have been established, such as the Environmental

Impact Assessment Bureau. While a decision was taken to create a Radiation Centre

during 2000, the date for the establishment of the Environmental Protection Agency is

uncertain. There still remains significant work to establish an effective structure that can

fully apply and enforce the acquis.

Chapter 23: Consumers and health protection

Since the last regular report Latvia has made good progress in terms of legal alignment

with the

acquis.

Latvia has continued to build up its administrative capacity in this field.

The framework

Consumer Protection

Law of 1999 was further complemented by the

Advertising Law, adopted in December 1999 and which entered into force in June 2000,

in order to implement the directives on

misleading and comparative advertising.

With

a view to ensure implementation of the respective Community Directives, regulations

concerning

distance selling, doorstep selling and timesharing

were adopted in

September 1999. In addition, a regulation on

package travel

was adopted in April 2000.

The Law on Product and Services Safety as well as the Law on Liability for the

Deficiencies of Goods and Services were adopted in June 2000. These laws will

supplement existing legislation on market surveillance with provisions on general

product safety and product liability.

Regarding

administrative capacity,

the Consumer Rights Protection Centre, the co-

ordinating body responsible for the implementation of Market Surveillance, has

continued to establish co-operation agreements in order to carry out inspections in the

field of non-food and services. It has now 33 staff employed in the Centre in Riga.

There has been a significant increase in consultations and complaints reaching about

6000 annually, compared to 4000 complaints in 1998. The Centre receives and handles

about 600 written complaints per year. In 1999, about 2000 control activities were carried

out. In order to improve market surveillance the implementation of standards has been

started in the Centre. During 1999, more than 25 staff received training concerning new

approach, consumer legislation, complaints and market surveillance activities.

The Latvian Consumer Organisations Association was established in 1999 according to

the new Consumer Protection Law. So far, no actions concerning consumer interests have

been brought to court.

Overall assessment

With the entry into force of the 1999 law on consumer protection, Latvia's legislation is

broadly in line with the

acquis.

Generally, enforcement of the transposed Community

directives remains a difficult challenge.

The newly created Consumer Rights Protection Centre has played an increasingly active

role in the field of information provision which is underlined by the number of requests

dealt with. However, due to financial constraints and limited human resources its actual

role in market surveillance, which is also limited to a number of areas, as well as

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particularly the execution of inspections, including at regional level, have to be

strengthened. The Centre itself needs further staffing and financial resources in order to

play its full role in consumer protection (see

chapter 1 – Free movement of goods).

In addition, consumer and producer awareness need to be enhanced in relation to their

respective rights and responsibilities. Consumer Health Institutions need to be upgraded

in terms of training and equipment, and legal professions need to familiarise themselves

better with product liability related cases.

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

Since the 1999 regular report, progress has been achieved in the field of data protection,

visas and police. Considerable efforts were made in the area of border control.

The Law on Personal

Data Protection

was approved in March 2000 (see

chapter 3 -

Free movement of services).

The Law provides for the establishment of a State Data

Protection Inspection under the supervision of the Ministry of Justice. The Inspection will

be operational in January 2001.

As regards

visa policy,

progress was made. In January 2000 a unified visa information

registration system, which operates on-line with diplomatic consulates abroad, was

introduced. In May 2000 amendments were passed to the Law on Issuing of Visas

providing for introduction of airport transit visas as from July 2000. Work on the

implementation of issuing of machine-readable visas continued.

In March 2000, and in accordance with the requirements of the Schengen

acquis,

the

Latvian Government denounced the interim inter-governmental agreement on simplified

local border crossing procedures between Russia and Latvia. The special permits have

been replaced by charge-free visas for the local residents and these visas, unlike the

special permits, give access to the entire territory. The new regime will take effect six

months after notifying the other party. Visas for Belarus were introduced in January

2000. A bilateral agreement on establishing a visa-free regime was signed with Japan (in

force) and with Israel in January and May 2000 respectively.

One of the short term priorities of the 1999 Accession Partnership was to upgrade border

posts and the “green border” and to improve data and telecommunication infrastructure.

Latvia has made some progress in strengthening

border controls

(see

chapter 25 –

Customs union).

In order to increase integrity of the border control, an additional protocol to the

agreement between the customs service and the border guards was signed in December

1999 and came into effect in January 2000. The exchange of information between the

border guard and the coast guard has been improved as well during the reporting period.

In June 2000, an agreement was signed between the State Border Guards, the Railways

department of the Ministry of Transport and the passenger transport company which will

allow the Border Guards to receive information about passengers who have crossed the

national border by train.

Co-operation with Latvia’s Baltic neighbours is steadily developing. Since May 2000 and

according to the co-operation agreement between the police, customs, and border

guarding authorities of Finland, Latvia, Lithuania and Estonia on cross-border crime,

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joint border control procedures are carried out but only with regard to incoming traffic.

The joint border control procedure has been fully introduced in all border control points

on the border with Estonia. Since December 1999, there is an electronic data exchange on

the common border control points of Latvia and Estonia.

As regards the general border control capacity, Latvia has increased its budget allocation.

At the end of 1999 and as a result of the restructuring of the State Border Guard the

number of personnel involved in the protection of the Eastern Border is now twice as

high as for the borders with Lithuania and Estonia. In 1999, the establishment of the State

Eastern Border unified management and guarding system was started. Within the 2000

State investment Programme, surveillance equipment was improved and staffing at the

Eastern border was significantly increased. The total number of staff employed by the

State Border Guards is 3283 (as compared to 3018 last year).

Computerisation is progressing. Since the beginning of 2000, the Border Guard

Electronic Information System is linked to the newly established visa register (under the

Department of Citizenship and Migration Affairs), however, the software system used by

the border guards is not compatible with the system used by the customs. In addition, an

agreement between the Navy and the border guards was signed in June 2000 for access to

the Navy’s border surveillance system database.

