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Europaudvalget 2000-01
EUU Alm.del Bilag 246
Offentligt

FROM THE COMMISSION

LITHUANIA’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 Lithuania .............................. 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 ........................................................15

1. Political criteria.................................................................................... 15

Introduction ............................................................................................................... 15

Recent developments................................................................................................. 15

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

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

The executive ............................................................................................................ 16

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

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

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

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

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

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

1.3. General evaluation ........................................................................................ 21

2. Economic criteria................................................................................. 22

2.1. Introduction................................................................................................... 22

2.2. Economic developments ............................................................................... 22

2.3. Assessment in terms of the Copenhagen criteria ....................................... 24

The existence of a functioning market economy....................................................... 24

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

Union ......................................................................................................................... 29

2.4. General evaluation ........................................................................................ 31

3. Ability to assume the obligations of membership............................. 33

Introduction ............................................................................................................... 33

3.1. The chapters of the

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

Chapter 1: Free movement of goods ............................................................. 34

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

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

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

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

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

Chapter 4: Free movement of capital............................................................ 41

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

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

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

Chapter 6: Competition policy....................................................................... 45

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

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

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

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

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

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

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

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

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

Chapter 11: Economic and monetary union................................................. 58

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

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

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

Chapter 13: Social policy and employment................................................... 60

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

Chapter 14: Energy........................................................................................ 63

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

Chapter 15: Industrial policy......................................................................... 67

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

Chapter 16: Small and Medium-sized Enterprises ....................................... 70

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

Chapter 17: Science and research................................................................ 71

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

Chapter 18: Education and training ............................................................. 72

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

Chapter 19: Telecommunications and information technologies................ 73

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

Chapter 20: Culture and audio-visual policy................................................ 74

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

Chapter 21: Regional policy and co-ordination of structural instruments . 75

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

Chapter 22: Environment .............................................................................. 77

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

Chapter 23: Consumers and health protection............................................. 80

Overall assessment .................................................................................................... 81

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Chapter 24: Co-operation in the field of justice and home affairs .............. 81

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

Chapter 25: Customs union........................................................................... 88

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

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

Overall assessment .................................................................................................... 90

Chapter 27: Common foreign and security policy........................................ 91

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

Chapter 28: Financial control....................................................................... 92

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

Chapter 29: Financial and budgetary provisions ......................................... 94

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

3.2. Translation of the

acquis

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

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

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

D. Accession Partnership and National Programme for the

Adoption of the

Acquis:

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

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

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

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

2. National Programme for the Adoption of the

Acquis

.................... 103

Annexes........................................................................................105

Human Rights Conventions ratified by the Candidate Countries, September

2000 ....................................................................................................... 106

Statistical data .............................................................................................. 107

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A. Introduction

Preface

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

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

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

The European Council in Luxembourg decided that

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

together with any necessary recommendations for opening bilateral intergovernmental

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

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

is adopting the Union

acquis”

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

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

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

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

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

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

in view of the Vienna European Council; a second series was adopted in October 1999, in

view of 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 Lithuania 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 Lithuania’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 Lithuania’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 Lithuania in translating the

acquis

into its official

language.

In line with previous regular reports, the present report:

describes the relations between Lithuania 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 Lithuania’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 Lithuania’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 provides also an overall assessment of the global situation for each of the aspects

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

by Lithuania in preparing for accession.

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

acquis

criteria (including Lithuania’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 Lithuania’s

economic performance.

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

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

medium-term priorities set out in this framework.

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

decisions actually taken, legislation actually adopted, international conventions actually

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

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

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

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

objective assessment and comparison between countries in terms of their concrete

progress in preparing for accession.

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

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

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

the

Acquis

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

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

analytical examination of the

acquis

(screening) and the negotiations, have served as

additional sources. Council deliberations and European Parliament reports and

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resolutions

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

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

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

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

b) Relations between the European Union and Lithuania

Recent developments under the Association Agreement (including bilateral

trade)

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

the smooth functioning of the various joint institutions.

The Association Council met on 15 February 2000 and the Association Committee

meeting took place on 15 June 1999. The system of sub-committees continues to function

as a forum for technical discussions.

Since the issuing of the last Regular Report the Joint Parliamentary Committee

comprising representatives of the Lithuanian and European Parliament met in December

1999 and June 2000.

Lithuania’s trade with the EC has continued to increase. EC exports to Lithuania stood at

€

1.6 billion and imports at

€

2.1 billion during 1999. Looking at trade by sectors

machinery and electrical goods represent the largest sector for EC exports to Lithuania.

The textile sector is the largest sector for EC imports from Lithuania. During 1999

Lithuanian exports to the EC increased and accounted for 50.1% of total exports. The

share of imports from the EC declined slightly from 47.2% to 46.5% of total imports.

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

associated countries in view of 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 to lead to a fair equilibrium between the interests of

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

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

of the CAP.

The negotiations with Lithuania were concluded between negotiators in June 2000. As a

consequence of the new agreement approximately three quarters of the bilateral trade of

agricultural products will benefit from preferences. The regime is due to enter into force

on 1 January 2001 on an autonomous basis, pending the conclusion of an additional

protocol to the Europe Agreement.

The negotiations with Lithuania as regards processed agricultural products are still

ongoing.

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

Associated Countries in view of new reciprocal concessions in the field of fish and

fishery products.

For the European Parliament the

rapporteur

is Mrs Magdalene Hoff.

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As regards anti-dumping proceedings concerning products originating, inter alia, in

Lithuania, it was decided, during the reporting period, not to impose provisional anti-

dumping duties on imports of certain cathode-ray colour television picture tubes and on

imports of ammonium nitrate, because the dumping margins found were de minimis.

Definitive anti-dumping duties were imposed on imports of urea ammonium nitrate.

As regards the end of the transitional period foreseen for a number of the provisions of

the Europe Agreement, Lithuania has substantially fulfilled the obligations resulting from

the expiry of this transitional period (31 December 1999). The Europe Agreement

foresees that provisions concerning the right of establishment shall be applied to the

Lithuanian fixed telephony sector by the end of the transitional period. Since this period

expired on 31 December 1999, on the basis of Article 44.4 of the Europe Agreement,

Lithuania has requested the Association Council to extend it until the 31 December 2002.

This request is under consideration.

Current discussions in the institutional framework of the Europe Agreement focus

particularly on the implementation of the Accession Partnership priorities (see below),

and seek to achieve progress in areas like protection of intellectual property rights, the

restructuring of the agricultural sector, the restructuring of the energy sector and on

setting up of appropriate administrative structures in the field of financial control and

regional policy. There are no major trade problems in the relations between Lithuania and

the EC.

Accession Partnership / National Programme for the Adoption of the Acquis

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

reviewed in chapter D of this Report.

In May 2000, Lithuania submitted a revised National Programme for the Adoption of the

Acquis

(NPAA), also called Lithuania’s EU Integration Programme, in which it outlines

its strategy for accession including how to achieve the priorities contained in the

Accession Partnerships (see further 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;

ISPA,

which finances infrastructure projects in the

fields of environment and transport; and

SAPARD,

which provides aid for agricultural

and rural development. 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 Lithuania will amount annually to

€

126 million from Phare,

€

90 million from SAPARD, and between

€

120 and 180

million from ISPA.

The

Phare

programme has been providing support to the countries of central Europe

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

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

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

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

building, investment to strengthen the regulatory infrastructure needed to ensure

compliance with the

acquis

and investment in economic and social cohesion. This

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

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

acquis

and

strengthen or create institutions necessary for implementing and enforcing the

acquis.

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

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

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

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

remaining 70% is used for financing investments.

During the period 1992 – 1999, the Phare programme allocated

€

328 million to

Lithuania. The

2000 Phare Programme

for Lithuania consists of a national allocation of

€

38.3 million, concentrated on the following priorities:

−

Promotion of competitiveness/enforcement of financial discipline for enterprises (€ 2

million);

−

Strengthening the institutional and administrative capacity to adopt and enforce the

internal market

acquis

including support in the field of free movement of goods,

customs, communications and statistics(€ 10.05 million);

−

Strengthening the capacity to manage and administer the

acquis

in the field of

agriculture (CAP), phyto-sanitary and fisheries (€ 6.5 million);

−

Implementation of the

acquis

in the maritime safety sector (€ 1 million);

−

Preparation for participation in the European Employment Strategy (€ 2.15 million);

−

Adoption of the

acquis

related to the fight against drug trafficking (€ 1 million);

−

Reinforcement of institutional and administrative capacity in the field of budget

management, financial control and price statistics (€ 1.5 million);

−

Economic and social cohesion, including business and human resources development

(€14 million).

An additional

€

1 million under the Phare National 2000 Programme has been allocated

for Cross-Border Cooperation (CBC) whose allocation for 2000 amounts to

€

3 million

(the additional

€

2 million coming from a horizontal budget line). CBC includes a small

project facility supporting co-operation activities in the Baltic region.

At the international Donors' Conference held in Vilnius on 20/21 June 2000 on the

decommissioning of Unit 1 of the Ignalina Nuclear Power Plant, the Commission, on

behalf of the European Communities, pledged financial assistance amounting to a total of

€

165 million within the current Financial Perspective (i.e., until 2006). The bulk of this

contribution will be delivered via the Ignalina International Decommissioning Support

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Fund, established on 12 June 2000, and managed by the EBRD. On the basis of a special

national PHARE programme to support decommisioning and consequential measures in

the Lithuanian energy sector, a Financing Memorandum over an initial amount of

€

million from the 1999 budget was signed with the Lithuanian Government in December

1999. A further amount of

€

35 million was programmed under the 2000 special national

programme.

Lithuania also participates in and benefits from Phare funded multi-country and

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

Facility. Furthermore, Lithuania participates in Leonardo da Vinci, Socrates, Youth for

Europe, Raphael, SAVE II, Health and Social Policy, AIDS Prevention, Drug

Dependence, Equal Opportunities and the Fifth Framework Programme for Research,

Technological Development and Demonstration. In the context of Lithuania’s

participation (since March 2000) in the 3

Multi-Annual Programme for SMEs, two Euro

Info Centres are in the process of being selected. Lithuania has expressed its interest in

participating in the EC Culture 2000 programmes.

Following the opening of negotiations regarding Lithuania’s participation in the

European Environment Agency, an agreement has been reached. Following ratification

and entry into force of this agreement, scheduled for early 2001, Lithuania will become a

member of the Agency.

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

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

industrial restructuring and privatisation, SME development, trade and investment

promotion, environment, energy, and land registration. Phare support to agriculture and

SME development has succeeded in developing sector strategies and initiating essential

institutional and financial mechanisms servicing enterprises in these sectors.

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

•

Upgrading of the Pabrade Alien Registration Centre (€ 649.000). This project has

successfully contributed to the design and construction of a new three-storey building

(with a capacity of 200 persons) and facilities in the existing building have been

upgraded. The project started in April 1999 and the new building was inaugurated on

31 January 2000. PHARE assistance has succeeded in improving the living

conditions for illegal immigrants and asylum seekers housed in the Centre and (along

with the general decrease of illegal immigrants entering Lithuania) considerably

reduced the risk of overcrowding.

Twinning assistance to Lithuanian border police services (€250,000). The main

objectives of this twinning project consisted of developing a modern and effective

planning and follow-up system for the Border Police, familiarising the Border Police

with EU and Schengen requirements, improving the basis for revising respective laws

and regulations and improving the Border Police’s expertise at border checks.

Through extensive training and expert assistance, the objectives of the project have

yielded very positive results and a significant transfer of knowledge has taken place.

The capacity of the Lithuanian Border Police to carry out effective border supervision

and control of border crossings has been enhanced accordingly.

Upgrading of Food Control Laboratory (€2,000,000). This project successfully

contributed towards strengthening the analytical capacity of the National Veterinary

•

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Laboratory of the State Veterinary Service, and in procuring equipment necessary to

strengthen the existing infrastructure of food control in Lithuania. In addition, staff

was trained and food legislation was developed in line with EC food law application

and enforcement. Moreover, regional and central laboratories were linked with border

inspection points.

A reform of the

Phare management system

took place in 1998 and 1999 to improve the

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

Review Communication in 2000 continues to refine these basic management structures

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

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

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

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

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

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

institution building, investment in compliance with the

acquis,

and economic and social

cohesion.

The implementation of the Phare programme in Lithuania continues to proceed smoothly.

However, the budgetary constraints during the reporting period have made it more

difficult for Lithuania to comply with some conditionalities, notably the increase of staff

number and co-financing of projects.

Regarding

SAPARD,

the Lithuanian Rural Development Plan got a favourable opinion in

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

development) in October 2000. The plan is in the process of being approved by the

Commission before the end of the year. The plan foresees the following priority measures

for agriculture and rural development

Investments in agricultural holdings (47% of the EC funds).

Improving processing and marketing of agricultural and fisheries products (21%).

Development and diversification of economic activities

providing for multiple

activities and alternative income (8%)

Improvement of rural infrastructures (15%)

Afforestation of agricultural land and improvement of forestry infrastructure (4%)

Environmentally friendly agricultural methods (1%)

Vocational training (2%)

Technical assistance (2%).

The average annual expenditure annual expenditure will amount to

€

76.8 million during

the period 2000-2006, of which

€

29.8 million Community contribution (at 1999 prices).

The National Paying Agency under the Ministry of Agriculture was established in

November 1999 and preparations for its accreditation as the SAPARD Agency are

underway.

For the programme and financial management of SAPARD, a different system will apply

which reflects the EAGGF (European Agriculture Guidance and Guarantee Fund) rules

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and is based on a fully decentralised approach through an accredited paying and

implementing agency.

As concerns

ISPA,

national strategies for transport and environment were completed

respectively in February and July 2000. The priorities for environment have been

identified as wastewater and drinking water and waste management. As concerns

transport, the Lithuanians shall focus on two sectors under ISPA, namely road and

railways. The mid-range allocation for Lithuania for 2000 is

€

51.94 million (at 2000

prices). It is anticipated that the whole allocation will be committed by the end of 2000

(35% for environment and 65% for transport).

With regard to project applications, a total of 7 official applications have been submitted

to the European Commission by the National ISPA Co-ordinator (Ministry of Foreign

Affairs), 3 in the environmental sector (including 1 technical assistance project) and 4 in

the transport sector, one of which will be financed under the 2001 budget. The first

projects which have been adopted by the Commission concern the upgrading of the road

Corridor IXB (Vilnius-Klaipeda) and the improvement of the Via Baltica (Corridor 1).

The Ministry of Foreign Affairs has the overall responsibility for ISPA co-ordination,

while the Ministry of Finance has the overall responsibility for financial management and

control. The two line ministries (Ministry of Transport and Communication and Ministry

of Environment) are responsible for technical programming, project implementation,

evaluation and monitoring. Implementing agencies have been designated within the line

ministries. Financial controllers will have to be designated within each 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.

For Lithuania, there are currently twelve projects being implemented by twinning, five

from the 1998 programme and seven from the 1999 programme. From the 1999

programme Denmark is working with Lithuanian partners in three projects in the energy

sector, and in one project on the modernisation of the rural administration system (along

with Germany). Germany is also providing assistance towards strengthening the

enforcement of occupational health and safety policy in Lithuania. Sweden and Italy are

assisting their Lithuanian counterparts in strengthening the enforcement of procurement

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policy and finally Finland is providing assistance in the area of internal financial control

and audit.

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

They include: strengthening of environment monitoring capacities with partners from

Germany, Sweden and Denmark, strengthening of the Lithuanian public administration

with assistance from Denmark and Finland, assistance from France on audio-visual

policy, from Germany in the area of competition policy, and from Finland on the

implementation of the Schengen

acquis.

In addition, the United Kingdom is providing

assistance in the social sector under the Consensus Programme and in the area of Justice

and Home Affairs under the Pre-Ins Facility.

A number of areas have been pinpointed for twinning assistance under the PHARE 2000,

including:

•

Strengthening administrative and technical capacity to promote the free market of

goods

Budget management and financial control

Support for the establishment of the Communication Regulatory Authority in

Lithuania

Strengthening the capacity of the Ministry of Agriculture and related institutions to

manage and administer the EC

acquis

for agriculture (CAP) and rural development

Strengthening of veterinary and phytosanitary controls and strengthening of food

control system in Lithuania

Strengthening Lithuania’s capacity to manage and administer the common fishery

policy

Maritime safety

Preparation for participation in the European Employment Strategy

Strengthening illicit drug demand and supply reduction capabilities

Negotiations / screening

The analytical examination of the

acquis

(screening) has been concluded for Lithuania

with meetings for agriculture held in late 1999 and early 2000. During the first half of

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

Negotiations were officially opened at the bilateral intergovernmental conference held in

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

acquis:

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

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

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

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

culture and audiovisual policy, and external relations.

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

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

law, transport, social policy, industrial policy, telecommunications and environment)

during the second half of 2000.

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B. Criteria for membership

1. Political criteria

Introduction

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

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

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

and respect for and protection of minorities.”

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

concluded that:

“Lithuania fulfils the Copenhagen political criteria. Areas which still need attention are

the fight against corruption and the continued reform of the judiciary.”

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

implement the

acquis,

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

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

acquis

in the

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

24 – Co-

operation in the field of justice and home affairs)

of part

B.3.1.

of this report.

Recent developments

The Government, which had taken office in May 1999, resigned at the end of October

1999. A new Government took office in November 1999 after receiving the confidence

of the Lithuanian Parliament (Seimas). The Government confirmed Lithuania’s

commitment towards accession to the EU.

Municipal elections took place on 19 March 2000. Parliamentary elections took place on

8 October 2000 on the basis of a new electoral law which abolished the second round in

the uninominal constituencies.

1.1.

Democracy and the rule of law

As mentioned in the previous regular reports, Lithuania has achieved stability of

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

significant developments of the past year.

The parliament

The parliament continues to operate smoothly. The new Statute of the Seimas referred to

in the 1999 regular report has contributed to streamlining the legislative process.

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The executive

Lithuania has made further progress in the reform of the public administration.

The implementation of the law on Public Administration and the law on Civil Service has

started through the adoption of several secondary legal acts concerning,

inter alia,

the

establishment), and the list of functions to be occupied by politically appointed officials

as opposed to career officials. These are initial steps: the government envisages the full

set of implementing legislation to be in place only by 2004. Further progress is required

in this regard.

The Government has taken measures to rationalise the structure of the public

administration, in order to avoid duplication of work among institutions. In October

2000, the Parliament took the decision to merge the Ministry of Public Administration

Reforms and Local Administration into the Ministry of Interior. To improve the

efficiency of public administration, inter-departmental co-ordination needs to be

reinforced.

As regards the training of civil servants, the Government has proceeded with the

implementation of the National Strategy of Training of Civil Servants in Preparation for

EU Membership, notably through the Lithuanian Institute of Public Administration

(LIPA). Continued implementation of the National Training Strategy is a short-term

priority under the 1999 Accession Partnership for Lithuania.

As far as the development of European Integration structures is concerned, the

Government has continued to improve the administrative capacity of the European

Committee. In view of improving the overall process of law approximation, the

Government, in May 2000, established 17 Law Harmonisation Commissions.

With the progress made in implementing the Law on Public Administration and the Law

on the Civil Service, including the distinction between politically appointed officials and

career officials, Lithuania’s civil service has achieved, in principle, a good level of

independence. However, in order to maintain a modern, independent, professional and

efficient civil service, further issues need to be addressed. These include the level of

remuneration of civil servants, extra training possibilities, and greater inter-departmental

co-ordination.

The judicial system

The reform of the judicial system is ongoing and Lithuania has attempted to address such

issues as the excessive length of the proceedings and the ensuing backlog of unresolved

cases, the lack of qualified judges and the proper enforcement of court decisions. There

has, however, been limited concrete progress since the last Regular Report, partly due to

budgetary constraints, which were especially stringent this year.

In December 1999, the Constitutional Court ruled that certain powers of the Ministry of

Justice in the administering of justice contradicted the principle of the independence of

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judges as inscribed in the Constitution. The Law on Courts will thus need to be amended

accordingly.

In the framework of the reform of the legal system, a significant achievement has been

the adoption, in July 2000, of the Civil Code, which is due to enter into force as of July

2001. A new Criminal Code was adopted in September 2000. It will enter into force

simultaneously with the Code of Criminal Procedure, which is still under preparation.

With a view to better enforcement of court decisions, in December 1999 the Government

took a decision on the institutional reform of the court bailiffs’ office. This reform aims

to grant the court bailiffs the status of professional court assistants, leaving to the

Minister of Justice the oversight of their activities.

In order to improve the transparency of the judicial process, and in accordance with

legislation adopted by the Seimas in February 2000, the Ministry of Justice now

publishes on the internet all county and appeal court decisions and judgements of public

interest.

Lithuania has made efforts to fill vacant posts for judges. From July 1999 to September

2000, there were no new posts for judges created. Over the reporting period, 77 new

judges were appointed. As of July 2000, 398 judges work at the district courts, 130

judges work at the regional courts, 28 judges work at the Court of Appeals, and 37 judges

work at the Supreme Court. The administrative courts have 32 judges. As of July 2000,

there is a total of 67 vacant posts.

An intensive training programme for judges was commenced in January 2000, covering

various aspects of the EC law and

acquis

enforcement. The Judicial Training Centre has,

during the reporting period, acquired an important role in the provision of training

courses.

As regards court cases, in 1999, out of 17,477 criminal cases, 5,878 remained unsolved

and, out of 123,966 civil cases, 20,468 remained unsolved. In the first half of 2000, a

total of 58,745 new civil cases and 8,105 new criminal cases were filed. In the same

period, 61,277 civil cases and 9,078 criminal cases were solved. As concerns the

administrative courts, there was a

de facto

increase in the number of unresolved cases.

Given the increased responsibilities of the administrative courts (e.g. in the handling of

asylum appeal and bankruptcy cases), this is a source of concern. Specialist training in

the highly technical areas covered by the administrative courts is urgently required for the

judges concerned as well as for bailiffs.

Overall, efforts concerning the implementation of the judicial reform need to be stepped

up. The court system reorganisation, which started in 1998, is gradually being

implemented. However further efforts have to be made with regard to the improvement

of qualification of specialised judges and prosecutors by training in EC law. Skilled

judges have to be appointed to fill vacant positions in district and administrative courts.

An adequate level of remuneration for judges needs to be provided in order to attract

properly qualified personnel; this will in turn contribute to improving the overall

functioning of the judiciary. Additional staff needs to be recruited in the Organised Crime

and Corruption division of the General Prosecutor's Office and county prosecutor’s

offices. The lack of modern working methods and equipment remains a serious problem

to be urgently tackled. The reform of the legal system needs to be completed by way of

the adoption and implementation of new Codes of Civil and Criminal Procedure, which

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inter alia

should contribute to the speeding up of court proceedings. The poor functioning

of the administrative courts remains a serious concern.

Anti-corruption measures

Since the last Regular Report, Lithuania has adopted a number of important measures in

the fight against corruption, a matter which remains a source of concern. However,

limited progress has been achieved as regards the adoption of an overall National Anti-

Corruption Strategy, which remains to be finalised. In January 2000, the Seimas

abolished the immunity from prosecution for all top-ranking officials (with the exception

of the President of the Republic).

In May 2000, the Law on the Special Investigation Service was adopted. Its purpose is to

turn the Service into an independent institution accountable to the Seimas and the

President, to help avoid duplication of activities of law enforcement institutions in the

fight against corruption, and to reinforce the anti-corruption procedures used by the

Service. In the course of 2000, 48 of its employees have received training abroad.

In June 2000, the Law on Lobbying Activities was adopted with the aim of regulating the

influence exerted by interest groups on the legislative and administrative process.

With a view to reducing the potential for improper practices, including corruption, by

improving the overall efficiency and effectiveness of the administration, the Government

has set about progressively removing a number of administrative barriers, notably in the

context of the ongoing rationalisation of the public administration structures.

With a view to implementing the law on the Compatibility of Public and Private interests

in the Public Service, the High Commission of Ethics in Office adopted, in March and

April 2000, rules concerning the public declaration of private interests of civil servants,

including candidates to local government councils and other institutions of local

government. All civil servants, as a result, were required to submit detailed declarations

by 15 May 2000.

As regards the activities of the Special Investigation Service, from July 1999 to April

2000, 132 lawsuits were filed (74 from July 1998 to April 1999), 70 crimes against the

civil service were detected (144 from July 1998 to April 1999), and 83 civil servants and

public officials were charged with offences against the civil service (101 from July 1998

to April 1999). In February 2000, the Special Investigation Service reported to the Seimas

that municipal institutions and law enforcement bodies are among the most corrupt in

Lithuania. According to this report, corruption occurs mainly in the context of public

procurement bids and the award of government contracts.

The measures which have already been undertaken to tackle corruption should now be

completed in the in the framework of the National Anti-Corruption Strategy, which has

yet to be adopted. Implementation and enforcement of existing anticorruption measures

need to further addressed. In particular, the capacity of the Special Investigation Service

needs to be strengthened through staff training, and its ability to ensure co-ordination

needs to be proved effectively.

Lithuania ratified the Council of Europe Criminal Law Convention on Corruption in

January 2000. In contrast, Lithuania has not yet signed either the Council of Europe Civil

Law Convention on Corruption or the OECD Convention on Combating Bribery of

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Foreign Public Officials in International Business Transactions . Further progress is

required in this regard.

1.2.

Human rights and the protection of minorities

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

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

Over the past year, Lithuania has made further progress in acceding to the major human

rights conventions [see Annex]. In March 2000, Lithuania ratified the Council of Europe

Framework Convention on the Protection of National Minorities. In addition, over the

past year Lithuania has signed, but not yet ratified, the revised European Social Charter.

The original European Social Charter remains to be signed.

There is a well established Ombudsman system in Lithuania, which continues to function

satisfactorily.

Civil and political rights

Lithuania has addressed the issues in this area identified in the 1999 Regular Report;

however, some problems persist.

As regards

legal aid,

in March 2000, the Seimas adopted the Law on State Guaranteed

Legal Aid aimed at ensuring the provision of state-guaranteed legal aid in civil,

administrative and criminal cases, for citizens of the Republic of Lithuania as well as

foreign nationals and stateless persons residing in Lithuania, who cannot afford legal

fees. The Law will enter into force on 1 January 2001.

