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Europaudvalget 2000-01
EUU Alm.del Bilag 244
Offentligt

FROM THE COMMISSION

ROMANIA’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 Romania................................ 7

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

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

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

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

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

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

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

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

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

1.1. Democracy and the rule of law .................................................................... 15

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

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

The judicial system.................................................................................................... 17

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

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

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

Economic, social and cultural rights ......................................................................... 23

Minority rights and the protection of minorities ....................................................... 24

1.3. General evaluation ........................................................................................ 25

2. Economic criteria................................................................................. 26

2.1. Introduction................................................................................................... 26

2.2. Economic developments ............................................................................... 26

2.3. Assessment in terms of the Copenhagen criteria ....................................... 28

The existence of a functioning market economy....................................................... 28

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

Union ......................................................................................................................... 33

2.4. General evaluation ........................................................................................ 35

3. Ability to assume the obligations of membership............................. 36

Introduction ............................................................................................................... 36

3.1. The chapters of the

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

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

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

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

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

Chapter 3: Freedom to provide services........................................................ 41

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

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

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

Chapter 5: Company law ............................................................................... 43

Overall assessment .................................................................................................... 44

Chapter 6: Competition policy....................................................................... 44

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

Chapter 7: Agriculture................................................................................... 46

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

Chapter 8: Fisheries....................................................................................... 50

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

Chapter 9: Transport policy........................................................................... 52

Overall assessment .................................................................................................... 53

Chapter 10: Taxation ..................................................................................... 54

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

Chapter 11: Economic and monetary union................................................. 55

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

Chapter 12: Statistics ..................................................................................... 56

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

Chapter 13: Social policy and employment................................................... 58

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

Chapter 14: Energy........................................................................................ 60

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

Chapter 15: Industrial policy......................................................................... 63

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

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

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

Chapter 17: Science and Research................................................................ 65

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

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

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

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

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

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

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

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

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

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

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

Chapter 23: Consumers and health protection............................................. 72

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

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Chapter 24: Co-operation in the field of justice and home affairs .............. 73

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

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

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

Chapter 26: External Relations..................................................................... 79

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

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

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

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

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

Chapter 29: Financial and budgetary provisions ......................................... 83

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

3.2. Translation of the

acquis

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

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

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

D. Accession Partnership and National Programme for the

Adoption of the

Acquis:

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

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

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

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

2. National Programme for the Adoption of the Acquis ...................... 94

Annexes..........................................................................................95

Human Rights Conventions ratified by the Candidate Countries, September

2000 ......................................................................................................... 96

Statistical data ................................................................................................ 97

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A. Introduction

a) 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 Romania 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 Romania’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 Romania’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 Romania in translating the

acquis

into its official

language.

In line with previous regular reports, the present report:

describes the relations between Romania 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 Romania’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 Romania’s capacity to assume the obligations of

membership, that is, the

acquis

as expressed in the Treaties, the secondary legislation,

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

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

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

administrative capacity necessary to implement and enforce the

acquis,

as requested

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

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

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

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

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

capacity to effectively implement and enforce the

acquis,

and added that this required

important efforts by the candidates in strengthening their administrative and judicial

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

Council on its findings on the matter.

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

period until 30 September 2000. In some 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 also provides 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 Romania in preparing for accession.

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

acquis

criteria (including Romania’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 Romania’s economic

performance.

The report contains also a separate section examining the extent to which Romania 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 - in particular the

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

Institutions, as well as those from non-governmental organisations.

b) Relations between the European Union and Romania

Recent developments under the Association Agreement (including bilateral

trade)

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

the smooth functioning of the various joint institutions.

The Association Council met in March 2000.

Association Committee was held in October 2000.

The most recent meeting of the

The Joint Parliamentary Committee, comprising representatives of the Romanian and

European Parliaments, met in May 2000.

Recent indicators point to an improvement in Romania’s trade situation. Romania’s

exports to the EC have been steadily increasing. Exports in 1999 were

€

5.8 billion (a

growth of 12% compared to 1998). Over the same period, imports from the EC levelled

off at

€

6.3 billion. As a result, the trade deficit with the EC decreased substantially.

Amongst the Candidate Countries, Romania is both the EC's 6

largest destination for

exports and its 6

largest source of imports (1999 data). However, when the relatively

large size of the country is taken into consideration, the level of trade with the EC is low.

When weighted on a per capita basis, EC trade with Romania (both imports and exports)

is the lowest amongst all Candidate Countries. In 1999, Italy was Romania’s largest

trading partner, with 34 % of total bilateral trade between Romania and the EC followed

by Germany with 28% and France with 10%.

Light manufactures (textiles, clothing and footwear) make up 50% of Romania’s exports

to the EC. Amongst the Central and Eastern European countries, Romania is the largest

exporter of clothing products to the EC.

The import surcharge, introduced in 1998, is scheduled to be phased out by the end of

2000.

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 Romania. The

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

of the CAP.

The European Parliament

rapporteur

is Baroness Nicholson of Winterbourne

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The negotiations with Romania included the, so-called “double zero” option for poultry

and cheese. The regime entered into force on 1 July 2000 on an autonomous basis,

pending the conclusion of an Additional Protocol to the Europe Agreement.

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

a new agreement covering wine and spirits are underway.

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

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

fishery products.

Current discussions in the framework of the Europe Agreement focus on the

implementation of the Accession Partnership priorities (see below), and seek to achieve

progress in areas like excise duties, competition/state aid, customs procedures, the right

of establishment of EU firms in Romania, and the transition to the second stage of the

Europe Agreement.

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 May 2000 Romania presented a revised National Programme for the Adoption of the

Acquis

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

the priorities contained in the Accession Partnerships (further details are provided in

chapter D).

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 Romania will amount annually to at

least

€

242 million from Phare,

€

150 million from SAPARD, and between

€

208 and

€

270 million from ISPA.

A general concern with regard to the use of all types of pre-accession funding has been a

tendency for political considerations, as opposed to purely technical considerations, to

influence the management and allocation of funding.

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

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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 1990 – 1999, the Phare programme allocated

€

1.2 billion to Romania.

The

2000 Phare Programme

for Romania consists of a national allocation of about

€

250 million, dealing with a wide range of areas of activity under the following priorities:

Priority 1. Strengthening democracy and the rule of law (€ 13 million)

Support is

provided for the development of civil society and for strengthening the judicial system.

Priority 2. Strengthening the capacity to withstand the competitive pressures of the

internal market (€ 41 million)

Support covers energy sector liberalisation, the Inter-bank

payments system and securities market regulation.

Priority 3. Meeting the obligations of the

acquis

(€ 73 million)

Twinning, technical

assistance and investment is provided in the following areas: Internal market,

agriculture, public finance and statistics.

Priority 4. Economic and social cohesion. (€ 88 million)

Investment support is provided

to regional development programmes.

€

13 million has been allocated for a cross border co-operation (CBC) programme with

Bulgaria (€ 8 million) and Hungary (€ 5 million).

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

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

Approximately

€

22 million is allocated to Romania’s participation in

Community

programmes,

both for activities in the year 2000 and as pre-financing for the 2001

programmes. In 2000 Romania continued to participate actively in number of

programmes: Save II, SMEs, Leonardo da Vinci, Socrates, Youth, Equal Opportunities

and four programmes in the field of public health (cancer, AIDS, drugs dependence and

health monitoring). Culture 2000 and Life III are new programmes where Romania has

expressed its interest in participating. For the Fiscalis programme, the Association

Council Decision is under preparation.

An agreement has been reached on Romania’s participation in the European Environment

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

2001, Romania will become a member of the Agency.

The overall impact of Phare has been positive as regards the introduction of objective,

accession-related criteria into budgetary planning and the design of programmes of public

expenditure. This aspect is being reinforced by the introduction, from 2000 onwards, of

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stronger requirements for the co-financing of Phare programmes by national public funds.

The public administration at national level has benefited from skills transfer and

assistance for development of modern administrative systems required for adoption of the

acquis.

The implementation of Phare investment programmes has had a impact on

improving the management of public procurement, and is catalysing an important reform

of procedures for financial control.

In Romania, Phare has for example played a particularly important role in:

−

contributing, through the 1999 RICOP programme, to improved progress on

industrial restructuring through support for active labour market and job creation

measures in five zones hit by unemployment resulting from the closure of loss-

making state enterprises. RICOP, which has a total budget of

€

100 million, is closely

co-ordinated with the conditionalities of the World Bank and IMF programmes in

Romania, and covers measures including support for retraining of the workforce,

SME development, provision of social services and small-scale local infrastructure

projects.

−

providing opportunities for development of administrative and project management

capacities at regional and local level through a number of decentralised programmes.

Phare investment, combined with Romanian public investment and loans from the

international financial institutions, has begun to make a significant contribution to

upgrading public infrastructure in a number of areas.

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 Phare Review

Communication in 2000 continues to refine these basic management structures so as to

further bridge towards accession and the structural funds. First, management can be fully

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

Regulation 1266/99, regarding the implementation of effective national financial control

systems, 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.

The process of “deconcentration”, by which the Commission’s delegations assumed full

authority for control of the implementation of Phare programmes, has led to greater

effectiveness and flexibility in the processing of dossiers in Romania, resulting in an

increase in the total value of contracts concluded in 1999 to

€161

million, as compared

with

€86

million in 1998. However, it should be recognised that there are certain key

accession areas where the overall capacity, competence and motivation of the public

administration has been a constraint on the full and effective use of Phare resources.

The average annual expenditure under

SAPARD

will amount to

€270

million during the

period 2000-2006, of which

€153

million (at 2000 prices) will represent the Community

contribution from the EAGGF (European Agricultural Guidance and Guarantee Fund).

The Commission is currently engaged in a discussion with the Romanian authorities on a

draft National Plan for Rural Development, which will provide the framework for

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SAPARD implementation in Romania. The draft plan identifies four main priorities of

intervention: improving the competitiveness of food processing; rural infrastructure;

development and diversification of the rural economy; and development of human

resources. While these priorities are broadly in line with the SAPARD Regulation, and

may provide an appropriate long-term framework for support, a number of issues still

remain to be solved before the procedure for adopting of the rural development plan can

be approved (it was suspended on 25 July 2000).

The presentation of a revised version of the rural development plan has been made on 11

October and the procedure for approval by the Commission has been relaunched. This

will enable adoption of the rural development plan and the signature of the financing

agreement for SAPARD before the end of 2000 – which will in turn allow the

commitment of the 2000 Community allocation for Romania.

An important delay has also occurred regarding the setting up and the functioning of the

SAPARD agency. A Government Decision of September 2000 made the Ministry of

Agriculture responsible for setting up an Agency for implementation and financial

management. However, a coherent and comprehensive framework for implementation

of the programme has not yet been established. The accreditation of a SAPARD agency

will be necessary to allow the transfer of an advance payment of the Community

SAPARD allocation and the implementation of the rural development plan.

In comparison with other candidate countries, Romania lags behind in its state of

preparation for SAPARD funding and successfully addressing all unresolved issues is

therefore a priority for both the Commission and the Romanian authorities.

The annual allocation to Romania under

ISPA

€208-270

million for the period 2000-

2006. The sectors benefiting from ISPA are transport and the environment with both

sectors receiving around half of the annual allocation.

The ISPA programme is designed principally to support the central authorities in the field

of transport (the National Administration of Roads and the CFR railway company) and

the municipalities in the field of environment. ISPA co-ordination is the responsibility of

the respective line ministries (transport and environment).

An overall ISPA strategy in the field of the environment has already been adopted

between Romania and the Commission and Romania and ISPA; it will concentrate on the

'heavy investment' directives (mainly drinking water, treatment of wastewater but also

solid-waste management and air pollution) that are intended to bring Romania up to EC

standards. Two projects have already been approved by the Commission, namely the

Piatra Neamt Waste Management Programme and the Constanta Waste Water Treatment

Plant. A further eight investment projects, all in the field of water, are also likely to

receive support in the year 2000.

In the transport sector ISPA will concentrate on projects located on the Trans-European

Networks (TENs) in the field of railways, roads, ports and airports. An overall ISPA

strategy in the field of transport has already been adopted between Romania and the

Commission and Romania has proposed to concentrate on the upgrading of the Corridors

IV and IX (for both road and rail). Three projects have been approved for ISPA assistance

in 2000: widening the Bucharest-Giurgiu road to four lanes; construction of the

Bucharest-Cernavoda motorway; and upgrading of the Bucharest-Constanta railway line.

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By the end of the year 2000, Romania will have not only committed all of its year 2000

budget but also a significant percentage of the forthcoming years' budgets.

Implementation of the ISPA project will follow the same general institutional framework

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

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

responsible for the technical implementation. For the programming 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,

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.

Under Phare 1999, Romania benefited from nine twinning projects supported by the

Phare national allocation, as well as three additional projects financed from other Phare

facilities.

In the single market area, Germany was selected as the leading partner for a project

dealing with standardisation and conformity assessment infrastructures and Italy for

establishing a monitoring system for public procurement.

With social policy, France is the lead partner on a project to draft a national policy on

prevention of workers against risks on exposure to dangerous agents at work; Germany

and the Netherlands are assisting with the elaboration of a national action plan for

employment; Sweden is the lead partner involved in training the labour inspectorate; and

Germany is leading a project on the development of the institutional capacity of the

National and District Health Insurance Houses.

In other sectors, France is the lead partner for the improvement of the treasury

management system and Germany for competition and state aid. Three projects were

designed for justice and home affairs with Spain leading the border management project

and Italy the prevention of money laundering project. Finally, Sweden was chosen as a

leading partner for maritime safety.

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Under Phare 2000, an additional sixteen twinning projects have been designed, bringing

in more new sectors: statistics, free movement of persons, industrial policy and regional

development.

Despite the administrative difficulties in launching the twinning mechanism, the

implementation of the 1998 projects is well on track. As to the twinning projects from

Phare 1999, the covenants are under preparation.

The success of twinning projects in Romania depends on the national authorities’

contribution to smooth implementation. In addition to assigning adequate staff and

providing operational facilities, full participation of the senior management of the

beneficiary institutions is necessary in order to deliver meaningful institutional and policy

reform. The role of the National Contact Point for twinning should be better established

in order to allow them to take an active role in co-ordinating the twinning exercise and in

providing information to all line ministries.

Negotiations / screening

The analytical examination of the

acquis

with Romania (bilateral screening) was

completed by the end of 1999, including agriculture and those parts of justice and home

affairs that had not previously been covered. During the first half of 2000 the screening

was updated for 23 chapters in order to take into account recent progress in Romania as

well as the latest developments in the

acquis.

Accession negotiations were officially opened at the intergovernmental conference held

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

acquis:

small and medium-sized enterprises, science and research, education, external

relations, and common foreign and security policy. The accession conference held in

June 2000 decided to provisionally close all of these chapters.

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

for four additional chapters in the second half of 2000: statistics, culture and audio-visual

policy, competition policy, and telecommunications.

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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 Romania’s progress towards accession, the Commission

concluded that:

“Romania still fulfils the Copenhagen political criteria although this position will need to

be re-examined if the authorities do not continue to give priority to dealing with the crisis

in their child care institutions. The Commission will monitor closely recent decisions by

the government to provide the necessary budgetary resources and to carry out a structural

reform, which puts childcare in Romania on a secure and decent basis, and in full respect

of human rights.

The increased use of ordinances is a cause of concern and further measures are needed to

ensure the independence and efficiency of the judiciary. Other areas which still need

attention include the fight against corruption, where institutional responsibilities and

functions should be consolidated, and, despite some positive developments, the situation

of the Roma; where, despite severe general budgetary restrictions, adequate budgetary

resources should be made available and efforts should be made to fight discriminatory

attitudes in society.”

The section below aims to provide an assessment of developments in Romania 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 Romania’s ability to

implement the

acquis,

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

information on the development of Romania’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

On 14 December 1999, immediately following the Helsinki meeting of the European

Council, the President of Romania removed the Prime Minister and a new government

took office on 23 December 1999.

Local elections were held in June 2000. The elections were both free and fair although

certain difficulties in the organisation of the elections were reported. National elections

for both the Presidency of the Republic and for the Parliament are scheduled for 26

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November 2000, with a second round of voting for the presidential election, if necessary,

in December.

1.1.

Democracy and the rule of law

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

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

most significant developments over the past year.

The parliament

In 1999, only 59 of the 453 draft laws, ordinances and emergency ordinances submitted

to Parliament were adopted by the end of the year. This represents a significant decrease

in comparison to previous years. Reasons for the low level of activity by the legislature

include the fragility of the ruling coalition and the move of coalition members of

parliament to the opposition. Since the last regular report the ruling coalition has lost its

majority in the Senate. In 2000, this situation has not improved due to the demands

created by the forthcoming elections on both parliamentarians and parties.

One of the mechanisms used by the government to bypass this blockage has been the

issuing of ordinances and emergency ordinances. These ordinances enter into force

immediately and only need retrospective approval by the Parliament. This practice is a

matter of concern since legislation can be adopted before adequate consultation has taken

place and because Parliament’s powers to modify or reject the ordinances, without a time

limit being set for the examination of the ordinances, can lead to legislative instability.

The new government has enjoyed a better relationship with the legislature in spite of the

increasing fragility of the coalition. Recourse to legislating through emergency

ordinances has decreased but these remain an important tool of policy making. However,

the continued difficulties in passing legislation have stalled several important reforms.

In terms of administrative capacity there is lack of qualified technical support staff and of

databases in the legislature.

The executive

Weak policy co-ordination and consultation procedures continue to reduce the efficiency

of the government. Despite initiatives taken over the last year to reinforce policy co-

ordination the tendency remains for sectoral policies to be developed by “line ministries”

acting on their own. This is an issue that still needs to be fully addressed.

One initiative intended to address this problem was the establishment of the Economic-

Financial Co-ordination Council which acts as a policy unit assisting the Prime Minister

and the Cabinet. However, the Council's role has been limited due to the novelty of the

institution combined with a lack of human resources. A further initiative saw the

European Integration Department incorporated into the structures of the Ministry of

Foreign Affairs. This move has been successful in raising the level of inter-ministerial

co-ordination on European Affairs.

Concerning legislative procedures, legislation was adopted that aims to make the process

of drafting legislation quicker, to improve consultation procedures between ministries

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and other stakeholders, and to align domestic legislation with the

acquis.

However,

difficulties have been experienced with the implementation of this legislation: the

scrutiny capacity of many of the bodies consulted is limited and the option to define

certain initiatives as “exceptional cases” means that full consultation procedures are not

always followed. Consultation of social partners does take place but is often at too late a

stage in the legislative process.

With regard to improving the functioning of the civil service, the government adopted a

long awaited Civil Servants’ Statute in November 1999. This initiative fulfils one of the

short-term Accession Partnership priorities. The Statute is essentially in line with

European practices and covers many key areas: open and competitive access to the

administration; the setting up of a Civil Servants’ Agency; elaborating principles of

performance-related human resource management. The Statute, if fully implemented, will

be a step forward towards creating a more stable, professional and independent civil

service.

One of the key elements of the Civil Servants’ Statute has been the establishment of the

Civil Servants’ Agency. Details of its functions and operation were published in February

2000 and the tasks assigned to the Agency include: designing public administration

reforms (including a revised salary scale); monitoring the implementation/enforcement of

the Civil Service Statute; defining evaluation criteria for public servants; organising

training programmes; co-ordination of ministerial human resources development; and

keeping staff career records and other relevant data. The establishment of the Agency is a

positive step - but whether it is provided with sufficient resources and influence to allow

it to carry out its tasks successfully remains to be seen. This is an area the Commission

will continue to monitor closely.

In addition to legislative developments, a new Civil Service Ministry was established, at

the end of 1999, by merging the post of Secretary of State for Local Public

Administration with the Department for the Reform of the Central Public Administration.

In terms of public administration reform, the new ministry has limited control over inter-

ministerial co-ordination and has no effective decision making mandate. Consequently it

has yet to live up to expectations. The creation of this new ministry does not yet represent

progress in terms of administrative reform - an example being the fact that planned

reductions in staff levels have not yet been implemented. This remains an area where

considerable additional efforts will be needed.

The legal framework for decentralising power to local government had largely been

completed by 1999. During the period since the last regular report the main developments

have been related to the implementation of this legislation - which in several areas has

proved to be problematic.

The financial relationship between central and local levels of government remains

unclear and delays in financial transfers from central government have caused problems.

These difficulties can be partly explained by the need to become used to the new

administrative structures. However, in order to allow local authorities to manage their

budgets effectively, it will be necessary to establish transparent, objective and predictable

legal provisions to govern local finance. A related problem is that while new

responsibilities have been devolved to the local level these have not been adequately

matched by an increased capacity of local authorities to impose taxes or by corresponding

transfers from the state budget.

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The administrative capacity of local government is limited and in most cases there is a

serious shortage of the qualified staff needed to manage newly assigned tasks. This is a

serious difficulty that impedes the progress of reform in several important areas.

Particular problems exist with regard to the collection of local taxes. Local authorities

have been responsible for the collection of local taxes since January 2000, but their

ability to do so successfully has been limited by a lack of human capacity and the limited

legal sanctions at their disposal to deal with non-payment. Improving the administrative

capacity of local government should be addressed as a matter of priority.

The judicial system

The organisation and functioning of the judiciary have improved over the reporting

period thereby meeting one of the short-term priorities of the 1999 Accession Partnership

(although several of the specific measures identified in this document remain to be

addressed). The law on the organisation of the judiciary was amended in November 1999

creating special sections within the courts to deal with social security and labour law

issues. In addition, disciplinary measures can be invoked against judges who do not deal

with cases in due time. Further amendments have improved the status of the staff and

auditors at the National Institute of the Magistracy.

In October 2000, an emergency ordinance (which will enter into force in January 2001)

amended the Code of Civil Procedure. It introduces measures to speed up court

procedures and avoid unjustified delays. The ordinance also establishes a special

procedure for commercial cases which involve a “substantial value”. In addition, the

ordinance makes the conciliation process obligatory in civil cases, simplifies the rules for

execution of civil case judgements, and introduces new provisions on the organisation

and functioning of judicial bailiffs.

The number of judges has increased from 2,706 in 1996 to 3,576 in September 2000. The

number of vacancies was reduced from 423 in 1998 to 173 in September 2000. The

resignation rate among judges has decreased substantially and the number of lawyers

applying for admission to the magistracy is now higher than the number of resignations.

There have also been recent initiatives to improve the training and recruitment of the

judiciary. As from academic year 2000/2001 the National Institute for the Magistracy will

be the sole entry point for a career as a judge. The subsequent year will see a transition

from a one-year training to a two-year training period. The number of candidates

admitted into the National Institute for the Magistracy has been steadily increasing: 75 in

1998, 109 in 1999, and 144 in 2000. At the same time, EC law has been given a more

prominent place in the training programmes for both judges and prosecutors.

