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Europaudvalget 2001-02 (1. samling)
EUU Alm.del Bilag 183
Offentligt

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 13.11.2001

SEC(2001) 1744

2001

REGULAR REPORT

BULGARIA'S

PROGRESS TOWARDS ACCESSION

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2001

REGULAR REPORT

BULGARIA'S

PROGRESS TOWARDS ACCESSION

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

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Table of contents

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

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

Relations between the European Union and Bulgaria.................................... 8

Recent developments under the Association Agreement (including bilateral trade)............ 8

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

Community aid .............................................................................................................. 9

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

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

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

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

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

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

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

Parliament ................................................................................................................... 15

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

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

Anti-corruption measures............................................................................................. 19

1.2. Human rights and the protection of minorities .............................................20

Civil and political rights................................................................................................ 20

Economic, social and cultural rights.............................................................................. 22

Minority rights and the protection of minorities.............................................................. 23

1.3. General Evaluation...............................................................................................24

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

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

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

2.2. Assessment in terms of the Copenhagen criteria...........................................29

The existence of a functioning market economy ............................................................ 29

The capacity to cope with competitive pressure and market forces within the Union...... 33

2.3. General evaluation ...............................................................................................36

3. Ability to assume the obligations of membership.......................... 37

Introduction................................................................................................................. 37

3.1. The chapters of the acquis ...................................................................................38

Chapter 1: Free movement of goods....................................................................39

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

Chapter 2: Free movement of persons ................................................................41

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

Chapter 3: Freedom to provide services.............................................................42

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

Chapter 4: Free movement of capital .................................................................44

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

Chapter 5: Company law.......................................................................................45

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

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

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

Chapter 7: Agriculture..........................................................................................48

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

Chapter 8: Fisheries..............................................................................................52

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

Chapter 9: Transport policy .................................................................................53

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

Chapter 10: Taxation ............................................................................................56

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

Chapter 11: Economic and Monetary Union .....................................................57

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

Chapter 12: Statistics ............................................................................................58

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

Chapter 13: Social Policy and Employment .......................................................59

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

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

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

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

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

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

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

Chapter 17: Science and research......................................................................69

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

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

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

Chapter 19: Telecommunications and Information Technology ....................71

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

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

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

Chapter 21: Regional Policy and co-ordination of structural instruments...73

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

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Chapter 22: Environment......................................................................................76

Overall assessment ...................................................................................................... 77

Chapter 23: Consumer and health protection ...................................................78

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

Chapter 24 - Co-operation in the field of justice and home affairs ...............79

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

Chapter 25: Customs Union..................................................................................85

Overall assessment ...................................................................................................... 86

Chapter 26: External relations ............................................................................86

Overall assessment ...................................................................................................... 87

Chapter 27: Common foreign and security policy.............................................88

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

Chapter 28: Financial control .............................................................................90

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

Chapter 29: Financial and budgetary provisions .............................................91

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

3.2. Translation of the

acquis

into the national language.....................................92

3.3. General evaluation ...............................................................................................93

C. Conclusion....................................................................................96

D. Accession Partnership and National Programmes for the

Adoption of the

Acquis:

Global assessment ............................99

1. Accession Partnership ................................................................... 99

Short-term priorities .................................................................................................... 99

Medium-term priorities.............................................................................................. 102

2. National Programme for the Adoption of the Acquis ................. 106

Annexes.............................................................................................107

Human Rights Conventions ratified by the Candidate Countries, 30

September 2001............................................................................................108

Statistical data......................................................................................................109

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A. Introduction

Preface

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

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

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

The European Council in Luxembourg decided that:

“From the end of 1998, the Commission will make Regular Reports to the Council, together

with any necessary recommendations for opening bilateral intergovernmental conferences,

reviewing the progress of each Central and Eastern European applicant State towards

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

Union

acquis”

… “The Commission’s reports will serve as the basis for taking, in the Council

context, the necessary decisions on the conduct of the accession negotiations or their extension

to other applicants. In that context, the Commission will continue to follow the method adopted

by Agenda 2000 in evaluating applicant States’ ability to meet the economic criteria and fulfil

the obligations deriving from accession.”

On this basis, the Commission presented a first series of Regular Reports in October 1998, a

second series in October 1999, and a third in November 2000. The Commission has prepared

this fourth series of Regular Reports 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 Bulgaria 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 Bulgaria’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 Bulgaria’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

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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 Bulgaria in preparing for

accession.

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

acquis

criteria (including Bulgaria’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 Bulgaria’s economic performance.

The Report contains a separate section examining the extent to which Bulgaria 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.

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 Mr Geoffrey van Orden.

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Relations between the European Union and Bulgaria

Recent developments under the Association Agreement (including bilateral

trade)

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

smooth functioning of the various joint institutions.

The Association Council met on 10 October 2000. An Association Committee meeting was

held on 4 October 2001. The system of sub-committees continues to function as a forum for

technical discussions.

The Joint Parliamentary Committee comprising representatives of the Bulgarian and European

Parliaments met three times, in November 2000, and March and October 2001. The Joint

Consultative Economic and Social Committee met in November 2000, and March and

November 2001.

The share of the European Community in Bulgaria’s overall foreign trade dropped from 52.1 %

of all exports in 1999 to 51.1% in 2000. The share of the European Community dropped from

48.4% of all imports in 1999 to 44.0% in 2000. Bulgaria's main exports to the Community

were base metals, textiles and machinery, its main imports from the EC were machinery, textiles

and chemical products.

Regarding agricultural products, a new agreement on reciprocal concessions with Bulgaria

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

Protocol to the Europe Agreement. As a consequence of this agreement, approximately 66 %

of traditional EC agricultural imports from Bulgaria are duty-free while 51 % of EC agricultural

exports to Bulgaria is exempted from duties. A second round of bilateral negotiations for trade

liberalisation is presently being prepared and would cover more sensitive sectors, in which

current trade is low, in particular due to a high degree of tariff protection.

The previous bilateral wine agreement between the Community and Bulgaria expired on 31

December 2000. In November 2000, conclusions were reached in negotiations for a wine and

spirits agreement involving trade concessions and the mutual protection of wine names and spirit

designations. The trade provisions were applied as from 1 January 2001 as autonomous trade

measures pending the adoption of the new agreements as an Additional Protocol to the Europe

Agreement.

For processed agricultural products, negotiations have been concluded at technical level and are

being discussed in the Council.

Negotiations regarding a free trade agreement on fish and fisheries products are still ongoing.

An anti-dumping complaint relating to imports of urea was lodged in October 2000 against

Bulgaria (among other countries). The investigation was concluded and a provisional price

undertaking reached in July 2001. Definitive anti-dumping duties were imposed in September

2001 on imports of hardboard from Bulgaria (among other countries).

Accession Partnership / National Programme for the Adoption of the Acquis

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

reviewed in Part D. This Regular Report is accompanied by a proposal from the Commission to

update the Accession Partnership.

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In June 2001, Bulgaria presented a revised National Programme for the Adoption of the

acquis

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

the Accession Partnerships (see

part D below).

Community aid

There are three

pre-accession instruments

financed by the European Community to assist the

applicant countries of Central and Eastern Europe in their pre-accession preparations: the

Phare

programme;

SAPARD,

which provides aid for agricultural and rural development; and

ISPA,

which finances infrastructure projects in the fields of environment and transport. These

programmes concentrate their support on the Accession Partnership priorities that help the

candidate countries to fulfil the criteria for membership.

For the years 2000-2002 total indicative financial allocations to Bulgaria amount annually to €

100 million from Phare, € 53 million from SAPARD, and between € 83 and 125 million from

ISPA.

In addition to its annual Phare allocation, Bulgaria receives additional Phare funding in the

context of the understanding reached in November 1999 on early closure dates for units 1-4 of

the Kozloduy nuclear power plant. The agreement foresaw additional Phare funding of € 200

million over the period 2000-2007, subject to certain conditions being met. The funds are used

for nuclear decommissioning and associated measures in the energy sector, and are largely

managed by the EBRD.

The

Phare

programme has been providing support to the countries of Central and Eastern

Europe since 1989, helping them through a period of fundamental economic and social

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

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

Phare provides the applicant countries of Central and Eastern Europe with support for

institution building (around one third of the Phare allocation), investment to strengthen the

regulatory infrastructure needed to ensure compliance with the

acquis

(equally around one third

of the allocation), and investment in economic and social cohesion (the remaining one-third of

the Phare allocation). This support comprises co-financing for technical assistance, “twinning”

and investment-support projects, to help these countries in their efforts to adopt the

acquis

and

strengthen the institutions necessary for implementing and enforcing the

acquis.

This also helps

the candidate countries develop the mechanisms and institutions that will be needed to

implement Structural Funds after accession and is supported by a limited number of measures

(investment or grant schemes) with a regional or thematic focus.

The

Phare

programme allocated to Bulgaria commitments of around € 1000 million during the

period 1990-1999 and € 151 million in 2000

. The

2001 Phare Programme

for Bulgaria

consists of an allocation of € 82.8 million for the National Programme, concentrated on the

following priorities:

Commitments in both 2000 and 2001 were augmented by exceptional allocations from the Reserve, together with the

special Phare funding for nuclear decommissioning and associated measures. The 2000 figure includes an allocation of

€28 million to Cross-Border Co-operation (CBC) Programmes.

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•

Economic reform and the adoption and implementation of the acquis: projects to strengthen

the central bank, encourage equity investment in medium-sized private sector enterprises,

improve phytosanitary and veterinary control, raise fisheries standards, implement the

Seveso environment directive, and strengthen maritime safety. (€ 11 million)

Economic and social cohesion: investment projects focusing on SME and tourism sector

development, labour market measures and social inclusion, and business-related

infrastructure, and an institution building project to strengthen capacity to prepare ESF-type

programmes. (€ 37 million)

Strengthening public administration: projects for strategic policy-making and co-ordination,

implementing civil service reform, developing a recruitment and training strategy for the

judiciary, combating money laundering, streamlining bankruptcy proceedings, strengthening

the national customs and refugee agencies, improving the quality of agricultural statistics, and

strengthening the management of EC funds. (€ 15 million)

•

Ethnic integration and civil society: projects for integrating the Roma population, ensuring

ethnic minority access to health care, combating social exclusion, developing a self-sustaining

and dynamic civil society, and raising professional standards in journalism. (€ 7 million)

An additional € 28 million was allocated for cross-border co-operation programmes mainly

concerning infrastructure projects on Bulgaria’s borders with Greece and Romania. A further €

70 million was allocated for nuclear decommissioning and associated measures using the special

funds agreed in the context of the understanding on early closure dates for units 1-4 of the

Kozloduy plant, plus € 7 million from the Phare horizontal nuclear safety programme.

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

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

Bulgaria participates, or intends to participate, in the following Community programmes and

agencies: Altener, Combating Cancer, Customs 2000, IDA II, e-Content, Enterprise and

Entrepreneurship, Fiscalis, Gender Equality, Health Monitoring, Leonardo da Vinci II, Media

Plus, Pollution-related Diseases, Prevention of AIDS, Save, Socrates II and Youth. Bulgaria is

also included in the Fifth Framework Programmes for Research, Technological Development

and Demonstration Activities. Phare helps meet part of the costs of participation in most of

these programmes and agencies. In order to streamline Community legal procedures and

thereby facilitate future participation of Bulgaria in Community programmes, a Decision is in the

process of being adopted by the EU-Bulgaria Association Council establishing the general

principles for such participation.

Following the ratification and entry into force of the agreement, the formal participation of

Bulgaria in the European Environment Agency will start in January 2002.

