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Europaudvalget 2001-02 (1. samling)
EUU Alm.del Bilag 180
Offentligt

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 13.11.2001

SEC(2001) 1751

2001

REGULAR REPORT

MALTA’S

PROGRESS TOWARDS ACCESSION

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2001

REGULAR REPORT

MALTA’S

PROGRESS TOWARDS ACCESSION

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

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Table of contents

A. Introduction.................................................................................... 6

Preface ..................................................................................................................... 6

Relations between the European Union and Malta.......................................... 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 ....................................................................................................................... 9

Negotiations / screening............................................................................................... 10

B. Criteria for membership.............................................................11

1. Political criteria ............................................................................. 11

Introduction................................................................................................................. 11

Recent developments................................................................................................... 11

1.1. Democracy and the rule of law ...........................................................................12

The Parliament ............................................................................................................ 12

The Executive.............................................................................................................. 12

The Judicial System..................................................................................................... 13

Anti-corruption measures............................................................................................. 14

1.2. Human rights and the protection of minorities .............................................14

Civil and political rights................................................................................................ 14

Economic, social and cultural rights.............................................................................. 15

Minority rights and the protection of minorities.............................................................. 16

1.3. General evaluation ...............................................................................................16

2. Economic criteria .......................................................................... 17

2.1. Introduction ...........................................................................................................17

2.2. Economic developments ......................................................................................17

2.3. Assessment in terms of the Copenhagen criteria...........................................20

The existence of a functioning market economy ............................................................ 20

The capacity to cope with competitive pressure and market forces within the Union...... 24

2.4. General evaluation ...............................................................................................27

3. Ability to assume the obligations of membership.......................... 28

Introduction................................................................................................................. 28

3.1. The chapters of the

acquis....................................................................................30

Chapter 1: Free movement of goods....................................................................30

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

Chapter 2: Free movement of persons ................................................................32

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Overall assessment ...................................................................................................... 33

Chapter 3: Freedom to provide services.............................................................34

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

Chapter 4: Free movement of capital .................................................................36

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

Chapter 5: Company law.......................................................................................37

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

Chapter 6: Competition policy..............................................................................39

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

Chapter 7: Agriculture..........................................................................................40

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

Chapter 8: Fisheries..............................................................................................43

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

Chapter 9: Transport policy .................................................................................44

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

Chapter 10: Taxation ............................................................................................46

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

Chapter 11: Economic and Monetary Union .....................................................47

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

Chapter 12: Statistics ............................................................................................48

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

Chapter 13: Social policy and employment ........................................................49

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

Chapter 14: Energy................................................................................................52

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

Chapter 15: Industrial policy...............................................................................54

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

Chapter 16: Small and medium-sized enterprises............................................55

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

Chapter 17: Science and research......................................................................56

Overall assessment ...................................................................................................... 57

Chapter 18: Education and training ...................................................................57

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

Chapter 19: Telecommunications and information technologies...................58

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

Chapter 20: Culture and audio-visual policy.....................................................59

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

Chapter 21: Regional policy and co-ordination of structural instruments...60

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

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Chapter 22: Environment......................................................................................62

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

Chapter 23: Consumers and health protection..................................................65

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

Chapter 24 - Co-operation in the field of justice and home affairs ...............66

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

Chapter 25: Customs union .................................................................................69

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

Chapter 26: External relations ............................................................................70

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

Chapter 27: Common foreign and security policy.............................................72

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

Chapter 28: Financial control ............................................................................73

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

Chapter 29: Financial and budgetary provisions ............................................74

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

3.2. Translation of the acquis into the national languages...................................75

3.3. General evaluation ...............................................................................................76

C. Conclusion....................................................................................79

D. Accession Partnership and National Programmes for the

Adoption of the

Acquis:

Global assessment ............................82

1. Accession Partnership ................................................................... 82

Short-term priorities .................................................................................................... 82

Medium-term priorities................................................................................................ 84

2. National Programme for the Adoption of the

Acquis

................... 86

Annexes...............................................................................................88

Human Rights Conventions ratified by the Candidate Countries, 30

September 2001..............................................................................................89

Statistical data........................................................................................................90

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A. Introduction

Preface

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

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

towards accession with a view to the Helsinki European Council.

Following the request of the European Council, the Commission presented a second Regular

Report on Malta in November 2000 before the Nice European Council. The Commission has

prepared this third Regular Report on Malta’s progress towards accession with a view to the

Laeken European Council in December 2001.

The structure followed for this Regular Report is the same as that used for the 2000 Regular

Report. In line with previous Regular Reports, the present Report:

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

Association Agreement;

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

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

assesses Malta’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);

addresses the question of Malta’s capacity to assume the obligations of membership, that is,

the

acquis

as expressed in the Treaties, the secondary legislation, and the policies of the

Union. This part gives special attention to nuclear safety standards, 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 emphasised by the Madrid European Council in

December 1995, and confirmed by the Gothenburg European Council in June 2001. 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 Gothenburg European Council 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 and reforming their

administrative and judicial structures.

This Report takes into consideration progress since the 2000 Regular Report. It covers the

period until 30 September 2001. In some particular cases, however, measures taken after that

date are mentioned. It looks at whether intended reforms referred to in the 2000 Regular

Report have been carried out, and examines new initiatives. In addition, 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 Malta in preparing for

accession.

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

acquis

criteria (including Malta’s administrative capacity to implement the

acquis)

focuses on

what has been accomplished since the last Regular Report, complemented with a view of the

global situation for each of the aspects discussed. The economic assessment, for its part,

provides, besides an assessment of progress made over the reference period, also a dynamic,

forward-looking evaluation of Malta’s economic performance.

The Report contains a separate section examining the extent to which Malta has addressed the

Accession Partnership priorities.

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 of each country in

terms of its 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 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.

Relations between the European Union and Malta

Recent developments under the Association Agreement (including bilateral

trade)

The sixth meeting of the Malta-EU Association Committee was held in Valetta on 9 July 2001.

It was the first Association Committee meeting since July 1990. The main points covered were

the monitoring of Maltese commitments with respect to the Accession Partnership and the

National Programme for the Adoption of the Acquis, and trade questions (mutual concessions

on fish and agricultural trade).

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

comprising representatives of the Maltese and European Parliaments has met in November

2000 in Strasbourg and in May 2001 in Malta.

As in previous years, the Report does not mention any commitments undertaken or requests made in the context of the

accession negotiations.

For the European Parliament the

rapporteur

is Ursula Stenzel.

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The EC remains Malta's major trading partner, with around 33% of Malta’s exports and 60%

of imports in 2000, compared to 49% and 65%, respectively, in 1999. This change in trade

patterns is due to a large extent to the increased activity of the major electronics manufacturer,

which accounts for over 60% of the total manufacturing exports, and trades extensively with

Asia and the US. Malta imports mainly semi-finished industrial supplies and exports mainly

electronic equipment.

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

products by 2003, except for agricultural products. On the basis of a mandate from the

Council, the Commission held discussions with Malta in April 2001 with a view to fully

liberalising trade in fish and fishery products between Malta and the EC. The Commission is

proposing to the Council an agreement for that purpose. In the context of the planned second

round of negotiations on reciprocal concessions for agricultural products with the Central and

Eastern European Countries, the Commission is presently preparing for negotiations with Malta,

aiming at further trade liberalisation for agricultural products.

Accession Partnership / National Programme for the Adoption of the Acquis

An Accession Partnership was adopted in March 2000 – its implementation is reviewed in Part

D. This Regular Report is accompanied by a proposal from the Commission to update the

Accession Partnership.

Malta finalised its first National Programme for the Adoption of the

Acquis

(NPAA) in

September 2000. This document sets out Malta’s plan for the adoption and implementation of

the

acquis

(see Part D). Malta has not yet submitted to the Commission an updated version of

its National Programme for the Adoption of the Acquis.

Community aid

Following a request by the Council in March 1999, the Commission proposed a pre-accession

regulation for Malta in October 1999. The Council approved the regulation on the

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

2000.

It provided for total pre-accession aid to Malta of € 38 million for the period 2000-2004, to be

used mainly for institutional capacity building, as well as for participation in Community

programmes. The Regulation also provided for Malta’s participation in MEDA regional

programmes. In addition, Malta is eligible for the EIB pre-accession facility and for the

€

6.425

billion EIB facility for Mediterranean countries.

In 2001, the total pre-accession aid allocated to Malta was € 7.5 million, and the programme

focused on the following priorities:

•

Implementation of EC Occupational Health and Safety legislation (€ 0.700 million)

Capacity building for the implementation of Regional Policy (€ 0.500 million)

Capacity building in the fields of Asylum and Border' Management (€ 1.350 million)

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•

Capacity Building at the Malta Standards Authority and in related departments / New &

Global Approach (€ 1.350 million)

Customs & Tax administrations change (PHASE 2) (€ 1.310 million)

General administrative co-operation and support for the pre-accession strategy (€ 1.090

million)

Malta's participation in EC education programmes (€ 1.200 million)

Malta participates in and benefits from multi-country and horizontal programmes, such as

TAIEX. Malta also participates in the Community education programmes, SOCRATES,

LEONARDO and YOUTH and in the Research Framework Programme. Furthermore, Malta

participates in MEDA regional programmes, EUMEDIS in the field of Information Society and

SMAP in the field of Environment. Following the ratification and entry into force of the

agreement, the formal participation of Malta in the European Environment Agency will start in

January 2002.

In order to streamline Community legal procedures and thereby facilitate future participation of

Malta in Community programmes, an Agreement is in the process of being concluded between

the European Community and Malta establishing the general principles for such participation.

It is still too early to assess the impact of the pre-accession aid granted in 2000 and 2001.

However the administrative capacity building projects launched, for instance in the fields of

Customs and Tax, Occupational Health & Safety or the New and Global Approach, are

comprehensive and will address all the gaps and needs in their respective areas.

The Phare Review for 2000, whose conclusions also apply to Malta’s pre-accession

programmes, confirmed the accession-driven approach and emphasised the importance of

helping countries to prepare for the Structural Funds. The Review foresees the possibility that

management of the pre-accession funds can be fully decentralised from 2002 if the strict pre-

conditions set down in the Co-ordination Regulation 1266/99 are met. Second, the

programming of the pre-accession funds can be moved onto a multi-annual basis if supporting

strategies are in place. Third, the trends introduced in the past continue with an increased role

for Delegations, further streamlining of procedures and, lastly, increasing emphasis on raising the

verifiable and quantifiable impact of pre-accession projects in institution building, investment in

compliance with the

acquis

and economic and social cohesion.

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 and

training.

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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.

A total of 372 twinning projects, primarily in the fields of agriculture, environment, public

finance, justice and home affairs and preparation for the management of Structural Funds, have

been funded by the Community between 1998-2000. These represent the principal priority

sectors that have been identified in the Accession Partnerships. But also other important sectors

of the

acquis

have been addressed through twinning, for example, social policy, fight against

drugs, transport, and telecommunications regulation.

Thanks to the strong support and response from EU Member States 103 twinning partnerships,

funded under the 1998 pre-accession funds and involving all candidate countries and almost all

Member States are coming to an end or have been concluded. Under 1999 pre-accession

funds, a further 124 projects are being implemented and the programming exercise for 2000

includes a further 145 twinning projects. The 2001 programming exercise foresees 131 twinning

projects in all Phare beneficiary countries as well as Cyprus and Malta. Furthermore, the

candidate countries are being offered the possibility of drawing on Member States’ expertise

through “Twinning Light” (projects of up to 6 months’ duration), to address well-circumscribed

subjects of limited scope, which emerge during the negotiation process as requiring adaptation.

It is estimated that around 250 twinning projects are operational throughout the candidate

countries at any one time.

For Malta, four twinning projects are going to start under the 2000 and 2001 programme,

covering the following domains: agriculture (Integrated Administrative and Control System),

Occupational Health and Safety; Asylum and Border’ management and Regional Policy.

Negotiations / screening

The analytical examination of the

acquis

with Malta (bilateral screening) was completed by the

end of January 2000. During 2000, the screening was updated on all chapters with due account

taken of latest developments in the

acquis

and recent progress.

Since the opening of the accession negotiations, substantial discussions on the individual

chapters of the

acquis

started, and by June 2001, negotiations on all chapters (with the

exception of chapter 7 – Agriculture- chapter 30 - Institutions and chapter 31 – Other) had

been opened.

By the end of September 2001, the following 17 chapters had been provisionally closed:

Industrial Policy, SMEs, Science & Research, Education & Training, Culture & Audio-visual

policy, Common Foreign & Security Policy, External Relations, Telecommunications, Company

Law, Economic & Monetary Union, Statistics, Consumers and Health Protection, Financial

control, Energy, Free movement of Goods, Freedom to provide services, Free movement of

persons.

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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 2000 Regular Report on Malta’s progress towards accession, the Commission confirmed

the conclusions of its 1999 report stating that:

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

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

and political rights continue to be respected. The overall situation with regard to economic,

social and cultural rights is satisfactory.

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

Malta should also pursue and reinforce the implementation of its policies with respect to the

treatment of refugees and gender equality, as well as the reform of its public administration."

Below, an assessment is made of developments in Malta since the 2000 Regular Report, as well

as of the overall situation in the country, seen from the perspective of the Copenhagen political

criteria. Developments in this context are in many ways closely linked to developments

regarding Malta’s ability to implement the

acquis,

in particular in the domain of justice and

home affairs. The section below aims to provide a general assessment of the situation in Malta

from the perspective of the political criteria, including as regards the overall functioning of the

country’s executive and its judicial system. Specific information on the development of Malta’s

ability to implement the

acquis

in the field of justice and home affairs can be found in the

relevant section (Chapter

24 – Co-operation in the field of justice and home affairs)

of part

B of this Report.

Recent developments

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

the opposition continues to express its dissent.

The Government continued to seek involvement of all interested parties and representative

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

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

Steering and Action Committee.

These principles have been emphasised in the Charter of Fundamental Rights of the European Union that was

proclaimed at the Nice European Council in December 2000.

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1.1.

Democracy and the rule of law

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

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

developments of the past year.

The Parliament

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

It has maintained a high workload level because of the process of approximating Maltese

legislation with the

acquis.

Ongoing discussions on the accession process continue to be held in

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

both main parties.

The Executive

During the past year, Malta has continued to take measures aiming at improving the

effectiveness of its public administration.

In 2001 permanent secretaries and heads of department were given greater managerial authority

and flexibility. The Management and Personnel Office, within the Office of the Prime Minister,

has published a Performance Management Programme, and aims to help employees provide

better public service through the organisation of work and the delegation of responsibility. A

performance management manual has been drawn up and is now being used to assess around

5,000 persons throughout the year.

During the past twelve months, seven additional Quality Service Charters have been introduced,

bringing to thirty the total number introduced since the launching of the initiative in 2000. The

Charters constitute a written commitment by the government departments and other

organisations involved to provide their customers with a quality service, and to inform the public

of available services and how these may be accessed. They also set out the standards of

service that customers can expect.

A co-operation agreement was signed in October 2000 between the Staff Development

Organisation in the Office of the Prime Minister, and the European Institute of Public

Administration in Maastricht. This allows for the participation of Maltese public officers, lawyers

and judges or other experts in the various activities organised by the Institute.

These efforts to improve the effectiveness of the Maltese public administration should be

sustained.

The main functions of the Ombudsman, established in 1995, are to protect the rights of

individuals in their dealings with the public administration, to recommend appropriate redress

where this is found to be justified, and to promote good governance and high administration

standards. The Ombudsman is appointed by a two-thirds majority in Parliament, thus ensuring

his / her independence. The number of complaints being received is around 50 per month but

the ombudsman has the right to investigate matters on his / her own initiative without receiving a

formal complaint. Since 1995, the office has received 7,443 requests. 60% of the cases still

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pending are less than three months old, 35% are between 3-6 months old, 5% are more than 6

months old. Although the Ombudsman can only make recommendations, all but two have been

taken up so far. Overall it can be considered that the office of the Ombudsman functions well

with respect to its mission.

The latest round of local elections was held in March 2001 to elect twenty-one Local Councils.

Turnout rose to 71.4 per cent from the 63.3 per cent for the same localities three years earlier,

which reflects a stronger interest of both the electorate and the main political parties in the local

councils.

The system of local government was enshrined in the Constitution of Malta through an

amendment in April 2001. It is now stipulated that the territory of Malta shall be divided into a

number of localities administered by a Local Council elected by the residents of the locality, in

accordance with the relevant laws.

The Judicial System

Over the past year, Malta has continued to take measures to improve the functioning of the

judicial system.

In line with Government’s aim of concluding the administrative reform process in the law courts

by end of 2001, reforms were approved in March 2001 aimed at providing the judiciary with

administrative support and the necessary staff. In order to reduce the backlog of cases at the

Law Courts, in the last year the government has recruited 50 additional staff at administrative

level. The number of tribunal judges was increased from three to five to deal with the cases

before them. The government has also increased most of the court fees whilst increasing the

competences of the Small Claims Tribunal and of the Magistrates Court.

According to the Ministry of Justice, these measures allowed the backlog of civil Court cases to

be reduced in 2000 for the first time in the past decade . The backlog of civil Court cases

decreased from 16,429 at the end of December 1999 to 16,004 at the end of December 2000.

The backlog of criminal Court cases, in both upper and lower jurisdictions has continued to

decrease, from a total of 8,495 cases at the end of 1999 to 7,793 at the end of 2000.

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

The members of the Judiciary are wholly independent of the executive.

However the conformity of the procedure for the challenge of judges and magistrates provided

by article 738 of the Code of Organisation and Civil Procedure with the principle of impartial

tribunal, enshrined in the European Convention on Human Rights, needs to be examined.

Overall, there has been progress in the administrative reform of the law courts and an

improvement of the functioning of the Maltese judicial system. As regards the backlog of

judiciary cases, the reversal of the previous trend is encouraging, however efforts should be

pursued to consolidate the reform and ensure long term improvements.

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Anti-corruption measures

As already pointed out in the last Regular Report, the effectiveness of the "Permanent

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

public administration could be improved. The number of cases initiated by the Commission has

decreased from 66 in 1994 to 13 in 2000, while the number of cases closed has decreased

from 49 in 1994 to 39 in 2000. The Core Group of the Commission is composed of three

persons working part time and the financial and staff resources allocated to it by the government

have decreased in past years. It should also be noted that the reports of the Commission are

confidential and handed over to the Minister of Justice, who decides whether to make them

public and whether or not to proceed against the person(s) incriminated. This reduces the actual

power of the Commission and the impact of its work. A stronger commitment by the

government is needed to ensure the effectiveness of the Commission in its fight against

corruption.

Malta has signed the Council of Europe Criminal Law Convention on Corruption but not the

Council of Europe Civil Law Convention on Corruption opened for signature in 1999. Malta

joined the Council of Europe Group of States against Corruption (GRECO) in May 2001.

1.2.

Human rights and the protection of minorities

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

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

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

Charter. However, it has not yet signed the revised European Social Charter. It has not

accepted to be bound by the additional protocol providing for a system of collective complaints.

Neither has it signed protocols 4 and 7 of the European Convention on Human Rights.

No important development can be reported regarding the transposition of the EC anti-

discrimination

acquis

(see

Chapter 13 - Social Policy and Employment).

Civil and political rights

There has been further progress during the past year as regards the treatment of refugees.

Following the adoption of the Refugees Act last year, preparations have been made for its entry

into force. The government has set up a Refugees Commission that will take care of the

applications by

asylum

seekers and the Commissioner for Refugees has been appointed.

Appeals by either the refugees or the Minister are to be heard by the Refugee Appeals Board,

which is composed of three persons, a professor and two lawyers. Malta declared that the

geographical reservation to the Geneva Convention will be lifted at the entry into force of the

Refugees Act in the coming months. The Refugees Act makes provision for family reunification

and humanitarian protection, for extending the provisions of the Social Security Act to persons

falling under the Refugees Act, and for regulating the granting of work permits to refugees. As of

December 2000, a total of 275 asylum seekers and refugees (including 47 children) were

registered with the Emigrants’ Commission. The Refugees Commission has received 113

asylum applications.

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However, an amendment to the Criminal Code to make provision for the offence of

trafficking

in human beings

remains to be adopted. The amendment to the Criminal Code aimed at

criminalising

racist behaviour

is pending in the Parliament.

The

freedom of expression

is enshrined in the Maltese constitution and continues to be well

respected in practice. The same applies to the

freedom of association and assembly.

All persons in Malta continue to enjoy

freedom of conscience

and

freedom of religion,

both

being enshrined in the Maltese constitution. Malta is to have its first Islamic cemetery following

an agreement between the lands department and the Islamic Call Society.

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

are being improved. The conclusion of the previous Regular Reports, that there are no

significant problems regarding the observance of fundamental human rights and freedoms,

remains valid.