In-service training of judges and prosecutors is currently carried out by the National

Institute for the Magistracy and the Romanian Association of Judges. From autumn 2000

the National Institute will provide in-service training in two regional centres and a further

regional training centre is planned. The Ministry of Justice has also developed a human

resource strategy for court staff and the staff of the ministry which aims to introduce

objective criteria for career development.

A further positive development has been the steady decrease in the number of files

pending in courts – although further work is necessary. At the beginning of 1998 the

number of pending files in civil cases in the courts was 357,307, and in 1999 was

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284,942. By July 2000, this number had been reduced to 173,056. In penal cases the

pending files decreased from 84,981 in 1998 to 69,750 in 1999 and to 57,661 by July

2000.

Progress has been made in the computerisation of the courts. It is important that the

implementation of the ambitious plans that exist in this area is continued and that these

plans are accompanied by an overall modernisation of the functioning of the court

system.

Concerning the independence of the judiciary, the Ministry of Justice continues to have a

significant influence over judicial appointments and this is an issue that remains to be

addressed. However, a revision of the law on the remuneration of judges has both

strengthened their financial independence and increased the attractiveness of the

profession. The incomes of judges have increased substantially and are equal to the

highest incomes in the public sector.

In conclusion, it can be noted that important progress has been made in improving the

functioning of the judiciary. This said, further measures are necessary to enhance the

administrative capacity of the Romanian judiciary. At present, technical skills in many

specific areas of law, including EC law, remain low. The availability of information

technology in the different judicial institutions is limited. The library and documentation

services are insufficient, as is the distribution of relevant case law. The Supreme Court

and the Constitutional Court are overburdened.

Anti-corruption measures

Corruption continues to be a widespread and systemic problem. It undermines not only

the functioning of the legal system but also has detrimental effects on the economy and

has led to a loss of confidence in public authorities.

A new law on the prevention and punishment of acts of corruption entered into force in

May 2000. This new law initiated a reorganisation of the bodies responsible for tackling

corruption. A special Anti-corruption and Organised Crime Unit within the General

Prosecutor’s office has been established and other institutional changes include the

reorganisation of the Squad for Countering Organised Crime and Corruption, (the central

structure specialised in countering organised crime and corruption). The National Office

for the Prevention and Fight against Money Laundering, which was established in 1999,

has been able to process a significant number of cases and deliver them to the General

Prosecutor’s Office for further investigation.

The new law also penalises private sector behaviour that distorts competition and

prohibits the improper awarding of contracts. It allows for the identification, investigation

and seizure of profits arising from corrupt activities (in line with the Criminal Law

Convention on Corruption of the Council of Europe). The law also permits corruption

charges to be brought against persons having a high position in a political party, in a trade

union, an employer’s organisation, a foundation or a non-profit association, as well as

international employees.

In 1999, a total of 381 public officials were sentenced for corruption which compares to

534 in 1998. A total of 168 sentences were passed against officials for corruption during

the first half of 2000. Concerning corruption in the judiciary, in 1999 the Superior

Council of Magistracy handled 14 disciplinary actions against judges. Four actions were

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rejected, eight were accepted while two are pending. Of the eight actions accepted, six

judges received disciplinary sanctions and two were removed from office. During the

same period six prosecutors received disciplinary sanctions.

Despite recent administrative changes, the division of tasks among the numerous bodies

involved in the fight against corruption remains unclear, and the co-ordination between

these bodies needs to be improved. The new legislation aimed at tackling corruption is a

first step in the right direction, but the levels of corruption remain high and further,

substantial actions will be required to address this problem. Romania has not yet ratified

the Council of Europe Convention on Laundering, Search, Seizure and Confiscation of

the Proceeds from Crime, or the Council of Europe Criminal and Civil Law Conventions

on Corruption. Romania also still has to ratify the OECD Conventions on Combating

Bribery of Foreign Policy Officials in International Business Transactions, and on

Bribery in International Business Transactions.

1.2.

Human rights and the protection of minorities

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

freedoms. The following section only concentrates on subsequent major developments.

Romania has ratified the major human rights conventions, with the exception of the

original European Social Charter (see annex).

Civil and political rights

Child Protection

The Commission’s 1999 Composite Paper on Progress Towards Accession by the

Candidate Countries reaffirmed the principle that institutionalised children’s access to

decent living conditions and basic health care is a human rights issue. Following a crisis

in child protection in Romania, the report stated that, in the Commission’s opinion,

Romania will only continue to fulfil the Copenhagen political criteria if the Romanian

authorities continue to give priority to dealing with the crisis in their child care

institutions. Addressing this issue also was identified as a priority in the 1999 Accession

Partnership.

The 1999 regular report urged the government to provide sufficient financial provision to

maintain acceptable standards of care. The Commission also recommended that a single

authority should be made responsible for establishing policies relating to children in care,

and for setting appropriate standards for all residential childcare institutions (including

homes for mentally and physically handicapped children). This authority should also be

made responsible for supervising and controlling the performance of all institutions in

accordance with the established standards.

In line with these recommendations, the government established a National Agency for

the Protection of Children’s Rights that took over policy responsibilities for

institutionalised children from the Department for Child Protection, the Ministry of

Education, the Ministry of Health, and from the Secretary of State for the Handicapped.

The Agency is directly subordinated to the Prime Minister and is responsible, at the

national level, for the elaboration, co-ordination and monitoring of reform policies. The

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transfer of management responsibilities for childcare institutions from the Ministry of

Education, the Ministry of Health and the Department of Handicapped Persons to the

County Councils took longer than expected and was only completed in July 2000.

The Agency is in charge of ensuring that agreed standards and levels of care are

implemented. Norms for standards and levels of care for several childcare services have

been established and agreed by order of the President of the Agency. A further initiative

has seen the adoption, in May 2000, of a National Strategy on the Reform of the Child-

care System, which sets out policy guidelines for the reform of the existing system. The

basic goals of the strategy are to substantially decrease the number of institutionalised

children and the number of children at risk of being institutionalised.

The transfer of budgetary allocations for childcare to the County Councils has proved to

be problematic. In response to the crisis situation in 1999, a budget rectification was

made in October 1999. Although the amounts allocated were generally considered as

being sufficient, the County Councils only received the actual allocations in December

1999. As a result, a considerable amount of funds remained unspent when the budgetary

year expired at the end of the calendar year. In 2000, the transfer of funding proved, once

again, to be a slow and complicated process and was completed in July 2000 when a

budgetary transfer was made to County Councils in order to cover the running costs of

the transferred institutions. A further rectification of the national budget was announced

in September 2000 and it can be concluded that the government has fulfilled its

obligation to provide the necessary funds for the child welfare sector in Romania. In

addition, the government has doubled the food allowance for institutionalised children.

Despite this, the situation remains difficult and temporary crises have occurred in a few

counties, due to mismanagement of funds. The Commission will continue to monitor the

situation in order to ensure that sufficient funding is provided to the institutions

concerned to allow an improvement in the actual living conditions.

Childcare institutions are still heavily dependent on humanitarian assistance provided by

foreign donors. In many cases, problems persist with a severe lack of funding, especially

for food, heating and maintenance. This is particularly true for those institutions which,

before the decentralisation, reported to the Ministry of Education (special schools) and

the Department for Handicapped (camin

spital).

Romania ratified the Hague Convention on Protection of Children and Co-operation in

respect of Inter-country Adoption in 1994. A number of signatories of the Convention

have expressed their concern with current adoption practices in Romania. The main

concern is that legislation on adoption appears to allow considerations, other than the best

interest of the child, to influence decisions on adoption. This system risks having a

negative effect on efforts to reform the child protection system in Romania.

In terms of administrative capacity, the National Agency for Protection of Children’s

Rights has insufficient staff to fully carry out its functions, especially its monitoring role.

Despite recent developments, further work is necessary. The organisational and

administrative capacity of the County Councils has to be strengthened, as the success of

the reform will depend of the capacity and commitment of these bodies. There is also a

general need to integrate childcare policies and social welfare systems in such a way as to

assist families, prevent abandonment and address the problem of street children in major

cities.

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Other issues

In December 1999, the Ministry of Justice presented a package of draft laws on justice

reform to the government. These proposals addressed many of the human rights reforms

identified in previous regular reports: making the judicial process more efficient; changes

to bring Romanian law in line with European standards (on issues such as decriminalisation

of homosexuality, domestic violence, libel, offence to authorities, and verbal outrage); and

new laws regarding the execution of punishments, probation and alternatives to pre-trial

detention. However, difficulties in finding sufficient support within Parliament have meant

that only the proposals dealing with probation and amending the Civil Procedure Code

have been adopted (through government ordinances). A considerable amount of important

legislation remains blocked in Parliament and further progress still needs to be made in

reforming legislation related to political and civil rights.

In September 2000, one important development was the introduction, by government

ordinance, of new legislation prohibiting

discrimination

by public employees,

individuals, private companies and economic operators on the grounds of nationality,

race, ethnicity, age, gender, or sexual orientation. Heavy fines have been established for

violating its provisions. This initiative is a very positive step – but both further

secondary legislation and revised institutional arrangements will be necessary before the

provisions contained in the ordinance can be applied. It therefore remains too early to

assess the effectiveness of this measure.

Some progress can be noted with regard to legislation on

refugees.

In July 2000,

Romania ratified the European Agreement on Transfer of Responsibility for Refugees

and amended the Refugee Law. The newly adopted amendments in the refugee law

rectify most of the omissions and introduce accelerated procedures and procedures for

obviously unfounded applications. However, the amended law does not contain

provisions on the detention of asylum-seekers, which remains an area that needs to be

addressed. In addition, no progress can be reported with revising the Aliens Law – a

revision that is necessary in order to establish an effective migration and aliens policy.

Freedom of religion

is guaranteed by the Constitution but, as mentioned in the 1999

Regular Report, the 1948 decree on religious denominations, which is still in force, is

outdated and in need of reform. In spite of efforts to draft revised legislation, no progress

can be reported in this area.

The constitution provides for

freedom of expression

and prohibits censorship. However, the

extensive use of legal proceedings against journalists has given rise to concern over the

freedom of the press. In response to this situation, the government modified the existing

legal provisions in order to make it more difficult to sue journalists. The requirement was

reintroduced of posting a fee equivalent to five percent of the damages claimed in order to

bring a civil libel suit. This fee is forfeited if the case is lost.

Laws penalising “offences against authorities” and “verbal outrage” can inhibit the freedom

of expression. Blockages in the legislative process means that no progress can be reported

since the last regular report.

The government has introduced a proposal to decriminalise homosexuality which has been

supported by the House of Deputies but has not yet been approved by the Senate.

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Conditions in

prisons

are slowly improving. The 1999 law on alternative sentences for

minor offences (community services instead of detention) has helped reduce the number of

people detained. However, facilities are still far below reasonable standards and are

severely overcrowded. The total number of detainees remains high: 49,790 at the end of

1999. Although this figure represents a small decrease over the figure for 1998 (52,149

detainees) it remains above the levels for 1997 (45,121 detainees). The proportion of the

total prison population made up of persons in pre-trial detention has diminished from 30%

in 1998 to 20% in 2000. Despite the limited developments over the last year, the levels of

pre-trial detention, overcrowding, and the lack of alternative measures are all problems that

still need to be urgently addressed.

There have been no significant developments in the demilitarisation of the police and cases

of inhumane and

degrading treatment

by the police continue to be reported by human

rights organisations. In response to concerns about the uncontrolled use of firearms,

standing orders have been issued by the General Inspectorate of Police that are aimed at

controlling the police’s use of weapons.

Trafficking

in women and girls for the purpose of forced prostitution is a growing

problem, worsened by active domestic prostitution rings. There has been no progress in

addressing these issues.

The process of

restitution of land

confiscated under the former Communist regime has

been slow. A law on restitution of agricultural land and forests was promulgated in early

2000 but the implementation of the law has proved to be complicated and is behind

schedule. In the case of other types of property (mainly real estate), proposed legislation

to clarify those instances where restitution/compensation is due has been blocked in the

Senate. Judicial practice in this area continues to lack uniformity and procedures are

cumbersome.

The Office of the Ombudsman deals with complaints lodged by persons whose civil

rights and freedoms have been infringed by the public administration. In 1999 the

institution received 4,379 complaints. Between January and September 2,000 the

Ombudsman received 4,321 complaints. A regional pilot-office has recently been

established with the aim of making the institution more accessible and raising the

awareness of the institution at the regional level. As with previous years, many cases

were rejected because they related to the judiciary and not the administration. However,

there was a marked increase in the number of cases accepted: in 1999, 1,199 cases were

found to be within the Ombudsman’s competence as compared to only 86 complaints in

1997 and 425 complaints in 1998. At present, 60 % of the complaints are accepted which

would seem to indicate a growing public awareness of the role and function of the

Ombudsman.

As with previous years, most of the complaints referred to alleged infringements of

individual rights in the process of restitution of land or residential property by

administrative bodies concerned. Other frequent cases concern children’s rights, abuse

committed by the police and violation of consumer rights by state-owned companies in the

public utilities sector.

In conclusion, and as mentioned in the last regular report, Romania continues to respect

human rights and freedoms. Important reforms have been made in several areas, including

the key area of child protection, but the Commission will continue to pay close attention to

ensure that the reforms are successfully and thoroughly implemented. In other areas further

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reforms are needed – most obviously in finding the necessary political support to adopt the

Ministry of Justice’s legislative proposals relating to human rights issues.

Economic, social and cultural rights

With regard to

equal opportunities,

some progress has been made since the last regular

report. The Consultative Inter-ministerial Commission on Equality of Treatment for Men

and Women was set up and, in March 2000, a Directorate for Equal Opportunities was

established in the Ministry of Labour and Social Protection. In the period under

consideration Romania has also signed the Optional Protocol to the Convention on the

Elimination of All Forms of Discrimination Against Women. At the same time, women

continue to be at greater risk of social exclusion than men, occupy few influential

positions in the private sector or in the political establishment and earn lower than

average wages. No progress has been made concerning equal pay and equal access to

employment, or health and safety at work (for pregnant women). Further efforts are

needed to promote the social and economic equality of women.

The increasing level of violence against women is a concern for the Romanian

government. Specific worries relate to domestic violence where the possibilities of legal

redress are limited and the police are often reluctant to intervene. Since the last regular

report a centre for assisting victims of violence has been opened but revised legislation is

also needed to facilitate prosecutions against the perpetrators of violence.

Some progress has been made with regard to treatment of the

socially vulnerable.

The

situation for handicapped persons was improved by an emergency ordinance that expands

the possibilities of tax holidays for economic units that hire handicapped persons.

Financing of social protection is ensured by the Special Solidarity Fund for Handicapped

Persons that was created in 1999. A National Council for the Elderly has also been

established and social assistance measures were adopted to support the elderly poor.

Trade unions

play a role in several official institutions. Nevertheless, legislation is often

approved without adequate consultation of the social partners and the tripartite dialogue,

set up under the Economic and Social Council, has been frequently bypassed when

drawing up legislation.

A new law on labour conflicts, promulgated at the end of 1999, defines different types of

labour conflicts and establishes procedures for their resolution. In the case of “interest

conflicts”, a strike may be initiated only after using the available arbitration possibilities

(negotiation, conciliation, and mediation). Participation in a legally constituted strike is

allowed. During a strike, employees maintain all their rights with the exception of those

linked to wage payments. The law also curtails the possibilities of initiating wildcat

strikes.

Limitations on the right to strike apply to industries that the government considers critical

to the public interest: several categories of personnel (prosecutors, judges, military and

personnel in military institutions) cannot strike. Others must deliver a minimum of

service.

Romania has ratified the core provisions of the Revised European Social Charter, which

are embodied in existing domestic legislation. However, the original European Social

Charter has not yet been signed.

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Minority rights and the protection of minorities

Roma remain subject to widespread discrimination through-out Romanian society.

However, the government’s commitment to addressing this situation remains low and

there has been little substantial progress in this area since the last regular report.

The 1999 Accession Partnership identified the development of a government strategy on

the Roma as a priority for Romania. In spite of this, work on such a strategy has been

delayed and preparations are still at an early stage. The newly established Inter-

ministerial Sub-Committee for Roma has met during the reporting period but proved

unable to produce any substantial results. A political memorandum was prepared by the

Department for the Protection of Minorities in conjunction with Roma representatives –

but despite being submitted in March 2000 it has not been approved by the government.

One of the few positive developments that have taken place over the last year has been an

initiative by the Ministry of Education to improve the Roma’s access to education by

reserving a limited number of places for Roma in high schools, vocational schools,

teacher training colleges and universities. The recent government ordinance prohibiting

all types of discrimination (see above) is also a potentially important development in

countering discrimination against the Roma community.

The National Office for Roma has extremely limited staffing and has limited budgetary

resources – even though the 1999 Accession Partnership identified the provision of

adequate financial support for programmes dealing with the Roma as a short-term

priority. The office needs strengthening in order to fulfil its function and this is an area

where further work will be necessary.

In contrast to the lack of development relating to the treatment of Roma, Romania

actively promotes a positive policy to protect other minorities, and linguistic and cultural

identities are safeguarded by the educational system. In 1999, amendments to the

education law created the legal basis for improving the use of minority languages,

including the possibility for linguistic minorities to establish state universities. Upon

request, national minorities now have the right to education in their mother tongue at all

levels of education. The history and traditions of each minority group have been

incorporated into the curricula and instruction materials and free textbooks have been

provided for compulsory education. At present, 5% of educational units teach in a

minority language. In the vast majority of cases this is Hungarian, although six other

languages are also used. A number of pupils from linguistic minorities who attend

schools teaching in Romanian are also offered the possibility of studying in their mother

tongue. In such cases a total of 15 minority languages are taught.

The last legal obstacles to the establishment of a multicultural university teaching in

Hungarian, German and Romanian (the Petofi-Schiller University) were removed when

the final appeals against the government’s decision to establish the university were

rejected. However, this extended legal process means that no progress can yet be

recorded on the actual establishment of separate multicultural universities.

In conclusion, the treatment of minorities in Romania is mixed. The lack of progress

with regard to tackling discrimination against the Roma is a subject which has been

raised in previous regular reports but which has still not been adequately addressed. On

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the other hand, a series of progressive initiatives have greatly improved the treatment of

other minorities.

1.3.

General evaluation

Romania continues to fulfil the Copenhagen political criteria.

The government has shown a political commitment to addressing the problems of

institutionalised children and progress has been made. Responsibility for the institutions

has been transferred to local authorities, a national strategy aimed at structural reform has

been adopted, and the necessary budgetary transfers have been made. Romania can

therefore be judged as having met the 1999 Accession Partnership’s short-term priorities.

However, the Commission will continue to monitor the situation closely to ensure that

these positive policy developments result in a comprehensive reform as well as an

improvement in the actual living conditions in the institutions concerned.

In the case of the treatment of the Roma, the continued high levels of discrimination are a

serious concern. The Accession Partnership’s short-term priorities still need to be met

(elaborating a national Roma strategy and providing adequate financial support to

minority programmes) and progress has been limited to programmes aimed at improving

access to education.

Continued improvements can be noted with regard to the functioning of the judiciary –

although the reform process needs to be continued and consolidated in line with the

short-term priorities of the Accession Partnership. Further progress still needs to be made

with regard to demilitarisation of the police and other bodies subordinated to the Ministry

of Interior (a medium-term Accession Partnership priority).

Romania’s democratic institutions are well established, but the process of decision

making remains weak. Despite the initiatives taken over the last year the government has

continued to rely on legislating by ordinances and consultation on draft legislation should

be substantially improved.

In terms of administrative capacity, Romania has met short-term Accession Partnership

priorities by adopting a law on the civil service and has set up a civil service agency.

These developments should be built upon through the development of a comprehensive,

public administration reform programme. Particular care needs to be taken to ensure that

decentralised responsibilities are matched by sufficient financial and human resources at

the local level. Little progress has been made in reducing the levels of corruption and

improved co-ordination is needed between the various anti-corruption initiatives that

have been launched.

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2. Economic criteria

2.1.

Introduction

In its 1997 Opinion on Romania’s application for EU membership, the Commission

concluded:

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

“would face serious difficulties coping with competitive pressure and market forces

within the Union in the medium term”.

This finding was confirmed in the 1998 and 1999 Regular Reports. In its 1999

Regular Report, the Commission found that:

“Romania cannot be considered as a functioning market economy and it is not able

to cope with competitive pressure and market forces within the Union in the

medium term.”

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

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

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

•

the existence of a functioning market economy;

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

Union.

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

Opinion, as well as in the previous Regular Reports.

2.2.

Economic developments

In 1999, for the third consecutive year, real GDP declined, at a lower rate than in the

previous years, and unemployment continued to rise. While Romania's macro-economic

situation has remained fragile and inflation has increased, there have been signs of a

gradual improvement. The large reduction in the current account deficit, the full and

timely repayment of all external obligations and the rebuilding of official reserves were

important achievements. The revival of exports and real GDP growth in the first half of

2000 are encouraging signs that the efforts of recent years might start to have a positive

impact on the economy. The agreement with the International Monetary Fund in June

2000 on the extension of the Stand-by arrangement led to a resumption of official lending

to Romania.

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Romania

Real GDP growth rate

Inflation rate

- annual average

- December-on-December

Unemployment rate, end-year

- ILO definition

General government budget balance

per cent of GDP

per cent

1996

3.9

1997

-6.1

1998

-5.4

1999

-3.2

2000 latest

2.1 Jan-June

per cent

38.8

56.9

154.8

151.5

59.1

40.6

45.8

54.8

49.9

Jun

40.9 June

per cent

6.7

6.0

6.3

6.8

8.4P Jan-March

-3.5

-4.4

-5.0

-3.4

Current account balance

per cent of GDP

million

€

-7.3

-2,025

-6.0

-1,884

-7.2

-2,647

-3.8

-1,223

-2.9 Jan-June

-0.451 Jan-June

Foreign debt

- debt export ratio

- gross foreign debt

per cent

million

€

81.5

6,366

89.5

8,139

83.5

7,282

78.6 E

7,558

Foreign direct investment in flow

- balance of payments data

per cent of GDP

million

€

0.7

207

3.4

1,071

4.9

1,812

3.1

977

2.1 Jan-June

319 Jan-June

P=provisional E = Estimates

The gains achieved in macroeconomic stabilisation have remained fragile because of the

lack of significant progress on structural reforms, in particular in the area of financial

discipline. While privatisation of small and medium-sized companies has continued at a

rapid pace, the authorities' ambitious plan to accelerate the privatisation and restructuring

of large loss-making public companies has proved very difficult to implement. Many

privatisation operations were initiated but only a few have been finalised, while others

had to be postponed or cancelled. The situation of the agricultural sector, by far the

largest source of employment, continued to deteriorate. Finally, the business environment

remained unattractive mainly due to legal, political and economic uncertainty, a non-

functioning financial system and unclear property rights. These factors contributed to a

decrease in foreign direct investments inflows.