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

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

structural reform, modernisation of public institutions, strengthening the judiciary and border

control, adoption and implementation of the acquis, and important issues relating to social

cohesion and the protection of vulnerable groups. Phare support to agriculture and SME

development has helped in developing sector strategies and initiating necessary institutional and

financial mechanisms for enterprises in these sectors.

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Examples of successful Phare projects in Bulgaria include:

−

Institutional strengthening of the border police was supported by a project under the 1999

Phare programme (€ 3 million). Using a combination of twinning assistance and investment

in new equipment, the project has already contributed significantly to strengthening the

police’s capacity to monitor and guard Bulgaria’s borders.

−

Harmonisation of customs legislation was supported by a project under the 1998 Phare

programme (€ 1 million). Most EC customs directives and regulations have been

successfully integrated into Bulgarian legislation, with assistance from a twinning partner.

−

The creation and equipping of the SAPARD Agency in Bulgaria was supported by a

succession of Phare interventions, delivered by consultants and SIGMA experts. Bulgaria

was the first candidate country to secure partial accreditation of its SAPARD Agency in

May 2001, allowing implementation of the SAPARD programme to commence.

The Phare Review for 2000 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 Phare funds can be fully decentralised from 2002 if the strict

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

programming can be moved onto a multi-annual basis if supporting strategies are in place. Third,

the trends introduced in 1997 continue with an increased role for Delegations, further

streamlining of procedures and, lastly, increasing emphasis on raising the verifiable and

quantifiable impact of Phare projects in institution building, investment in compliance with the

acquis

and economic and social cohesion.

Concerning

SAPARD,

the Commission approved Bulgaria’s National Agriculture and Rural

Development Plan in October 2000. The operational programme for a total public expenditure

of around €808.3 million, of which €371.2 million will be financed by EC SAPARD funds, has

four priority axes: improving the production, processing and marketing of agricultural and

forestry products as well as the processing and marketing of fishery products in compliance with

EC acquis; promoting environmentally-friendly farming and environmental protection; integrated

rural development aimed at protecting and strengthening rural economies and communities; and

investment in human resources and technical assistance.

The Multi-annual financing agreement between the Commission and Bulgaria setting out the

rules for implementing SAPARD was signed in December 2000 and the Annual financing

agreement setting out the Community financial commitments for the year 2000 was signed in

February 2001 and entered into force in April 2001.

The State Fund for Agriculture has been designated as the SAPARD Agency, and has

responsibility for arranging co-financing of EC projects as well as managing short and medium-

term national loans to farmers. In May 2001, Bulgaria became the first candidate country to

gain the Commission’s partial accreditation of its SAPARD implementing structures for the

implementation of three measures (investments in agricultural holdings, processing and marketing

and diversification of economic activities), and payments began shortly afterwards. Bulgaria’s

SAPARD commitment in 2000 was € 53 million.

Regarding

ISPA,

the national strategies for transport and the environment were agreed in 2000

and have provided the basis for identifying priority projects. In the case of transport

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infrastructure the emphasis is put on completing the main trans-European corridors,

development of border connections including the new Danube bridge, electrification of railways,

and the reconstruction of Sofia airport. In the case of the environment the main priorities are the

water sector (drinking water supply and wastewater treatment), solid waste management, and

air pollution. Administrative structures and procedures have now been put in place by the

Bulgarian authorities for the implementation of ISPA projects. The whole of the available ISPA

allocation for Bulgaria (€104 million) was committed in 2000, helping to support the following

projects: Sofia airport reconstruction and extension, transit roads rehabilitation (sections on

main trans-European corridors), urban wastewater treatment plants at Stara Zagora and

Dimitrovgrad, and six regional household waste disposal sites at Montana, Rousse, Pernik,

Sevlievo, Silistra and Sozopol.

Bulgaria now receives in total around € 300 million a year in Community grant-financed, pre-

accession assistance, equivalent to over 2% of its GDP. Programming, implementing, monitoring

and evaluating such a large volume of essentially project-based assistance, and ensuring robust

systems of financial management and control, represents a real challenge for Bulgaria’s public

administration. While there have been some notable successes in this regard, including the early

accreditation of the SAPARD Agency, considerable further efforts are needed to ensure that

administrative capacity

is adequate to handle Community assistance effectively. At the

programming stage, the authorities are now developing a more pro-active approach to

identifying strategic priorities. But more needs to be done to ensure that these priorities are

translated into mature projects, and that ministries collaborate with one another and with outside

groups and co-ordinate donor assistance more effectively. At the implementation stage, there is

a need to strengthen both financial management and control systems and project management

capacity in many areas. Efforts are needed to reduce staff turnover and provide adequate

resources for contracting, technical and financial aspects of project implementation. At the

monitoring and evaluation stages, the new arrangements must be made to work effectively, so

that a higher proportion of projects are steered to a successful conclusion and lessons are

learned systematically from successes and mistakes in the past. Tackling all these issues will

require a major and sustained investment in key parts of the public administration.

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.

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

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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 by Phare 1998 and involving all candidate countries and almost all Member States are

coming to an end or have been concluded. Under Phare 1999 a further 124 projects are being

implemented and the programming exercise for Phare 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 in

order 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 Bulgaria, eleven projects under the 1998 Phare programme, fifteen under the 1999

programme, and fourteen under the 2000 programme are being delivered wholly or partly using

twinning. Twinning will again be an important element under the 2001 project, contributing to

the results of up to ten projects. These span a broad range of sectors including veterinary and

fisheries control, implementation of environmental acquis, strengthening the central bank and

customs agency, streamlining bankruptcy proceedings, combating money laundering and

improving maritime safety standards.

Negotiations / screening

The analytical examination of the

acquis

(screening) has taken place in the context of meetings

of the Association Committee and the sub-committees.

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

chapters of the

acquis

started, and by October 2001, negotiations on 21 chapters had been

opened.

By the end of September 2001, the following 11 chapters had been provisionally closed: Free

Movement of Capital, Company Law, Fisheries, Statistics, Small and Medium-sized

Enterprises, Science and Research, Education and Training, Culture and Audio-Visual Policy,

Consumers and Health Protection, External Relations, Common Foreign and Security Policy.

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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 Bulgaria’s progress towards accession, the Commission

concluded that:

“Bulgaria continues to fulfil the Copenhagen political criteria.

Bulgaria has made progress in adopting secondary legislation necessary to implement the Civil

Service Law, and also to implement this. The adoption of the Child Protection Act in June

2000, which creates a State Agency for Child Protection, is another positive step forward.

However, very little has been done to upgrade the judiciary, which remains weak. Also

corruption continues to be a very serious problem and a global, transparent anti-corruption

strategy with overt backing from government and parliament would be of benefit. Since the

adoption of the framework programme for the integration of Roma last year, some progress has

been made but the administrative capacity of the National Council on Ethnic and Demographic

Issues to implement the programme remains low, and the limited financial means allocated for

implementation make effective performance of its task difficult.

Major efforts are needed to develop a strong, independent, effective and professional judicial

system. The fight against corruption needs to be strengthened. In line with the short-term

Accession Partnership priority on Roma, further concrete actions and adequate financial

resources are still required.”

The section below aims to provide an assessment of developments in Bulgaria since the 2000

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

the political Copenhagen criteria, including as regards the overall functioning of the country’s

executive and its judicial system. Developments in this context are in many ways closely linked

to developments regarding Bulgaria’s ability to implement the

acquis,

in particular in the domain

of justice and home affairs. Specific information on the development of Bulgaria’s ability to

implement the

acquis

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

(Chapter

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

of part

B.3.1.

of this

Report.

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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Recent developments

Following the general election of 17 June 2001, a government led by the National Movement of

Simeon II in coalition with the Movement for Rights and Freedoms came into power, replacing

the United Democratic Forces government which had been the first to remain in office for a full

term since 1989. Integration of the country into the EU remains a key priority for the new

government. The consensus of all political forces in parliament towards the goal of integration

into the EU and NATO remains very strong. Bulgaria continued to play a positive role in efforts

for enhanced co-operation in South Eastern Europe.

The OSCE-ODIHR final report on the elections of 17 June 2001 concluded that: “While these

elections met the OSCE commitments for democratic elections, there is room for further

improvements in the electoral process. The election legislation contains provisions that raise

concerns, including the lack of reference to the right of accredited domestic and international

observers to monitor the aggregation of results. Also, the media regulations are overly

restrictive.” The Bulgarian government has acknowledged these recommendations.

1.1.

Democracy and the rule of law

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

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

developments of the past year.

Parliament

The Parliament has continued to operate smoothly over the past year. Following the elections in

June, a new Standing Committee on European Integration was created to replace the

parliamentary Council on European Integration. It combines elements of the former Council on

European Integration and Foreign Affairs Committee dealing with EU issues. The new

committee will continue to adopt decisions on the basis of consensus between the four

parliamentary groups and preserve a fast track procedure for legislation related to EU

integration.

The executive

Last year, progress in laying the legal framework for a modern, professional and independent

public administration was reported. This has continued through the adoption of most necessary

secondary legislation and progress in implementation of the legal framework, thus making further

progress towards the short–term Accession Partnership priority of implementing the civil service

law. The legal framework for the Bulgarian civil service is now largely satisfactory but a number

of issues still require attention. There is now a need to focus on its implementation to ensure

establishment of a professional and impartial civil service.

Further steps have been taken towards the implementation of the Laws on State Administration

and the Civil Service. Statutes setting out the structures for most ministries and executive bodies

have been adopted by the Council of Ministers. Employees in the administration are gradually

being covered by the new civil servant status. By September 2001, 17 300 people had civil

servant status. This represents about 30% of those employed in state administrative structures

(including national, regional and municipal administrations). These figures exclude the Interior

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Ministry where about 8% of staff (5119) have been demilitarised and have Civil Servant status.

People with this status received significant salary increases of approximately 20%, which is

intended to contribute towards recruitment and retention of high quality personnel. Civil service

salary levels and pay components (e.g. allowances and bonuses) are regulated by law.

In December 2000, the Prime Minister approved a Code of Ethics for Civil Servants in his

capacity as Minister of State Administration. This offers guidance on ethical conduct in relations

with the public on duty and in public and private life.

Also in December 2000, the statute of the State Administrative Commission was approved by

the Council of Ministers. The State Administrative Commission’s role is to ensure respect of the

Civil Service Law.

As far as recruitment is concerned, competitions with selection based on merit have been

organised for a limited number of posts, but not yet for the majority of appointments. In

particular these are not yet the norm for internal appointments.

Several steps have been taken towards improving openness and transparency of public

administration. A register of state structures and acts of the executive has been created and is

published on the Internet. This contains inter alia information on the role and organisation of

main ministries and agencies and information of interest to the general public. It also contains

information on public procurement.

The adoption of the Law on Access to Public Information is a positive step forward. This

regulates the right of citizens and legal entities to gain access to information from state and local

government bodies on matters of public interest. In case of refusal, appeals can be made to the

courts. However, the act contains some ambiguous legal definitions, which will make use by the

administration (especially at local level) and interpretation by the courts difficult, so needs

clarification.

After a decision of the Council of Ministers in June 2000 on measures for the improvement of

administrative services to the public, a pilot project to organise services based on “one-stop-

shops” has begun in six local administrations.

Currently there are Ombudsman-type activities in number of municipalities in the country and in

Sofia. Bulgaria does not yet have an Ombudsman with national responsibilities.

The Supreme Administrative Court has continued to function and there has been an increase in

the number of cases it has examined. Administrative acts of central and local government can be

contested before the court. It has taken several decisions on important matters and the

executive has complied with these. However, the role of the court needs to be further

developed.