Economic, social and cultural rights

The Maltese government has pursued its efforts to improve the situation in the field of

equal

opportunities,

however progress is slow and no legislative development can be reported. The

situation is satisfactory with respect to access to education. As regards politics, there is one

woman in the government out of a total number of twenty ministers, and only 9 % of the seats in

Parliament are held by women. It should be noted however that at the last local elections in

March 2001, twenty per cent of councillors elected in all localities were women. Fifty-six

female candidates contested this round of local elections, as compared to thirty-one female

candidates in 1998, when the last round of elections in the same localities was held. As regards

employment, the employment rate for women remains much lower than that of men (see chapter

13 –

Social Policy and Employment).

The government has started efforts to promote gender

mainstreaming within the public sector in order to ensure that the gender equality perspective is

incorporated in all policies and at all levels in the public administration. In order to increase the

female employment rate, the Employment and Training Centre holds specific training

programmes for women wishing to return to work and it is developing a Gender Equality Action

Plan on Employment. Sustained efforts will be needed to improve gender equality, in particular

as regards employment and politics.

Malta has signed conventions related to the rights of the child with respect to labour, armed

conflicts and child pornography.

As regards

persons with a disability,

the Equal Opportunities Act adopted last year

establishes the separation of the National Commission for Persons with Disability from public

structures, its reconstitution as a separate legal entity and the elimination of any discrimination on

the basis of disability. The Commission’s function is to investigate all allegations of discrimination

on the basis of disability. The Commission is also responsible for running education and

information campaigns highlighting the various provisions of the Act and the measures that may

be taken to ensure compliance. However the Commission’s activities still have to be developed.

Trade unions

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

collective actions continues to be well established. However, in its assessment of Malta’s

compliance with the main provisions of the European Charter of Social Rights, the European

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Committee of Social Rights concluded that the situation is not compliant with several provisions

of the Charter. These concern in particular the possibility for one party in a dispute to request

the Minister to refer the dispute to compulsory arbitration and the social rights of nationals of

other contracting parties not regularly working (but lawfully present) in Malta.

Although there is room for improvement as regards gender equality (in the areas of politics and

employment) and with respect to social dialogue, the overall situation with regard to economic,

social and cultural rights is satisfactory.

Minority rights and the protection of minorities

As in previous years, no significant problems have been reported with respect to the status and

situation of immigrants in Malta, who represent approximately 1% of the population. As last

year, there have been no significant problems related to racial discrimination.

1.3.

General evaluation

Malta continues to fulfil the Copenhagen political criteria. Further efforts have been made to

prepare the administration for operation within the EU, and the authorities’ record on

democratic and human rights remains generally good.

There has been further progress as regards the functioning of the justice system with the

reduction of the backlog of judiciary cases and preliminary steps have been taken to implement

the Refugees Act.

See "Making a success of enlargement: Strategy Paper and Report of the European Commission on the progress towards

accession by each of the candidate countries", COM (2001) 700.

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2. Economic criteria

2.1.

Introduction

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

concluded:

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

macroeconomic environment and implementation of reform and liberalisation. Given the small

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

hence become successfully integrated with the European economy”.

This finding was confirmed in the 1999 and 2000 Regular Reports.

In its 2000 Regular Report the Commission concluded that:

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

and market forces within the Union.”

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

approach was guided by the conclusions of the European Council in Copenhagen in June 1993,

which stated that membership of the Union requires:

the existence of a functioning market economy;

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

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

the previous annual Regular Reports.

2.2.

Economic developments

In 2000, the Maltese economy continued the improved macroeconomic performance

initiated in 1999, despite a significant deterioration of the current account balance, while

growth decelerated appreciably in the first half of 2001.

Real GDP growth, at 5%,

remained high in 2000, leading to significant reductions in unemployment and public deficit,

while inflation has remained low. Output growth was primarily driven by strong domestic

demand, led by a significant capital investment. Relatively low domestic inflation pressures,

paired with restrained imported inflation, were the main reasons for the decrease of inflation.

The general government deficit declined significantly although it remains relatively high.

Nevertheless, major challenges remain: the current account deficit worsened very sharply in

2000 to 14.5% of GDP, reinforcing the need to further consolidate public finances. Growth

decelerated markedly in the first half of 2001, when output grew at an average of 0.75%,

largely led by a fall in capital expenditure and a large reduction in stocks.

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Main economic trends

Malta

Real GDP growth rate

Inflation rate (RPI)

- annual average

- December-on-December

Unemployment rate, end-

year

- ILO definition

per cent

1996

4.0

1997

4.9

1998

3.4

1999

4.1

2000

5.0

2001 latest

0.75 H1

per cent

2.5

1.5

3.1

5.2

2.4

0.4

2.1

3.3

2.4

1.1

2.4

Sept

4.3 Sept

per cent

4.4

5.0

5.1

5.3

4.5

6.1 P Q1

General government

budget balance

Current account balance

per cent of

GDP

per cent of

GDP

million

ECU/euro

-7.7

-10.7

-10.8

-7.8

-6.6

-12.2

-6.0

-6.2

-3.4

-14.5

-4.4 H1

-320

-176

-194

-116

-560

-86 H1

Foreign debt

- debt export ratio

- gross foreign debt

per cent

Million

ECU/euro

120.9

165.5

225.8

250.9

309.1

2,760

4,145

6,202

7,785

12,306

Foreign direct investment

in flow

- balance of payments

data

per cent of

GDP

million

ECU/euro

8.3

218

2.4

7.6

238

22.5

770

18.0

693

A number of important structural reforms are being gradually implemented.

Trade

liberalisation continued with the removal of import levies. The government is progressively

reducing its weight in the economy although the privatisation of several public enterprises has

been delayed. The financial sector has been strengthened after the introduction of new

Moving 12 month average rate of change

Administrative records

Registered unemployment up to 2000

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legislation reinforcing the regulatory and supervisory framework. Interest rates were fully

liberalised in 2000 and the process of liberalisation of exchange controls is progressing gradually

towards full liberalisation by January 2003. The National Commission for Welfare Reform is

expected to present a proposal for pension reforms shortly.

Main indicators of Economic Structure in 2000

Population (average)

GDP per head

thousand

PPS-euro

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

391

11,900

per cent

million euro

euro per head

2.3

1.9

26.4

318.8

103.1

P: provisional data

Malta has been catching-up with the EU.

GDP per capita in purchasing parity standards as a

percent of the EU average was 53% in 2000, up from 49% in 1995. In 2000, the economic

activity rate stood at a very low 47%, on a slowly-declining trend from 47.6% in 1996. The

registered unemployment rate remains at almost the 1996 level of 4.4%, after increasing slightly

in the intervening years. Unemployment was 5.4% for men and 2.2% for women. Malta has an

extremely low female employment rate resulting in an overall (male and female) low employment

rate, at 53.9% in 2000. The share of l ng-term unemployment, at 53.5%, has been rapidly

increasing from 39% in 1996, as the unemployment rate has declined. The youth unemployment

rate was 6%.

Total population (Maltese and foreigners).

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.

Estimated.

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2.3.

Assessment in terms of the Copenhagen criteria

The existence of a functioning market economy

The existence of a functioning market economy requires that prices, as well as trade, are

liberalised and that an enforceable legal system, including property rights, is in place.

Macroeconomic stability and consensus about economic policy enhance the performance of a

market economy. A well-developed financial sector and the absence of any significant barriers

to market entry and exit improve the efficiency of the economy.

Generally, there is a broad consensus on the ultimate objectives of economic policy.

The

Maltese government remains committed to the implementation of the required reforms in order

to improve the competitiveness of Malta’s industry. In general, there is good co-ordination

between government, parliament and other institutions which allows for a correct formulation

and implementation of economic policy. The government has shown a good track in terms of

consistency with its announced policy commitments. However, the lack of political consensus

on EU accession between the government on the one hand, and the opposition and the main

trade union on the other hand, creates some uncertainties about the continuity of some

economic policies in the medium term.

In October 2001, the government submitted to the

European Commission the first Maltese "Pre-accession Economic Programme" (PEP),

which is part of the Pre-accession Fiscal Surveillance Procedure launched by the EU

Commission.

The PEP has been compiled by the Ministry of Finance and the Ministry for

Economic Services and received important inputs from institutions including the Central Bank of

Malta and the National Statistics Office. Since the government has approved the PEP, it

represents a firm political commitment, and it is important that it is fully anchored into the

government’s decision making process.

After performing strongly in 2000, the Maltese economy slowed down in the first half of

2001.

Real GDP expanded by 5% in 2000, driven primarily by strong domestic demand.

Investment was a major contributor to GDP growth and is estimated to have increased by 17%.

This was mainly due to the private investment of foreign high-technology companies in Malta.

Growth in consumer expenditure remained at similar levels to those of 1999, at around 6%,

while government consumption reverted the trend followed in the last three years and increased

by 5% as a result of higher employment and higher expenditure on health services. Imports of

goods and services grew by about 10%, mainly driven by a sharp increase of capital goods and

transport services, and outpaced a 6% growth in exports led primarily by machinery and

transport equipment goods exports. Domestic demand slowed down markedly in the first half of

2001, as a result of lower growth in private and public consumption, coupled with a negative

growth of investment and significant reductions in stocks. Both imports and exports decreased

significantly in the first half 2001, with imports falling more rapidly than exports and therefore

leading to a positive contribution of net exports to growth.

Unemployment fell in 2000 and the first quarter of 2001.

Increases in labour supply were

outpaced by high job creation in a dynamic private sector, mainly in electronics manufacturing,

construction and private services, leading to a decrease in unemployment from 6.8% in May

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2000 to 6.1% in March 2001

. The participation rate remains rather low and declined slightly

to 47%. Notwithstanding the overall positive developments of the labour market, unemployment

is likely to be under upward pressure in coming months due to enterprise restructuring.

Inflation started a decreasing trend in the second half of 2000 and remained low in 2001.

In 2000, average inflation increased slightly to 2.4%, while the December year-on-year inflation

declined to 1.1 from 3.3%. Tax changes and the reduction of subsidies were the main reasons

behind the one-off pick-up of inflation in the first months of 2000. These effects were absorbed

in the second half of the year and inflation remained relatively low at 2.4% in September 2001

after decreasing during the first half of the year. The main reasons have been low imported

inflation, stemming from the weakening of the euro and the low inflation in Malta’s major trading

partners, and the lower prices resulting from the removal of import levies. However, the inflation

rate has been kept artificially low, as the cap on domestic oil prices has not passed on the higher

world oil prices to consumers.

Monetary policy was unchanged in 2000, despite the significant increase in the current

account deficit, the net portfolio investment outflows and higher domestic demand.

During 2000, there were significant net portfolio investment outflows as a result of lowered

capital controls and rising interest rates abroad, while the current account deteriorated

substantially. The Maltese authorities considered most of these factors contributing to the

deterioration as temporary, and therefore decided not to adjust their monetary policy.

However, the further liberalisation of capital movements and the strong growth in domestic

demand experienced in 2000 emphasise the need to monitor closely the developments in the

current and capital accounts and to adjust interest rates in order to preserve the level of

reserves if external imbalances persist. After decreasing significantly in 2000, reserves increased

in the first half of 2001. The Central Bank of Malta reduced the central intervention rate and the

discount rate by 25 basis points to 4.5% in August 2001. In September 2001, the Central Bank

lowered the commercial banks’ reserve requirement ratio from 5% to 4% of bank’s liabilities.

The main reasons for the easing of monetary policy were the global economic slowdown, the

lower interest rates abroad, the deceleration of domestic demand and growth, and the lower

pressures over external reserves in 2001.

The general government deficit continued its decreasing trend initiated in 1999.

The

deficit according to harmonised EU standards (ESA95) decreased from 7.8% of GDP in 1999

to 6.6% in 2000

. Likewise, the general government primary deficit (deficit excluding interest

payments) has been reduced substantially, from 7.3% of GDP in 1998 to 2.7% in 2000. The

government remains committed to the implementation of the medium-term fiscal plan agreed in

late 1998, which intends to reduce the public deficit to levels below 4% of GDP by 2004.

The reduction of the deficit was the result of increasing revenues and lower growth of

expenditure.

Ordinary revenues in 2000 increased nominally by 10% over 1999, while total

expenditure increased by 3.7%. Higher revenues in 2000 were mainly due to new fiscal

measures, comprising higher income taxes, increases in social security contribution rates and a

The methodology used by the National Statistics Office has been revised in 2000. The new met hodology is based on a

labour survey in accordance with the ILO guidelines. This has pushed upwards the unemployment rate figures from 4.4%

to 6.1% in March 2001.

Two figures are given for the government balance. One is based on the most commonly used national concept, and the

other is calculated according to the European System of Accounts (ESA 95), which was reported by the candidate

countries for the first time this year.

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wider VAT base. An improvement in tax collection also accounted for a significant part of that

increase. Expenditures rose due to increases in wages, salaries and personal emoluments

together with higher social security benefits and one-off compensations for the abolition of some

product subsidies. Capital expenditures decreased over the same period by 7%, which is

broadly reflecting the one-off oil drilling activities undertaken in 1999 and not repeated in 2000.

The new measures adopted in 2001 targeted predominantly the enforcement of tax

legislation, the reduction of tax evasion and the control of the government’s expenditure.

During the period January-September 2001, ordinary revenues increased by 5.7% in nominal

terms over the same period of 2000, mainly due to higher VAT and income tax revenues and

social security contributions. Customs and excise duties were affected negatively by the

progressive removal of levies on imported products. Total expenditure increased by 8.6% over

the same period, mostly due to increases in wages and salaries, coupled with higher capital

expenditure and public debt servicing costs.

Despite the positive trend of the public deficit initiated in 1999, further efforts are

necessary to contain expenditures in order to achieve medium-term fiscal sustainability.

Although a National Commission for Welfare Reform made up by government representatives

and main social partners was created in June 1999 to propose measures for reforming the social

security system, no agreement has been reached so far.

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

The ESA95 general government gross debt ratio increased from 60.1% of GDP in 1999 to

60.6% in 2000. Nevertheless, debt growth has slowed down in 2000. As expected

privatisation transactions have not been accomplished in the first nine months of the year, debt

increased nominally by about 11% in the period August 2000-August 2001. Since 1997, the

government indebtedness has generated annual interest charges in the range of 3-4% of GDP.

External deficits increased very significantly in 2000, but declined substantially in 2001.

The current account deficit rose very substantially in 2000 and reached 14.5% of GDP. A

deterioration of the merchandise trade balance was coupled with a decline in the investment

income account and the services account in 2000. Growth of both imports and exports of

goods was remarkably sharp with imports outpacing exports, leading to a widening of the

merchandise trade balance from 24% of GDP in 1999 to 27% (national account figures) in

2000. The strong increase in imports was mainly induced by a significant increase in imports of

capital goods and inputs for industry – due to heavy capital investments within the electronics

sector – and to the higher import bill for energy products as a result of higher international oil

prices. Growth of both imports and exports has been negative in the first half of 2001. Trade

figures for the period January-August 2001 show a significant reduction of the visible trade gap.

The surplus in the services account fell in 2000 due to lower tourism earnings, higher

expenditure by Maltese nationals abroad and higher payments of services, coupled with a

significant deterioration of the transportation sub-account, closely related with the rise in goods

imports. The services account has improved in the first half of 2001. A sharp increase in profits

of foreign companies explains the sharp deterioration of the investment income account in 2000,

although it has improved slightly up to June 2001. All these developments led to a significant

decline of the current account deficit to –4.4% of GDP in the first half of 2001.

The net inflows on the capital and financial account were insufficient to finance the

current account deficit last year, giving rise to a further decline in the official reserves.

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The capital and financial account deteriorated in 2000 and the first quarter of 2001, partly

reflecting capital outflows due to the further liberalisation of capital movements. Total gross

external debt as a percentage of GDP has increased from 229% of GDP in 1999 to 319% in

2000. However, this figure is distorted by the impact that the liabilities from international

banking institutions have in the calculation of the foreign gross debt, since these entities hold a

large volume of liabilities towards foreign entities abroad but have nearly no impact on the

domestic economy. The developments in the current and capital accounts led to a decline in

reserve assets from 52% of GDP in 1999 to 40% in 2000.

Foreign direct investment (FDI) in form of reinvested earnings increased appreciably in

2000, although all other categories of FDI decreased.

A threefold increase in reinvested

earnings from foreign companies in 2000 contributed positively to overall FDI. On the other

hand, the lack of major privatisation deals was the major contributor for a significant decrease in

share capital investment. Other investment in form of net capital and reserve inflows from

international banks decreased substantially and led to a lower total FDI in 2000. Without the

flows of these international banks, FDI increased from approximately 9% of GDP in 1999 to

11% in 2000. During the first quarter of 2001, it fell substantially in comparison with the same

period of 2000 due to large losses registered by international financial institutions, although it

remained broadly stable without these transactions.

The policy mix needs to adjust to the new more open and liberalised macroeconomic

environment. Fiscal policy needs to be sufficiently tight, monetary policy has to be more

flexible, and structural reforms need to be implemented faster.

The achievement of a more

sustainable fiscal position is crucial to decrease the external imbalances under an environment of

liberalisation of capital movements and fixed exchange rate. The recent economic developments

and, in particular, the high current account deficit, higher domestic demand and lower private

savings suggest that the government’s target for its deficit might need to be tightened in order to

keep the current account deficit in sustainable dimensions. Sustainability of the fiscal and

external balances is equally necessary to support the current exchange rate peg in the medium

term, which has proved to be a consistent nominal anchor in recent years. With more liberal

capital movements, domestic interest rates need to be more responsive to international levels in

order to regulate capital flows. Faster implementation of the structural reforms that the

government is undertaking is crucial to support the sustainability of external balances and

external competitiveness by accelerating productivity and capacity gains.

The Maltese economy is dominated by the free interplay of market forces but the system

of price controls distorts relative prices in some areas.

Several services offered by public

companies such as the energy monopoly Enemalta or the Water Services Corporation remain

subject to direct price controls by the government. Enemalta has kept energy prices fixed

despite the international oil price increases, bearing a cost that has decreased its profitability in

2000. The whole system of price controls will be overhauled in 2002. In the presentation of the

2001 Budget, the government announced that in January 2002 it would introduce a new system

for prices on oil products, linking them to world market prices. The weight of goods and

services that are subject to price controls amounts to 12% of total expenditure.

Some sectors remain very protected, but government remains committed to the

liberalisation of trade.

The removal of levies on imported manufactured products, which

started in 1999, continued as planned in 2000 and 2001. Full liberalisation is intended for 2003.

The removal of the bulk of import levies has only started in 2001, with the removal of 20% of

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the remaining levies. This liberalisation has already resulted in lower prices for those products

affected. Out of the other 80%, a first 30% will be phased out in 2002 and the final 50% in

January 2003.

The privatisation programme announced in 1999 is progressing at a slow pace.

The

government has made substantial progress in the early stages of the privatisation programme

through the privatisation of the banking sector and the partial privatisation of

telecommunications. However, no major privatisation deal has taken place in 2000 or the first

nine months of 2001. Unexpected delays have held back the privatisation of Malta Freeport,

but its completion is expected towards the end of 2001, as well as the privatisation of a number

of other companies. Malta International Airport, the Mediterranean Offshore Bunkering

Services, Kordin Grain Terminal, the management of the public Lotto and the remaining

government stake in Bank of Valletta are among the most important privatisation deals expected

for the next months.

There are no significant barriers to market entry or exit in Malta, and the legal

framework supports the functioning of the market economy.

Property rights are clearly

established in Malta. Bankruptcy laws have been in place and implemented for a long time.

There is a competent and independent judiciary system, corruption remains limited and the

entrepreneurial and investment climate is excellent in that respect.

The liberalisation of the financial sector is progressing and the sector is developing along

the lines of higher competition and privatisation.

The banking sector is dominated by

private institutions and is characterised by fairly high stability. Interest rates were fully liberalised

in 2000 (with no significant impact on lending rates) but significant quantitative controls on

transactions on the financial account remain in place. In January 2001, restrictions on financial

transactions were relaxed further, and some other restrictions on lending between residents and

non-residents were removed. The government has opted for a gradual approach for the

liberalisation of capital movements, aiming at strengthening the financial system by introducing

regulatory and supervisory provisions before completing full liberalisation. The higher

competition introduced by the privatisation of Mid-Med bank in 1999 is leading to more

diversification, more intermediation and a further development of insurance and capital markets.

The whole banking sector is moving towards more accepted capital adequacy and seems to

have led to a general reassessment of the bad loans by the banking system. Domestic credit

remains about 140% of GDP, with a nominal growth of close to 9% in the period January-

August 2001. The capital adequacy ratio of banks was 14% in June 2001.