As far as

prison conditions

are concerned, a positive development is the adoption by the

Seimas of the Law on the Statute of Service at the Department of Prisons. This Law,

which entered into force in September 2000, completes the transfer of the Penitentiary

department from the Ministry of the Interior to the Ministry of Justice. As a result, the

Prison Department under the Ministry of Justice has become a civil institution, and its

officials as well as those of the imprisonment institution system are now demilitarised

public servants.

In November 1999, new hygiene standards were introduced; they establish the required

space for each convict and assure health and safety conditions. This notwithstanding,

prison conditions in Lithuania remain poor, and due to limited resources, most prisons

are overcrowded and poorly maintained. As of September 2000, there were 8,667

prisoners in penitentiary facilities in Lithuania and 1,587 persons held in pre-trial

detention. Cases of prolonged pre-trial detention were reported. The very limited number

of visits persons in pre-trial detention can receive, is a source of concern.

Further efforts to improve prison conditions are still required, including structural

solutions which will need to be found within the judicial process itself. The new

Criminal Code, which provides for milder penal sanctions and a reduction of pre-trial

detention time, will contribute to this, once it has entered into force.

In this context, a welcome development is the adoption of amendments to the Code of

Administrative Infringements (passed by the Seimas in February 2000), which provide

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for softer and more rational penalties for administrative offences, as well as for

postponing arrest and penalties.

Cases of

degrading treatment

by the police have been reported. In the reporting period,

23 police officers were charged with abuse of power.

In February 2000 the Seimas passed a law allowing, under certain specified conditions,

for the trial

in absentia

of persons charged with genocide or war crimes.

As regards

asylum

legislation, in July 2000 the legislation on refugees was brought

further in line with the

acquis.

The conditions of the reception centre in Pabrade are

reported to be now acceptable.

Religious freedom

continues to be respected in Lithuania. Religious communities

declared “traditional” by the law are eligible for public funds. In 1999 the Hasidic

Chabad Lubavich community was added to the list of traditional religious groups.

Economic, social and cultural rights

As regards

equal opportunities,

the Ombudsman of Equal Opportunities (appointed in

April 1999) has proved effective in improving the implementation of legislation in this

field. In particular, the Ombudsman has taken important action to ensure equal treatment

as regards entrance to Lithuanian universities (namely the Lithuanian Military Academy),

parental benefits in bringing up children, and job advertisements. The Ombudsman also

took an important initiative to specify the sex of the victims of violent crimes in the

statistical databases of the Ministry of the Interior. In March 2000, the Government set up

the Commission of Equal Opportunities to co-ordinate the implementation of the

principle of equal opportunities in the activities of the governmental institutions. Also,

Lithuania has signed the Optional Protocol to the Convention on the Elimination of all

Forms of Discrimination against Women.

With regard to

children’s rights,

in January 2000, the Government approved the National

Programme Against Commercial Sexual Abuse and Sexual Violence against Children.

However, there are no specific criminal provisions for sex tourism. In May 2000, the

Seimas adopted legislation on protection of children's rights which provides for the

appointment of an Ombudsman for children by the Chairman of the Parliament.

As regards the treatment of

disabled

people, the preparation of a National Programme for

Social Insertion of Persons with Disability has been launched in 2000. The

decentralisation of care facilities is under way, so as to increase the number of disabled

people who can receive services at home. A programme adapting accommodation to the

needs of disabled people is being gradually implemented.

As regards

trade unions,

while the mechanisms for participation in collective bargaining

exist, the level of unionisation of the workers (6-10%) remains low (see

Chapter 13 -

Social policy and employment).

Ratification of the revised

European Social Charter

should be speeded up. The signature

and ratification of the original European Social Charter needs to be addressed.

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Minority rights and the protection of minorities

As indicated, in March 2000 Lithuania ratified the Council of Europe Framework

Convention on the Protection of National Minorities, which it had already signed in

1995.

The situation concerning the protection of minorities in Lithuania continues to be

satisfactory. The Government continues to support the economic, social and cultural

development of Lithuania’s ethnic communities, notably through the Programme for

Social and Cultural Integration of National Minorities and the Programme on the Use and

Promotion of the State Language, which is used to assist minorities in learning, or

improving their knowledge of, Lithuanian. However, the funds available for the

implementation of this integration programme should be increased, and the

administrative capacity of the Department of National Minorities and Emigration would

need to be strengthened.

In June 2000, the Government adopted the National Programme for the Integration of the

Roma Minority. Successful implementation of this programme would benefit from

increased consultation with the Roma community. Approximately 3,000 Roma are

currently living in Lithuania.

1.3.

General evaluation

Lithuania continues to fulfil the Copenhagen political criteria.

As regards public administration reform, in line with the relevant medium-term priority

of the Accession Partnership, Lithuania has made progress in implementing the

legislation on public administration and civil service. In continuing this reform, further

issues need to be addressed, namely, the level of remuneration, additional training and

improved inter-ministerial co-ordination.

The reform of the legal system has significantly progressed with the adoption of the Civil

Code and the Criminal Code. This reform needs to be completed through the adoption

and implementation of new Codes of Civil and Criminal Procedure, which

inter alia

should contribute to the speeding up of court proceedings. Efforts on judicial reform need

to be stepped up, in particular with regard to training of judges and prosecutors, filling all

vacant positions, and improving the functioning of the courts, especially the

administrative courts.

As regards the fight against corruption, the important measures which have already been

taken need to be completed through the adoption of a National Anti-corruption Strategy.

Enforcement needs to be significantly strengthened by further reinforcing the relevant

agencies and effectively ensuring their co-ordination.

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2. Economic criteria

2.1.

Introduction

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

concluded:

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

“would face serious difficulties in 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

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

and is on the way to being able to cope with competitive pressure and market forces

within the Union in the medium term, provided it completes the remaining reform

agenda.”

In its annual assessment of the economic developments in Lithuania since the Opinion,

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

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

•

the existence of a functioning market economy;

•

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

Union.

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

Opinion and the 1998 and 1999 regular reports.

2.2.

Economic developments

Lithuania’s economic situation has improved since the last regular report and output

growth has been positive in the first half of 2000. The main factor behind this recovery is

improved external demand. Nevertheless, unemployment has continued to rise, partly as a

result of economic restructuring. Consumer price inflation remained particularly low,

reflecting weak domestic demand and the import price dampening effect of the

appreciation of the litas. The consolidation programme adopted in November 1999 led to

a significant tightening of the fiscal stance, which together with the upsurge in external

demand has had a positive effect on the current account.

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Lithuania

Real GDP growth rate

Inflation rate (CPI)

- annual average

- December-on-December

Unemployment rate, end-year

- ILO definition

General government budget balance

per cent of GDP

Current account balance

per cent of GDP

million

€

per cent

1996

4.7

1997

7.3

1998

5.1

1999

-4.1

2000 latest

2.0 Jan-June

per cent

24.6

13.1

8.9

8.3

5.1

2.4

0.8

0.3

0.8 Jan-June

1.3 June

per cent

16.4

14.1

13.3

14.1

14.7 May

-4.5

-9.2

-569

-1.8

-10.2

-865

-5.8

-12.1

-1,158

-8.6

-11.2

-1,120

-4.3 Jan-June

–234

Foreign debt

- debt export ratio

- gross foreign debt

Foreign direct investment in flow

- balance of payments data

per cent

million

€

26.7

886

27.6

1,271

37.6

1,698

64.1 E

2,549 E

per cent of GDP

million

€

1.9

120

3.7

313

8.6

826

4.6

456

2.6 Jan-June

144

E = Estimates

Important structural reforms have been initiated since the last report.

With a view to ensuring the

medium-term sustainability of public finances, the reform of public sector administration has been set in

motion and a three-pillar concept of the pension system has been approved. A new legal framework has

been adopted for the energy sector, and progress has been made in preparing the privatisation of public

gas and electricity enterprises. The sale of one of the two last remaining state banks to an international

consortium is close to completion, but the privatisation of the other bank is still in a preparatory stage.

Important amendments to the legislation on bankruptcy and restructuring procedures are being prepared.

In the area of trade, protective measures taken in response to the Russian crisis have been abandoned.

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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)

3,700

6,169

per cent

million

€

per head

8.8

20.2

22.5

25.5

39.8

2,054

555

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 political consensus on the need for structural reforms has strengthened in

response to the impact of the Russian crisis on the Lithuanian economy.

In November

1999, the new Lithuanian government announced an anti-crisis package, addressing

the striking short-term imbalances that had become apparent in the wake of the

Russian crisis. The intended path of economic reforms is firmly enshrined in medium-

term commitments. In March 2000 the government signed a 15-month pre-cautionary

IMF stand-by arrangement, foreseeing a significant consolidation of public finances

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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and also agreed on a structural adjustment programme with the World Bank. In May

2000, the Lithuanian Government and the European Commission services signed a

Joint Assessment of Economic Policy Priorities. This document outlines the medium

term structural reform commitments of the government to a number of significant

initiatives in the areas of privatisation in the banking and energy sector, fiscal

consolidation, the reduction of state interference in the economy, and social security

reform. Due to the October general elections, some of the momentum in adopting and

implementing reform measures has been lost, but the commitment remains. The co-

ordination between line ministries still leaves something to be desired, but the

successful conclusion of the Joint Assessment can be taken as a sign of improvement.

Real GDP fell by 4.1% in 1999, but it has risen by 2% in the first half of 2000.

Declining exports due to the Russian crisis and unstable supply for the economy’s

central oil refinery industry had led to a decrease in real GDP in 1999. The negative

impact of the Russian crisis started to abate at the end of 1999 and industrial output

rose by 4.5% in the first half of 2000. The pick up in growth has mainly been the

result of stronger external demand. Domestic demand remains subdued, reflecting

moderate wage growth, rising unemployment and a restrictive fiscal stance.

Unemployment rose sharply during the past year.

The rise of unemployment

accelerated during 1999, as the economic recession increasingly affected the labour

market. According to ILO statistics unemployment rose from 13% in May 1999 to

15.3% in November 1999. This trend continued during the first half of this year. In

particular, the rise in youth and long-term unemployment is alarming. The main

labour shedding sectors have been agriculture, industry and construction, whilst

employment increased in the services sector. The regional differences in

unemployment have been relatively low, and they even declined during 1999, as the

recession increasingly affected all regions.

Inflation has fallen drastically, reflecting weak domestic demand and the appreciation

of the litas.

The surplus supply of agricultural goods on the domestic market and the

appreciation of the litas dampened inflationary pressures emanating from increasing

oil prices and administrated prices. Annual average CPI inflation in 1999 was only

0.8%, compared to 5.1% in 1998, while core inflation was 3.3% in 1999; administered

prices were raised by nearly 10%. In the first six months of 2000, year-on-year

inflation was 0.8% on average, compared with 1.2% and 6.6% in the first halves of

1999 and 1998, respectively. The most important single factor contributing to low

inflation was the 1.4% decline in the prices of food, which accounts for some 40% of

the consumer basket.

The currency board arrangement continues to function as nominal anchor for the

Lithuanian economy, after surviving the Russian crisis without much difficulty.

The

real effective exchange rate continued to appreciate (by nearly 10% in 1999), partly

because of the litas' peg to the US dollar. In mid-October 1999, the Bank of Lithuania

announced that it would shift the peg of the litas to the euro in the second half of

2001, maintaining the exchange rate of the day. The announcement had positive

effects on the financial markets.

The general government deficit has improved significantly since the last report.

1999 the deficit was 7�½ % of GDP, excluding privatisation receipts (accounting for

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about 1% of GDP). In early November 1999, the new government presented an “anti-

crisis” programme, including a two-year postponement of the last two tranches of the

savings restitution, which together amount to about 4¾ % of GDP, and various

structural reforms in the social security sector. The budget for 2000 targets a sharp

reduction in the deficit to 2¾ % of GDP. This should be achieved by reductions in

current government expenditures and public investment. The package includes a

freeze of wages and employment in the public sector and a cut-back in subsidies to

enterprises and the agricultural sector. In order to improve the sustainability of the

social security system, the maximum income subject to payroll taxation has been

raised and the rate of the payroll-tax has been increased by 3%. As a result of the

measures, the situation on public finance has already improved significantly. The

latest deficit forecasts point to general government deficit of about 3¼ % of GDP. The

high deficits in recent years resulted in a sharp rise of the public sector debt, which

reached a level of 28.1% of GDP in December 1999.

The full effects of the initiated structural reforms in the public and social security

sector still need time to materialise.

The government started to prepare a reform of the

pension system, envisaging a three-pillar system. The law allowing for the

establishment of private pension funds has been in force since January 2000. Parts of

the privatisation revenues are planned to be used for the build-up of the second pillar

funding. In order to separate privatisation revenues from recurrent revenues, a unified

account at the Bank of Lithuania has been established. This account is the base for the

establishment of a Fiscal Reserve Fund. The Law on Budget Composition of July

2000 reduced the number of extra budgetary funds from 22 to 4, which should help to

limit the impact of such funds on the state budget.

The current account is improving after having deteriorated significantly in 1998 and

1999.

The deterioration reflected a sharp decline of external demand and relatively

stable domestic demand. More recently, the current account deficit has been

improving on the back of stronger growth in the EU and the CIS countries. The

growth in imports declined as a result of low wage growth, increasing unemployment

and the stricter fiscal stance. This resulted in a reduction of the current account deficit

from 11% of GDP in 1999 to about 4.3% in the first half of this year. The trade deficit

remained constant in 1999, but dropped from 12.5% of GDP in the first half of 1999

to 7.8 % of GDP in the first half of 2000. The value of exports increased by 37%,

while imports rose by 19%. More than 95% of the total trade turnover is covered by

free trade agreements. In March 2000 the average weighted tariff was as low as 2.5%.

Total FDI inflows covered about 40% of the financing of the current account deficit.

The financing of the high current account deficit required increased external

borrowing on international financial markets, leading to a sharp rise in the foreign

debt. Official reserves continue to cover about 3 months of imports of goods and

services.

The Lithuanian government has progressively abandoned the protective and market

distorting measures that were introduced in the wake of the Russian crisis.

State

subsidies to affected enterprises have been cancelled and the savings restitution has

been postponed. In addition, the privatisation of the banking sector and that of

infrastructure enterprises have been moved forward.

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The share of administered prices in the CPI basket has further declined from 16% in

1998 to 10.6% in 1999.

Administrated prices have been increased since the last report,

as part of the administration’s strategy to improve the cost coverage of public utilities

and to reduce price distortions. In particular, prices for heating, gas and electricity

were raised significantly. The share of the private sector is about 70% of GDP, both in

terms of value added and employment.

The process of privatisation is approaching its completion, although the book value of

the few large companies which remain to be privatised is sizeable as a percentage of

GDP.

Out of the list of 14 strategic large-scale companies, which was drawn up in

1997, only three companies are still state owned. In all three cases, the privatisation is

in preparation. In one case, the privatisation of one of the two remaining state banks,

the sale is close to completion. The most significant privatisation project during the

first half of 2000 has been the sale of 81% of the shares of the oil exploring and

production company Geonafta, generating revenues equivalent to 1¼% of GDP. In

June 2000, a 25% stake of the Lithuanian Telekom company was sold with gross

privatisation proceeds of about 1�½ % of GDP. The sale of the remaining 10% stake

has been postponed due to lower than expected share prices. The privatisation of

smaller publicly dominated companies is proceeding. So far, during the first 8 months

of this year, 589 objects have been privatised, generating revenues of more than 3% of

GDP. About 25 000 jobs have been affected by the privatisation since 1998, which is

about 1.5% of employment. The total list of privatisation entities still contains about

2 800 entries. Of these, the most significant are 103 state-owned enterprises,

representing a value of about 4% of GDP.

There are still some rigidities concerning market entry and exit.

Largely due to the

Russian crisis and declining state support, the number of bankruptcy procedures

increased from 98 newly initiated procedures in 1998 to 249 procedures in 1999. For

this year, about 400 new procedures are expected. These 400 bankruptcies account for

about a quarter of one percent of all registered enterprises. The share of completed

cases has varied between 16% and 34% since 1998, while the share of liquidated

companies among the completed cases has been relatively stable at about 80%. The

main reasons for the increasing backlog are administrative bottlenecks in dealing with

the rapidly rising number of bankruptcy cases and unsettled disputes about the settling

of debts. In order to address this deficiency the government has started to improve the

education of judges in the field of economic crime and has prepared amendments to

the bankruptcy law and the law for restructuring, which would allow the process to be

speeded up. These two laws are scheduled to be adopted before the end of this year.

Property rights are well established, and land restitution is close to completion.

September 2000, about 78% of the land area claimed in citizens’ applications had

been restituted. This process is supposed to be completed in 2001. The sale of

agricultural land to foreigners is still restricted. Legal certainty has advanced, but the

efficiency of the implementation of the laws could be improved. Although frequent

amendments to existing legislation have been necessary to improve poorly designed

laws, they have resulted in legal uncertainty and low predictability for economic

decision-making. Nevertheless, the general business climate has improved. The

government’s commitment to medium-term programmes has reduced some of the

uncertainties surrounding the future stance on economic policy. The legal framework

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for the reorganisation and liberalisation of the energy market in line with EC standards

has been adopted in July 2000 and will be in force by 1 January 2001.

The Lithuanian banking sector is small, but operates satisfactorily.

At present, it

consists of 10 commercial banks, 1 special purpose bank and 3 foreign bank branches.

The number of commercial banks increased recently, when the Bank of Lithuania

expanded the limited banking licence of one specialised Bank, the

Development Bank,

to a full commercial licence. The share of the public sector in the capital of

commercial banks continued to decline from 36.6% in 1998 to 32.6% in 1999. At the

same time, the share of domestic privately owned assets rose from 25.8% in 1998 to

28.2% in 1999. The role of foreign private owners increased only slightly. The capital

adequacy ratio stood at 16% in July 2000, well above the 10% requirement of the

Bank of Lithuania and the 8% required by international standards. Despite some

second round effects of the Russian crisis, the Lithuanian banking sector withstood the

recession in 1999 without significant difficulties, as the direct exposure of the

Lithuanian Banks in the CIS area has been rather low. The share of non-performing

loans in total loans shrank from 12.5% in 1998 to 11.9% in 1999. However, this

improvement is partly due to the transfer of some non-performing loans to the

workout unit

Turto Bankas.

Net profits of the banking sector as a whole increased in

1999, mainly due to the good performance of the larger banks.

Banks are increasingly starting to channel savings towards the private sector, but

financial intermediation remains low.

Domestic private credit accounts for only about

12% of GDP. Private banks have been rather reluctant to lend to the private sector,

reflecting strict prudential rules after the banking crisis in 1995 and a rather high

financing need of the public sector. From mid-1999 to mid-2000, the direct domestic

lending of the public sector has been declining. The high interest rate level largely

reflects higher risk and economic volatility in a narrow and underdeveloped domestic

capital market. The rather large difference of about 8¾ percentage points between

lending and deposit rates reflects low efficiency and poor competition. However, there

is a clear declining trend since the beginning of the recovery. The non-banking

financial sector continues to be underdeveloped and the nascent stock market suffered

from the Russian crisis and will benefit from the increased funding from the pension

reform.

The privatisation of one of the two remaining state banks, the Agricultural Bank, is

close to completion and the preparations for the privatisation of the Savings Bank, the

largest Lithuanian bank, has started.

Together, these two state banks collect about

46% of total deposits and provide about 40% of the banking sector’s loans. Banking

supervision has been further improved and amendments to the Law on Commercial

Banks have been prepared, approximating the Lithuanian legal framework to the EC

legislation. Since 1 June 2000, stricter precautionary rules are in force, lowering the

limit of the overall exposure of banks in foreign currencies and precious metals.

Lithuania can be regarded as a functioning market economy. Decisive action has been

undertaken in order to correct the fiscal and external imbalances, and to reduce state

interference. Most of the protective measures introduced after the Russian crisis have

been removed. However, continued efforts are needed to maintain fiscal discipline and

to keep the current-account deficit under control. Additional steps, including the

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planned pension reform, should be taken to ensure the medium term sustainability of

public finance. With respect to structural reforms, significant progress has been made

in the privatisation of the banking sector. This is an important step towards improving

the low level of financial intermediation in the economy. Progress has also been

achieved with the adoption of important laws to restructure and liberalise the energy

market. Land restitution is close to completion. Bankruptcy procedures are still not

working properly, and amendments to the bankruptcy and restructuring laws are

needed to ensure effective implementation.

The capacity to cope with competitive pressure and market forces within

the Union

As set out in Agenda 2000, Lithuania's ability to fulfil this criterion depends on the

existence of a market economy and a stable macroeconomic framework, allowing

economic agents to make decisions in a climate of predictability. It also requires a

sufficient amount of human and physical capital, including infrastructure. State

enterprises need to be restructured and all enterprises need to invest to improve their

efficiency. Furthermore, the more access enterprises have to outside finance and the

more successful they are at restructuring and innovating, the greater will be their

capacity to adapt. Overall, an economy will be better able to take on the obligations of

membership the higher the degree of economic integration it achieves with the Union

prior to accession. Both the volume and the range of products traded with EU Member

States provide evidence of this.

Lithuania's economy has progressively become market based.

It has abandoned the

protective stance adopted during the Russian crisis, which proved to be too costly and

only postponed the necessary adjustment. State interference has been reduced

significantly. However, given that the Lithuanian economy is still recovering from the

last sharp recession, stability and predictability have not yet been firmly established.

Lithuania’s labour force is well qualified and wage setting is sufficiently flexible;

however the functioning of the labour market is not very satisfactory.

Structural

unemployment increased sharply during the restructuring process, indicating serious

labour market deficiencies in redirecting labour from shrinking sectors to expanding

ones, and limited opportunities. The Lithuanian government has undertaken various

measures in order to improve the qualification of the unemployed and to re-integrate

them into the labour market. However, with the scarce resources for active and

passive labour market policy, the results have been limited in the light of insufficient

economic growth. The moderate wage agreements of the past year demonstrate the

flexibility of wages on the Lithuanian labour market.

The capital stock is in the process of modernisation. Investment as a share of GDP

was in the range of 24-27% in recent years, sufficiently high to allow for progressive

modernisation of the economy’s capital stock.

However, in 1999, the investment ratio

dropped to 22.5%. Faced with an urgent need to reduce the deficit, government cut

public investment significantly. To a large extent, the decline in investment has also

reflected the impact of the Russian crisis. According to available data, investment has

not picked up in the first quarter of 2000, except in the retail sector. If this trend

continues, the modernisation of the Lithuanian capital stock might take longer than

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expected. Foreign Direct Investments increased by 17% in 1999, excluding receipts

from the privatisation of the telecommunications company. FDI thus accounted for

about 5% of GDP. Main investors are from the EU, in particular the Scandinavian

neighbours. FDI flows primarily went into telecommunications, oil refinery and food

processing, the last two being among the country’s key sectors. As in previous years,

FDI is largely driven by privatisation, while the share of greenfield investment

remains low. The first source of FDI is likely to dry up since the privatisation process

is close to completion. More attention needs to be given to attracting foreign

investment in new and existing private companies.

Enterprise restructuring is proceeding.

The utilities and transport companies will be

split up. On 26 April the government approved a plan to branch off six independent

entities from

Lithuanian Railways.

The implementation of this plan has been held

back by a lack of agreement between ministries. A solution will need to be found by

the new Government. The public Energy Company

Lithuanian Energy

is being

prepared for privatisation next year. Based on a strategy of an international consultant,

several distribution networks will be set up and generation, transmission and

distribution should to be separated. The privatisation of the

Gas Company

is also

under preparation. Relevant laws on the Energy Company and the Gas Company were

adopted in October 2000. When the privatisation of these infrastructure enterprises is

completed, the bulk of state companies will be in private hands. Still on the list are

companies such as

Lithuanian Airlines, Klaipeda Transport

and

LISCO,

the Sea

Shipping Company. With respect to other enterprises, the government has

significantly reduced financial support to non-performing companies, which will

speed up the restructuring and, if necessary, liquidation process. Instead, increasing

emphasis is put on the promotion of small and medium sized enterprises by initiatives

to improve the legal and economic environment. Further restructuring will be

necessary, in particular in the agricultural sector and in those enterprises that

specialised in exports to the CIS countries.

The general policy stance taken since last year is characterised by measures to reduce

the role of the state in the economy.

State subsidies have been substantially reduced

and import restrictions have been lifted. Tariff barriers have been reduced, but non-

tariff barriers remain in place. Lithuania is a member of the Baltic Free Trade Zone

and intends to join the WTO before the end of this year. State aid has been reduced.

The industrial policies, competition policy, export promotion and SME policies have

been reformulated since the last regular report in order to comply with EC standards.

Lithuania’s trade integration with the EU is increasing.

Because of the small size of

the local market, most industries are highly export oriented. Exports are recovering,

after droppingsharply due toby the Russian crisis. Nominal exports declined by 19.3%

in 1999, compared with 1998. The fall in exports to the CIS countries alone would

have led to a decline in total exports of about 21%, but was dampened by a rise in

exports to the EC of 6.5%. As a result, the share of exports to the EC in total exports

increased from 38% in 1998 to slightly over 50% in 1999, and the export share to the

CIS countries halved to 18%. The increase in the value of exports to the EC is also

remarkable. Despite the appreciation of the litas, exports to the EC rose from

€1.3

billion in 1998 to

€1.4

billion in 1999, while total exports declined from

€3.3

billion

€2.8

billion in the same period. Due to the output decline, nominal imports shrank

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by 17.3% in 1999, compared with 1998, while the share of imports from the EC

declined from 50.2% to 49.7% of total imports.

The commodity composition of exports to the EC is improving.

The share of industrial

products in total exports to the

market rose from 62% in 1998 to 67% in 1999,

while the share of agricultural commodities shrank from 8% to 6%. In trade with CIS

countries, industrial commodities account for only 43%, while agricultural

commodities account for 21%. This pattern indicates that some parts of Lithuanian

industry can be competitive on

markets, while other sectors, such as agriculture,

are more vulnerable to external shocks and more likely to encounter difficulties in

trying to redirect their exports.