PROXY HICP since 1996 (see methodological notes)

Moving 12 month average rate of change

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Main Indicators of Economic Structure in 1999

Population (average)

GDP per head

Thousand

PPS-

€

Per cent of

EU average

Share of

agriculture

in:

- gross value added

- employment

Investment-to-GDP

ratio

Gross foreign

debt/GDP

Exports of goods &

services/GDP

Stock of foreign direct

investment

End of 1999 data -

(Eurostat)

22,458

5,682

per cent

15.5

41.7

per cent

18.5

23.7

per cent

million

€

per head

30.1

5,496

245

2.3.

Assessment in terms of the Copenhagen criteria

The existence of a functioning market economy

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

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

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

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

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

of the economy.

The broad consensus on the need to establish a market-based economy has been

strengthened following the adoption of a Medium Term Economic Strategy in March

2000 and an implementing Action Plan in May 2000.

The strategy sets the broad

orientations for economic policy in the 2000-2004 period, with the overall objective of

meeting the economic criteria for accession to the European Union. It was elaborated in

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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co-operation with representatives of political parties, trade unions, employers'

associations and other representatives of civil society. At the time of the adoption of the

Medium Term Economic Strategy by the government, the President, the Prime Minister

and the leaders of the main political parties issued a political declaration in which they

reaffirmed their support to join the European Union and to implement the strategy. It is

now crucially important for the authorities to implement the necessary measures to

achieve the objectives set out in the strategy, starting with the short-term ones contained

in the Action Plan adopted by the government. This will improve the coherence of

economic policies, in particular between macroeconomic policies and structural reforms,

which remains one of the most pressing challenges.

Macroeconomic stability has improved in 1999 and early 2000, largely due to strict

fiscal and monetary policies, but it cannot yet be considered as secured.

Indeed, while

modest growth has resumed in early 2000, inflation has remained high and the

sustainability of the fiscal situation is still doubtful. The current economic recovery can

be attributed, to a large extent, to the acceleration of EU growth and to other external

factors. Its sustainability will depend upon improvements in domestic market conditions

and economic policies resulting in higher, better quality, investment. However,

investments in 1999 and 2000 have fallen, in a climate of uncertainty about the prospects

for sustainable recovery.

In 1999, real GDP declined by 3.2%, due essentially to a large fall in domestic demand.

Fixed investment dropped by almost 11% and private consumption by almost 5%. Tight

macroeconomic policies and a sizeable exchange rate depreciation were the main reasons

behind the fall in internal demand and the improvement in the external accounts. Only

external demand sustained overall economic activity, with exports of goods and services

up by almost 9% in 1999 and slightly lower imports. These trends have continued in

2000. In the first half of the year, real GDP grew by 2.1%, notably because of

stockbuilding and a 24% increase in exports of goods and services compared to the same

period of 1999.

The government tightened fiscal policy in 1999.

As a result, the consolidated fiscal deficit

fell from 5% to 3.5% of GDP (excluding privatisation revenues), and a primary surplus

(excluding interest payments) of 2.6% of GDP was recorded. However, it has proved

more difficult to continue with fiscal discipline in 2000 and, despite a similar headline

deficit, the primary surplus is foreseen to fall to about 2% of GDP. Significant increases

in public sector wages have been granted in some sectors, prompting calls for similar

actions elsewhere.

Putting public finances on a sustainable path remains one of the government's greatest

challenges.

Establishing fiscal sustainability will require a more robust approach to

structural reforms, as well as a further reduction in inflation and interest rates. Urgent

measures are needed to improve financial discipline among public sector companies, to

carry out important reforms in the social security and health care areas, and to set up a tax

structure which encourages compliance and supports business creation. Important

decisions on tax reforms were taken at the beginning of 2000, with a view to lowering tax

rates, broadening the tax base and increasing the transparency of the fiscal system. The

reform has led to a reduction of the overall tax burden, notably on business. However,

financial discipline has not made much progress. Arrears to the government have

continued to grow and repeated measures to reduce the amount of arrears or to incite

taxpayers to settle their dues on time have not been successful. In some instances, they

have even given the wrong incentives to taxpayers, for example by allowing "in kind"

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payment of tax arrears. In addition, the high interest charges on public debt, which

represented more than a third of State budget expenditures in the first half of 2000,

continued to put pressure on other expenditure.

Little progress has been made on reforms and transparency of public finances.

Pension

and health care reforms have not advanced significantly, and much remains to be done to

improve the transparency of fiscal policy and to increase the quality of public

expenditures management, in particular at the level of local governments. Tackling these

issues is crucial to ensure the medium term sustainability of public finances and allow

Romania to increase EU accession-related expenditures.

Inflation in 1999 was 45.8%, lower than in 1998.

Monetary policy has been

overburdened as the central bank has tried to pursue many objectives at the same time:

strengthening credibility of the currency, increasing the level of foreign exchange

reserves, tackling the problems of the financial sector, and controlling liquidity to reduce

inflation. The exchange rate fell by a third against the US dollar between October 1999

and August 2000, and by only 13% against the euro, implying a significant appreciation

of the CPI-based real exchange rate against the euro. The stop-and-go pattern of monetary

policy has been reflected in the evolution of real interest rates, which fell throughout

most of 2000, but increased again during the summer, on the back of higher nominal

interest rates. In September 2000, the one year interbank interest rate stood at around

50%. Inflation also accelerated, reaching 45.4% on a year-on-year basis in August 2000.

As a result, the government has missed its inflation target of 27%.

Unemployment measured according to ILO methodology, rose from 6.8% at the end of

1998 to 8.4% in the first quarter of 2000.

It could continue to rise as enterprise

restructuring accelerates. Total employment has continued to fall in 1999 and 2000.

Confirming the trend of previous years, employment has declined in construction,

industry and some service sectors, but has grown in agriculture. Higher agricultural

employment conceals, to a large extent, hidden unemployment and rising dependence on

subsistence farming.

In 1999, there was progress on one of Romania's main and persistent economic problems

- its relatively weak external position.

There was a major adjustment to the balance of

payments, including: a large reduction of the current account deficit, which fell by more

than 55% to about 3.8% of GDP; a fall in external indebtedness; and higher official

foreign exchange reserves. In 2000, exports increased by 26% in the first seven months

compared to the same period of 1999 and reached levels not seen since the beginning of

the transition. Imports have also increased, albeit at a slightly lower pace. As a result of

these trends, the trade deficit fell again. Combined with higher transfers, this led to a 39%

reduction in the current account deficit in the first seven months of 2000 compared to the

same period of 1999. The low and declining level of capital inflows, in particular of a

long-term nature, has remained the main weakness in Romania's external situation. This

reflects failing international investors' confidence. In the first seven months of the year,

gross foreign direct investment inflows showed a 13% reduction from the level of the

same period of 1999.

Most prices in Romania are liberalised.

Nevertheless, local administration and regulatory

agencies retain control over some prices, in particular of utilities and services. Failure to

adjust energy prices during most of the period under review created distortions and forced

large corrective price adjustments in the summer of 2000. In addition, the level of

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subsidies in agriculture and the fact that many companies do not pay their suppliers on

time distort market prices, which do not reflect production costs.

The liberalisation of the trade regime has continued, broadly in line with commitments

made in the agreements with the EC and CEFTA countries.

The number of temporary

import duty exemptions has fallen in 2000. However, import duties on some agricultural

products from Hungary were maintained and, contrary to its commitments made to the

EC, Romania has not abolished the import surcharge. Market liberalisation has

continued, albeit at an uneven pace. While progress was made in some areas, notably by

allowing independent electricity producers, new restrictions have been imposed that went

beyond legitimate and transparent public policy objectives.

The size of the private sector has remained about the same and, at the end of 1999, it

accounted for about 60% of GDP.

The informal economy is estimated to represent about

30 to 40% of GDP. The state continues to play a dominant role in the economy, through

its ownership of the majority of large companies, the excessive number of economic

regulations passed every year and the often non-transparent influence of the public

administration in the interpretation of these regulations. While progress has been made in

privatisation of small and medium-sized enterprises, this has not been the case for large

companies, which have a very significant influence on the entire economy. Only 15 large

companies were sold in the first seven months of 2000, a much smaller number than in

the corresponding periods of previous years and below the ambitious objectives set by the

government. Under the World Bank's Private Sector Adjustment Loan, preparations for

the privatisation of 64 large enterprises have started but the process has been much

slower than expected.

Business creation has remained seriously hampered by uncertainty about property rights,

significant and repeated changes in the legal and regulatory environment as well as by

difficulties to access financing.

Indications are that market entry has become more

difficult; the registered number of new foreign-owned companies fell in 1999 and in the

first months of 2000. While a better bankruptcy law was established and a new State Aid

law was passed at the beginning of 2000, market exit is not satisfactory in Romania. Too

many companies that are not viable have been allowed to continue their operations

because of the absence of hard budget constraints, poor corporate governance by the main

public investment funds, the reluctance to enforce state aids rules and the long and

difficult implementation by courts of bankruptcy legislation.

Most of the legal framework of a market economy is already in place, but the institutions

to enforce it are either weak or not yet established.

The frequent changes in regulations

and their discretionary interpretations by public officials remain a serious problem and

have encouraged corruption. Property rights are still not firmly and clearly established.

While 85% of agricultural land is already in private hands, full property titles still have to

be established, and as a result there is considerable uncertainty on the property rights of

agricultural land and forests. To tackle this issue, a land restitution law was passed at the

beginning of 2000, and the government took urgent measures in the summer of 2000 to

accelerate its implementation. However, implementation has proved considerably more

complicated than expected and, as a result, restitution will probably take many years.

This will delay making the investments needed to modernise the state farms. Forest

restitution is still much less advanced and the legal framework for forest-based activities

is not clearly defined either.

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The financial system does not play its normal role of channelling savings to investment.

Romania does not have a functioning financial system supporting the development of

economic activity and long-term investment. Due to a combination of weak economic

activity and poor confidence of the general public, domestic credit to the non-government

sector fell from 14.8% of GDP in June 1999 to 10.7% in June 2000. Although the

secondary market for domestic public debt has been established, financial markets have

remained underdeveloped and will remain so for as long as the economic climate does

not improve. In order to restore public confidence, further efforts are needed to strengthen

the legal and regulatory environment, to improve business practices and to enhance the

financial strength of local financial institutions.

A massive effort to restructure and improve the financial situation of the largest public

banks, with a view to their privatisation, continues to be made at a very large cost to the

budget.

This included selling and closing public banks and transferring all of their non-

performing assets to a state agency. As a result, the importance of the remaining public

banks has considerably declined but they still control about 45% of the banking assets.

The government has continued preparations to sell the remaining two large public banks,

which control about 35% of banking assets, before the end of 2000. However, the process

is facing delays, due to the lack of interest of foreign investors. The fragile financial

situation of the banking sector has required an increase in the spread between the average

lending and deposit rates from 10.4 percentage points in October 1999 to 13.5 percentage

points in June 2000.

Progress has been made to restore the health of the public banking sector, but the overall

financial sector has remained very weak.

The largest investment fund went bankrupt and

the largest of the so-called credit co-operatives suspended payments. A number of small

banks and credit co-operatives were closed down or went bankrupt. These foreseeable

problems had their origin in an incomplete legislative and supervisory framework for the

financial sector that fosters fraudulent activities and does not encourage transparent

behaviour. The authorities acted with determination, ensuring that the problems, which

culminated in May-June 2000, did not translate into a systemic crisis. Since then, they

have introduced legislation for the credit co-operatives and have forced a few private

banks to stop their activity. However, urgent measures are needed to strengthen the

supervision of the financial system, with a view to reduce fraudulent behaviour, and

improve corporate governance.

Romania cannot be regarded as a functioning market economy. The vulnerability of the

macroeconomic environment, the uncertain legal and institutional framework and the

uneven commitment to sustained reforms have hindered the development of economic

activity. Progress made on macroeconomic stabilisation has been undermined by

insufficient privatisation, the financial losses of the state-owned enterprises, the lack of

widespread financial discipline, and a growing black economy. Many of the institutions

required to ensure the effective functioning of a market economy are either absent or are

too weak to be effective. Although Romania has liberalised prices and trade to a large

extent, the markets for land and capital are not yet fully established and do not function

properly. The absence of a sound and well functioning financial system hinders economic

development. There is an urgent need to continue with the full implementation of the

programmes agreed with the International Financial Institutions and the EU, in particular

the privatisation of large enterprises and liquidation of unviable ones.

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

Union

As set out in Agenda 2000, Romania'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 absence of a functioning market economy combined with macroeconomic instability

are serious obstacles that continue to hamper the development of economic activity –

particularly the development of the private sector.

The right conditions for sustained

investments in business, infrastructure and human capital, which are needed to meet the

challenges of modernisation and integration of the economy into the EU, have not been

established.

Romania has a low participation rate of students in higher education.

In addition, the

increased poverty of a large segment of the population, growing income inequality, and

the degradation of social, education and health care infrastructures are serious obstacles

for the development of human capital.

Basic transport infrastructure is limited, while in the case of environment it is either non-

existent or obsolete.

This situation is particularly problematic in rural areas, and reflects

low or inadequate levels of investment in recent years. The motorway network has not

increased in the last eight years. In 1999, gross fixed capital formation fell again, for the

third consecutive year, and stayed flat in the first half of 2000. The investment to GDP

ratio fell from 19.5% in the first semester of 1999 to 18.5% in the same period of 2000.

Given the level of development of Romania, only a strong and persistent increase in

investment, both private and public, can ensure that the country prepares for a successful

integration in the European Union and reaps the full benefits of membership.

Foreign direct investment declined strongly in 1999 and 2000,

after increasing in 1997

and 1998. It dropped by 19% in the first seven months of 2000 compared to the same

period in 1999. Romania continues to have a very low level of foreign direct investment

on a per capita basis. The decline of investment and low levels of foreign direct

investment are worrying indicators of the country's inability to modernise its supply side.

Steps have been taken to continue the restructuring of some industries, in particular

public banking, the mining and maritime sectors.

There have been instances of success in

such industries as textiles, furniture or electronic sub-contracting, demonstrating that

there is an untapped potential for economic growth. In addition, business practices have

improved and a few of the largest loss making companies have been closed or

restructured. The authorities have also devised an ambitious privatisation programme for

large companies and a restructuring process for the public utilities to be implemented

over the coming years. In the gas and power sectors, the restructuring process involves

the unbundling of activities in line with the provisions of the

acquis.

If the reforms are

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fully implemented, they could have a positive impact through an improvement in

corporate governance and a reduction in payment arrears.

Overall, restructuring remains far from complete and is still one of the most pressing

challenges for the authorities.

In the context of the agreements with the international

financial institutions, losses in public companies were reduced in 1999 and for some

mostly small and medium-sized companies the liquidation process has started. The

National Bank has also initiated bankruptcy procedures against some small banks and

revoked licences of others. However, a group of large and inefficient firms have been

allowed to survive with continued support from the state which has not been able to stop

them building up very considerable arrears to creditors, including workers, utilities and

government. By allowing these enterprises to continue their operations, the successive

governments have failed to create an appropriate structure of incentives for a thorough

restructuring of the supply side of the economy. Enforcing hard-budget constraints on

these companies must be a priority.

The restructuring of the agricultural sector will require sustained and determined

actions in the years ahead to ensure that it fulfil its full economic potential.

The complex

problems and unresolved policy issues facing the sector are presented in the relevant

chapter of this report. The economic problems include a low and falling productivity

level (notably because of the increasing proportion of the labour force working in

agriculture), an obsolete capital stock, unclear property rights, and weak market

institutions. Subsistence agriculture is increasingly dominating, while the privatisation

and restructuring of the large state farms is not progressing. In addition, the absence of a

viable system of financing for agriculture does not support the emergence of a modern

rural economy.

The European Community has continued to be Romania's largest trading partner,

although its relative importance as a trading partner declined.

In the first seven months

of 2000, the export share, at 64%, and the import share, at 57.8%, both declined

compared to the same period in 1999. Nevertheless, the volumes of exports, expressed in

euro, continued to increase, reflecting buoyant demand in the EU. Trade with the EC

continued to be dominated by sub-contracting arrangements in labour intensive industries

such as textiles and footwear. Following on the previous years' trend, trade shares with

CEFTA members expanded strongly. Romania's comparative advantage has continued to

shift towards industries with a large labour content, due to the relatively low labour costs.

In 1999, the average nominal wage, expressed in euro and in dollar, fell by 11.4% and

16% respectively; in 2000, it continued to decline in dollar terms, while it increased when

measured in euro (because of the depreciation of the euro against the dollar).

The remarkable increase in exports in the first seven months of 2000 needs to be

sustained by improvements in the supply side of the economy.

Price competitiveness has

been sustained by the delay in the adjustment of energy prices and a relatively stable real

effective exchange rate (when deflated by unit labour costs). However, the partial

reversal of these trends would effect the future competitiveness of Romanian exports. It

remains a considerable challenge to improve the supply side, continue with productivity

increases and prudent wage developments that will preserve the gains achieved in 1999

and so far in 2000.

Small and medium-sized enterprises represent the vast majority of enterprises and

employ around 39% of the labour force.

Most small and medium-sized enterprises are

very small and operate in trade and services. There are very few small and medium-sized

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companies in agriculture, industry and construction. It is important to encourage the

development of small and medium-sized enterprises in order to absorb the large number

of workers made redundant in the restructuring of the large enterprises and agriculture. In

this context, the improvement of the business environment and in particular the

simplification and transparent implementation of economic regulations, as well as better

access to financing are a matter of urgency

(see also chapter 16 – Small and medium-

sized enterprises).

Romania is not able to cope with competitive pressure and market forces within the

Union in the medium term and has not substantially improved its future economic

prospects. Macroeconomic stability has improved and exports have increased. However,

a very large part of the enterprise sector has either yet to start restructuring or is still in

the process of doing so. As a result of insufficient progress in the establishment of a

functioning market economy, investment has continued to fall, delaying the much-needed

modernisation of the supply side of the economy. Only the full and timely

implementation of the programmes agreed with the international institutions and of the

measures intended to meet the objectives set out in the Medium Term Economic Strategy

can create a sound basis for economic development.

2.4.

General evaluation

Romania cannot be regarded as a functioning market economy and is not able to cope

with competitive pressure and market forces within the Union in the medium term. It has

not substantially improved its future economic prospects.

Romania has made some progress on macroeconomic stabilisation; growth has resumed

and exports have increased. Romania has adopted economic programmes and strategies,

in agreement with the international financial institutions and the EU. The wide political

consensus on the Medium Term Economic Strategy shows that there is a clear awareness

of the need for economic reforms.

However, there are serious difficulties in implementing these agreements as well as in

deciding on key medium-term reforms. The fragile macroeconomic environment, the

uncertain legal and institutional framework and the uneven commitment to reforms,

continue to hinder economic development. Many institutions required to ensure the

functioning of a market economy either do not exist or are too weak to be effective.

Insufficient reforms and a growing black economy have undermined progress made on

macroeconomic stabilisation. The absence of a sound and well functioning financial

system hampers economic activity. A very large part of the enterprise sector has yet to

start restructuring or is still in the process of doing so. Investment has continued to fall,

delaying the required modernisation of the supply side of the economy.

There is an urgent need for the full and timely implementation of the programmes agreed

with the international institutions and of the measures to meet the objectives of

theMedium-Term Economic Strategy. Priority should be given to improving financial

discipline, and creating a more transparent and business-friendly environment. The

acceleration of large enterprise privatisation and restructuring as well as the

implementation of social security and health care reforms are urgently needed to ensure

stability of public finances.

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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 Romania’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 Romania’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

Romania’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 Romania 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 Romania’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 :

“Alignment in the internal market area is only partial and despite some important

achievements Romania needs to step up the pace of transposition and implementation in

this area. Significant progress was made with the adoption of a law on public

procurement as well as in the banking sector and regarding financial control. Some

progress was made in standards and certification but the lack of overall framework

legislation is impeding progress. Although the bankruptcy laws have been amended

frequently they are still not aligned.

An important step forward was made with the adoption of a new law on state aid control.

Implementation in line with the

acquis

will be important as state aids continue to be

A description of the

acquis

for each chapter can be found in the Commission’s 1997 Opinion on

Romania’s application for EU membership.

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important in certain sectors of the economy. The transformation of the

regiés autonomes

into commercial and public companies was also an important development although

further progress is needed in the commercialisation of former state monopolies. There

has been some progress in agriculture although land registration remains slow and is

holding back the development of more modern farming. There is a need for further

alignment of veterinary controls, in particular at border crossings, and to upgrade the

agri-food industry. There has been significant progress in legislative alignment in the

transport sector but greater attention needs to be paid to maritime and road safety. In

general Romania seems to give low priority to the environment and there are serious

problems in the air, water and waste management sectors. There is a need to focus

greater political attention on this sector and to develop realistic cost assessments and

investment plans. In the area of justice and home affairs there has been progress in

justice, and to some extent, in border management, although important investments are

still needed, and with regard to the police and immigration. However, there is a need to

accelerate work in areas such as asylum and drugs control.

Lack of funds and weak administrative capacity continue to cause problems and there is a

need to further develop capacity to identify, cost and implement key priorities if

Romania’s accession preparations are to accelerate. Public administration reform has

been identified as a priority, but has not started in earnest. Some key institutions (e.g. for

public procurement) still need to be set up and major efforts are needed in many sectors (

for example, environment and financial control) to bring the administration to a required

level of competence. There is a general need to ensure independence of regulatory and

supervisory bodies, including the Central Bank. While some measures have been taken

to reinforce the judiciary, the level of familiarity with EC law should be enhanced and

adequate technical facilities provided. The insufficient administrative capacity is

currently a major contstraint in the accession preparations.

While Romania has addressed certain aspects of the administrative capacity (regional

development) and the internal market (restructuring of the banking sector, public

procurement, state aids) short term priorities of the Accession Partnership, certain aspects

of the justice and home affairs (fight against organised crime and corruption,

demilitarisation of the police and border control) and environment priorities have not

been satisfactorily addressed.”

3.1.

The chapters of the

acquis

As indicated, the review of Romania’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, Romania has made only limited progress in this domain.

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In the area of

horizontal and procedural measures,

no further progress has been made

over the last year in the implementation of

New and Global Approach principles.

Romania still does not have framework legislation introducing these principles into

domestic legislation. Nor can any progress be reported on the transposition of the

acquis

related to the

notification procedure

and the

interchange of data between

administrations.

Very little progress can be reported on the adoption of

sector specific legislation.