Regarding

migration,

one of the short-term priorities of the 1999 Accession Partnership

was to implement migration legislation and procedures to prevent illegal immigration.

This priority was partly addressed through the introduction of the transit airport visas and

a regulation to simplify the procedure for receiving residence permits on the basis of a

work or employment contract as well as the preparation of an immigration law.

Latvia signed a re-admission agreement and an implementation protocol with Austria in

June 2000. Less progress has been made in terms of the administrative capacity to

implement the re-admission

acquis,

mainly due to lack of financial resources.

Following the entry into force of the

asylum

law in early 1999 some progress was made

in terms of the implementation of the asylum legislation which is also a priority under the

1999 Accession Partnership. Work has started to set up a registration database of asylum

seekers and refugees and on the creation of a unified translators and interpreters database

of the Baltic States. Taking into account the at present low number of asylum seekers (22

persons in 1999 and 2 in 2000), sufficient reception capacity has been established (see

also B.1. - Political Criteria).

In the field of

police co-operation and fight against organised crime,

one of the short-

term priorities of the 1999 Accession Partnership was to upgrade law enforcement bodies

and to continue the fight against organised crime, trafficking in women and children and

to ensure better co-ordination between law enforcement bodies. Good progress has been

made in terms of strengthening the institutional capacity and co-ordination.

In December 1999 the Secretariat of Crime Prevention Council of Latvia was established

(with a staff of 8 persons) to ensure effective co-ordination of the Ministry of the Interior,

Ministry of Justice, Ministry of Finance, Ministry of Foreign Affairs as well as the

General Prosecutor’s Office. In November 1999 the Anti-Smuggling Centre was

established, involving 25 employees from the State Revenue Service, the State Police, the

Security Police, the General Prosecutor Office and the State Border Guard. In the second

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half of 1999 the special Division for the Fight against Car Thefts with 80 staff of police

officers in the Main Criminal Police Board of Riga City was established.

Co-operation between the institutions fighting against organised crime has been

institutionalised. Institutional co-operation agreements were concluded between the State

Police and the State Revenue Service (SRS) to provide the police with online access to

information stored in the database of the SRS, between the Customs Board and the Drug

Enforcement Bureau and between the Financial Police, the Economic Police and the

Company Register on Location and Liquidation of Fictitious Companies.

The Agreement between the Governments of Latvia, Estonia and Lithuania on Co-

operation in Protection of Witnesses and Victims was signed, and entered into force in

June 2000.

In May 2000 a working group for Latvia was established to prepare the agreement with

Europol.

As regards administrative capacity, service regulations have been drafted. In addition, an

Internal Audit Unit (in total 9 persons), an EU Legislation Harmonisation Division (in

total 4 persons) and a Division for the Reconstruction Control of the Eastern Border (in

total 11 persons) have been established within the Ministry of the Interior as well as

further bodies under its supervision. The first stage of reorganisation of the Criminal

Police of Latvia has begun. The turnover of police staff has further decreased since last

year. For the first five months of this year, it reached 2%.

Regarding the

fight against fraud and corruption

(see

also B.1. - Political Criteria),

one of the short-term priorities of the 1999 Accession Partnership was to continue the

fight against corruption, to implement concrete measures to improve inter-agency co-

operation in the area of anti-corruption and to ratify the European Criminal Law

Convention on Corruption, as well as to sign the OECD Convention on Combating

Bribery of Foreign Public Officials in International Business Transactions. Some progress

has been made in this respect, including Latvia’s joining of the Group of States Against

Corruption (GRECO) in June 2000, the establishment of a secretariat of the Corruption-

Prevention Council in December 1999 (with a staff of 3 persons) and the adoption of a

Corruption-Prevention Programme in April 2000 and of a concept paper on the fight

against corruption in August 2000, as well as some limited other measures. The

implementation of the Law on Prevention of Corruption has advanced, which is also

reflected by the increased number of disciplinary cases.

As regards

drug

use, a number of negative trends are being observed and in particular as

regards heroine use. Drug mortality has increased as well as drug use by minors. In 1999,

325 persons were brought to justice in connection with drug-related crimes.

Latvia has adopted further regulations to define quantities of narcotic drugs and

psychotropic substances in illegal circulation, which are subject to criminal liability.

These came into force in January 2000. Latvia has continued its efforts concerning the

implementation of its National Drug Control and Drug Abuse Prevention Strategy for the

period 1999 – 2003.

The structure of the Drug Enforcement Bureau has been strengthened and now employs

73 staff members. Five regional groups of the Bureau have been established, and the

number of officers working on minors and on the fight against organised crime and drugs

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in prisons has increased by 35. The national Contact group with Europol’s Drug

enforcement unit has been established. In co-operation with the Narcology Centre of the

Ministry of Welfare, educational campaigns have been launched and co-operation, co-

ordination and information exchanges between state (Judicial Training Centre, the Drug

Enforcement Bureau, specialists from the Drug Addiction Treatment Centre and

specialised prosecutors and judges) and non-governmental organisations have been

organised.

In the field of

customs co-operation,

Latvia made some progress during the last year.

Co-operation between customs authorities and business was enhanced through a number

of Memoranda of Understanding (MOU) with major international transport companies as

well as ten MOUs with other national bodies involved in customs matters aiming at

improving the fight against smuggling, fraud, corruption and other forms of illegal

commercial traffic. To this end, information (guidelines, instructions etc.) were widely

circulated, including on a web-site, as well as through enhanced training activities for

customs officials.

Furthermore, the computerised risk analysis system (TIMS) is being introduced in all

regional customs offices. The problem of corruption is in particular being tackled by

improved training and the implementation of the State Revenue System’s Code of Ethics.