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

Union

The ability to fulfil this criterion depends on the existence of 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 before accession. Both the

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

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The existence of a functioning market economy with a sufficient degree of

macroeconomic stability has allowed the development of economic activity.

Activity in the

private sector has expanded significantly under a positive economic climate. The liberalisation of

prices, trade and capital controls is leading to a more efficient allocation of human and physical

resources. The industrial restructuring and privatisation of state enterprises is modernising the

economy and increasing production capacity, reflected in employment growth in the competitive

sectors.

Education levels are relatively high, but skill shortages have emerged.

The Maltese

workforce is in general highly educated and has been a key factor for the establishment of high-

technology companies in Malta. Trade liberalisation and industrial restructuring raise the need to

continue with the efforts to increase labour skills, in particular to keep Malta attractive as a

centre for information technology companies. Skill shortages are increasing in the information

technology and construction sectors. Valuable initiatives by public and private institutions to

provide training courses and improve labour skills have recently been developed but a stronger

mechanism to identify and improve the necessary labour skills for the future would be beneficial.

Malta has a good physical capital endowment, although infrastructure would require

modernisation in some areas.

Gross fixed capital formation as a percentage of GDP has

increased from 23.4% in 1999 to 26.4% in 2000, mainly due to high investment by electronics

manufacturers. Export growth seems to be constrained by production capacities rather than by

external demand. The high capital investment by the private sector in 2000 should add to

capacity in the manufacturing sector and therefore augment the potential for economic growth.

Public investment remains constrained by the priority of decreasing the government deficit.

Energy, telecommunication and transport networks are well developed in Malta, although the

physical infrastructure, e.g. road infrastructure, requires further modernisation.

The tourism infrastructure is being improved in response to increasing international

competition.

The aim of the government is to promote cultural, conference and cruise-liner

tourism in Malta. Efforts have continued during recent months to develop the logistics of Malta

Freeport and to increase its competitiveness. The government is aiming to involve the private

sector more in infrastructure development projects, through Public-Private Partnerships.

Foreign direct investment (FDI) flows have been high in the last two years but depended

substantially on one-off factors.

Inward FDI has substantially relied on a large privatisation

deal in 1999 and on large reinvested earnings from foreign companies in 2000. Total net FDI

represented close to 20% of GDP per year in 1999 and 2000. However, a large share

consisted of capital and reserve inflows from foreign banks to their Maltese subsidiaries with

very limited commercial activities in the domestic economy. Such kinds of inflows have only a

very mitigated impact on the Maltese economy. In order to improve the quantity and structure

of FDI, a new Business Promotion Act was approved in January 2001. The incentives provided

by the new Act are more focused on attracting value-added activities than on providing export

incentives, but it is too early to assess their impact on FDI.

The government is currently designing plans to restructure public enterprises.

Restructuring of the shipbuilding industry is under way in Malta but progress is slow. The

industry is characterised by low productivity, low competitiveness and sizeable subsidies

received from the State. The government is currently studying the viability of the core activities

of the yards: ship repair and shipbuilding. Although it is generally agreed that subsidies to the

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shipbuilding and ship repair industries should fall in the short to medium term, the industry is

expected to make losses for some time. Similar plans will be explored for other large public

entities within other sectors, but progress is slow. A faster restructuring process of loss-making

public enterprises would be beneficial to other sectors where labour shortages are encountered

such as the construction and technology sectors. This would need to be coupled with active

labour market policies which provide suitable training and skills to workers.

The contribution of SMEs to GDP varies widely among sectors.

About 44% of SMEs

employ less than ten people. Their relative size in terms of GDP is high in the private services

sector, while in the manufacturing sector their relative contribution to GDP is relatively low

despite over 500 SMEs in the sector. This is mainly due to the existence of a single large

electronics manufacturer. In general, those SMEs focused on the local market and facing the

removal of import levies are under severe pressure to restructure in order to face competition.

New legislation has been adopted and initiatives have been recently taken to promote the

development and restructuring of SMEs. The Business Promotion Act puts more focus on

SMEs. In addition, the institutional framework is being reinforced to support SMEs. Some of

these initiatives are in their earlier stages and the results are still difficult to assess. The

government will have to continue its targeting of public initiatives towards SMEs, especially the

smallest of them, which do not always reap the benefits of such initiatives.

The degree to which government policy influences competitiveness is relatively high as

state aids absorb a substantial amount of resources and price controls are significant in

some areas.

The government has started restructuring plans for some public enterprises, which

absorb a substantial volume of state aid, mainly the shipyards, and is envisaging doing the same

for public utilities. However, restructuring of loss-making public enterprises and utilities has been

slow so far and most of those entities will continue to make sizeable losses for a number of

years. The government also influences competitiveness through price controls, which distorts

relative prices, mainly in the energy sector, transport and water distribution.

Malta is well integrated in terms of trade with the European Union although the EU’s

share of Maltese imports and exports has decreased gradually in recent years.

In trade in

goods, the EU accounted for around 33% of Malta’s exports and 60% of imports in 2000,

compared to 49% and 65%, respectively, in 1999. This is to a large extent due to the increased

activity of the major electronics manufacturer which accounts for over 60% of total

manufacturing exports, and trades extensively with Asia and the US. The degree of integration

with the EU is significantly higher if services are taken into account. The share of imports and

exports in GDP increased significantly in 2000. Total exports of goods and services represented

103% of GDP in 2000, against 91% in 1999, while total imports of goods and services

accounted for 113% in 2000, against 96% in the previous year. The export base of the

economy is concentrated strongly in a few sectors, mainly in electronics, machinery and

transport equipment, which generated about 75% of total exports in the first half of 2001. The

real effective exchange rate increased in 2000 by 1.4% and this was mainly due to the

appreciation of the lira against the euro, as inflation in Malta’s main competitors remained at

similar levels to that of Malta.

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2.4.

General evaluation

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

market forces within the Union.

Macroeconomic developments have been favourable in terms of GDP growth, unemployment,

inflation and a significant reduction of the government deficit. The government’s medium-term

fiscal programme generated a further decrease of the public deficit. Progress has been made in

developing restructuring and privatisation programmes and initiatives for entrepreneurship.

However, despite the decreasing trend, the fiscal deficit remains too high, contributing further to

a very large current account deficit. Although the current account deficit had a strong one-off

component, it will need to be closely monitored. The authorities need to put public finances in a

sustainable medium-term path. The reform of the social security system needs to be considered

in this perspective. The implementation of the restructuring and privatisation of public utilities

and loss-making public enterprises remains slow. Further efforts to limit the influence of the state

in the economy are needed. A faster implementation of structural reforms and further

liberalisation is crucial to support the sustainability of external balances and external

competitiveness in a more open environment.

See "Making a success of enlargement: Strategy Paper and Report of the European Commission on the progress towards

accession by each of the candidate countries", COM (2001) 700.

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3. Ability to assume the obligations of membership

Introduction

This section aims to update the Commission’s 2000 Regular Report on Malta’s ability to

assume the obligations of membership - that is, the legal and institutional framework, known as

the

acquis,

by means of which the Union implements its objectives. Alongside an evaluation of

relevant developments since the 2000 Regular Report, this section seeks to provide an overall

assessment of Malta’s ability to assume the obligations of membership, and of what remains to

be done. This section is structured to follow the list of twenty-nine negotiating chapters, and

incorporates an assessment of Malta’s administrative capacity to implement the

acquis

in its

various aspects. Malta’s progress in translating the

acquis

into its official language is assessed

in a separate section.

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 effectively incorporating Community legislation into

national legislation, 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.

The European Council in Santa Maria da Feira and in Gothenburg in June 2000 and June 2001

respectively recalled the vital importance of the applicant countries’ capacity to implement and

enforce the

acquis,

and added that this required important efforts by the applicants in

strengthening and reforming their administrative and judicial structures.

Building on the

assessment of Malta’s administrative capacity provided in the 2000 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 2000 Regular Report, the Commission concluded that :

“Since the last Regular Report, the process of aligning legislation with the

acquis

has gained

momentum in Malta, and progress has been significant in most areas, although uneven across

the different fields. Malta has also speeded up efforts to strengthen its administrative capacity

with a view to accession, and the first results are becoming visible.

There has been some progress with respect to the internal market

acquis.

Considerable further

progress has been made in aligning with the acquis on industrial and intellectual property, and in

the area of company law Malta is now close to full alignment. Malta has adopted a new

Standardisation Act, but more work is required to align its legislation with the New and Global

Approach, and to transpose sector specific directives. Some further adjustments are also

needed to put the public procurement legislation in line with the

acquis.

Despite some progress

on free movement of capital and services, much remains to be done to align Maltese legislation

in these areas. As regards free movement of persons, efforts should be stepped up to ensure

that there are no provisions in Maltese legislation which contradict Community rules. With

respect to competition, substantial efforts are still needed to develop a proper state aid control

system.

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The publication of two White Papers on industrial development and privatisation, as well as the

setting up of the Institute for the Promotion of Small Enterprises, have created a suitable

framework for the development of an industrial and SME policy. However, the implementation

of the privatisation programme remains slow.

While Malta has made progress in the area of social policy, further alignment is still needed in

this field, in particular with respect to labour legislation and occupational health and safety.

In the field of taxation, the framework for the alignment of taxation legislation has been created

with the re-introduction of VAT; however, further efforts are required with respect to both

VAT and excise duties. Despite some progress in the area of customs, continued efforts are

needed, not only to align Maltese customs legislation with the

acquis

in this domain, but also to

develop the administrative capacity to implement it.

Notable progress has been made in the areas of telecommunications and culture and audio-

visual policy. If efforts are pursued, alignment with the

acquis

in these areas, through secondary

legislation, may be reached in the short-term.

In statistics, the Central Office of Statistics of Malta has made considerable progress and is

pursuing its efforts to fully align its methodologies with EU standards. In the field of financial

control, the reinforcement of the National Audit Office and the reform of the internal audit

system within the Maltese Government have provided Malta with an adequate institutional

framework. This progress should be further consolidated through appropriate staff training.

In the field of justice and home affairs, there has been significant progress in particular with the

adoption of the new Asylum Act. Efforts are still needed with respect to data protection,

immigration, visa policy and judiciary co-operation, as well as to strengthen administrative

capacity.

In the areas of agriculture, the environment and regional policy, progress has been very limited.

Malta still has to adopt most of the extensive agriculture and environment

acquis.

As regards

the environment in particular, an overall strategy for the adoption and implementation of the

environmental

acquis

remains to be developed. As far as regional policy is concerned, Malta

has not yet taken the necessary steps to prepare itself for managing structural funds. Substantial

efforts in these three areas are needed as a matter of priority.

While the Maltese administration appears to be adequately staffed, considerable restructuring

and staff training is still needed for it to be able to implement the

acquis

in many areas. Efforts

in this direction have started. Over the past year, the administrative capacity in the areas of

statistics and financial control has been considerably improved. Important projects have been

launched to reinforce the agriculture administration by setting up an Integrated Administrative

Control System, as well as to strengthen the tax and customs administrations. Work in these

areas must be continued.

Overall, Malta's administrative capacity still needs to be significantly reinforced with respect to

market surveillance and certification, the enforcement of intellectual and industrial property

rights, and in the area of maritime transport and safety. Considerable efforts are required also in

the fields of environment and regional policy. Concerning justice and home affairs,

administrative capacity should be strengthened in particular for the handling of Asylum cases,

and in the area of police and judicial co-operation. Particular attention should be paid to

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ensuring the adequate functioning of the newly created State Aids Monitoring Board and the

Regulatory Authority for Telecommunications.

The majority of the Accession Partnership short-term priorities have been either partially or

completely fulfilled. Progress has been particularly significant in the areas of industrial policy

and justice and home affairs. Further efforts are required in particular with regard to state aids

and in the area of the environment.

Malta has already started to address a number of medium-term priorities.”

3.1.

The chapters of the

acquis

As indicated, the review of Malta’s ability to assume the obligations of membership that is

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, including

sectoral policies, economic and fiscal affairs, regional policy, environment, justice and home

affairs, external policies, and financial questions.

Chapter 1: Free movement of goods

Since the last Regular Report, Malta has made good progress in this domain.

In the area of

horizontal and procedural measures,

Malta has made significant progress in

establishing the general framework for the

New and Global Approach principles.

The Malta Standards Authority (MSA) is the recognised standardisation body in Malta.

Regulations issued under the Malta Standards Authority Act established the first four

functionally independent Directorates, namely: the Consumer and Industrial Goods Directorate,

the Foodstuffs, Chemicals and Cosmetics Directorate, the Standardisation Directorate and the

Accreditation Directorate. These establishments, together with others to be introduced later this

year, ensure the functional separation of the MSA’s various roles and protect each

Directorate’s independence. In particular, the Accreditation Directorate will operate as an

independent accreditation service in line with international standards. An Accreditation Co-

ordinator has been recruited. The Malta Standards Authority is to set up a Metrology

Directorate in order to ensure the establishment of a market surveillance and verification system

in this area.

An agreement with the British Standards Institute (BSI) for the adoption of all European

standards as national standards (MSA ENs) was finalised in February 2001. Subsequently over

80% of all European standards (almost 8 000 EN standards, of which 5 600 CEN standards

and 2 350 CENELEC standards) have been adopted as Maltese standards following the

‘endorsement method’ and titles published in the official Government Gazette

Following a

recommendation by the CEN/CENELEC board, MSA became full member of CENELEC

from 1 October 2001 and will become effective member of CEN on 1 January 2002. It is a

member of ETSI.

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The legal basis for market surveillance is the Products Safety Act, which entered into force on 1

March 2001 and which establishes the Market Surveillance Directorate in the Ministry for

Economic Services as the main body in charge of market surveillance.

As regards the notification procedures, the procedure for the exchange of information in the

field of technical standards and regulations and of rules of information society services

regulations was issued in March 2001 under the Malta Standards Authority Act. The MSA has

been appointed as the EU notification point. MSA has been identified as the Enquiry Point as

required by the WTO Agreement on Technical Barriers to Trade.

Further progress was also made in the adoption of

sector specific legislation.

As regards sectors covered by

New Approach Directives,

regulations to transpose the

directives on Medical Devices came into force in October 2001. In addition, regulations to

transpose the directives on Machinery, Lifts and Recreational crafts were adopted by the

Government in September 2001 and will become effective as from 1 July 2002.

As regards sectors covered by

Old Approach Directives,

the Product Safety Act, adopted by

Parliament in February 2001 came into force on 1 March 2001 and partially transposes the

acquis

in the field of Motor Vehicles. A number of regulations issued under the Product Safety

Act came into force in the first quarter of 2001 and transposed the Community directives in

various sectors: chemicals (detergents and related products, labelling of asbestos products),

crystal glass, textiles, footwear and shoes, wood in the rough, and cosmetic products. As

regards cosmetics, pre-market authorisation requirements have been removed. As regards

pharmaceuticals, the Health Division within the Ministry of Health has already started the reform

necessary to separate its operational and licensing functions. The regulatory and licensing

functions will be assigned to the new Medicinal Products Regulatory Authority.

There have been no developments on the transposition of the

acquis

on firearms and cultural

goods.

As regards the issue of food safety - foodstuffs legislation (see

also chapter 7 - Agriculture),

Malta issued regulations under the Food, Drugs and Drinking Water Act to transpose legislation

on ionising radiation in April 2001.

As regards the

non-harmonised sector,

amendments to the Importation Control Regulations,

issued under the Supplies and Services Act, became effective in April 2001. This legislation

removed a group of products from import licensing control, including electric generators,

electric generating sets, gas regulators, gas pressure instruments and apparatus, oil and fuel

appliances and refuse collecting vehicles, as part of the ongoing process of adopting the

acquis

through the abolishing of import licensing procedures.

As regards

public procurement

no progress can be reported.

Overall assessment

Malta has reached a good level of alignment in this area. Progress in establishing the general

framework for the New Approach and Old Approach directives remains steady, as does the

transposition of the sectoral

acquis

on industrial products. Further efforts are however required

as regards public procurement.

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The implementing structures for standardisation are in place and operating. The full membership

of CENELEC and the effective membership of CEN as from January 2002 represent an

important step forward for MSA. The implementation structures for accreditation and market

surveillance are in place, but the accreditation and market surveillance directorates need to be

strengthened, and a comprehensive market surveillance strategy needs to be developed.

As regards sectoral legislation, most New Approach directives have been transposed and

implemented: almost 75% of the New Approach directives will have been adopted through the

transposition of new regulations in the period covered by the Regular Report. The transposition

and implementation of Old Approach directives is progressing reasonably, but it still has to be

completed. In particular, Malta still has to align its pharmaceutical legislation (renewal of existing

marketing authorisations).

Malta still has to align its legislation with respect to firearms. As regards cultural goods, the

compliance of the draft Cultural Heritage Act with the Directive on the return of cultural objects

is being examined by the Commission.

As regards safety checks on products at external borders, Malta still needs to establish

appropriate customs and market surveillance infrastructure as well as effective administrative

co-operation between competent authorities.

Regarding food legislation, Malta had already transposed a substantial amount of EC legislation

in previous years, but there has since then been few developments. Malta still has to adopt a

number of regulations to transpose remaining horizontal and vertical food legislation. As for the

administrative structures, Malta has prepared a Food Safety Strategy, which foresees the

establishment of a Food Safety Commission that would be the competent authority for food

safety and the upgrading of laboratories. This strategy must now be implemented.

As regards the non-harmonised sector, Malta has not yet clarified how the principle of mutual

recognition will be introduced into the Maltese legislation and be applied.

Concerning public procurement, there has been no progress since last year and Maltese

legislation conforms only partially to the

acquis

in this field. Further alignment is needed as

regards the procuring entities covered - local councils and some private companies with

exclusive rights are outside the scope – and the tendering procedures. As regards the remedies

system, there has been no change to the current system where the Department of Contracts,

which is responsible for the award of the contract, also reviews the complaints. An independent

Appellate Board must be established. As regards the administrative capacity, a strengthening of

the Department of Contracts is needed. With regard to bodies governed by public law, local

councils and public undertakings, Malta will have to ensure that the existing structures are

strengthened to assume the responsibility for supervising and monitoring the application of

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

Chapter 2: Free movement of persons

There has been some progress in this area since the last Regular Report, mainly in the area of

mutual recognition of professional qualifications

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The Malta Professional and Vocational Qualifications Awards Council was set up in October

2000. Its tasks include, among others, to foster the recognition abroad of professional and

vocational certificates awarded in Malta. The National Academic Recognition Information

Centre (NARIC) of Malta was created in February 2001 to act as the national co-ordinator

required under the General System Directives. Although it has no direct responsibility for

preparing sectoral legislation, it will closely follow developments in this regard. NARIC has

adopted a strategy on its tasks and working method. Its first action will be to launch a

consultation process with the competent ministries and professional boards.

No legislative progress can be reported as regards

citizens’ rights, free movement of

workers

coordination of social security systems

As regards participation in European Employment Services (EURES), in May 2001 the

Employment and Training Corporation completed a training programme for its Employment

Advisors. Two employment advisors have been identified to act as EUROadvisors. Following

an agreement reached with Ireland, the Employment and Training Corporation will be sending

some thirty of their Employment and Training Advisors to Ireland on secondment to the

counterpart organisation, where they will pay particular attention to the work of EUROadvisors.

Overall assessment

While the overall situation is on the whole satisfactory with respect to mutual recognition of

professional qualifications, important efforts are required in the fields of citizens’ rights, free

movement of workers and co-ordination of social security systems.

Efforts are needed to ensure that, by accession, there are no provisions in Maltese legislation

which contradict Community rules, in particular with respect to language, nationality and

residence requirements. For example, a recent study on the Tourism Sector in Malta has shown

that current Maltese legislation may contain some restrictions impeding the freedom of

movement of professional tourist guides within the single market. In particular, both the licensing

procedure for guides used by the Department of Tourism in Malta, and the Employment and

Training Services Act, would need to be amended to provide for free movement of these

workers within the EU.

Malta is largely aligned with the

acquis

in the area of mutual recognition of professional

qualifications. Legislative harmonisation however is still necessary to achieve full alignment, in

particular in the Medical and Paramedical sectors.

With respect to professional qualifications obtained before harmonisation, Malta should

introduce measures to ensure that all its professionals can, as of accession, meet the

requirements laid down by the directives.

In the field of citizens' rights, Malta still needs to amend its Local Councils Act to extend voting

rights for local elections to all citizens of the European Union on accession. New legislation

transposing the Directive on voting rights for the European Parliament elections still needs to be

adopted.

In the area of the free movement of workers, legislation is only partially aligned and efforts are

required to ensure complete alignment by accession, including also the social and cultural

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integration of migrant workers and their families. In particular, the Immigration Act still needs to

be amended to remove restrictions on the free movement of workers, the right of residence and

the access to the public sector.