In the

areas covered by

New Approach Directives,

this lack of progress is linked to the lack of

framework legislation. This has delayed the implementation of the

acquis

concerning

toys, lifts, gas appliances, pressure vessels, electromagnetic compatibility, low voltage

appliances, medical devices, recreational crafts, and legal metrology. On the positive

side, the directive on construction products has been partially implemented through a

government decision adopted in the period under review.

As regards sectors covered by

Old Approach Directives,

some limited progress has been

made in the implementation of the

acquis

on chemicals – in particular detergents - and on

motor vehicles. In the field of pharmaceuticals, Romania adopted emergency legislation,

which is intended to provide a framework for the transposition of the pharmaceutical

acquis,

and three secondary legal acts on the basis of this emergency legislation.

However, the newly adopted emergency legislation is not in line with the

acquis.

Concerning foodstuffs, Romania adopted legislation which is intended to provide a

framework for the transposition of the foodstuff

acquis

and also some specific legislation

concerning food labelling and mineral waters The

acquis

on glass, for its part, has been

implemented by a government decision in May 2000. In contrast, no progress can be

reported on the

acquis

on pre-packaging, wood, and textiles.

As concerns the development of Romania’s administrative capacity for the

implementation of horizontal and procedural measures and sector specific legislation -

which is a short-term priority under the 1999 Accession Partnership - over the past year

some progress has been made. The Romanian Accreditation Body (RENAR) became a

full member of European Accreditation in November 1999. This is an important step

forward. The Romanian standardisation institution (ASRO) is moving forward with the

implementation of European standards and has so far transposed about 10% of European

harmonised standards. However, there are still institutional weaknesses concerning

conformity assessment bodies and laboratories. The overall administrative capacity to

implement the

acquis

on industrial products - which was assessed as low at the time of

the last regular report – has not improved over the course of the last year. Conformity

assessment bodies and laboratories are not yet in place or are not up to their future tasks.

Since the last regular report, no new developments have taken place as regards the

non-

harmonised sector.

Some progress can be reported in the field of

public procurement,

where the new

legislation, adopted in August 1999, entered into force on 1 September 2000. However,

out of the seven secondary legal acts which the Romanian authorities have envisaged,

none has entered into force so far.

The entry into force of the public procurement legislation, the adoption of framework

legislation on New and Global Approach, and transposition of some sectoral legislation

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on industrial goods are all short-term priorities in the Accession Partnership. These

priorities have been implemented to a very limited extent.

Overall assessment

On the whole, progress on the transposition of the

acquis

on free movement of goods

remains limited. A major source of concern is the persistent lack of framework legislation

on the principles of the New and Global Approach, which is also preventing further

progress on sector specific legislation in areas covered by the New Approach Directives.

As regards sector specific legislation for areas covered by Old Approach Directives,

further steps are required, particularly in transposing the

acquis

on motor vehicles, pre-

packaging, wood, and textiles. As to the administrative capacity in this domain, the

Romanian standardisation and accreditation bodies (ASRO and RENAR respectively)

have been in place for some years and continue to function appropriately. Major efforts

are required to improve the overall administrative capacity to implement the

acquis

industrial products, which remains very weak.

As set out in the 1999 Accession

Partnership for Romania, urgent progress is required in establishing conformity

assessment bodies and laboratories, and improving the capacity of those which already

exist to cope with their tasks. Furthermore, the capacity of the administration to design

legislation on free movement of goods is still limited and should be reinforced.

As regards safety checks on products at external borders, Romania still needs to establish

appropriate customs and market surveillance infrastructure as well as effective

administrative cooperation between competent authorities.

In the area of public procurement the entry into force of the new law constitutes

significant progress, although it is not fully compatible with the

acquis,

for example

concerning the domestic preference clause and the remedies system. Further efforts

should be made in adopting the necessary secondary legislation. The implementation of

the new legislation poses a considerable challenge for the administration. There is a good

understanding of the

acquis

at central level. However, the new public procurement

procedures need to be implemented by over 10,000 contracting public authorities from all

areas of public activity throughout the country: for example, regional governments,

public utilities, schools, and ministries. It is a significant challenge to make the staff of

all these institutions familiar with the new system and to ensure that the legislation is

properly and competently applied throughout the country.

Chapter 2: Free movement of persons

Romania has not yet made much progress concerning the implementation of the

acquis

this area, although there has been some progress in the period under consideration.

In the field of

mutual recognition of professional qualifications

some preparatory

measures were taken for recognition for professional purposes. In order to ensure

transparency of vocational qualifications, a tripartite body, the Council for Occupational

Standards and Attestation, which was first set up in 1997, was now in September 1999

legally established as an autonomous body. It is charged with i.a. elaboration of

occupational standards, developing a system for evaluation of vocational skills on the

basis of occupational standards, and certification of vocational skills. However, the status

of this council is unclear as the education law stipulates that the Ministries of Labour and

Education will jointly establish the mechanisms for the certification of professional skills

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and an ordinance of August 2000 on adult vocational training stipulates that training

providers may issue certificates of professional skills.

No particular progress can be reported in preparing for the implementation of the

acquis

citizen’s rights.

In the field of the

free movement of workers

Romania adopted a new law on work

permits, which speeds up the procedure of issuing work permits to EU citizens. Romania

is in bilateral negotiations with Member States on access for Romanian citizens to the

national labour markets and has already concluded one bilateral agreement with

Germany.

Work with a view to the future

co-ordination of social security,

in particular the

development of sufficient administrative structures and training of personnel, is at a very

early stage of progress. However, Romania has made progress with the entry into force,

in April 2000, of a new law on the public system of pensions and other social insurance

rights. This law allows a partial transfer of social security rights accumulated in Romania

to the social security system of another country.

Overall assessment

A number of positive developments have taken place with regard to Romanian legislation

in this area in the period under consideration. The recent simplification of the issuance of

work permits for EU citizens and the adoption of the new law on social security are two

important achievements. However, considerable further work is still required. A

significant build-up of administrative structures is necessary, in particular with a view to

the future co-ordination of social security.

Limited progress has been made on the mutual recognition of professional qualifications.

Some preparatory measures to facilitate the general recognition of the vocational

education and training have been taken but no national framework exists for general

recognition within the meaning of the

acquis.

Clarification of roles and responsibilities of

the institutional network is necessary in order to ensure the co-ordination and information

flow between all competent authorities. The list of regulated professions needs to be

finalised. As regards the recognition of qualifications for professional purposes, co-

ordination mechanisms between the various agencies and professional bodies should be

established.

Although some progress has been made in the area of free movement of persons, in

particular with respect to equal treatment, further alignment with the

acquis

will be

needed.

Steps will have to be taken to strengthen public employment services in view of future

participation in the EURES network, with particular emphasis on language training of

staff.

Overall, it should be recalled that there should be no provisions in Romania’s legislation

which contradict Community rules, in particular with respect to nationality, residence or

language requirements.

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Chapter 3: Freedom to provide services

In the last regular report, the Commission pointed out that Romania had already made

significant progress on the transposition of the banking

acquis,

while in other areas, such

as insurance legislation and securities markets legislation, more needed to be done. In the

period under consideration Romania has made further progress in this area, in particular

concerning insurance and banking supervision. However, the effective supervision of

financial services still has to be considerably strengthened.

On the one hand, as concerns

freedom of establishment

no progress can be reported

over the period under consideration. On the other hand, there has been some progress on

financial services.

Concerning

bank services

a government ordinance was adopted in

June 2000, which brings credit co-operatives under the prudential supervision of the

National Bank of Romania. This is a welcome development as credit co-operatives had

previously acted in similar ways to banks without being subject to the same supervision.

Other positive developments include the establishment of a credit information centre in

the National Bank of Romania, which will allow banks to obtain information on the

credit history of borrowers, and the setting-up of an embryonic early warning system for

bank failures.

In the period under consideration the Romanian National Bank has worked to improve

the implementation of the legislative framework for the banking sector, for example, by

applying bankruptcy legislation more strictly to banks in distress. However, as a number

of recent crises in the Romanian banking sector prove, more work needs to be done to

establish an efficient regulatory system for banks.

In April 2000, the Romanian Parliament adopted a new

insurance

law. The legislation is

largely in line with the

acquis.

Through the introduction of higher capital requirements,

the new law should promote the consolidation of the Romanian insurance industry, which

is currently characterised by a high number of relatively small and badly capitalised

companies. However, the new insurance law is not yet being fully applied. For example,

the Council of the new independent Insurance Commission has not yet been appointed,

although the law foresaw the appointment by June 2000.

There have been no developments concerning the transposition of the

acquis

investment services and securities’ markets.

No progress can be recorded on the implementation of the

acquis

on the

protection of

personal data

and the free movement of such data and the

information society

directives.

Overall assessment

Concerning the right to provide services, Romania continues to operate a system that

discriminates against EU citizens who do not have a residence in Romania. There is also

a continued discrimination against EU lawyers and law firms operating in Romania.

As regards financial services, Romanian legislation on banking generally has reached a

high degree of compatibility with the

acquis

and the transposition of the

acquis

has

continued during the period under consideration. However, the effective implementation

of this legislation is not fully assured.

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The transposition of the

acquis

on investment services and securities’ markets is only

beginning. Parliament has now discussed the new law on securities supervision for two

years without adopting it and Romanian securities legislation remains incompatible with

the

acquis.

In its regular report of 1999, the Commission noted that the administrative capacity of the

National Securities Commission, which is in charge of supervising the securities markets,

gave rise to concerns. No improvement could be noted during the period under

consideration. The Securities Commission’s capacity remains limited regarding the

number and experience of staff and regarding the means to gather and process

information about the supervised capital markets. The recent crisis of the largest

Romanian investment fund is a reminder of the unsatisfactory legislative framework and

administrative capacity in this area.

Romanian legislation on the protection of personal data remains inadequate, which is not

only problematic in view of the general process of approximation of legislation, but also

because of the importance of this question for other areas of the

acquis,

such as Justice

and Home affairs.

Further alignment with the

acquis

on insurance, securities, and banking are short-term

priorities in the Accession Partnership, for which only limited progress can be noticed in

view of the new Ordinance on cooperative banks and the new insurance law.

Chapter 4: Free movement of capital

In the last regular report, the Commission noted that Romania had already implemented a

part of the

acquis

on capital movements. Since then, progress has continued in this area

although at a slow pace.

In the area of

capital movements and payments,

the implementation of the three stage

liberalisation programme, approved by the National Bank of Romania in July 1999, is

due to be finalised by the end of this year. The National Bank of Romania has continued

to relax controls of capital imports. As of 1999, the National Bank of Romania allowed

loans with a maturity over one year by non-residents to residents and guarantees and

similar operations by non-residents to residents without prior authorisation. This measure

was taken in line with the National Bank of Romania’s long term plan to abolish

restrictions on capital transfers. No progress can be reported on the removal of other

restrictions on capital imports, such as the de facto exclusion of foreigners from most

issues of treasury bills. There has been no further easing on authorisations for capital

exports. In the period under consideration no further measures for opening the real estate

market have been taken.

Concerning the

payment

system infrastructure, the National Bank of Romania started

preliminary activities to introduce a real time gross settlement (RTGS) system.

In the period under consideration the National Office for the Prevention of

Money

Laundering

became operational. The office is in charge of implementing the law on the

prevention of money laundering, which had been adopted in April 1999 and which is

largely in line with the

acquis.

The office has started to establish reporting structures for

the institutions covered by the law and signed its first international co-operation

agreement with Slovenia.

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Overall assessment

The easing of authorisation requirements for capital imports has progressed.

However, practically all transactions involving capital outflows are still subject to prior

authorisation by the National Bank of Romania. Certain categories of Romanian

institutional investors, such as mutual funds and venture capital funds, are forbidden by

law to hold foreign assets.

No open restrictions exist for foreign direct investment and the participation of foreign

capital in privatisations. However, the share of foreigners in privatisations has declined

over the last year. An improvement of the transparency of the privatisation process will

be required to improve the possibility for foreign bidders to effectively participate in

privatisations.

The purchase of real estate by non-nationals is forbidden by the Constitution. There is an

exception for companies established in Romania, even if wholly foreign owned, which

are allowed to purchase land needed for the conduct of their business. The body in charge

of implementing the legislation on capital movements is the National Bank of Romania,

which has sufficient administrative capacity for the effective application of the

legislation.

Romania has started preliminary activities to modernise the payment infrastructure.

However, substantial efforts are needed to implement the

acquis

on payment systems.

Implementation of the new Romanian legislation on money laundering has started, but it

is too early to evaluate the quality of the implementation.

Chapter 5: Company law

In its last regular report the Commission noticed that Romania had already achieved a

high degree of compatibility with the

acquis

company law.

In the period under

consideration Romania has further aligned its legislation in this area, in particular by

means of an Ordinance on commercial registers and bankruptcy which was adopted in

January 2000.

Moreover, Romania has transposed most of the 4

, 7

, and 8

Accounting Directives.

National Council for Accounting Regulations was established in January 2000, which is

in charge of drawing up accounting regulations in accordance with the

acquis

and

International Accounting Standards. However, to date, this institution has not yet started

operating effectively.

In order to improve the knowledge about the new accounting system and to improve the

administrative capacity in this area, the Romanian authorities have launched a

programme to train accounting experts. The first 200 of these newly trained experts

graduated in autumn 2000.

Concerning the

protection of industrial and intellectual property,

a secondary legal

act dealing with registration of rights and procedures for investigations has been adopted.

In the field of industrial property Romania signed the Geneva ‘Patent Law Treaty’ in June

2000.

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The Romanian authorities have increased the number of interventions against suspected

product piracy and stepped up their efforts to train personnel. However, further efforts to

increase administrative capacity in this area are necessary.

Intellectual and Industrial property rights are a short-term priority in the Accession

partnership. Although Romania has made further progress in aligning itself with the

acquis,

the administrative capacity to implement intellectual property legislation remains

a point of concern and the priority can thus considered to be only partially fulfilled.

Overall assessment

Romania has achieved a high degree of alignment to the

acquis

in this area.

Romania has continued its efforts to transpose the

acquis

on company law and

accounting. Efforts to improve the capacity to effectively implement the

acquis

accounting have started, but need to be continued.

As concerns the protection of industrial and intellectual property the Commission stated

already in previous reports that Romania had already transposed most of the

acquis

and

the situation concerning legislation in this field remains satisfactory.

The bodies in charge of implementing legislation in this domain are the Office for

Inventions and Trademarks and the Romanian Copyright Office. While the administrative

capacity with regard to industrial property appears adequate, the Commission has

repeatedly pointed to weaknesses in the implementation of the legislation on intellectual

property. One of the main problems in this context is the import of pirated goods, which

border control procedures currently appear not to be able to prevent, and which lead to a

very high share of pirated goods in overall sales. In contrast, the domestic production of

pirated goods appears to be relatively limited.

The efficient implementation of border measures is urgent and the adoption of the border

measure legislation will need to be complemented by training of the customs authorities

and the police in order to be effective.

Chapter 6: Competition policy

In last year’s regular report the Commission pointed out the considerable progress made

on anti-trust legislation and a need to improve state-aid legislation. Since last year a new

state aid law has entered into force. Romania has introduced secondary legislation to

implement the new state aid law and on anti-trust issues.

In the field of

anti-trust

the Commission stated in its last regular report that Romanian

legislation was already largely in line with the

acquis

with regard to restrictive

agreements, abuse of dominant market positions, and merger control. In the period under

consideration Romania has introduced secondary legislation on block exemptions and

notification procedures.

However, further alignment is necessary, especially in view of developments in the

acquis

on vertical restraints.

The Competition Council, which is mainly in charge of issuing decisions on anti-trust

and state aid issues, and the Competition Office, which is mainly in charge of monitoring,

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are jointly responsible for the implementation of anti-trust legislation. The number of

cases they had to deal with reached 402 in 1999 after 171 in 1997 and 231 in 1998. Since

1997 the Competition Council made 58 decisions, against 40 of which appeals were

lodged in court. The courts upheld all the decisions of the Competition Council, except 2.

In the field of

state aid

the new state aid law, which was adopted in July 1999 entered

into force on 1 January 2000. This law is largely in line with the

acquis,

but a number of

secondary legal acts need to be adopted for its proper implementation. Since the

beginning of the year secondary legislation regarding the form and content of

notifications, de minimis rules, and the monitoring of aid has already been adopted.

However, secondary legislation concerning inter alia regional aid, fiscal aid notification,

sensitive sectors, rescue and restructuring guidelines, and block exemptions relating to

training and SMEs remain to be adopted.

In August 2000 the Romanian Parliament adopted a law on ‘industrial parks’, which

allows for significant state aid to companies established in so-called industrial parks. The

criteria established by the law for the creation of industrial parks and the financial

incentives given to companies in these parks do not appear to be in line with the recently

adopted Romanian legislation state aid nor with the Community competition

acquis.

The

Commission is concerned about the adoption of this law.

Overall assessment

Romania has made further progress in the transposition in the

acquis

in this chapter.

Further alignment with the EC competition legislation and the improvement of the

administrative capacity in this field is a short-term priority in the Accession Partnership.

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

acquis.

During the period under

consideration the legislative framework for anti-trust has been developed further by the

adoption of secondary legislation. The anti-trust enforcement authorities have dealt with

an increasing number of cases. The main challenge is now to ensure that the application

and enforcement of the anti-trust rules is effective and that priority is given to such cases

that concern the most serious distortions of competition. In order to achieve this, the

administrative capacity of the Romanian Competition Council and Competition Office

will need to be reinforced.

As concerns state aid the entry into force of the new state aid law on 1 January 2000 and

the subsequent adoption of secondary legislation is an important step forward. However,

the major challenge is to ensure that the legislation will be properly implemented and

enforced. The recent adoption of the law on ‘industrial parks’ is a major concern.

State aid reports have still to be submitted for the years 1998 and 1999. The latest report

broadly follows the methodology and the presentation of the Community’s Survey on

State Aid. Additional work is needed in order to finalise a comprehensive state aid

inventory covering all aid measures in operation in Romania.

In order to ensure a differentiation of maximum aid intensities in assisted areas, Romania

still has to prepare a regional aid map in consultation with the Commission.

As regards the administrative capacity of the State Aid Monitoring Authority

(Competition Council for controlling aid and Competition Office for monitoring and

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reporting aid), the new challenge of ensuring full and proper control of all aids will

require a further strengthening of resources and increased training.

Chapter 7: Agriculture

Agriculture accounted for 15.5 % of GDP in 1999, as opposed to 16.1 % in 1998.

Employment in agriculture represents 41.7% of the national labour force

and around

70% of the rural labour force. Romanian’s agriculture is characterised by the high

percentage of the labour force employed in the sector and the high contribution of

agriculture to GDP. The sector is also distinguished by the high level of non-marketed

agricultural production, the continuing dominance of state enterprises in upstream and

downstream industries, and the lack of export specialisation.

Farm output increased by 11.9 per cent in 1999

. While in 1999 cereal production

increased from 15 million tonnes to 17 million tonnes, livestock production has

stagnated. A severe drought affected Romanian agriculture during summer 2000. The

size of the damage is very considerable and the impact is expected to be felt on GDP

growth for the year 2000, as well as placing considerable strains on macroeconomic and

budgetary stabilisation. The impact of unfavourable weather conditions has been

aggravated by the absence of policy on irrigation and agricultural risk insurance.

EC imports of agricultural products originating in Romania increased to

€

227 million in

1999, while EC exports to Romania decreased to

€

264 million. Whereas in 1998 the

trade balance in favour of the Community amounted to

€

245 million, in 1999 it

decreased to

€

37 million.

Additional reciprocal concessions on agricultural products

under the Europe Agreement, including in particular the so-called "double zero" option

for poultry and cheese, were successfully negotiated and entered into force from 1 July

2000

(see also section A.b. – Relations between the European Union and Romania).

The domestic budgetary support for agriculture decreased in real terms from about

€

500

million in 1999 to about

€

330 million in 2000. This reduction can be seen as positive,

given the high cost of this support in relation to GDP in past years, and its ineffectiveness

in promoting the needed sector restructuring. The most important programme financed by

the budget is the voucher-for-inputs scheme that accounts for about 60% of total

assistance and provides social aid for small land owners. This scheme represents a

redirection of support policies away from state farms in favour of small producers, but

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

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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does not represent a satisfactory long-term support instrument. It should be replaced by

measures to assist the transformation of small-scale farms into viable holdings. Other

schemes include interest subsidies on credits (3% of total support), premia for prices of

agricultural products, subsidies for land reclamation and the irrigation system (8%), a

price subsidy for certified seeds, and a programme for maintaining the quality of

livestock through animal selection and reproduction.

Although important legislation on land restitution has been adopted, difficulties have

been encountered with its implementation. The required administrative and judicial

structures remain weak. Measures to facilitate the consolidation of land holdings through

improved titling, and facilities for sale and leasing, have been inadequate, resulting in a

high level of informal land-use arrangements. These represent a barrier to investment in

farms and efficient exploitation of agricultural lands.

Horizontal issues

As regards the implementation of rural development measures, Romania’s progress since

last year’s regular report has been slow. Difficulties were encountered in establishing the

main priorities of Romania’s rural development policy and in preparing the Rural

Development Plan defining the main objectives to be attained by SAPARD assistance.

Progress has also been slow in the area of legislation to constitute the legal basis for the

implementation of SAPARD and rural development support schemes and mechanisms.

A Government Decision of September 2000 made the Ministry of Agriculture responsible

for setting up an Agency for implementation and financial management of SAPARD.

However, a coherent and comprehensive framework for implementation of the

programme has not yet been established.

A ministerial order has been adopted regarding the animal identification and farm

registration system, which is partially in line with EC Directives and Regulations in this

area.

Since last year new legislation has been approved in the field of organic farming, defining

the rules for production, import and export, environmental protection, labelling,

certification and inspection system for organic products. Legislation in this area is now

largely in line with EC legislation.

Common Market Organisations

There has been little progress as regards the introduction of a legal framework and

administrative structures for the establishment of Common Market Organisations. To

support preparations for adoption of the

acquis

related to Common Market Organisations

the Ministry of Agriculture has established 16 product-specific working groups. Effective

implementation of Common Market Organisations will require significant progress to be

achieved in addressing the structural issues which impede the development of private,

market-oriented agriculture. Marketing standards in line with the

acquis

for wheat and

fruit and vegetables are being drawn up but are not yet mandatory.

Some progress has been made as regards the certification and protection of the

denomination of origin for wines. After approval of the law on wine and vineyards,

recent ministerial orders (of June/July 2000) put in place the National Office for

denomination of origin for wine and wine based products, set up standard forms for

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recording wine farms, vine-wine production and alcoholic beverages as well on the

approval of taxes charged in order to issue to the producer an authorisation to use a

denomination of origin and a certificate for approval of the right to trade wine bearing a

denomination of origin.

Rural development and forestry

No part of the rural development

acquis

and in particular the agri-environmental

measures has been implemented so far in Romania.