In addition, an Internal Audit Division has been set up to develop and implement

measures to decrease the risk of corruption. With a view to this, Latvia has developed

unified technological schemes for all customs points which include video-monitoring.

judicial co-operation in criminal and civil matters,

no important developments

were reported over the past year, but Latvia has already achieved a certain level of

alignment.

Overall assessment

During the last few years, Latvia has made some progress to date in the area of justice

and home affairs. However, alignment to the

acquis

needs to continue, and important

challenges still lie ahead to ensure its enforcement.

The adoption of the law on Personal

Data Protection

has further aligned Latvian

legislation with the

acquis

in this field. As regards the envisaged establishment of the

State Data Inspection by the end of 2000, the independence of this body needs to be

ensured. Latvia needs now to ratify the 1981 Convention of the Council of Europe on the

protection of individuals with regard to automatic processing of personal data.

Regarding

visa policy,

Latvia’s legislation is broadly in line. Visa requirements have

been introduced for all countries according to the

acquis.

Following the legislative

amendments, the implementation of the airport transit visa regime now needs to be

ensured. A proper transit zone at Riga Airport, in order to cope with the expected larger

flows of passengers carrying transit visas in the future, needs to be established.

The on-line connection system for visa applications between all border crossing points

and the central database should be completed a well as the issue of machine readable

visas. Latvia will still have to develop a Schengen-type visa sticker and to generalise the

electronically-supported system for visa issuing to all its diplomatic missions and to

introduce the general obligation for personal application of visas.

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In the field of

border controls,

the main challenge remains the establishment of an

integrated approach to border management, despite the progress achieved concerning the

establishment of co-operation agreements and improved data communication between the

different bodies responsible for border surveillance. In addition to Customs, the Ministry

of Agriculture, the Navy and the Ministry of the Interior, the Immigration and the State

Police carry out activities at the border. The establishment of a well-functioning co-

operation mechanism in order to ensure efficient practical co-operation on border

surveillance remains therefore essential.

The quality of checks at Latvia's border crossing points has improved, but are still

hampered by lack of adequate equipment and lack of focus on risk sectors. 15 out of 87

border crossings are equipped with computerised border control systems. Effective co-

operation and communication between the various control bodies involved need to be

ensured.

Despite the recent improvements concerning co-ordination and surveillance infrastructure

at the green border, efforts to improve the basic infrastructure have to be continued. The

strengthening of controls at the eastern border is proceeding and infrastructure equipment

is being provided. However, further increases in financial resources need to be

guaranteed. Co-operation between border guards and coast guards should be further

enhanced in order to ensure a harmonised and adequate level of surveillance at the blue

border. Checks carried out on transit trains still require further improvements in order to

provide adequate level of controls. One of the 1999 Accession Partnership priorities was

to upgrade border posts and “green border control” and to improve data and

communication infrastructure. This remains a priority.

Training of the 3035 people employed in the border guard remains an important issue.

Capacity of the one existing border guard school has to be increased and training of

foreign language skills should be strengthened particular with a view to the

implementation of the Schengen

acquis.

Common training sessions between the different

authorities in charge of managing the borders are still to be organised.

As regards the situation on

migration,

Latvia's legislation is broadly in line with the

acquis.

The provisions on admission and expulsion are close to those required, but

remaining shortcomings have to be addressed. As regards the legal situation on admission

rules, legal provisions need to be established regarding the application for work permits,

changing of categories of temporary residence permits as well as the relaxation of

provisions for self-employed persons. Generally, there is still too much bureaucracy

regarding foreigners concerning work and residence permits. Legislation on expulsion is

also in line with the

acquis

with the exception of the missing legal basis for detentions

before expulsions. Expulsion of foreigners is hampered by shortcomings in re-admission

agreements and financial constraints. Since 1997 annually about 350 persons were

expelled from Latvia.

On re-admission, there are now agreements with Austria, Benelux, Croatia, Denmark,

Estonia, Finland, France, Germany, Greece, Iceland, Italy, Liechtenstein, Lithuania,

Norway, Portugal, Slovenia, Spain, Sweden, Switzerland and Ukraine.

There are two centres for illegal immigrants in Latvia – Olaine and Gaizina Street in

Riga. Living conditions for illegal immigrants kept in these places need to be improved.

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Although the adoption of the 1998 Law on Asylum Seekers and Refugees in the Republic

of Latvia incorporated most of the

acquis

asylum,

further legislative amendments will

be necessary, especially with regard to the concept of safe third countries (amendments

have been drafted) as well as with regard to provisions on temporary protection and

humanitarian status. The principle of “non-refoulement”, recognised by the Law of 1998

on Refugee and Asylum Seekers, does not appear in the Law of 1992 on Aliens.

Amendments will also be needed with a view to the implementation of the Dublin

Convention.

Despite the at present low number of asylum seekers, the independence of the Appeal

Council remains a matter of concern. The informal nature of proceedings and the absence

of clearly defined rules will have to be addressed. A final judgement in this field is

hampered by the lack of experience of the bodies concerned in implementing the

legislation also with a view to preparation for accession to the Dublin Convention and its

enforcement.

As regards

police co-operation and fight against organised crime,

further steps to

complete legal alignment, including with the Europol Convention, have to be taken. In

addition, there is a need to clarify the division of responsibilities particularly between the

State Police and the Municipal Police.

Although the need for strengthening the administrative capacity in this area is widely

recognised, and training levels have increased in the recent year, further improvements

are needed to meet the challenges of organised crime and corruption as well as new types

of crimes (financial, computer, money laundering). This will, however, require further

reform, which is at present still inhibited by the number of institutions active in this field

as well as a lack of modern equipment, technology and properly trained personnel.