Concerning planning and policy-making capacity, there have been some developments. As

reported last year, in policy areas which involve several departments and sectors (e.g.

preparation for structural funds) the quality of inter-ministerial co-ordination needs to be further

improved. Whilst new laws go through a mandatory impact assessment, this process varies in

quality and is often superficial. As far as consultation with the public is concerned, the new

practice of publishing draft laws on the Internet to initiate wider public debate is welcome but

consultation, for example with social and economic partners, could be further improved. As

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mentioned last year, there is insufficient attention to how laws will be implemented, which results

in delays between adoption and actual implementation. After new laws enter into force, more

attention needs to be paid to monitoring implementation and enforcement, in particular in the

court system.

The new government has made a commitment that structures in charge of the European

Integration process will remain intact to ensure continuity. In general the structures created for

the European Integration process have functioned effectively for work on accession

preparation, negotiations and implementation of the Europe Agreement. However administrative

structures lack the capacity necessary for fully effective use of EC assistance and need to be

strengthened.

An Institute for Public Administration and European Integration was established as foreseen in

the civil service law. Its statute has been adopted and staff recruited. State funding goes

towards staff salaries and premises, with work to establish training courses and training of tutors

currently funded by donors. Preparation of a national strategy for training of the state

administration started at the beginning of 2001.

There are no changes to report on the structures for regional and local administration.

Although some further steps have been taken towards establishment of a modern and open

public administration, much remains to be done to develop the civil service and promote a new

administrative culture so that it is ready to cope with EU membership. These include further

efforts to implement the legal framework and strengthening procedures to ensure accountability.

The judicial system

Since the 2000 Regular Report, there has been an increased debate in Bulgaria on the state of

the reform in judiciary.

On 1 October 2001, the new government adopted a Strategy for Reform of the Judicial System

in Bulgaria. Its aim is to develop European standards in justice to contribute to preparation for

EU membership. Objectives include improvement of human resources, administration and

physical infrastructure of the judiciary. The capacity of the Supreme Judicial Council to fulfil its

role is to be enhanced and co-ordination between the Supreme Judicial Council and the

Ministry of Justice on the management of the judiciary improved. The Magistrates Training

Centre is to be transformed into a public institution. Steps are to be taken to promote equal

access to justice (improving free legal aid provision) and to improve the execution of

judgements to ensure more effective protection of citizen’s rights. A detailed implementation

plan also needs to be developed. Whilst the adoption of the strategy is a clear step forward, it

does not yet address issues where constitutional change will be required, such as changes to the

immunity of magistrates.

The Constitution and the Law on the Judicial System provide for the independence of the

judiciary. These also give members of the judiciary (judges, prosecutors, and investigators)

immunity from prosecution from all but serious crimes that carry over 5 years in prison. The fact

that criminal investigators with the functions they exercise in Bulgaria (some of which are

exercised by police elsewhere), are members of the judiciary, is unusual. Requests to the

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Supreme Judicial Council to lift immunity are rare. Such provisions on immunity make it difficult

to know the potential scale of corruption or criminal activity in the judiciary.

According to the Constitution and the Law on the Judiciary, the Supreme Judicial Council

(SJC) is the highest body representing and governing the judicial system. The Council comprises

representatives of judges, prosecutors, investigators and the legal profession.

According to Bulgarian law, the judiciary should have its own budget. The Supreme Judicial

Council has prepared a budget for the judiciary. Nevertheless, in the last few years, the

executive has submitted to the Parliament a different draft of the judiciary budget , which has

been adopted. The budget allocated has been about 30% lower than proposed by the Supreme

Judicial Council.

Whilst the Supreme Judicial Council has quite wide administrative responsibilities for the

operation of the court system, it does not have the necessary administrative capacity to exercise

them. Its secretariat is insufficiently staffed for this role.

About 80% of the budget for the judiciary goes on salaries for judges and staff, and much of

what remains goes on day-to-day running costs of the judiciary, leaving little for equipment.

Procedures for funding the management of court, prosecution and investigation service premises

are complicated and untransparent. The conditions in the majority of the courts, prosecution

offices and investigation services remain very poor. Concerning court administration, manual

registration and administrative processing of cases remain common practice. Where courts have

introduced information technology, this is largely due to local initiatives or donor assistance

programmes.

The unclear split of roles and responsibilities between the SJC and Ministry of Justice is an issue

which contributes to the poor functioning of the judicial system.

There are often delays in administrative processing of cases. This is due to a number of factors.

Poor administrative support obliges judges, prosecutors and investigators to spend a lot of time

(estimated at well over 20% of judges’ time) on administrative and clerical matters. This

reduces time available for handling cases. Case management also lacks transparent standards

for assignment. Inter-agency co-operation is weak and complicated. For example, an unusually

large proportion of cases is sent back by the courts to the public prosecutor, because the courts

consider that the investigation is incomplete. Return of cases to the public prosecution also

occurs in EU member states, but the high level of this in Bulgaria suggests a structural weakness.

Conditions for return are not transparent and there is no system for appeal against such a

decision.

Concerning recruitment, there has been no progress to introduce transparent national criteria

and competitions for recruitment or promotion of judges. Whilst in April 2001 the Supreme

Judicial Council announced its intention to introduce selection panels for appointment of judges

and prosecutors to regional courts, this has not yet been put into practice. Local initiatives in

several major courts to recruit junior judges by competition continue.

Training remains inadequate. As yet no systematic training is provided for members of the

judiciary. The Magistrates Training Centre, an NGO funded largely by foreign donors, focuses

on the training of judges. Newly appointed judges now attend initial training. A pilot programme

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for training of public prosecutors was started in April 2001. The Centre also delivers some

general courses in EC law and EU institutions. Several specialised courses have been organised

for magistrates on international co-operation in penal matters, extradition and insolvency

proceedings. Since the last Regular Report, a consensus has emerged between the Supreme

Judicial Council and the Ministry of Justice on the need to establish a national public institute for

training of members of the judiciary.

Whilst there have been developments in some areas, there is as yet no reason to change the

overall assessment made last year that further efforts are needed for the judicial system to

become strong, independent, effective and professional and able to guarantee full respect for the

rule of law as well as effective participation in the internal market.

Anti-corruption measures

Whilst there have been some improvements since last year, in particular in the legal framework,

corruption continues to be a very serious problem in Bulgaria. According to several surveys

since the last Regular Report, customs, the police, university teachers, business people, public

sector officials who have close contact with the public and the judiciary were perceived to be

among the most corrupt professions. Corruption continues to be considered as one of the main

problems facing Bulgarian society. It is still seen as an efficient means of addressing private

problems. However there is a decrease in public acceptance of corruption and civil society has

been active in raising awareness and putting corruption on the political agenda. The new

government has made a commitment to combat corruption. There is a perceived tendency

towards improvement of the business and investment environment, but corruption remains a

serious obstacle to business development and the improvement of the investment climate.

On 1 October, the Council of Ministers adopted a national Strategy for Combating Corruption.

This has 4 main areas: creating an institutional and legal environment which will curb corruption,

anti-corruption reform in the judiciary, curbing corruption in the economy and anti-corruption

co-operation between government institutions, non-governmental organisations and the mass

media. The strategy emphasises transparency, accountability and clarity of relations, for

example between (on the one hand) government and (on the other) the private sector and the

citizen. Specific measures are planned, for example to cover the Customs Agency, public

financial control and local government. The National Assembly is given the role of setting an

example in anti-corruption effectiveness which will be followed by other institutions.

Whilst the legal framework for combating corruption is coming into place, enforcement of the

existing legal framework poses a significant challenge. There has not yet been sufficient focus on

prevention of corruption. A number of new measures have been taken since last year:

•

a Code of Ethics for Civil Servants has been approved, setting basic principles and rules of

ethical conduct for civil servants in their relations with the public whilst on duty, and in their

public and private life;

•

A new Political Parties Act came into force, introducing clearer rules for financing political

parties;

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•

The Law on Access to Public Information has come into force. This should increase

transparency in the administration, however there is a need for more legal clarity

(see section

on the executive)

to ensure this is fully effective in achieving this aim;

•

All public procurement tenders since 1 January 2001 have been published in the Public

Procurement Register. The register is accessible to the public on the Internet;

•

The Government submitted amendments to 21 laws to the National Assembly aimed at

facilitating or eliminating various registration and licensing regimes.

The main bodies responsible for dealing with cases of corruption are the public prosecutor’s

office, investigators, the courts, the police, the National Service on Combating Organised Crime

and the Bureau of Financial Intelligence. However, it should be noted that many of the people in

the judicial system handling cases have immunity from prosecution for certain offences (see

also

section on the judiciary).

As far as the administration is concerned, in accordance with the Public Register Law, which

invites high-ranking government officials to declare property, income and expenses, first

declarations of income and expenses of high-ranking government officials were submitted in

summer 2000.

Bulgaria continues to participate in the monitoring of anti-corruption measures through the

OECD Working Group on bribery in international commercial transactions and the Group of

States against Corruption (GRECO).

1.2.

Human rights and the protection of minorities

As mentioned in previous Regular Reports, Bulgaria continues to respect human rights and

freedoms. The following section concentrates on subsequent major developments since the last

Regular Report.

Bulgaria has ratified most human rights conventions (see annex). In November 2000, Bulgaria

ratified Protocol No. 4 and Protocol No. 7 to the European Convention for the Protection of

Human Rights and Fundamental Freedoms. Bulgaria has ratified the Revised European Social

Charter and undertaken to be bound by the Additional Protocol providing for a system of

collective complaints.

The EC anti-discrimination

acquis

has not yet been transposed.

Civil and political rights

Since last year, Bulgaria has made progress in the areas of human rights training of police,

trafficking, pre-trial detention, and the legal framework for non-governmental organisations.

Human rights organisations continue to make critical reports about

police violence,

which

provides cause for serious concern. These indicate that minorities, homosexuals and prostitutes

are most likely to be subject to police ill-treatment. Investigations into police abuse remain rare

and a very small number of cases come to court. Surveys also indicate no change in the situation

regarding the frequent use of force in arrests. There was a reported slight reduction in the

number of detainees reporting use of physical force inside police stations. As in previous years,

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reports also indicate that the Roma continued to constitute a disproportionate number of the

victims of this violence. One positive development is that the National Police Service has set up

a specialised human rights committee which has the role of aligning police practice with

international law and organising training. Regional co-ordinators, who will organise activities at

local level, have been appointed and are receiving periodical training on human rights issues.

Bulgaria remains a source and transit country for

trafficking

in human beings. However, the

government is making efforts to combat trafficking. Two police units are dedicated to dealing

with this problem. Trafficking in human beings is not yet defined as a specific offence, which

makes it harder to bring cases to court, but a proposal to remedy this is pending in parliament.

Few prosecutions have yet taken place. There is also close co-operation with other

governments to combat trafficking.

As concerns

pre-trial detention,

there has been some improvement. There has been a trend

towards shorter preliminary proceedings, which means few defendants are detained for more

than 6 months. 14 out of the total of 29 pre-trial detention centres housed underground have

been closed.

Prisons

still have problems with overcrowding, poor food and sanitary conditions. Concerning

correctional boarding schools and social educational boarding schools, there has been no

improvement in the legal framework for placing young people in such institutions. The legal

framework still needs to be revised to ensure cases have been heard in full conformity with the

right to a fair trial before detention.

On 5 October 2000, the European Court of Human Rights delivered a judgement in the case of

Varbanov v. Bulgaria. It established a violation of Article 5 of the European Convention on

Human Rights, the right to liberty and security, by ruling that his detention in a psychiatric

hospital was arbitrary. Deficiencies in Bulgarian legislation were identified. The Bulgarian

government has announced its intention to make changes to the Public Health Law or through a

new Law on Mental Health, but has not yet done so.