As regards future participation in EURES, the Employment and Training Corporation is well

prepared to participate in the EURES network. It has its own website where job vacancies are

listed according to industry, region or occupation, and other facilities are offered to jobseekers.

The relations with its Irish counterpart organisation will help it in its preparation for EURES.

With a view to the future co-ordination of social security systems, further work to develop the

necessary administrative structures is needed. Agreements such as the one in preparation with

the Netherlands on social security will facilitate Malta's compliance with the regulations as of

accession, as they are normally based on the same principles as the social security co-ordination

regulations and will thus familiarise the administration with the procedures.

Chapter 3: Freedom to provide services

Since last year’s Regular Report, Malta has made some progress in this area, in particular as

regards the insurance sector.

In the field of

the right of establishment and the freedom to provide

services (other than

financial services) there have been no legislative developments since last year.

In the field of

financial services,

with regard to the

banking sector,

a Directive on

Consolidated Supervision was issued by the Central Bank of Malta, exercising powers

conferred by the Banking Act, and came into force in May 2001.

Concerning the

insurance sector,

the adoption in January 2001 of several major regulations

relative to insurance companies’ prudential and accounting rules has brought about significant

alignment with the

acquis

in the insurance field. Further implementation has been achieved

through secondary legislation.

With regard to

investment services and securities markets,

no significant legislative progress

can be reported.

The Malta Financial Services Centre (MFSC) has engaged a number of Compliance Officers

during the past year thus enhancing its human resources. These will be employed on monitoring

and supervision of licence-holders, particularly through on-site compliance visits. An on-site

compliance-testing programme has been devised. This is being implemented in the insurance

and the investment services areas. On-site compliance visits are used to monitor licence-

holders’ operations and adherence to current regulations and guidelines.

Concerning the

protection of personal data and the free movement of such data,

the

legislative work aimed at aligning Maltese legislation with the

acquis

in this area has not been

finalised.

As regards

information society directives,

a regulation establishing the Procedures for the

Provision of Information in the field of Technical Standards and Regulations and of Rules of

Information Society Services Regulations was published in March 2001. It establishes the Malta

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Standards Authority as the Notification Point for technical standards, regulations and rules on

Information Society Services.

Overall assessment

Although Malta has achieved a reasonable level of alignment in the area of financial services,

further legislative alignment is needed.

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

are concerned, discriminatory provisions vis-à-vis EU citizens will also have to be abolished in

many areas. The Maltese authorities are conducting a horizontal review of legislation and

administrative practices with a view to identifying any remaining discrimination and removing it

by accession.

banking,

Malta follows the main principles of Community prudential legislation and the

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

However, the Netting Directive, the Consolidated Supervision Directive and the post-BCCI

Directive still remain to be fully transposed. In this context, particular attention must be given to

the notion of “close links” and the issue of co-operation with foreign authorities. Malta also

needs to set up a deposit guarantee scheme, for which preparations are underway.

As regards the

insurance sector,

Malta has adopted regulations that were intended to align its

legislation with most of the

acquis

in this sector. However, an assessment of their compliance

with the

acquis

remains to be made. A bill still needs to be adopted to enable the Government

to implement the Single Market provisions for insurance at the moment of accession (single

licence principle, cross-border branching rules, co-operation with foreign supervisors, etc., as

required by the “third generation” insurance Directives).

In the field of

investment services and securities markets,

not much progress has been made

since 2000. The amendments to the Investment Services Act and to the Insider Dealing Act still

have to be adopted to bring Maltese law in line with the

acquis.

The Directive on Undertakings

for Collective Investments in Transferable Securities still has to be transposed. Malta also needs

to introduce an investor compensation scheme.

In the field of Information Society Services, the Malta Standards Authority has prepared the

necessary procedures for implementing the Directive on the provision of information in the field

of technical standards. The Malta Standards Authority has been established as the EC

Notification Point. A network system to co-ordinate and facilitate exchange of information is

currently being developed.

Malta still needs to adopt a law on

data protection.

Particular attention should be paid to the

independence of the Authority in charge of its enforcement, and to the appointment procedure

for its chairperson.

The Malta Financial Services Centre (MFSC) regulates insurance and investment services

operators, collective investment schemes and offshore companies, while the Central Bank of

Malta regulates and supervises credit and financial institutions. Over 70 officials work at the

MFSC, though some of them deal with the general company register. In the financial field, the

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

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

basis, both on-site and off-site compliance inspections are carried out. Investigations are also

carried out where necessary. The Insurance and Investment Services sectors are assessed

under international standards. In fact, many operators in Malta in this field are branches or

agents of international companies and are therefore subject to international regulation via their

parent companies.

The Malta Standards Authority possesses the administrative infrastructure and human resources

necessary for the effective implementation and enforcement of the

information society

Directives.

Chapter 4: Free movement of capital

Substantive liberalisation measures have been taken since the last report.

As regards

capital movement and payments,

the Government continued to implement the

three-stage plan for full liberalisation which was initiated in autumn 2000. The second stage was

implemented on 1 January 2001.

The maximum amount of investment in real estate abroad by residents has been raised. The

global ceiling within which the residents can purchase foreign securities and units of UCITS or

deposit abroad was doubled to LM 30.000 (about € 75.000) and the period for which Maltese

exporting companies can retain foreign currency earnings in a foreign currency savings or time

deposit account has been increased to one year. Financial credits by non-residents to residents

are now free if maturity is over one year and guarantees issued by non-residents in favour of

residents or vice versa as well as transfers of dowries by residents have been completely

liberalised. All restrictions on current payments have been lifted and the limits for physical

import and export of Maltese Liri have been raised.

As far as

payment systems

and

money laundering

are concerned, no progress can be

reported.

Overall assessment

Malta is gradually liberalising capital movements and payments, in accordance with its three-

stage liberalisation plan. However, it still has a rather comprehensive system of exchange

controls and other restrictions on capital movements.

With regard to acquisition of real estate, under the present legislation, foreigners may be

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

personal primary residence or for business purposes deemed to benefit Malta. Foreigners are

also allowed to purchase secondary residences as long as the price is above certain thresholds.

These discriminatory measures are not compatible with the

acquis.

Outward medium-term

capital transactions are free up to the annual allowances.

Concerning payment systems, Malta still has to finalise necessary amendments to its primary

legislation to implement the EU

acquis

in this area. Malta has, in particular, to transpose the

provisions of the Directives on cross-border credit transfers and on settlement finality in

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payment and securities settlement systems. Out-of-court redress procedures for the settlement

of disputes on cross-border credit transfers also need to be introduced.

As regards money laundering, a bill amending the Prevention of Money Laundering Act and

establishing the financial intelligence unit still has to be adopted by Parliament. Malta will also

have to set up a financial intelligence unit.

Compliance with the Recommendations of the Financial Action Task Force should be ensured.

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

credit and financial institutions, operates exchange control and oversees the payment system.

The Central Bank and the Ministry of Finance are deemed to have appropriate competence and

capacity to administer the three-stage liberalisation scheme and to initiate the flanking policies

needed to implement a regime of free capital movements.

Chapter 5: Company law

Since last year’s Regular Report, Malta has made limited progress in this area as regards

company law and the enforcement and protection of intellectual and industrial property rights.

Regarding

company law as such,

no legislative progress can be reported. The administrative

system regarding accounting was modified with the aim of better implementing the

acquis.

May 2001, the Malta Institute of Accountants was recognised by Government as an official

administrative body responsible for most of the administrative work previously carried out by

the Accountancy Board.

In the field of

industrial and intellectual property rights,

Malta has signed both the Paris

Convention and the TRIPs Agreement. It has made no reservations regarding the Berne and

Paris Conventions and is also presently fully compliant with the WTO Trips Agreement.

With the help of the World Industrial Property Organisation (WIPO), Malta has undertaken

awareness-raising activities among the business community and training activities for the

Industrial Property Office. The Customs Intellectual Property Rights Enforcement Unit was

formally created in September 2000 to deal with piracy and counterfeiting cases and to co-

ordinate enforcement operations between the administrative and investigative branches;

however, it is not yet operational. Some Customs officials have also been trained on intellectual

property rights (Cross Border Measures) and on the identification of counterfeit goods. The

Economic Crimes Unit has been strengthened by the recruitment of six new Police Constables

as of April 2001.

Inspections have been carried out at various localities and 16 seizures of counterfeit goods were

carried out between October 2000 and March 2001, two of them at the Freeport.

Overall assessment

Malta has already to a large extent achieved alignment with the

acquis

in the area of company

law, and in the field of industrial and intellectual property rights. However, enforcement of

intellectual property rights is still insufficient.

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As regards

company law,

Maltese legislation is already to a large extent in line with the

acquis.

Minor amendments are still needed, mainly as regards disclosure requirements for branches.

Implementation is satisfactory as well, and the company register is fully computerised and

operational. Malta still has to adopt the regulation replacing the Brussels Convention on the

Jurisdiction and Enforcement of Judgements in Civil and Commercial Matters, and to sign the

Rome Convention on the Law Applicable to Contractual Obligations.

Concerning

accounting law,

Maltese legislation is already to a large extent in line with the

acquis.

As regards the Eighth Council Directive on the Approval of Persons Responsible for

Carrying out the Statutory Audits of Accounting Documents, the law which aims to align the

legislation with this directive still needs to be enacted. The Accountancy Profession

(Amendment) Act, which should introduce the minor amendments necessary for complete

alignment, still has to be adopted.

In the field of

industrial and intellectual property rights (IPR),

Maltese legislation has

transposed most of the

acquis

on copyright and related rights. Further implementation will be

necessary, in particular in view of the new directives on the harmonisation of certain aspects of

the author of an original work of art. Contrary to the directive harmonizing the term of

protection of copyright and related rights, Malta fails to provide for the revival of rights for those

works which have fallen into the public domain.

The Maltese legislation in the field of patents is to a large extent in line with the

acquis.

Some

adjustments of this legislation will however be necessary. Furthermore, before joining the EU,

Malta will have to implement the Directive on the legal protection of biotechnological inventions

and consider possible adjustments to its current legislation in order to fully implement the

Regulations on Supplementary Protection Certificates. Malta has, in principle, implemented the

First Council Directive on trademarks, although some minor amendments will be necessary.

Malta will have to implement the directive on the legal protection of designs before accession.

Malta has signed both the Paris Convention and the TRIPs Agreement. Malta should consider

signing up as soon as possible to other international agreements in the field of industrial

property.

The level of piracy remains high and the enforcement of intellectual property rights is still not

satisfactory. The district police and the administrative law enforcement sections are directly

involved in the enforcement of intellectual property rights with respect to products which have

been released on the market. In general, it can be stated that the enforcement authorities

continue to lack the resources to effectively fight piracy. In particular, the economic crime unit of

the police still needs to be reinforced in relation to the fight against counterfeiting and piracy.

The Enforcement Unit for Intellectual and Industrial Property Rights within the Customs

Department, which co-ordinates enforcement operations between administrative and

investigative branches, still needs to be adequately staffed and provided with sufficient own

resources. Border enforcement and the cooperation of the enforcement authorities with the

right-holder organisations should be further organised and developed.

Further training in IPR Legislation is required for judges and prosecutors.

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Chapter 6: Competition policy

Since last year’s Regular Report, Malta has made some progress in this area.

In the field of

anti-trust,

on the legislative side, the Competition Act was amended in

November 2000, including the power for the Minister of Economic Services to issue regulations

on merger control. The Office for Fair Competition within the Consumer and Competition

Division of the Ministry for Economic Services was empowered to make use of so-called

compromise penalties, thereby increasing its sanctioning powers.

The block exemption regulations, which expired at the end of October 2000, were renewed for

one year up to October 2001.

The amended act subjects public undertakings (which were previously exempted from the

legislation) to the provisions of the Act, with the exception of those which the Ministry may

declare to be exempt by Legal Notice. By the end of 2002, those undertakings which provide a

universal service will be exempted. However, it should be noted that these exemptions would

cover all activities of these undertakings and not only those which are of general economic

interest. The amending Act also allows the Minister to exempt certain agreements in the

agriculture and fisheries sectors on the basis of the relevant Commission Regulations.

In the

state aid

field, Malta has continued to make some progress. The new Business

Promotion Act, which entered into force in June 2001, has introduced new incentives structured

to be in line with the state aid

acquis.

It aims to abolish export-linked incentives and align other

fiscal incentives contained in the old Malta Freeport and the Industrial Development Acts. It

also provides legislative backing for the State Aid Monitoring Board and obliges aid grantors to

consult the Board on aid projects.

The State Aid Monitoring Board has just been set up and is not yet fully operational. It consists

of 5 members (of which 2 are full-time employees) and the Minister of Economic Services

appoints its Secretary. The enforcement practice relating to State aid rules is only gradually

emerging.

Overall assessment

Malta has adopted much of the necessary legislation to enforce the

acquis

in the field of

competition policy and state aid, but it still has to fully align with the acquis on the status of

public undertakings and to develop the state aid enforcement mechanisms and practice.

The amended Competition Act is modelled on the main principles of Community anti-trust rules,

as regards restrictive agreements and abuse of dominant position. It is still possible for the

responsible Ministry to exempt undertakings from the application of the Competition Act. After

the end of 2002, exemptions may be justified only if they are necessary to fulfil a particular task

of public interest. According to Article 86 of the EC Treaty, only a specific operation of the

service of general economic interest of an undertaking can be exempted, and the company’s

competitive operations have to remain subject to the competition rules. The entire exemption of

a group of undertakings from the application of the Competition Act is therefore not compatible

with the

acquis.

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As regards block exemptions, Malta still has to adopt new general block exemption regulation

on vertical restraints.

Malta has also undertaken to include the revision of the block exemption

regulations on specialisation and on research and development in view of the EU’s new policies

on horizontal co-operation agreements.

As far as merger control is concerned, the Competition Act already provides for a limited

control of concentrations. Work is underway to establish a specific merger control system

taking account of the specific situation of the Maltese economy (in particular, its small size).

The Office for Fair Competition appears to have a fair enforcement record (21 decisions in

2000, comprising 10 restrictive agreements, 9 abuse of dominant position cases and 2 merger

cases). The authority has used considerable resources on own initiative cases and complaints. A

policy on fines, however, needs to be established, and this should be achieved through

regulations implementing the amended Competition Act. The Maltese authorities also need to

consider strengthening the Office of Fair Competition, especially in view of the upcoming tasks

under the merger control legislation.

As regards state aid, Malta is transposing the EC State aid rules through direct harmonisation

and is aligning the criteria for granting aid directly in its aid schemes. This is to be complemented

by control provisions in the Business Promotion Act, which provides a legal framework for

industrial and fiscal aid granted in Malta, enabling the Ministry to issue specific incentive

measures. For other aid, state aid control relies on the State aid Monitoring Board. The

Business Promotion Act provides legislative backing to the Board and further procedural rules

for the control of State aid will need to be adopted for the aid granted outside the Business

Promotion Act.

The State Aid Monitoring Board needs to be reinforced through training and institution building.

The State aid Monitoring Board has scrutinised the fiscal incentives under the Business

Promotion Act and has thus established a first enforcement record. However, the state aid

situation is still unclear since no State aid inventory has so far been formally submitted. The

notification procedure would need to be more formally enforced. Continued 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, is required. State aid

in the shipbuilding and ship repair industry will, in particular, have to be adjusted accordingly.

In order to ensure maximum aid intensities in assisted areas, Malta should also propose a

regional aid map.

Chapter 7: Agriculture

Agriculture in Malta accounted for 2.3 % of Gross Value Added in 2000, continuing a

downward trend (2.5% in 1999, 2.7% in 1998)

. Employment in agriculture has remained

stable in 2000, accounting for 1.9 % of total employment

Commission Regulation (EC) 2790/1999.

The source for all agricultural statistics is EUROSTAT unless otherwise specified.

Eurostat 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.

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Malta has a large agricultural trade deficit with the Community, with imports exceeding exports

by an average ratio of around 26:1. In 2000, EC imports

of agricultural products originating in

Malta amounted to € 7.7 million. EC exports to Malta amounted to € 209.5 million, the trade

balance in favour of the Community amounting to €201.9 million. On average, spring potatoes

account for around 70% of Malta's agricultural exports, whereas its imports are made up of a

much wider range of products. Malta has requested to open discussions on further mutual

concessions in agricultural trade with the European Union (see

section A.b. – Relations

between the European Union and Malta).

Since last year’s Regular Report, following an impact assessment study, the Maltese authorities

have identified the part of the agriculture sector that would be affected by the adoption of the

Common Agricultural Policy. The Maltese government is preparing a programme of measures

to accommodate these effects. This assessment provides the basis for a rural development

strategy and a rural development plan has been commissioned.

Malta does not have direct support schemes for its farmers. However the agriculture sector

benefits from high protection through a system of import levies applying to certain products.

Malta is committed in principle to dismantling these levies but no progress can be reported in

the reference period. The levies on imported agricultural products act as an indirect support

scheme since they allow high prices to be maintained on the Maltese market for local products

benefiting from the levy protection.

There is a fully liberalised but extremely small land market. Prices for agricultural land are very

high.

Horizontal issues

As regards the implementation of measures related to the

European Agricultural Guidance

and Guarantee Fund (EAGGF),

there has been little progress. A Director of Review was

appointed in April 2001. One of the tasks of this office will be the building up of the

administrative capacity necessary to implement the

acquis.

No progress can be reported as regards the

Paying Agency.

A project manager for the introduction of the

Integrated Administration and Control System

(IACS) has been appointed. Various surveys are currently being carried out in Malta in

connection with the different IACS components (land and animal registries). The basic elements

are available but they need to be digitised and integrated into an Information system.

No progress can be reported as regards the implementation of

trade mechanisms

and in

relation to

organic farming.

As regards

quality policy

the adoption of the Products Safety Act

will facilitate the adoption of quality standards (see below).

Farm Accountancy Data Network

(FADN) Pilot Project involving a representative sample

of 65 farmers was carried out between February and May 2001. The National Office of

Source of trade figures: Uruguay Round definition of agricultural products, figures taken from EUROSTAT COMEXT

(see U.E. 12/15: Commerce des Produits Agricoles 1988-2000, 1 Partie D.G. AGRI/A.2 Analyses quantitatives,

prévisions, statistiques, études, 2001, p. 10-57 et 86-89) .

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Statistics is making all the necessary preparations to undertake a census on agriculture in

October 2001, which will serve as the basis of the actual FADN.

Common Market Organisations

Since last year’s Regular Report, there has been little progress as regards the introduction of a

legal framework and administrative structures for the establishment of Common Market

Organisations.

As regards the adoption of marketing and quality standards, the Product Safety Act entered

into force in March 2001. This enabling Act empowers the Minister responsible for Consumer

Protection to prescribe minimum permissible standards for any type or category of goods,

including fruits and vegetables. Marketing and quality standards will be introduced as legal

notices under the Product Safety Act on the advice of the Malta Standards Authority, which will

facilitate their adoption.

Rural development and forestry

Little progress has been made in this field. The Trees and Woodlands (Protection) Regulations

were issued in January 2001 as subsidiary legislation under the Environment Protection Act for

the preservation of existing woodland and trees.

Veterinary and phytosanitary issues, including food safety

No legislative progress can be reported in the

veterinary

sectors since the last Regular Report.

As for

phytosanitary

legislation, the Parliament adopted an Act on the control of pesticides in

March 2001 and an Act on the control of plant pests and diseases in July 2001.

As regards

food safety

(see

also chapter 1 - Free movement of goods),

in April 2001,

Malta has produced a Food Safety Strategy which outlines the systems for co-ordination

between the various official bodies involved, their competencies, organisation and staffing. In

particular, it foresees the establishment of a Food Safety Commission that would be the

competent authority for food safety and the upgrading of laboratories.

Overall assessment

As regards the transposition of the

acquis,

there has been little progress in this area during the

past year. Malta is still far from full alignment and considerable efforts are still needed as regards

administrative capacity. However, the Maltese authorities have progressed in assessing the

impact of applying the Common Agriculture Policy to Maltese agriculture and in preparing

measures to accompany this move. This must, as a matter of urgency, be translated into

concrete measures.

As regards

horizontal issues,

progress has been made in the implementation of the

IACS

and

the

FADN

system. However the implementation of these systems must be finalised and

important efforts are needed as regards the set up of a

Paying Agency,

and the implementation

trade mechanisms.

Efforts are needed to strengthen the capacity of the Ministry of

Agriculture to manage the implementation of

EAGGF-related

measures.

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As regards the implementation of

Common Market Organisations

, the adoption of the

Product Safety Act represents progress in the

adoption of marketing and quality standards,

but these standards still need to be adopted through legal notices. Progress is needed

concerning EC intervention systems and the EC supply management instruments.