Small and medium sized enterprises constitute the backbone of the Lithuanian

economy.

Their share in the economy’s value-added is about 47%, compared with

only 16% in 1991. More than 80% of Lithuanian enterprises employ 10 persons or

less, while less than 1% has more than 250 employees. About half of all enterprises

with less than 50 persons are operating in the trade sector. There are still some

relatively large enterprises which need to be restructured in order to be competitive in

the

market. The ratio of start-ups to incumbent enterprises is about 10%, which

illustrates that the enterprise sector is sufficiently dynamic. On the other hand, the

ratio of enterprises that fail within three years after having started is close to 50%.

This indicates that there is the readiness to take the risk of starting a new business, but

also that it is difficult to keep the business going. Small and medium sized enterprises

continue to experience difficulties in access to finance

(see also chapter 16 – Small

and medium-sized enterprises).

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

the Union in the medium term, provided that it continues with the implementation of

the current structural reform programme and undertakes further necessary reforms.

Lithuania has preserved macroeconomic stability, but continued fiscal discipline is

needed. Further progress has to be made on the modernisation of production capacity

and the reorientation and diversification of trade. The country’s human and physical

capital needs to be further developed. In particular, the attractiveness for foreign direct

investment has to be maintained, once privatisation is completed. In view of the sharp

increase in unemployment, the labour market needs to be made more flexible.

Particular attention has to be paid to implementing the necessary structural reforms

swiftly in order to improve the economy’s flexibility and achieve sustainable growth

2.4.

General evaluation

Lithuania can be regarded as a functioning market economy and should be able to

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

term, provided that it continues with the implementation of the current structural

reform programme and undertakes further necessary reforms.

Lithuania has preserved macroeconomic stability and managed to reduce the fiscal and

external imbalances and state interference. The protective measures introduced after

the Russian crisis have been largely removed. Significant progress has been made in

the privatisation of the banking sector. Progress has also been achieved with the

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adoption of important laws to restructure and liberalise the energy market. Land

restitution is close to completion.

However, there is a need to maintain fiscal discipline and to keep the current-account

deficit under control. The medium-term sustainability of public finances is not yet

ensured. Bankruptcy procedures are still not working properly. The physical and

human capital has to be further developed and the financial sector remains weak.

There is room for further trade integration with the EU.

The authorities need to pass the amendments to the bankruptcy and restructuring laws

and must subsequently ensure their effective implementation. Fiscal discipline must

continue and the sustainability of public finances in the medium-term must be

ensured. The planned pension reform must now move into the implementation phase.

The reforms to enhance the financial sector need to be completed to foster the

modernisation of productive capacity. The labour market needs to be made more

flexible.

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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 Lithuania’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 Lithuania’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 Lithuania’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 Lithuania 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 Lithuania’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 :

“Lithuania has made progress in most areas of the internal market, in particular in

public procurement, intellectual and industrial property, conformity assessment, free

movement of capital and services, as well as in anti-trust legislation. However,

enforcement capacity should be strengthened, in particular as regards the fight against

piracy. State aids control continues to be a matter of concern and further alignment of

legislation and stricter control procedures are needed. Further efforts are also needed

in the area of the free movement of goods (standardisation and market surveillance).

A description of the

acquis

for each chapter can be found in the Commission’s 1997 Opinion on Lithuania’s application for

EU membership.

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No progress has been made in the audiovisual sector and major efforts are required to

bring taxation into line with the

acquis.

While progress can be noted in agriculture these efforts should be sustained. Much

remains to be done on fisheries. While progress is good in transport, efforts should

now concentrate on fiscal harmonisation in road transport, maritime safety and

aviation

acquis.

Significant progress has been made in the field of environment,

although the level of compliance is uneven in environment. The efforts made in the

social sector should be sustained, in particular with regard to the enforcement capacity

of the

acquis.

Particular attention should be paid to regional policy where much

remains to be done. There has been impressive progress in justice and home affairs,

but little in customs where the capacity of the administration is a matter of concern.

Little progress has been made on financial control.

Lithuania has made determined efforts in the field of energy policy and taken a

welcome decision on the closure of the Ignalina nuclear power plant, which represents

a significant sign of its commitment towards European integration.

Continued attention is needed to ensure that the significant progress made in

transposing the

acquis

and in meeting most of the short-term Accession Partnership

priorities, is matched by similar progress in strengthening implementation and

enforcement capacity. Particular attention should be paid to state aid control,

environment, customs, regional policy, financial control and social policy. The new

public administration law and the continued reform of the judiciary are positive

developments in this respect.”

3.1.

The chapters of the

acquis

As indicated, the review of Lithuania’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, Lithuania has made steady progress in the area of free

movement of goods.

In the context of

horizontal and procedural measures,

the Law on Product safety

entered into force in January 2000 and the Law on Standardisation was adopted by the

Seimas in April 2000. Limited progress has been made in adopting European

harmonised standards. According to latest data of October 2000, a total of 1506

standards have been adopted. With regard to accreditation, Lithuania has been a full

member of the European Accreditation Association since June 1999 and has, in

February 2000, applied to sign the relevant Multilateral Recognition Agreements.

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Good progress has been made in meeting the 1999 Accession Partnership short term

priority of developing the appropriate conformity assessment infrastructure.

Lithuania has made steady progress in the adoption of

sector specific legislation

(in

accordance with the relevant 1999 Accession Partnership short term priorities),

particularly with regard to a number of areas covered by the

New Approach

Directives.

Further transposition, in line with the

acquis,

was achieved in the

following areas: safety of machinery, personal protective equipment, electrical safety

and electrical equipment, construction products, gas appliances, pressure vessels, lifts,

explosives for civil uses, toys, non-automatic weighing equipment and recreational

craft.

In the field of

Old Approach Directives

some progress was also made as concerns the

implementation of the

acquis

in the areas of pharmaceuticals (including

pharmaceuticals for veterinary use), aerosol dispensers, detergents, crystal glass,

textiles and footwear. In the area of chemicals, the Law on Chemical Substances and

Preparations was adopted in April 2000, establishing the framework provisions for

dangerous substances and preparations. A Law on Food was also adopted in April

2000 and entered into force in July 2000. Efforts have been made to modernise the

food control laboratories.

(see also Chapter 23 Consumers and Health Protection).

As concerns the development of Lithuania’s administrative capacity for the

implementation of horizontal and procedural measures and sector-specific legislation,

progress has been made in establishing and strengthening the necessary framework

institutions in standardisation, accreditation and metrology. The aforementioned Law

on Standardisation foresees the establishment of an independent standardisation

institution, the Lithuanian Standardisation Association, responsible for the

development of standards.

At present, the Lithuanian Standardisation Board carries out all standardisation related

activities. 58 Technical Committees work under its supervision and a further 7 are

under establishment. The main function of the Technical Committees is the drafting of

Lithuanian standards. The Lithuanian Standardisation Board has 56 employees, which

is an increase compared to 1999. During the past year, specialist training further

strengthened the administrative capacity of the Lithuanian Standardisation Board. In

November 1999, a Quality Systems Certification Division at the Lithuanian

Standardisation Board was established to enhance the infrastructure of conformity

assessment.

In the area of accreditation, the National Accreditation Bureau (8 persons) has

significantly increased its activities since 1999. At present, 33 testing laboratories, 17

calibration laboratories and 6 product certification bodies have been granted

accreditation in Lithuania.

The certification institution issued its first certificate (LST-Sert) of conformity with

the ISO 9002 standard. So far, the Dutch TNO Certification body has guaranteed the

recognition of LST-Sert certificate. The issuing of a first domestic conformity

certificate will help Lithuanian firms to introduce modern quality control systems,

which faced some difficulties due to high prices of foreign certification firms and the

language barrier. The Technical Division of the State Road Transport Inspectorate

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commenced activities in September 1999, and is presently responsible for all issues

relating to conformity assessment of motor vehicles and their parts.

The State Metrology Service employs 10 persons, which is an increase compared to

1999 (8 people). It is responsible for the transposition and implementation of 26 EC

Directives. It co-ordinates traceability of measurements and organises and carries out

scientific, legal and administrative activities on metrology issues. The State Metrology

Service is a corresponding member of the International Organisation for Legal

Metrology, a member of the Central and Eastern Europe Metrology Organisation, and

an associate member of the European Co-operation in Legal Metrology. In November

1999, it became an associate member of the European Co-operation of National

Metrology Institutes. Metrology Centres and state companies carry out verification

and calibration of working measuring instruments.

In May 2000, the Lithuanian Government adopted a Resolution on the re-organisation

of market surveillance institutions. The market surveillance institutions in Lithuania

were reorganised, on the basis of which the new Veterinary and Food Service and

Non-food Inspectorate are operating as of July 2000. This has helped towards

developing a coherent strategy on market surveillance. The new Veterinary and Food

Service took over functions of the State Veterinary Service and subordinate veterinary

institutions. The Non-Food Inspectorate took over functions of the State Hygiene

Inspectorate under the Ministry of Health, and of the State Quality Inspectorate under

the State Consumer Rights Protection Service.

(See Chapter 23 – Consumers and

Health Protection).

Since the last Regular Report, no new developments have taken place as regards

non-

harmonised areas.

New legislation on

public procurement

entered into force in October 1999 and

January 2000 and has been further supplemented by a number of secondary legal acts.

As concerns the strengthening of administrative capacity in the area of public

procurement, the Independent Commission for Dispute Settlement in Public

Procurement was established in January 2000 and is in charge of dealing with

complaints of suppliers/contractors against public procurement procedures. Decisions

of the Commission are binding on the supplier/contractor and the contracting

authority. Specialist training of the members of the Independent Commission has

already commenced.

The existing Public Procurement Office has been competent in its conduct of activities

since the last Regular Report. In 1999, the Office handled 251 complaints, which is a

significant increase compared to 1998. In January - March 2000, 18 complaints were

handled by the Office. Out of a total of 269 complaints, received from January 1999 to

March 2000, in 30 cases tender results were cancelled by the Office, in 82 cases

procurement agents were asked to further discuss tender results and in 94 cases

complaints were dismissed.

The total value of 6,898 public procurement contracts awarded in 1999 amounted to

€

600,000 million, of which 53.5% entailed the procurement of works, 37.4% -

products, and finally 9.1% - services. The majority of procurement contracts (97.4%)

were awarded by way of open tender.

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Overall assessment

Lithuania has achieved a reasonable level of alignment with the

acquis

as regards free

movement of goods. However, further efforts are needed in some specific sectors in

order to complete the alignment in this area.

The establishment of the general framework in the New Approach area regarding both

the legislation as well as the institutional framework has progressed well in the past

few years. Whilst legislation in many of the New Approach sectors has been

introduced, the number of adopted standards remains very low. As concerns the

remaining New Approach sectors, efforts should be concentrated on further

transposing the

acquis

in the areas of construction, medical devices, electromagnetic

compatibility, telecommunications and pre-packaging. Some progress has also been

made as regards the transposition of Old Approach Directives. Nonetheless, further

efforts are needed, for instance, in the areas of foodstuffs, pharmaceuticals, motor

vehicles, notification of dangerous substances, wood and cosmetics. It should be noted

that a large number of the legal acts which have been adopted (such as regulations and

ministerial orders), relating to both New and Old Approach sectors, have not yet

entered into force. Enforcement, thus, must be closely monitored.

In order to strengthen its autonomy, the status of the Lithuanian Standardisation Board

will be changed in the process of the implementation of the Law on Standardisation

and it will be reorganised from a state institution into a non-profit association by the

end of 2001. However, as the Standardisation Board will become a self-sustainable

organisation gaining revenues from training and distribution of standards, it should

establish a sustainable financial framework for its future activities. It is expected that

the forthcoming reorganisation of the Standardisation Board will ensure better

involvement of the industry.

Progress has taken place in the area of accreditation; however, the Accreditation

Bureau needs to be further strengthened in terms of specialised staff.

Although testing and certification facilities have been upgraded in the beginning of

2000, there is still a need for further strengthening in terms of technical and

operational capacities and know-how. Lithuania should improve co-operation with

neighbouring candidate countries in order to enable the sharing of testing and

certification facilities.

The new institutional set-up for market surveillance in Lithuania should lead to

improved results as, currently, different methods are used for surveying foodstuffs and

non-food products. Taking into account the recent re-organisation of the sector,

operational capacities of the staff should be strengthened in order to enable the

institutions to be fully operational under new conditions and increased responsibility.

A state institution responsible for the overall co-ordination of the entire mechanism of

the market surveillance has not been established yet. Therefore, co-ordination for

market surveillance remains a priority.

As concerns the non-harmonised sector, more emphasis needs to be given to a full

internal screening of the legislation in force which affects the implementation of the

relevant

acquis.

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As regards safety checks on products at external borders, Lithuania needs to complete

the establishment of appropriate infrastructure as well as ensuring effective

administrative co-operation between competent authorities.

The Lithuanian legislation in the area of public procurement is largely in line with the

acquis,

although effective implementation and the adoption of the necessary

secondary legislation will have to be closely monitored. In order to ensure successful

enforcement of the Law on Public Procurement, which is a short-term priority of the

1999 Accession Partnership, administrative capacities should be further strengthened,

particularly in the area of international tendering procedures. In order to reinforce

operational capacities of the Public Procurement Office, standard documents for

different types of procurement should be available and put into practice. The Public

Procurement Office should develop an information system for the monitoring of

procurement and dissemination of information, in line with best practices of EU

Member States. Furthermore, the independence of the Public Procurement Office

must be strengthened.

Chapter 2: Free movement of persons

Since last year’s Regular Report, Lithuania has made a reasonable degree of progress

in the field of free movement of persons.

In the area of

mutual recognition of professional qualifications,

further progress

was made through the adoption, in December 1999, of a Government Resolution,

which establishes the general procedures for recognition of qualifications (both

professional and academic) acquired abroad. A further Government Resolution (on

regulations covering the assessment and recognition of qualifications and the approval

of a list of competent authorities and regulated professions) was adopted in June 2000.

Recognition of professional qualifications is carried out by relevant ministries and

institutions as determined by the new law on Higher Education which was adopted in

March 2000. An Appeals Commission was established by the Ministry of Education

and Science in February 2000 and will act as an arbiter in the settlement of appeals

filed against the decisions of institutions authorised to validate qualifications acquired

abroad.

With regard to

citizens’ rights,

Lithuania has made progress in aligning its national

legislation on rights of residence with that of the

acquis.

A new format for foreigners’

residence permits was adopted in January 2000. A Government resolution covering,

inter alia,

residence of aliens in Lithuania was adopted in February 2000. The law on

the legal status of aliens was amended in October 1999 and January 2000 regarding

provisions on health insurance and also in order to specify those bodies and persons in

Lithuania responsible for issuing residence permits.

Lithuania has prepared an action plan of legislative and administrative measures to be

implemented in the area of

free movement of workers

during the pre-accession

period. Some of the organisational and technical conditions necessary to ensure the

free movement of workers in Lithuania are already in place. A network of the State

Employment Service (Labour Exchanges of Lithuania) covering the whole country has

been established to implement labour market policy. It is also responsible for the

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practical implementation of employment of foreigners. There is also an International

Relations Department within the National Labour Exchange Office.

With a view to the future

co-ordination of social security

systems, in December

1999, Lithuania ratified a bilateral agreement on Social Security between Lithuania

and Czech Republic. The Department of Foreign Pensions, established under the State

Social Insurance Board on 1 July 1999, is responsible for the implementation of

bilateral agreements.

Overall assessment

Lithuania has undertaken a number of preparatory measures in the area of free

movement of persons, however these need to be built upon to ensure that, by

accession, there are no provisions in national legislation that contradict Community

rules, in particular with respect to nationality, residence or language requirements.

In the area of professional qualifications and mutual recognition, framework

legislation is largely in place, however, a considerable amount of supplementary

specific legislation still needs to be adopted. Another concern in this area is the

tendency to apply academic recognition procedures to the case of professional

qualification, in particular in the case of sectoral Directives that foresee automatic

recognition. With regard to the institutional framework in this context, a certain

overlapping between the responsible authorities for academic and professional

recognition appears to remain. Lithuania has made progress in aligning its legislation

with the

acquis

as concerns rights of residence and some of the key institutions and

legislation necessary for guaranteeing free movement of labour are already in place.

As concerns preparations to participate in the EURES network, continued efforts are

required to strengthen public employment services, notably regarding linguistic

training of staff.

With a view to the future co-ordination of social security systems, further

development of sufficient administrative structures, including training of staff, is

required.

Chapter 3: Freedom to provide services

Since last year’s Regular Report, Lithuania has achieved a moderate degree of

progress in furthering the legislative alignment as concerns the freedom to provide

services, namely in the insurance and banking sectors and personal data protection. In

terms of administrative capacity most relevant bodies have been strengthened,

however this process is far from complete.

In the area of

freedom of establishment and freedom to provide services

the

Lithuanian Parliament adopted amendments to the Law on Enterprises in December

1999, which enables companies registered abroad to establish branches in Lithuania.

As concerns

financial services,

in the

banking sector,

the Board of the Bank of

Lithuania has, during the course of 1999 and the first half of 2000, proceeded to adopt

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a number of resolutions concerning,

inter alia:

commercial bank operations,

consolidation of financial statements and consolidated supervision, calculation of

foreign exchange and precious metal exposure, annual financial statements of banks,

procedures for risk evaluation and a methodology for the calculation of the

requirements on the maximum exposure to a single borrower and on the overall

amount of large exposures. These resolutions have brought Lithuanian legislation

more in line with the

acquis.

The Law on Commercial Banks was amended in March 2000, in line with the

acquis,

allowing branches of foreign banks to set up their business in places other than their

registered offices in Lithuania.

In May 2000, the Lithuanian Parliament adopted a Law on the Central Credit Union,

in order to ensure proper co-ordination of activities of all credit unions. Amendments

were also made to the Law on Credit Unions, which expands the list of members of

credit unions by including natural persons and a limited number of legal persons. As

of May 2000, 36 credit unions are operational in the Republic of Lithuania, with assets

amounting to

€3.4

million, which amounts to less than 0.1 per cent of the total assets

of credit institutions.

Regulations on capital adequacy were modified in March 2000, with a view to

tightening the assessment of the country risk.

In March 2000 the Law on

Insurance

was amended, laying down certain provisions

regulating the protection of the policyholders’ rights in accordance with the Second

Life Assurance Directive as well as revoking the requirement of reciprocity between

Lithuania and WTO countries. The abolition of the reciprocity requirement should

facilitate the establishment of subsidiaries of insurance companies of WTO countries

in Lithuania.

With regard to insurance supervision, secondary legislation providing requirements

for the operation of insurance companies was further developed and fine-tuned. The

Board of the Lithuanian State Insurance Supervisory Authority approved

modifications to the method of solvency margin calculation whereby defining the

rules more accurately. In February 2000 legislation on the approval of the form of

economic activity background (business plan) of an insurance company was amended,

specifying the information that should be provided in the business plan of a new

insurance company.

As regards

investment services and securities,

the Law on Investment Companies was

amended in November 1999, in line with the

acquis

in the field of collective

investment undertakings.

In October 1999, the Lithuanian Parliament adopted the Law on Payments. The Law

establishes payment instruments, which are used for funds transfers, specifies rights

and duties of institutions offering domestic funds transfer services and obligations

regarding execution of transfers.

In the area of

protection of personal data and the free movement of such data,

Lithuania signed the Convention for the protection of individuals with regard to the

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processing of personal data in February 2000, and in the following month the

Government established a computerised register of personal data managers. A new

Law on Legal Protection of Personal Data was adopted in July 2000, aiming at

bringing Lithuanian legislation in this field closer in line with the

acquis.

In the year 2000 to date, the State Data Protection Inspectorate has registered 508

personal data managers. A total number of 668 data managers has been registered

overall. From January to March 2000, the Inspectorate carried out 9 inspections on the

processing of personal data in both public and private sectors and investigated two

complaints. It also provided over 100 consultations on processing of personal data.

In the area of

information society regulations,

a Law on Electronic Signatures was

adopted in July 2000.

Overall assessment

Progress has been made in the area of freedom of establishment and freedom to

provide services, by way of the adoption of amendments to the Law on Enterprises

which are largely in line with the

acquis.

Concerning, however, the distinction

between establishment and provision of services, there is a tendency to apply

establishment procedures for the provision of services, for which a simple and speedy

procedure should be applied.

In the area of financial services, some progress has been achieved since the last

Regular Report. Legislation should be further improved in the securities and insurance

sectors. Although progress has been noted, considerable work is still needed as

concerns insurance supervision services.

Progress has been made in the area of protection of personal data, by way of the

adoption of a new law in July 2000. In terms of administrative capacity, however, the

State Data Protection Inspectorate remains understaffed and specialist training is

required. The independence of the Inspectorate needs to be strengthened. In general,

the scope of data protection is not yet fully appreciated in the judiciary and amongst

other institutions dealing with state security.

As concerns information society regulations, Lithuania has made some progress with

the adoption of the Law on Electronic Signatures. Lithuania still needs to align its

legislation, however, with regard to the Transparency, Conditional Access and

Electronic Commerce Directives.

Chapter 4: Free movement of capital

Since the last Regular Report, Lithuania has made further progress towards complete

alignment in the area of free movement of capital.

As regards

national treatment,

in December 1999, the Seimas amended the Law on

Enterprises to provide, in accordance with the Accession Partnership, the possibility

for enterprises (including insurance companies) registered abroad to establish their

branches in Lithuania.

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As regards

inward direct investment,

in February 2000, the Law on Investments was

amended in order to further align this area with the EC

acquis

and to meet the relevant

short-term priority of the Accession Partnership. Restrictions for inward investment in

activities related to the circulation of narcotic, psychotropic and toxic substances, as

well as substances of strong effect, have been abolished (adequate controls of such

activities have been ensured, irrespective of the origin of the business).

Concerning

the asset allocation of institutional investors,

in January 2000, the

Rules on Investment Funds Asset Allocation were amended, establishing the freedom

for investment funds to invest in the EEA markets on the same basis as in the

domestic market. For prudential reasons, investment in non-EEA markets is limited to

a list of countries approved by the Lithuanian Securities Commission.

In November 1999, the Seimas amended the Law on the Prevention of

Money

Laundering

in order to further align it with the

acquis.

In 2000, a new Unit on

Economic Crime has been established at the State Security Department. Although the

Unit is not yet fully operational, activities have started.

In the field of

payment systems,

the Law on Payments (adopted in October 1999) has

improved the legal framework for inter-bank transfers. Progress has also been made

toward the implementation of a real time gross settlement (RTGS) system.

Overall assessment

Lithuania has reached a high degree of liberalisation of capital movements. There are

no restrictions on the inflow and expatriation of capital by investment companies.

The remaining restrictions concern mainly inward direct investments in the lotteries

sector and in the activities related to national security, national defence and the

security services sector; the acquisition of non-agricultural land by foreigners

(authorisation procedures); provisions in company law permitting special rights for the

State in privatised companies and the application of those rights in several companies;

cross-border operations of EU insurance companies; investment in foreign assets by

Lithuanian pension funds and insurance companies; capital adequacy provisions for

financial brokers concerning investments in EU markets and the physical cross-border

transfer of currency. In addition, the acquisition of agricultural land by foreigners and

legal persons is prohibited by Article 47 of the Lithuanian Constitution.

As regards administrative capacity, the new approach to the balance of payments

statistics will require additional staff and equipment in the Bank of Lithuania. In

payment systems, Lithuania is achieving some overall progress.

As regards the prevention of money laundering, Lithuania has made important

progress with the adoption of new legislation. However, it is still too early to evaluate

its effective implementation. Efforts should now concentrate on increasing the

enforcement capacity, mainly in terms of inter-agency co-operation, of the Tax Police

and the State Security Department.

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Chapter 5: Company law

Since the last Regular Report, Lithuania has achieved a moderate degree of progress

concerning the alignment with the

acquis

in the area of company law and has

improved the legal protection of the intellectual and industrial property rights as

regards criminal liability.

In the area of

company law,

in December 1999, the Seimas amended the Law on

Enterprises to provide, in line with the

acquis,

the possibility for companies registered

abroad to establish their branches in Lithuania. Secondary legislation ensuring the

implementation of this provision was adopted in July 2000. In July 2000, the Seimas

amended the Law on Companies to bring it further in line with the

acquis,

notably

with regard to access to information, mergers and divisions, and the protection of

creditors’ and shareholders’ rights.

As of 31 August 2000, a total number of 135,219 companies have been registered

with the central Register of Enterprises. As regards

audit,

the Lithuanian Chamber of

Auditors was established. Presently, Lithuania counts about 540 statutory auditors and

160 audit firms. The Chamber approved in June 2000 the Code of Ethics for

Professional Auditors. In addition, the Auditors’ Court of Honour was established,

comprising 5 members to serve for a term of two years.

In the field of

accounting,

there was no legislative development in the reporting

period.

As regards

protection of intellectual and industrial property rights,

the Seimas

amended the Criminal Code and the Code of Criminal Procedure in April 2000 to

provide for a criminal liability for violation of intellectual and industrial property

rights.

The 1999 Accession Partnership identified, as short term priorities, the need to

reinforce administrative capacity and to strengthen border control. Limited concrete

developments, however, have taken place as regards improving the effective

enforcement of the protection of intellectual and industrial property rights. In

September 2000, the Government did, nonetheless, adopt a Strategy on the

Enforcement of Copyright and Related Rights, including an action plan until 2003.

According to a Government Resolution of November 1999 the main co-ordinating and

implementing institution in the area of intellectual property rights is the Ministry of

Culture. However, the Unit for Copyrights under the Ministry of Culture is largely

understaffed. While there should be a staff of 6 employees, as of now only 2 have

been recruited. In January 2000, the Board of Copyright and Related Rights of

Lithuania was established, consisting of representatives of associations of owners and

of users of copyright and related rights. The Board shall be responsible for the

investigation of issues related to the implementation of provisions of the Law on

Ministry of Culture.