Concerns have been raised that over a third of criminal case defendants do not have access to a

lawyer during trial before a court of first instance. Bulgaria needs to take steps to ensure that

fundamental human rights are fully respected, especially though ensuring that in practice all

detained individuals who cannot afford a lawyer have access to legal aid.

Regarding freedom

of expression,

as mentioned in the last Regular Report, fines for libel remain

very high but indications are that restraint is shown in implementation.

Concerning

religious freedom,

in the last Regular Report concerns were raised that interested

parties had not been consulted in the preparation of the new Denominations Act. Adoption of

the Act was postponed to allow for consultation. The Act has not yet been adopted.

One positive development is that a number of applications for alternative service have been

granted over the last year in accordance with the law of October 1999.

Concerning the

right to privacy,

concerns have been expressed by human rights organisations

at the high number of permits granted for wiretapping and the need to ensure proper judicial

controls on the issuing of these.

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Bulgarian law currently discriminates against

homosexuals.

Discriminatory provisions in the

Penal Code need to be removed to avoid discrimination.

The Non-profit Legal Entities Act entered into force in January 2001, providing a new legal

framework for

non-governmental organisations

in Bulgaria. This is a sign of progress as it

established clear rules for the registration of associations of citizens and foundations. The new

law also increases transparency, through a public register of organisations and the obligation to

provide annual reports on activities and finances. However, the tax environment for NGOs and

donations remains rather restrictive. The new National Assembly has established a

parliamentary committee on civil society issues.

Economic, social and cultural rights

Some limited progress was made in this area over the past year, notably in reinforcing the

institutional framework for child protection.

There has been no further progress in adopting legislation on

equal opportunities

for women

and men. Concerning political representation, following the June 2001 elections, women make

up about 25% of the new National Assembly, a significant increase from 11% in the previous

assembly.

Whilst the

Child Protection

Act (mentioned in the last Regular report) aims to reduce the

number of children in institutions through placement in foster families, at the end of 2000 there

was no significant change in the number of children in institutions. Conditions in social institutions

for children are mixed and indicate that some orphanages offer relatively high standards of care,

but in many living conditions are very poor. The situation is particularly serious in some of the

homes for severely handicapped children. Poor living conditions and inadequate care are said to

have contributed to especially high mortality rates in some homes for children with mental

disabilities. Around 65% of children in residential accommodation come from minority groups.

Staff caring for children rate amongst the country’s lowest paid. An ordinance on terms and

conditions of providing police protection to children has been adopted.

The Government has adopted a regulation for the establishment of the Child Protection Agency

and appointed a Chairman. The Agency should improve co-ordination and implementation of

policies at national and regional level, and provide guidance to and control of municipal services

on child protection activities. Efforts are oriented towards preventing social exclusion and

towards de-institutionalisation. Several steps are necessary if the Child Protection Agency is to

become fully operational. Secondary legislation is still required to clarify its precise role, as are

adequate human and financial resources. The second central body envisaged in the Child

Protection Act, the National Council for Child Protection (a consultative body) has also been

set up. Members come from eight government departments. Seven NGOs participate as

associate members. Representatives of two international organisations are also invited as

associate members. Bulgaria needs to ensure the full implementation of the UN Convention on

the Rights of the Child and ensure the necessary administrative capacity is in place and is

functioning efficiently.

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Minority rights and the protection of minorities

Bulgaria has ratified the Framework Convention of the Council of Europe for the Protection of

National Minorities.

In the census conducted in 2001, 4.6% of the population identified themselves as Roma and

9.4% as of Turkish ethnic origin.

As reported in previous years, the Roma continue to suffer from social discrimination due to

accumulation over time of factors that have worsened their living conditions. Many Roma live in

very poor conditions in illegally built housing. According to a survey approximately 70% of

houses in Roma neighbourhoods are built illegally, which means there is very limited access, and

no right to public services. Very few municipalities have acted on the call in the Framework

Programme to legalise such homes. Unemployment is very high, with estimates reaching 60-

75% of working age Roma. The political commitment from the government to remedy their

problems needs to be matched by more effort into translating this into concrete action.

Progress in improving the situation of the Roma community has been limited. As concerns the

Framework Programme for Roma Integration adopted in 1999, very little progress has been

made on implementation. No progress has been made in the last year in strengthening the

capacity of the National Council on Ethnic and Demographic Issues (NCEDI) to implement the

programme. However, the programme to appoint Roma as experts in the administration

referred to last year continued.

Access to healthcare and public services remains uneven for the Roma. The Government took

measures to facilitate the issuing of new identification documents to ethnic minorities. Under

social programmes, people from minorities were targeted. However, there were Roma protests

over non-payment of social benefits in some municipalities. The National Health Insurance Fund

targeted minorities with a special campaign and added the names of the people not registered to

local doctors’ lists of patients. Doctors receive the standard fee for a patient plus additional

funds due to the vulnerability of the population. However, there are reports of discriminatory

practices in access to public health care.

Many Roma children do not attend school and for those who do, drop out rates are very high.

Factors for this include poverty. Despite their formal status as regular schools, schools in Roma

areas remain in practice segregated schools which offer low quality education. This puts the

large majority of Roma at a disadvantage compared to their peers in mixed schools. These

schools are usually overcrowded, lack basic facilities and in many cases have poorly qualified

teachers. Whilst Roma tutors and teachers have been appointed in bilingual schools, further

steps are needed to ensure the access of Roma children to the education system. It is a positive

step that the process of desegregation of Roma schools has started, with some NGO projects

testing different methodologies. But still it has to become Government policy, and the

methodology and the approach have to be broadly discussed and accepted by the Roma

community.

There are some projects in municipalities. Sofia and Plovdiv, for example, have started projects

for Roma to build homes and generate employment. Some funding comes from international

donors to support this. Sofia Municipal Council has also adopted a medium-term programme

for the development of the Roma community in Sofia, which should be completed by 2005.

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In the general elections in June 2001, an increased political participation by Roma was

observed and there are Roma National Assembly members. The Turkish minority is better

integrated into political life through elected representation at national and local levels. The

Movement for Rights and Freedom, which has a large representation amongst ethnic Turks, is

part of the ruling coalition in the National Assembly.

Further efforts are needed for the socio-economic integration of those ethnic Turks who live in

economically underdeveloped regions.

The Parliament passed amendments to the Civil Registration Act simplifying the procedure

which ethnic Turks in Bulgaria, coercively renamed under the communist regime, should follow

to get their names back. This is now done through an administrative rather than court procedure

which, whilst free of charge, was rather slow.

In almost all electronic media, there is minority participation through specialised programmes.

Bulgarian National TV broadcasts news in Turkish and has two programmes addressing

minority issues and produced by minorities’ representatives. Roma Cable TV from Vidin has

received a license to broadcast nationwide. Some local radio stations also broadcast

programmes directed at the Roma population. There are a number of regular Roma newspapers

and magazines.

As reported last year, minorities have a low level of representation in senior appointments in the

administration or as officers in the military and police. Some steps are being taken to tackle this,

for example through a programme to encourage police recruits.

1.3.

General Evaluation

In its 1997 Opinion, the Commission concluded that Bulgaria fulfilled the political criteria. Since

that time, Bulgaria has made considerable progress in further consolidating and deepening the

stability of its institutions guaranteeing democracy, the rule of law, human rights and respect for

and protection of minorities. Over the past year, further efforts have been made in this

direction. Bulgaria continues to fulfil the Copenhagen political criteria.

Since last year, further progress has been made in public administration reform. Many

employees have civil servant status and there is now a Code of Ethics for Civil Servants. The

Law on Access to Public Information is a positive step, but needs further clarification to ensure

effective implementation. Further steps are needed to ensure an efficient, transparent and

accountable public administration.

The recent adoption by the government of two strategies, one on judicial reform and the other

on combating corruption, is a significant development. The challenge now is to implement these.

The judicial system remains weak and there is as yet no reason to change the assessment made

last year that further efforts are needed for it to become strong, independent, effective and

professional and able to guarantee full respect for the rule of law as well as effective

participation in the internal market. Corruption has continued to give serious cause for concern.

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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Enforcing the legal framework effectively presents a challenge and greater focus is needed on

prevention of corruption.

Some progress has been made on human rights training of police and on combating trafficking

of human beings. However, there is a need to address police behaviour, notably as regards

reported cases of ill-treatment. continues to give cause for serious concern.

A child protection agency and a national advisory council for child protection have been set up.

Further steps need to be taken to make the Child Protection Agency operational. On child

welfare, there is not yet a significant change in the number of children in institutions. Poor

conditions in some homes for children with mental disabilities are cause for concern.

Roma continue to suffer from widespread social discrimination. Political commitment from the

government to remedy their problems has still not been matched by concrete action. One more

positive development is that some NGOs have pursued projects on desegregation of Roma

schools.

Very little further progress has been made to meet the Accession Partnership priority to start

implementation of the Roma Framework Programme, and to strengthen the National Council on

Ethnic and Demographic Issues.

Concerning other related Accession Partnership priorities, Bulgaria has made further progress

to implement the Civil Service Law. However, the priority of strengthening the judiciary has not

yet been met.

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2. Economic criteria

2.1.

Introduction

In its 1997 Opinion on Bulgaria's application for EU membership, the Commission concluded:

“Bulgaria’s progress in the creation of a market economy has been limited by the absence of a

commitment to market-oriented economic policies; it would not be able to cope with

competitive pressure and market forces within the Union in the medium term.”

This finding was confirmed in the 1998 and 1999 regular reports. In its 2000 regular report the

Commission found that:

“Bulgaria has clearly made further progress towards becoming a functioning market economy. It

is not yet able to cope with competitive pressure and market forces within the Union in the

medium term.

In examining the economic developments in Bulgaria 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 pressures and market forces within the Union.

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

well as in the previous regular reports.

2.2

Economic developments

Largely as a result of past economic reforms supported by an improved external

environment, economic growth has accelerated.

The Bulgarian economy grew by 5.8% in

2000, the highest figure since the 1996-97 economic crisis. Macroeconomic stability has been

preserved, and the state of Bulgaria’s public finances and the current account balance bear

witness. However, inflation rose substantially, mainly due to one off factors, while

unemployment slightly moved down from its high level. Private investment has remained low but

rising slowly, while foreign direct greenfield investments are high and rising.

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Main economic trends

Bulgaria

Real GDP growth rate

Inflation rate

- annual average

- December-on-

December

Unemployment rate, end-

year

- ILO definition

General government

budget balance

Current account balance

per cent

1996

-10.1

1997

-7.0

1998

3.5

1999

2.4

2000

5.8

2001 latest

4.8 H1

per cent

123.0

1,047.7

18.7

2.6

10.3

10.2

June

per cent

311.0

547.5

1.6

7.0

11.3

9.4 June

19.4 P Q2

per cent

13.7

per cent of

GDP

per cent of

GDP

million

ECU/euro

15.0

16.0

17.0

16.4

-15.3

-0.3

1.3

0.2

-0.7

2.7

13.2

-0.6

-6.0

-5.0

-319

Jan-

June

208

1,187

-69

-695

-649

Foreign debt

- debt export ratio

- gross foreign debt

Foreign direct

investment in flow -

balance of payments

data

per cent

million

ECU/euro

168.9

165.9

160.9

180.6

139.8

8,252

9,211

7,973

9,285

10,650

per cent of

GDP

million

ECU/euro

1.8

6.4

5.5

7.5

7.1

304

Jan-

June

138

573

602

874

926

Progress is being made with the restructuring of the economy and privatisation.