Veterinary and phytosanitary issues

In the

veterinary sector,

regulations have been adopted regarding the announcement,

declaration and notification of certain transmissible animal diseases and concerning

sanitary veterinary norms related to the licensing of plants and exporting products of

animal origin.

However, the effectiveness of specific items of legislation is undermined by the lack of a

coherent overall strategy for the implementation of the veterinary

acquis.

There is an

urgent need to develop priorities for the adoption of the

acquis

based on a realistic

assessment of the human and financial resources needed to implement specific policies.

The lack of such an assessment casts doubt upon the possibilities for implementation of

EC Directives on veterinary controls for animal health and meat products at the place of

origin. The effectiveness of disease surveillance activities is also undermined by the

inadequate attention given to the resource needs of veterinary laboratories. There has

been little progress in technical preparations concerning the design and implementation

of the animal registration system. Serious deficiencies were recently noted in the

operation of controls required under Community legislation concerning the export into

the EC of animals and meat products.

While the National Sanitary Veterinary Agency has demonstrated some improvement in

its administrative capacity, the Ministry of Agriculture should recognise the urgency of

substantially strengthening this body, and of making efforts to ensure that policies and

administrative procedures are understood and implemented at field level Capacity

building aimed at the effective implementation of EC veterinary Directives should be

considered a priority. An adequate strategy for the development of border controls should

be developed. Checks should be applied in a non-discriminatory manner.

Regarding the adoption of the

phytosanitary

acquis,

legislation was adopted on the

protection of plant variety rights, advancing the process of harmonisation in this area.

There has been progress in the adoption of legislation in the area of the quality of seeds

and propagating materials and phytosanitary control for imports and exports of seeds and

propagating material. Equivalence has been recognised for many varieties. However,

efforts are needed to strengthen the certification services.

For pesticide residues and the plant health regime further efforts are needed to prepare

legislation and develop the capacity to enforce the legislation.

Regarding administrative capacity, the functioning of the Phytosanitary Agency has

somewhat improved – although further work is still required.

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Overall assessment

Romania continues to face substantial difficulties in defining and implementing the

measures needed to permit the modernisation and sound development of its agriculture.

Slow progress with macroeconomic stabilisation and restructuring programmes is still far

from creating a favourable environment for Romanian agriculture and the diversification

of the rural economy. The slow pace of the transition towards market-based private

agriculture in Romania means that conditions permitting the implementation of much of

the EC agricultural

acquis

do not yet exist.

By 1999, the land restitution process had led to 85 % of the agricultural area being held in

private ownership, largely as family farms. However, the legal ownership of the land has

not been definitively resolved and the restitution process has resulted in a highly

fragmented land ownership pattern, which aggravates the problems of low income and

disguises unemployment in rural areas. Family farms are directed towards inefficient

subsistence agriculture rather than production for the market. Agricultural and rural

development on the basis of family farms has been hampered by the lack of consistency

in efforts to restructure upstream and downstream sectors.

The excessive fragmentation of agricultural production continues to generate substantial

problems in the agro-food chain, since collecting and handling produce from a multitude

of farmers is difficult and costly. Similarly, monitoring the quality of supply and

differentiating payments according to quality criteria is difficult. The market system

remains orientated towards servicing large-scale state farms. Policies aimed at the

development of market infrastructure, market transparency and price information, as well

as facilitating consolidation of larger private holdings through active land leasing and

selling, are urgently needed.

The privatisation of state owned farms has progressed slowly, with up to 15%of

agricultural land still under the control of around 500 state farms. Only a limited number

of state farms have been privatised to date, and the legal framework is still temporary and

unclear, reflecting a lack of political consensus on the issue. A number of the transactions

which have been completed have been contested on grounds of the lack of transparency

of privatisation procedures. Prolonged uncertainties regarding the future of the state

farms units continue to block investment in some of the potentially most productive land

areas.

Following adoption of the legislation on land restitution, the authorisation for

privatisation of forests may be initiated. The privatisation of forested land presents the

risk of clear-cutting for income.

The privatisation of state agro-processing enterprises has progressed in some sectors in a

manner which can be expected to contribute to the real restructuring of agro-food

industry. However, in some other sectors, including meat and fisheries processing,

canned fruit and vegetables and the dairy industry, the majority of the enterprises remain

state property. The privatisation process to date has shown an inadequate concern for

economic efficiency, and in some case a lack of transparency, resulting in the transfer of

enterprises to private sector owners lacking capital and management skills. The

approaches adopted for privatisation of grain storage enterprises have not favoured the

development of fully competitive marketing channels accessible to private producers.

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The transformation which is needed in the structure of the rural and agricultural economy

requires the elaboration of effective policies and programmes in a range of areas where

little consistent progress has been achieved to date. Policies to promote the development

of commercial and co-operative credit for small farmers and other participants in the rural

economy, and to support the formation of producers’ associations, are urgently needed.

The development of infrastructure and human resources policies in support of rural

development has hardly begun as yet.

The weakness in policy development capacity reflects an inadequate appreciation of the

efforts needed to create functioning agricultural markets and to strengthen basic market

institutions. Adequate and reliable agricultural statistics are not available to assess the

results of reforms undertaken so far and to formulate proper policy responses, and to date

measures taken to improve the quality of agricultural statistics have been inadequate. Co-

ordination between the concerned public bodies has been poor.

A specific effort, including the allocation of sufficient resources, is needed to prepare the

general agricultural census planned for 2002, which will provide the basis for the creation

of a general farm register, and to develop a coherent range of agricultural statistical

surveys.

With regard to the inspection and control arrangements for protecting the EU external

border, a particular effort will have to be made by the Romanian authorities to rationalise

the number of border crossing points and upgrade the main border crossings which will

remain on the future EU external borders.

The overall administrative capacity of the Ministry of Agriculture remains weak despite

some progress made by some of its subordinated agencies. Staff continue to be nominated

on the basis of political criteria. High turn-over and insecurity of staff and limited career

development perspectives have resulted in low motivation and a lack of continuity in

management.

Chapter 8: Fisheries

Some progress has been achieved in alignment with the

acquis

on fisheries. No

market

policies

for the fisheries sector existed in Romania until very recently and only fresh

water fish is traded at country level. Over the reporting period a framework for setting up

inter-professional associations was laid down by Government Ordinance and three

producers associations were created. A new Ministerial Order setting up procedures for

granting food processing licences includes a chapter dedicated to production of fish and

fish products, providing conditions for transportation of fresh, chilled and frozen fish as

well as processing conditions for canned fish.

Concerning

resource management, inspection and controls,

no specific control on

fishing activity is currently carried out due to shortage of necessary equipment and

structures. Preparatory steps in this respect were taken in 2000 through a Ministerial

Order on the creation and functions of an inspection system, and through a Government

Decision allowing for the inspection of fishing vessels’ activities by the Coast Guard.

Arrangements for preparation of statistics on the fisheries sector were established through

a protocol on co-operation signed in March 2000 between the Ministry of Agriculture and

the National Commission for Statistics.

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At present, fishing vessels are registered in the general national

fleet register.

The

requirement of the Common Fisheries Policy for a separate register of all fishing vessels

has not yet been met. The legal basis for the register was laid down by an Order of the

Minister of Agriculture and Food, whose implementation would bring partial conformity

with the

acquis

in this area. The Order foresees the establishment of a Register Office

within the Directorate for Fisheries, Fish-Farming and Inspections. The Register Office

would also be in charge of issuing the fishing licenses. Preparatory work has been

undertaken but considerable further efforts and resources are needed, and no completion

date has been set.

state aid

is granted to fishing activities and the fisheries sector is covered by the

general legislation on state aids.

Sturgeon

is a protected species for the Danube Delta and fishing quotas exist for its catch.

New conservation measures have been introduced in 2000 based on the prohibition of

fishing according to each species for certain periods and the introduction of some

technical measure to limit catch of the immature fish. A Ministerial order no 322 of

March 2000 set up the procedures for authorisation of import and export of

Sturgeon and

its products

according to the CITES Convention.

Romania is party to several

international fisheries conventions

(Berlin, Washington,

etc.) and is a member of CGPM / GFCM (General Fisheries Commission for

Mediterranean). A number of regional agreements (with Bulgaria, Turkey, Ukraine,

Russia) were previously concluded for the Black Sea, the Mediterranean and the Danube,

but most of them need to be re-negotiated.

Two ministries are engaged in fisheries management in Romania: the Ministry of

Agriculture and Food and the Ministry of Waters, Forests and Environment Protection.

This leads to a certain overlap of responsibilities.

Overall assessment

Further work is needed to align Romanian fisheries policy with the

acquis,

although the

importance of this sector in the Romanian economy has declined considerably. The

fishing fleet consists of about 14 deep-sea vessels operating in the Black Sea, together

with a large number of small fishing boats. Romania does not have any operational

“distant waters” fishing vessels. Annual catches have fallen from 268,000 tons in 1988 to

16,828 tons in 1999. Exports of fish and fish products are very small, while imports have

approximately doubled over the past four years, reaching 35,000 tons in 1999.

Freshwater fish farming produces 14,000 tons of carp annually. There are about 300

mainly state-owned fish farms (over 40 fish companies) throughout the country. Very few

fish farms have been privatised and the programme of privatisation of these farms has

been slowed down or halted. The private sector is small but growing.

The process of reform of the Fishery administration was initiated but needs to continue.

Appropriate resources need to be allocated to set up the structures and enforce legislation.

Short-term priorities in the sector include the setting up of a market monitoring

instrument, the improvement of statistical collection, and training and equipment for the

newly set up inspection. The establishment of a research strategy is also among the

Romania's short-term priorities in fisheries.

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Chapter 9: Transport policy

As regards transport, the 1999 Regular Report underlined the progress that had been

made in implementing the

acquis

and in restructuring the sector, but stressed the

importance of addressing specific issues like maritime safety and road charging.

In 2000, despite the economic crisis, Romania has been developing its transport

infrastructure and in particular the

Trans-European-networks.

Work to make Romanian

TINA road networks suited for 11.5 tonnes axle weight is in progress. After years of

delay, agreement has been reached with Bulgaria on the construction of a second bridge

over the Danube on the Southern branch of Corridor IV - although the financing plans

still need to be finalised.

As regards

land transport,

new legislation was adopted with regard to safety advisers for

transport of dangerous goods and supply of public services in road and inland waterway

transport. In the

road

sector, rules on driving licences and on admission to the occupation

of road haulage and road passenger transport operator were adopted. Local operators are

encountering financial difficulties to comply with the financial standing requirement.

The technical negotiations on the road transit agreement for the carriage of goods have

been finalised although the agreement still needs to be initialled and ratified. In April

2000, the multilateral European Agreement on International Occasional Carriage of

Passengers by bus (INTERBUS) was signed by Romania together with some other

countries and will be ratified in the forthcoming months. Its implementation will result in

partial alignment with road passenger transport

acquis.

As regards the system of road taxes and charges, Romania has announced its readiness to

phase out the existing discriminatory tariffs on international transit that apply to EU

hauliers when compared to those applied to Romanian hauliers. However, Romania

intends to charge lower taxes to Romanian hauliers that exclusively perform domestic

transport. No precise timetable has been given for removing these discriminatory

practices beyond a commitment to address these before accession.

Legislation on transport of dangerous goods by

rail

has been strengthened. Following the

division of the national railway company into 5 companies in early 1999 (management of

railway infrastructure, public railway freight, public railway passenger transportation,

management of excess assets, financial and accounting company), the restructuring of the

railways sector has been pursued further in 2000. For regional railway traffic, eight new

independent regional operators have been created. The CFR passenger transportation

company now only carries out national and international railway traffic. Two private

freight railway transport operators have been licensed.

Activities in the field of

inland waterway

transport have largely suffered from the

blockage of the Danube following the Kosovo crisis: 4000 crewmembers have been made

redundant out of a total of 5500. This situation deprives the inland waterway transport

sector of the financial resources necessary to further adapt itself to the EC

acquis.

Consequently, since cabotage presently constitutes the only activity for the Romanian

companies, foreign companies are not allowed to provide this service. As to regulatory

progress, only some rules on technical requirements for vessels were partly transposed.

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At the beginning of this year, provisions on certain types of

combined transport

goods entered into force.

As regards

air transport,

secondary legislation on licensing of air carriers, technical

investigation of accidents, and on certification procedures for planes and auxiliary

products entered into force. Romania has signed the Montreal Convention regarding air

carrier liability. Negotiations with Romania 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, were concluded at the end of last year. A

bilateral country protocol has still to besigned. In terms of administrative capacity,

Romania has to reform its own aviation organisation, including finding additional

financial and human resources. The privatisation of the Romanian Air Transport National

Company (TAROM) is underway and should be finalised by the end of 2000.

In 2000, Romania has made progress in adopting the

acquis

in the field of

maritime

transport

by a series of legal measures (vessels carrying dangerous goods, enforcement

of pollution prevention and shipboard living and work conditions). It is currently

strengthening the capacity of the maritime administrations, both as a flag and as a port

state. However, maritime safety remains problematic. According to 1999 statistics under

the Paris Memorandum of Understanding, the percentage of Romanian flag vessels

detained following port state control was 29.6%, which is three times higher than the

average for countries that have ratified the Paris MoU (this is to be compared to an

average of 3.6% for EU-flagged vessels), and which is deteriorating compared to 1998

(when the level of detentions was 20.9%).

The Romanian transport-related institutions show generally a good understanding of the

transport

acquis.

Their administrative capacity is rather good, with the exception of the

maritime administration.

Overall assessment

Romania has made significant progress with the transposition and implementation of

transport

acquis

during the last few years and particularly in 2000. While the technical

aspects related to transposition are not difficult issues, as the Romanian authorities are

completely willing to fulfil the European norms, the implementation of the different

adopted laws will be a longer and more difficult process. In the forthcoming year,

Romania will have to concentrate on the implementation of all the newly adopted

legislation, and securing adequate financial resources to implement heavy investment

directives.

However, even though this process is well advanced, a considerable amount of work

remains: particularly in the fields of fiscal harmonisation in road transport and maritime

safety as already mentioned in the 1999 Regular Report.

Further efforts are required to transpose and implement the

acquis

in the area of

professional and financial requirements for

road

hauliers, technical requirements and

safety legislation. Romania may have difficulties to bear the costs of retrofitting heavy

goods vehicles operating in the domestic market with speed limiting devices and

tachographs, and should establish a sound financing strategy with a detailed timetable. In

addition, the Commission will require a more detailed commitment as regards the

elimination of discriminatory road taxes.

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Concerning the

railway

sector, Romania has made significant progress with the

approximation of the

acquis

and the national railway company has been reformed. It is

recommended that the Romanian authorities rely on sound administrative structures and

ensure the necessary transparency when implementing the restructuring measures

acquis.

As regards

inland waterways,

the main target of the Romanian authorities is the access

to the river Rhine. The practical aspects for the compliance of the Romanian vessels with

the EC norms might be difficult, for economic reasons.

The effective implementation of the

air transport

acquis

might be difficult, especially

due to the technical aspects. Romania needs to strengthen its administrative structures in

this sector and establish an independent body for air accident investigations.

Flag state inspections as well as Port State control need to be considerably improved in

order to effectively implement the requirements under the different maritime conventions

and the EC

acquis

in the field of

maritime safety.

There is a lack of adequately trained

inspectors and technical equipment. A sound strategy for progressively removing sub-

standard shipping from the Romanian register should be drawn up and implemented,

focusing first on Romania’s obligations as a flag state and then as a port state.

Chapter 10: Taxation

In last year’s regular report the Commission pointed out that Romania had to make

efforts - such as reducing the number of VAT exemptions and increasing excise levels -

to further align its legislation with the

acquis.

The Commission also concluded that a

reorganisation of administrative fiscal structures should be undertaken. Romania has

since last year’s regular report made good progress on harmonisation of the legislation on

indirect taxation and taken some measures to improve the organisation of the tax

administration.

Since the 1999 regular report, further alignment of

VAT

legislation has been achieved

through two Ordinances that entered into force in January and March 2000. These

ordinances reduced the number of exemptions and the taxation of royalties and rents

related to the lands and constructions in the Free Zones has been submitted to the normal

regime. On the other hand some of those transactions which were previously taxed at the

reduced rate became exempt from VAT. Moreover, the scope of the zero-rate has been

expanded to some new areas and includes construction of new dwellings or buildings for

religious use and extension or consolidation of existing dwellings. Since March 2000 a

VAT refund procedure has been in force for foreign airlines and special schemes have

been introduced for second hand goods and tourism. The VAT regime on transactions on

immovable property has been aligned with the

acquis.

Although not related to the

requirements of the

acquis

- which only requires a minimum standard VAT rate of 15%

but does demand a specific standard VAT rate - it is a noteworthy development that

during the period under consideration a single VAT rate of 19% replaced the previous

standard rate of 22% and the reduced rate of 11%.

The

excise

system has been reformed through an Emergency

Ordinance,

which entered

into force in February 2000. However, the excise rates for all taxable products are lower

than the minimum rates in the EC directives. As to the mineral oils, the excise duty

coverage was extended to “M” (motorina – Diesel oil) type and “P” (petroleum) type

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fuels, motor oils, naptha, paraffin, vaseline and additives for petrol on 31 January 2000.

However, the Government Ordinance of January 2000 specifically exempts the “M” type

and “P” type fuels used for household consumption.

Regarding

direct taxation

the company profit tax is 25 % but a more favourable tax rate

of 5 % is applied for profits stemming from export activities.

As regards

administrative co-operation and mutual assistance,

on 1 January 2000 the

taxpayers' file system for legal entities, which was earlier implemented in five pilot local

administrations, was extended to the whole country and a new single tax return was

introduced.

Overall assessment

Although significant progress has been achieved on alignment of legislation on indirect

taxation, much has still to be done. The requirements in the

acquis

on legislation on

direct taxation are not met and the compatibility of newly introduced measures in this

area can be questioned. In spite of the measures undertaken to modernise the tax

administration, the effectiveness remains low.

Romanian VAT is generally speaking in line with the EC principles but the existing

legislation needs to be further amended and completed in order to fully comply with the

acquis.

Several of the remaining and new exemptions are not compatible with the

acquis.

As for the excise duties, changes have broadly aligned Romanian legislation with the

main principles of the

acquis

but it is to be noted that Romania is far from a complete

alignment in the area of excise duty minimum rates. In fact, Romania has made it clear

that on tobacco, alcohol and mineral oils full alignment cannot be achieved for several

years, due to the economic and social conditions of the country.

On direct taxation, a substantial harmonisation is still required. The special tax rate for

profits from export activities has to be examined for compatibility both with Community

rules and WTO rules.

The provisions in the conventions on the Avoidance of Double Taxation and the

Prevention of Fiscal Frauds are not sufficient to cover all the

acquis

in this field and no

special provisions concerning mutual assistance on recovering of debt claims exist in

Romanian law.

Particular attention should be given to improving the organisation, capacity and

effectiveness of the national tax administration. Although some measures have been

taken in this respect, much remains to be done on modernisation of the administration. A

serious problem is the delay in refunding VAT.

Chapter 11: Economic and monetary union

A detailed assessment of Romania’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

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the public sector to financial institutions, and independence of the national central bank).

As to the process of liberalisation of capital movements, the completion of which is a

condition of compliance with the EMU

acquis,

this aspect has been covered above, in the

section on

Chapter 4 – Free movement of capital.

No legislative progress can be reported in this field.

Overall assessment

Romania will participate in EMU upon accession with the status of a country with

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.

Significant progress is still required to implement the

acquis

in this area.

The law on the Romanian National Bank restricts

direct public sector financing by the

central bank

and prohibits

privileged access of the public sector to financial

institutions

and is partially in line with the

acquis.

However, further changes to the law

on the National Bank will be necessary to make it fully compatible with the

acquis.

As concerns the

alignment of the national central bank statute with the Treaty,

including the independence of the monetary authorities and the explicit adherence to the

objective of price stability, it should be noted that the law on the Romanian National

Bank gives it a high degree of autonomy from the government. The objective of price

stability is mentioned in the law, although the objective does not have the same high

priority as in the EU. A number of further amendments are necessary to the statute of the

Romanian National Bank to make it compatible with the

acquis.

As regards

administrative capacity, the Romanian National Bank seems to be well equipped to deal

with its tasks.

However, in the period under consideration there have been doubts as to whether the

Romanian National Bank has always acted fully within this legislative framework. For

example, it bought all treasury bills that were issued in order to recapitalise the Romanian

Commercial Bank and Banca Agricola and extended a large credit to the deposit

insurance fund, a public body. While these operations were aimed at preserving public

confidence in the financial system, they were not in line with the EMU

acquis.

addition, they have made it more difficult for the NBR to meet its inflation objective.

Finally, they have raised questions as regards the independence of the NBR vis-à-vis the

government. Thus not only the legal framework, but also the practice of monetary policy

making needs improvement.

Overall, Romania needs to make changes to the National Bank of Romania Law to make

it fully compatible with the

acquis,

improve macroeconomic stability, and strengthen

cooperation between the NBR and the Ministry of Finance in order to design more

coherent economic policies. The Ministry of Finance’s administrative capacity needs to

be strengthened significantly to allow it to play fully its role in this context.

Chapter 12: Statistics

In last year’s report the Commission pointed out that Romania has already made good

progress in the transposition of some areas of the statistics

acquis.

In the period under

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consideration Romania has further aligned its legislation to the statistics

acquis

and has

improved its administrative capacity in this area.

As regards

statistical infrastructure

the National Commission for Statistics (CNS) is the

main producer of statistics. It co-ordinates a number of other bodies, such as ministries

and regional government bodies, which also produce statistics. CNS’s regional offices

play an important role in the collection of data. In order to reinforce their administrative

capacity moves are under way to concentrate and strengthen regional offices. The

relatively low number of CNS staff combined with a high staff turnover has given rise to

concerns. Since the last regular report the CNS has tackled this problem and tried actively

to improve its capacity to recruit and retain skilled staff.

A new Government Ordinance, adopted in August 2000 and amending the law on

organisation of public statistics, will strengthen the administrative capacity in this area,

enhance the scope of activities and will help to bring Romanian statistics in line with

principles of Community statistics.

Concerning

demographic and social statistics

Romania has already achieved a

relatively high degree of compatibility with the EC system. However, household statistics

will need to be significantly redesigned. The next population and household census is

planned for March 2001. The legal basis for the census has been put in place and the

preparations for the census have begun. In the context of the preparation of the household

survey a pilot survey on the health status, based on administrative data, was carried out in

July 2000.

As concerns

regional statistics

the decision has been made to created statistics for the

newly created 8 regions (NUTS 2 level). A database for regional statistics is under

preparation.

As concerns

macro-economic statistics,

nearly complete accounts including input/output

tables are produced. However, the quality of macro-economic statistics still needs

improvement in areas such as GDP coverage statistics. Improved transparency and

communication in the production of macro-economic statistics will be vital in order to

increase confidence in them.