Work on the completion and connection of all police agencies with the national police

database should be continued. Restructuring of a special semi-public police body should

be addressed in order to avoid possible conflict of interests. Generally, Latvia should

continue to improve the status, working conditions and training of the police force and

enhance the respective roles and responsibilities. The Action plan of the Ministry of the

Interior is considered to be a good step as it foresees working out legislative amendments

for the improvement of status, salaries and social guarantees for police personnel. The

capacity to react to emerging issues as well as the recruitment of staff with special skills

have to be improved and adequate budgetary means have to be provided.

Regarding the

fight against fraud and corruption

(see

also B.1. - Political Criteria),

some progress has been achieved through institutional strengthening and enhanced co-

operation. As concerns the

fight against fraud,

the 1995 Convention on the Protection of

the European Communities’ Financial Interests appears to be fully covered by existing

legislation which does not differentiate between EC and national funds. Latvia will now

have to prepare itself for full co-operation with OLAF upon accession. As regards the

fight against corruption,

the effective implementation of the corruption prevention

programme requires a complete overhaul of the police service and other law enforcement

bodies. The qualifications of and the co-operation amongst all staff involved in the fight

against corruption need to be improved. The Council of Europe Criminal Law

Convention on Corruption needs to be ratified, and the necessary amendments to the

Criminal Code need to be made.

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In the field of

drugs,

drug-related crime is an increasing problem in Latvia both in terms

of transit as well as drug use. Latvia ratified the main international conventions in the

field of drugs. The implementation of its National Drug Control and Drug Abuse

Prevention Strategy should be continued without delay and the action plan remains to be

adopted. Furthermore, despite an agreement on collaboration between the Drug

Enforcement Bureau and the Customs Board, signed in November 1999, and the

establishment of a special division within the Customs Board for the Control of Drugs

and Psychotropic Substances at border crossings, the role of the customs as well as

border guards in actions related to the detection of drug smuggling has to be significantly

strengthened. As drug traffickers are mostly exploiting trade and transportation networks,

checks, in qualitative and quantitative terms, on trains and at border crossings, where

most drugs enter, have to be increased. In order to improve drug prevention, judges have

to be sensitised to the issue of drugs and judgements and fines in this field should have a

deterrent effect. The recent legislative steps taken are positive.

Despite some improvements on co-ordination, there is still no central information

capacity to support the law enforcement agencies. As drug smuggling is increasingly

taking on an organised crime aspect, it is important to address this issue and to establish

clear co-operation mechanisms amongst these agencies. The Drug Enforcement Bureau

and the organised crime unit of the State Police both carry out intelligence activities

related to drugs. The division of responsibilities needs to be clarified.

Against the background of an increase in drug crime, immediate action has to be taken on

both supply and demand as well as on social rehabilitation of drug addicts. For this,

adequate financial resources in order to establish the necessary drug prevention and

rehabilitation measures have to be provided.

Latvia has reached a certain level of alignment in the field of

customs co-operation.

The

main areas where further efforts are needed include the co-operation with business

partners, improved risk analysis and further training. The activities initiated to fight

corruption are encouraging, but should be strengthened throughout the administrative

system. Further efforts are also needed to allow full participation of the Latvian customs

in the Customs Information System and Naples II.

As regards

judicial co-operation in criminal and civil matters,

Latvia has ratified all

the relevant Conventions of the Council of Europe in the field of criminal matters.

Legislation on judicial co-operation in criminal matters, including mutual assistance,

transfer of criminal proceedings, extradition and transfer of sentenced persons still has to

be adopted. Legislative alignments are necessary as regards the concept of organised

crime and criminalisation of membership in an organised criminal group in order to

comply with the December 1998 EU Joint Action and also as regards the liability of legal

entities.

Witness protection is guaranteed by the Criminal Law, but needs to be further developed

in terms of the level of protection as well as operational co-operation. As regards

combating trafficking of human beings and sexual exploitation of children, a programme

had been worked out to introduce the relevant changes into the legislation. The new

Criminal Law and Criminal Code of Procedures covers the exploitation of children as a

serious crime. At present there is a split responsibility with regards to judicial co-

operation on criminal matters between the Ministry of Justice, the Prosecutor General and

the Ministry of the Interior.

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On civil matters, Latvia has not yet signed the Convention on the Civil Aspects of

International Child Abduction and the Convention on the service in the EU Member

States of judicial and extrajudicial documents in civil and commercial matters. Full

compliance with the Convention on jurisdiction, recognition of judgements and

enforcement of judgements needs to be ensured. Legislation on international private law

has still to be adopted.

Chapter 25: Customs union

Since the last regular report some progress has been achieved by Latvia in the field of

customs and encouraging steps have been taken with regard to modernisation of the

customs administration and to counter corruption and smuggling.

As regards the

EC Customs Code and its implementing provisions,

new provisions

have been adopted in the fields of the combined nomenclature, end use, temporary

admission and re-export. Latvia has made progress in this field which was one of the

priorities under the 1999 Accession Partnership.

Regarding the

customs

acquis

outside the EC Customs Code,

amendments to the

Latvian customs duty law were made to further harmonise the provisions for duty relief.

Importantly, amendments were made to the Law on the State Revenue Service providing

the customs service with the right to conduct criminal investigations. Adequate resources

will now have to be allocated to train investigative professionals. A decision on

rationalising the number of regional branches has not yet been made. Regarding the pan-

European system of origin, Latvia has agreed to the amendments to the system which will

come into force in January 2001. For the system to be complete, it remains for Latvia to

sign the necessary Free Trade Agreements with Romania and Bulgaria.

Although attempts were made to close down some of the existing 175 (of which 100 are

located in Riga) customs warehouses, very little progress has been achieved.

Concerning international Agreements and Conventions, no important developments have

taken place.