The

share of the private sector in GDP rose further and the remaining assets in the state hands

consist largely of utilities. The financial performance of the remaining state owned enterprises is

improving and continues to be monitored closely by the Ministry of Finance. The business

climate has improved but the licensing, tax and customs regimes still have shortcomings and they

needs to improve further. Privatisation procedures are not always open and transparent and the

implementation of bankruptcy procedures needs to be improved. The banking sector is

developing slowly, but remains in a state in which it has not yet contributed significantly to

inter

alia

a rapid restructuring of industries and services.

PROXY HICP since 1997 (see methodological notes).

Moving 12 month average rate of change

Source: Website of National Bank

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Main Indicators of Economic Structure in 2000

Population (average)

GDP per head

thousand

PPS

Per cent of EU average

Share of agriculture

in:

- gross value added

- employment

Investment-to-GDP ratio

Gross foreign debt/GDP

Exports of goods & services/GDP

8,170

5,400

per cent

Million Euro

Euro per head

14.5

16.2

81.8

58.5

1,960

239

Stock of foreign direct investment

P: provisional data

Bulgaria has recently resumed its process of catching up with the EU.

Bulgaria's 2000

average per capita income in purchasing power standards was low at only 24% of the EU

average. This meant a slight increase over 1999, but the relative income level was still below

the pre-crisis level of 1996. Regional income differences are small in Bulgaria, ranging from

22% to 24% of the EU average (data for 1998). Employment rates for both genders are

relatively low. In 2000 the overall employment rate was 51.5%. The economic activity rate has

been on a declining trend over the past years, reaching a low 47.5% in 2000. Unemployment

showed a small decrease to 16.4% of the labour force in the year 2000, but increased to

19.4% (2001Q2). More than half of the unemployed (58.6%) are long-term unemployed.

Unemployment rates are slightly higher for men than women, but for young people (<25 years)

at 34.2% much higher than for older people. Regional unemployment differences are higher than

income differences: while in the two regions in and around the capital unemployment is well

under the national average, in all other regions unemployment is over average (data for 1999).

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.

Figures have been calculated using the population figures from National Accounts, which may differ from those used in

demographic statistics.

Data refer to 1999

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Average old-age pensions as a percentage of average salaries increased slightly (36.8% in 2000

against 34.6% in 1999).

2.2.

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

There is continued support for the medium-term economic reform programme and for

EU accession-related policies.

Following the June 2001 elections, all parties represented in

parliament support the stability oriented and EU accession related policies (the currency board

arrangement, sound public finances, further reforms and accession to the EU). The policy

measures of the new government confirm its commitment to these goals.

In May 2001 the Bulgarian authorities submitted their pre-accession economic programme. In

the summer of 2001, Bulgaria is negotiating a stand-by arrangement with the International

Monetary Fund, after it successfully completed its extended fund facility that ran from

September 1998.

Over the year 2000 government has improved consultation with social partners. The dialogue

promotes useful ideas for economic reforms.

GDP growth in 2000 increased to 5.8%.

Investment grew by 8% and contributed, together

with net exports, most to aggregate demand. Manufacturing industry expanded most rapidly

(+15%) while services expanded at half that rate. The agricultural sector contracted further

along the trend of declining agriculture of the last years, reinforced by the drought that hurt

farming in the summer of 2000. In the first part of 2001, these trends continued. In the first half

of 2001, GDP expanded by 4.8% relative to the first half of 2000 and the manufacturing

industry’s growth was faster than the services’ expansion; still, the agricultural sector was

contracting.

Unemployment fell over the year.

Unemployment fell to 16.4% of the labour force at the end

of 2000 (from 17.0% in 1999), of which 58.9% are long-term unemployed. In the second

quarter of 2001, unemployment increased to 19.4%. These job losses are due to the

employment losses associated with structural reforms, which are not yet compensated by job

creation because of the weak business climate and due to a skills mismatch. The lack of

effective labour market policies (i.a. insufficient retraining possibilities) means that the latter

aspect of unemployment is not adequately tackled. The low and steadily falling economic

activity rate (47.5%) suggests that a significant number of workers have left the labour market

altogether.

Consumer price inflation rose substantially from 2.6% in 1999 to 10.3% in 2000.

Year-

on-year inflation rose to over 10% from May 2000 onwards.However, since January 2001

inflation has returned to single-digit levels. Fuel and food prices – high energy prices, the high

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value of the USD, a drought in the summer of 2000 – were chiefly responsible for these

developments. The adjustment of administered prices contributed to the rise in inflation as well.

Bulgaria has continued to adhere to the currency board arrangement.

Due to the inflation

differential between the euro area and Bulgaria, the BGN experienced a real appreciation of

more than 7% relative to the euro. At the start of 2000, the base interest rate was 4�½%. It

fluctuated over the year and is around 4% in the summer of 2001, which, with a higher rate of

inflation than in early 2000, implies lower real interest rates. The broad monetary aggregate

grew by 13.5% in real terms and by a quarter in nominal terms. As under a currency board

money supply is exclusively determined by economic actors’ demand for money, this shows that

money demand is being re-established after its fall in the 1996-97 period of high inflation.

The fiscal policy conducted by the government over the reporting period continued to be tight

and consistent with the currency board arrangement. The fiscal programme was over-fulfilled in

2000. The general government deficit according to harmonised EU standards (ESA95)

amounted to 0.7% of GDP, according to the national definition 1% of GDP in 2000 against a

planned deficit of 1.5% of GDP)

. This deficit was less than expected, while the primary

surplus (the government budget balance corrected for interest payments) was 3.6% of GDP.

The cause of this deficit lies in a rapidly growing central government deficit that was only

partially offset by a growing social security sector surplus. Revenues increased by 4.2% in real

terms exceeding by 9.3% the planned value. In the period January - May 2001 the budget

revenues were higher than in the same period of 2000 despite the reduction in corporate tax

rates since 1.1.2001 (from 25 to 20% for companies whose profits exceed € 25 600 (BGN 50

000) and from 20 to 15% for companies whose profits are lower)

. (See also under Chapters

10 and 29).

The current account deficit fell to 5.0% of GDP in 2000 (from 6.0%) despite

unfavourable terms-of-trade developments.

It was pushed up by the rising trade deficit

(8.4% of GDP in 2000), which was mainly due to the oil price rise. The increased surplus on

the services account, primarily because of sharply rising tourist revenues, brought down the

deficit. In any case, foreign direct investment (at nearly € 1 billion) well exceeded the current

account deficit so that the foreign debt did not increase.

The macroeconomic policy mix has continued to be appropriate.

With the fiscal position

turning into a small deficit and the primary surplus falling, the authorities loosened budgetary

policy somewhat. The high growth of monetary aggregates was not the result of a policy choice

because of the currency board arrangement. Real interest rates fell due to the unanticipated

acceleration of inflation. The real appreciation of the BGN relative to the euro does imply a

tightening of monetary conditions and offsets to some extent the effect of budgetary policies and

real interest rate developments.

Liberalisation of prices has continued.

The number of goods and services with administered

prices has decreased but, since the weights of such goods and services in the basket of

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.

This seems to be the case among others because of the bank restructuring company’s (BCC) profits over the year 2000

due to the sale of Bulbank. However, according to ESA1995, these privatisation proceeds should not be included in the

government revenues but directly affect the public debt.

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consumer goods increased, their relative share increased from 20% in 2000 to 20.6% in 2001.

Administered prices now cover costs, except for district heating, household electricity prices

and passenger railway transport. In 2000 the overall growth of administered prices was 13.8%

(end of year) and contributed some 2.8 percentage points to the overall consumer price index

(CPI) increase.

Progress has been made with privatisation.

The private sector share in GDP grew from

65.3% in 1999 to 69.3% in 2000. In 2000, 1325 privatisation deals were concluded (for an

amount of over 1% of GDP). Almost 100% of manufacturing industry are in private hands. The

share of privatisations through management, or management and employee, buyouts has

decreased. By the end of the year 2000, 77.8% of all assets slated for privatisation (i.e. all

assets of enterprises not on a shortlist for definitive public ownership) had actually been

privatised. For the remaining assets (chiefly telecommunications, banking, insurance, energy and

maritime transport companies, and the state-owned tobacco company), the new government is

reviewing the privatisation strategy.

Two thirds of minority shares in already privatised enterprises, out of the total 1,609,

were sold by the end of 2000.

In addition, 5 packages of shares were listed on the stock

exchange and some 20% were allocated for privatisation by the Centre for Mass Privatisation.

In the remaining companies with state participation, this participation does not exceed 20%. The

completion of the selling of state minority shares has been scheduled for end of 2001.

Continuous progress in selling these has been made, but, at the same time, newly privatised

enterprises lead to additions to the list with state minority shares.

In the energy sector slow progress has been recorded.

The former electricity monopoly

NEC has been split into 15 units: one owning the network, seven producers and seven

distributors. Currently, NEC still owns the network, a nuclear power plant, a thermal power

plant and hydro-power facilities. The other 14 units are slated to be privatised. Bulgargaz has a

monopoly over gas distribution and is 100% state-owned. It continues to make losses, primarily

because of its contract with Russian gas suppliers with fixed prices and quantities. Action plans

for the restructuring and development of coal mining and district heating sectors have been

developed. The district heating sector is still state-owned, with the exception of the Sofia district

heating company, which belongs to the municipality. The sector has been heavily subsidised

these past years. The authorities plan to transfer ownership to their main debtors, the

municipalities.

In the course of the year 2000, amendments to the privatisation law have been adopted.

These were aimed at increasing transparency and eliminating the bias towards management-

employee buy-outs. Further measures are expected in the year 2001. Methods and quality of

Bulgarian privatisation have not always been based on transparent and open procedures and

include a preference for management or management and employee buyouts. Moreover, some

shortcomings of the privatisation procedures also create a barrier to market entry

Post-privatisation control has continued to slow down enterprise restructuring.

The

Bulgarian authorities have continued to use the instrument of company-specific obligations on

privatised companies. This approach has negatively affected the flexibility and entrepreneurial

freedom of these companies. In addition, the negative effects were compounded by the,

sometimes, poor enforcement of such obligations. The authorities have sought to address this

issue by eliminating their preference for privatisation by management buy-out, where post-

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privatisation control is mostly used, and restructuring the division of responsibilities among the

bodies involved in privatisation.

Entry and exit in the market place is still not working properly, although the situation is

improving.

The central administration procedures to start operating a firm have been

somewhat reduced; 63 of the existing licensing regimes were abolished and the Council of

Ministers has proposed to close down or simplify 58 more through an act of the Parliament..

There remain, over 400 other licensing regimes that make difficult enterprise creation and,

particular the functioning of SMEs. These remaining licensing requirements still impose a

significant burden on enterprises in terms of time and money. Their non-transparent nature

provides an opportunity for the public administration to use their discretionary power, leaving

open opportunities for corruption. The procedures of the local administrations, which represent

also a considerable burden, have not been reformed.

The number of new private firms being set up in 2000 in Bulgaria is growing, even though

investors are often faced with long bureaucratic procedures. There were 60 thousand

companies registered for VAT by end March 2001, a 7.2% increase over a year earlier and a

quarter more than three years before (less than 10% of the total number of companies, inter alia

because of the relatively high VAT threshold). This growth is an indication of the dynamism of

the growing private enterprise sector. In support of enterprise creation, one-stop shops in many

areas and institutions such as the Foreign Investment Agency, the regional SME agencies, etc.

have been established but are still not sufficiently effective and have not made a breakthrough in

helping companies to overcome entry barriers. For example, only Bulgarian legal persons are

eligible for granting a concession for the operation of infrastructure. This requirement might deter

foreign investors because, under Bulgarian law, in case of a conflict with another Bulgarian entity

international arbitration is not permitted and in case of a conflict with the Bulgarian state, no

arbitration at all. The ways the customs and tax administrations function do not encourage

economic development. In particular, foreign owned companies complain about unusually

frequent visits from the tax authorities.