In the field of

price statistics

the CNS has started a two step plan to introduce the

harmonised consumer price index. The first step was completed in January 2000, with the

second step planned for January 2001.

In its last regular report the Commission mentioned that Romania had already achieved

much progress in the transposition of the

acquis

business statistics.

Tourism statistics

are one of the few areas in this context, where the situation is not satisfactory and where

no progress has been made since the last regular report. In general tourism statistics

should be made more independent from administrative sources, which may change.

External trade statistics

have achieved a high degree of compatibility with the EC

system. But no new developments can be reported in this area for the period under

consideration.

Concerning

agricultural statistics

a pilot survey has been carried out in 2000 to prepare

the general agriculture census, which is planned for 2002. However, the general level of

compliance of agricultural statistics with EC standards is low and no progress can be

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reported since the last regular report. Important efforts need to be sustained also requiring

the allocation of large financial means.

Overall assessment

Romania has already transposed much of the statistics

acquis

and has made additional

progress during the period under consideration. However, statistical coverage for a

number of areas still needs substantial improvement. This is particularly the case for the

agriculture and tourism sectors.

Administrative capacity continues to be hampered by organisational problems and a high

level of staff turnover. However, over the last year the CNS has taken steps to address

these problems.

Chapter 13: Social policy and employment

The last regular report recognised that only limited progress has been made on the

legislative side and that the overall pace of reform was slow. Since then, no significant

progress has been achieved in this area.

In the field of

labour law,

a law regarding labour disputes has been adopted which

clarifies: types of labour disputes, procedures for declaring strikes, and procedures for

registering, conciliating, and arbitrating labour disputes. With regard to the adoption of

EC provisions, no progress can be noted, pending the adoption of New Labour Code.

Regarding

equality of treatment,

a Consultative Inter-ministerial Commission on

equality of treatment between women and men has been set up in order to promote the

“mainstreaming” concept. However, with respect to equal pay, equal access to

employment, burden of proof and protection of pregnancy and maternity at work, no

legislative progress can be noted. With regard to the transposition of EC provisions, the

only development was the adoption of a law on paternal leave.

No progress has been made concerning legislation on

health and safety

at work. January

2000 saw the establishment of a new Labour Inspectorate. However, this body is still far

from being fully operational.

With regard to

public health,

EC tobacco directives are not fully transposed and no

measures in this respect can be recorded since the last report. In preparation for

participation in international monitoring activities, Romania has introduced the

obligation for health units to report to the Ministry of Health on epidemiological

problems. Through a separate Government ordinance an obligation for general

practitioners to report on a fixed list of diseases and to assure vaccination of children was

introduced. The legislation only partly covers the diseases that are included in the EC

monitoring network but does include an additional set of diseases where monitoring is

relevant for Romania. As regards AIDS, Romania has joined the EC network on HIV and

families, which allows for collaboration with EU-based NGOs, but this remains an area

where a considerable amount of additional work remains to be done.

New tripartite bodies have been set up for ensuring

social dialogue

in different fields. At

the same time, no progress has been observed with regard to social dialogue and

collective agreements at intermediary levels, especially at the sectoral level, which is

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hardly developed. Social dialogue and collective agreements are also very often absent in

private enterprises, especially new SMEs, (something that could impede the effective

implementation of the

acquis

in the area of social policy and employment policy). In spite

of the existing legal provisions, much legislation is still approved without adequate

consultation of social partners and without full consultation with the Economic and

Social Council.

The labour force survey indicates that employment grew marginally, by 0.3%, between

the first quarter of 1999 and the first quarter of 2000, following a decline of almost 2% in

the previous year. The employment rate in early 2000 has been estimated at just under

70%, significantly above the EU average. However, over recent years, aggregate

employment trends have reflected a high and rising share of employment in agriculture,

much of which represents under-employment in subsistence activities.

Work has started on the preparation of a National Plan for Employment and active

employment measures are carried out with support from the World Bank and from the

European Community, but no progress has been noted regarding the strengthening of the

administrative structures needed for future

European Social Fund type measures.

As regards

social protection,

the main legislative development has been the adoption of

a law concerning the public pension system and other insurance rights, which will

become applicable in April 2001. For a transitional period, a pension re-correlation will

eliminate the high discrepancies between pensions of people who retired in the 1980s and

newly retired people. However, the financial sustainability of the pension system is not

clear despite measures to raise the rate of contributions and to make them compulsory.

The National Solidarity Fund was established to provide a financial transfer from those

with high incomes to social assistance. A law establishing the National Council of the

Elderly has been adopted. A law on social assistance for the elderly and measures include

support for the families of the dependent elderly and actions to promote a more

independent lifestyle. An emergency ordinance, concerning the right to work of disabled

persons, contains provisions to improve access to the physical environment as well as a

decentralisation of specialised services.

The capacity of the system to deliver social assistance is hampered by lack of institutional

co-ordination, inadequately trained staff and insufficient budgets at local levels.

As regards the issue of

discrimination,

in August 2000, the government issued an

ordinance prohibiting all forms of discrimination including that based on race, religion,

gender or sexual orientation. The implementation of this legislation (which,

inter alia,

aims to transpose the provisions of the EC Directive, based on Art. 13 of the Treaty,

relative to discrimination on the grounds of race or ethnic origin), will require substantial

effort and continuous attention.

Overall assessment

Limited progress has been made with regard to the overall adoption of the

acquis

and

substantial problems remain. Particular efforts need to be intensified to complete the

legal and institutional framework and to build administrative capacity.

The scale of Romania's labour market problems is far greater than indicated by aggregate

data on employment and unemployment because of the extent of underemployment in

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agriculture. Necessary re-structuring of large public enterprises will pose additional

challenges in the future.

The adoption of a new Labour Code should be a priority for the government. Important

issues, such as protection of employee rights in cases of collective redundancies and

employer's insolvency are not yet fully addressed. A National Guarantee Fund for cases

of employers' insolvency should meet the requirements of the EC Insolvency Directive.

This is a short-term priority of the Accession Partnership.

The structures for social dialogue exist but are not accorded sufficient importance and

need to be used in a way that permits effective social dialogue. The Government's

capacity to monitor social dialogue should be reinforced and it should develop structures

for autonomous social dialogue as well as for the conclusion of collective agreements at

sectoral and enterprise levels. Support for building the capacity of the social partners is

one of the short-term priorities of the Accession Partnership and still needs to be

addressed.

A considerable amount of additional work is needed in the area of legislation on

occupational health and safety and in order to make the integrated Labour Inspectorate

operational. Continued efforts are needed to ensure efficient social protection measures,

although budgetary resources remain scarce.

Health standards remain a matter of concern in Romania. According to the WHO, the

infant mortality rate is extremely high in Romania. Life expectancy at birth is one of the

lowest in Europe and the natural population growth rate has been negative for several

years. Most health indicators show poor health compared to the state of health in the EU.

Reasons include low-income levels, environmental pollution, the low quality of housing,

a lack of proper drinking water, poor access to hygienic waste disposal, and the relatively

low quality of health care services combined with limited access to them.

Work remains to be done on the labelling of tobacco products. Further extension of the

monitoring of communicable diseases is also necessary.

In May 1999, the Romanian government ratified the main articles of the

Revised

European Social Charter.

Nevertheless, in line with the needs identified by the

Commission in previous documents, much remains to be done to strengthen the public

administration and enforcement structures in most areas of social policy and particularly

on health and safety at work, public health and labour market and employment policies.

Chapter 14: Energy

As regards energy, the conclusions of the 1999 Regular Report stressed that, although

some progress had been made in creating the appropriate legislative framework, Romania

had to step up considerably its efforts to prepare for integration. Since then, Romania has

put the emphasis on the implementation of the electricity and heating law adopted in

December 1998.

The

acquis

covering

security stocks and oil supply crisis management

measures has

still not been transposed. Romania has informed the Commission that it is maintaining a

minimum level of crude oil/oil products for 67.5 days. This is a good basis for meeting

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the requirements of the EC oil stock

acquis,

but there is no reliable oil stock monitoring

system or an agency to carry this out.

The restructuring of the

electricity sector

is ongoing: in July 2000, the generation,

transport and distribution activities of the former National Electricity Company (CONEL)

were separated into legally autonomous companies. The new company

TRANSELECTRICA has the responsibility for the operation of the transmission system,

and also fulfils the market operator role, through its branch OPCOM.

As regards transposition of the

acquis,

the National Authority for Regulation in the

Energy field (ANRE) has issued extensive secondary legislation on energy trade

arrangements and on tariff methodology. It has issued the first licences for supply,

distribution, generation, transmission and dispatching activities. Several eligible

customers have been accredited, and the first power generation company has been

privatised. Although ANRE is still understaffed, the salary levels have been substantially

increased.

Cross-subsidies between industrial and domestic electricity households were completely

removed. Cross-subsidies between electricity and heat were strongly reduced with a view

to phasing them out by the end of 2000.

In the

gas sector,

Romania has continued to transpose the

acquis

and established a

National Agency for Natural Gas Reserves (ANRGN) in January 2000. The Agency is

responsible for issuing licences, drafting operational legislation, establishing gas tariffs,

and monitoring the observance of competition rules. This new regulatory body should be

given adequate financial means and staff in order to be able to function properly.

The second stage of restructuring the gas sector was carried out in April by unbundling

ROMGAZ into five new companies responsible for transport, production, underground

storage and distribution (two companies). In addition, a Government Ordinance of

January 2000 established a competitive and transparent legal framework for activities in

the natural gas sector under conditions, and also regulated natural gas production,

transmission, underground storage, transit, distribution and supply activities. However,

concerns have been raised about the compatibility of this text with the Gas Directive. The

law fails to address the requirements of the Directive that separate accounts must be

produced for supply and transportation functions within a vertically integrated company

and gives an unfair competitive advantage to ROMGAZ. This Ordinance has to be

confirmed by Parliament, and these concerns should be addressed during the discussions

in the legislature.

Cross-subsidies between industrial and domestic gas households have been completely

removed.

In the

oil

sector, the implementation of the privatisation programme of the National Oil

Company "PETROM" S.A. has continued. A capital increase was completed. An

international auction was organised in the beginning of year 2000, but all the five offers

were considered unsatisfactory.

The work for interconnection to UCTE (the interconnected European power-exchange

network) is under way with the construction of a 400 kV sub-station, and with the

planned construction of a second 400 kV line interconnection with Hungary.

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Concerning transposition of the

acquis

energy efficiency,

Romania has made little

progress. The efficiency of the energy network and in particular of the heating systems is

very poor. Given the high-energy intensity of its economy (estimated at between two and

four times that of Member States), Romania should consider taking drastic measures to

improve its energy efficiency. In particular, the Romanian Agency for Energy

Conservation should be given the means to enforce a clear energy efficiency policy.

As regards the issue of

nuclear energy,

Cernavoda unit 1 nuclear reactor (a CANDU unit

of Canadian design) provides 9-10% of the country’s electricity. According to the

European Nuclear Society, Cernavoda 1 achieved good results in 1999 with only two

unplanned shutdowns. The construction of the second reactor is underway, but delays

have occurred due to difficulties to secure the financing. The Romanian nuclear operator

has applied for a Euratom loan of

€

375 million, which is approximately half of the total

required to complete the construction of Cernavoda unit 2. The present schedule for the

loan agreement foresees a Commission Decision toward the end of 2001. Other loans are

being sought from Canada and Italy.

Considering the limited resources, the Nuclear Safety Authority (CNCAN) performed a

significant and competent effort during the licensing of Cernavoda 1. However, at present

there are only a limited number of key qualified senior experts in this field, and the

emphasis must be put on filling vacant posts and staff training. Salary differentials with

industry in the field of installation safety have recently decreased, but these must be

brought down even further if CNCAN is to maintain its competence and expertise in the

longer term.

Overall assessment

The whole energy sector in Romania is currently being restructured in order to adapt

itself to the single market established in the

acquis.

In 2000, the electricity and gas

utilities have been unbundled and all cross-subsidies have been removed in these sectors.

However, the restructuring process is slower than initially planned and the long-term

process remains unclear. In the forthcoming months, major steps still have to be taken by

the Romanian authorities to complete this process.

Due to a lack of financial resources, the problem with unpaid energy bills has been

growing and endangers the whole energy sector in Romania. Fortunately, Romania has

taken steps to address this issue, for instance by disconnecting non-payers when possible.

This situation deprives the energy sector of the financial resources it needs to improve its

low efficiency and undermines the viability of the nuclear power plant.

Limited progress has been achieved in the oil sector.

As regards the issue of nuclear energy, the EU has repeatedly emphasised, most lately at

the European Council in Helsinki, the importance of a high level of nuclear safety in

candidate countries in the context of the Union's enlargement. In this context, Romania

continues to ensure a high level of nuclear safety. However, limited progress has been

achieved in the field of transposition of the

acquis.

The Romanian nuclear sector remains

dependent on outside help in terms of design and manufacturing capabilities. The

departure of western experts has given rise to concerns about the long-term handling of

safety issues and access to technology and qualified services may prove difficult

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considering the present economic situation. Due attention should be given to preparing

the implementation of Euratom safeguards.

Chapter 15: Industrial policy

The 1999 regular report’s main conclusions on industrial policy were: that measures to

stimulate an environment of open and competitive markets had yet to be consistently

applied; that the Romanian authorities had yet to implement a strategic industrial policy;

and that there was a need to build capacity in the Ministry of Industry and Trade.

However, only limited progress has been made over the last year.

There is still no official

industrial policy

at either national or sectoral level - although

the Ministry of Industry and Trade has produced a draft global industrial policy

document. Some progress has been made towards a more coherent industrial policy

through the government’s Action Plan for the implementation of the Medium-Term

Economic Strategy. However, the proposals related to industry are both general and very

ambitious. They are also already behind schedule - which gives rise to doubts as to the

capacity of the government to implement them successfully.

Over the last year the

privatisation

process has continued in Romania although it is

behind the government’s planned schedule. The 2000 privatisation programme foresees

the privatisation of 2,505 companies, but during the first half of 2000 only 609

companies were privatised. Of these, less than 5% of the privatisations were concluded

with foreign investors. In addition, a sizeable amount of the privatisation contracts signed

in 1998 and 1999 have been cancelled because the investors could not honour their

commitments.

Adopting a plan for restructuring the

steel sector

in line with EC requirements was one

of the 1999s Accession Partnership’s short-term priorities, and a major study on the

restructuring of the Romanian steel industry was approved by the government at the

beginning of July 2000. The results of this study should constitute the basis of the

government’s position regarding the steel sector. Nevertheless, a national steel

programme has yet to be decided by the government and only one minor steel company

has been privatised. Due to the delays in restructuring and the unrealised privatisation of

Romania’s main steel company (SIDEX), the general situation of the steel sector has

worsened.

As regards other sectors, an Emergency Ordinance completed the regulatory framework

for privatisation of the food industry. The former

régie autonome

RATMIL (defense and

aeronautics manufacturing) was restructured and converted into the National Company

ROMARM S.A. In the shipbuilding industry, six of the twelve main shipyards have been

privatised and the others are being prepared for privatisation. In the automotive industry,

the privatisation of the Dacia company has been concluded.

The Ministry of Industry and Trade is responsible for the development and application of

industrial policy, including harmonisation with the

acquis.

A certain rationalisation of the

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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ministry took place over the last year (reducing its staff by 40%) and various agencies

under its responsibility were reorganised.

Overall assessment

The general state of Romanian industry continues to deteriorate and there are no signs of

immediate improvement. Although exports increased considerably during the first half of

2000, a large part of this increase stems from non-processed goods and therefore does not

reflect increased productivity. Excessive bureaucracy continues to pose major problems

for businesses. The privatisation and restructuring process is behind schedule and suffers

from a lack of transparency.

Romanian industrial policy cannot yet be said to be either market-based or predictable.

The constantly changing legal environment is detrimental to the entire privatisation and

restructuring process and represents a barrier to any kind of investment. Widespread

corruption and a large underground economy further hamper the development of a sound

business environment. These issues should be addressed in the short term.

Different Government action plans and strategy papers do identify many of the reforms

necessary to build a more enabling business environment. However, clear responsibilities

for implementing and monitoring the measures within established deadlines have not

been assigned. Nor have adequate resources (human and financial) been allocated to their

implementation. Doubts therefore remain as to the ability of the government to

implement these reforms. These issues should be addressed as a matter of priority.

An important dimension of industrial policy is the control of state aids

(see Chapter 6 –

Competition).

Despite the reorganisation of the Ministry of Industry and Trade, there has been very

limited progress since the last regular report in terms of improving administrative

capacity. It is far from clear whether the ministry has the ability to deal with the

privatisation and restructuring process, and insufficient collaboration with other

ministries has led to confusing and incoherent legislation. These issues need to be dealt

with in the short term.

Chapter 16: Small and medium-sized enterprises

Since last year there has been very limited progress in the SME sector. At the same time,

many SMEs are facing economic difficulties: in 1996, 71% of SMEs recorded a profit,

whilst in 1998, only 47% recorded a profit. Preliminary data indicates that this situation

has worsened during 1999.

The lack of a predictable

business environment

remains a cause for serious concern.

The legal framework for SMEs changes constantly which places a very considerable

burden on individual enterprises. Several studies have identified the major problems

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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faced by SMEs, but the government has not responded with any major policy initiative

aimed at addressing these problems. Other than streamlining company registration

procedures (through the introduction of a one-stop-shop), administrative barriers have not

been reduced since the last regular report.

As regards SME policy

the institutional set-up governing SMEs has changed since the

last regular report: the Agency for Small and Medium-Sized Enterprises was incorporated

into the National Agency for Regional Development, which also absorbed the Romanian

Development Agency. The Commission is concerned by this re-organisation which has

been interpreted as sign of reduced importance given to this sector. Through the National

Agency for Regional Development, Romania has developed several programmes

providing limited financial assistance for SMEs. However, the level of funding available

is insufficient to address the considerable needs that exist.

No progress has been made over the last year in relation to the Romanian

SME

definition,

which is more restrictive than the EC definition (in terms of the annual

turnover for SMEs).

Since the last regular report, six Euro Information Centres have been established.

Romania has also taken part in Europartenariat.

Overall assessment

The SME policy of Romania is not fully in line with the principles and objectives of EC

enterprise policy, particularly with regard to the simplification of the business

environment. The adverse business environment means that SMEs have found it difficult

to develop to their full potential. Stabilising and streamlining the legal and regulatory

framework should be addressed as a short-term priority.

SMEs access to long term finance for investments is also a major problem. Statistical

data from 1998 shows that, of the credit extended by banks, SMEs received 33% of short-

term credit and only 19% of the total long-term credit. Addressing this issue should be a

further short-term priority.

The extent to which the new National Agency for Regional Development will improve

the existing situation is unclear. It is important that the Agency allocates adequate

resources to enhance its capacity to design policies and implement measures aimed at

boosting SMEs development. It should also ensure that SME support is taken into

consideration in all of the government’s economic and industrial policies.

Chapter 17: Science and Research

Further progress has been made in this area since the last regular report.

Since its association with the

Fifth Framework Programme

(FP 5) and with Euratom

FP 5 in July 1999, Romania has actively participated in proposals to all the thematic

programmes, although initial indications are that success rates fall short of expectations.

A National Contact Point (NCP) system including eight regional representatives and

contact points in research institutes and universities has been set up. Members to all

Programme Committees, advisory groups and the evaluation experts’ pool have been

appointed.

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The National Plan for Research and Technological Development and Innovation was

launched in September 1999 and includes sub-programmes focused on participation in

the 5

Framework Programme, Euratom, COST and bilateral co-operation. In 1999 the

National Agency for Science, Technology and Innovation established a consultation

mechanism involving all relevant ministries, representatives of scientific community,

industry and social partners.

Overall assessment

Romania is making efforts to better integrate its scientific and entrepreneurial

communities in the EC research and technological development policy, but work is still

needed to improve the quality of project proposals. The role of the National Agency for

Science, Technology and Innovation is limited to provision of information, support in

identifying partners and project preparation. However, the National Agency for Science,

Technology and Innovation has limited resources to provide these services nation-wide

and therefore an increase of personnel and stabilisation of the office as well as co-

operation with other organisations such as NGOs should be actively sought. Also the

functioning of the Inter-ministerial Committee should be improved with a view to ensure

a better participation of Romania in the 5

Framework Programme.

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 (the GERD/GDP ratio was 0.58% in 1997 and decreased to 0.47% the

following year due to the reduction of the national GDP). Consequently, enterprises have

hardly invested in R&D: the shortage of public support, the tendency to import

equipment and technologies ready made and the interest to produce and sell without long

term objectives, all these factors explain the entrepreneurs’ reluctance to assume the

financial risk of R&D initiatives.

Chapter 18: Education and training

In 1999 Romania continued to participate actively in a number of

community

programmes

(see

bilateral part A).

In addition an Association Council decision allowing

participation in the second phase of the Socrates and Leonardo da Vinci programmes

(2000-2006) was adopted in September. Preparations have been made for participation,

also from 2000, in the Youth programme, which incorporates European Voluntary

Service.

As regards vocational training several measures were taken in line with the principles of

the common vocational training policy. These include measures on the organisation of

adult education and the establishment of the National Board for the Vocational Training

of Adults, which has been charged with the development of a coherent legal and

institutional framework for adult training. Equal access to vocational training for all

adults was established in August 2000. In September 1999, a tripartite body, the Council

for Occupational Standards and Attestation was given legal personality in order to ensure

transparency of qualifications.

In higher education a council was set up during the reference period to certify the quality

management systems

Secondary legislation has been adopted on: general objectives and

guidelines for second chance education; entrepreneurial education; combating social

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exclusion; providing access to the pre-university education, colleges and universities for

young Roma; and integration of the children with disabilities.

Measures have been taken to facilitate the free movement of students. Student, professor

and researcher mobility has been introduced as an indicator of the performance of higher

education institutions. Periods of studies of at least one semester or examinations taken in

an EU member state are recognised. As from the academic year 2000-2001 higher

education institutions will issue, upon request, a diploma supplement to facilitate the

recognition of qualifications.

In principle EU nationals enjoy the same rights as Romanian students in higher

education. However, equal treatment will still have to be extended to tuition fees, which

are higher for EU nationals than for Romanian students.

Overall assessment

The National Agencies for the implementation of Community programmes are

established, fully functional and have financial autonomy. A network of regional agencies

for the Leonardo da Vinci programme is being established.

Concerning the new Youth programme, that incorporates European Voluntary Service

activities, a legislative framework to regulate voluntary activities in Romania needs to be

clarified.

A number of measures have been taken to align Romanian policy on vocational training

with that of the Community. Nevertheless, a clearer and more integrated approach needs

to be developed. Efforts to establish coherent mechanisms for certification of vocational

qualifications, for accreditation of training providers and for quality assurance are

necessary.