As to

administrative and operational capacity,

over the last year, the Customs Board

has signed several agreements with institutions active on the border or facilitating the

work of customs officers. A protocol to the agreement signed in December 1999 between

the SRS Customs Board and the Border Guards allows for simplified border procedures.

A memorandum of understanding was signed with the Coast Guards. In addition, an

agreement was signed with the Railway Administration in end of 1999. A memorandum

of mutual co-operation between the SRS Customs Board and the Phytosanitary

Inspection had already been signed in order to ensure the protection of public health.

A further result of improved inter-institutional co-operation is the establishment of the

Smuggling Combating Centre (see

chapter 24 – Justice and Home Affairs)

in November

1999 (with a staff of 25 persons). The Smuggling Combating Centre is an institution

established by the Cabinet of Ministers, but has however no legal power. Its main role is

to co-ordinate the operative and pre-trial investigation procedures of the State Revenue

Service, the State Police, the Security Police, the Border Guards and Customs in the field

of anti-smuggling. Thus progress was made in this field which was also a priority under

the 1999 Accession Partnership.

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The customs service consists of the central headquarters in the State Revenue Service and

regional customs units. There are about 1700 customs officers, but the situation remains

difficult due to the lack of resources made available to the customs officials and due to

the rather high levels of corruption (especially in warehouses). The establishment of

further training centres (one in each region) is planned. Recent reforms seem to have

contributed to a continued decrease in personnel turnover.

An organisational restructuring has taken place within the Customs Board in order to

increase the administrative and operational capacity to implement the

acquis.

This

included the creation of an administrative unit to implement customs control measures

for protection of intellectual property rights (beginning of 2000) and a division for

control of drugs and psychotropic substances (see

Chapter 5 - Company law).

A transit

control division was created in October 1999. The Internal Audit Division of SRS

National Customs Board monitors the code of ethics and legislation regarding prevention

of corruption as well as developing and implementing measures to decrease the risk of

corruption. In addition, post-clearance audit units in all regions and central headquarters

have obtained initial encouraging results. Thus progress was made in this field which is

also a priority under the 1999 Accession Partnership.

Regarding computerisation, the computerised customs information system (ASYCUDA)

is operational at 8 customs check points and approximately 35% of all customs

declarations are processed with the system. A computerised linkage between customs and

tax administration is being completed. 67 out of 70 customs points are already connected

to the network. Work is ongoing with regard to simplified procedures and their

implementation.

In relation to border management (see

chapter 24 – Co-operation in the field of justice

and home affairs),

some improvements have been made, both in terms of reallocation of

resources and construction of posts and better equipment.

Overall assessment

In the legislative field, Latvia has achieved a good degree of alignment with the

acquis.

Work remains to be done in the fields of binding origin information, free zones,

warehouses, customs debt and the repayment and remission of duties. Progress was made

in strengthening customs control and improving co-ordination among the various bodies

involved. However, the main challenge remains administrative modernisation including

in the field of management.

Latvia is a contracting party to the Istanbul Convention on Temporary Admission, the

Kyoto Convention on Simplification and Harmonisation of Customs Procedures and the

TIR Convention.

Latvian customs now have greater powers in the field of enforcement. Therefore, more

and better qualified staff, increased training to reinforce their role in priority fields and

high risk areas such as the enforcement of intellectual property rights and the fight

against smuggling, are necessary. Resources allocated for running expenses of customs

have been the same over the last six years. In addition, the fight against fraud and

corruption should remain a priority and be reinforced.

In relation to border management, controls at the eastern border remain a particular

source of concern. Despite a number of improvements, continued progress is needed to

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ensure an adequate level of controls at the future external border of the EU. The fight

against smuggling needs to be reinforced. Sufficient budgetary resources should be

allocated to establish adequate physical equipment, including customs laboratories, in

order to allow for adequate checks to be carried out.

Chapter 26: External relations

As regards the

common commercial policy,

Latvia has continued to align its tariffs with

those of the EC since 1999. Upon accession Latvia will be required to align its tariffs

with the Common External Tariff (CET). Latvia’s applied tariffs currently average 6.8%

on all products, 18.9% on agricultural products, 12.6% on fishery products and 3.2% on

industrial products. By comparison, the EC tariffs currently stand at 5.3% on all products,

9.4% on agricultural products, 12.4% on fishery products and 4.2% on industrial

products.

In May 2000, a law “on protection against subsidised imports “ was adopted, which will

enter into force by January 2001. Latvia adopted legislation on anti-dumping in

December 1999, which entered into force in July 2000.

As regards

bilateral agreements with third countries,

during the last year, Free Trade

Agreements with Hungary and Turkey came into force, and negotiations continued with

Bulgaria, Romania and the Faroe Islands.

Co-operation among the Baltic States in implementing gradual liberalisation and regional

integration policies is developing and a Baltic Common Economic Area is being

introduced. The Baltic Free Trade Agreement covers industrial and agricultural goods,

and negotiations on the liberalisation of the services market are proceeding.

In the field of

development policy and humanitarian aid,

Latvia has no specific budget

allocation for development or humanitarian aid, but has granted aid on a case-by-case

basis.

Given that both the Ministry of the Economy and the Ministry of Foreign Affairs hold

responsibilities in the area of trade, in October 1999, a consultative council for the

coordination of foreign trade policy was created. In July 2000, a State Bureau of

Commercial Defence was established under the supervision of the Ministry of the

Economy to handle matters related to anti-dumping, anti-subsidy and safeguard

measures.

Overall assessment

Overall, Latvia has made good progress in aligning to the Community

acquis

commercial policy. Further harmonisation may be required upon accession. Accession to

the Convention on the Law of the Sea will also have to be completed. Where medium

and long term export credits are granted, further alignment to the

acquis

is necessary.