Unclear ownership rights are hampering the development of the land, housing and

construction markets.

The reason lies in the often unclear state of ownership, even after the

almost completed restitution process. Tracing historic ownership can prove difficult in many

cases due to the lack of a functioning cadastre and the slow work of courts in sorting out

controversial cases, resulting in slow progress. The land and real estate markets are not yet

functioning effectively. Unclear property rights and underdeveloped property markets also

create problems for financial intermediation. It can be difficult to establish the value of collateral

and in transferring owners’ property rights. With the support of international donors, progress is

being made and the land registration and cadastre system is being modernised. For private

houses and apartments in the major cities a market has emerged.

Contract enforcement remains difficult.

As a result of the shortcomings of the judicial

system, parties would be discouraged from taking cases to court. The extent to which contracts

are respected is affected correspondingly by this lack of reliable enforcement. Whilst large

foreign companies are sometimes able to bridge these shortcomings in the legal and regulatory

environment by turning directly to political decision-makers, this path is not available to other

companies so means there is not a level playing field for businesses.

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Market exit procedures have been improved.

The bankruptcy law has been amended and

special legal chambers have been set up to deal with cases. However, it remains to be seen

whether their implementation will result in an acceleration of the handling of cases. Their

slowness remains a deterrent to bank lending to the private sector. Although progress has been

made, a number of firms are still operating at a loss without being forced to restructure.

Further progress has been made with bank privatisation and restructuring.

After the

privatisation of the biggest Bulgarian bank, Bulbank, in July 2000, 80% of the commercial

banks’ assets are in private hands and over 73% are foreign-owned. Still publicly owned

remain the State Savings Bank (DSK), where 25% of the capital was recently transferred from

the Agriculture state Fund to the Banking Consolidation Company; Biochim, whose

privatisation has been postponed since 1999; the Municipal Bank and the Central Cooperative

Bank, where the state owns 34.3% of the capital. A new law on bank bankruptcy that has been

drafted to facilitate the restructuring of failing banks awaits approval by Parliament. The

profitability of the banking sector increased by 32.4%. The 3 biggest banks, Bulbank, UBB and

DSK generated 85% of profits. Only 4 out of the 35 banks were making losses in 2000,

against 6 loss-makers out of 34 banks in 1999. Over the year 2000, non-performing loans fell

from 7.9%, with the three largest banks and the branches of foreign banks in best shape, to

5.4% with all groups of banks improving except for the one of the branches of foreign banks.

Financial intermediation has remained too low and inefficient.

In 2000, credit to the

private sector, represented only 14.7% of GDP, up from 13.5% in 1999, and it continues to

grow in 2001. The spread between deposits and lending rates was over ten percentage points

in 2000, which gives an indication of the costs of financial intermediation and the perceived

risks. Banks are restricted in their lending behaviour because of the difficulty of retrieving

collateral in case of default and criminal liability of the loan officers under certain circumstances.

Longer-term financing is difficult to obtain and rates are higher and variable.

The capital markets improved but remain underdeveloped.

The turnover on the Bulgarian

Stock Exchange remains low. Market capitalisation of listed companies is estimated to be € 0.7

billion or 4.7% of GDP (€ 0.8 billion in 1999) but only half of the listings are tradable and fewer

actually traded. The volume traded outside the stock exchange is much larger than that on the

stock exchange, accentuating the problem of high costs and low liquidity of official trading and

the lack of transparency in the market as a whole.

The financial sector supervision has been kept strict and the indicators of the banking system’s

health, such as capital adequacy, liquidity, and profitability continue to be good. However, the

low rate of credit to the private sector implies that there is much scope for development in all

sectors of the financial markets.

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

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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.

The continued macroeconomic stability has contributed further to Bulgaria’s track

record on economic reform.

Growth has accelerated and the current account deficit, the

exchange rate and the general government deficit remain all under control. Only inflation has

grown over the year 2000, but this was largely due to external circumstances, such as the rise in

the world oil prices, and the adjustment of administered prices.

The quality of infrastructure is low, but improving.

The overall quality of road, railway and

port infrastructure is such that a substantial number of domestic and foreign investors see this as

a major problem. Nevertheless, the infrastructure is improving through the efforts of the

Bulgarian authorities and is supported by EU funds. As a result the investors’ view of the level

of infrastructure has steadily improved over the last years. Information and telecommunication

structure is improving as well. The fixed telephone network is making some progress, while the

mobile telephone network has improved rapidly (see

also chapter 19, telecommunications

and information technologies)

and internet use is growing rapidly, albeit from a very low level.

Education is not sufficiently focussed on the needs of a market economy.

The shortage of

corporate management skills and a properly trained judiciary and public administration

adversely affect the performance of the economy and its competitiveness prospects.

In 2000, the investment-to-GDP ratio (gross fixed capital formation) amounted to 16.6%

of GDP, up from 15.9% in 1999.

However, it will be necessary for investment to grow

further, as the current rate is too low to support continued high growth.

Foreign direct investment grew substantially in the year 2000.

Bulgaria attracted around €

1.25 billion, which means a substantial growth since 1999 (around € 0.9 billion). Over half of

foreign direct investments are in green field investments. Between 50 and 60% of total foreign

direct investments are channelled into industry; investments in trade, finance and tourism are the

next most important sectors. Clearly these developments reflect a growing confidence in the

Bulgarian economy. In the year 2000 only 22% of foreign direct investment originated from

outside the EU against more than half in 1999. Over the last years, the accumulated per capita

foreign direct investments have increased rapidly, reaching € 470 by the end of 2000. Still,

portfolio investment is negligible, as capital markets are not sufficiently developed.

There is not much progress in the restructuring of the energy sector.

In the energy sector a

number of hydroelectric power stations were privatised but some of the initiated procedures

were recently suspended because of the government's preference to first update the strategy for

the energy sector. This move created additional uncertainty among interested foreign investors.

However, negotiations on the sale of two thermal power plants, Maritsa East 1 and 3, have

been completed with foreign strategic investors.

There has been some further progress in restructuring the steel industry, though the process

remains incomplete. A restructuring plan for the steel sector should be implemented in line with

EC requirements.

Although small and medium sized enterprises (SMEs) account for the vast majority of all

companies in Bulgaria they create only one quarter of the value added in the economy and

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account for 40% of the jobs. SMEs have not developed their full potential for generating growth

and employment since they are suffering the worst aspects of the unfriendly business climate,

including red tape, corruption, lack of access to finance, information and management skills.

(see also under Chapter 16, small and medium-sized enterprises)

State aid fell from 2.2% of GDP in 1999 to 0.37% in 2000.

Sectoral aid fell from 85% of

total aid to 76%, which benefited mostly the district heating companies, the Bulgarian post

services and the Bulgarian Telecommunications Company while before the steel and

shipbuilding companies were the primary beneficiaries. Regional aid was approximately constant

in money-terms and hence its share increased (to almost 17%). State aid for horizontal

objectives fell in absolute terms. There have been several cases of state aid and the government

did not follow in most of the cases the requirements of the law to notify the competition

authorities prior to granting the aid.

Financial discipline has improved.

Tax, and social securities arrears and debt to suppliers

have been decreased (monitored tax arrears, i.e. only large arrears, have fallen by € 94 mln.

over the year 2000). This implies a lowering of an obstacle to exit and a more level playing field.

Financial discipline of state-owned enterprises (SOEs) has been maintained. The Ministry of

Finance monitors remaining SOEs closely. These SOEs can only obtain credits for investments,

not for operational costs. For the monitored enterprises, the overall financial position improved.

However, the VMZ-Sopot and Bulgartabac companies and some parts of the energy sector

continue to generate losses. Several SOEs in insolvency managed to reduce their losses

substantially (Varna Shipyard and two metal sector enterprises).

Bulgaria reduced import tariff rates further.

However, compared to EU rates, Bulgarian

tariffs are still high. There is room, therefore, for further tariff reduction and opening of the

economy.

The openness of the Bulgarian economy increased.

In 2000, both the volume and the price

level of Bulgarian international trade increased substantially. Imports and exports as a

percentage of GDP increased from 96% in 1999 to 122% in 2000 - exports 58%, imports

64%. The export volume increased by around 17%, reflecting the steady integration of the

Bulgarian economy into the EU and global economy. As Bulgarian imports and exports are

energy intensive, their market value rose with the increased energy prices -export prices grew

by around 20%.

Trade with the European Union expanded.

Due to an expansion of trade opportunities in the

neighbouring countries, as the economic environment in the Balkans improved, trade with non-

EU countries grew even more rapidly (+45% in nominal euro terms) than with EU countries

(+38%). This resulted in a slightly diminished share of exports to the EU from 52.1% in 1999 to

51.1% in 2000.

Exports to the EU consist mostly of food and manufactured goods while imports from the EU

are mostly machinery and transport equipment. Bulgaria is a net exporter to the EU of wine,

meat, fruit and vegetables, of tobacco and leatherwear and clothes and various metals and metal

products. Although the BGN experienced a real appreciation vis-à-vis the euro, Bulgaria’s real

effective exchange rate did not appreciate over the year 2000 so that there was no loss of

competitiveness against trade partners. More technology-intensive products, ranging from

optical equipment and aluminium products to manmade fibres, dominate Bulgarian imports.

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2.3.

General evaluation

Bulgaria is close to being a functioning market economy. It should be able to cope with

competitive pressure and market forces within the Union in the medium term, provided it

continues implementing reform and intensifies the reform effort to remove persistent difficulties.

The Bulgarian macroeconomy is going into its fourth year of stable conditions, having

established a satisfactory track record of macroeconomic performance. Good progress has

been made in privatisation, especially as regards banks, and with structural reform, setting the

microeconomic basis for sustained growth.

However, inflation has risen considerably in 2000. Investment remains insufficient. Financial

intermediation continues to be low and inefficient. Specific deficiencies remaining in the land

market affect the performance of this market and of other economic sectors. The authorities

should give priority to strengthening the judiciary and the enforcement of the regulatory

framework. Administrative obstacles to private sector development, affecting enterprise

creation, their development and their closing down, including bankruptcy procedures, must be

eliminated. A sustained implementation of these reform measures and higher levels of private

and public investment are key requirements for sustainable growth, and building up

competitiveness.

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 Bulgaria 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 Bulgaria 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 Bulgaria administrative capacity to implement the

acquis

in its

various aspects. Bulgaria 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 Bulgaria 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, Bulgaria has maintained a good pace of alignment of legislation

with the acquis but needs to pay more attention to how this will be implemented and enforced.

Progress on public administration reform, in particular to implement the Civil Service law, is a

positive sign. However, very little has been done to upgrade the judicial system, which remains

weak and needs to be strengthened, in particular to ensure future effective participation in the

internal market.

Regarding the

internal market,

Bulgaria has made further progress in most areas. In particular

in free movement of goods, progress has been made in standardisation to introduce the New

and Global Approach principles. Bulgaria has made good progress in liberalisation of movement

of capital with the adoption of laws on foreign exchange and securities. Nevertheless, the poor

functioning of the land market remains an obstacle for potential investors. Substantial progress

has been made on legal alignment of industrial property rights. Good further progress has also

been made in consumer protection and statistics. However, further efforts will be needed in the

area of data protection, where Bulgaria lacks a framework compatible with the acquis. State

aids remain a matter of concern and Bulgaria is still only starting to develop and implement a

legal framework in this field, an issue that needs to be addressed as a matter of priority.