In the area of

Rural Development,

Malta needs to step up the efforts to build up the

administrative capacity to devise and, later on, manage a rural development strategy. While rural

development support schemes would be important for Malta, administrative preparations for the

design and setting-up of such schemes have not started yet. In particular, measures concerning

less-favoured areas could be important for rural development in Malta. Furthermore, the

implementation of agri-environmental measures is mandatory upon accession. The administrative

preparations for implementing such measures have not started yet.

While there has been some progress in the

phytosanitary

field, continuing alignment of

veterinary and phytosanitary legislation and upgrading of inspection arrangements, in particular

at future external borders, should be pursued. The proposed Veterinary Act, which aims to

provide the legal framework for future alignment with the

acquis,

still has to be adopted.

Progress is also needed in the field of animal nutrition.

As regards administrative capacity in this field, the veterinary service staff check all relevant

activities, from the issuing of licences, certificates for importation/exportation and regular

inspections in farms and slaughterhouses, to agri-food processing establishments and retail

outlets. The Department can impose sanctions in the event of non-compliance with regulations.

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

Three functional laboratories – Chemistry, Biology and a Virology Laboratory – are available

within the Plant Health Division. But an upgrading of the facilities available in the laboratories

would be needed.

With regard to

food safety,

the plans to set up a Food Safety Commission that would be the

competent authority for food safety and for the upgrading of laboratories remain to be

implemented.

With respect to

control measures,

Malta has an emergency plan which is generally in line with

Community rules.

Chapter 8: Fisheries

Since the last Regular Report, an important step has been taken in the process of legislative

alignment, with the adoption of the Fisheries Conservation and Management Act, but no

significant improvements to the administrative capacity can be reported.

The Fisheries Conservation and Management Act was approved by Parliament in January 2001

and came into force in June. This enabling act will provide for the adoption of subsidiary

legislation to cover all aspects of the fisheries

acquis.

As regards

resource management, inspection and control,

the secondary legislation that has

been prepared to align with the

acquis

concerning management and control of resources and

types of fishing gears has not been adopted. Progress was achieved in preparing for the

establishment of a Vessel Monitoring System (VMS). However the effective set-up of a VMS

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and the introduction of a system of logbooks and catch data collection are delayed pending the

adoption of the relevant legislation.

With respect to

structural actions,

the drafting process of a Multi-Annual Guidance

Programme for fisheries has started.

Concerning

market policy,

no progress can be reported as regards the introduction of

common marketing standards, the recognition of producer organisations and the preparation for

market intervention mechanisms.

As concerns

state aid

to the fisheries sector, and

international fisheries agreements,

particular developments are to be reported.

As regards the administrative capacity, no recruitment has taken place in the Department of

Fisheries in the reporting period. However, the Department established a two-year course

leading to a Higher National Diploma in Fisheries Science in co-operation with Plymouth

University and the FAO. The first year has taken place successfully, with seven students

expected to continue into the second year of the course. These students will be ready to take up

employment as officers within the Department of Fisheries and Aquaculture in October 2002. It

is intended that these officers will be responsible for vessel and market surveillance.

Overall assessment

The adoption of the Fisheries Conservation and Management Act paves the way for Malta's

alignment with all parts of the fisheries

acquis.

The main effort should now bear on the rapid

adoption of the subsidiary legislation that will align the Maltese legislation with the provisions of

the fisheries

acquis

concerning management and control of resources, fishing gear, fish

standards and marketing.

In the field of structural actions, progress towards the establishment and updating of a fishing

fleet register is satisfactory.

The Department of Fisheries and Aquaculture in the Ministry of Agriculture and Fisheries is

responsible for overseeing the enforcement of all aspects of fisheries policy. It has undertaken to

strengthen its administrative capacity by sending students to a specially designed training course

with the aim of recruiting them at the end of the course. The capacity of the Department needs

to be monitored and assessed in light of this expected strengthening.

Chapter 9: Transport policy

During the last year, Malta continued to align its legislation with the

acquis

and achieved some

progress, in particular in the fields of road transport safety and maritime safety, while only

limited progress was achieved in air transport.

As regards

Trans-European Transport Networks,

a methodology for the collection and

collation of information for the compilation of Community road infrastructure accounts has been

established to bring Malta's accounting system for expenditure on infrastructure in line with the

requirements of the

acquis.

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In the

land transport

sector, progress was achieved in the field of

road transport

with regard

to driving licenses and administrative capacity .

New legislation aligning Malta with the

acquis

on driving licences entered into force in January

2001. Due to technical problems, new driver's licences in European format will be available

only at the end of the year. Requirements for roadworthiness tests are being gradually phased

in.

The new Malta Transport Authority, responsible for all land transport issues including

inspections and controls, has since been set up and will become fully operational in the second

half of 2001. The new Malta Transport Authority consists of three departments (Road, Public

Transport, and Licensing and Testing). A supervisory board is in place. The first training

courses for safety advisers for the transport of dangerous goods are under way.

As concerns

air transport,

regulations transposing the EC Regulation on the denied boarding

compensation system for scheduled air transport were published in April 2001. A new Air

Traffic Control Centre was inaugurated.

As regards

maritime transport,

Malta has made progress, including with regard to maritime

safety. Malta submitted to the Commission in May 2001 a Maritime Transport Action Plan with

the aim of establishing a timetable for alignment with the

acquis.

It has increased its efforts to

enforce EU maritime safety standards. It has implemented the Directive on Marine Equipment, a

reform of Port State control records and an increase of flag state inspections. Amendments to

the Pilotage and Mooring Regulations to introduce a tax differential in favour of tankers with

segregated ballast tanks were published in June 2001 in line with the corresponding EC

regulation. The Malta Maritime Authority (MMA) is strengthening its administrative capacity

with five new flag and port State control inspectors, as well as supporting clerical staff. Officials

and inspectors of the MMA have undertaken training activities related to maritime safety, flag

state implementation and marine engineering.

In 2000, a number of ships representing 1.5 million gross tonnage were deleted from the

Maltese ship register or refused entry. Nevertheless, Malta still has the biggest commercial fleet

of all accession countries (1505 ships with 28 170 010 gross tonnage as of 31.12.2000) and

the average age of Malta’s fleet has not changed significantly as compared to 1999. According

to 2000 statistics under the Paris Memorandum of Understanding (MoU), the percentage of

Malta flag vessels detained following port State control was11.81%, an increase compared to

1999 (10.63%). This compares to an average for EU-flagged vessels of 3.9% in 2000. The

MMA is in the process of concluding agreements with its authorised classification societies to

regulate the relationship.

Overall assessment

Malta’s legislation in the transport sector is in line with the EC

acquis

to a certain extent, but

important parts of road and air transport law remain to be transposed, and sustained efforts are

needed as regards maritime safety.

As regards Trans-European Transport Networks, Malta still has to finalise the report that

should form the basis for extending the Trans-European Transport Networks to Malta after

accession.

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On road transport, Malta still needs to adopt the necessary legislation on fiscal harmonisation,

market access, access to the profession, dangerous goods and passenger transport. The

administrative capacity of the new Malta Transport Authority will have to be strengthened, in

particular by training its staff for the new responsibilities arising from the

acquis.

On air transport, the legislation to comply with the

acquis

on slot allocation, groundhandling and

accident investigation still needs to be adopted.

As regards maritime safety, Malta’s vessel detention rate as a result of State Port Controls

remain very high, and has increased from 1999 to 2000. In the Paris Memorandum of

Understanding 2000 annual report, Malta is ranked an one of the medium-to-high risk flag

States. However, some time is needed before the important measures taken by MMA to

improve its safety record have their full effect. Malta should further single out old ships with

lower safety standards and efforts should be continued to further strengthen the administrative

capacity of the MMA and improve the safety record of the Maltese commercial fleet.

Chapter 10: Taxation

Since the last Regular Report Malta has made good progress, especially in the area of excise

duties.

In the area of

indirect taxation,

particularly significant progress was made in the field of excise

duties. In March 2001, Malta amended its excise legislation in the field of mineral oils, tobacco

products and alcoholic beverages with retroactive effect from 20 November 2000. The

amendments include a single combined excise duty on cigarettes meeting the required minimum

duty level of 57% irrespective of the length of the cigarettes, new definitions of tobacco

products and new duty rates for cigars, cheroots and pipe tobacco. In addition, fuel oils and

methane have become subject to taxation, a distinction has been made in the duty level between

leaded and unleaded petrol, new duty rates for mineral oils, when used for specific purposes,

have been introduced and a wider application of fiscal markers has been enabled. In the field of

alcoholic beverages, a positive duty rate on alcoholic products, including beer, has been

imposed as required under the

acquis.

A new definition of wine linked to the alcoholic strength,

including the notion of intermediate products, has been introduced and spirits are now taxed per

hectolitre of pure alcohol. These amendments were intended to fully align the Maltese excise

legislation with the

acquis.

In the field of VAT, the legislation was amended in January 2001, so as to tax at the standard

rate the supply of food in canteens located in work places and study areas. At the same time,

the supply of educational, health and welfare services has been exempted from VAT without

input credit, and a special scheme for travel agents has been introduced based on the profit

margin.

Regarding

direct taxation,

no legislative alignment can be reported since the previous report.

The administrative capacity has been strengthened by way of the establishment of a Pre-

Accession Unit. A Quality Service Charter has been launched and two additional Appeals

Boards have been set up. The number of VAT inspectors has been increased from 38 to 52

and IT applications connected with debt management and sifting of risks taxpayers have been

installed.

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Overall assessment

Malta has advanced well with alignment in this field and its excise duty legislation is now on the

whole in line with that of the

acquis.

More efforts are, however, required to align the legislation

in the fields of VAT, direct taxation, administrative co-operation and mutual assistance, and also

to strengthen the administrative capacity.

Although some progress has also been made in the field of VAT, further substantive challenges

remain in this area. The main discrepancies between the Maltese VAT legislation and that of the

Community relate to the application of rates and the scope of exempt transactions.

As regards the field of direct taxation, Malta will have to address this part of the tax

acquis,

including its preferential tax schemes, so as to comply with the Code of Conduct for Business

Taxation to the same extent as current Member States upon its accession to the EU.

As regards the

acquis

on administrative co-operation and mutual assistance, full transposition is

still required. The setting up of national IT systems compatible with the EC systems (in particular

the VIES) should be given priority.

Several initiatives have been taken which have strengthened the capacity of Malta’s tax

administration. The setting up of the Tax Compliance Unit has significantly improved tax

collection. The implementation of the Tax & Customs Business Change Management Plan

began last year and is gaining momentum. It is of paramount importance that the plan should be

fully implemented, according to schedule.

Chapter 11: Economic and Monetary Union

A detailed assessment of Malta’s economic policy in its various aspects has been given above,

in the Chapter discussing the economic criteria (B-2). Therefore, the present section is limited to

a discussion of those aspects of the Economic and Monetary Union

Acquis--as

defined by title

VII of the EC treaty and the other relevant texts--which candidate countries should implement

before accession, i.e. the prohibition of direct public sector financing by the central bank, the

prohibition of privileged access of the public sector to financial institutions, and independence of

the national central bank. As to the process of liberalisation of capital movements, upon the

completion of which compliance with the EMU

Acquis

is conditional, this aspect has been

covered above, in the section on

Chapter 4 – Free movement of capital.

Since the last Regular Report, no specific progress in the adoption of the EMU

acquis

can be

reported .

Overall assessment

Malta will participate in EMU upon accession with the status of a country with a derogation

under article 122 of the EC treaty. It will need to implement the necessary changes to its

institutional and legal framework by the date of accession.

Overall, Malta has adopted substantial parts of the EMU

acquis.

However, Malta has not yet

fully aligned its legislation with the requirements of the Treaty concerning the

independence of

the Central Bank

and

direct public sector financing by the Central Bank.

Draft

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amendments to the Central Bank of Malta Act to bring it into line with the requirements of the

acquis

have been prepared but still have to be adopted by the Parliament.

The administrative capacity of the Economic Policy Division in the Ministry of Economic

Services is being strengthened, in particular with respect to economic programming and

econometric modelling capability.

Chapter 12: Statistics

Malta has made considerable progress over the past year in this area.

As regards

statistical infrastructure

, a new statistics law, the Malta Statistics Authority Act ,

providing for the establishment of a Statistics Authority, came into force in March 2001. The

Act establishes the National Statistics Office (NSO) as an autonomous and independent

institution, replacing the former Central Office of Statistics. The NSO has been quantitatively

and qualitatively reinforced, with the recruitment of fifteen statisticians and further improvement

of the IT infrastructure.

Concerning

classifications

, the NACE classification has already been adopted for industry

statistics. Full compliance has been achieved this year for the classification of the construction

sector. The classification of individual consumption by purpose (COICOP) has been adopted in

the ongoing household budget surveys. The International Classification of Professions (ISCO-

COM) has been adopted in the labour force surveys.

Concerning

demographic and social statistics,

further progress has been made. A Labour

Force Survey (LFS), conducted for the first time in May 2000, was repeated in December

2000 and the results published in June 2001. Quarterly LFS data collection started this year. As

regards Health and Safety, relevant statistics have been collected on accidents at work in

compliance with EU requirements. The NSO has carried out a Continuous Vocational Training

Survey, as recommended by Eurostat.

As regards availability of statistics at

regional

level, no progress can be reported.

In the field of

macro-economic statistics,

the classification of the functions of governments

(COFOG) has been adopted and the reclassification of all government finance transactions in

accordance with ESA 95 has been completed. The new chart of accounts has been in use since

January 2001. Work on the modification of the relevant Treasury Department software was

completed by the end of September 2000. The first non-financial national accounts in

accordance with ESA 1995 are now being compiled.

The balance of international payments has been published, in accordance with the fifth edition of

the Balance of Payments Manual of the IMF and in conformity with Eurostat’s

recommendations. The data is being published on a quarterly basis within three months of the

end of the reference quarter and is being transmitted to Eurostat.

The implementation plan for the introduction of INTRASTAT (system for the exchange of

statistics between member states) was introduced in February 2001 and is being evaluated.

Concerning

business statistics,

Business Register information was submitted in June 2001 for

the Aerostat “Annual Inquiry on Business Register”.

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As regards

transport statistics,

the NSO is in full compliance with most of the requirements

for statistics on transport of goods by road and sea. The first pilot Road Transport Survey is

being carried out.

For

agricultural statistics,

Malta has already achieved quite a good situation as regards

agricultural structures. The National Statistics Office has established an extensive register of all

agricultural enterprises. Information from this register is now being stored in a GIS-based

Agricultural Information System known as AGRISTAT. The basic weighting frame for the input

price index was finalised in early November 2000.

The Farm Accountancy Network (FADN) pilot survey launched in December 2000 has been

completed. Agricultural statistics on pig farms were published in June 2001.

Concerning fruit growing, the NSO has carried out a full-scale census of all areas with fruit

trees. Collected data are stored in a GIS database and full compliance has been achieved in this

area.

Results of data collection concerning fish landing statistics for the December 2000 quarter were

published in February 2001. Data on fish farm facilities has been entered into a database.

Aquaculture statistics are available.

Overall assessment

Thanks to sustained efforts over the past years, Malta is quite well advanced in the area of

statistics. In order to achieve full alignment with the

acquis,

it is important that Malta continue

to make substantial efforts.

Since the introduction of the new law on statistics and the further strengthening of the NSO,

Malta now has the administrative capacity required to apply the

acquis

in this domain.

Chapter 13: Social policy and employment

Some progress has been made in this area since the last Regular Report.

The drafting of subsidiary legislation under the Conditions of Employment (Regulation) Act was

completed in June 2001. This legislation aims to transpose all

labour law

directives, except the

Directive on the organisation of working-time.

An internal intervention unit was set up in 2000 within the Employment and Training

Corporation (ETC) to deal with collective redundancies. A joint unit was also set up in 2000 by

the Ministry for Economic Services and the Ministry for Social Policy to co-ordinate the work

of several public agencies and other social partners and to act as an early warning system in the

event of collective redundancies.

The principal structure for enforcing the protection of workers is the Inspectorate and

Enforcement Section of the Department of Industrial and Employment Relations. The

administrative capacity of the Department is being strengthened with ten additional labour

relations officers. No progress can be reported as regards the set up of a Guarantee institution

in terms of the Directive on Insolvency of Employer.

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In the field of

equal treatment for women and men,

the Protection of Maternity at Work

Places Regulations 2000 entered into force in January 2001. These Regulations transpose the

provisions of Directive on safety and health at work of pregnant workers and workers who

have recently given birth. Legal approximation in the

health and safety

field continued during

the reporting period with the transposition of other parts of the

acquis.

In particular, the

Occupational Health and Safety Authority Act was published in November 2000. The part of

the Act setting up the Occupational Health and Safety Authority came into force in January

2001. The new Occupational Health and Safety Authority will aim to ensure the effective

implementation of the health and safety

acquis.

Its members were appointed in May 2001

In the sphere of

public health,

no particular development can be reported in this area of the

acquis.

With regard to

social dialogue,

the Malta Council for Economic and Social

Development Act passed through all stages in Parliament in June 2001. It entered into force in

August 2001.

The National Statistics Office published the results of the first and second labour force survey in

June 2001.

Malta and the Commission have agreed a Joint Assessment of

Employment Policy

Priorities

with a view to examining the progress made by Malta in adapting its employment system so as

to be able to implement the European Employment Strategy in line with the Employment Title.

The first Labour Force Surveys (LFS) in accordance with ILO guidelines were carried out last

year and are now being done on a quarterly basis. According to the LFS, unemployment

decreased to 6.1% in March 2001, from 6.8 % of the labour force in May 2000. It was higher

than the registered unemployment rate of 4.4% in March 2001. The unemployment rates for

women were slightly higher than for men.

Further legislative progress was made with a view to preparations for administering support

received through the

European Social Fund (ESF).

A special preparatory committee has been

set up within the Ministry for Social Policy to deal with matters related to the ESF. The Director

(Office of Review) in the Ministry for Social Policy was appointed in April 2001

The fight against exclusion, as laid down in Art. 136 of the Treaty establishing the European

Community, is part of the objectives of EU social policy. As decided at the Lisbon and Nice

European Councils, policies to combat social exclusion combine commonly agreed objectives at

the EU level, and national action plans. The Göteborg European Council in June 2001 invited

candidate countries to translate the Union's objectives of promoting social inclusion into their

national policies.

In the field of

anti-discrimination,

the Equal Opportunities (Persons with Disability) Act came

into force in October 2000. The Act prohibits discrimination on the basis of physical or mental

disability with regard to employment. The Act provides for the elimination of discrimination

against persons with disability in the fields of employment, education, access, accommodation,

and insurance, as well as the provision of goods and services. It also introduces the principle

that the burden of proof shall not lie with the person with the disability. The Act also provides

for the right to moral damages. Apart from this Act, no further progress can be reported as

regards anti-discrimination.

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In the field of

social protection,

the recruitment of additional personnel and the provision of

ongoing training continue to strengthen the administrative capacity of the Department of Social

Security.

Overall assessment

Malta is generally well advanced in terms of legal transposition of the

acquis

in this area,

especially as regards labour law and Health and Safety, but it is still far from alignment as

regards equal treatment.

It should also be noted that enforcement of legislation is frequently scheduled at a much later

stage after its adoption. In some cases, this will make it difficult to monitor implementation and

enforcement.

Malta’s labour law is largely in line with the relevant Community

acquis.

It still has to set up the

Guarantee institution in terms of the Directive on Insolvency of Employer.

Concerning Equal Treatment of women and men, only one of the nine EC directives has been

fully transposed to date and Malta must finalise the transposition of the remaining

acquis.

Much

work needs to be undertaken to strengthen implementation and enforcement mechanisms.

In the health and safety field, the level of alignment has improved substantially. The

Occupational Health and Safety Authority Act, which came into force at the beginning of the

year, establishes an Occupational Health and Safety Authority and provides for the general

health and safety responsibilities of employers and workers. It also establishes a Health and

Safety Appeals Board, and provides administrative and financial provisions, as well as penalties.

On Public health, further work is required to finalise the alignment with the

acquis,

in particular

in the area of tobacco control. Malta has confirmed its full commitment to participating in the

surveillance and control of communicable diseases under the European Network set up by the

Community.

Social dialogue continues to be well developed in Malta. The setting up of the Malta Council for

Economic and Social Development is a positive step, including the involvement of

representatives of civil society as well as the social partners. However, it would be beneficial to

reinforce tripartite consultations and increase the number of tripartite agreements. Autonomous

social dialogue, sectoral social dialogue and collective agreements should also be strengthened

in order to prepare the Maltese social partners for the role they will play in social dialogue at

EU level. At company level, workers’ participation and information/consultation need to be

promoted along the line of the Community

acquis

and practice in this area.