There has been no progress on transposition of the

Directive on the education of

children of migrant workers.

Romania has not ratified Article 10 of the European Social Charter which stipulates the

right to vocational training.

Chapter 19: Telecommunications and information technologies

In last year’s regular report the Commission noted the lack of legislation in this field and

the lack of proper administrative capacity. In the period under consideration no

significant developments can be reported in this domain. However, some progress has

been made in the digitalisation of the network and in improving the penetration rate for

fixed voice telephony service.

As for the

liberalisation of the telecommunications market,

the authorities have taken

steps to introduce additional competition in mobile telephony by licensing for GSM

services at 1800 MHz.

Romtelecom continues to enjoy a monopoly for fixed line telephony, which is scheduled

to end on 1 January 2003.

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The National Agency for Communications and Informatics is the

regulator

for

telecommunications. However, this Agency does not possess the powers and human

resources required for ensuring that the relevant

acquis

is transposed rapidly. The General

Inspectorate for Communications is responsible for frequency management and

monitoring the telecommunication markets.

Postal services

are still a monopoly controlled by the Romanian Post. The regulatory

authority is – as for telecommunications – the National Agency for Communication and

Informatics. In the period under consideration there has been no progress in the

transposition of the

acquis.

Overall assessment

The development of a dynamic and competitive telecommunication market in Romania is

still hindered by the inadequacy of the regulatory framework and an exercise of the

regulatory function of the state which is not yet clearly and efficiently organised.

Recently the allocation of 1800 MHz frequencies demonstrated these weaknesses in the

Romanian regulatory regime. Although Romtelecom claims to have been awarded an

exclusive licence to provide GSM services at 1800 MHz, the two current GSM operators

at 900 MHz also claim to have received such frequencies and a court case has ensued.

Award of an exclusive licence for mobile services at 1800 MHz would be in

contradiction with the

acquis

and an unnecessary and backward step.

Progress has been unsatisfactory. Therefore fast action will be necessary, if the

Romanian authorities want to achieve their goal of implementing the remaining

regulation necessary to open the market for fixed line telephony by 1 January 2003.

Chapter 20: Culture and audio-visual policy

The last report recorded the adoption of the law amending the 1992 radio and television

broadcasting law, which was not, however, in full compliance with the

acquis.

Since the last report limited progress was achieved in alignment with the

audio-visual

acquis.

An inter-ministerial working group for the audio-visual sector was set up in

December 1999 to analyse problems in the approximation process and to make

recommendations. However, the new framework law to regulate the audio-visual domain

has not been adopted and the debate is still ongoing.

In May 2000, the National Audio-visual Council issued a regulatory decision concerning

advertising, tele-shopping and sponsorship with a view to legislative harmonisation. It

also issued two decisions to strengthen its monitoring activity (on the presentation and

approval of program charts and on the obligations of license holders). The monitoring

and sanctioning activities of the Council have been considerably intensified. Staffing was

raised from 120 to 138 and the allocation from the state budget was increased.

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Overall assessment

Romania’s existing legislation is not fully aligned with the audio-visual

acquis,

despite

some progress in recent years. Hence, the relevant short-term priority in the 1999

Accession Partnership has not been adequately met.

Romania has not clarified its position with respect to its obligations under the WTO/

GATS in the context of the accession process, as well as of the Europe Agreement.

Romania has signed, but not yet ratified, the Transfrontier Television Convention of the

Council of Europe.

The monitoring and sanctioning capacity of the National Audio-visual Council has

improved and clear priorities to strengthen the administrative capacity in the medium-

term have been set.

On the whole, Romania has made limited progress and still has to finalise a legislative

process to achieve alignment with the Community

acquis.

It will also have to adopt a

clear position ensuring that its international obligations will not prove an obstacle in

achieving progressive alignment and full adoption and implementation of the

acquis

the date of accession.

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

The last regular report on Romania’s progress in the field of regional development

recognised that the legal and institutional basis for developing regional policies were in

place. However, the report also noted that further efforts were required to ensure effective

implementation of structural policies and also to build the necessary administrative

structures and management capacities, (both centrally and at regional level). Limited

progress has been achieved over the reporting period.

With regard to the

legislative framework,

secondary legislation has been adopted

establishing a distinct body for managing and channelling EC funds including regulation

of co-financing.

Concerning the

preparation for programming,

a preliminary National Development

Plan has been drawn up and presented to the Commission. The Romanian Government

in May 2000 endorsed the final version of the plan. This document is the first plan

involving partnership between national and regional authorities as well as the institutions

of civil society.

The National Agency for Regional Development has been appointed as co-ordinator of

the National Development Plan and as the implementing authority for Cross Border Co-

operation. This agency, the National Agency for Small and Medium-Sized Enterprises

and the Romanian Development Agency have been merged into a single Agency, in an

attempt to reduce overlaps between administrative bodies and to increase administrative

efficiency.

As regards

management capacity and financial procedures,

little progress has been

made. The National Agency for Regional Development still faces difficulties in creating

efficient financial mechanisms, due to lack of experience, weak co-ordination with the

National Fund and an unclear relationship with the Regional Development Agencies.

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These regional institutions are equipped in terms of staff and office facilities but still

need assistance in project monitoring and training, (as does the National Agency for

Regional Development). Further work is needed to reinforce the administrative capacity

at both the regional and central levels. No tangible progress has been made as regards

supervision, control, reporting and evaluation.

Overall assessment

Although Romania has made progress in this area, a number of serious difficulties remain

and efforts to develop the administrative capacity and to establish a co-ordination

mechanism need to be continued.

Romania has set up a clear legislative and administrative framework for running regional

policy in line with the

acquis,

including territorial organisation. A provisional

classification was introduced consisting of 42

judets

(similar to NUTS 3) and of

groupings of

judets,

the so-called macro-regions (similar to NUTS 2).

Nevertheless important efforts still have to be made in administrative and budgetary

procedures, which are crucial for a sound implementation of an economic and social

cohesion strategy. Financial control and the capacity to manage and control public funds

remain very limited, especially at regional level, and need close attention from the

Romanian authorities.

As to regional

statistics,

data for the determination of eligibility are available for

Objective 1 and INTERREG criteria. However, the provision of data necessary to meet

the ex-ante evaluation requirements has yet to be assured. For instance, for the macro-

regions (level 2), very limited data exists concerning investment, social indicators and

structural business statistics. Statistics seem only to be available for employment.

As regards administrative capacity, the main priority is to strengthen co-ordination and

management structures in order to allow an efficient and partnership-based decision-

making process, at regional and local level, that is coherent with national regional policy.

A clear and balanced allocation of responsibilities should be implemented: at national

level, between national administrations involved in the future management of structural

Funds (NARD and line Ministries); and at macro-region level between all the participants

involved in Regional Development Boards.

Chapter 22: Environment

The 1999 Regular Report stressed the very little progress Romania had made in the field

of environment, and its weak administrative capacity.

However, over the new reporting period, Romania has introduced several reforms to

reinforce administrative capacity at local level. In order to improve co-ordination

between the national level that sets policy and legislation, and the existing 42 local

Environmental Protection Agencies that are responsible for monitoring and enforcement,

eight have been given regional responsibilities. A new self-financing mechanism has

been put in place: by charging fees for performing services, local EPAs now receive

additional financial resources that they can use to purchase monitoring equipment and to

improve their inspection and enforcement capacities.

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At the national level, the administrative capacity is still low and there is a lack of

resources devoted to EC approximation (management of pre-accession funds and proper

co-ordination between the General Directorate of European Integration and the technical

departments).

In contrast to previous years, Romania has made some progress with preparing strategies

for transposing the

acquis.

The National Action Plan for Environmental Protection was

updated in November 1999 in line with the main accession priorities in this sector. In

addition, most of the sectoral approximation strategies have been finalised. Even though

the pace of legal transposition remains slow, several legal acts, transposing important

pieces of the

Acquis

communautaire, have been issued. The lack of specific cost

assessments and the corresponding financial plans for implementation of main directives

is still problematic.

In the field of

horizontal legislation,

a framework law establishing an environmental

fund was adopted in May 2000. The fund is intended to act as an economic instrument to

support the development of major public investments in the environment. However the

law remains very general and will require extensive secondary legislation and possibly

even amendment before becoming operational. The law for the ratification of the Arhus

Convention regarding the free access to information and public participation in decision

making and access to justice for environmental matters has been adopted but additional

secondary legislation is needed to ensure implementation of these provisions.

Concerning

nature protection,

several laws have been adopted in 2000. New laws

harmonise Romanian legislation with the Community

acquis

on the conservation of

natural habitats and of wild fauna and flora, and on the conservation of wild birds. Other

laws ratify international conventions and agreements on the conservation of several

endangered species.

Industrial pollution control and risk management,

a Ministerial Order related to

norms for the technical and methodological framework for environmental protection

inspection has been adopted.

With regard to

genetically modified organisms

(GMOs), an Emergency Ordinance on

the obtaining, testing, using and trading of GMOs by modern technologies was adopted

in January 2000. On

chemicals,

legislation related to the commercial regime and user

restrictions of substances that deplete the ozone layer has been adopted.

Concerning

waste management,

an emergency ordinance on the management and

control of PCB/PCT (Poly-Chlorinated Biphenyl / Poly-Chlorinated Triphenyl) was

adopted in March 2000. An Emergency Ordinance was published in June 2000,

specifying that future regulations on waste oils, used batteries, packaging and waste

packaging, incineration of waste, sludge, waste shipments and landfills of waste will be

introduced through Governmental decisions. This is therefore a measure that could speed

up the pace of transposition of waste legislation, which had previously been neglected.

No significant progress has been made for transposing legislation in sectors like

noise

and

nuclear safety and radiation protection.

Substantial draft legislation is under

preparation in the

water quality

and

air quality

sectors.

In 2000, several environmental accidents occurred in Romania. The most serious one was

Baia Mare’s cyanide spill, which was followed a few months later by other

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environmental incidents originating from the same industrial site. It proved the limited

capacity of the environmental institutions in Romania to manage cases of industrial

pollution.

Overall assessment

The status of approximation is still very low. However, over the last year, sectoral

approximation strategies were finalised and several emergency ordinances aimed at

transposing the

acquis

were issued. Romania should build upon the progress it has made

by accelerating its transposition process in 2001.

The environmental accidents that occurred during the first months of 2000 have

confirmed the serious environmental problems existing in Romania, as well as the weak

administrative capacity in this sector and they have emphasised the need to significantly

increase the resources devoted to environmental protection. The Ministry of Waters,

Forests and Environmental Protection as the main authority responsible for

environmental policy, including legal drafting and enforcement, needs to be reinforced,

and must strengthen its co-ordination with line Ministries involved in environmental

matters.

Important efforts are also needed in order to reinforce the monitoring and laboratory

equipment at local and central level. The availability of reliable and accurate analytical

information is an essential prerequisite for an effective system of inspection and

enforcement of environmental legislation.

A realistic cost assessment and investment plan for implementing the heavy investment

directives in the sectors of water, waste and air should be urgently elaborated. The cost of

compliance with the environmental

acquis

has only been roughly estimated but,

according to a study financed by the Commission, their order of magnitude is

approximately

€20

billion. A rational use of all the financial resources available is

essential as well as the promotion of financial instruments related to the efficient use of

natural resources and the respect of the “polluter pays” principle. In this context, the

establishment of an operational Environmental Fund should be considered a top priority.

Chapter 23: Consumers and health protection

Since the last report, where transposition of only two directives was recorded, progress

can be noted in transposition of both

safety

and

non-safety

related directives. Directives

on dangerous imitations and labelling of foodstuffs have been transposed. The inclusion

of the obligations of professionals and the definition of safe products bring Romanian

legislation largely in line with the directive on general product safety. On product liability

an ordinance was adopted in September 2000. It covers products as required by the

acquis,

including electricity, and adapts the threshold of damage to the Romanian

context.

As regards non-safety-related measures, a law on advertising was adopted in August 2000

and according to the Romanian authorities it covers the directives on misleading and

comparative advertising. An ordinance of September 2000 sets the legal framework for

distance selling contracts.

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As regards the

market surveillance

mechanism, the Office for Consumer Protection has

been the Romanian contact point with TRAPEX (Transitional Rapid Exchange of

Information System) since April 1999. Under TRAPEX, 36 notifications of dangerous

products in the Romanian market were received and processed in January-July 2000. In

order to further strengthen the market surveillance mechanism the office has concluded

several cooperation agreements with various public bodies including the Ministry of

Health and the Ministry of Agriculture and Food.

In the period January-July 2000, 7,123 complaints of the 12,537 received by the Office of

Consumer Protection were judged admissible. Consumer organisations submitted 260

complaints. The number of control actions carried out by the office has increased during

the reference period.

The Office for Consumer Protection has actively organised consumer awareness and

information campaigns both independently and in cooperation with consumer

organisations. Legal advice for consumers seeking compensation is also offered.

A considerable number of consultative structures have been established at local and

county level. In addition, an inter-ministerial committee for markets, products and

services surveillance and consumer protection was established in 2000 to develop and

improve the national system for market surveillance. It is a cooperation mechanism

between the ministries and between central public administration and civil society. In

Romania, 17 consumer organisations are registered and NGOs for consumer protection

operate in each of the 42 counties.

Overall assessment

Romania has made progress and improved its performance on several consumer

protection issues. However, some legislation, covering important areas of consumer

protection, remains to be adopted. Consumer credits, time-share and injunctions and

guarantees are areas of the

acquis

which are not yet covered by any legislation.

Improvements are needed to the existing provisions covering unfair contract terms.

Compliance of the very recently adopted legislation on advertising and distance selling

needs to be verified.

The necessary administrative structures are in place. These bodies have taken an active

role in initiating and enforcing legislation and in monitoring market activities. Problems

of high staff turnover and difficulties in recruiting new staff should be addressed in order

to ensure the continuation of reforms and the proper enforcement of legislation.

Information for consumers is made regularly available.

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

In last year’s regular report the Commission concluded that there had been some progress

in the field of justice and home affairs and that the most significant progress was

registered in the field of justice. The Commission emphasised that some important pieces

of legislation had to be adopted or amended and the restructuring and modernisation of

the relevant administrations, especially those under the Ministry of Interior, had to be

completed.

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Since the 1999 regular report there has been mixed progress in the field of justice and

home affairs. A positive evolution has continued in the field of justice. Some positive

measures have been undertaken on visa policy, asylum and money laundering. There is

still a need to adopt legislation in several important areas like the status of foreigners, the

state frontiers, the organisation of the police and the statute of police officers and data

protection. The reform of the Border Police has started but the modernisation of the

administrations subordinated the Ministry of Interior is in general slow.

Despite the fact that it was one of the short-term priorities of the 1999 Accession

Partnership Romania has not yet adopted legislation on

data protection

As far as

visa policy

is concerned, the Aliens law from 1969 is still in force. A proposal

for a new aliens law has been adopted by both the Senate and the Chamber of Deputies

and is presently being dealt with by the Conciliation Committee of the two houses of the

Parliament. Starting from 1 July the Romanian authorities introduced restrictive

conditions for issuing visas for citizens of a number of former USSR countries. Romania

has now a restrictive visa regime with all former USSR countries except Moldova. From

August 2000 a visa regime has been introduced towards several countries in the

Caribbean Sea and the Pacific Ocean. The decision not to grant visas at border points

except in special cases has been postponed as regards nationals of EU and NATO

Member States, Israel, Switzerland, Japan and Australia.

As far as

border control

is concerned, a new organisational structure came into force in

July 2000 under which the regional commands, which previously covered several

counties, have been split up into many small units. The process of demilitarisation has

also started and new training programs are being developed for border police officers.

Amendments in the law on the Romanian State Borders in June 1999 set up the General

Inspectorate of the Border Police which has jurisdiction over all state borders and is also

responsible for the Coast Guard service. However, the full revision of the law on the

state borders and the elaboration of a law on the functioning and organisation of the

border police have not yet been adopted.

Regarding

migration,

two new readmission agreements have been concluded, one with

Ireland and another with Bulgaria.

As regards

asylum,

amendments in the law on refugees have been adopted on 29 August

2000 through a government ordinance. The 1996 law on refugees had important

omissions, contained ambiguities and was not fully in line with the 1951 Geneva

Convention. The newly adopted amendments to the refugee law rectify most of the

omissions and introduce accelerated procedures and procedures for obviously unfounded

applications. However, the amended law does not contain provisions on the detention of

asylum-seekers, which remains an area that needs to be addressed. In July 2000, Romania

ratified the European Agreement on Transfer of Responsibility for Refugees.

In the field of

police co-operation and fight against organised crime,

the proposed

amendments to the law on police organisation and operation and the law on the statute of

police officers have not yet been adopted.

Although the legislative basis for the demilitarisation of the police has not been adopted,

some organisational changes have nevertheless been initiated. In March 2000, the Squad

for Countering Organised Crime and Corruption, the central structure specialised in

countering organised crime and corruption, was re-organised and turned into the

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Directorate for Countering Organised Crime within the Ministry of Interior. The

Ministry of Interior has initiated a modernisation of the Romanian Police aiming at

transforming the police into a civilian institution and respecting human rights. This

involves, inter alia, a substantial number of the staff dealing with administrative tasks

being transferred to operational tasks on local levels. The reform process will continue on

central and local levels.

As far as the

fight against fraud and corruption

is concerned (see also section B.1.1),

progress has been limited to the entry into force, in May 2000, of a new law on

prevention and punishment of corruption. There has been no development with the other

short-term priorities of the 1999 Accession Partnership - establishment of an independent

anti-corruption department, ratification of both the European Convention on Laundering

of Proceeds of Crime and the European Criminal Law Convention on Corruption, and

signing of the OECD Convention on Bribery.

In the field of

drugs,

a law on the fight against trafficking and illicit consumption of

drugs came into force 3 August 2000. National programmes for drugs control and drugs

demand reduction have still to be developed.

The law on money laundering came into force in April 1999 and the National Office for

Preventing and Fighting Money Laundering Operations was established at the same time.

Between April 1999 and July 2000 the Office received reports concerning 186,343 cash

operations exceeding

€10,000.

In addition, 262 reports on suspicious transactions were

processed. Out of these, 102 were transferred to the General Prosecutor’s Office and as a

result, 32 cases are now under penal investigation. The Office has an adequate level of

funding and staffing.

Romania has made progress in the field of

customs co-operation.

In February 2000 the

Romanian Customs Administration launched a development strategy for the period

2000–2005. New structures have been created, including an enforcement and customs

control directorate, a counterfeited goods department and mobile teams for the special

customs surveillance area, reaching 20 km from the borders. Four bilateral agreements on

customs co-operation and mutual administrative assistance have been concluded and

others are in the process of being negotiated. The Romanian customs administration has

set up a structure for customs-related data analysis in view of improving risk

management in the customs area with the aim to fight illegal trade. The co-operation with

the Ministry of Interior has been strengthened and discussions have been initiated with

the Border Police in order to perform common control activities in border zones and to

define the responsibilities of each agency.

In the field of

judicial co-operation in criminal and civil matters

no major

conventions have been ratified since the last Regular Report (see

also section B.1.1 –

Democracy and the rule of law).

Overall assessment

Some important legislation has been adopted recently in the field of justice and home

affairs but it remains a cause of concern that some of this legislation has been adopted

through government ordinances without proper consultation. Much remains to be done on

legal approximation and on strengthening administrative capacity. Especially the process

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of reforming the border police and the national police should be speeded up and the

corruption problem needs to be addressed with radical measures.

A draft law on

data protection

has been submitted to the Parliament but needs to be

amended to include provisions for an independent supervisory body as well as provisions

giving individuals the right to have access to personal information stored in data bases.

Romania should also ratify the Council of Europe Convention on the Protection of

Individuals with Regard to Automatic Processing of Personal Data.

Despite recent reforms of

visa policy

Romania still needs to align the list of countries

whose citizens need a visa to enter Romania with the equivalent list for the EU. The data

information system for issuing and checking visas also needs to be improved. There is

not yet an on-line data transmission system for visa applications between the Romanian

diplomatic missions abroad, the central administration in Bucharest and the Romanian

border posts. Visa stickers are manufactured with methods using special ink and laser

components. Romanian passports are manufactured with a safety proof technique which

complies with international standards for machine-readable passports. A new type of

passport is envisaged, containing security features fully compatible with Schengen

requirements.

Romania is one of the main transit countries for illegal immigration to Western Europe.

In the field of

border control

there is a lack of equipment especially for night

surveillance. Progress is also needed to prepare for future participation in the Schengen

co-operation where there is among other things a need to rebuild terminals at many

airports. Due to the high costs involved, such plans have been delayed. The laws on the

state frontier and on the border police need to be revised. The reform of the border police

has started but so far there has been little impact at the operational level. Further

initiatives need to be taken to restructure and strengthen the Border Police. The

progressive replacement of conscripts by contracted sergeants should continue. Training

of staff needs to be developed and there is a need to develop a long-term border

management strategy and interagency co-operation.

Community assistance through the annual border programmes needs to be complemented

by substantially increased national budget allocations.

Regulation regarding

migration

is very limited due to the continued application of the

1969 Aliens Law. There are at present 13 agreements on readmission concluded with EU

Member States and 8 agreements with other countries. There is a need to conclude more

readmission agreements with neighbouring countries as well as with countries of origin

for illegal immigrants. There is also a need to adopt adequate provisions on illegal

immigrants and in particular to clarify the procedures for their expulsion.

As regards

asylum,

applications have been increasing and at present 1000–1500

applications are received each year. In 30 June 2000 there were 1,689 recognised refugees

in Romania. The majority of asylum-seekers come from Asia and Africa. There are also

refugees from Albania and Kosovo. Due to lack of resources, accommodation centres for

asylum-seekers are badly equipped and have a shortage of staff. Romania also needs to

develop country of origin information. Asylum applications are handled within a

reasonable time limit by the National Refugee Office, which now reports directly to the

Minister of Interior. The Office has qualified and well trained personnel but problems

related to a lack of adequate office facilities mean confidentiality relating to interviewing

of asylum-seekers can not be respected. The Office also has difficulties to complying

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with international standards on research, the use of country of origin information, and

computer processing of asylum claims.

As far as

police co-operation and fight against organised crime

is concerned, 32

multilateral and bilateral agreements have been concluded on the combating of terrorism,

drugs and illegal immigration. There are several international liaison officers in

Bucharest but Romania does not have the means to send liaison officers itself. There is an

exchange of information via Interpol and the Ministry of Interior has set up a Europol

department dealing with transborder crime. As regards cross-border surveillance, foreign

officers can not carry out activities directly in Romania. Cross-border surveillance can

only be carried out through mutual co-operation and there are no agreements with other

states on hot pursuit.