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Bulgaria’s progress to achieve a substantial degree of alignment on the audio-visual

acquis

can

be commended.

In agriculture, Bulgaria has made significant progress in approximation of legislation and some

progress on implementation, but as mentioned last year, this remains problematic partly due to

lack of funding. Further work is needed on veterinary inspection. Bulgaria has made good

progress for the start of the SAPARD programme where it has moved swiftly towards

accreditation for its paying agency. Concerning regional policy, Bulgaria has adopted a new

territorial organisation, for six planning regions corresponding to level II statistical units.

However, more attention needs to be paid to co-ordination and implementation both at national

and regional levels. Bulgaria has achieved further progress in terms of transposition of the EU

environmental acquis and for the preparation of the implementation of EU environmental

directives.

Progress in transport has accelerated compared to previous years. Steps have been taken in all

sectors and work has started on maritime safety. The long-standing issue of a second bridge

across the Danube to Romania has been resolved with an agreement between Bulgaria and

Romania in February 2000.

The restructuring of the energy sector has gained momentum during 2000. Particular attention

must be drawn to nuclear safety. The commitments for early closure of Kozloduy Units 1 to 4

made by the Bulgarian Government in the Understanding of November 1999 mark an important

step forward in Bulgaria’s pre-accession course.

In justice and home affairs, further progress has been made on legislation and there has been

more focus on implementation. Further resources and investment in modern equipment will be

needed to ensure success.

In general, the capacity of the Bulgarian administration and judicial system to ensure application

of the

acquis

is still limited. Efforts are focussed on preparation and adoption of legislation with

insufficient attention on how this will be implemented and enforced. This means that in areas

where an adequate legal framework has been adopted, implementation and enforcement of laws

remains poor because of weak administrative and judicial capacity and lack of preparation for

implementation.

Bulgaria has fulfilled partially the large majority of short-term Accession Partnership priorities

relating to the acquis. Concerning administrative capacity, Bulgaria has advanced on priorities

with the exception of those on building the capacity to assess the financial and institutional

impact of new legislation and on strengthening the judiciary, where little or no progress has been

made.

Bulgaria has already started to address some of the medium-term Accession Partnership

priorities."

3.1.

The chapters of the acquis

As indicated, the review of Bulgaria 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

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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, Bulgaria has continued to make good progress in this domain.

In the area of

horizontal and procedural measures,

Bulgaria has made the first steps to

transpose the principles of CE marking of the New Approach legislation by adopting a Decree

on Conformity Marking in August 2000.

Good progress can be recorded regarding

sector specific legislation.

In the areas covered by

New Approach Directives,

nine directives on gas appliances, construction products, toys, low

voltage, equipment used in potentially explosive atmosphere, simple pressure vessels,

machinery, lifts, and electromagnetic compatibility have been transposed. The

Telecommunications Act was amended in early 2001 to provide liberalisation for the market for

technical devices, but it is not in line with the

acquis

regarding conformity assessment

procedures.

As regards sectors covered by the

Old Approach Directives,

the situation has slightly

improved compared to last year but transposition remains behind schedule. Some progress can

be recorded on motor vehicles, glass, footwear, pharmaceutical products and cosmetics.

However, there are some delays in transposition of legislation on chemicals, textiles, pre-

packaging and on legal metrology. In the area of food safety and foodstuffs legislation (see

also

chapter 7 - Agriculture)

- Bulgaria has transposed EC legislation on hygiene requirements for

non-plastic materials intended to come into contact with food.

As concerns the development of administrative capacity for the implementation of horizontal and

procedural measures and sector-specific legislation, the main achievement since the last Regular

Report has been membership of the European Accreditation since March 2001 by the

Bulgarian Accreditation Agency (BAA). So far the Agency has only accredited one certification

body for machinery, electrical equipment, furs and leather. Standardisation, certification and

market surveillance activities are still in the hands of the State Agency for Standardisation and

Metrology, although within different directorates.

Since the last Regular Report, no new developments have taken place as regards the

non-

harmonised sector.

In the area of

public procurement,

increased efforts have been carried out to adapt the legal

framework for public procurement, notably with the adoption in November 2000 of an

ordinance for the Public Procurement Register. The Register publishes procurement notices,

invitations to pre-qualify, contracts planned for the next year along with other information on

experts, good practices, invitations to tender and contract awards.

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Overall assessment

Bulgaria has reached a reasonable degree of alignment with the

acquis

on free movement of

goods. However, much legislation intended to transpose the

acquis

is still in the drafting stage.

The

acquis

concerning pressure equipment, medical devices, legal metrology, radio and

telecommunication terminal equipment, non-automatic weighing instruments, and recreational

crafts has not been adopted yet. Efforts should be made to speed up the adoption of legislation.

The framework Law on Technical Requirements adopted in September 1999, which introduced

into domestic legislation the New and Global Approach principles, is still not fully in line with the

acquis.

In particular, the chapter on high-risk equipment (e.g. lifts, pressure vessels) needs to

be amended as it could partially affect the proper application of some New Approach

directives.

As regards standardisation, the adoption rate has increased by 40% although it still has not

reached the level required for membership of CEN and CENELEC.

As regards food safety legislation, considerable efforts need also to be devoted to harmonising

Bulgarian legislation with the

acquis

while abolishing the pre-market approval system.

Furthermore, the administration (including the laboratory network) will have to be re-structured

and adapted to the principles underlying the EC food safety system.

Legislation on firearms is not yet fully aligned with the

acquis.

It remains difficult to assess progress made on the administrative capacity of the standardisation

body. The functional reorganisation of the State Agency for Standardisation and Metrology is

still pending, including the separation of standardisation, certification and market surveillance

activities. This agency took over market surveillance of the gas appliances sector in June 2001,

thus taking the first concrete step in assuming its responsibility for market surveillance in the

areas covered by the New Approach directives. Bulgaria still needs to create an effective

network of independent certifying bodies and laboratories. Special attention needs to be given

to the development of a national conformity assessment system, and in particular to certification

bodies which supply services under the conformity assessment procedures of the Global

Approach.

As regards safety checks on products at external borders, Bulgaria has still not introduced

appropriate customs checks on conformity. Major efforts are required to establish appropriate

customs and market surveillance infrastructure as well as effective administrative co-operation

between competent authorities.

In non-harmonised areas, Bulgarian authorities should ensure that the principle of mutual

recognition is integrated into every piece of relevant Bulgarian legislation on goods.

In the area of public procurement, whilst the Public Procurement Law of 1999 provides for a

general framework comparable to international procurement legal standards, it is still not fully in

line with the

acquis.

Modifications are still required concerning conditions for tender, inclusion

of public/private utilities, the remedies system and the application of the national preference

scheme. Moreover, the duties of the Public Procurement Directorate have not yet been fully

defined and it is currently understaffed. The Public Procurement Register has proved to be a

well-used tool and has contributed to transparency. However, there is still much progress to be

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made in terms of improving knowledge of public procurement operations on the part of the

contracting authorities. The current institutional capacity of the directorate responsible for public

procurement needs to be reinforced in terms of resources and staffing. Both the supreme audit

institution (National Audit Office) and the internal audit body (Public Internal Financial Control

Agency) can decide to perform specific audits on contracts made under the Public Procurement

Law. However, the current control system needs to be strengthened to ensure prevention of

possible corruption in the awarding of public contracts. Many companies, especially foreign

companies, have expressed complaints about the nature of public procurement transactions.

The complaints review procedure is burdensome and time-consuming and should be improved.

The legal regulations and procedures for the control and audit of procurement operations need

revision.

Chapter 2: Free movement of persons

Bulgaria has made some progress in aligning with Community provisions. Preparations for

complete alignment, as well as for the establishment of the required administrative structures,

have also continued.

In the area of

mutual recognition of professional qualifications

some progress has been

made with the development of standards for 18 professions and with the establishment of a list

of professions and specialities for vocational education and training.

Bulgaria has continued approximation of legislation relating to architects by revising the notion of

legally recognised technical capacity in the Act on Construction of Territory. However, further

measures are required in this area in order to achieve full harmonisation.

Progress has also been made in the area of medical and para-medical activities where a number

of secondary legislative acts have been adopted.

As a result of restructuring measures and additional human resources, the administrative

capacity of the three line ministries and the concerned state agencies has improved.

Some progress can be reported on

citizens’ rights.

By adopting the Act on amendment and

supplement to the Foreigners' Act, which entered into force in April 2001, Bulgaria extended

the right to family reunification for foreign long-term residents and seems to have aligned its

legislation with the relevant provisions on student rights. No particular developments are to be

reported in the area of voting rights. It is recalled that the Constitution will need to be amended.

No particular developments are to be reported in the area of

free movement of workers

although a new Ordinance on Work Permits of Foreign Nationals is under preparation to ensure

equal treatment for migrant workers in Bulgaria.

In the light of the future

co-ordination of social security

systems, Bulgaria has adopted

secondary legislation, aimed at the completion of the social security reform.

Overall assessment

Bulgaria has partially aligned with the

acquis

in this area. Steps have been taken to align with

the

acquis,

but efforts will need to be stepped up and institutional capacity strengthened in all

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areas. Further legislative work is necessary to achieve full alignment in the area of mutual

recognition of professional qualifications. Efforts are needed both to provide an appropriate

legislative framework and to ensure alignment with the individual directives. It will need to be

ensured that, by accession, there are no provisions in Bulgarian legislation which contradict

Community rules, in particular with respect to nationality, residence or language requirements.

Legislation on mutual recognition needs to be monitored to ensure that it distinguishes between

academic and professional recognition and includes simpler procedures to allow the provision of

services. It will need to be ensured that the administrative structures in place are in line with the

acquis

and that any adaptations and reinforcements needed can take place in good time.

With respect to professional qualifications obtained before harmonisation, Bulgaria will need to

introduce measures to ensure that all its professionals can, as from accession, meet the

requirements laid down by the

acquis.

With the amendments to the legislation on residence rights, Bulgaria has made some progress in

aligning with the

acquis

on citizens’ rights. Preparations should continue and include

amendments to the provisions on voting rights.

In the area of the free movement of workers, legislation is only partially aligned and substantial

efforts are required to ensure complete alignment by accession, in particular with the

Regulations on free movement which will apply directly and automatically upon accession.

Following the proposal of the Minister of Labour and Social Policy a working group has been

set up to carry out a complete review of the current national legislation.

With a view to the future co-ordination of social security systems, Bulgaria needs to complete

its social security reform and to develop sufficient administrative structures, in particular to

train the necessary staff. Furthermore, Bulgaria is encouraged to conclude further social security

agreements, in particular with Member States, as they normally rely on the same principles as

the Community rules in this field.

Chapter 3: Freedom to provide services

Since last year’s Regular Report, Bulgaria has recorded some progress in most of the areas

covered by this chapter.

In the field of

the right of establishment and the freedom to provide services

(other than

financial services) some progress has been made to improve the situation of non-residents. The

Law on Foreigners was amended in April 2001 in a view to improving the conditions for

foreigners exercising free-lance activities to obtain long-term residence. However, amendments

are still required to ensure alignment of the law with the right of establishment under the Europe

Agreement.

In the field of

financial services,

some legislation has been adopted to align the

banking

sector

further with the requirements of the

acquis.

This includes in particular a new regulation

on standards of capital adequacy for banks which partially transposes the relevant Directives.

However, no progress can be recorded on important legislation regarding better protection of

creditors and bankruptcy of banks, which is delaying subsequent updating of the legislation on

bank deposit guarantees.