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In the field of collective administration of copyright, in 1999 the Agency of Related

Rights Association was established. This Agency should complement the activities of

the Lithuanian Agency of Copyright Protection working since 1991.

In 1999, the Unit for the Protection of Intellectual Property Rights, which was

established at the Tax Police Department (under the Ministry of the Interior), made 44

investigations and filed 24 administrative cases against violators of intellectual

property rights. During January – June 2000, on the basis of the Tax Police

investigations in the areas of pirated CDs and videos, 2 criminal cases have been

initiated.

In March 2000, a register of computer software was established in line with the

acquis

on the legal protection of software.

As regards industrial property, the Lithuanian State Patent Bureau approved the

Industrial Property Information Strategy of Lithuania in October 1999. In May 2000,

the Seimas amended the Law on Industrial Designs, in order to further align it with the

acquis.

As concerns administrative capacity for industrial property rights protection, in

January 2000 the new regulations and the new administrative structure of State Patent

Bureau were approved. A Division of International Trademarks was established,

which is responsible for examination of the international registrations under the

Madrid Protocol. From January – May 2000, 1,656 foreign trademarks were registered

in Lithuania. (In 1999, 3,694 foreign trademarks were registered.) Employees have

undergone training in foreign patent agencies. In May 2000, the Patent Bureau

employed staff and 48 patent agents are registered in the private sector.

Overall assessment

Whilst Lithuania has, by and large, made progress in most areas, particularly in terms

of legislative alignment, effective enforcement is still seen as the major weakness.

In the field of company law, Lithuanian legislation is largely in line with the

acquis.

The legislation concerning the Register of Enterprises should be improved in order to

ensure the preventive control of documents submitted to the Register’s manager, the

submission of annual financial statements by enterprises and the establishment of a

specialised official publication for company information.

As regards accounting, while the legislation is in line with the basic principles of the

acquis,

Lithuania should define the requirements for becoming an auditor and the

cases where consolidated accounts are obligatory. In addition, the necessary

institutional structures should be established and the qualification of specialists should

be further improved.

As regards intellectual property rights, Lithuanian legislation is largely in line with the

acquis.

However, considerable efforts are still necessary for reinforcing the

administrative capacities of the Copyright Unit in the Ministry of Culture and the

collective administration associations especially seeking to improve the fight against

piracy. The area where major progress is needed is in the enforcement of copyright

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legislation. This also includes urgent training and adequate initiatives for copyright

enforcement agencies such as the Tax Police, administrative and criminal courts as

well as the Prosecutors Office. In the administrative field, higher fines are necessary

and procedures for allowing police or the Prosecutor’s Office to confiscate pirated

goods should be improved. In order to enforce copyrights at the border, Lithuania

needs to upgrade the Customs Department, which now has new investigative and

operational enforcement powers in relation to goods smuggled across the border.

Currently Customs authorities lack expertise to implement border measures

effectively.

In the area of industrial property rights, Lithuanian legislation is largely in line with

the

acquis.

However, further alignment is still required concerning patent law

(including the introduction of Supplementary Protection Certificates), trademark law

and design law. As concerns administrative capacity, however, specific reinforcement

of skills in the area of supplementary protection certificates for medical products,

plant varieties and biotechnological inventions is necessary.

Chapter 6: Competition policy

Since last year’s Regular Report, Lithuania has made good progress both in the field

of anti-trust and state aid.

In the field of

anti-trust

the Lithuanian Competition Council in December 1999

adopted secondary legislation in the form of block exemptions for a number of

different categories of restrictive agreements (franchising agreements, exclusive

distribution, exclusive purchasing). The Competition Council also adopted

Resolutions on the definition of relevant markets and on merger notifications in

February and April 2000, respectively. These represent a further step forward (in

accordance with the relevant 1999 Accession Partnership short term priority) in

bringing the competition legislation into full conformity with the

acquis.

The organisational framework for the activities of the Competition Council was

established in October 1999, in accordance with the relevant 1999 Accession

Partnership short term priority. The five permanent members of the Competition

Council have been nominated and the Council’s Administration has been set up

serving as the secretariat for the Council. The Administration consists of different

functional divisions and is responsible for the preparatory work, e.g. submitting

proposals to the Council. This sets out the procedural framework for the

implementation of Competition Law. The anti-trust field now employs 22 experts and

it can be noted that staff reinforcement and training has taken place.

In the field of

state aid,

the 1999 Accession Partnership short term priority identified

the need to align Lithuanian State aid legislation. In this respect, the Law on the

Control of State aid entered into force in June 2000. This law contains the basic

principles of EC State aid control and appears to largely follow the principles of the

EC state aid

acquis

providing a basis for the control of aid proposals. In September

2000, the Seimas amended the Law on Free Economic Zones to ensure that any aid

measures granted through the zones will have to be subject to the provisions of the

Law on the Control of State aid and also scrutinised individually by the Competition

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Council. In order to ensure a differentiation of maximum aid intensities in assisted

areas, Lithuania has commenced the preparation of the regional aid map in

consultation with the Commission.

As regards transparency of aid, Lithuania has submitted a State aid report for the year

1998 and the quality has improved so that it largely follows the methodology and the

presentation of the Community’s Survey on State aid and provides for a reasonable

level of comparability. In accordance with the relevant Accession Partnership short

term priority, a State aid inventory has also been prepared, albeit with an incomplete

coverage.

Overall assessment

Lithuania is, overall, making steady progress in the area of competition policy.

Lithuania’s anti-trust legislation is now largely compatible with the

acquis.

The

Lithuanian Competition Law contains the main principles of Community anti-trust

rules, as regards restrictive agreements and abuse of dominant position. Merger

control is also provided for under the Competition Law and follows closely the

practice of EC merger control. As regards secondary legislation, further alignment is

still necessary, in particular in view of the Community’s new policies on vertical

restraints.

With regard to enforcement practice, it can be noted that many cases so far, and under

the old legislation, tend to relate to less important breaches of competition law. The

main challenge now is to ensure that the application and enforcement of the anti-trust

rules are effective and that priority is given to such cases that concern the most serious

distortions of competition (e.g. cartels). It now appears that the Competition Council

has started making active use of its reinforced powers under the Competition Law and

has launched fresh investigations.

The granting of State aid in Lithuania has so far not been systematically controlled in

line with the

acquis

requirements and the State aid award provisions have only been

partially aligned with the

acquis.

Once the recently introduced framework legislation

on State aid is implemented, the situation would be expected to improve and the

granting of State aid in Lithuania aligned with the basic principles of the

acquis.

The

limited scope, however, of the State Aid Law, gives rise for concern, as it would

appear that State aid proposed directly by the Government under legislative acts and

Government decisions could escape control under the Law. The consultation

mechanism that has been established, whereby the Competition Council advises the

Government, must ensure that the decisions taken are in conformity with the

acquis.

The adoption of the necessary remaining secondary legislation should be accelerated,

in particular, with regard to procedural rules for aid monitoring, forms of notification

and the preparation of annual reports. The main priority now is to achieve effective

application and enforcement of the State aid rules, including the alignment of existing

aid schemes and legislation under which authorities at various levels grant aid. Further

resources may need to be accorded to the Competition Council in this regard. The

State Aid Division of the Competition Council consists of 5 employees. The State Aid

Inventory, which has been prepared, seems to be functioning. Particular attention must

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be paid to the full coverage of the inventory, including all relevant legislation on

taxation.

Chapter 7: Agriculture

In 1999, agriculture in Lithuania accounted for 8.8% of GDP, while in 1998 it

accounted for 10.3% of GDP. The agriculture and food sectors combined represented

14.6% of GDP.

Employment in agriculture accounted for 20.2% of total employment

in 1999, as opposed to 21% in 1998.

The situation for the agricultural sector in 1999 was characterised by an increase in

agricultural output of 3.7%. While the livestock sector saw an increase of 2%, crop

production declined by 2.7%.

One of the consequences of the reduction of traditional

outlets for the Lithuanian agricultural sector, due to the Russian financial crisis, has

been an increasing differentiation between enterprises able to look for outlets in

solvent markets, and those which do not have such a capacity.

As regards the

agro-food

sector, the developments have been rather mixed. Therefore,

Lithuania has only partly met the relevant short term priorities. The restructuring has

continued in the dairy sector, where investments focussed on the improvement of

hygienic status and technologies.

In 1999, EC imports of agricultural products originating in Lithuania amounted to

€99.8

million, whilst EC exports to Lithuania amounted to

€250

million. The trade

balance in favour of the EC amounted to

€150

million compared to 208 million in

1998.

In this context, the new reciprocal concessions on agricultural products

negotiated under the Europe Agreement cover a substantial part of Lithuania’s

agricultural exports

(see section A.b. – Relations between the European Union and

Lithuania).

The support to the agricultural sector under the 2000 budget amounts to

€105

million,

out of which

€41

million are intended as direct support to farmers.

Evolution of the farm structure during 1999 has been characterised by a twofold

tendency: an increase in the number of very small farms up to 3 hectares, as well as an

increase in the largest farms over 30 hectares. Overall, the average farm size has

slightly increased to 12.1 hectares.

Land reform has continued. Restitution of ownership rights to land has been

accelerated: as of 1 September 2000, ownership rights have been rehabilitated for 78%

of the total area for which applications have been submitted. This compares to 59%

The source for all agricultural statistics is EUROSTAT unless otherwise specified.

In order to improve consistency and comparability, the employment figures presented are now defined according to Labour

Force Survey definitions (LFS). Agricultural employment is defined in LFS terms as economically active persons who gain a

significant part of their income from agriculture. The agricultural census, which was previously a source of employment data

in many countries, takes into account all persons nominally active on a farm. There are therefore some significant differences

between previous and new figures. Fuller information can be found in the Eurostat publication “Central European Countries’

Employment and Labour Market Review” available free of charge through the Eurostat Data Shops.

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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reported in the 1999 Regular Report. Legal titles have been issued so far for 2.1

million hectares, which have thereby been registered in the land cadastre. This

compares to 1.5 million hectares reported in the 1999 Regular Report. Private land

transactions have increased. In the period of July 1999 to June 2000, the total land

transactions (including lease) in Lithuania reached 88,000 hectares, representing

around 4% of registered land.

In June and July 2000, with a view to speeding up land reform, as well as the

development of the land market and the improvement of the land administration

system, the Seimas amended the Law on Restitution of the Rights of Ownership of

Citizens, as well as the Law on Land Reform, the Law on Land, and the Law on Land

Lease. The amended provisions of the latter two laws will enter into force in 2001. In

addition, in June 2000 the Seimas passed the Law on the Real Property Cadastre,

which will enter into force in 2001. Progress was made in developing the land

administration system, notably through starting the computerisation of the State Land

Cadastre and Register.

Since the last Regular Report, Lithuania has taken further steps to elaborate its

agriculture and rural development policy with a view to accession. In June 2000, the

Seimas adopted the agricultural and rural development strategy, which establishes the

main goals and measures of the Lithuanian agricultural and rural development policy

for the period 2000-2006. This strategy focuses mainly on the development of a

competitive market oriented agriculture, expansion of exports, State support to

farmers’ incomes, protection of the environment and diversification of economic

activities in rural areas.. In terms of administrative capacity, the staff of the European

Integration Department at the Ministry of Agriculture has received extensive training.

Horizontal issues

Lithuania has made progress since the last Regular Report in preparing for the

implementation of measures related to

the European Agricultural Guidance and

Guarantee Fund (EAGGF).

The legal basis for the implementation of the SAPARD Rural Development plan was

laid down by amending the Law on the State Regulation of Economic Relations in

Agriculture in March 2000.

The Lithuanian SAPARD plan was declared admissible by the European Commission

in April 2000. The process of programme approval is ongoing. The programme

foresees priority measures for agriculture and rural development, including

investments in agricultural holdings, improving processing and marketing of

agricultural and fisheries products, development and diversification of economic

activities

providing for multiple activities and alternative income, improvement of

rural infrastructures, afforestation of agricultural land and improvement of forestry

infrastructure, environmentally friendly agricultural methods, and vocational training.

For the programme and financial management of SAPARD, a system will apply which

reflects the EAGGF rules and is based on a fully decentralised approach through an

accredited paying and implementing agency

(see section A.b. – Relations between the

European Union and Lithuania).

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The National Paying Agency under the Ministry of Agriculture was established by the

Government in November 1999. This Agency, which as of May 2000 had 14 staff, is

entrusted with this implementing and paying function, and pursues its efforts to fulfil

the respective requirements.

The Integrated Administration and Control System (IACS) started to be developed in

1999. Animal identification and registration for bovines was started in October 1999.

The Rural Business Development and Information Centre is responsible for

implementation. The total number of staff of this Centre increased from 23 to 50.

Starting in 1999, a Farm Accountancy Data Network (FADN) survey is being carried

out by the Lithuanian Institute of Agrarian Economics and the Lithuanian Agricultural

Advisory Service.

No progress can be reported as regards

quality policy.

Common Market Organisations

Since the last Regular Report, Lithuania has progressed as regards the legal

framework and administrative structure for the establishment of Common Market

Organisations. In March 2000, by amending the Law on State Regulations of

Economic Relations in Agriculture, the Seimas laid down the bases for the

development of market intervention mechanisms in line with the EC intervention

systems. The functions of the Market Regulation Agency for Agriculture and Food

Products have thereby been expanded (licensing of import and export of agricultural

products, payments of export subsidies, monitoring and control functions). In the

second half of 1999, the Agency was mostly active in purchasing grain and meat

products at a regulated price. The total volume of operations amounted up to about

€

115 million in 1999. The operations have been financed through bank loans secured

with state guarantees.

As regards

animal products,

in April 2000 the Government decided to liberalise the

price for all quality categories of raw milk. Stricter quality requirements have been set

for the standard of raw milk quality assessment from January 2000. In May 2000, a

technical regulation on the protection of designation of milk and milk products was

adopted by the Ministry of Agriculture. Implementation of the majority of legal acts

regulating quality is closely linked with the accreditation of testing laboratories and

their technical capacity to conduct quality analysis. In the sector of meat and meat

products, in January 2000, livestock prices were completely liberalised. The

mandatory quality standards and requirements for carcasses of bovine animals and

pigs adopted last year have not yet been fully introduced by meat processing

enterprises.

As regards

arable crops,

the quality requirements of cereals sold to the Market

Agency were aligned with the

acquis

in December 1999. As regards

fruit and

vegetables,

some quality mandatory requirements were adopted, in particular for

apricots, lettuces and endives.

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Concerning

specialised crops,

in May 2000, the Seimas amended the Law on Sugar.

In line with EC requirements, this law replaces quotas for cultivation of sugar beets

with quotas for production of white sugar.

As regards

processed agricultural products,

the basic legislation was laid down by the

adoption of the Law on Food in April 2000. The mandatory requirements for some

processed products (cocoa and chocolate products, frozen foodstuffs, fruit juices and

jams) have been approved but have not yet entered into force.

Rural development and forestry

As regards agro-environment, in December 1999 Lithuania transposed some

requirements of the Nitrate Directive

(see also Chapter 22 – Environment).

September 2000, the Ministries of Environment and Agriculture adopted the Code of

good agricultural practices.

No particular development can be reported as regards forestry.

Veterinary and phytosanitary issues

Since the last Regular Report, progress has been made towards the alignment with the

core

acquis

in the veterinary and phytosanitary sectors. As regards administrative

capacity, some progress has been made, albeit with some delay, concerning veterinary

and phytosanitary border posts along the border with Kaliningrad Oblast and Belarus.

Therefore, Lithuania has gone some way towards meeting the relevant short term

priorities of the Accession Partnership. Extensive training has been provided to the

staff of veterinary and phytosanitary institutions. Some progress has been made in

strengthening administrative structures for veterinary control, and financial resources

have been made available to improve veterinary laboratories. However, limited

progress has taken place as regards the reinforcement of administrative structures in

the phytosanitary field.

In the meat and meat products sector, no positive development can be recorded: meat-

processing establishments are still characterised by under-utilisation of their capacity

and inability to improve their hygiene status.

As regards

phytosanitary

matters, in December 1999, the Seimas adopted the Law on

Phytosanitary issues, which has brought Lithuanian legislation further in line with the

relevant

acquis.

The Law regulates mandatory control requirements for plant growers

and importers of plant products, as well as the application of phytosanitary measures

upon identification of contamination of products of plant origin. In November 1999,

Lithuania ratified the Convention of the International Union for the Protection of New

Varieties of Plants.

As regards

seeds,

in June 2000, the Ministry of Agriculture adopted the mandatory

requirements for seed potatoes.

The State Plant Protection Service under the Ministry of Agriculture implements the

national phytosanitary and plant protection policy, including export-import control. As

of 1 January 2000, the State Plant Protection Service (regional quarantine and plant

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protection posts and phytosanitary border posts) had 202 staff members. The

Phytosanitary Research Laboratory in the State Plant Protection Service is undergoing

modernisation. In addition to detection and identification of relevant harmful

organisms, the laboratory carries out training for inspectors from regional and border

posts. From January 2000, training courses are being held for plant protection and

quarantine inspectors.

In May 2000, the State Seed Inspection and the State Grain Inspection were

reorganised into the State Seed and Grain Inspection.

As regards

veterinary

matters, in October 1999, the Seimas amended the Law on

Veterinary to align it with the

acquis

concerning measures of control and eradication

of contagious animal diseases, the rendering of dead animals and animal waste, the

registration, recording and identification of animals at their place of keeping, and the

financing of veterinary measures. Lithuania has adopted legal acts in line with the EC

acquis

concerning animal health requirements for live bovine animals, pigs, sheep,

goats and the procedure for veterinary certification. The

identification

of animals in

line with EC standards has been partially implemented. Also, the list of compulsory

diseases for registration, common control measures and specific measures in case of

outbreak of such diseases was approved in April 2000. Furthermore, the National

Veterinary Laboratory implements the Monitoring Programme of Hazardous

Residues, which was adopted in March 2000.

In April 2000, the Seimas adopted the basic legislation regulating

feeding stuffs

and

their additives. In June 2000, the Ministry of Agriculture approved secondary

legislation concerning in particular the classification, energetic valuation, methods of

sampling and analysis, and rules on marketing of feeding stuffs, as well as the

mandatory requirements for compound feeding stuffs.

The law on

animal breeding

was passed in November 1999 to regulate the protection

of the Lithuanian genetic fund of animal species (bovine animals, pigs, sheep, goats

and horses).

While there have been some delays due to the belated adoption of the food law,

progress has taken place in the implementation of the strategy for the reinforcement of

veterinary

border

posts. This strategy includes a plan to rationalise the number of

border posts in line with a wider plan for veterinary control along the border with

Kaliningrad Oblast and Belarus. Preparatory works are under way to start construction

of the Medininkai Veterinary Border Post. The modernisation of Veterinary Border

Control Posts at Lavoriskes, Kybartai, Klaipeda and Salcininkai is underway.

Requirements for the veterinary border inspection posts and procedures for border

checks on live animals and products of animal origin were brought further in line with

the

acquis

in October 1999.

In December 1999, the State Scientific Laboratory of Veterinary Preparations was

reorganised into the State Inspectorate of Veterinary Preparations. The structure and

regulations of this body were changed to accelerate implementation of the

acquis,

with particular regard to registration of veterinary medicine.

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During the reporting period, the European Commission granted the right to export

products to the EC market to 3 more dairy plants (in addition to the 14 plants already

having this right), 7 fish processing plants, 1 wild-game meat processing plant, and 1

casing selection plant.

In July 2000, the State Veterinary Service has been reorganised, along with the State

Quality Inspection and State Hygiene Inspection, into the State Veterinary and Food

Service and State Non-food products Inspection. During the reporting period, staff

involved received extensive training.

In April 2000, the National Veterinary Laboratory was accredited to carry out

physical, chemical and microbiological checks of foodstuffs of animal origin, and

certain checks of foodstuffs and fodder of other than animal origin, in line with EC

standards.

Overall assessment

Overall, Lithuania is still in the process of reforming the structures of its agriculture so

as to prepare it for implementing the

acquis

in the agricultural sector.

As regards land reform, the restitution of land ownership rights has been almost

completed. However, the issuing of legal titles of land ownership needs to be speeded

up. The land consolidation process would benefit from the further development of the

land market. In this regard, the access of legal persons and foreigners to farmland

ownership is an important issue.

As regards the agro-food sector, the restructuring process has achieved mixed results.

There is therefore the need for speeding up this process notably in the meat sector.

As regards the preparation for participation in the CAP, Lithuania has laid down some

legal and administrative bases. However, much progress is still needed as regards both

the adoption of the

acquis

and the development of the administrative capacity.

Particular attention should be paid to developing systems, procedures, control and

audit measures in accordance with EC rules. Also, additional staff resources and

adequate training (for both administration staff and farmers) are necessary.

As regards

horizontal issues,

the Paying Agency needs to be strengthened to be fully

operational. In order to have a proper Integrated Administration and Control System,

while the progress concerning the identification and registration of all bovines is

welcome, the land identification component still needs to be developed. In particular,

the fact that the farm register does not cover agricultural holdings of the country needs

to be remedied, and the overall integration of the registers needs to be ensured. A

precise date and adequate resources for the agricultural census to be held in 2002 need

to be determined. Lithuania needs to develop a quality policy in line with EC

requirements (including the necessary definitions concerning products of specific

origin and geographic indication). The rules on organic farming should be aligned

with the

acquis.

As regards

Common Market Organisations,

while the bases of the legal and

administrative framework have been laid down, considerable progress is still

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necessary, in particular to establish the market intervention mechanisms. In addition,

quality requirements need to be further adopted and implemented. Existing market

protection measures need to be aligned with the

acquis.

Concerning the administration

of general CAP requirements, training is needed for the Market Regulation Agency.

As regards

rural development,

agro-environmental policy should be promoted.

Concerning the

Phytosanitary sector,

while the core legislation has been transposed,

Lithuania needs to make additional efforts especially as regards alignment with the

acquis

on control of imports, and the control of domestic production. In particular, a

Phytosanitary Register must be put in place in order to issue plant passports to be used

for the movement of plants and plant products within the EC. More efforts are also

needed to align legislation on animal nutrition, hygiene of plants and quality of seeds

and propagating material. Adequate resources are required to establish appropriate

laboratory infrastructures in line with EC requirements.

Veterinary matters,

while the core legislation has been transposed the re-

organisation of veterinary structures (establishment of food and non-food inspections)

should be fully implemented while continuing staff training programmes. A single

authority responsible for administration and control over animal feeding stuffs should

be established.

Chapter 8: Fisheries

Since the last Regular Report, some developments have taken place as regards the

legislation on resource management and inspection as well as the rationalisation of the

administrative set-up.

In the field of

market policy,

there has been no development concerning the

introduction of market regulation mechanisms.

In April 2000, the Government decided to attribute responsibility for the fisheries

market policy to the Ministry of Agriculture and to merge the Fishery Department

existing under the Ministry of Environment with the Fisheries Department of the

Ministry of Agriculture. The reorganisation of the Fisheries Department under the

Ministry of Agriculture is ongoing.

As regards

resource management, inspection and control,

in June 2000, the Seimas

adopted the Law on Fisheries, which transposes the EC legal acts establishing a

Community system for fisheries and aquaculture and a control system applicable to

the common fisheries policy. In addition, since the last Regular Report, a number of

secondary legal acts have been adopted notably on total allowable catches in the Baltic

Sea, on commercial fishery, on establishment of the quantity of fishery quotas and on

control of foreign vessels fishing in the Lithuanian Economic Zone.

As regards the control of fishing vessels, in December 1999, the Ministry of

Agriculture adopted the order on implementation of a satellite monitoring system for

fishing vessels in line with the

acquis.

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As decided by the Government in April 2000, the Ministry of Environment is in

charge of protection and control of fisheries resource utilisation in the Baltic Sea and

in inland waters. However, the Ministry of Agriculture remains responsible for

satellite monitoring of vessels and for controls at the level of first sales.

The main part of their inspection system is based in Klaipeda – the only important

port of the country. As regards inspection operations, 5643 infringements of fishing

rules were ascertained in the period from the 2

half of 1999 to the 2

half of 2000.

As regards

structural actions,

Agricultural and Rural Support Strategy approved by

the Government in September 1999 includes a Strategy on Integration into the EU in

aquaculture, fish handling and processing in the fisheries sector. The administration

responsible for structural actions in the sector will be the Fisheries Department of the

Ministry of Agriculture. Regarding the administrative capacity to manage structural

funds, the SAPARD paying Agency in the Ministry of Agriculture is still being

established.

Fishing vessels are registered in the general Shipping Register. In contrast with the

acquis,

there is not yet in place a separate register of all vessels involved in fisheries

activities. However, in March 2000, fishing vessel registration rules in accordance

with the

acquis

were adopted. The Ministry of Agriculture is in charge of the

establishment and future administration of the Register.

State aid to the fisheries sector

has been reported since the last Regular Report.

State aid in this area is subject to the general rules on State aid control.

As regards

international fisheries agreements,

in addition to existing agreements, in

February 2000 an Agreement on Cooperation in Fisheries with the Russian Federation

entered into force.

Overall assessment

The restructuring of the Lithuanian fishing fleet is taking place. Lithuania is at an

early stage of alignment with the

acquis.

With a view to participating in the Common

Fisheries Policy, Lithuania needs to develop the necessary legal framework as well as

to rationalise and upgrade its administration.

The Lithuanian fishing fleet consists of approximately 65 vessels which are operating

off-coast in the Baltic Sea and of a deep-sea fleet which amounts to about 10 vessels.

A number of smaller boats are active in coastal waters.

Lithuania has recently started aligning its legislation with the

acquis

in the area of

fishing resource management and vessel registration. However, there is no market

regulation mechanism. Lithuania also needs to align its legislation with the

acquis

structural assistance to the fisheries sector The institutional set-up has been partly

streamlined, though some key administrative responsibilities (designation of a lead

ministry, in particular for resource management and monitoring) still need to be

clarified. Major efforts are needed to strengthen the Fisheries department under the

Ministry of Agriculture with a view to implementing the Common Fisheries Policy.

The conservation functions of the Ministry of Environment also require strengthening.