With regard to employment policy, important steps have been taken by Malta to adapt its

employment systems so as to implement the European Employment Strategy, including the

agreement of the Joint Assessment Paper (JAP). This paper will be important in the preparation

for accession and ensure an effective monitoring of the phasing in of the priorities and

commitments contained in the JAP.

Malta is developing the necessary structures and operational arrangements to implement the

ESF effectively. Further efforts are required to improve both administrative capacity and the

mechanism for co-ordination of ESF interventions in the context of the European Employment

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Strategy and the fight against social exclusion. The special preparatory committee set up within

the Ministry for Social Policy to deal with matters related to the ESF is chaired by the

Permanent Secretary of the Ministry. It is composed of officials from various Ministries, the

Employment and Training Corporation and the Staff Development Organisation of the Office of

the Prime Minister. However, the Ministry still needs to appoint an ESF manager, who will be

responsible for policy, procedures and propagation of all matters related to ESF.

As regards anti-discrimination, the Equal Opportunities (Persons with Disability) Act establishes

the separation of the National Commission for Persons with Disability from public structures, its

reconstitution as a separate legal entity and the elimination of any discrimination on the basis of

disability. The Commission will investigate all allegations of discrimination on the basis of

disability. The Commission is also responsible for running education and information campaigns

highlighting the various provisions of the Act and the measures that may be taken to ensure

compliance.

Malta still has to comply with the acquis on anti-discrimination based on Article 13 of the EC

Treaty.

The fight against exclusion, as laid down in art. 136 of the Treaty establishing the European

Community, is part of the objectives of EU social policy. As decided at the Lisbon and Nice

European Councils, policies to combat social exclusion combine commonly agreed objectives at

the EU level, and national action plans. The Gothenburg European Council in June 2001 invited

candidate countries to translate the Union's objectives of promoting social inclusion into their

national policies.

Chapter 14: Energy

Malta has made significant progress during the period covered by this Regular Report. An

important development in the field of energy has been the entry into force, in January 2001, of

the Malta Resources Authority Act which provides a basis for alignment with the

acquis.

Concerning

security of supply,

Malta has made little progress.

In relation to

competitiveness and the internal energy market,

Malta has taken initial steps

to align with the

acquis.

The Malta Resources Authority was established through the Malta

Resources Authority Act as an independent regulatory body for the energy sector, among

others. The Malta Resources Authority Act came into force in February 2001 and the Authority

is to be fully operational by the third quarter of 2001. The regulatory powers vested in Enemalta

Corporation through the Enemalta Corporation Act were transferred to the Malta Resources

Authority and its Energy Directorate in March 2001. The Malta Resources Authority has also

taken over responsibility for Malta’s energy policy. It is currently finalising the national energy

policy document.

As regards

energy efficiency

and the use of renewable energy sources, Malta adopted the

Product Safety Act in February 2001 in order to align with the

acquis,

in particular as regards

energy labelling and efficiency requirements.

In October 2000, Malta adopted amendments to the Petroleum Act and Continental Shelf Act

to bring its legislation in line with the Hydrocarbons Licensing Directive.

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Malta ratified the Energy Charter Treaty and the Energy Charter Protocol on Energy Efficiency

and Related Environmental Aspects in July 2001, together with amendments to the Trade-

Related Aspects of the Energy Charter Treaty.

Overall assessment

Malta has reached a reasonable level of alignment with the energy

acquis

but efforts must

continue to ensure full compliance in particular as regards security of supply and energy

efficiency.

Malta should finalise its National Energy Strategy.

Secondary legislation under the Malta Resources Authority Act to align with the oil stocks

acquis

still needs to be adopted. Particular attention should be given to the completion of

appropriate legislation as regards emergency security of supply and to the actual building up of

oil stocks. The Maltese government needs to accumulate progressively towards the level of 90

days of oil stocks, as required by the

acquis.

Regarding competitiveness and the internal energy market, particular attention needs to be paid

to the implementation of the Malta Resources Authority Act and the restructuring of the

electricity monopoly of Enemalta. The elimination of price distortions also needs attention. Malta

has a small energy market and considers itself a small isolated system within the terms of the

Electricity Directive.

As regards oil products, Malta should strengthen its efforts and provide detailed plans in order

to bring the operations of the state trading monopoly in the importation, stocking and sales of

petroleum products in line with the

acquis.

The Malta Resources Authority is now responsible for Malta’s energy policy and the

implementation of the Energy Charter Treaty. It has just been created and its administrative

capacity will need to be strengthened so that it can carry out its new responsibilities.

Malta still has to complete the alignment of its legislation with the

acquis

in energy efficiency.

The Ministry for Economic Services is the competent authority implementing legislation on

general product safety and subsidiary legislation relating to energy efficiency. The Department

responsible for consumer affairs will have to deal with the enforcement aspect. Malta should

enhance the use of renewable energy and the improvement of energy efficiency. Apart from tax

(VAT) reductions for solar energy, there are no other incentives for energy saving and

renewable energies in place.

Whereas Malta does not generate electricity from nuclear power sources, the Council Report

on Nuclear Safety in the Context of Enlargement (June 2001) contains recommendations with

regard to other activities of relevance to Malta (that is the management of institutional

radioactive waste, i.e. mainly sealed sources from industrial and medical applications).

The Report emphasises that its general observations and recommendations are relevant, in

particular with regard to the need for Malta to ensure that the appropriate regulatory oversight is

established according to good practice within the EU.

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Malta will need to ensure compliance with Euratom requirements and procedures. In this

respect, continued attention should be given to preparing the implementation of Euratom

Safeguards, in particular regarding the reporting of nuclear material flows and inventories

directly by the persons or structures operating nuclear installations or storing nuclear material. It

should be noted that Malta has conducted a Full Scope Safeguards Agreement with the IAEA.

Malta has not yet signed an Additional Protocol to this Agreement.

Chapter 15: Industrial policy

Since the 2000 Regular Report, the Maltese government has made progress in the development

of an

industrial policy

and in

investment promotion,

while the implementation of the

privatisation

programme has continued to progress slowly.

A wide consultation process with the social partners on the priorities and issues identified in the

White Paper entitled “Prosperity in Change: Challenges and Opportunities for Industry” took

place within the Malta Council for Economic and Social Development (MCESD).

The Business Promotion Act, aimed at

promoting investment,

entered into force in June

2001. The Act, which amends the Industrial Development Act, includes small business

legislation to facilitate the implementation of incentive schemes and other measures targeting

small businesses (see

also chapter 16 – Small and medium-sized enterprises for progress in

implementing the business environment).

The Business Promotion Regulations which derive

from it introduce new incentives structured to be in line with the Commission’s Guidelines on

State Aid. It should be noted that the Business Promotion Act provides incentives to local as

well as foreign investments.

In 2000 Malta witnessed a steady growth in capital investments. In 2000 the share of gross

fixed capital formation in GDP reached 26.3%, a 12.4% increase as compared with 1999.

Since last year,

privatisation and restructuring

have advanced slowly. The privatisation

process has been launched for the Lotto Department, Malta Freeport, Malta International

Airport and the Bank of Valetta in particular, but progress has been slow.

(See Section B.1.2. -

Economic criteria).

Overall assessment

Overall, Malta’s policy towards industry is by and large in conformity with the principles of EC

industrial policy, i.e. market-based, stable and predictable. The consultations with the social

partners on the White Paper “Prosperity in Change: Challenges and Opportunities for Industry”

represent a step towards the drawing up of an integrated industrial strategy. Malta should now

finalise its industrial strategy as well as its national industrial policy document.

Malta needs to continue strengthening its competitiveness with a view to integrating its enterprise

sector in the Single Market.

Developments concerning Industrial policy should be seen in relation to the overall enterprise policy, including the SME

policy (see

Chapter 16 – Small and medium-sized enterprises).

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The new Business Promotion Act and the Business Promotion regulations represent a positive

step towards improving the investment environment. The Act should also be a valuable tool for

enterprise restructuring as import levies continue to be progressively dismantled. Malta needs to

ensure that the incentives provided by the regulations conform to the Commission’s Guidelines

on State Aid

(see Chapter 6 - Competition policy).

Malta should pursue and speed up the implementation of its privatisation programme. As

regards the restructuring program for industrial SMEs, 48 companies in the manufacturing

sector have submitted business plans to the Institute for the Promotion of Small Enterprise

(IPSE), 28 of which were approved up to April 2001, leading to a restructuring programme

with the help of IPSE. While IPSE’s work is estimable, it covers only part of the country's

needs and ought to be extended.

The administrative capacity of the Ministry for Economic Services, which is responsible for

industrial policy, seems on the whole adequate. However the privatisation unit is staffed with

only two persons and may need to be reinforced to cope with the challenge of the government’s

privatisation programme. IPSE manages the restructuring programme for small enterprises

efficiently, however its capacity would need to be strengthened in order to broaden the intensity

of its restructuring activities and their scope (in particular to the agri-industrial sector).

Dialogue between the government and the private sector is taking place through various fora,

but there is room for improvement in that area.

Chapter 16: Small and medium-sized enterprises

Since the last Regular Report, Malta has made progress in this field, through strengthening its

SME policy and taking further measures to promote SME development.

The Business Promotion Act, which entered into force in June 2001, includes small business

legislation to facilitate the implementation of incentive schemes and other measures targeting

small businesses. The Business Promotion Regulations which derive from it introduce new

incentives, such as reduced rates of income tax, investment tax credits, value added incentive

scheme, soft loans, loan interest subsidies, loan guarantees, incentives for job creation and

training assistance. The incentives have been structured to be in line with the Commission’s

Guidelines on State Aid.

The Institute for the Promotion of Small Enterprises (IPSE), which assists small enterprises

through consultancy on restructuring and business plans, has undertaken sectoral studies to

extend its activities to specific sectors (wine industry, fruit and vegetables processing, meat

processing, and the printing sector). A new Business Incubation Centre managed by IPSE has

been launched to promote the development of innovative enterprises. IPSE has also launched a

Business Resource Centre offering various services to businesses.

Following an Operations Review in the Ministry for Economic Services, a Commerce Division

has been set up to provide services and support to local small and micro enterprises as well as

Developments concerning SME policy should be seen in relation to the overall enterprise policy, including the industrial

policy (see

Chapter 15 - Industrial policy).

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to the crafts sector. The Division also incorporates the former Department of Trade and

Industry, the Small Business Efficiency Unit and the Malta Crafts Council.

Malta has recognised the need to make progress in the improvement of the

business

environment.

The Small Businesses Efficiency Unit is participating in a scheme to convert

Local Councils into local ‘one-stop shops’. The Unit meets with entrepreneurs at their

respective Local Council to try to offer solutions for their problems. The Ministry of Justice and

Local Government is responsible for the implementation of the scheme.

The Business Promotion Act incorporates legislation in relation to the

SME definition

with a

view to aligning it with the Commission’s recommendations.

Overall assessment

Malta’s policy towards SMEs follows the approach promoted at EU level and sustained efforts

are being made to help SMEs restructure and to develop entrepreneurship. The adoption of the

Business Promotion Act together with the Business Promotion regulations, and the sustained

efforts made by IPSE to help restructure and develop small businesses, provide a good basis

for the implementation of the SME policy.

The administrative capacity of the Ministry for Economic Services, together with IPSE, seems

on the whole adequate. However there is not yet a real one-stop shop for SMEs, which still

have to deal with several departments and agencies. Efforts are needed to simplify further the

administrative and regulatory environment for SMEs.

Chapter 17: Science and research

Further progress has been made in this area since the last Regular Report.

The scientific and technological agreement giving Malta full access to the Fifth Framework

Programme for research and technological development (1998-2002) was signed on 20 June

2001. It had entered into force on a provisional basis on 1 March 2001 and covers the period

2001- 2002.

The Malta Council for Science and Technology (MCST), the government agency responsible

for the management and co-ordination of Malta's participation in the FP5, organised a

workshop on a National R&D Audit and Foresight Exercise for Malta. This was to serve as the

basis for developing and implementing an R&D capacity-building strategy. The R&D audit aims

at identifying the strengths and weaknesses in the R&D system to eventually develop strategies

for strengthening the R&D and innovation set up and to develop an R&D policy.

Two assistant executives have been appointed by MCST to coordinate four Fifth Framework

Programme programmes. The National Contact Point Organisation (NCPO) is currently being

re-organised, after consultations with the Institute for the Promotion of Small Enterprise (IPSE),

the Federation of Industry (FOI), Malta Development Corporation (MDC), METCO (Malta

External Trade Corporation), the University and interested ministries, in order to encourage the

participation of the industrial sector. A number of briefing sessions focusing on the thematic and

horizontal programmes were organised by MCST between February and June 2001, involving

experts from both the Commission and the member states. MCST has reinforced the national

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Fifth Framework Programme information distribution network, particularly through increased

interaction between the National Contact Points (NCPs) and interested entities and researchers

in different sectors.

As for other candidate countries associated with the Fifth Framework Programme, Malta has

been granted observer status in CREST (Comité

pour la Recherche Scientifique et

Technique).

Overall assessment

Malta’s efforts to ensure participation in the Fifth Framework Programme and to improve links

between academics and research institutes and industry are largely satisfactory. However

although the financial and institutional framework is well established, the research-related

administrative capacities and infrastructure should be further reinforced to ensure successful

association.

Malta’s participation in the Fifth Framework Programme represents an important step which

will give local researchers the opportunity to team up with EU partners in joint science and

technology research projects. Efforts to better disseminate information about FP5 should be

pursued to develop and consolidate the participation of the scientific community and of SMEs in

Community research and technology programmes. Further concrete measures to help increase

the financial support for research and development, and stimulate the business enterprise

expenditure on research, would be needed for the further development of the sector and for an

effective integration of Malta into the European Research Area.

Priority should be given to the development of a national strategy and programme for the

development of science and technology policy.

Chapter 18: Education and training

In the past year, some further progress has been made in this area.

Malta has stepped up its participation in the second generation of the Leonardo and Socrates

Community programmes.

It also started to participate in the Youth programme, which

incorporates European Voluntary Service activities (see

section A.b - Relations between the

European Union and Malta).

The European Union Programmes Unit in the Ministry of

Education (EUPU) has been strengthened following the launch, this year, of Youth Community

Action. It co-ordinates the management of the three programmes, with an executive secretary

for each programme. EUPU brings under its umbrella the co-ordinators of the different

programmes, each of them heading a special consultative committee.

No progress has been made as regards the

Directive concerning education of children of

migrant workers.

As regards the

reform of its education and training system,

the Malta Professional and

Vocational Qualifications Awards Council started carrying out its duties in October 2000.

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Overall assessment

Participation in the relevant Community programmes can be considered generally satisfactory.

The administrative capacity and internal organisation of Malta’s national agencies could

however be strengthened to improve performances in carrying out the tasks required of them.

The Commission has proposed training courses for the personnel of the agencies, in particular in

the fields of informatics and financial procedures.

Malta still has to enact amendments to the Education Act in order to fulfil the requirements of

the

Directive concerning education of children of migrant workers.

Chapter 19: Telecommunications and information technologies

Malta continued to make good progress in this area during the period covered by this report.

As a consequence of the implementation of the National Plan for the

liberalisation of the

telecommunications markets,

the second licensee for GSM mobile telephony started

operating in December 2000. Following the amendment of the Telecommunications

(Regulation) Act of 1997 by the Malta Communications Authority Act, last year, regulations

were adopted for the gradual introduction of competition in the telecommunications markets,

e.g. in the field of radio paging.

As regards the

regulatory framework,

regulations applying the Telecommunications

(Regulation) Act were published to align the Maltese legislation with respect to individual

licenses and general authorisations in the field of telecommunications services. Regulations were

also published to align the Maltese legislation with respect to the cost orientation of tariffs,

Internet and other data services and interconnection requirements, with regard to mobile and

personal communications.

The numbering report was approved at the end of May 2001and the new numbering plan is in

place from November 2001. The European emergency number (112) became operational on 1

June 2001 and all operators have to provide free communications access to emergency services

as of November 2001. Broadband Internet was launched by Melita Cable in October 2000. A

White Paper describing a vision and strategy for the attainment of electronic Government in

Malta was published in October 2000 and adopted as government policy in January 2001.

As regards the

postal services,

no progress can be reported.

The Malta Communications Authority (MCA) regulates telecommunications, data protection, e-

Commerce, and similar areas in the field of communications. After the adoption of the

telecommunications and postal services law, it will also regulate the postal sector. It has

recruited a technical specialist, two lawyers, a financial analyst and two project managers for

electronic commerce.

Overall assessment

Malta has advanced considerably in the telecommunications sector over the last few years. The

liberalisation of its telecommunications markets is going ahead and its regulatory framework is

now largely in line with the

acquis.

Attention should be given now to the completion of

legislative alignment before full liberalisation in 2003.

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As regards the liberalisation of the telecommunications markets, attention should now focus on

the actual application of regulations and Government decisions. As regards the development of

Internet, there is a need for better co-operation between the infrastructure providers Maltacom

and Melita Cable on one hand and the Internet Service Providers (ISPs) and the other hand in

order to promote cheap access. The MCA has improved its capability to draft regulation and to

monitor competition in the markets, e.g. by initiating regular consultations with the ISPs. The

MCA is also actively participating in the eMalta Commission and the preparation of the

eEurope + Action Plan of the candidate countries. However, the MCA needs to be

strengthened through training and transfer of expertise in order to cope with all these

responsibilities.

As regards the regulatory framework, regulations on data protection in the field of electronic

communications networks and services and on carrier selection and number portability have to

be adopted, as well as the necessary legislation to align with the

acquis

on postal services. The

actual implementation of this legislation may require a further strengthening of the Malta

Communications Authority.

Chapter 20: Culture and audio-visual policy

Malta has made further progress in aligning its legislation with the Community

audio-visual

acquis

since the last Regular Report.

Alignment with the provisions of the Television Without Frontiers Directive and the Council of

Europe Convention on Transfrontier Television and its amending protocol has been achieved

through subsidiary legislation under the Broadcasting Act. This legislation concerns measures

relating to advertising, sponsorship, the protection of minors, the investigation and determination

of complaints, and fees payable on the filing of judicial acts in connection with appeals

regulations. Broadcasting regulations related to jurisdiction and European co-operation came

into force in December 2000, with the exception of those parts relating to the broadcasting of

European works.

Malta became a party to the Protocol amending the European Convention on Transfrontier

Television in October 2000.

No particular developments are to be reported in the area of

culture.

Overall assessment

Following the progress made in the audio-visual field, Malta is largely aligned with the

acquis

that area. Malta has provided adequate assurances that sections of its legislation relating to the

broadcasting of European works will come into force on accession, taking into account Malta’s

international obligations.

Malta has ratified the Council of Europe Convention on Transfrontier Television and will be

bound by its amending Protocol upon the date of entry into force.

Administrative capacity in the audio-visual field seems adequate and the Broadcasting Authority

seems well equipped to fulfil its duties. Amendments to the Broadcasting Act have further

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strengthened the effectiveness of the Broadcasting Authority by introducing a system of

administrative sanctions in respect of certain offences committed by broadcasters.

In the context of Malta's preparations for integration with Community activities in the field of

culture, a National Culture Policy Document has been prepared with the aim of strengthening

executive and operational capacity in the cultural heritage sector.

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

Since the last Regular Report, important progress has been achieved in preparing for the

implementation of structural policies.

No new developments can be reported as regards Malta's

territorial organisation.

With regard to the

legislative framework,

in June 2001 the Parliament adopted a legal Act

which sets up the framework for the Malta Council for Economic and Social Development

(MCESD). Furthermore, a legislative Act which amends the legal framework for local councils

was adopted in April 2001.

Concerning Malta’s

institutional structures,

substantial progress was made with the creation

of the Regional Policy Directorate within the Office of the Prime-Minister, an inter-ministerial

committee and the MCESD.

The Regional Policy Directorate will have overall responsibility for the programming and co-

ordination of structural and cohesion funds upon accession. The Ministry of Agriculture and

Fisheries will take over responsibility for the European Agricultural Guidance and Guarantee

Fund (EAGGF) and the Financial Instrument for Fisheries Guidance (FIFG), while the Ministry

of Social Policy will be responsible for the European Social Fund (ESF). The Regional Policy

Directorate will be responsible for European Regional Development Fund (ERDF) and is also

acting as the National Aid co-ordinator for pre-accession funds in the pre-accession period.

The Regional Policy Directorate is currently staffed with five officials and recruitment is ongoing

to reinforce it. The Ministry of Gozo will be responsible for implementing the Structural Funds in

Gozo.