The EU and Latvia have established a framework for co-operation regarding WTO issues

both at ministerial and at departmental level and Latvia has been supportive of EU

policies and positions within the WTO framework. As regards the new round, Latvia

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

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less substantial in its absence. Latvia is a signatory to the Agreement on Trade in

Information technology Products (ITA) and to the plurilateral Agreement on Civil

Aircraft. Latvia needs to join the plurilateral WTO agreement on Government

Procurement prior to accession. Latvia is at present an observer to the GPA Committee;

negotiations on Latvia’s accession to the GPA started in 1999. As regards the WTO

Agreement on Trade in Textiles and Clothing, Latvia needs to align its integration

programmes for stages 1, 2 and 3 with those of the EC. Also, further co-ordination is

necessary in order to consolidate the adjustment of the Latvian list of commitments in

GATS with the EC commitments and MFN exemptions.

Latvia has continued to align itself with EC trade rules by becoming a party to various

preferential trade agreements. In addition to Free Trade Agreements concluded recently

with Hungary and Turkey, Latvia has bilateral Free Trade Agreements with the Czech

Republic, the Slovak Republic, Slovenia, Poland, Estonia and Lithuania (Baltic Free

Trade Agreement), Ukraine and EFTA. Latvia should continue to keep the Union fully

informed about existing trade agreements or negotiations aimed at the conclusion of any

new trade agreements with a third country.

As concerns development aid, no GSP schemes are being applied by Latvia.

The responsibility for foreign economic policy is shared by the Ministries of Foreign

Affairs and of the Economy. The department of trade policy within the Ministry of

Agriculture deals with agricultural trade issues (including WTO matters). Some

upgrading might be needed in order to dispose of the necessary administrative capacity

upon accession, also with a view to participating in the EU’s development and

humanitarian aid policies. The administrative infrastructure which needs to be in place as

regards customs services is addressed under the chapter relating to the Customs Union

(chapter

25 - Customs union).

Chapter 27: Common foreign and security policy

The regular

political dialogue

established by the Europe Agreement is proceeding

smoothly and Latvia continues to orient its foreign and security policy towards the Union.

It continues to participate actively in the framework of the Common Foreign and Security

Policy (CFSP), including the meetings at the level of Political Directors, European

Correspondents and Working Groups.

Latvia has shown a keen interest in the development of European Security and Defence

Policy (ESDP) as part of CFSP and has actively participated in the exchanges in this

context with the EU, in EU + 15 format (i.e. non-EU European NATO members and

candidates for accession to the EU).

As regards

alignment with EU statements and declarations,

Latvia has regularly

aligned its positions with those of the Union and, when invited to do so, has associated

itself with the Union’s

joint actions and common positions.

During the course of 1999

Latvia associated itself, together with the other CEECs, with one joint action of the EU. It

also associated itself with 11 EU common positions, including 3 on the Federal Republic

of Yugoslavia. In the year 2000, as of 30 June, Latvia has associated itself with 3 EU

common positions.

Since the last regular report of 1999, progress has been made in adopting the necessary

legislative framework for effective participation in the CFSP. Following the adoption of

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amendments to existing legislation in March and June 2000, Latvian legislation is now in

line with the

acquis

concerning sanctions (previously, only UN sanctions were covered).

This will allow Latvia to quickly align itself with the Union’s decisions on the imposition

of international sanctions.

Overall assessment

The overall progress achieved since 1997 in alignment with the

acquis

of the CFSP is

satisfactory. The only outstanding issue concerns the question of diplomatic and consular

protection, where Latvian legislation foresees a broader coverage than the

acquis.

As the

acquis

in the field of foreign policy and security develops further, Latvia should maintain

the orientation of its foreign policy in line with that of the Union.

As an Associated Partner of the WEU, Latvia actively participates in the discussions and

activities, including participation in the WEU/NATO CRISEX exercise at the beginning

of 2000.

Following the Kosovo crisis, Latvia showed active support for and interest in the

Stability Pact. Latvia also actively participated in NATO-led operations of SFOR by

sending 140 Latvian troops of the Baltic Battalion to Bosnia from October 1999 to April

2000. A team of 10 Latvian military medics, policemen and one liaison officer continued

to work in Albania in the framework of the NATO-led KFOR operations.

Latvia strives to contribute to regional stability through a policy of good-neighbourly

relations and regional co-operation, i.a. as an active member of the Council of Baltic Sea

States (CBSS). Land border agreements have been concluded with Estonia, Lithuania and

Belarus. A sea border agreement with Lithuania has been signed. The demarcation of the

Latvian-Belarusian border has been completed on the Latvian side. The draft border

agreement with Russia was finalised and approved by the Latvian Government in

December 1997 and awaits final approval by Russia.

The structures required to participate in the formulation and implementation of the CFSP

are in place in the Ministry of Foreign Affairs. It has the capacity to effectively participate

in the Associated Correspondents’ Network both in terms of staffing allocations and in

terms of appropriate information systems.

Chapter 28: Financial control

In the area of financial control, efforts continued during the last year, and good progress

can be noted particularly as concerns Public Internal Financial Control, for which the

administrative capacity has also been strengthened.

The 1999 Accession Partnership includes the completion of the legislative framework for

internal and external financial control as a short-term priority.

Regarding the

internal financial control system,

progress was made in approving

regulations on internal audit, including a Charter of the Internal Audit Council (in

October 1999), providing the arrangements for the establishment, management and

development of internal audit in ministries and other institutions of the public

administration and institutions under subordination or supervision of ministries.

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Subsequently, the Internal Audit Council was appointed in June 2000 in order to co-

ordinate the implementation of the internal audit system, the development of uniform

internal audit policy and the reinforcement of internal audit activities in the public sector.

A handbook on internal audit (approved in November 1999) is considered a useful step to

enhance implementation of the internal audit concept.