In spite of the previously mentioned ongoing reform process of the police, inhuman and

degrading treatment of suspected and detainees continue to be reported by human rights

organisations.

Regarding the

fight against fraud and corruption,

further changes are needed in the

Criminal Code to introduce liability for legal persons. Major efforts are also needed in

order to improve implementation capacity of the bodies charged with the fight against

corruption where there is a lack of qualified staff and serious shortcomings in the co-

operation between institutions. On the fight against

fraud,

Romanian legislation provides

for punishments in line with the 1995 Convention on the Protection of the European

Communities’ Financial Interests. However, substantial efforts are required to develop

administrative structures to fulfil all legal obligations in relation to financial management

and control of EC funds. Romania should prepare for co-operation with OLAF.

Romania is a party to all the international conventions listed under the

acquis

in the field

drugs,

with the exception of the 1995 Agreement on illicit traffic by sea, which still

has to be ratified. A national strategy to combat drug abuse and drug trafficking should

be developed and should include a national approach to inter-agency co-operation. The

present National Drug Information Focal Point should be further developed in accordance

with the requirements of the European Monitoring Centre for Drugs and Drugs

Addiction. The UN Convention against Illicit Trafficking in Narcotic Drugs and

Psychotropic Substances has not been ratified.

The legislation on

money laundering

is largely compatible with the

acquis

and

international standards, but Romania still needs to ratify the Council of Europe

Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from

Crime.

In the field of

customs co-operation,

Romania has improved the inter-agency co-

operation and made efforts to facilitate relations with the trade community through

progressive computerisation. Unfortunately, these positive developments are undermined

by corruption in the Romanian customs services, which is still a problem despite the

recent initiatives taken by the Romanian Customs Administration. Romania’s future

participation in the Customs Information System will require adequate data protection

legislation.

As far as

judicial co-operation

is concerned, Romania has ratified most of the

international conventions included in the

acquis.

Ratification is still pending on: the

Hague convention of 1965 on service of documents; the Hague convention of 1970 on

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the taking of evidence abroad; the Hague convention of 1980 on the international access

to justice; the European convention on recognition and enforcement of decisions

concerning custody of children and restoration of custody of children; and the Council of

Europe’s Criminal Convention on corruption. In addition, Romania has yet to sign the

Convention of the OECD on Combating Bribery and Corruption in International Business

Transactions. Romania has not yet been invited to join the Lugano Convention on

jurisdiction, recognition and enforcement of foreign judgements. However, the Romanian

legislation is already largely in line with the Brussels, Lugano and Rome conventions (see

also 3.1, chapter 5).

Romania’s requests according to the convention on extradition have raised some

difficulties; in particular in connection with judgements delivered

in absentia

Romanian courts. The implementation of the convention on the transfer of sentenced

persons has so far been unsuccessful and it has not yet been possible to transfer

Romanian nationals convicted in member states to serve sentences in Romania.

All the

human rights

legal instruments part of the Justice and Home Affairs

acquis

have

been ratified by Romania, with the exception of the 1981 Council of Europe Convention

on the protection of individuals with regard to automatic processing of personal data.

Chapter 25: Customs union

In its last regular report the Commission noted that Romania had made some progress on

customs legislation but that it was difficult to judge the quality and uniformity of its

application since much of the legislation was recent. Since then Romania has made

steady progress.

As regards alignment between the Romanian legislation and the

EC Customs Code and

its implementing provisions,

Romania has made further progress in the application of

simplified procedures. The procedure allowing for customs clearance on the premises of

an exporter is now applied. Simplified procedures in the inward processing procedure

have now been applied.

Regarding the

customs

acquis

outside the Customs Code,

the drawing up the Romanian

Integrated Customs Tariff started in September 1999. During 1999 and 2000, Romania

has made important progress in the alignment of Transit legislation to the Community

acquis.

Regarding the pan-European system of origin, Romania 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 Romania to sign the necessary Free Trade Agreements with

Latvia, Lithuania and Estonia. Within CEFTA, the member countries, including

Romania, signed the Additional Protocol no. 8 regarding the aforementioned system.

As far as the

administrative and operational capacity

to implement the

acquis

concerned, the Integrated Tariff Division within the Customs Administration was set up

in September 1999. Also established was the Guarantee Office and the Office for Control

in Transit. Romania aims to have a computerised integrated tariff by the end of 2002 (in

printed form by the end of 2000). Romania has applied to be a member of the Common

Transit Convention and the Convention on Simplification of Formalities. From February

2000 the provisions of the Common Transit Convention were applied in all customs

offices with road activity. The website of Romanian customs opened in July 2000.

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Concerning measures to combat fraud and corruption in the customs services the 1998

statute of customs officers has been supplemented by a Code of Conduct issued in March

2000. A financial incentive rewarding the professional performance of customs officers

has also been created and the Romanian Customs Administration developed a medium

term strategy for the period 2000–2005. However, there has been no progress with plans

to improve training and to create a National School of Public Finance and Customs.

In February 2000, the Customs Administration signed a co-operation protocol with the

Ministry of Interior in order to improve co-operation with the Border Police.

Overall assessment

Romania has been making steady progress towards harmonisation with Community

standards and the principles of Romanian legislation are in line with the

acquis.

Romania

should continue its efforts to align customs legislation (primary and secondary), and

should pay particular attention to implementing regulations.

Romania has made progress on administrative modernisation, although much remains to

be done. Progress has been good in the areas of transit, computerisation and the

application of simplified procedures, as well as the adoption of a customs development

plan and a Code of Conduct. However, more needs to be done on: the implementation of

the development plan, the setting-up of the public finance and customs school, the

development and implementation of training, the improvement of the system of customs

laboratories, and the establishment of a Memorandum of Understanding with economic

operators in order to facilitate trade and ensure efficient controls. The fight against fraud

and corruption should remain a priority.

Chapter 26: External Relations

Romania has continued to make progress with aligning itself with the EC’s commercial

policy. A Government Ordinance of October 1999 aligned Romanian legislation with the

Community regime for the control of exports of dual-use goods and technology. A

Government Decision concerning the lists of sensitive and very sensitive dual-use goods

and technology was adopted in January 2000. A Government Decision established the

list for the control of exports and imports of dual-use goods and the list for the control of

arms and ammunitions. These lists are identical to those used by the EC.

Upon accession Romania will be required to align its tariffs to the Common External

Tariff. Romania’s applied tariffs currently average 19.3% on all products, 32.8% on

agricultural products, 21.4% on fishery products and 15.6% 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.

Romania has also made progress in the implementation of the

acquis

in the fields of

technical related measures, but further alignment with the

acquis

is necessary in the field

of export credits.

As regards Free Trade Agreements, negotiations continued with Lithuania. A first round

of negotiations took place with Israel. Similar negotiations are also envisaged with Latvia

and Estonia, and exploratory consultations took place with Egypt, Morocco and FYROM.

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Within CEFTA, the member countries, including Romania, signed the Additional

Protocol No. 8 on the updated version of the Pan-European cumulation of origin of goods

(see

also Chapter 25 – Customs Union)

and Romania has successfully integrated

amendments that have been made to these rules into domestic legislation.

Overall assessment

Where alignment with the Community

acquis

on commercial policy is necessary progress

has been made, for example with legislation covering rules of origin and dual use goods.

Romania’s commercial policy is, to a great extent, in accordance with that of the EUand

progress in trade liberalisation has been anchored through binding commitments under

the WTO and regional trade agreements. Romania has honoured its WTO commitments.

The EU and Romania have established a framework for co-operation regarding WTO

issues, both at ministerial and at departmental level. Romania has been supportive of EU

policies and positions within the WTO framework. As regards the new round, Romania

concurs with the EU on the need to launch a comprehensive trade round as soon as

possible and shares the view that the results of work under the built-in agenda would be

less substantial in its absence.

Romania needs to adhere to the WTO plurilateral agreement on Civil Aircraft. Romania

is a signatory to the Agreement on Information Technology (ITA).

Romania is not yet a signatory of the WTO Government Procurement Agreement

although significant progress has been made through the enactment, in August 1999, of a

new legal framework dealing with public procurement. Romania has confirmed its

intention to adhere to the WTO Agreement but has not indicated a timeframe for this.

As regards the WTO Agreement for Textiles and Clothing (ATC), Romania needs to use

the third stage of integration under the ATC to align its integration programmes with

those of the EC, while avoiding the integration of products not yet integrated by the EC.

Further co-ordination and close co-operation is necessary in order to consolidate the

adjustment of the Romanian list of commitments in GATS with the EC commitments and

EC Most Favoured Nation exemptions.

As regards

bilateral agreements with third countries,

Romania has, in general,

established preferential trade regimes with countries linked by similar agreements to the

EC. Romania is a member of CEFTA and has Free Trade Agreements with the EFTA

countries and with the Republic of Moldova. Further progress will be necessary – but,

overall, good progress has been made in aligning with the EC's international trade

obligations. Romania should continue to keep the Union fully informed about existing

trade agreements and negotiations aimed at the conclusion of any new trade agreement

with a third country.

The Ministry of Industry and Trade is responsible for questions related to commercial

policy. It is a competent and knowledgeable institution and has been able to ensure that

Romania’s trade legislation conforms to its international commitments. However, its

ability to influence trade-related policies developed by other ministries has been uneven.

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The administrative infrastructure 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 Romania continues to orient its foreign and security policy towards the

Union. Romania has actively participated in the Associated Countries Common Foreign

and Security Policy (CFSP) Network since November 1999.

Romania has shown a keen interest in the development of ESDP (European Security and

Defence Policy) as part of CFSP and has actively participated in the exchanges in this

context with the EU, in EU + 15 format (i.e. non-EU European NATO members and

candidates for accession to the EU).

As regards

alignment with EU statements and declarations,

Romania 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

Romania also associated itself, together with the other CEECs, with a joint action of the

EU concerning the fight against the proliferation of lightweight and small calibre

firearms.

In the arms control field, the Ottawa Convention on landmines has been submitted to

Parliament for ratification.

Romania has been actively involved in the Stability Pact for South Eastern Europe and

has acted as Chair in Office of the South-East European Co-operation Process. In

February 2000, under the Stability Pact, agreement was reached with Bulgaria on the

building of a second bridge over the Danube.

In addition to the Stability Pact, Romania has been actively participating in other regional

cooperation initiatives: The Royaumont process for good neighbourly relations and

stability, the South Eastern Cooperation Initiative, the Black Sea Economic Co-operation,

the Central European Initiative, and the Balkan Initiative. Since the last regular report,

one trilateral cooperation meeting has been held (Romania-Bulgaria-Greece).

The Ministry of Foreign Affairs has also supported several unilateral initiatives aimed at

developing civil society and an independent media in the Federal Republic of Yugoslavia

(FRY). In addition, Romania has participated in the "Energy for Democracy" initiative

aimed at supporting the democratic forces of Serbia, Montenegro and Kosovo. At the

OSCE Istanbul Summit, it was agreed that Romania would be the OSCE Chair in Office

in the year 2001, and as a consequence Romania began work as a part of the OSCE troika

in January 2000.

Romania’s relations with its neighbours are generally good and in May 2000 a Treaty of

Partnership and Privileged Relationships between Romania and the Republic of Moldova

was initialled.

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Overall assessment

The overall progress achieved in alignment with the

acquis

in the CFSP is satisfactory.

As the

acquis

in the field of foreign policy and security develops further so Romania

should maintain the orientation of its foreign policy in line with that of the EU.

Romania has actively participated in international peace-keeping and humanitarian

missions. Since April 1991, Romania has taken part in 6 United Nations peacekeeping

missions, representing a national commitment of more than 6,000 military and police

personnel. Romania has also participated in NATO-led missions (SFOR and KFOR). In

2000, the Romanian contingent deployed in Bosnia–Herzegovina consisted of 203

military personnel whose activities focused on rebuilding transport infrastructure.

Concerning the administrative capacity to implement the provisions relating to CFSP,

Romania has established a network of correspondents in all horizontal and geographical

directorates of the Ministry of Foreign Affairs in order to ensure co-ordination with EU

instruments. The Ministry of Foreign Affairs has allocated the necessary resources, both

in terms of staffing allocations and in terms of the appropriate information systems, to

allow Romania’s effective participation in the Associated Correspondents’ Network.

Chapter 28: Financial control

In line with the recommendations of the 1999 Regular Report the ex ante control function

and relevant staff of the Romanian Court of Accounts were transferred to the Ministry of

Finance as of January 1

, 2000. This was an important step, because, in accordance with

the relevant Accession Partnership priority, it clarified the separation of functions

between a government-independent role for the Court of Accounts (external audit) and

the responsibilities of the Government in matters relating to Public Internal Financial

Control.

Ex ante

financial control

is now a shared responsibility by budget implementing and

spending centres (line ministries and others) and the Minister of Finance (resident and

delegated financial controllers). However, the function of internal audit has not yet been

developed. Until now the Ministry of Finance, although responsible for the harmonisation

of methodology in control/audit matters, has not yet been able to establish clear policy

lines relating to the development of its Internal Audit function and its relations to the ex

ante financial control activities. Such policy lines are essential to the development of

improved primary and secondary legislation in the area of internal audit, and the

establishment of internal audit services in all government spending centres.

The Romanian Court of Accounts will remain the responsible institution for the external

audit function and will report to Parliament about the financial management and control

functions, institutions and procedures of the Government. The Court should begin to

prioritise the development of modern audit methodologies and ensure that its reporting

procedures lead to adequate follow-up of its findings.

Overall assessment

The Romanian authorities have not yet succeeded in elaborating an appropriate and

comprehensive policy framework for internal financial control over public funds. The

1999 legislation places a strong emphasis on the function of ex-ante financial control

while the role of internal audit is much less clearly defined. This creates the risk of

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unduly heavy preventive control procedures in the spending centres (line ministries and

other national budget spending centres), as well as in implementing agencies for EC-

funded programmes.

Clear policy guidelines need to be developed to make sure that the functions of

preventive financial control and of internal audit complement each other in supporting

the government to create adequate, effective and efficient internal control mechanisms. A

centralised body should be given responsibility for developing and introducing modern

auditing practices and techniques. The human resources development requirements for

implementation of adequate public internal financial control systems should also receive

considerable attention. The internal audit function will in particular create significant

training requirements, in view of the fact that this aspect of financial control has not been

developed in Romania until now.

Substantial efforts are still required to develop control mechanisms for pre-accession

funds in order to meet the requirements for a clear audit trail and proper accountability at

each stage. This is particularly the case for territorially decentralised programmes such as

regional and rural development. Systems for fighting irregularities, fraud, and corruption

and for recovering lost amounts should be developed.

Lack of progress in these areas limits the ability of public bodies to ensure sound

management of public funds as well as limiting Romania's capacity to ensure sound

management and control of EC pre-accession funds.

As regards the external audit function, Romania needs to modernise procedures for

financial and performance audit in line with international auditing standards, and to

develop relations between the Court of Audit and Parliament in order to improve the

reporting and follow-up of the audits performed by the Court.

Chapter 29: Financial and budgetary provisions

Romania made some progress over the reporting period in reforming

national budgetary

procedures.

Notably, the number of extra-budgetary funds was reduced from twelve to

eight, reducing the total value of these funds from around 50% to around 18% of the

consolidated state budget. This step has contributed to simplifying and increasing the

transparency of budgetary procedures.

The Ministry of Finance has developed a methodology for preparing programme budgets,

which has been tested on a trial basis. A new budgetary classification, in line with

international standards, was used for the 2000 budget.

With regard to

EC co-financed measures,

little significant progress can be reported: the

arrangements for budgetary co-financing of EC pre-accession support still need to be

clearly established. In addition, little progress can be reported as regards

own resources

and

administrative infrastructure.

Overall assessment

Further efforts are required by Romania both in relation to the national budget and own

resources.

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Further amendments to Romania’s basic budgetary legislation will be necessary to bring

budgetary principles and rules into line with standards generally applicable in the

Community. The Law on Public Finance, which was last amended in 1996, requires

further significant modification to align it with modern budgeting principles. The

remaining special funds continue to cover areas of expenditure which could be covered in

the State or Social Security Budget. Their continued existence results in poor co-

ordination of budget policies and proposals. Further efforts are also needed to develop the

capacity for macroeconomic analysis as the basis for the budgetary process.

Legislation should be amended in order to strengthen Ministry of Finance’s role in

establishing the regulations and methodological norms to be applied by line ministries

when preparing their budget proposals. Under current procedures no information on

outputs or programmes is provided to support the budget allocations to

ministries/spending agencies. An additional problem is that procedures for capital and

current expenditure budgets are not fully integrated - which hinders the management of

projects financed through pre-accession funds.

Improved procedures are needed for medium-term programming of expenditure. The

powers of the Ministry of Finance as regards cash management and internal control

should be reinforced to improve the execution of the budget. The Ministry of Finance

should develop financial reporting requirements and evaluation and monitoring

procedures to be followed by all budget entities.

The relationship between the Executive and Parliament, as regards the budget process,

needs to be clarified. Parliamentary procedures for adoption of the budget are imprecise,

and Parliament has insufficient capacity to carry out independent reviews of budgetary

policies and proposals.

The operating procedures for the management of the EC pre-accession funds, through the

National Fund, should be further defined and implemented.

As regards the Community’s

Own Resources,

there is currently no provision in

Romanian law on levies for trading and warehousing sugar. Further alignment for the

calculation of the VAT and GDP resource is also necessary. Central co-ordination will be

needed to ensure the proper collection, monitoring and payment of funds to, and from,

the EC budget. Administrative capacity of the spending ministries also needs to be

strengthened. An inter-ministerial working group, headed by the National Commission

for Statistics, has been set up to examine these issues.

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 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.

Until the beginning of 2000 translation had been the responsibility of individual

ministries who typically relied on the translation services provided by universities and

private firms. This lack of a co-ordinated approach led to problems with the quality and

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consistency of translations. As of March 2000, approximately 7,700 Official Journal

pages of

acquis

had been translated but most of the texts are not definitive translations

and are in need of further linguistic and legal revision.

Since January 2000 the new European Institute of Romania has been charged with co-

ordination of the translation of the

acquis.

Management of the translation exercise will

be carried out by a Translation Co-ordination Unit, which has the remit of establishing

translation priorities, revising existing translations in order to produce definitive

translations of the

acquis,

and speeding up the translation of remaining texts. In parallel,

the Translation Co-ordination Unit is translating the primary legislation, having already

translated the Treaty Establishing the European Community, whose revision is in

progress.

Further efforts are required in this area.

3.3.

General evaluation

Romania has continued to advance with the adoption of the

acquis

– although the

achievements over the last year have been mixed. In certain sectors both legal

transposition and the setting up of the necessary administrative structures are advanced.

At the same time there is a worrying lack of progress in certain key areas.

Those areas where positive developments can be noted include

company law

and

competition

where Romania has achieved a high degree of compatibility with the

acquis.

Romania has also made significant progress with the transposition and implementation of

transport acquis

during the last year (although the questions of fiscal harmonisation in

road transport and maritime safety still need to be addressed). Advances have been made

with the transposition of the

statistics acquis

although statistical coverage for a number

of areas still needs substantial improvement.

Concerning

internal market legislation,

progress has been made in the field of public

procurement and positive developments have also taken place with regard to the

simplification of the issuance of work permits for EU citizens and the adoption of a new

law on social security. Romania has also eased authorisation requirements on capital

imports and has made progress in combating the problem of money laundering.

Romanian

VAT and excise duties

are broadly in line with the EC principles.

Despite the positive achievements noted above, there are many areas where further

progress is needed. For the

internal market,

Romania still needs to develop framework

legislation on the principles of the New and Global Approach. A number of crises in the

banking industry demonstrate that the effective supervision of financial services still has

to be considerably strengthened. Further work is required to ease the authorisations for

capital exports and to transpose the

acquis

on cross border credit transfers. Romanian

legislation on the protection of personal data remains inadequate and substantial

harmonisation is still required in the area of direct taxation.

In the case of

agriculture,

a major structural reform of the sector is needed. The

conditions that would allow the implementation of much of the EC agricultural

acquis

not yet exist. The lack of administrative capacity is acute and the Ministry of Agriculture

is not able to either develop the necessary reforms, or to effectively implement those

items of legislation that have been adopted. In the case of

social policy,

little legislative

progress was made over the period and further measures are needed with regard to the

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adoption of a new Labour Code, improving the protection of employee rights, and

extending legislation on health and safety at work. The structures for social dialogue do

exist but need to be accorded greater importance. In the

environmental sector,

in contrast

to previous years, Romania has made progress with preparing strategies for transposing

the

acquis

but the status of approximation is still very low. Specific cost assessments and

the corresponding financial plans for implementing the environmental

acquis

need to be

developed. Romania’s approach to

industry policy

is not yet either market-based or

predictable and Romania still has to develop an official industrial policy at both national

and sectoral level. With

telecommunications,

there has been no substantial progress with

the transposition of the

acquis

and further efforts are required to develop the regulatory

framework. In the field of

justice and home affairs

positive measures have been taken on

visa policy, border management and asylum. This said, Romania still needs to adopt or

amend legislation in several important areas (the status of foreigners, the state frontiers,

the organisation of the police and the statute of police officers).

The Romanian authorities have not yet elaborated a comprehensive policy framework for

internal

financial control.

Policy guidelines still need to be developed for preventive

financial control and internal audit functions (this is particularly important at the local

level where the capacity to manage and control public funds remains weak). Substantial

efforts are still required to develop control mechanisms for pre-accession funds. National

budgetary procedures

are weak and the medium-term programming of expenditure needs

to be substantially improved.

A related concern is the ability of Romanian institutions to effectively manage the

increased levels of EC funding. A programme-oriented budgeting system needs to be

developed and the overall budget execution process strengthened. Romania should also

take measures to strengthen public financial control functions through the provision of

adequate staff, training and equipment.

The quality of the Romanian administration is very diverse. A number of ministries are

well managed and are staffed by qualified professionals. However, in general terms, the

capacity of the public administration

to implement and manage the

acquis

is very limited

and represents a major constraint in the accession preparations. Despite the widespread

recognition in Romania that this is a fundamental problem there has been little progress

in developing administrative capacity since the last regular report. The main conclusions

of the 1999 report - that certain key institutions still need to be set up, that in many key

sectors (particularly agriculture and environment) the administration lacks the required

level of competence, and that there is a need to ensure independence of regulatory and

supervisory bodies - remain valid.

With regard to meeting short-term Accession Partnership priorities, Romania has made

some progress in the areas of

taxation, customs, transport

and

justice and home affairs

although none of the priorities identified for these sectors have yet been fully met.

Some, limited progress has been made in addressing the priorities related to the

internal

market,

and the

reinforcement of administrative and judicial capacity.

In the case of

agriculture, employment and social affairs

and

environment

no substantial progress has

been made.

Romania has already started to address some of the medium-term Accession Partnership

priorities.

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C. Conclusion