The Inter-Ministerial Committee responsible for inter-ministerial co-ordination with regard to

pre-and post- accession funds will be chaired by the Permanent Secretary in the Office of the

Prime Minister. Line Ministries have set up internal co-ordination units. Directors of the Office

of Review in the respective Ministries will interface with the Regional Policy Directorate on

issues pertaining to programming, monitoring and evaluation. The Regional Policy Directorate

will act as the co-ordinator and secretariat of the inter-ministerial Committee.

The MCESD will be the body where all social partners will be consulted in the programming

process for the structural and cohesion funds.

Although a study has been launched to design a National Development Plan for Malta, no

progress can be reported with regard to

programming.

Neither has there been progress as

regards

monitoring and evaluation.

Concerning

financial management and control,

Malta has a system of three-year rolling

business plan where all spending ministries produce multi-annual business plans, which are then

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consolidated in a master multi-annual business plan, based on key economic indicators and

forecasts. This multi-annual budgeting procedure is however not binding, since it is not subject

to adoption by the Parliament.

As concerns

statistics,

no new developments are to be reported since the last Regular Report.

Overall assessment

Overall, Malta has advanced well in developing the necessary structures for the implementation

of the Structural Funds after accession. However, some issues still remain to be clarified as

regards the responsibilities of the different bodies involved, while substantial and sustained

efforts will be needed to ensure that the Regional Policy Directorate and the line ministries are

fully prepared upon accession.

Malta still has to agree with the Commission on a territorial organisation (corresponding to

NUTS) which allows for the effective implementation of the Structural Funds.

The overall institutional set-up adopted for the implementation of the Structural and Cohesion

Funds seems sound. The capacity of the Regional Policy Directorate for programming,

monitoring and evaluation of the structural funds needs to be significantly developed. This

applies to the line ministries concerned as well. The respective roles of the offices of review and

the internal co-ordination units in the line ministries have to be clarified. Malta will also have to

make further efforts regarding technical preparation of projects eligible for Structural and

Cohesion Funds (project pipeline).

Concerning ESF, Malta is developing the necessary structures and operational arrangements to

implement the European Social Fund effectively. Further efforts are required to improve both

administrative capacity and the mechanism for co-ordination of ESF interventions in the context

of the European Employment Strategy and the Inclusion process.

In order to be able to implement the Structural and Cohesion Funds after accession, Malta will

need to substantially improve its preparations for an integrated regional development plan,

aiming to produce a Single Programming Document (SPD).

In the field of financial management and control, Malta has generally made good progress. The

overall financial control and auditing framework that has been set up seems to be satisfactory

and the audit trail that has been developed by the Internal Audit and Investigation Directorate

provides a good basis for assessing the capacity to manage pre-accession funds as well as

structural funds. The re-engineering process for the financial control and audit functions has

been completed.

Ex-ante

control is done at decentralised level. The Internal Audit is carried

out centrally by the Internal Audit and Investigations Directorate (IAID), an independent agency

operating under the responsibility of the Cabinet Office and reporting to the Internal Audit and

Investigations Board chaired by the Secretary to Cabinet. The International Relations

Directorate within the Ministry of Finance, which will act as the paying authority, is operational.

Its Director acts as the National Authorising Officer and its administrative capacity has been

strengthened with the recruitment of two officials. However Malta still needs to make some

efforts to meet the specific financial management and control requirements of the Structural

Funds regulations.

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As to statistics, the key indicators are available at national level. Malta still needs to improve the

system for the collection and processing of relevant statistical information for the purposes of

ex-ante evaluation. Regional statistics will have to be prepared for analyses, evaluation and

monitoring of the programmes, in particular for Gozo.

Chapter 22: Environment

Malta has made some progress since last year in aligning its legislation with the

acquis

in the

environment area, however little progress was made as regards administrative capacity.

No progress can be reported as regards the

integration of the environment into other

policies.

In the field of

horizontal legislation,

in September 2001 Malta issued subsidiary

legislation under the Development Planning Act, in order to transpose the environmental impact

assessment requirements.

The Environment Protection Act came into force in September 2001 and a set of subsidiary

regulations has been issued under the Act to transpose parts of the environment

acquis

different fields.

As regards

air quality,

regulations have been issued under the Environment Protection Act to

transpose the Framework Directive and related “daughter” Directives. Regulations have also

been issued to transpose the legislation on internal combustion engines and quality of petrol and

diesel fuel, as well as for the incorporation into Maltese law of the Vienna Convention and the

Montreal Protocol on the protection of the ozone layer.

In the area of

waste,

regulations were issued under the Environment Protection Act to

transpose the legislation on the use of sewage sludge in agriculture and of waste from the

titanium dioxide industry. A study aiming at defining a waste management strategy was

completed in June and the report was published. There has been no progress in building the

administrative capacity in order to tackle the waste issue.

In the field of

water quality,

regulations have been issued under the Environment Protection

Act to transpose the Directive on discharges of dangerous substances and its “daughter”

Directives.

No legislative progress can be reported in the field of

nature protection.

In the field of

industrial pollution control and risk management,

the only progress is the adoption of a

regulation issued under the Environment Protection Act to transpose the legislation on asbestos.

In the field of

genetically modified organisms and chemicals,

Malta signed the Stockholm

Convention on Persistent Organic Pollutants in May 2001. The Product Safety Act, which

came into force in March 2001, will allow Malta to align with the EU chemicals legislation

through subsidiary legislation based on this act.

As regards

noise,

no direct progress can be reported. However, the Product Safety Act which

came into force in March 2001 lays the ground for alignment with the Directive on noise

emission of equipment used outdoors through subsidiary legislation based on this act.

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In the field of

radiation protection

(see

also chapter 14 - Energy),

the administrative

provisions of the EURATOM Regulation on shipments of radioactive substances between

Member States were implemented in November 2000.

As regards administrative capacity, the Environment Protection Act has established the

Environment Protection Department in the Ministry of Environment as the competent

environment authority. Following the adoption of the Malta Resources Authority Act, the newly

created Malta Resources Authority was established as the regulatory authority for water

resources and energy.

Overall assessment

Despite the adoption of the Environment Protection Act and a series of subsidiary regulations,

which constitute an important step, Malta still needs to make important efforts in several areas

to align with the

acquis

and its administrative capacity remains very weak.

On the whole, the current situation in Malta remains characterised by the weakness of the

existing administrative capacity and by the lack of a long-term and sustainable approach to

environmental issues. This situation is compounded by considerable environmental problems,

waste management being the most critical one. There is an urgent need to tackle the challenge of

adopting and enforcing the environmental

acquis

with appropriate means. This will require the

adoption of a strategy and of a directive-specific programme for the transposition and the

enforcement of the EC environmental

acquis,

an acceleration of the pace of alignment of

Maltese legislation, and a considerable strengthening of the administrative capacity to enforce it.

Without proper enforcement and prevention structures supported by a respected sanction

system, and increased environmental awareness, it will be difficult to improve the enforcement

of EC environmental legislation and the environmental situation on the Island.

Malta has not yet adopted a strategy and a directive-specific programme for the transposition

and the enforcement of the EC environmental

acquis.

The lack of a long-term and sustainable

approach is a source of concern in an area where results require long-term planning, as well as

substantial investments.

The adoption of the Environment Protection Act may accelerate the pace of alignment of the

Maltese legislation with the environmental

acquis

if efforts to that end are maintained.

While Malta has adopted horizontal legislation on environmental impact assessments, it still has

to align its legislation with respect to access to information and reporting.

In order to comply with the

acquis,

extensive legislative transposition is necessary in most areas

of waste management legislation. The conditions of waste disposal at the Maghtab landfill

require particular attention to ensure compliance with the

acquis

and the difficulties regarding

waste management in Malta are compounded by the small size of the island. The finalisation and

implementation of a sustainable waste management plan is therefore crucial.

Legislation transposing the

acquis

related to air quality has been adopted to a large extent.

With regard to water quality, some progress has been made, but Malta still has to transpose

important parts of the

acquis,

in particular in relation to nitrates, bathing water, drinking water

and treatment of urban wastewater. New infrastructure is required in particular for the

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implementation of the wastewater directive. At present, Malta has only one wastewater

treatment plant, and the sewage sludge from this plant, along with the remaining collected

wastewater (85% of the total), is discharged untreated into the sea through two outlets.

With regard to nature protection, most Community legislation must still be transposed, in

particular the directives on birds and habitats. However, as regards birds, the creation of a tri-

partite Joint committee on control of hunting, composed of hunters’ associations, NGOs and

government, represents a step in the right direction.

Malta still has to adopt legislation with regard to industrial pollution control and risk

management.

Malta still has to transpose directives on the contained use and deliberate release of genetically

modified organisms, as well as the regulations on the import and export of certain dangerous

chemicals, and on the evaluation and control of the risks of existing substances.

While some progress was made regarding shipments of radioactive substances between

Member States, legislation related to noise and to radiation protection has still to be adopted.

Malta's administrative capacity in the area of the environment is currently split between different

Ministries.

The Ministry for Environment, through its Environment Protection Department (EPD), is

responsible for the drafting and implementation of most of the legislation related to the

acquis.

Besides the EPD, which has a total staff of 60 persons, the Ministry of Environment includes the

Department of Public Works, which has a staff of 3 600 and whose activities are not directly

related to the environment. The EPD covers horizontal legislation, nature protection, water and

air quality, waste management and industrial pollution control and risk management. The

Environment Protection Act has designated the Environment Protection Department as the

competent authority. However it remains to be seen to what extent the actual responsibilities

and powers of the Authority will differ from those of the Environment Protection Department,

since this will determine to a large extent the actual enforcement of environmental legislation.

The Ministry of Home Affairs, through the Planning Authority, is responsible for land use and

the delivery of environment permits. The Civil Protection Department in the Ministry of Home

Affairs is responsible for civil protection and for marine pollution in co-ordination with the

Pollution Control Co-ordination Unit, the Malta Maritime Authority and the Malta Armed

Forces. In that respect, it should be noted that maritime safety remains a concern in Malta,

although steps have been taken to improve its record. The newly created Malta Resources

Authority will play an important future role in the area of industrial pollution and control, since

the two major power stations (Marsa and Delimara) account for the majority of industrial

pollution control issues in Malta.

While the Planning Authority seems to be adequately staffed, the EPD, which is now the

competent environment Authority in the Ministry of Environment, is understaffed and does not

have the means to fulfil its role. With only 10 environmental inspectors, the shortfall in

enforcement and prevention remains serious. The enforcement is dependent on the involvement

of the police, with limited results. There is a need to better define the roles of the different

agencies and departments involved, and to improve the co-ordination between them. There is

also a need to streamline the permitting, inspection and enforcement procedures. It is therefore

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of paramount importance that, following the adoption of the Environment Protection Act,

adequate powers and resources are provided to the Authority for the monitoring of the

application and enforcement of the

acquis.

This could also provide an opportunity to streamline

the procedures and better define the role of the different structures involved in the enforcement

of the environmental

acquis.

Considerable investments need to be secured, also in the medium-term, to ensure

implementation of the environmental

acquis.

Chapter 23: Consumers and health protection

During the reference period, Malta made substantial progress in this area.

As regards

safety-related

measures, the Product Safety Act, repealing the Quality Control

(exports, imports and local goods) Act of 1971, and the Dangerous Imitations Order came into

force in March 2001. They are meant to transpose the EU

acquis

in the area of general product

safety and dangerous imitations. Concerning

non-safety related measures,

the Consumer

Affairs (Amendment) Act was adopted by Parliament in October 2000 and came into force in

January 2001. It also covers misleading and comparative advertising, doorstep selling, unfair

contract terms, sale of consumer goods and associated guarantees, and injunctions to protect

consumer interests. The Act will be gradually brought into force and it is envisaged that it will be

fully in place by mid-2002. Regulations aiming at transposing the Directive on the Protection of

consumers in respect of distance contracts were issued in August 2001. Regulations aiming at

transposing the Directive on time share were issued under the Malta Travel and Tourism

Services Act and published in December 2000. They will come into force gradually by the

fourth quarter of 2001. Other Regulations, intending to transpose the Directive on package

travel, package holidays and package tours were enacted under the Malta Travel and Tourism

Services Act. They were published in August 2000 and should come into force by the fourth

quarter of 2001 as well.

As regards the enforcement of consumer policy and legislation, a Consumer and Competition

Division was created at the beginning of 2001 within the Ministry of Economic Services.The

Consumer Affairs Department and the Office for Fair Competition have been amalgamated and

their functions have been taken over by the Office of Fair Trading, which is now incorporated in

the new Consumer and Competition Division. The Division is currently strengthening its staff in

both numbers and training.

Market Surveillance

Directorate has been set up within the Ministry of Economic Services

to co-ordinate the surveillance programmes of certain Ministries (Health, Agriculture and

Fisheries, Transport and Communications and Tourism) for the monitoring of standards of

products and services.

The new Malta Standards Authority has a much broader mandate than before and its action will

be instrumental in introducing the concept of safety. Three independent Directorates have been

set up within the Authority: Consumer and Industrial Goods, Foodstuffs, Chemicals and

Cosmetics, and Standardisation. Another Directorate – Metrology and Accreditation- will be

established later in 2001.

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Overall assessment

Malta has adopted legislation intended to align with most of the acquis in the field of safety and

non-safety measures, although the compliance of this legislation still has to be assessed.

Further progress is needed in the areas of consumer credit and price indications.

Enforcement of consumer policy and legislation is now handled by four government agencies:

the Consumer and Competition Division, the Market Surveillance Directorate, the Malta

Standards Authority and the Malta Tourism Authority for relevant issues (Travel Package Tours

and Time Sharing), and it is too early to assess their effectiveness.

In addition, there is a Consumers Affairs Council, which has an advisory role, and a Consumer

Organisation (Ghaqda tal-Konsumaturi).

The Consumer Affairs Council is an autonomous structure, with an advisory and consultative

role. It is composed of an independent chairman, persons with expertise in consumer issues,

representatives from the private sector and the consumer association, and the Director of

Consumer Affairs. However, with only one person working full time, the Council does not have

enough resources to fully carry out its role advising the government on consumer policy and

legislation.

‘Ghaqda tal-Konsumaturi’ is the sole voluntary consumer association in Malta. It focuses mainly

on assisting consumers with complaints, consumer education and information, acting as the

consumer voice in Malta and representing their interests. Its main source of revenue is the

payment of (small) membership fees; the association lacks the necessary financial resources to

undertake its activities and it is run by volunteers in their free time.

Consumer and producer awareness still needs to be enhanced as to their respective rights and

responsibilities. Consumer Health Institutions need to be upgraded in terms of training and

equipment, and legal professions need to be further familiarised with product liability related

cases. The role of consumer organisations should be further promoted by the Government, as

part of the institution building process.

The Consumer Claims Tribunal, presided by an Arbiter, has now been functioning for almost

four and a half years. It has proved to be a fairly effective means of redress for consumers

(claims up to Lm 1500).

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

Since the 2000 Regular Report, little progress has been made in Malta in the area of Justice and

Home Affairs.

No particular development can be reported as regards

data Protection

and

visa policy.

There has been some progress in the implementation of the acquis in the field of control of

external borders

, and as regards preparations for the

Schengen

agreement. The Ministry for

Home Affairs set up a project team in November 2000 to oversee Malta’s compliance with the

Schengen

acquis.

The team drew up an action plan on the implementation of the

acquis,

which

was submitted to the Commission in April 2001. The Action Plan addresses, among other

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things, staffing needs at border points and at the offices which will be connected to the SIRENE

and National Schengen Information System, the Europol office, the aliens office, field operations

and the analysis office. The project team is also acting in liaison with the Ministry of Foreign

Affairs on the adoption of the Common Consular Instructions. Initial preparations are currently

being made so that this Ministry would also make the necessary infrastructure and training

preparations required for the implementation of the Schengen

acquis

and, in particular, those

relating to consular co-operation.

As regards

migration,

no progress can be reported.

Following the adoption of the

Asylum

Act last year, the Commissioner for Refugees and the

members of the Refugee Appeals Board have been selected and are contributing to the setting-

up of the necessary structures. The staff of the Commissioner’s office, the secretary of the

Appeals Board and the police immigration officers who will deal with refugees have been chosen.

Training under the auspices of the UNHCR has been provided to all key players in the asylum

process. Member States immigration experts have also provided training for police border

control personnel. The Office of the Advocate of Legal Aid will be responsible for providing free

legal aid to asylum seekers at the Appeals stage. A seminar for these advocates has been

organised under the auspices of the UNHCR.

In the field of

police co-operation and the fight against organised crime

, in December 2000

Malta signed the United Nations Convention Against Transnational Organised Crime (2000).

Malta has been invited to attend meetings of the Pre-accession Pact on Organised Crime and has

been formally notified that this Pact has now been extended to Malta. During the past year Malta

has signed bilateral agreements on the fight against organised crime with the Slovak Republic,

Hungary, Tunisia, Sweden and Greece.

As regards the

fight against fraud and corruption,

in November 2000, Malta signed the

Council of Europe Criminal Law Convention on Corruption.

As regards

drugs, money laundering,

(see

also Chapter 4 - “Free movement of capital”)

and

customs co-operation,

no particular new developments are to be reported.

With regard to

judicial co-operation,

on civil matters, as regards extradition, Malta signed and

ratified the Additional Protocol (1975) and the Second Additional Protocol (1978) to the

European Convention on Extradition (1957) in November 2000. On criminal matters, Malta has

started to participate as an observer in the European Judicial Network. An amendment to the

Interpretation Act was adopted, making provision for the interpretation of the term “political

offence” in accordance with customary international law in general and international instruments

to which Malta is a party in particular.

Overall assessment

Although Malta has a fair level of alignment with the acquis in the area of Justice and Home

Affairs, Malta should accelerate the pace of its work in this area to achieve full alignment. It

should also pursue efforts with respect to the administrative capacity.

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The

Data Protection

Act should be adopted as a matter of urgency and Malta should ensure

the establishment of an independent personal data supervisory authority. A general law on data

protection is a pre-condition for participation of Malta in Europol.

As regards

visa policy,

further alignment is required. The adoption of a timetable for alignment

to that end is a step forward but actual implementation of the alignment plan needs to start.

As regards

external borders

and preparations for

Schengen,

work on the drawing-up of a

Schengen Action Plan is a positive development. The structure of the border control

branch/immigration branch of the Police, including certain units of the Malta Armed Forces

(MAF), is effective. Co-ordination among competent authorities, police and Armed Forces,

should be pursued and strengthened. However, at present, the maritime squad is not able to

guarantee full control of pleasure boats and domestic fishing boats on their way to the

archipelago of Malta. Compared to present Schengen standards, equipment is still poor and

generally needs to be improved, particularly the control line equipment and ship- and land-

based surveillance devices.

The signing of the readmission agreement with Italy was a positive step. It should now be ratified.

Malta’s efforts towards concluding readmission agreements with Egypt, Morocco, Tunisia,

Algeria and Libya represent a positive step and should be pursued.

As regards

asylum,

following the adoption of the Refugees Act last year, Malta still has to adopt

subsidiary legislation related to the procedures of the Refugees Appeals Board, to the application

for a declaration of refugee status and to the means of facilitating the identification of applicants.

Malta still has to lift the geographical reservation to the Geneva Convention. Progress has been

made in setting up the capacity to implement the asylum legislation. However a reinforcement of

human resources in this area and training are needed. A strategy to cover the social integration of

recognised refugees, suitable accommodation arrangements, an effective "removals" policy and

adequate infrastructure are also needed.

In the field of

police co-operation and the fight against organised crime

, amendments to the

Criminal Code that would make provision for the offence of trafficking in human beings, still have

to be adopted. The fight against trafficking in human beings should be strengthened. Malta should

ensure that the pre-requisites for the conclusion of a co-operation agreement with Europol are

met.

Regarding the

fight against fraud and corruption,

Amendments to the Criminal Code are

needed to extend provisions on corruption to include bribery of officials of foreign Governments

and international organisations and to take into account the Council of Europe Criminal Law

Convention on Corruption (1999). Malta has not signed the Council of Europe Civil Law

Convention on Corruption. Malta has not acceded to the OECD Convention on Combating

Bribery of Foreign Public Officials in International Business Transactions. Nor has it joined the

United Nations anti-corruption programme for Drug Control and Crime Prevention. Regarding

the protection of the financial interests of the European Communities, Malta should align its

legislation with the Convention on the Protection of the Financial Interests of the European

Community and its Protocols.

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As regards

money laundering,

a bill amending the Prevention of Money Laundering Act and

establishing the financial intelligence unit has been issued, but it remains to be adopted by

Parliament.

In the field of

customs co-operation,

Malta has not ratified the international Convention on

Mutual Administrative Assistance for the Prevention, Investigation and Repression of Customs

Offences (1977).