As regards administrative capacity, Internal Audit Units (IAU) have been established and

staffed in all line ministries and their subordinated and supervised institutions (in total

about 180 internal auditors). Reporting structures, including a data base, have been

established which should allow the IAU to monitor work of internal audit units and audit

implementation plans. Substantial training activities for internal auditors were carried out

during the last year.

Concerning

external financial control,

progress was made in that the State Audit Office

Council had adopted in December 1999 a strategic development plan for the period 2000

– 2005. It covers the development of the legal framework, audit methodology,

competence development, management ability and information technology. In a first step,

pilot audits are being carried out in a number of public institutions including local

governments. In addition, a working group, involving all responsible public bodies, was

established in March 2000 in order to prepare amendments to the current law on State

Audit Office which intend to improve its independence and role in public auditing. As

regards the administrative structures, Latvia employs 173 persons (of which 120 are

auditors) in the State Audit Office since January 2000, thus having strengthened its

capacity in this field.

In relation to the

control measures relating to Own Resources,

the Latvian State

Revenue Service (SRS) and customs are being modernised in order to enhance its

operational and administrative capacity in this process. This requires an improved

internal organisation as well as completion of computerisation and strengthening of

human resources. In this respect, Latvia has established an Internal Control Division in

the SRS.

Regarding

the control of structural action expenditure,

Latvia has adopted legislation

on the national fund which requires that EC funds are to be jointly audited by the relevant

ministry’s Internal Audit Unit and the internal auditors of the Ministry of Finance’s

Internal Audit Unit. The result of these audits will be reported to the State Secretary

responsible for the audited institution/body and to the National Authorising Officer who

takes the final responsibility.

In the

field of protection of EC financial interests,

EC funds now in principle receive

the same treatment as national funds. Procedures are being developed in order to carry

out joint audits between the Ministry of Finance and the line ministries. Some steps were

taken in order to strengthen the fight against corruption.

Overall assessment

Good progress has been achieved in this area and particularly in the field of Public

Internal Financial Control, although further efforts are necessary to guarantee that

international standards are fully met by Latvia. For external financial control, efforts need

to continue.

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Regarding the internal financial control system, the Internal Audit Council should be

empowered and given the necessary means for the execution of their tasks and the role of

the Ministry of Finance is to be reinforced. The Ministry needs to strengthen its central

harmonising and co-ordinating role in internal control and audit. Functional independence

of internal audit units needs to be ensured. In this respect, a law on internal audit has to be

drafted. Controls need to be extended to all public institutions as well as agencies. The

“ex-ante” control function needs to be improved, while staff training needs to continue.

Financial management and control mechanisms, manuals and audit trails for pre-

accession funds have to be developed. In addition, risk assessment should be carried out

and a computerised reporting system in all ministries dealing with funds needs to be set

up. Implementing schemes including deadlines should be developed.

As regard external financial control, the State Audit Office (SAO) should audit the

Government’s implementation of the budget and assess its internal control and audit

systems. Latvia needs now to amend the current law on SAO in order to address the issue

of the SAO’s financial independence, to extend its mandate in performing the audit of EC

funds, to end the SAO’s right of imposing administrative fines, to define the scope and

mandate for all audit responsibilities and to confer the right to audit of end users as well

as general access to all public institutions and agencies.

In order to strengthen the impact of the audit system, formal procedures allowing for its

Parliamentary examination should be established.

In relation to the control of future EC Own Resources, Latvia should continue its efforts

to develop effective instruments to combat fraud relating to VAT and customs duties.

Efforts also need to be made in order to enhance Latvia’s capacity for the management of

the pre-accession funding and future structural fund. The development of mechanisms for

the expedient recovery of lost EC funds is equally important.

Finally, with a view to ensuring adequate protection of EC financial interests, Latvia

needs to put in place the necessary legislation to allow the competent EC bodies to carry

out on-the-spot checks including compliance tests as well as to develop adequate

administrative capacity to implement the

acquis,

including as regards the ability of the

Latvian law enforcement bodies and judiciary to address cases where EC financial

interests are at stake. Latvia should nominate as soon as possible a single contact point for

the relations and co-operation with the bodies competent for the protection of the EC

financial interests, in particular with OLAF.

Chapter 29: Financial and budgetary provisions

During the last year, Latvia has undertaken several steps in this area.

Latvia has made some progress as regards

the national budget and EC co-financed

measures.

Amendments to the Law on Budget of December 1999 entered into force in

January 2000. In addition, it was decided that international assistance, including EC

financial assistance, would be integrated into the national budget. Work has started on

introducing the principle of medium- and long-term budget planning in the budgetary

process.

Concerning

own resources and administrative infrastructure,

and in particular own

resources collected from sugar duties, Latvia adopted amendments to the Law on Sugar

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in January 2000, foreseeing

inter alia

the introduction of customs duties on sugar

imports. Otherwise, little progress can be reported for this area.

Overall assessment

Further efforts are required by Latvia both in relation to the national budget and own

resources.

The new budgetary legislation, if appropriately implemented and completed, will meet

the standards of the EC. Further strengthening will be necessary, particularly as regards

the development of evaluation and monitoring procedures for programmes and projects,

especially those set to receive Community funding. The planned system of medium-term

programming of expenditure may also need some further adjustments once it becomes

operational.

The organisation and the procedures for the management of EC pre-accession funds have

been defined and are in the process of implementation.

Concerning the Community’s own resources, further alignment of existing legislation on

sugar will be necessary, also as concerns warehouse provisions. Further progress towards

full alignment for the calculation of the VAT resource is also required. Calculation

methods applied by Latvia on GNP largely correspond to ESA 95 norms, and work on

reaching compliance is ongoing.