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There is also a need to reinforce the technical means for inspection and control,

particularly to take steps for ensuring satellite-based vessel monitoring.

Chapter 9: Transport policy

During the last year, Lithuania continued to align its legislation with the

acquis

and

achieved significant progress in particular in the fields of road transport safety, air

transport and maritime safety.

As regards

horizontal issues,

further emphasis has been given to the modernisation of

the main transport infrastructure corridors with investments of about

€50

million

during the last 12 months, of which about 35% came from the national budget.

Lithuania has approved the final report on Transport Infrastructure Needs Assessment

(TINA) of October 1999 that should form the basis for extending the Trans-European

Networks to Lithuania

In the

land transport

sector, most progress was achieved in the field of

road

transport

of dangerous goods, market access, social legislation and safety. Implementing

Ministerial orders have been adopted concerning the minimum level of training for

drivers in the transport sector, training procedures for drivers transporting dangerous

goods, technical requirements for road transport vehicles (tread depth of tyres) and the

use of tachographs. Furthermore the Government approved executive rules on the

carriage of dangerous goods by road, following the international ADR Agreement and

corresponding

acquis,

and on the description of forms and examples of motor-vehicle

user certificates and drivers' licences. The European Agreement on International

Occasional Carriage of Passengers by Bus (INTERBUS) was signed by the Lithuanian

Transport Minister in September 2000. Its implementation will result in partial

harmonisation with the road passenger transport

acquis.

There is no progress yet in the

field of vehicle taxation and road user charges, a central element of fiscal

harmonisation in this sector. Concerning the administrative structures and capacity in

road transport, no particular measures were taken in this period.

railways,

no new legislation related to the

acquis

has been approved yet, pending

the completion of the restructuring and liberalisation process of Lithuanian Railways.

However, this is an ongoing process, and the Government adopted in April 2000

Regulations for Reorganisation of Lietuvos Gelezinkeliai (Lithuanian Railways),

which is to be completed in 2002.

In the

inland waterways

sector, the Seimas adopted in August 2000 an Amendment

and Supplement to the Code on Inland Water Transport regulating the access of

foreign vessels to Lithuanian inland waterways. Secondary legislation was adopted on

minimum technical requirements and technical operation of inland waterways vessels.

The administrative authority which regulates the Lithuanian inland waterways consists

of two bodies: the State Inspectorate of Inland Waterway Navigation (25 staff

positions), which is responsible for the organisation of state monitoring of inland

waterway vessels, other sailing objects and stationary equipment, and for the

adherence to the requirements of safe navigation in Lithuanian and international

inland waterways; and the Inland Waterway Administration (193 members of staff),

which maintains and supervises inland waterways infrastructure and operations. The

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State Inspectorate seems to be adequately staffed, taking into account the limited

economic importance of inland waterway transport in Lithuania.

In July 2000 the Seimas passed the new Law on Civil

Aviation,

which forms the basis

for a major reorganisation and strengthening of the civil aviation authorities. The Law

provides for the establishment of a Civil Aviation Administration and a Civil Aviation

Inspectorate with around 50 specialists under the Ministry of Transport and

Communications. The new CAA will concentrate on key management functions

previously discharged by the MOTC-Civil Aviation Department and the Civil

Aviation Directorate. Air traffic services, up to now integrated in the Civil Aviation

Directorate, will be strengthened in the future state enterprise "Air Traffic Service"

(staff 328). Furthermore an independent Civil Aviation Accident Investigation

Commission will be created under the new Law. On the technical level, Ministerial

Orders have been adopted regarding Rules on Licensing of Specialists in Civil

Aviation and on Registration and Marking of Civil Aircraft. Negotiations between the

EC and Lithuania on the multilateral Agreement to establish a European Common

Aviation Area (ECAA), which will result in a significant progressive alignment with

the

acquis

prior to accession, have been concluded at the end of 1999 and a bilateral

protocol has been signed.

As regards

maritime transport,

Lithuania has made substantial progress, notably in

terms of safety in accordance with the relevant short-term priority of the Accession

Partnership. In August 2000 the Seimas adopted the Law on

Maritime

Safety, which

provides for the establishment of the Lithuanian Safe Shipping Administration, as

well as relevant amendments to the Law on Commercial Navigation and the Customs

Code. Another important measure was the adoption of the Law on Klaipeda Seaport,

which aims at ensuring free competition and equal business conditions to all economic

entities in the territory of the national seaport. Considerable progress was also

achieved at the level of secondary legislation, such as Ministerial Orders on the

National Oil Spill Contingency Plan, Maintenance of Technical Facilities and Settings

on Maritime Vessels, Transportation of Passengers and Baggage by Sea and Rules on

the Issuing of Diplomas of Marine Grade and Qualification Certificates. Lithuania

ratified during this period the International Conventions on Facilitation of Maritime

Traffic and on Civil Liability as well as the Establishment of an International Fund for

Compensation of Oil Pollution Damage. The latter are of considerable importance

with a view to the increasing tanker traffic to and from the new Lithuanian oil

terminal at Butinge. The safety performance of Lithuanian registered ships has

improved since last year. In this respect, it has to be noted that the detention rate for

inspected ships decreased from 10.81% in 1998 to 9.76% 1999.

Overall assessment

The Lithuanian legislation in the transport sector already complies to a certain extent

with the EC

acquis,

although there is still a considerable number of technical details

which are to be implemented over the next few years on the basis of the ministerial

Strategic Plan and Objectives for Transport and Communications Sectors until 2010.

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On horizontal issues, Lithuania rightly gives the main emphasis to the further

modernisation and development of the priority transport infrastructure along Corridors

I and IX, which is of particular importance for a transit country like Lithuania.

The regulatory efforts on land transport legislation will have to concentrate more and

more on the transposition of the technical provisions of the EC

acquis

and its

implementation, with technical, safety and in particular fiscal harmonisation as key

issues. In general the Lithuanian Government follows here a realistic implementation

schedule, but certain delays e.g. on fiscal harmonisation and railway restructuring

indicate that efforts should be made to maintain the ambitious rhythm of

implementation measures. The administrative capacity of existing institutions in the

road sector should be improved by increasing the staff working in the area, in

particular the State Road Transport Inspectorates. On railways, the independence of

the management of railway undertakings and an appropriate separation of the

infrastructure management from the transport operations should be ensured in the

framework of the necessary restructuring of railways as well as reorganisation and

strengthening of the railway administration.

On aviation, efforts need to be concentrated now on the necessary administrative

restructuring under the new revised Civil Aviation Law. The envisaged

implementation of the ECAA agreement should stimulate, already before accession,

the transposition of a significant part of the EC

acquis.

As regards maritime safety,

according to statistics of the Paris MoU Port State Control system, the safety

performance of Lithuanian registered ships has improved since last year. Lithuania has

taken some relevant legislative measures towards the implementation of international

and European regulations. Despite this fact, the number of ships detained by members

of the Paris MoU is still high in comparison with the EU's ship detention average

(3.6% in 1999). In conclusion, Lithuania needs to strengthen its maritime

administration in order to further align with the

acquis

and

to further improve the

trend regarding the detention rate concerning its own fleet. Care should be taken that

there is a sufficient number of trained inspectors to apply the

acquis.

Chapter 10: Taxation

Since the 1999 Regular Report progress has been made in strengthening the

administrative capacity, in particular regarding the State Tax Inspectorate. However

further legislation remains to be adopted in the areas of VAT and excise duties.

In the area of

indirect taxation,

progress in the alignment of the VAT and Excise

legislation was limited and legislative reform has not been finalised in accordance

with the relevant 1999 Accession Partnership short term priorities. The current Law

on VAT was amended in April 2000 in order to eliminate tax exemption for public

transportation services. A reduced rate of 5% was introduced for these services. No

new legislation has been adopted in the area of excise duties.

With regard to

direct taxation,

the Law on Profit Tax was amended in December

1999 in order to reduce the tariff of profit tax and unified taxation of dividends.

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In the area of

administrative co-operation and mutual assistance,

Conventions for

the Avoidance of Double Taxation of Income and Capital Gains, and the Prevention

of Fiscal Evasion between Lithuania and Iceland, Italy and USA came into force in

January 2000. Lithuania has also signed (but not yet ratified) Conventions on the same

with Russia, the Netherlands, Croatia and Slovenia.

The tax administration system is constituted of the State Tax Inspectorate (STI) under

the Ministry of Finance and ten subordinate County Tax Inspectorates. The State Tax

Inspectorate is responsible for tax management and administration. The city and

region departments operate under subordination of the county tax inspectorates. Over

3500 people are employed within the tax administration system, of which

approximately 6% work at the central level. With a view to strengthening and

improving the tax administration, the Inspectorate has devised (in March 2000) a

Strategic Plan for the years 2000-2004. The local networks of all regional bodies of

the State Tax Inspectorate were connected to the central network in April 2000. In

order to develop an integrated tax information system, a system of registration and

declaration of taxes was introduced in all main departments of the Inspectorate.

Overall assessment

Despite efforts made since last year’s Regular Report, further legislation remains to be

adopted in the area of VAT and excise duties.

The list of VAT exemptions in Lithuania is broader than the list in the Sixth directive,

no refund scheme for taxable persons not registered within the country is provided,

and no ‘reverse charge’ provisions exist. As to excise duties, beer must be taxed

taking into consideration the alcoholic strength and wine by reference to hectolitre,

cigarettes are to be charged not only with a specific excise duty but with a

combination of the specific rate and the ad valorem rate. Thus further improvements

are required in both VAT and excise duty legislation.

Regarding administrative capacity, some progress has been made in terms of

strengthening and modernising of the State Tax Inspectorate by means of a systematic

review of internal procedures. This work will have now translated into concrete

results, notably by a reduction in tax arrears and an increase in tax revenue. Further

training of staff and improved exchange of information are also needed.

Chapter 11: Economic and monetary union

A detailed assessment of Lithuania’s economic policy in its various aspects has been

given above, in the chapter discussing the economic criteria (B-2). Therefore, the

present section is limited to a discussion of those aspects of the Economic and

Monetary Union

acquis--as

defined by title VII of the EC treaty and the other relevant

texts--which candidate countries should implement by accession at the latest, i.e. the

prohibition of direct public sector financing by the central bank, the prohibition of

privileged access of the public sector to financial institutions, and independence of the

national central bank. As to the process of liberalisation of capital movements, upon

the completion of which compliance with the EMU

acquis

is conditional, this aspect

has been covered above, in the section on

Chapter 4 – Free movement of capital.

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Since the last Regular Report, Lithuania has made no further progress in the adoption

of the EMU related

acquis.

Overall assessment

Lithuania will participate in EMU upon accession with the status of a country with a

derogation as per Article 122 of the EC Treaty. It will need to implement the

necessary changes to its institutional and legal framework by the date of accession.

Overall, Lithuania has adopted substantial parts of the EMU related

acquis.

Further

progress is necessary with respect to the independence of the Bank and of the Board

members and the prohibition of direct public sector financing by the central bank.

As regards the prohibition of

privileged access of the public sector to financial

institutions,

the Lithuanian legislation is already fully in line with the

acquis.

Concerning the

independence of the central bank,

the current law already satisfies

the main financial independence requirements. However, there is still the need to

grant personal independence to the Central Bank Board members and to modify the

procedure of accountability to Parliament to strengthen the institutional independence

of the Bank. While Lithuania’s Central Bank has been following the practice of not

financing the public sector directly, Lithuania needs to adopt legislation ensuring the

prohibition of direct public sector financing by the central bank.

Chapter 12: Statistics

In the past year, Lithuania has made further improvements in the field of statistics.

Concerning

statistical infrastructure,

the Department of Statistics under the

Government is the central statistical institution. It employs 270 staff in its central

administration and 280 staff in the territorial branches. A major positive development

since the last report is the reform of the legal basis adopted in December 1999.

Progress has also been made in the concrete handling and application of international

classifications in their national versions, some social and regional statistics, external

trade, price and other macro-economic statistics as well as some business statistics.

As regards

regional statistics,

NUTS level III is now defined. GDP calculations for

10 counties are available. During the 1st quarter of 2000, the regional statistics have

been improved by including some additional sectors (communications, transport and

energy facilities) in the survey.

Overall assessment

Lithuania has achieved a good level of legal alignment if the field of statistics, but

without sustained effort these achievements could, however, be lost quickly. For some

areas like agricultural statistics, shared responsibilities require careful and continuous

co-ordination. Co-operation between the Department of Statistics and the Ministry of

Agriculture must be improved. Overall, the administrative capacity of the Department

of Statistics is very high, with a staff which is highly qualified and well trained.

However, in order to keep up progress, adequate financial resources should be secured

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particularly for the preparation and conduct of the censuses of population and

agriculture (to be held in 2001 and 2002). As regards

demographic and social

statistics,

the reduction of frequency for the Labour Force Survey is a matter of

concern.

Nearly complete national accounts, including the capital account and also quarterly

accounts are produced regularly. In the area of

macro-economic statistics,

the focus

should be put on quality improvement and the refinement of methodology, a process

requiring sustained effort. The following areas deserve attention: investment statistics,

consumption of fixed capital, developments for Input and Output tables, improvement

of GDP coverage (hidden economy) and Government finance statistics. Apart from

their quality, macro-economic statistics need appropriate communication and

transparency around them in order to increase and maintain the confidence of users.

For a series of statistical domains improvement is still required, but work is already

underway. In this category the methodology for labour force statistics, labour cost

statistics, social protection, price statistics, internal trade, construction, transport and

tourism statistics should be mentioned. Regular structure of earnings surveys also

need to be introduced and will consume substantial resources.

Despite the very positive efforts, a number of areas still need substantial development.

Above all the

business statistics

system in general should be mentioned. The business

improvement. Also the extension of statistical observation units to local units and

kind of activity units, and the extension of short-term industry and production

statistics will greatly benefit a number of other areas too. Progress must also be

achieved in regional statistics, mainly through developments in other areas resulting in

statistics available at regional level.

Agricultural statistics

need extension and

constant improvement in order to meet the demand in this policy area.

Impartiality and confidentiality of statistics must continue to be ensured by the

Department of Statistics. The maintenance of the very good status and reputation of

LDS within the Government is required, also with respect to its capacity to recruit,

retain and adequately remunerate the skilled staff needed.

Chapter 13: Social policy and employment

Since the last Regular Report, there has been some progress in transposition and

implementation of the social

acquis,

notably in the field of health and safety at the

workplace. As regards administrative capacity, the active role played by the

Ombudsman for equal opportunities has to be noted.

In the area of

labour law,

a law establishing a wage guarantee fund was adopted in

September 2000. According to this law, all employers must pay an amount equal to

0.2% of employees’ salaries into the fund. This fund should provide a support to

unpaid workers of insolvent companies.

In the field of

equality of treatment for women and men,

the Ombudsman, who

may carry out inspections to see how employers implement the law on Equal

Opportunities, hear cases of administrative offences and impose administrative

sanctions, has been very active over the reporting period. Also the State Labour

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Inspectorate is authorised to carry out inspections in order to see how employers

comply with labour legislation that forbids sex discrimination at work or in seeking

employment. In order to avoid duplication, a cooperation agreement was signed

between the State Labour Inspectorate and the Office of Equal Opportunities

Ombudsman in May 2000. An Inter-Institutional Commission of Equal Opportunities

was established in March 2000 with the main task of co-ordinating activities of state

institutions in the field of equal opportunities.

In the field of

health and safety,

four new pieces of legislation were adopted over the

reporting period, transposing the directives on work equipment, safety and health

signs, fishing vessels and noise; however this legislation has not yet entered into force.

Four pieces of legislation adopted in previous years came into force (display screen

equipment, lead, asbestos, and mineral-extracting industries). The control and

supervision of compliance with occupational health and safety legislation is the

competence of the State Labour Inspectorate, with the exception of controls at sea.

The number of inspectors has been slightly increased up to 152 as of September 2000.

Some training seminars for labour inspectors have been organised during the reporting

period. From July 1999 to July 2000 the State Labour Inspectorate inspected 3065

enterprises. During these inspections, it detected 81331 infringements of safety and

health and labour law in enterprises and imposed fines for the sum of about

€

400 000.

In the field of

public health,

the legislation on maximum tar yield of cigarettes has

been brought closer to the

acquis.

As regards administrative capacity, in November

1999, the Ministry of Health Care established a State Public Health Care Office which

is charged with the monitoring of public health, drafting of the Public Health Care

Strategy, and co-ordination of activities of public health care institutions.

As regards

social dialogue,

a Law on the Regulation of Individual Labour Disputes

was adopted in February 2000, aimed at enhancing bilateral dialogue in enterprises

and improve information and consultation. Training of social partners on collective

bargaining and on negotiation skills has taken place.

Concerning

employment,

Lithuania has experienced in the reporting period the

highest level of registered unemployment since independence. In September 1999, the

Youth Labour Centre was founded in Vilnius aiming at helping young people to get

acquainted with the labour market situation, training possibilities, and future

employment prospects. In accordance with the Accession Partnership, the

Employment and Social Affairs Directorate General is carrying out an employment

policy review with Lithuania.

In the area of social protection, at the end of the reporting period, people of pension

age accounted for 20.1 per cent of the total Lithuanian population of 3.7 million. The

major part of pensioners are women.

In April 2000, the Government approved the concept of the Pension System Reform,

setting out the objectives of the reform, based on the introduction of a three-tier

system: pay-as-you-go pension schemes, compulsory accumulative pensions, and

voluntary accumulative pensions. On the basis of this decision, the economic

feasibility of the reform has been worked out.

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In January 2000 two laws came into force, namely the Law on Pension Funds which

provides for the establishment of private pension funds and the Law on the Social

Insurance of Labour Accidents and Occupational Diseases, which provides that the

burden of paying benefits to the employee will be moved from the employers to the

State Social Insurance Fund.

Overall assessment

The level of Lithuania’s alignment with the

acquis

in the field of social policy and

employment varies across sectors. In particular, while this level is good in the area of

equality of treatment, current efforts need to be kept up as regards labour law and

social dialogue. Implementation and enforcement continue to represent a cause for

concern. Lithuania’s effective capacity to transpose and implement several health and

safety directives will require substantial financial efforts. Concerning administrative

capacity, while most of the institutions are in place, they need to be strengthened to

enforce legislation.

As regards labour law, provisions still to be introduced include procedures for

information and consultation of the workers representatives and completely new

legislation on posted workers. The planned adoption of a new Labour Code should

result in full alignment with the labour

acquis.

In the field of equal treatment for women and men, Lithuanian legislation is

substantially in line with the

acquis.

The main provisions still to be introduced regard

the shift in the burden of proof in cases of discrimination based on sex and the

introduction of a definition of indirect discrimination. The Ombudsman Office has

proved to be effective in enhancing the implementation of equal treatment.

As regards public health, the Law on Public Health Care needs to be adopted and the

legislation on communicable disease surveillance and control improved. As regards

administrative capacity, the key institution in the field of public health care is the

Ministry of Health. The State Health Fund was created in 1999 to finance health

programmes and public organisations engaged in public health activities. The State

Patient Fund implements the compulsory health insurance fund budget, supervises the

volume and quality of services provided by the health care or pharmaceutical

undertakings and supervises the activities of the Territorial Patient Funds. It also

analyses the impact on the population’s health of the commercial or industrial

activities of undertakings, establishments and institutions.

In 1999, the Ministry of Health prepared a public health reform programme which is

under implementation. Institutional set-up should be reinforced by delegating clear

responsibilities in the public health area. Training should be provided for public health

specialists.

Social dialogue is still in an early stage, particularly on the employers' side, where

considerable efforts are still needed to set up appropriate structures and organisations.

In the field of social dialogue, there is a predominance of tripartite structures, where

the government still plays a rather large role. Bipartite social dialogue is a lot less

developed, one of the problems being the low unionisation of workers (6 to 10%) and

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the fact that trade unions are not always recognised by new privatised companies.

Collective bargaining on issues of labour relations at sectoral level is not widespread,

while it is more common at the lower (company) level. The Government

administrative capacity on social dialogue should be reinforced to better motivate and

follow autonomous social dialogue, for instance through the encouragement of

appropriate structures at sectoral level, and through regular registering, analysis and

monitoring of collective agreements and their contents, both at sectoral and enterprise

levels.

As regards the labour market, the National employment strategy, (with a view to later

participation in the European Employment strategy) and a joint employment review

need to be finalised. This should lead to the signature of the joint assessment paper at

the end of 2000 or beginning of 2001. Labour policy is implemented by the following

institutions: the Lithuanian Labour Exchange, the Labour Market Training Office, and

the State Labour Inspectorate.

The Lithuanian Labour Market Training Office is a system of vocational training and

counselling of adults which covers the whole territory of the country. The Office has

six regional branches to provide vocational training for the unemployed.

As regards preparation for the ESF, training of staff and development of management

systems will be of particular importance in order to meet EC requirements.

Lithuania needs to continue aligning its legal framework with the

acquis

in the field of

occupational health and safety at work, notably as concerns the protection of workers

from chemical agents and their preparations. Information on health and safety

provisions, notably risk evaluation, is available to all concerned actors via the State

Health and Safety at the Workplace Information Centre. There is a need to train the

staff of institutions and to pursue efforts aimed at strengthening enforcement bodies in

particular the State Labour Inspectorate.

As regards social security, Lithuania has set up the legal and institutional framework

for reforming its social security system. Concerning administrative capacity, all

institutions are already in place. Lithuania's social insurance system is administered by

the State Social Insurance Fund Board (SODRA’s Board). The Board operates a

network of 52 territorial subdivisions that register insured persons, collect social

insurance contributions, supervise their payment and pay out basic social insurance

benefits. SODRA is experiencing a difficult financial situation. Therefore, the pension

reform needs to be pursued.

Legislation transposing the EC Directive based on Art. 13 of the Treaty relative to

discrimination

on the grounds of race or ethnic origin will have to be introduced and

implemented.

Chapter 14: Energy

Since the last Regular Report, apart from some measures taken to further align

legislation to the

acquis,

overdue political and operational decisions to modernise the

energy sector constituted the main progress. On the basis of the National Energy

Strategy adopted on 5 October 1999, the Government pursued the reform of the

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energy sector and the preparation of the decommissioning of Unit 1 of the Ignalina

Nuclear Power Plant (INPP). The Commission and the Lithuanian authorities

maintained a dialogue on these matters, particularly through a number of meetings of

a bilateral Energy Working Group.

Concerning

security of supply,

Lithuania has not yet aligned its legislation to

maintain minimum oil stocks. For fossil fuels, Lithuania remains dependent on

Russian oil and gas deliveries. The opening of the Butinge oil terminal on the Baltic

Sea in November 1999 will allow Lithuania to diversify its supply of crude oil by sea.

The supply of nuclear fuel remains assured through long-term delivery contracts with

Russia.

As regards

competitiveness and the internal energy market,

Lithuania, Estonia and

Latvia decided in February 2000 to create a Common Baltic Electricity Market as well

as to establish transmission links between the three countries. This project is to be

concluded by 2002.

Electricity is exported to Latvia, Estonia, Poland, and – after settlement of a

€

million debt – again to Belarus.

To join the internal energy market, the Lithuanian grid needs to be linked to the UCTE

distribution network. In September 1999, Lithuania and Poland established a joint

working group to prepare such a link. In May 2000, it submitted its first report to the

Prime Ministers of both countries. The project will cost an estimated

€

380 to 410

million. Lithuania considers this interconnection an essential priority. Given the size

of the cost, its feasibility and financial design still need to be carefully evaluated.

In October 1999, the Mazeikiai Oil company, as one of the largest single enterprises in

Lithuania with the Mazeikiai oil refinery, the Butinge oil terminal and an oil pipeline

enterprise, was partly sold to a private foreign investor. An ambitious modernisation

plan aims at the expansion of production by 2004. A fierce domestic political debate

over the large public cost incurred under this deal brought down the Government of

the time. The new management signed contracts with various Russian companies on

the processing of crude oil and entered into a long-term agreement on the distribution

of its refined products overseas with BP Amoco.

The Electricity Law was adopted by Parliament in July 2000. It creates a preliminary

basis for alignment. Eligible customers will, as from 1 January 2001, be those

consuming more than 20 GWh. This amounts to 24% of the market. Full market

opening is foreseen for the end of the decade. The Electricity Law will also strengthen

the surveillance powers of the National Control Commission for Prices and Energy.

The reform and privatisation of the main Lithuanian electricity utility Lietuvos

Energija (Lithuanian Energy, LE) was started. Its unsound financial and managerial

shape had become particularly evident in late 1999. In May 2000, a law on the

restructuring of LE was passed to separate its production, transmission and

distribution functions. The large Elektrinai thermal power plant and various heat and

distribution enterprises are being split off as separate companies. LE will retain the

transmission network. In March the Government selected a Western consortium as

advisor for the privatisation of LE.

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A Law on Natural Gas was adopted by Parliament in October 2000. It is the base for

full legal transposition and enforcement by 2002. Detailed market opening plans

remain to be defined by Government decree. In December 1999, the National Control

Commission for Prices and Energy approved new prices for natural gas that came into

effect in January 2000. The new prices are calculated according to a methodology

approved by the Commission in October. In February 2000, the Government

approved the plan for the restructuring and privatisation of Lietuvos Dujos

(Lithuanian Gas, LD). This process will include the splitting off of its liquid gas and

gas equipment businesses. In March, a consortium was appointed as privatisation

advisor for LD.

Lithuania has not yet transposed EC legislation on energy efficiency. Within the

SAVE II programme, the Lithuanian Energy Institute and Energy Agency are co-

operating with Swedish and British partners to identify the obstacles to improved

energy efficiency in housing and industry.

With regard to administrative capacity, the Ministry of Economy has the overall

policy responsibility in the energy sector. The Division of State Reserves is

responsible for the regulation of oil supplies and crisis management. It has a staff of

four. It faced particular situations in 1999 and 2000 due to the transitional stoppage of

oil and gas supplies from Russia and the provisional closure of both units of INPP.

Within the Ministry, an Energy Conservation Department was established in 1993.