As far as

judicial co-operation

in civil matters is concerned, Malta still has to adopt an Act to

enable Government to ratify a number of conventions. This concerns in particular the Convention

on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters

(1965), the Convention on the Taking of Evidence Abroad in Civil or Commercial Matters

(1970), the Convention on International Access to Justice (1980) and the Convention on

Jurisdiction and Enforcement of Judgements in Civil and Commercial Matters (1988). It would

also enable Malta to accede to the EU Convention on the Service in the Member States of

Judicial and Extrajudicial Documents in Civil or Commercial Matters (1997) and the Convention

on Jurisdiction and Enforcement of Judgements in Civil and Commercial Matters (1968). As

regards judicial co-operation in criminal matters, amendments to the Criminal Code are needed

to make provision for a simplified extradition procedure in line with the Convention on Simplified

Extradition Procedures between the Member States of the European Union (1995).

All the

human rights

legal instruments, which are part of the Justice and Home Affairs

acquis

have been ratified by Malta, with the exception of the 1981 Council of Europe Convention on

the Protection of Individuals with regard to Automatic Processing of Personal Data, and

protocols 4 and 7 to the European Convention on Human Rights.

Chapter 25: Customs union

Malta has made significant progress in the field of customs since the last Regular Report.

As regards alignment between Maltese legislation and the

EC Customs Code and its

implementing provisions,

the Single Administrative Document (SAD) was introduced on 1

January 2001. The amendments to the Import Duties Act 2001 providing for inward

processing, outward processing, processing under customs control and customs warehouses,

compatible with the relevant provisions of the Community customs legislation, entered into force

on 1 January 2001.

Regarding the

customs

acquis

outside the Customs Code

, as from 1 January 2001, the

provisions on duty relief were aligned with the corresponding Community provisions. The

amendments to the Customs Ordinance transposing the provisions of the Decision concerning

action against fraud relating to containers entered into force in April 2001.

In relation to international Agreements and Conventions, Malta became a signatory to the

Istanbul Convention in December 2000.

As far as the administrative and operational capacity to implement the

acquis

is concerned,

some progress can be noted. The implementation of the Customs & Tax Business Change

Management Plan has started and is gaining momentum. A training unit was set up in January

2001 and is providing training on the introduction and implementation of the new legislation

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within the Customs Department of the Ministry of Finance. In the area of counterfeit/pirated

goods, an Assistant Director has been appointed in order to strengthen the fight against cross-

border movements of these goods. A CAP Unit is being set up within the Customs department

to deal with customs-related aspects of the Common Agricultural Policy (CAP).

The computerisation of the Customs Department includes the setting up of an Integrated

Customs Information System. The plans to migrate to ASYCUDA ++ (a computerised customs

information system) have been discarded because of technical problems. The Customs

Department has explored contacts for the acquisition of a functioning Integrated Customs IT

system from a Member State.

The Code of Customs Ethics was published in April 2001.

Overall assessment

Malta has reached a reasonable degree of alignment with the customs

acquis,

but substantial

parts of the

acquis

still need to be transposed and Malta should complete its efforts in that

direction.

The new Customs Code, based on the Community Customs Code and its implementing

provisions, needs to be approved by the Parliament. Malta should, in particular, aim to achieve

further alignment in the fields of simplified procedures, free zones, free warehouses, re-export,

transit, customs debt repayment, remission of duties and recovery.

As regards administrative and operational capacity to implement the

acquis,

Malta should

continue its efforts. It is of paramount importance that the Business Change Management Plan is

fully implemented according to schedule. Malta should pay particular attention to the

development of IT systems allowing computerised data exchange with the EC. In this respect, it

must be emphasised that flawlessly functioning EC-compatible IT systems should be put in place

at least one year before accession to the EU in order to guarantee interconnectivity with the EC

customs computerised systems.

Malta should continue its efforts in combating customs fraud and economic crime and to

improve co-operation with other enforcement bodies, in particular with respect to enforcement

of intellectual property rights

(See Chapter 5 – Company Law).

It is important that the Quality

Service Charter is fully implemented in due course.

Chapter 26: External relations

Since the previous Regular Report Malta has continued to co-ordinate its positions and policies

with those of the Community within the World Trade Organisation (WTO).

As regards the

common commercial policy,

upon accession Malta will be required to align its

tariffs with those of the EC. Malta’s applied MFN tariffs currently average 6.2% on all

products, 7.1% on agricultural products, 4.1% on fishery products and 6.0% on industrial

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products. By comparison the EC tariffs

currently stand at 6.3% on all products, 16.2% on

agricultural products, 12.4% on fishery products and 3.6% on industrial products.

Malta has made the legal changes necessary to adhere to the WTO Agreement on Trade in

Civil Aircraft through subsidiary legislation entitled the Import Duties Act (Amendment of First

Schedule) Regulations. It acceded to the Agreement in December 2000, through the deposit of

the Instrument of Accession with the WTO Secretariat in Geneva. Malta was granted observer

status on the WTO Committee on Government Procurement in May 2001 following a request

to this effect.

No further preferential

trade agreements

have been notified. Exploratory talks have been held

recently with Tunisia regarding a Free Trade Agreement. A Dual-Use Goods and Community

Trade Unit has been set up within the Commerce Division of the Ministry for Economic

Services. The human resources for this Unit were deployed from existing resources within the

Ministry for Economic Services. It is intended ensure co-ordination with the other entities

involved, notably the Ministry of Foreign Affairs and the Department of Customs.

During 2000,

humanitarian aid

was given to Kosovo, Albania, Turkey, Mozambique and

Ethiopia. In the first half of 2001, funds were sent to earthquake victims in India and El

Salvador.

Overall assessment

Malta's alignment with the

acquis

with regards to the common commercial policy is advanced

and the co-ordination of Malta’s positions and policies with those of the Community within the

WTO is well developed.

With regard to the WTO Agreement for Textiles and Clothing (ATC), Malta has co-operated

with the Community in the process of third-stage notification to align its list of integrated

products under the ATC with the EC’s, thus avoiding integrating products that have not yet

been integrated by the EC.

Subsidiary legislation that would align Maltese legislation with the Council Regulation concerning

the export of dual-use goods still needs to be enacted.

Malta has to undertake further efforts in order to align its legislation on export credits to the

acquis.

The EU and Malta have established a framework for co-operation regarding WTO issues both

at ministerial and departmental level. Malta is supportive of EU policies and positions in the

context of the WTO framework and in particular the preparation of a new round.

Work involving Malta, the Commission and Member States’ experts has continued on the

formulation of Malta’s amendments to its GATS Schedule of Specific Commitments in order to

align it with that of the European Community and its member states. Further co-operation is

WTO bound tariffs after full implementation of all concessions including - where possible - estimated ad valorem

equivalents of specific and compound tariffs.

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needed to ensure alignment of Malta’s GATS commitments with EC commitments and MFN

exemptions.

Malta is a party to the plurilateral Agreement on Trade in Civil Aircraft. It will need to join the

Agreements on Information Technology and Government Procurement by the time of its

accession to the EU.

Malta has no Free Trade Agreement with other partners than the EC. In this area, further

progress is necessary in aligning with the EC international trade obligations. Any international

agreement which is incompatible with the obligations of membership will have to be re-

negotiated or renounced prior to accession. Malta should continue to keep the Union fully

informed about negotiations aimed at the conclusion of any new trade agreements with a third

country.

The EU Directorate within the Ministry for Foreign Affairs regularly monitors all bilateral

agreements that Malta is considering entering into with third countries, including Investment

Guarantee Agreements. To date Malta has no development and humanitarian aid policy but it

responds to humanitarian needs on a case-by-case basis.

Malta's administrative capacity to implement the

acquis

has been strengthened and would

appear to be satisfactory, in particular in relation with WTO and commercial issues. Malta’s

external commercial policy is within the responsibilities of the Ministry for Economic Services

and Malta's relations with the WTO are conducted by the Ministry of Foreign Affairs, in co-

ordination with the ministries concerned. An International Economic Relations Directorate has

been set up within the Ministry of Economic Services to strengthen its capacity to deal with

WTO matters.

Chapter 27: Common foreign and security policy

Since the previous Regular Report Malta has continued to align its foreign policy with that of the

European Union and has participated constructively in the framework of the Common Foreign

and Security Policy.

Malta 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.

Malta has shown a keen interest in the development of European Security and Defence Policy

(ESDP) as part of the CFSP. It 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).

In line with its practice last year regarding alignment with

EU statements and declarations

Malta has regularly aligned its positions with those of the Union and when invited to do so, it has

associated itself with the Union’s

joint actions and common positions,

including negative

measures. Since October 2000, it has also associated itself with 8 EU common positions,

including 3 on the Federal Republic of Yugoslavia.

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Since the 2000 Regular Report progress has been made in adopting the necessary legislative

framework for effective participation in the CFSP. Regulations were issued under the National

Interest Act to reconstitute the Sanctions Committee administering, overseeing and generally

co-ordinating matters related to Malta's adherence to negative measures. A Government Notice

issued in February 2001 lists the names of the members of the Board and the Sanctions

Monitoring Board was formally reconvened in March 2001.

Malta played an active role in the first Capabilities Commitment Conference in November

2000. It pledged armed forces to be part of EU Rapid Intervention Force missions from 2003.

These will be integrated into the Italian contingent.

During the past year, Malta has continued to have good relations with all its neighbours, and to

play an active role in the Euro-Mediterranean partnership.

Overall assessment

Malta's alignment with the

acquis

in the CFSP area is overall satisfactory. As the

acquis

in the

field of foreign policy and security develops further, Malta should maintain the orientation of its

foreign policy in line with that of the Union.

Malta has aligned itself to the content and principles contained in the EU Code of Conduct on

Arms Exports but still has to ensure full compliance.

Malta has nominated Interlocutors to the Political and Security Committee and the Military

Committee. It has also nominated a Point of Contact to the Military Staff. This will allow it to

monitor developments in the European Security and Defence Policy.

Malta has the capacity, both in terms of staffing allocations and in terms of the appropriate

information systems, to effectively participate in the Associated Correspondents’ Network

through which the EU communicates within the CFSP with the associated partners.

Chapter 28: Financial control

During the period covered by this Regular Report Malta has continued to progress in this area.

The

Public Internal Financial Control

system has been consolidated and the re-engineering

process regarding institution building and procedures completed. There has been further

upgrading and strengthening of internal control systems.

As regards

external audit,

two principal auditors have been recruited by the National Audit

Office (NAO). The Code of Ethics was completed and published in May 2001.

With regard to

control of structural action expenditure and EC pre-accession funding,

Malta's preparations to comply with criteria and conditions for fully decentralised

implementation of pre-accession aid (EDIS) have reached an advanced stage. An audit trail

document has been finalised.

In the field of the

protection of EC financial interests,

the Internal Audit and Investigations

Directorate is currently undertaking preparations in order to act as Malta’s Anti-fraud Co-

ordinating Unit as well as OLAF’s interlocutor in Malta.

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Overall assessment

On the whole, Malta's preparations with respect to financial control are largely satisfactory, but

there are concerns as regards the protection of EC financial interests.

As regards Public Internal Financial Control, the current systems appear compatible with

internationally accepted standards. Managerial (ex-ante) control is decentralised (to line

ministries or other spending agencies) or performed centrally (Treasury and Department of

Contracts, both under the Minister of Finance). The Internal Audit is carried out centrally by

the Internal Audit and Investigations Directorate (IAID), an independent agency operating

under the responsibility of the Cabinet Office and reporting to the Internal Audit and

Investigations Board chaired by the Secretary to the Cabinet. The IAID is structured into two

distinct and separate units under the sole responsibility of the Director, Internal Audit and

Investigations. The ‘Compliance and Operations’ Unit is responsible for internal audit work, the

‘Special Assignments’ Unit is responsible for government-wide assignments and investigations.

The regulatory package for the whole Internal Audit system has been completed and approved

by the Internal Audit and Investigations Board. Between January and April 2001, Internal Audit

staff went through an intensive training programme. Five more auditors are being recruited. The

Internal Audit and Investigations Directorate is now operational.

In the field of external control, the NAO staff has been reinforced, and seven senior auditors are

being recruited. However, the audit manual still has to be completed.

With regard to control of structural action expenditure and EC pre-accession funding,

substantial progress has been made and the situation is satisfactory.

Legislation which will provide for the protection of EC’s financial interests and will allow on-

the-spot inspections to be carried out by the Commission/OLAF remains to be adopted. As

regards the designation of the Internal Audit and Investigation Directorate as the Anti-fraud Co-

ordinating Unit and OLAF’s interlocutor, OLAF will have to assess whether this proposal is

appropriate, taking into account progress made in carrying through the necessary legislative and

administrative adaptations.

Chapter 29: Financial and budgetary provisions

Malta has made some progress over the reporting period.

As regards the

national budget and EC co-financed measures,

Malta has a system of three-

year rolling business plan where all spending ministries produce multi-annual business plans

which are then consolidated in a master multi-annual business plan based on key economic

indicators and forecasts. This multi-annual “soft budgeting procedure” is however not binding,

since it is not subject to approval by the Parliament.

A new classification of Government revenue and expenditure transactions compliant with the

European System of Accounting (ESA) has been in use since 1 January 2001. A new Chart of

Accounts together with the classification for government functions has also been in use since 1

January 2001.

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The International Relations Directorate within the Ministry of Finance will be responsible for

coordinating the collection of Malta’s contribution to the Community’s own resources. Three

new recruits have joined the Directorate.

regards own resources and administrative infrastructure

, a special unit within the

Ministry of Finance has been set up to build the necessary capacity to compile, calculate, collect

and forward Malta’s future contribution to the Communities’ own resources upon accession.

The Unit is made up of representatives from the Budget Office, the National Statistics Office,

the Agriculture Department, the Value Added Tax Department, the Department of Customs,

the Economic Planning Division, the Regional Policy Directorate, the Internal Audit and

Investigations Directorate and the Treasury.

Overall assessment

Whilst Malta is fairly advanced in this area, further efforts will be required.

Although basic budgetary rules are broadly satisfactory, further improvements are needed in

macro-economic forecasting and drawing up a medium-term budget strategy to consolidate the

soft multi-annual budget programming. The implementation of the operating procedures for the

management of EC pre-accession funds, through the National Fund, should be continued and

improved as a preparation for accession.

As regards the Community’s Own Resources, further alignment in the field of VAT is necessary

in connection with intra-community transactions and the tax status of certain supplies and

services. The holding, movement and monitoring of exciseable goods will also need to be

aligned. A consolidated Customs Code, in line with the

acquis,

must be put in place. There is

currently no provision in Maltese law with regard to the levies on trading in and warehousing of

sugar which form part of the Traditional Own Resources. With regard to the control of future

EC own resources, Malta should continue its efforts to set up effective instruments to combat

VAT and customs duty fraud so that the financial interests of the EC can be protected.

Measures have been taken to co-ordinate centrally the proper collection, monitoring and

payment and to control funds to and from the EC budget, However, administrative capacity

should also be strengthened in the context of the relevant policy areas described elsewhere in

this report, such as Agriculture, Customs, Regional Policy, Financial Control and Taxation.

The capacity to calculate in a reliable, accurate and transparent way the level of customs duties

and VAT collected by Malta and to calculate Malta's GNP needs to be improved to allow

calculations to be made in a harmonised and controllable way. Adequate administrative

capacity to duly collect and transfer in a timely manner all Own Resources to the Community

budget, building on the Own Resources Unit established in the Ministry of Finance, will need to

be established prior to accession, as well as the ability to accurately and regularly report to the

Commission on the situation with regard to each of the types of own resources.

3.2.

Translation of the acquis into the national languages

Applicant countries are to translate the various legal texts constituting the

acquis

into their

national languages by the time of their accession. The

acquis,

consisting of primary and

secondary binding legislation, represents at present a considerable volume of acts, roughly

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estimated at 60,000-70,000 pages of the Official Journal. To help the candidate countries in

this process, assistance is being provided under the pre-accession programmes. TAIEX

supports the candidate countries who so wish to create a centralised Translation Co-ordination

Unit.

The Ministry of Justice has set up a unit within the Ministry to translate the

acquis

into Maltese,

the national language of Malta. The unit consists of a core group, which has three full-timers and

three part-time staff. The unit has also appointed 60 translators.

The translation of the

acquis

into Maltese is currently being carried out using both the original

English and Italian versions of the

acquis

as base texts. The translators are using specialised

computer software to aid them in their work. As of September 2001, translation of the Treaties

had been completed, and 7 000 pages of secondary legislation had been translated, but not

revised. Without prejudice to the outcome of the accession negotiations, urgent additional

efforts are required in this area.

Due attention must also be given to the training of conference interpreters.

3.3.

General evaluation

Since the last Regular Report, Malta has continued to progress well in aligning its legislation with

the acquis and strengthening its administrative capacity. However, progress has been uneven

across the different fields.

Considerable further progress has been made in aligning with the

acquis

Free Movement of

Goods,

especially as regards the framework for the New and Global Approach. Malta must

pursue its efforts in the fields of standardisation, certification and market surveillance and also

align its public procurement legislation as regards the remedies system and bodies governed by

public law. As regards

free movement of persons,

efforts should be pursued to further align

Maltese legislation. Malta has continued to progress on

free movement of services and

capital,

however further legislative alignment is needed in particular in the fields of banking and

investment services, data protection as well as money laundering. In the area of company law

Malta is close to full alignment. As regards

competition,

there has been some progress with the

beginning of the enforcement of the State aid rules, but further efforts are needed to strengthen

the administrative capacity in this area and to ensure that public undertakings are submitted to

competition law in line with the

acquis.

Malta has made substantial progress in the area of

social policy,

mainly as regards labour

legislation and occupational health and safety. However efforts are needed in the area of equal

opportunities and to further strengthen the implementation capacity on occupational health and

safety.

In the field of

taxation,

considerable progress has been achieved as regards excise tax and

some progress with respect to VAT, although progress is needed as concerns the scope of

exempt transactions and the code of conduct on direct taxation. Despite some progress in the

See "Making a success of enlargement: Strategy Paper and Report of the European Commission on the progress towards

accession by each of the candidate countries", COM (2001) 700.

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area of

customs,

continued efforts are needed to align Maltese customs legislation with the

acquis

in this domain, and to develop the administrative capacity to implement it.

Progress has continued in the areas of

telecommunications

and

culture and audio-visual

policy.

Malta has also created a suitable framework for the development of investments and the

restructuring of

SMEs.

In the

statistics

area, the Central Office of Statistics of Malta has continued to progress and is

pursuing its efforts to fully align its methodologies with EC standards. In the field of

financial

control,

the reengineering of the internal audit system within the Maltese Government has been

completed and the National Audit Office has continued to be strengthened, providing Malta

with an adequate internal and external audit institutional framework. Malta should further

consolidate this progress. Substantial progress has been achieved in the area of

regional

policy,

where the structures needed to implement the structural and cohesion funds have been

set up and strengthened.

In the field of

justice and home affairs,

little further legislative progress has been achieved.

Progress has been made in preparing the Maltese administration to the implementation of the

Asylum legislation and the control of borders in accordance with the Schengen requirements, in

particular with the preparation of a Schengen Action Plan. Efforts are still needed with respect

to data protection, immigration, visa policy and judiciary co-operation.

In the area of

agriculture,

progress has been limited. Malta still has to adopt most of the

extensive agriculture

acquis

and to prepare its agriculture for the Common Agricultural Policy.

As regards the

environment,

the adoption of the Environment Protection Act together with

subsidiary legislation represents a significant progress but Malta is still far from full alignment and

the capacity to enforce the legislation remains very weak. An overall strategy for the adoption

and implementation of the environmental

acquis

must also be developed.

Over the past year, efforts to strengthen Malta’s capacity to implement the

acquis

have started

in the areas of state aids,

regional policy

and

asylum.

Capacity building efforts have been

pursued in many areas, in particular in the areas of

free movement of goods, market

surveillance, transport, taxation, social policy, customs, statistics, border control

and

financial control.

Its is important to continue to reinforce the administrative capacity in these

areas, in particular as regards the maritime safety

acquis.

In both

customs

and

taxation,

particular attention must be paid to the development of IT systems needed for the exchange of

computerised data with the EC. There is a need to further strengthen the administrative capacity

in the field of border management Malta should also step up its efforts to enforce the intellectual

property rights.

The capacity to enforce the

acquis

remains a source of particular concern in the area of the

environment

and it should be strengthened as a matter of priority. Malta should also

significantly strengthen its administrative capacity in the

agriculture

field, in particular it has to

upgrade inspection arrangements in the veterinary and phytosanitary fields.

Most of the Accession Partnership short-term and medium-term priorities have been partially

fulfilled. Progress has been particularly significant in the areas of free movement of goods and

social policy and also in the areas of taxation and telecommunication. Further efforts are

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required in particular with regard to agriculture and the environment, and in the area of free

movement of services.

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C. Conclusion