In addition to the need for central co-ordination for the proper collection, monitoring and

payment of funds to and from the EC budget, administrative capacity should be

strengthened in the context of the relevant policy areas described elsewhere in this report,

such as Agriculture, Statistics, Customs, and Regional Policy.

3.2.

Translation of the

acquis

into the 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 Phare programme. With

the help of TAIEX, a centralised Translation Co-ordination Unit has been created in each

of the ten candidate countries of central Europe.

By mid-2000, roughly 14400 pages of the Official Journal had been translated into

Latvian, of which about 5200 were translated during the first half of 2000 alone. The

overall number of fully revised pages is slightly lower but almost keeping pace with

translation (in comparison, in early 2000, roughly 9900 pages had been translated of

which roughly 8400 had been fully revised). Work is progressing on the generation of

term equivalents for English and Latvian respectively. A complete database for the

translated

acquis

needs to be established. Most of the

acquis

translation so far has been

done for the Ministries of Agriculture, Finance and Welfare.

The translation of the

acquis

into Latvian and the translation of Latvian legislation into

English is assumed by the Translation and Terminology Centre (TTC), which was

established in 1996 and reports to the European Integration Bureau. The current staff of

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the centre includes the equivalent of 4.5 in-house legal revisers (some work part-time), 4

language revisers and 8 translators. A significant part of the work is carried out by

freelance translators. The budgetary situation of the Centre appears to be critical. The

freelance translators have been solely financed with support from the Phare programme.

According to calculations carried out recently, over

€4

million would be needed to

complete the translation of the

acquis

by the Government’s target accession date of 2003,

whereas the current national budgetary allocation for the Centre amounts to less than

€0.3

million annually. Considerable further efforts are required in this area.

3.3.

General evaluation

During the last year, Latvia has continued to make steady progress in aligning its

legislation to the

acquis

in most areas. While overall progress in terms of strengthening

the administrative capacity has been more limited, Latvia nevertheless undertook efforts

to re-structure and reinforce its institutions in several sectors, and decided to establish

several new bodies in line with the provisions of the

acquis.

Good progress could again be noted as concerns the

Internal Market,

in particular with

the adoption of legislation on conformity assessment, market surveillance and public

procurement, as well as Laws on Personal Data Protection and on Copyrights, the

Commercial Code and the liberalisation of many restrictions on capital movements. On

this basis and in line with the requirements of the

acquis,

it will now be important to

further develop the necessary institutional structures, including a reform of the market

surveillance authorities, the establishment of a Public Procurement Surveillance Bureau

and an Independent Data Protection Inspectorate. Little visible progress was made during

the last year concerning the enforcement of intellectual property rights, which remains an

issue of major concern. In the areas of

customs and taxation,

encouraging steps have been

taken to strengthen the administrative structures, and these efforts should continue.

While some steps both in terms of alignment and of strengthening the administration

were taken in the area of

agriculture

during the last year, only limited progress has been

achieved overall, and the preparations for the integration of Latvia’s agricultural sector

into the EC still remain in the early stages. As concerns

transport,

progress continued

during the last year in terms of alignment and also in particular in strengthening the

administration, notably by setting up an independent investigation authority for civil

aviation accidents and by restructuring the authorities in charge of maritime safety, where

efforts need to continue in order to achieve concrete results. For the

environment,

further

progress related to the adoption of legislation has been achieved, notably as concerns

environmental information, nature protection, waste management and GMOs, and some

efforts to strengthen the administration were also made. Much work still lies ahead,

however. Good progress in legal alignment was also made in the field of

consumers and

health protection.

Regarding

justice and home affairs,

progress was achieved concerning visas and the

upgrading of law-enforcement bodies. Latvia also made considerable efforts in border

control during the last year, and these should be sustained. Alignment needs to be

completed for migration and asylum, and several international conventions still need to

be acceded to. Significant further steps will also be necessary to ensure the full

enforcement of all provisions. In the field of

financial control,

Latvia made particular

efforts during the last year, especially as concerns internal financial control, for which the

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administrative structures have also been reinforced. Efforts should continue, most

specifically in the field of the control mechanisms for pre-accession funds.

In certain areas, progress in alignment has been less forthcoming. These include the

free

movement of persons

and

telecommunications and information technologies,

where the

transposition of most of the requirements of the

acquis

is still pending. As to

social

policy and employment,

some efforts were made to move forward but key legislation has

still not been passed. As concerns

regional policy,

Latvia’s preparations for accession to

the EU still need to be reinforced.

Latvia has already been relatively successful in building up its administration in a few

areas of the

acquis.

These include the Internal Market, where for example the institutions

in charge of the banking sector or competition policy and state aids have already gained

valuable initial experience. For most sectors, however, important challenges still lie

ahead. In areas including agriculture, the environment, social policy, justice and home

affairs as well as regional policy, the Latvian authorities responsible are not yet in a

position to manage the

acquis

in a satisfactory manner. In general, the strengthening of

the Latvian administration needs to continue in all areas in parallel and complementary to

the general public administration reform process.

During the last year, Latvia has started to address almost all of the relevant short-term

priorities of the 1999 Accession Partnership, and has already achieved a certain degree of

success in most cases. This includes in particular the adoption of several pieces of key

legislation in the Internal Market and of framework legislation in the environment sector,

as well as work on the modernisation of the tax and customs administrations, efforts

related to maritime safety and the upgrading border posts. Work should now continue on

all short-term priorities in order to fulfil them as soon as possible. Those parts of the

short-term priorities for which no visible progress has been made so far should be

focused on as a matter of priority. Apart from a few specific aspects in the Internal

Market field, this, for example, includes priorities related to employment and social

affairs, as well as to justice and home affairs.

Latvia has already started to work towards meeting some of the medium-term priorities

of the 1999 Accession Partnership, including in the areas of audiovisual policy, consumer

protection, energy and transport.

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C. Conclusion