With eight staff members, it aims to implement the 1996-2000 current National

Energy Efficiency Programme. The State Energy Inspectorate, operational since

1995, supervises the State-owned utility companies with a staff of 100. The State

Price and Energy Control Commission has been working since 1997. As an

independent public institution, it reports directly to the President and submits an

annual report to the Seimas. It engages a staff of 42. It was attributed additional tasks

in mid-2000. County and municipal administrative bodies manage local and

renewable energy resources. An Energy Efficiency Centre was established in 1995. It

provides information on energy efficiency and trains energy auditors.

The Lithuanian nuclear safety authority VATESI submits a yearly report on nuclear

safety to the Prime Minister. It checks the compliance of the INPP with licensing

requirements and assumes other supervisory tasks. It has five departments (licensing,

safety assessment, radioactive waste, nuclear material control being the operational

ones) and a staff of 34. According to an April 2000 plan, it is to be increased to 48,

and later 60 employees. A quality assurance system is being introduced. In December

1999, the Government authorised the Ministry of Economy to establish the

Radioactive Waste Agency by 1 January 2001. It will base its work on the Law on

Nuclear Energy (January 1997), the Law on Radiation Safety (January 1999) and the

Law on the Management of Radioactive Waste (May 1999).

In the

nuclear energy

field, Lithuania operates the Ignalina Nuclear Power Plant

(INPP) with two RBMK-type reactors with a nominal capacity of 1500 MW each.

Against a still sensitive domestic political background, the Lithuanian Government set

out to implement the Lithuanian commitment of October 1999 to close the Ignalina

NPP, beginning with the closure of Unit 1 by 2005. At the end of 1999, the

Government appointed a special Vice-Minister of Economy to manage this task. In

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February 2000, an inter-ministerial commission was charged to implement the

National Energy Strategy with regard to the closure of the INPP. It comprises

representatives of Ministries as well as industrial and local interest groups. The

managerial capacity and independence of the INPP are being strengthened. In March

2000, LE started re-paying

€

80 million of arrears to the INPP. At the INPP, a special

decommissioning unit started its work in April 2000. In May 2000, the Seimas

approved a Decommissioning Law for Unit 1 of the INPP.

In June 2000, the Lithuanian Government held a donors’ conference with major

industrialised countries and international financing institutions. It sought an initial

€

200 million for projects to prepare decommissioning by 2005. Pledges amounted to

more than

€

215 million. About EUR 195 million will be delivered through the

Ignalina International Decommissioning Support Fund, established in June 2000 and

managed by the EBRD. The European Communities will be the major contributor.

The conference was co-hosted by the European Commission.

With regard to nuclear safety, the Lithuanian nuclear safety authority VATESI

approved a licensing plan for Unit 2. The licensing procedure is scheduled to last

until 2002. The Government guaranteed a

€

10 million modernisation project at the

INPP. Between July 1999 and June 2000, the INPP implemented 127 of a total of 160

improvement measures planned under the nuclear safety improvement plan SIP-2. In

March 2000, the Government adopted a new plan for the protection of the population

in the case of a radioactive accident at the INPP. The plan defines new radiation

safety criteria as well as provisions to inform foreign countries and international

organisations in emergency cases.

Overall assessment

Since the last Regular Report, Lithuania has undertaken crucial steps to reform the

energy sector that still bears the hallmarks of the previous system from which

Lithuania gained its independence a decade ago. The restructuring of the electricity

and gas sectors was initiated as well as the process of closing and decommissioning

the INPP. This is a formidable challenge in terms of regulatory and investment needs.

An ambitious programme of privatisation of hitherto State-owned electricity, oil and

gas utilities was started. The large size of loan and equity funding required to

modernise existing conventional capacities to improve efficiency and environmental

compatibility can only be met by attracting strategic investments. The Lithuanian

Government used the donors’ conference on the closure of Unit 1 of the INPP, held in

Vilnius in June 2000, also to introduce the reform process and estimated investment

needs to foreign governments and enterprises, seeking mainly long-term loans and

equity investment. Further steps are in the hands of the new Government elected in

October 2000.

By taking these steps, Lithuania addressed the short-term priorities of the 1999

Accession Partnership. However, given the increased workload on nuclear safety

matters, Lithuania will need to make further efforts to achieve the demanded

continued strengthening of the independence and technical capability of the nuclear

safety authority. The Action Plan to implement the National Energy Strategy still

needs to be formally adopted.

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A calculation of the amount of current oil stocks, according to the

acquis

methodology, has yet to be carried out. Presumably, the required 90 days of stocks

will need to be built up over a period of time. An administrative structure to manage

these stocks needs to be established.

In terms of actual transposition of the

acquis,

Lithuania adopted two pieces of major

legislation, the Electricity and Gas Laws. Genuine understanding of the potential of

energy savings by the general public and energy consumers still has to be generated.

Sufficient funding and staffing will need to be ensured for the administrative and

regulatory institutions required for a flawless functioning of a liberalised energy

market. Such funding has to be secured against the background of an austerity budget.

Methodologies for energy price settings will need to undergo considerable changes in

the next few years.

As regards the issue of nuclear energy, the EU has repeatedly emphasised, most lately

at the European Council in Helsinki, the importance of a high level of nuclear safety

in the candidate countries, in the context of the Union’s enlargement. The Union has

also asked for the earliest practicable closure of the candidate countries’ nuclear

power plants which are deemed non-upgradeable to international safety standards at a

reasonable cost. The Ignalina NPP is such a case. During the reporting period, the

law on decommissioning Unit 1 laid some important operational decisions into the

hands of the Government. Thus, actual closure will still depend on the political will

of the Government. Under this law, the Decommissioning Programme was due for

adoption on 1 November 2000. As for Unit 2, the closure date will be decided at the

2004 revision of the National Energy Strategy. At the meeting of the Association

Council in February 2000, the EU expressed its expectation that the definitive closure

of Unit 2 will take place before 2009, at the latest. The Safety Improvement

Programme (SIP-2) at the INPP and the project to install a diverse second shutdown

system (DSS) need to be pursued. A comprehensive safety analysis report for Unit 2

(SAR-2) is due by 2002. Nuclear safety has to be ensured during the difficult

transition from operation to decommissioning by maintaining a high level of technical

and staff quality. Safety culture has to remain a key element of attention. Human

resources at the nuclear safety authority (VATESI) need to be significantly increased

in the short term to overcome the obvious mismatch between the limited size of

technical staff and an increased workload resulting from the implementation of safety

improvement programmes and the preparation of the decommissioning of Unit 1.

Sufficient funding needs to be allocated to the State Agency for Radioactive Waste

Management that is to be established on 1 January 2001. Finally, due attention should

be given to preparing the implementation of Euratom safeguards.

Chapter 15: Industrial policy

Since the 1999 Regular Report, the Government, in line with its 1999 commitments,

has developed further the political and legal framework necessary for the in-depth

restructuring of Lithuania’s industry. Efforts have, however, focused on conceptual

aspects and little has been done in terms of implementation.

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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After a wide consultation process the Government approved the ‘Medium-term

Industrial Development Policy and

Strategy

for its Implementation’ in July 2000.

The document formalises the Government’s new approach to industrial restructuring

and development, which moves away from direct support to under-performing

companies and national champions. It spells out all the challenges to be met by

Lithuanian industry for competing in the internal market as well as the principles and

priorities that will guide Government support. On the latter aspect, the enforcement of

the State aid law adopted in May 2000 should help ensure that undue subsidies to

enterprises will stop definitively.

Other developments in terms of policy-making were the approval in May 2000 of the

Business Innovation Programme and the amendment in September 2000 of the 1998

Export Development Strategy. The Business Innovation Programme identifies a

series of actions to be undertaken for removing obstacles to and stimulating the

development of an innovative enterprise sector in Lithuania, including networking

between research institutes and enterprises. The ambitious Export Development and

Promotion Strategy and its action plan for 2000-2002 put under the same umbrella all

measures needed to boost the performance of Lithuanian enterprises on world

markets.

In terms of

privatisation and restructuring,

some further, but slow, progress has

been made since last year (see

Section 2.Economic criteria).

The privatisation process is close to completion in the industrial sector (the private

sector accounted for 89% of industrial output in 1999). However, the state still has

minority shares in many companies, because it has been unable to sell its remaining

shares after company privatisation (this is typically the case in traditional sectors such

as mechanical engineering) or because the companies have made use of the possibility

to pay debts to the state with equity. The acceleration that has been taking place since

the beginning of 2000 in privatising large-scale enterprises in utilities, infrastructure

and the banking sector should have a positive impact on industrial restructuring.

The situation has improved in area of bankruptcy procedures since the last Regular

Report, but not sufficiently. In 1999, 251 new bankruptcy procedures were initiated in

industry and trade against 47 in 1998. The Enterprise Bankruptcy Management

Department set up at the Ministry of Economy has been strengthened, not only in

numbers (22 staff in 2000 against 20 in 1999 and 6 in 1998) but also in capacity. The

Department prepared proposals for the revision of the laws on bankruptcy and

restructuring as well as an action plan, which details the provisions necessary for a

speedy implementation of the laws. While the action plan was approved by the

Government in September, the adoption of the two laws by the

Seimas

has been

postponed several times. In this respect, Lithuania has made only limited progress in

meeting the relevant short-term priority of the Accession Partnership.

Over the reference period the sectors most successful at restructuring continue to be

branches that have managed to attract significant amounts of FDI through

privatisation such as textiles and foodstuffs. Globally, FDI outside the privatisation

process is disappointing. The Government considers that improving the business

environment is key to fostering FDI after the completion of the privatisation process

and attracting greenfield investment. Significant progress has been made as regards

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the business environment since the 1999 Regular Report (see

Chapter 16 – SMEs).

As for more direct investment promotion instruments the Government has also made

efforts to make the legislation on Free Economic Zones compatible with State aid

rules (see

Chapter 6 – Competition policy).

Overall assessment

Lithuania’s new policy towards industry constitutes an effective re-orientation of the

Government’s policy towards the speeding up of structural reforms.

The strong point of the industrial strategy is its global approach and integration with

other policies, but it is weak on implementation arrangements and, in particular, does

not contain any indication of timing and financing. The Government should now

move to the implementation phase. The track record of implementation should

confirm that the Medium-term Industrial Development Policy is in conformity with

the concepts and principles of EC industrial policy, i.e. market-based, stable and

predictable. In working out delivery mechanisms, the Government should clarify how

it intends to involve business associations and support the implementation of the

sectoral strategies it invited them to develop.

The fragmented ownership and the low ownership dynamics (the environment for

developing the ownership and corporate governance system is still not fully adequate)

put a break on industrial restructuring. Another factor that hinders in-depth

restructuring is the lenient financial discipline in enterprises, which is caused by a

slow enforcement of bankruptcy procedures and the existence of soft budget

constraints. It is therefore regrettable that the laws on bankruptcy and restructuring

have not yet been adopted. The development of the right institutional set-up and

competencies for enforcing the future bankruptcy and restructuring legislation should

be given the top priority. The approach to enterprise restructuring should be based on

an assessment of the needs of individual companies and, in particular, of their future

viability rather than on sectoral priorities.

The central body responsible for the formulation and co-ordination of industry policy

is the Department of Industry and Business at the Ministry of Economy. A wide range

of agencies and governmental bodies are involved in the implementation process.

Several mechanisms exist for the consultation of business representatives. The

necessary administrative structure is in place and generally adequate. However,

Administrative Courts are understaffed and cannot address all bankruptcy claims.

Hence, out of court settlement procedures need to be improved. In order to have a

greater impact the Lithuanian Development Agency should be strengthened. For the

effective implementation of the medium-term strategy the roles of the various players

(Ministries, implementing agencies, business associations, research and academic

institutions) should be clarified before setting up any co-ordinating structure such as

the envisaged Industrial Competitiveness Council.

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Chapter 16: Small and Medium-sized Enterprises

During the reporting period, progress has been made in eliminating the shortcomings

identified in the last Regular Report. The Government has made efforts to improve

the coherence of its SME policy and has undertaken several initiatives to simplify the

business environment and develop the support infrastructure. However, it has

postponed the adoption of legal acts establishing financial instruments.

After several months delay the Government finally approved an

SME strategy

September 2000. The “Small and Medium-sized Business Development Strategy until

2003 and implementing measures for the years 2000-2001” is an all-embracing

strategy that defines the Government priorities to promote the development of SMEs.

Short-term priorities include the improvement of the legal environment, access to

finance, the strengthening of the business support infrastructure as well as of business

support services, the development of business self-regulation, and the preparation of

projects that could be funded through pre-structural aid instruments. By taking these

measures, Lithuania has made progress in meeting the relevant short-term priority of

the Accession Partnership.

In early 2000 a significant action was taken with the setting up of an inter-ministerial

structure to remove a major obstacle to private sector development in Lithuania,

i.e. the complex and unstable

business environment.

The

Seimas

has already

approved some proposals regarding e.g. taxation. The adoption of a new Company

Law in July 2000 is another positive step towards the improvement of the business

environment (see

Chapter 5 - Company law).

Another area where the Government has made notable efforts is the development of

the business support infrastructure with the opening of a branch of the national SME

agency, two business information centres and three business incubators in the regions.

This is a positive evolution, although the limited resources, both human and financial,

allocated to these new institutions cast some doubts about their efficiency. In addition,

two Euro Info Centres are in the process of being selected.

No progress has been made since the last Regular Report in relation to the

SME

definition

applied by Lithuania, which is much more restrictive than the EC

definition.

Overall assessment

Lithuania’s policy towards SMEs generally follows the principles and objectives of

EC enterprise policy. It rightly puts emphasis on the business environment, access to

finance and to quality support services, human resource development, corporate

governance, innovation and co-operation between SMEs and larger enterprises.

However, the lack of funding hinders effective implementation and contradicts the

official statements that present the creation of small business as a key priority for

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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improving the competitiveness of Lithuania’s economy and offsetting the impact on

employment of the restructuring of large industrial companies. The adoption of

several key policy documents in 2000 (including the Small and Medium-sized

Business Development Strategy) that constitute an overall framework for improving

the competitiveness of the Lithuanian economy should give momentum to the

promotion of SMEs in the years to come. Furthermore, the new strategy paper

indicates that amendments to the Law on Small and Medium-sized Business

Development will be prepared by the end of 2000 to fully align the definition in

respect of the number of employees and the independence of the enterprise.

The efforts initiated in 2000 to simplify the business environment should continue. It

seems that the activities of the working groups specifically dedicated to the reduction

of business regulations and bureaucracy and to SME development have so far had less

impact. They have, however, a key role to play to make sure that regulators ‘think

small first’ and avoid creating undue burdens on business.

The central body responsible for the formulation and co-ordination of enterprise and

SME policy is the Ministry of the Economy. Several agencies, including SMEDA -

the Small and Medium-sized Business Development Agency, are involved in

implementation. All initiatives are funded by the SME Promotion Fund. As many as

three consultative bodies advise the government on various SME-related issues.

While the basic administrative capacity is already in place at both national and

regional levels, significant rationalisation in the functioning of the institutions will be

necessary in order to prepare Lithuania’s SME sector for integration into the European

Union. The Ministry of the Economy should not externalise its core policy-functions

to SMEDA. The resources of the agency (9 staff in 2000) should be increased, so that

it can play a strong role in networking and co-ordinating the implementation of the

national policy over the whole territory of Lithuania. The further strengthening of the

business support infrastructure should be made on the basis of an evaluation of the

existing services to enterprises and of a gap analysis and implemented through the

National Development Plan.

Chapter 17: Science and research

Since the last Regular Report, a number of measures have been taken to ensure the

successful implementation of the

acquis

and to strengthen capacities in the field of

research and technological development.

The Lithuanian Parliament adopted a Law on Higher Education in March 2000, which

inter alia

regulates research activities of higher education institutions.

(See also

Chapter 18).

With a view to more effective implementation of the Programme on Computer

Network and Internet Services for Lithuanian science and higher education (2000-

2004), the Board of the Lithuanian Academic Network LITNET was established.

Since Lithuania became associated to the

Fifth Framework Programme

in October

1999, experts participating in the Programme Committees and in the relevant advisory

bodies have been appointed. A National Contact Point (NCP) system was established.

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Overall assessment

The regulatory framework of the research system has been improved by way of the

adoption of the new Law on Higher Education. However the legal basis needs to be

further strengthened by the adoption of secondary legislation necessary to implement

the Law.

For the further development of the sector it is essential to have an increase in the gross

domestic expenditure in research and development as percentage of GDP which is

relatively low (0.52 % in 1999)

Lithuania is a member of COST programme since May 1999 and EUREKA Initiative

since June 1999.

Further institution building in the field of science, research and technology is also

necessary (upgrade of infrastructures, new equipment, staff training etc). The links

between research institutions, industry and SMEs should be promoted.

Chapter 18: Education and training

Since the last Regular Report Lithuania has made progress in the area of education

and training.

In 1999 Lithuania continued to successfully participate in the

Community

programmes

(see

bilateral part A).

In addition, the Association Council adopted in

September 2000 a decision to allow participation in the second phase (2000-2006) of

the Socrates and Leonardo da Vinci programmes.

There have been no legislative developments in the area of

education of children of

migrant workers

since the last Regular Report.

As concerns

non-discrimination toward EU citizens in the field of education,

the

new Law on Higher Education, adopted in March 2000 (and in force since September

2000), aims at creating conditions for the free movement of students and ensuring

equal treatment for EU and Lithuanian nationals.

The new Law on Higher Education provides for the creation of the non-university

higher education sector, quality control of studies and science, rules governing private

and public education, and requirements for higher education programmes, doctorate

studies, doctoral theses and scientific degrees.

In December 1999, implementing legislation was passed aiming at enhancing higher

education. Moreover, also in December 1999, the Lithuanian White Paper on Higher

Education was approved, outlining the development of higher education until 2015.

With a view to enhancing the mobility of students and lecturers between the Baltic

States, an agreement on recognition within the Baltic Higher Education space between

Lithuania, Latvia and Estonia was signed in February 2000.

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Overall assessment

Lithuania has made progress in reforming its education and training system and in

introducing European standards. Lithuania should build on progress already achieved

by completing the legislative alignment and fully implementing the reform of the

education and training system.

The EC Socrates, Leonardo da Vinci and Youth for Europe programmes have been

successfully administered in Lithuania by the national agencies. Lithuania’s

participation in these programmes during 1998-1999 was a good tool for its

integration in Community networks and the preparation of accession. Lithuania has

prepared actively for participation from 2000 in the new programmes (second phases

of Socrates and Leonardo da Vinci, and Youth).

Lithuania still needs to bring its legislation fully in line with the

acquis

on the

education of children of migrant workers.

National policy in the field of education is implemented by the Department of Science

and Studies (30 employees) of the Ministry of Education and Science.

The Ministry of Education and Science has gained extensive experience

via

its

participation in a number of international projects.

Chapter 19: Telecommunications and information technologies

Since the last Regular Report, developments have taken place as regards the

regulatory regime in the telecom sector.

In the area of the

telecommunication markets,

no development can be reported as

regards the liberalisation of fixed-line telephony; in this sector, the incumbent

operator Lietuvos Telekomas, enjoys a

de jure

monopoly regime until 31 December

2002. In June 2000, the State Privatisation Fund sold another 25% of the shares of

Lietuvos Telekomas, thereby reducing the State-owned shares to 10%.

As regards the

regulatory framework,

in May 2000, the Government decided the

establishment of the Communications Regulatory Authority through the

reorganisation of the State Radio Frequency Service. This reorganisation has

proceeded but, as of October 2000, it was not yet completed pending the appointment

of the Director of the Authority.

The Communications Regulatory Authority is responsible in particular for allocation

of radio frequencies, assignment of numbers, supervision of the National

Telecommunications Numbering Plan, dispute settlement between the operators,

whereas the Ministry of Transport and Communications is responsible for issuing

licences.

With a view to aligning the legislation on data protection with the

acquis,

in April

2000 Lithuania amended the law on legal protection of data stored electronically.

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In the field of

postal services,

the rules and tariffs for the provision of universal postal

services were approved at the beginning of 2000.

Overall assessment

Progress towards modernising the telecommunications sector began relatively late but

the process is now well in hand.

The telecommunications market in Lithuania is liberalised except for fixed-line

telephony communications. The foundations laid by the 1998 telecommunications law

need to be built on to resolve the remaining problems regarding the harmonisation

with the

acquis

in almost all of its most important aspects.

Rapid progress is now needed with the secondary legislation that is needed for the

market to be liberalised and, in the meantime, to be effectively regulated. Price

rebalancing and affordability remain crucial issues.

The Regulatory Authority needs to be strengthened to be fully operational, notably by

ensuring qualified staff for its new tasks and appropriate financing.

The legislation on data protection needs to be further aligned.

As regards postal services, the state enterprise

Lietuvos Paštas

is obliged to provide

universal postal services, while the other services have been liberalised. The basic

legislation is in place, but there is still the need to ensure further alignment as regards

complaints procedures. In addition, a regulatory agency in the field of postal markets

has still to be established.

Chapter 20: Culture and audio-visual policy

Since the last Regular Report, Lithuania has made significant progress in aligning its

legislation to the audio-visual

acquis

and has met the relevant short term priority of

the Accession Partnership. In June 2000, the Law on National Radio and Television

was amended. The Law on Provision of Information to the Public was amended in

August and in October 2000. A number of other new laws, also related to the audio-

visual

acquis

were recently adopted (on tobacco control, on alcohol control and on

fundamentals of protection of the rights of the child). The Regulations for Radio and

Television Activity as well as those of the Radio and Television Commission were

approved.

In February 2000, the Seimas ratified the European Convention on Transfrontier

Television and the Protocol amending this Convention.

The Lithuanian Radio and Television Commission evaluated applications of 41

terrestrial television and radio broadcasters. Licences for 37 broadcasters were

renewed.

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Overall assessment

Lithuania has achieved a high degree of alignment with the audio-visual

acquis.

The Council of the National Radio and Television is responsible for the supervision of

the activities of national radio and television and consists of 15 members. The Radio

and Television Commission (LRTC) which is responsible for the supervision of the

activities of commercial radio and TV stations and cable networks, consists of 11

members and has an administration of 9 employees. In accordance with the new law,

it can impose sanctions for violations of the law or of license conditions.

The LRTC carries out most of its work effectively, but limitations on technical,

financial and human resources restrict its capacities. Self-financing of the licensing

bodies has improved on the basis of license fees.

While the administrative capacity of the LRTC is being strengthened, the sanctioning

procedure needs to be improved.

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

Since the 1999 Regular Report, Lithuania has made some progress in this field

mainly as regards the legislative framework and the development of the National

Development Programme.

As regards the

territorial organisation,

some modifications at the municipal level

have taken place. On the other hand, the new law on regional development enables the

Government to form regions from several counties or municipalities in order to

implement certain objectives of the National Regional Development Policy.

As regards the

legislative framework,

a law on regional development was adopted in

July 2000. This law aims to establish the legal basis for the formulation and

implementation of regional development policy as well as for the application and

administration of EC structural funds.

As regards the preparation for programming, in October 1999, the Governmental

European Integration Commission approved the preliminary National Development

Plan for 2000-2002 (NDP). The NDP sets out the priorities and measures for the EC

pre-accession instruments in Lithuania.

Administrative co-ordination

has continued under the responsibility of the Ministry

of Public Administration Reform and Local Authorities. In October 2000, the

Parliament decided to abolish this Ministry, and to transfer all its functions (including

the responsibility for the preparation for Structural Funds) as of 1 January 2001 to the

Ministry of the Interior.

The National Regional Development Agency became operational in November 1999.

It is responsible for the preparations of the NDP and is in charge of co-ordinating the

preparation of Regional Development Plans. Due to its limited human and financial

resources, it has not been able so far to fully carry out its foreseen tasks.

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No development has taken place as regards

financial and budgetary management.

The State Control Office acts as external financial control body, which is independent

from the benefiting agency. The State Control is also responsible for auditing under

specific agreement with the Ministry of Finance. This is a temporary arrangement

until proper internal audit legislation and structures are adopted

(see also chapter 28

and chapter 29).

Overall assessment

Although Lithuania has made some progress in this area, a number of serious

difficulties remain, and efforts to develop the administrative capacity and to establish

co-ordination mechanisms need to be continued.

The recently adopted law on regional policy represents a considerable step forward in

trying to establish the structures required for Structural Funds programming and

implementation. It does not, however, address all aspects covered by the relevant

acquis

and it is unclear to what extent this may be done through existing or future

secondary legislation. Above all, the strong element of decentralisation contained in

the Law raises some concern with regard to the administrative capacity to meet the

requirements of the implementation of future Structural Funds assistance.

The National Development Plan and Regional Development Plans will need to be

improved further in order to serve as comprehensive multi-annual regional planning

documents. Partnership with regional, local and socio-economic partners needs to be

strengthened by taking into account, in particular, sustainable development and equal

opportunities.

Administrative capacity as regards both programming and project preparation and

implementation is very weak due to the lack of funding and of staff.

On the central level, the responsibility for the preparations for the structural funds has

been allocated to the Ministry for Public Administration and Local Authorities

(MOPARLA) - to be merged as of 1 January 2001 into the Ministry of the Interior.

The Regional Development Department should further develop its capacity for

carrying out its functions in the field of regional development planning and the

programming for Economic and Social Cohesion. However, further efforts will be

needed before it can guarantee strong horizontal co-operation and co-ordination at

national level . Therefore, capacity for the regional development planning process at

central level still needs further strengthening and the increased involvement of social

and economic partners. The current system of inter-ministerial consultation on policy

issues and planning documents organised through various inter-ministerial working

groups is not efficient, and mainly works on an ad-hoc basis.

Progress has been slow and strong efforts will be necessary in setting up a properly

functioning financial control system for management of Structural Funds. Special

efforts will have to be made in order to introduce internal audit structures in line with

EC requirements in all Ministries concerned with the management of Structural

Funds. There is still a strong need to develop a modern monitoring, reporting and

evaluation system.

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Based on the structures established by the Law on Regional Development, which may

need to be further developed or reviewed, the introduction of structures for monitoring

and evaluation must get high priority. Due to the tight budget situation, the capacity of

Lithuania to co-finance future structural funds needs to be carefully analysed.

As to statistics, most of the key indicators are available at national level, with some

shortcomings in the fields of social indicators, labour statistics and structural business

statistics. No regional data are available yet for GDP data, social indicators and

structural business statistics.

The strengthening of regional structures should focus on the establishment of local

and regional partnerships, which may contribute to planning and project design within

the overall partnership structure to be established with regard to the preparation and

implementation of any Structural Funds assistance. To this end, it is of the utmost

importance that the necessary structures for co-ordinated programming, management,

monitoring, evaluation, financial management and control of Structural Funds

assistance are established at central level, before a stand is taken on whether a further

decentralisation is feasible or advisable.

Chapter 22: Environment

Since the 1999 Regular Report, Lithuania has continued to make progress in the field

of environment, notably as regards legal transposition.

With regard to integration of the environment into other policies, over the past year

Lithuania has started to implement the action programme for sustainable development

adopted by all Baltic Sea countries in the framework of 'Agenda 21 for the Baltic Sea

region'.

In the field of

horizontal legislation,

the

acquis

on access to information on the

environment was transposed into Lithuanian law during 1999 and in April 2000 the

Seimas aligned the Lithuanian legislation with the

acquis

on environmental impact

assessment. From 1 July 2000, the supplementary legal acts adopted by the Ministry

of Environment are in force. The competent authorities - Ministry of Environment and

the Regional Environmental Protection Departments - are implementing the

environmental impact assessment requirements from June 2000 onwards.

No new legislation has been adopted in the area of

nature protection

in the reporting

period.

As regards

water quality,

in September 1999, the Ministry of Environment endorsed

the Programme for the harmonisation with EC requirements. In November 1999,

Lithuania transposed some requirements of the

acquis

on pollution caused by certain

dangerous substances discharged into the aquatic environment. In December 1999,

Lithuania adopted the environmental requirements for management of wastewater and

manure in farms, transposing some requirements of the directive concerning the

protection of waters against pollution caused by nitrates from agricultural sources.

In the area of

industrial pollution control and risk management,

the assessment of

the cost of compliance with the IPPC directive was performed in March 2000. The

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Ministry of the Environment has established the criteria for some eco-labels. In

November 1999, Lithuania transposed some requirements of the

acquis

on the

prevention and reduction of environmental pollution by asbestos, notably by putting a

ban on the production and use of certain types of asbestos.

As regards

air quality,

by adopting in November 1999 the Law on Air Protection the

Seimas transposed the EC framework directive in accordance with the relevant short

term priorities of the Accession Partnership. In November 1999, Lithuania transposed

some requirements of the

acquis

concerning emission of pollutants in the air.

As regards

chemicals and GMOs,

in April 2000, the Law on Chemical Substances

and Preparations was adopted, setting the framework provisions in line with the

acquis.

In the field of

waste management,

in 1999, the Programme for the management of

hazardous waste was elaborated. The Programme on landfills has been also prepared.

It provides for closure of the 300 operational landfills and establishment of 14 new

landfills. In November 1999, some requirements of the

acquis

on waste, notably as

regards permits, were transposed.

In the field of

nuclear safety and radiation protection

(see also chapter 14 –

energy, including nuclear energy),

in December 1999, the requirements of the

acquis

on shipments of radioactive substances and waste were transposed into national law.

In December 1999, the Government, in line with the Radioactive Waste Management

Law, approved the establishment from January 2001 of the Radioactive Waste

Management Agency which will be responsible for management and disposal of

radioactive waste and strategic planning. Producers of radioactive waste remain

responsible for safe storage until the Agency becomes fully operational. In October

1999, Lithuanian law was aligned with the

acquis

governing the maximum permitted

levels of radiation in imported agricultural products. Some norms regulating medical,

natural and accidental radiation exposure as well as radiation exposure at workplaces

have been passed.

In the area of

institutional strengthening,

the administrative capacity of the Ministry

of Environment was further strengthened in the field of specialist training. The

Strategy for involvement of Local Authorities in the implementation of the EC

requirements was worked out in 2000. Efforts are being made to strengthen local

authorities in respect of investment planning and implementation monitoring,

especially in the field of water protection and waste management. Training

programmes on environmental impact assessment are foreseen, along with the

implementation of the new law.

Overall assessment

Lithuania has achieved a fair level of alignment, although there are still major

differences across sectors. Implementation is still a major concern in particular in

sectors requiring heavy investments. While there is still a need for cost assessments in

several areas, it is already clear that substantial investments will be necessary, in

particular for the water and waste and IPPC sectors.

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As regards horizontal legislation, Lithuania is in line with the

acquis

Environmental Impact Assessment but some implementation measures are not yet in

place. As for the access to environmental information, Lithuania is in line with the

main requirements of the

acquis;

however, further legislative adjustments and a

reinforcement of the Public Information division of the Ministry of Environment are

necessary.

As regards nature protection, Lithuania’s systems for identifying protected areas do

not all comply with the EC's. Additional attention should be focused on the

reinforcement and better co-ordination of the institutions in this field. Lithuania will

need to make particular efforts as regards management plans of protected areas. Cost

assessment on implementation still needs to be performed.

The water sector is an area where a lot still remains to be done both in terms of

transposition and in terms of implementation. The designation of sensitive areas under

the directive on urban wastewater and vulnerable zones under the directive on nitrates

from agriculture sources has yet to be made.

In the field of air quality, the air framework directive and the daughter directives were

transposed. Some substantial gaps in the legislation still need to be closed. A major

challenge is the implementation of the

acquis

on control of volatile compound

emissions resulting from the storage of petrol and its distribution.

While the framework legislation on chemicals is in line with the

acquis,

there is still

the need to adopt the framework legislation on GMOs. In order to guarantee effective

control, additional institutions have to be set up. The planned establishment of an

Institute for Non-food Product Control charged with the supervision on chemicals

should be implemented.

As regards waste, major efforts are still necessary. While Lithuania has incorporated

most of the provisions of the waste framework directive into its law, the transposition

of the

acquis

is scattered in many pieces of legislation. In relation to enforcement,

authorities need to be strengthened and the monitoring structures improved in

particular at local level. Major challenges are expected in the implementation of the

landfill directive. Additional efforts are also required for the transposition and

implementation of the

acquis

on packaging and packaging waste.

As regards industrial pollution and risk management, Lithuania needs to transpose the

IPPC directive. A solid basis (both in terms of legal provisions and of administrative

capacity) in the field of accident prevention already exists.

As regards radiation protection and nuclear safety, Lithuania has, in general, made a

considerable effort to comply with the EC

acquis.

Lithuanian authorities need to take

further action to align with the

acquis

on basic safety standards and on medical

exposure. A general problem is the need to update the administrative infrastructure,

increase the monitoring capacity and train experts. The implementation of EC

requirements in the field of radiation safety should be stepped up. In this respect,

improvements in co-ordinated preparation in case of a nuclear accident are needed.

The Radiation Protection Centre under the Ministry of Health Care, which acts as a

focal point for coordination is severely understaffed.

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Overall, the administrative capacity to meet current goals is sufficient, the

environment ministry is adequately staffed. A rather high number of authorities and

institutions are involved in the implementation and enforcement of environmental

legislation. While the structure needs to be rationalised to avoid duplication of work, a

series of new institutions needs to be established to meet the

acquis

requirements.

Chapter 23: Consumers and health protection

Since last year’s Regular Report Lithuania has made progress in aligning its

legislation and reorganising the institutional set-up.

The Law on Product

Safety,

which was adopted already in June 1999, entered into

force in January 2000. Further secondary legislation implementing part of this law has

also been adopted. The Law on Food was adopted in April 2000 and entered into force

in July 2000. This Law sets out the criteria for placing food products on the market as

well as the competencies of state institutions and non-governmental organisations for

consumer protection in assuring food safety. In September 2000 framework

legislation on consumer protection was adopted, which provides for,

inter alia,

the

establishment of a National Council for Consumer Protection.

As concerns

non-safety

related measures, legislation on advertising was adopted in

July 2000. Rules for categorisation of labelling and marking of package and consumer

information leaflets and regulations on the financial guarantees in the tour-organising

services were adopted in Autumn 1999.

Until the National Council for Consumer Protection is established, consumer

protection functions are essentially shared between the Ministry for Health (health and

safety questions) and the Competition Council (economic interests of consumers).

Enforcement for the Competition Council is provided by the Quality Control Office

and by the State Hygiene Inspectorate under the Ministry of Health. During 1999, the

Competition Council has been active in informing the population on consumer rights

issues. A special telephone line for advice on consumer protection issues has been

established.

The number of consumer cases resolved by institutions related to the protection of

consumer rights is increasing. The Unfair Competition Investigation Division of the

State Competition Council Division, which has 5 staff members, received 1,523

inquiries on consumer protection issues in 1999. Most complaints were on non–food

products (67.2%). The State Quality Inspection checks the complaints of consumers

and undertakes quality and safety monitoring. They carried out 14,836 checks on

different products during 1999 and identified 12,947 cases of infringements imposing

9,551 penalty charges. The control of the safety of goods is carried out by regional

branches of the State Hygiene Inspectorate under the Ministry of Health (11 territorial

public health centres and 39 branches in the regions).

As of July 2000 the

market surveillance

institutions have been re-organised into two

institutions (unified food and non-food inspectorates). This reorganisation covers both

the central and the regional levels, however market surveillance shall remain

centralised. The approved total number of staff for the Food and Veterinary Service,

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including technical personnel, is 1,360, of which 90% have already been recruited.

The Non-Food Products Inspectorate contains three main sub-divisions: Commodities

Control, Services Control and Methodology and Analysis. The Inspectorate has been

allocated a total of 100 posts of which 80 have been filled.

Overall assessment

Lithuania has recently achieved a good level of transposition of the

acquis

in the area

of consumer and health protection. The alignment process needs, however, to

continue, and to be supplemented by effective enforcement mechanisms.

The National Council for the Consumer Protection should be established without

delay. The strengthening of the consumer protection institutional system can be

expected only once the Council is in place and operational and the market surveillance

institutions are adequately reorganised. The establishment of a separate independent

institution for the protection of consumer rights should raise the protection of

consumer rights to a level of higher quality, as the Unfair Competition Investigation

Division of the State Competition Council, currently dealing with consumer

protection, is lacking in suitably qualified staff and resources.

Consumer protection needs to be strengthened by developing education programmes

and supporting the activities of non-governmental organisations, as consumers are

lacking knowledge about their rights. Much progress is still needed in this area.

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

Since the 1999 Regular Report, progress has been made in most areas of justice and

home affairs, both in terms of legislative alignment and administrative capacity. In

particular, important legislation has been passed in the areas of asylum, border control

and data protection. The enforcement capacity of institutions is being addressed by the

Lithuanian authorities in a more serious manner and restructuring within the police

and customs has helped to strengthen administrative capacity, however there is still

considerable room for improvement.

In the field of

data protection,

Lithuania signed the Council of Europe Convention

for the Protection of Individuals with regard to Automatic Processing of Personal Data

in February 2000. In March 2000, the Government established a computerised register

of personal data managers. In July 2000, a new Law on Legal Protection of Personal

Data was adopted aiming at bringing Lithuanian legislation in this field closer in line

with the

acquis.

As regards

visa policy,

there are no developments of note to report since the last

Regular Report.

In the field of

border control,

the Law on the State Border of the Republic of

Lithuania and its Control was adopted by the Lithuanian Parliament in May 2000,

addressing the relevant short term 1999 Accession Partnership priority. This will

facilitate preparations for police and border cooperation in view of Lithuania’s

implementation of the Schengen

acquis.

The Law’s main provisions include general

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requirements for border crossing and a simplified procedure of border crossing

according to different categories of individuals. The new Law also sets out

requirements for control of Lithuanian territorial sea and air space, rules for crossing

of the state border by Lithuanian and foreign troops, and the imposition of a ban on

transportation of nuclear or other mass destruction weapons through the state border.

In addition, the Lithuanian Government has adopted a substantial amount of

secondary legislation, in view of further complying with the

acquis.

Regarding demarcation of the Lithuania/Russia (Kaliningrad) border, formal

demarcation is expected to start following the ratification by the Duma of the Russian

Federation of the border agreement that was signed in 1997. The Lithuanian

Parliament ratified the border agreement in November 1999.

Cooperation with Lithuania’s Baltic neighbours has developed on the basis of the

cooperation agreement between the police, customs and border guarding authorities of

Finland, Latvia, Lithuania and Estonia on cross-border crime.

The replacement of military draftees by professional border police officers, which

commenced in June 1999, but which will not be completed before 2004, should

contribute to the building up of a professional Border Police Service. The Border

Training Centre has been reorganised into a Border Police School, a two-year

professional training programme has been designed and approved, and the new

training programme started in September 1999. 15 new programmes on the

improvement of qualifications have been prepared and are used to train officials of

various ranks. Following the new programmes a total of 499 border police officers

have been trained in January-June 2000.

During 1998-2000, the number of staff (including border police officers, frontier

guards and civil servants) at the future EU borders has been increased from 463 to 504

employees at the border with Russia, as well as from 1341 up to 1993 employees at

the border with Belarus. 3 new Border Police District Units have been established

with State budget financing.

The Lithuanian Government adopted, in 2000, a number of resolutions with the

objective of regulating

migration

flows (including rules and procedures of entry and

stay, crossing and transit as well as rules for expulsion). The Law on legal status of

foreigners, which entered into force in July 1999, was further amended during the

reporting period, with the aim of bringing Lithuanian legislation closer in line with the

acquis.

As of December 1999, Lithuania has begun to implement a Programme for the

Control of the Migration Process. Covering the years 1999-2002, the programme is

intended to regulate migration flows, namely by removing barriers obstructing the free

movement of persons and preventing unlawful entry into and stay on the territory of

the Republic of Lithuania. Rules on illegal employment are largely in line apart from

an adjustment concerning checks on unemployed residents. The 1999 Accession

Partnership short-term priority in this area has been partly addressed.

In the area of

asylum,

the Lithuanian Parliament adopted a new Refugee Law in May

2000. This Law, however, was subsequently vetoed by the President on the grounds

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that several provisions were not in conformity with international conventions (in

particular regarding the right to bar asylum seekers from entering the country on the

grounds of state security and of public order). On the basis of the President’s

observations, the Lithuanian Parliament adopted, in June 2000, a new law, which now

largely meets international norms and EU standards. In July 2000 the Government

adopted a National Action Plan in the field of Asylum outlining priority actions until

2002.

In the area of

police cooperation,

the services of the Lithuanian Police Department

have, in the last year, actively participated in the preparation and implementation of a

number of action programmes (both national and international), ranging from control

of narcotic drugs, prevention of drug addiction, prevention of illicit trafficking in

human beings to combating organised crime and vehicle theft. In March 2000, a

trilateral agreement was signed between Lithuania, Latvia and Estonia on co-operation

in protection of witnesses and victims.

With regard to the

fight against fraud and corruption

(see also B.1.1 Democracy

and the Rule of Law)

the European Criminal Law Convention on Corruption was

ratified by Lithuania in January 2000, in line with the relevant short term Accession

Partnership priority. As part of its fight against corruption, the Lithuanian Parliament

adopted in June 2000 the Law on Lobby Activities, including interest groups lobbying

on political parties.

With a view to implementing the Law on the Compatibility of Public and Private

interests in the Public Service, the High Commission of Ethics in Office, by way of its

Resolution of March 2000, requires that private interests of civil servants, including

institutions of local government be declared. In May 2000, the Lithuanian

Government adopted a new Statute for customs officials in order to combat corruption

inside the Customs Department. This Statute supplements the Code of Ethics for the

Customs Department adopted in 1999 and envisages strict disciplinary sanctions, such

as dismissal of corrupt officials.

The main institution to combat fraud and corruption – the Special Investigation

Service (established in February 1997) – has been reorganised in accordance with the

provisions of the Law on Special Investigation Service, which was adopted by the

Lithuanian Parliament in May 2000. This Law establishes the Special Investigation

Service as the main anti-corruption agency in Lithuania, independent and accountable

to the Parliament and the President.

In the area of

drugs,

a chemical precursors database was established in October 1999,

on the basis of the Law on Drugs and Psychotropic Substances Control.

In the area of

customs cooperation

(see also Chapter 25- Customs Union),

the

organisational structure of the Customs Department was changed in April 2000 to

give more powers to the Fraud Prevention Service (which includes 3 units: the fight

against smuggling, intelligence analysis and investigation divisions). As anti-

smuggling is seen as the main activity of the Service, there are now 25 staff employed

in the division for the fight against smuggling alone. The fight against smuggling

division is working in close cooperation with mobile surveillance units. In January

2000, mobile surveillance units were established in 6 regional customs offices, with a

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total of 13 customs officers, in order to carry out random checks on customs posts.

During January-June 2000, 28 raids have been performed by these mobile units, where

illegal and undeclared goods of a value of

€0.5

million have been seized. Some

progress can also be noted in the area of anti-corruption inside the Customs

Department, with the adoption in 2000 of new Statutes allowing for dismissal of

corrupt officials.

As concerns

judicial co-operation in criminal and civil matters,

in June 2000, a

supplementary protocol to the convention on extradition was signed. In April 2000,

the Lithuanian Parliament ratified the 1970 Convention on the Taking of Evidence

Abroad in Civil or Commercial Matters, the 1980 Convention on International Access

to Justice and the European Convention on Spectator Violence and Misbehaviour at

Sports Events. The 1965 Convention on the Service Abroad of Judicial and

Extrajudicial Documents in Civil or Commercial Matters was ratified in May 2000. A

new Criminal Code was adopted in September 2000, which,

inter alia,

aims at

bringing Lithuanian legislation further in line with the relevant

acquis

and

international conventions.

Overall assessment

Lithuania has, overall, achieved a reasonable degree of progress in the area of Justice

and Home Affairs. This progress shall need to be sustained and built upon (both in

terms of legislative alignment and administrative capacity) over the coming year. A

general, and serious, weakness, however, remains the inability to ensure effective

coordination among relevant institutions and bodies. This is most acute as regards

anti-corruption activities and the fight against organised crime.

In the area of

data protection

the Council of Europe Convention for the Protection of

Individuals with regard to Automatic Processing of Personal Data still has to be

ratified. The new Law on Legal Protection of Personal Data has brought Lithuanian

legislation in this field further in line with the

acquis.

In order to ensure an effective personal data protection system the State Data

Protection Inspectorate has to be reorganised into a fully independent supervisory

authority. This process is ongoing. A reliable mechanism for the evaluation of the

security of information systems and software for data processing has to be

implemented.

Lithuanian

visa policy

is close to being in line with the Schengen requirements.

Lithuania has approved a list of countries whose citizens require visas and there is

also a “white list” of countries whose citizens do not require visas, in compliance with

the Schengen

acquis.

Lithuanian visa insets are properly protected and are in line with

EU standards on visa protection. However, Lithuanian policy in respect of

simplification of the visa regime for border residents of Belarus and Kaliningrad is not

in line with the common visa policy and will need to be revised before accession.

Furthermore, in accordance with the Schengen Agreements, a fully functioning

National Schengen Information System has to be developed and implemented in order

to ensure a secure external border and movement of persons. National and

international inter-institutional cooperation on the visa policy should also be

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strengthened. The current system for issuing visas is computerised with a central visa

Vilnius airport. The Border Police Department and all the diplomatic and consular

missions have access to the database of undesirable persons.

Lithuania has achieved positive results in the area of

border control

with increased

investments and training of the border police. The number of illegal migrants passing

through Lithuania is lower than in previous years reflecting the effectiveness of the

measures of detection and return operations established by the Lithuanian authorities.

However, training and qualifications improvement programmes should be increased

for all levels of the Police Border Department, particularly since the recent change

from a military to a professional border police service, as the proportion of new

officials with limited experience has increased. Further efforts need to be made in

order to strengthen cooperation with border police services in neighbouring as well as

EU states in order to combat smuggling and illegal immigration.

A Cooperation Agreement signed in 1998 between Customs, Tax Police and Border

Police Departments, to improve cross-border transit of goods and passengers and to

strengthen border surveillance has not yet been implemented as the investigative

powers of Customs are still under establishment. The Border Police Department

cooperates closely with the Ministry of Defence, State Security Department and the

Economic and Organised Crime Units of the Ministry of Interior and, at border

crossing checkpoints, with Customs. The Border Police Department has recently been

working in close cooperation with border services of Latvia and Estonia.

Some progress can be noted in the area of

migration,

particularly on the

implementation of re-admission and expulsion procedures. Re-admission agreements

are in place with a series of countries, including Austria, Estonia, Finland, France,

Germany, Greece, Iceland, Ireland, Italy, Latvia, Luxembourg, the Netherlands,

Portugal, Spain, Ukraine and the United Kingdom.

In the process of completing Migration Services reform, a Police Unit for combating

illegal migration is envisaged to be set up by the end of 2000. The Migration

Department (77 employees) of the Ministry of Interior has close cooperation with the

Migration Services in Latvia and Estonia as well as good international relations with

the International Migration Organisation and Migration Committee of the Council of

Europe.

However, the Migration Department is understaffed given the magnitude of its tasks,

particularly in terms of monitoring implementation of the various re-admission

agreements.

In the area of

asylum,

the adoption of a Refugee Law that is largely in line with

international norms and EU standards, is a positive development. Under the new law,

it is envisaged to abolish the Refugee Council and to leave all powers to the

Administrative Courts. In order to avoid overlapping in the handling of asylum

requests, the proposed abolition of the Refugee Council needs to be accompanied by

appropriate specialised training in appeals cases for Administrative Court judges. As a

matter of priority, a Refugees Register has to be completed and appropriate training

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should be provided to the Administrative Courts on application of the appeals system

under the Refugee Law.

In the field of

police cooperation and the fight against organised crime,

some

progress has been made in strengthening administrative capacity. The Police

Department has been reorganised, in particular relating to the increased powers of

Police Commissariats at regional and county level. Police Commissariats at county

level now have a greater role in coordinating the activities of local police institutions.

However, as police decentralisation gets under way by increasing the powers of

regional Commissariats, training tailored to the fight against specific types of crime

should be designed. In addition preparations for joining Europol should be

intensified. Efforts should be made to developing an integrated computer-based

investigation system at the Police Department.

With regard to the administrative capacity of the Police Department, no additional

staff is foreseen until 2001, due to budgetary restraints. Problems identified within

individual sectors will be tackled by upgrading the police structure and reshuffling the

staff among the structural units in line with priorities, and more optimal use of

resources. As an ongoing part of the police reform process, job descriptions are

subject to constant review and amendment. A system of assessment of officers’

performance and regular work evaluations is also under preparation.

Anti-smuggling activities are gradually being transferred from the Police to the

Customs Department, as indicated in the Law on Operational Activities of May 1999

for the Customs Department. The mechanisms for international police co-operation

are gradually being centralised.

With a view to developing bilateral police co-operation, the Ministry of the Interior

has concluded co-operation agreements with Austria, Belarus, the Czech Republic,

Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Kazakhstan, Latvia,

Moldova, Poland, Romania, the Russian Federation, Spain, Sweden, Turkey and

Ukraine. Lithuania has thus far signed twelve international conventions on police

cooperation.

Progress has been made in strengthening capacities to deal with money laundering at

the national level, however, inter-agency cooperation does not function well. Inter-

agency cooperation needs to be considerably improved if Lithuania is to seriously and

successfully address at all levels the fight against organised crime in the country. An

Economic Crime Unit was established within the State Security Department (SSD) in

1999. However, inter-institutional cooperation particularly with the Border Police and

Tax Police department needs to be increased. Also the 1998 Law on Money

Laundering needs to be strengthened on the international police cooperation side.

As concerns the

fight against corruption,

the recently adopted Law on the Status of

the Special Investigation Service should improve administrative capacity to combat

corruption. This will clarify the Service’s coordinating role in the prevention of

corruption and, by making it accountable to the President and Parliament, its

independence and effectiveness should also be strengthened. The capacity of the

Special Investigation Service needs to be strengthened in terms of staff training given

that the Service is a fledgling institution with limited experience. Furthermore,

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preparations for the National Strategy against Corruption should be finalised and

coordination among all bodies responsible for the fight against corruption must be

considerably improved. Lack of effective coordination is seen as a major shortcoming.

The Council of Europe Civil Law Convention on Corruption has not yet been signed,

nor has the OECD Conventions on Bribery of Foreign Public Officials in International

Business Transactions, and on the Fight Against Corruption in International

Commercial Transactions. On the fight against fraud, Lithuania should prepare for full

cooperation with OLAF upon accession. Lithuania should also gradually bring

legislation in line with the Convention on the Protection of Financial Interests of the

European Communities.

In the area of

drugs

policy the National Programme for Control of Drugs and

Prevention of Drug Addiction for 1999-2003, (which has a budget of 12M€) lacks an

overall operational action plan to define priorities both in demand and supply

reduction activities.

The Lithuanian Vice-Minister of Health chairs an interministerial Drugs Control

Commission (established in 1995), comprising representatives from various ministries

such as the Ministries of Health, Social Security and Labour, Interior, Justice

Education, and Customs Department. The Commission aims to ensure, on a

consultative basis, greater coordination of interministerial activities in the area of drug

control. In the field of illicit trafficking in narcotic drugs, the chief body is the Board

on Control of Trafficking, Narcotic Drugs and Controlled Substances within the

Organised Crime Investigation Service of the Police Department. Methods of work

used by officers of the board to enforce control over the illicit trafficking in drugs are

broadly in line with UN requirements.

In order to improve enforcement capacities, it is important to reinforce units within

the Organised Crime Investigation Services of the Police combating illicit trafficking

in drugs. Co-operation with other law enforcement structures combating illicit

trafficking in drugs, particularly with neighbouring Member States, should be

increased. Setting up an information system, the establishment of a National Drug

Information Focal Point (in line with the requirements of European Drugs Monitoring

Agency) and participation in the European Information Network on drugs and drug

addiction (REITOX) are also needed. Training and institutional strengthening is

needed for the main department responsible for Drugs coordination in the Ministry of

Health.

In the area of

customs cooperation,

to ensure efficient and effective operations of

customs (especially to combat fraud and corruption), much remains to be done in

strengthening the administrative and operational capacity, mainly in the numerous

Customs Regional Offices. Greater coordination between the Customs Department

and the Regional Department is needed to ensure that legislation and policy is

properly understood and enforced. In addition, strengthening the control of the future

external border of the EU has to be ensured by means of training in modern customs

management techniques. Inter-agency cooperation is still insufficient. The 1998

Cooperation Agreement signed between Customs, Tax and Border Police should be

fully implemented.

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Overall, the administrative capacity of the Customs Department remains a concern.

The ability of the Department to enforce its new investigative powers remains weak,

in spite of efforts that have already been made. The recently adopted Statute of

Service for Customs Officials has to be enforced, so as to provide an effective tool

against corruption. With over 90% of total customs officials employed at regional

level and at border posts, an appropriate training and incentive strategy has to be

developed for Regional Customs Offices. This is essential in view of an integrated

border management, where customs will be working with veterinary, internal market

and law enforcement/visa agencies.

Lithuania has already reached a relatively advanced stage of alignment in the area of

judicial cooperation. Administrative structures to allow for cooperation with Member

States upon accession on the basis of international conventions, are gradually being

addressed. However, regarding cooperation in criminal matters, the Code of Criminal

Procedure should be amended to include a procedure on simplified extradition.

Efficient structures for judicial cooperation, mainly at the central level, have to be

built up. Adequate staffing has also to be ensured so as to avoid delays in the

execution of international letters of request. Training of judges, prosecutors and court

personnel (including the court Bailiffs) in EC Law must be pursued systematically.

The functioning of the court system, in particular the administrative courts, remains a

serious concern

(see Section B.1.1 Democracy and Rule of Law).

Lithuania has concluded agreements on judicial co-operation with its neighbouring

countries (Latvia, Estonia, Poland) and certain CIS members (Russia, Belarus,

Moldova, Ukraine, Kazakhstan, Uzbekistan). Lithuania has also concluded an

agreement with USA on judicial co-operation in criminal matters.

The supplementary protocol convention on extradition which was signed in June 2000

has to be ratified by the Lithuanian Parliament.

Chapter 25: Customs union

Since the last Regular Report Lithuania has made steady progress in the field of

customs.

As regards the

EC Customs Code and its implementing provisions

Lithuania has

made progress in developing compatible implementing provisions, in accordance with

the relevant 1999 Accession Partnership short term priority. New valuation procedures

are in force since January 2000, regulations for customs information management, use

and release were adopted in October 1999 and regulations for declaration and customs

control of goods entered into force in April 2000. This provides the legal framework

for the simplification of customs procedures.

As concerns the

customs

acquis

outside the Code,

Lithuania has ratified a number of

agreements on mutual assistance, including one with Belarus. Regarding the pan-

European system of origin, Lithuania 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 Lithuania to sign and enforce the necessary Free Trade Agreements with Romania

and Bulgaria.

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As far as the

administrative and operational capacity

to implement the

acquis

concerned, it is notable that Lithuania in March 2000 adopted a training strategy

covering the period 2000-2002.

The Lithuanian customs authorities have endeavoured to address the need to reinforce

the fight against fraud and corruption, as identified in the 1999 Accession Partnership.

In May 2000 the Statute of Service for Customs Officials was approved by the

Government in order to combat corruption inside the Customs Department. This

Statute supplements the Code of Ethics for the Customs Department adopted in

November 1999 and a mandatory ethics course has now been included in the training

for all new recruits at the Customs School. The Infringement Prevention Service was

reorganised in April 2000 and in June 2000, a plan was introduced for gradual transfer

of functions of the fight against smuggling from the Police department to the Customs

department. Procedures for methods of risk assessment and selection criteria for

customs control were approved in March 2000.

The computerised Customs information and control system, ASYCUDA

(computerised customs information system), has been operating since June 1999 in 3

pilot sites (Vilnius airport and Customs central administrations in Vilnius and Kaunas)

and as of June 2000, Kaunas customs is using ASYCUDA as its single system to

process declarations.

Overall assessment

Lithuania has made important efforts to harmonise legislation and modernise the

customs administration.

The customs code in force since January 1998, is to a large extent in line with the

acquis.

However further efforts are needed as regards the adoption and

implementation of implementing provisions. Lithuania should extend the application

of simplified procedures and the legal and technical problems relating to submission

of a declaration by electronic means should be addressed.

The strengthening of the customs administration must continue. More progress is

needed to enable customs to enforce its new investigative powers, appropriate training

strategies should be developed for regional customs offices and the fight against fraud

and corruption must remain a priority. Inter-agency cooperation is still insufficient.

The 1998 Cooperation Agreement signed between Customs, Tax and Border Police

should also be implemented and the cooperation should be extended to the veterinary

and phytosanitary border inspectors.

Chapter 26: External relations

Since the last Regular Report, Lithuania has made progress in continuing to align its

trade policy with that of the EU.

As regards the common

commercial policy,

Lithuania will be required to align its

tariffs with those of the EC upon accession. Lithuania’s applied tariffs currently

average 5.4% on all products, 15.1% on agricultural products, 4.3% on fishery

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products, and 2.5% 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.

During the reporting period Lithuania has substantially aligned its legislation with the

WTO requirements and in October 2000 negotiations for accession of Lithuania to the

WTO were concluded.

Lithuania is already enforcing the International Technology Agreement and the Civil

Aviation Agreement without any derogation.

As regards

bilateral agreements with third countries,

a free trade agreement

between Lithuania and Hungary entered into force in March 2000. Negotiations on

free trade agreements are ongoing with Romania and Bulgaria. Lithuania is also

considering the possibility of negotiating free trade agreements with the Faeroe

Islands and with Croatia.

Changes to the rules of origin and technical amendments have been made to

Lithuania’s free trade agreements with EFTA, the Czech Republic, Hungary, Poland,

Slovakia, Slovenia, Turkey as well as Estonia and Latvia during the past year.

Overall assessment

Negotiations for the accession of Lithuania to the WTO have recently been concluded

and the decision to approve the accession package should be taken by the WTO

General Council in due course, opening the way for Lithuania to accede by the middle

of 2001. Upon accession to the WTO and prior to accession to the EU, Lithuania will

need to accede formally to the two plurilateral agreements on Government and Civil

Aircraft. Lithuania is currently an observer to the plurilateral Agreement on

Government Procurement.

As regards the WTO Agreement on Trade and Textiles and Clothing, Lithuania needs to

align its integration programmes for stages 1, 2, and 3 on those of the EC, while notably

avoiding to integrate products not yet integrated by the EC.

Where medium and long term export credits are granted, further alignment to the

acquis

is necessary.

Lithuania has progressed in aligning its international commitments to those of the EC.

It currently holds Free Trade Agreements with the Czech Republic, EFTA, Estonia,

Hungary Latvia, Poland, the Slovak Republic, Slovenia, Turkey and Ukraine.

Lithuania should continue to keep the European Union fully informed about existing

trade agreements or negotiations aimed at the conclusion of any new trade agreements

with a third country.

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As regards administrative capacity, it is the Ministry of Foreign Affairs which is

responsible for negotiations and supervision of agreements in the fields of trade and

international economic relations. Development and humanitarian aid are administered

by the Ministry of Foreign Affairs. The administrative infrastructure which needs to

be in place as regards the customs service is addressed in the chapter on customs

union.

Chapter 27: Common foreign and security policy

The regular

political dialogue

established by the Europe Agreement is proceeding

smoothly and Lithuania continues to orient its foreign and security policy towards the

Union. It continues to participate actively in the framework of the Common Foreign

and Security Policy (CFSP), including the meetings at the level of Political Directors,

European Correspondents and Working Groups.

Lithuania has shown a keen interest in the development of European Security and

Defence Policy (ESDP) as part of CFSP and has actively participated in the exchanges

in this context with the EU, in EU + 15 format (i.e. non–EU European NATO

members and candidates for accession to the EU).

As regards

alignment with EU statements and declarations,

Lithuania has regularly

aligned its positions with those of the Union and, when requested to do so, has

associated itself with the Union’s

joint actions and common positions.

In the

reporting period, Lithuania has aligned with all EU declarations and common

positions to which it has been invited.

Lithuania has complied with the

acquis

on landmines. Lithuanian armed forces

continue to take part in peace operations in Bosnia-Herzegovina and Kosovo.

Lithuania developed good and constructive relations with all the

neighbouring states

and is an active proponent of regional co-operation, notably in the framework of the

Council of the Baltic Sea States. In its relations with Russia, it has continued to

emphasise the development of cross border co-operation with the Kaliningrad region.

In October 1999, by an absolute majority of votes, the Seimas ratified a border treaty

with Russia (signed in October 1997). Also in October 1999, the Seimas ratified the

agreement on the de-limitation of the territorial sea, the exclusive economic zone and

the continental shelf in the Baltic Sea with Latvia (signed in July 1999).

In December 1999, a secure

communication system

became operational. This allows

for effective exchange of information between Lithuania and EU members and

candidate countries on CFSP related issues, as well as speedy alignment with EU

declarations and common positions.

Overall assessment

The policy pursued by Lithuania is in conformity with the CFSP

acquis.

Lithuania is

actively aligning itself with declarations and common positions of the EU. As the

acquis

in the field of foreign policy and security develops further, Lithuania should

maintain the orientation of its foreign policy in line with that of the Union.

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Lithuania is an associate partner of WEU. Following the Kosovo crisis, during 1999-

2000, Lithuania has contributed to joint operations. Lithuania has good relations with

its neighbours and actively promotes regional co-operation.

Concerning the administrative capacity in the field of CFSP, the structures required to

participate in the formulation and implementation of the CFSP are in place, including

the posts of European Correspondent and Political Director.

Chapter 28: Financial control

Important efforts have been made by the Lithuanian authorities to address the

shortcomings as outlined in last year’s Regular Report. Despite this however, financial

control in Lithuania is not yet in line with internationally accepted practices both in

terms of the legislative framework and the administrative capacity of public bodies, in

particular with regard to internal audit.

With regard to public internal financial control, in February 2000, the Lithuanian

Government passed a Resolution (partly addressing the relevant 1999 Accession

Partnership short term priority) on the internal audit of state enterprises and

institutions, defining the role and responsibilities of internal audit units. The

Resolution provides for the establishment (within a strict time schedule) of internal

audit units in all ministries, regional administrations, the State Tax Inspectorate, in

other state bodies and in state enterprises.

The completion of the legislative framework for external audit is identified in the

1999 Accession Partnership as a short term priority. In relation to this, Lithuania has

amended its Law on State Control in April 2000, whereby the use of EC funds will

become subject to external audit by the State Control Office. As concerns

administrative capacity, in February 2000, two regional departments were established

and two divisions of the Central Office of State Control were reorganised. During the

first half of 2000 a number of training courses were carried out for the staff of the

State Control Office in the areas of performance audit, internal audit, accounting and

financial crime.

In the area of

control measures relating to own resources,

the Lithuanian customs

and tax administrations are undergoing a reform and modernisation process in view of

strengthening their operational and enforcement capabilities.

As regard the areas of

structural action expenditure

and

protection of financial

interests of the

EC, internal financial control of the EC funds will be managed in

Lithuania by the National Fund. In January 2000, the Ministry of Finance approved an

operational manual for management of the National Fund. According to the new

resolution, the audit units shall audit implementation of projects and programmes

financed with EC funds.

Overall assessment

Concerted efforts have been made by the Lithuanian authorities in the area of

Financial Control, however many shortcomings still remain.

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Whilst the Government Resolution on internal audit is significant, its provisions are

not sufficient to guarantee that international standards are met by Lithuania. Efforts

are under way, however, to revise the aforementioned Resolution. The creation of

internal audit units is an important first step towards the establishment of appropriate

internal audit necessary to meet the internationally accepted standards as well as the

requirements ensuing from the management of EC funds upon accession. This process

of establishment, staffing (and staff training) and accreditation of internal audit units

is, however, taking longer than expected. Consideration needs to be given to the

desirability of a new and comprehensive Public Financial Internal Control Act,

including the issues of

ex ante

control and of internal audit, in line with internationally

accepted auditing standards. It is essential that financial management and control

manuals be developed for the budget spending centres, audit manuals for the internal

audit services as well as audit trails, at least for EC funds.

Presently two ministries have responsibility for internal audit in Lithuania. The

Ministry of Finance shall give methodological guidance to internal audit units on

financial audit issues, while the Ministry of Public Administration Reforms and Local

Authorities shall provide guidance on management and operational audit issues. Such

a division may lead to confusion in directives relating to internal audit. The Ministry

of Finance should also be responsible for the methodology of systems and

performance audit, while it should have the possibility to perform compliance and

substantive on-the-spot tests to ensure that its directives are followed up. It is

therefore suggested that the present division of responsibilities be subject to review.

As a result, the role of the Ministry of Finance, as the promoter and coordinator of

methodological guidance for financial audit and the training of auditors needs to be

further defined.

The functional integrity and duties of the Internal Auditor in budget spending centres

should be written into legislation. The independence of the Internal Auditor from the

manager of the spending centre in relation to audit planning, performing and reporting

on their audit findings does not seem to be adequately safeguarded.

Finally, it will be necessary for the Lithuanian control authorities to develop an

adequate system of internal financial control of the activities of the National Fund and

Implementing Agencies.

With regard to external audit, the State Control Office is the Supreme Audit

Institution of Lithuania. It has the authority to audit all public and statutory funds and

also EC funds. The State Control does not have a mandate to audit municipalities,

except for the state subsidies they receive. External audit in Lithuania however does

not fully meet international standards. The State Control Office needs to further

implement international standards, which shall require the preparation of audit

manuals adapted to the Lithuanian context and extensive training in their application.

The scope of auditing should be broadened to include a wider range of performance

auditing. The State Control Office needs to increase its awareness of the implications

of EC accession. The role of the Lithuanian Parliament

vis-à-vis

its treatment of audit

reports of State Control Office should be addressed.

As concerns the control of future EC own resources, further efforts should be made to

develop effective mechanisms to combat fraud related to VAT and customs duties.

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Further efforts are also needed with regard to the protection of financial interests of

the EC and putting in place a system that will meet the requirements and obligations

ensuing from EC structural action expenditure.

Chapter 29: Financial and budgetary provisions

Lithuania has made progress in the reporting period as regards

the national budget

and EC co-financed measures.

In July 2000, the Seimas adopted the new law on budget composition. This legislation

defines the overall budget structure and contains the basic principles and provisions

for the preparation, the approval, the execution and the control of the budget. In

particular, it introduces the principle of medium-term planning for the budget. The

law provides for the number of extra-budgetary funds to be significantly reduced from

22 to 4 (social security fund, health fund, privatisation fund, Ignalina

decommissioning fund). Furthermore, the law provides for most of the so-called

special revenues, such as non-tax receipts, to be brought within the budget. With a

view to creating a system of co-financing, the law on budget foresees that the

activities related to the EC pre-accession programme shall be indicated separately.

Overall assessment

With the adoption of the new legislation, the modernisation of budgetary structures

and management of public expenditure has started.

Further strengthening is necessary in several areas to meet the usual standards in the

EC. Such improvements should be completed in the fields of financial accounting,

reporting and treasury management. The procedures for multi-annual budgeting

should be developed, with the view to facilitating the budgetary decisions in a

medium-term perspective. The respective roles, in the preparation of the budget, of the

Ministry of Finance, the Ministry of the Economy and the spending Departments

could be more precisely defined. Their analytical capacity in the appraisal, monitoring

and evaluation of the financial and economic effects of expenditure programmes

should be increased.

The National Fund has been established under the Treasury Department at the

Ministry of Finance and the structures to adminiser and monitor the EC pre-accession

funds at central level are mostly in place.

As regards own resources, Lithuania has a Customs Code (which entered into force in

January 1998) which was prepared according to the provisions of the European

Community Customs Code. The process to ensure GNP and VAT calculation

according to the ESA 95 has yet to be completed.

3.2.

Translation of the

acquis

into the national language

Applicant countries are to translate the various legal texts constituting the

acquis

into

their national languages by the time of their accession. The

acquis,

consisting of

primary and secondary binding legislation, represents at present a considerable

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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.

Based on a Government resolution of February 1999, the translation of the

acquis

into

Lithuanian is carried out by the Translation, Documentation and Information Centre.

As of January 2000, the number of pages of the Official Journal translated into

Lithuanian was around 20,000 of which 10% had been fully revised.

Further efforts are required in this area.

3.3.

General evaluation

Lithuania has made significant overall progress in terms of transposition and, to a

lesser extent, implementation of the

acquis.

Additional progress is required notably in

areas such as taxation, agriculture, regional policy and financial control. The

strengthening of administrative capacity, which has, in part, been limited by the

budgetary constraints, should be continued in a sustained and more coherent manner.

In the field of the

internal market,

Lithuania has made progress in particular as regards

the

free movement of goods

(standardisation and market surveillance), although the

adoption of European harmonised standards should be accelerated. The

implementation of

public procurement

legislation has continued but the administrative

capacity and the independence of the Public Procurement Office need to be further

strengthened. Significant progress has taken place in the area of

competition

with the

adoption of the State aid law, while effective enforcement and strengthening of the

relevant administrative structures need to be ensured. Further progress towards

complete alignment in the area of

free movement of capital

has been registered but

some remaining restrictions need to be abolished. Alignment concerning intellectual

property rights has proceeded; however, proper enforcement remains very weak.

While progress has been made as regards the strengthening of the administrative

capacity in the area of

taxation,

very limited progress can be reported on alignment.

Lithuania has made progress in the field of

customs.

However further efforts are

needed as regards implementation and administrative capacity.

Significant progress has taken place in aligning with the

audiovisual acquis.

Developments have taken place in the

telecommunication

sector with the decision to

establish an independent regulatory authority. This authority needs to become fully

operational.

Lithuania has made some progress in laying the legal and administrative basis to

prepare for participation in the

Common Agricultural Policy,

but much progress is still

needed in terms of both alignment and administrative capacity. Alignment on

veterinary and phytosanitary matters has moved forward, and the veterinary

administration has been re-organised. Lithuania has started aligning its legislation

with the

acquis

fishing

resources management, and has partly streamlined the

relevant institutional set-up. The legal framework for market regulation and structural

assistance should be developed.

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Lithuania has continued to make progress in the field of the

environment,

and has now

achieved a fair level of alignment, although there are still major differences across

sectors. Implementation is still a major concern, in particular as regards water, waste

and industrial pollution and risk management, due to the heavy investments required.

In the area of

transport,

Lithuania has continued to align its legislation and achieved

significant progress, in particular in the fields of road transport safety, air transport

and maritime safety. However, implementation will still require considerable

resources. As regards the

energy

sector, Lithuania has made significant progress in

implementing the national energy strategy, notably through the adoption of the law on

the decommissioning of Unit 1 of Ignalina NPP and other important laws; this

provides a basis for the restructuring of the sector and market liberalisation.

There has been some progress in transposition and implementation of the

social

acquis,

notably in the field of health and safety at the workplace. Further efforts are

required as regards labour law and social dialogue. Implementation and enforcement

remain a cause for concern. The active role played by the Ombudsman for equal

opportunities should be noted. In the area of

industrial policy,

Lithuania has

developed further the political and legal framework for the in-depth restructuring of its

industry. Efforts have, however, focused on conceptual aspects and little has been

done in terms of implementation. The adoption of the new legislation on bankruptcy

and enterprise restructuring is still outstanding.

In the field of

regional policy,

progress has taken place in establishing the legal

framework, although administrative capacity presents serious weaknesses. Despite

considerable efforts,

financial control

in Lithuania is not yet in line with

internationally accepted practices, in particular with regard to internal audit. Progress

has taken place as regards the reform of the

budget

system, which needs however to

be further pursued.

Progress has been made in most areas of

justice and home affairs,

both in terms of

legislative alignment and administrative capacity. A general, and serious weakness in

most areas of justice and home affairs remains, however, the inability to ensure

effective co-ordination among relevant institutions and bodies.

As Lithuania reaches a more advanced level of alignment, greater attention needs to

be paid to strengthening administrative capacity, so as to ensure effective

implementation and enforcement of the

acquis.

Some efforts have been made in this

regard. In particular, certain existing institutions have been reformed, such as

veterinary and market surveillance bodies, and the legal basis for the establishment of

new institutions has been laid down, for example in the case of the Consumer

Protection Council. However, the budgetary constraints Lithuania has experienced

during the reporting period have limited the effective operational capacity of new

institutions as well as the required reinforcement of existing structures.

Overall, Lithuania has made satisfactory progress in meeting the short-term priorities

of the Accession Partnership, especially as regards economic reform. However, in

some areas such as agriculture, taxation, administrative capacity (including

management and control of EC funds), further progress is still required. Lithuania has

already started to address a number of medium-term Accession Partnership priorities.

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C. Conclusion

Lithuania continues to fulfil the Copenhagen political criteria.

As regards public administration reform, in line with the relevant medium-term

priority of the Accession Partnership, Lithuania has made progress in implementing

the legislation on public administration and civil service. In continuing this reform,

further issues need to be addressed, namely, the level of remuneration, additional

training and improved inter-ministerial co-ordination.

The reform of the legal system has significantly progressed with the adoption of the

Civil Code and the Criminal Code. This reform needs to be completed through the

adoption and implementation of new Codes of Civil and Criminal Procedure, which

inter alia

should contribute to the speeding up of court proceedings. Efforts on

judicial reform need to be stepped up, in particular with regard to training of judges

and prosecutors, filling all vacant positions, and improving the functioning of the

courts, especially the administrative courts.

As regards the fight against corruption, the important measures which have already

been taken need to be completed through the adoption of a National Anti-corruption

Strategy. Enforcement needs to be significantly strengthened by further reinforcing the

relevant agencies and effectively ensuring their co-ordination.

Lithuania can be regarded as a functioning market economy and should be able to

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

term, provided that it continues with the implementation of the current structural

reform programme and undertakes further necessary reforms.

Lithuania has preserved macroeconomic stability and managed to reduce the fiscal and

external imbalances and state interference. The protective measures introduced after

the Russian crisis have been largely removed. Significant progress has been made in

the privatisation of the banking sector. Progress has also been achieved with the

adoption of important laws to restructure and liberalise the energy market. Land

restitution is close to completion.

However, there is a need to maintain fiscal discipline and to keep the current-account

deficit under control. The medium-term sustainability of public finances is not yet

ensured. Bankruptcy procedures are still not working properly. The physical and

human capital has to be further developed and the financial sector remains weak.

There is room for further trade integration with the EU.

The authorities need to pass the amendments to the bankruptcy and restructuring laws

and must subsequently ensure their effective implementation. Fiscal discipline must

continue and the sustainability of public finances in the medium-term must be

ensured. The planned pension reform must now move into the implementation phase.

The reforms to enhance the financial sector need to be completed to foster the

modernisation of productive capacity. The labour market needs to be made more

flexible.

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Lithuania has made significant overall progress in terms of transposition and, to a

lesser extent, implementation of the

acquis.

Additional progress is required notably in

areas such as taxation, agriculture, regional policy and financial control. The

strengthening of administrative capacity, which has, in part, been limited by the

budgetary constraints, should be continued in a sustained and more coherent manner.

In the field of the

internal market,

Lithuania has made progress in particular as regards

the

free movement of goods

(standardisation and market surveillance), although the

adoption of European harmonised standards should be accelerated. The

implementation of

public procurement

legislation has continued but the administrative

capacity and the independence of the Public Procurement Office need to be further

strengthened. Significant progress has taken place in the area of

competition

with the

adoption of the State aid law, while effective enforcement and strengthening of the

relevant administrative structures need to be ensured. Further progress towards

complete alignment in the area of

free movement of capital

has been registered but

some remaining restrictions need to be abolished. Alignment concerning intellectual

property rights has proceeded; however, proper enforcement remains very weak.

While progress has been made as regards the strengthening of the administrative

capacity in the area of

taxation,

very limited progress can be reported on alignment.

Lithuania has made progress in the field of

customs.

However, further efforts are

needed as regards implementation and administrative capacity.

Significant progress has taken place in aligning with the

audiovisual acquis.

Developments have taken place in the

telecommunication

sector with the decision to

establish an independent regulatory authority. This authority needs to become fully

operational.

Lithuania has made some progress in laying the legal and administrative basis to

prepare for participation in the

Common Agricultural Policy,

but much progress is still

needed in terms of both alignment and administrative capacity. Alignment on

veterinary and phytosanitary matters has moved forward, and the veterinary

administration has been re-organised. Lithuania has started aligning its legislation

with the

acquis

fishing

resources management, and has partly streamlined the

relevant institutional set-up. The legal framework for market regulation and structural

assistance should be developed.

Lithuania has continued to make progress in the field of the

environment,

and has now

achieved a fair level of alignment, although there are still major differences across

sectors. Implementation is still a major concern, in particular as regards water, waste

and industrial pollution and risk management, due to the heavy investments required.

In the area of

transport,

Lithuania has continued to align its legislation and achieved

significant progress in particular in the fields of road transport safety, air transport and

maritime safety. However, implementation will still require considerable resources.

As regards the

energy

sector, Lithuania has made significant progress in implementing

the national energy strategy, notably through the adoption of the law on the

decommissioning of Unit 1 of Ignalina NPP and other important laws; this provides a

basis for the restructuring of the sector and market liberalisation.

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There has been some progress in transposition and implementation of the

social

acquis,

notably in the field of health and safety at the workplace. Further efforts are

required as regards labour law and social dialogue. Implementation and enforcement

remain a cause for concern. The active role played by the Ombudsman for equal

opportunities should be noted. In the area of

industrial policy,

Lithuania has

developed further the political and legal framework for the in-depth restructuring of its

industry. Efforts have, however, focused on conceptual aspects and little has been

done in terms of implementation. The adoption of the new legislation on bankruptcy

and enterprise restructuring is still outstanding.

In the field of

regional policy,

progress has taken place in establishing the legal

framework, although administrative capacity presents serious weaknesses. Despite

considerable efforts,

financial control

in Lithuania is not yet in line with

internationally accepted practices, in particular with regard to internal audit. Progress

has taken place as regards the reform of the

budget

system, which needs to be pursued.