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Concerning the

insurance sector,

there has been no progress. The National Council on

Insurance and the newly created Agency on Supervision over Insurance and Gambling are

responsible for the supervision of the insurance sector. The political independence of the latter

has also been put into question since its creation in early 2001. Its capacity to carry out its role

is weak, its inspections are rather superficial and the rationale behind its two roles, i.e. to

supervise both the insurance and the gambling sector is still inconsistent with EC practices.

With regard to

investment services and securities markets,

important secondary legislation to

implement the Public Offering of Securities Act has been adopted. Between mid January and

May 2001, the Bulgarian National Securities Commission was inactive because of the expiry of

the term of office of the Commissioners. It was only in mid-May that the new management of

the Commission was established and started performing its functions. Concerning the

protection of personal data and the free movement of such data,

Bulgaria has not yet

adopted a law.

Concerning

information society directives,

Bulgaria adopted in April 2001 the E-document

and E-signature Law, providing for alignment with the most recent

acquis

in this area.

Regarding implementation, the State Telecommunications Commission (STC) is responsible for

the supervision of provision of certification services.

Overall assessment

Bulgarian legislation is quite well aligned with the

acquis

in this area. It is maintaining stability of

the financial sector, although further steps are still required.

In the field of the right of establishment and freedom to provide services, some efforts have

been made to reduce provisions which lead to discriminatory effects on non-nationals, but

significant problems remain. Also, Bulgarian law in this area is rather complex, which makes it

difficult to assess whether regulatory provisions have been aligned.

Efforts will have to be continued to create a stable and efficient financial sector. Bulgaria has

maintained the stability of its banking system and developed sound banking supervision

practices through the Bulgarian National Bank’s Banking Supervision Directorate. The higher

share of loans to private enterprises in the total lending to trade and industry (over 77%) is a

positive sign, as is the declining share of loans to the public budget and state enterprises. The

structure of the banking system has changed with the share of private banks reaching 81% at

the end of 2000. The largest Bulgarian commercial bank, Bulbank, was privatised at the end of

2000. A number of formerly privatised banks have already changed majority ownership,

attracting foreign banks. The share of foreign-owned bank assets is thus around 73%. The

privatisation of the banking system has resulted in a more competitive environment which, for

instance, has triggered an upgrading of information systems of commercial banks, thus creating

conditions for higher quality services and modernisation of the product range. There is also a

substantial increase in the demand for credit cards and international debit cards in the country.

Risk evaluation capacities should however be improved. There is still a shortage of know-how

in the banking sector that needs to be addressed, even though the Institute of the Bulgarian

Banking Association is carrying out intensive training programmes. Despite the progress made

in adopting securities legislation, the capital market has not developed further. The Securities

Commission as a regulator of the capital market, will need further training, particularly since its

management was renewed in May 2001.

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Bulgaria also needs to complete significant further steps in alignment with the

acquis

in the

insurance sector. The situation in terms of transposition of EC insurance

acquis

is still lagging

behind as only the first generation Directives have been transposed so far. The privatisation of

the biggest state-owned insurance company has not yet taken place. Bulgaria still needs to

develop a competitive insurance market. The staff of the newly created agency for supervision

over insurance and gambling is in urgent need of training to carry out its tasks. The legitimacy of

this agency is in any case open to question as long as it remains responsible for supervision of

both insurance and gambling. However, the Government has just announced its intention to

separate these responsibilities.

Wide consultation has taken place on the protection of personal data and the free movement of

such data with the public and stakeholders, and legislation is under preparation. Bulgaria still

needs to adopt legislation and ensure full independence of the supervisory body for the control

over activities related to personal data processing.

Chapter 4: Free movement of capital

Bulgaria has achieved substantial alignment of its national legislation with EC legislation in the

field of free movement of capital.

Almost no progress was observed in the area of

payment systems,

although the start of work

to establish a real-time gross settlement system (RTGS) is a small but positive step.

In the area of

money laundering,

the amendments to the Law on Measures against Money

Laundering reorganised the Bureau of Financial Intelligence into a state agency. This Bureau is

entirely financed by the State Budget and reports annually to the Minister of Finance.

Overall assessment

As regards capital movement, Bulgaria’s significant degree of liberalisation was introduced

through the Foreign Exchange Act, which has been in force since January 2000. This included

provisions which completely liberalised inward and outward direct investment. A number of

transactions, mainly outflows, are not yet fully liberalised and require prior registration with the

Bulgarian National Bank.

However, the main remaining restriction on capital movements concerns the constitutional ban

on the acquisition of real estate by foreigners. An amendment to the Law on Ownership was

adopted in July 2000. This removes the obligation that required foreign natural and legal

persons to request an authorisation from the Minister of Finance to acquire ownership rights

over buildings (rights to own, use and transfer) and limited property rights over real estate in the

country (the right to use, build and to add to an existing building) except in border zones and

areas of importance to national security. This limitation also applies to local companies with

foreign participation.

Further efforts are required on the harmonisation of the Bulgarian legislation with the Directive

on settlement finality in payment and securities settlement systems and Directive on cross-

border credit transfers. According to the Foreign Exchange Law, the Ministry of Finance and

the Bulgarian National Bank (BNB) are responsible for its implementation and for foreign

exchange control. The BNB balance-of-payment department, however, needs substantial

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capacity building in order to ensure permanent and detailed monitoring of the capital inflow and

outflow.

Bulgaria needs to implement the acquis on payment systems and establish adequate and

effective procedures for handling customers’ complaints and for the settlement of disputes

between banks and customers.

Work remains to be done also in order to develop the payment systems infrastructure in

accordance with European requirements and standards.

Progress has been achieved in the area of fight against money laundering. Though the new

amendments have increased the legal competencies of the Bureau of Financial Intelligence, the

slow pace of legal proceedings seems a considerable impediment to the fight against money

laundering in Bulgaria. The lack of resources also remains a problem. Bulgaria also needs to

ensure that all relevant organisations and in particular all credit and financial institutions,

co-operate fully with the Bureau.

A special unit within the “Special Supervision” Directorate at the BNB is responsible for the

implementation of the amendments to the Law on Measures against Money-Laundering

regarding the control and prevention of money laundering with respect to banks and financial

houses. The extension of the unit’s functions requires organisational development and further

training of its officials. Bulgaria also needs to ensure compliance with the Recommendations of

the Financial Action Task Force.

Chapter 5: Company law

Since last year’s Regular Report, Bulgaria has made further progress in aligning company law

and improving the legal framework for protecting intellectual and industrial property rights.

Regarding

company law,

amendments to the Commercial Law were adopted in October

2000. These amendments implement the requirements of the First Directive on disclosure of

information, the Second Directive on capital, the Eleventh Directive on disclosure requirements

in respect of branches of foreign companies, and the Twelfth Directive on single-member

private limited liability companies.

A number of training initiatives have been held over the past year to improve legal practitioners'

awareness of developments in commercial law.

In the field of

intellectual and industrial property rights,

the Law on Copyright and Related

Rights was amended in December 2000 to protect the rights of films and strengthen border

control measures against goods infringing copyright. The National Assembly ratified the WIPO

Assembly ratified the Madrid Agreement Protocol on international registration of marks in

March 2001. A regulation on border control measures for industrial property rights protection

was adopted in November 2000.

Policy on and enforcement of intellectual property rights is the responsibility of the Ministry of

Culture, which maintains a national copyright database, with support from the Ministry of

Interior, the Customs Agency and the courts. Over the past year, the Ministry of Culture has

issued numerous penal ordinances relating to violations of copyright law, and the courts have

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examined many intellectual property cases. The Ministry of Interior has seized and destroyed

large quantities of pirate compact discs and software. A specialised working group has been

established to improve co-ordination between the various bodies involved in enforcing

intellectual property rights.

Regarding the regulation replacing the

Brussels convention

on jurisdiction and enforcement of

judgements in civil and commercial matters, there are no new developments to report.

(See

also chapter 24, co-operation in the fields of justice and home affairs.)

Overall assessment

Bulgarian legislation in the areas of company law, accounting law, industrial and intellectual

property rights is broadly in compliance with the

acquis.

However, some gaps remain, notably

the need for alignment with the Third and Sixth Directives on mergers and divisions of

companies, the adoption of the proposed Accounting Law, and the introduction of

supplementary protection certificates for industrial property purposes. Other legislation requires

adjustment, in order to ensure alignment to the Directive on the harmonisation of certain aspects

of copyrights and related rights in the information society and the Directive on the resale right for

the benefit of the author of an original work.

Policy responsibility for company law rests with the Ministry of Justice, and the courts are

responsible for enforcement. There is an electronic commercial register, which is open to public

inspection. The Ministry of Finance has policy responsibility for accounting law and takes

advice from the Institute of Certified Public Accountants, which is responsible for accounting

standards.

The Patent Office is the principal authority responsible for protecting industrial property. 9199

marks, 1047 invention and utility model applications and 361 industrial designs were filed at the

Office in 2000. The Office received 52 requests to investigate alleged infringements. It plans to

set up a specialised unit to deal with infringements and impose sanctions.

The main challenge now is to strengthen the capacity of, and co-ordination between, the various

bodies responsible for applying the law in the area of intellectual and industrial property rights

protection, so that it is enforced in an accurate, timely and transparent way, which provides

business with the necessary confidence that legal rights are effectively protected. The

enforcement of intellectual, industrial and commercial property rights remains a particular

concern: the continuing trade in pirate compact discs and computer software in many cities in

Bulgaria provides an indication of the gap between the letter of the law and its enforcement.

Special attention should be given to the functioning of the legal system, including its capacity to

enforce legislation, to streamlining administrative procedures, and to eliminating the scope for

corruption. Further efforts should be made to ensure efficient co-operation among the bodies

dealing with enforcement (police, customs and judiciary) and border control. Training for

enforcement bodies, including judges and prosecutors, should be stepped up.

Chapter 6: Competition policy

Bulgaria has made further progress in this area since last year’s Regular Report.

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In the field of

anti-trust,

the main legislative development was the entry into force in June 2001

of a decision on block exemptions of certain categories of vertical agreements. This decision is

based on new EC

acquis.

The Commission for Protection of Competition (CPC) was reorganised in November 2000 and

the status and remuneration of many employees improved in line with the civil service law. The

number of experts dealing with anti-trust cases reached 40. A new management information

system that will improve case handling should be operational by the end of 2001. The CPC

made 155 decisions on cases in 2000. About a third of the CPC’s cases relate to anti-trust and

two-thirds to unfair competition, though latest figures suggest an increasing proportion of anti-

trust cases. The CPC contributed to the design of several important pieces of new market-

related legislation, including the railway transport and postal services laws.

Almost half of the CPC’s decisions in 2000 were subsequently appealed to the Supreme

Administrative Court (SAC). Comparable data on the outcome of appeals to the SAC are not

available, though its rulings tend in most cases to confirm the CPC’s decisions. Progress was

made during the year in improving co-operation between the CPC and SAC, with a common

training project covering both organisations.

In the field of

state aid,

a working group on state aid legislation was created in early 2001.

Staffing in the Ministry of Finance’s state aid department, which is responsible for monitoring

state aid, reached its full complement of six persons during the year.

As far as state aid control is concerned, the CPC has over the past year started to exercise its

control responsibilities on the limited basis permitted under existing legislation, using the Europe

Agreement and

acquis

as points of reference. Six state aid cases were handled by the CPC

over the past year, half of them at the initiative of the CPC itself without prior notification of the

aids. The state aid directorate of the CPC was upgraded during the year and now comprises

ten experts.

Overall assessment

Bulgaria's legislation and enforcement record on anti-trust is developing in a broadly satisfactory

manner, whereas both the legislative framework, monitoring and control of state aid need to be

improved as a matter of priority.

As regards

anti-trust,

Bulgaria’s legislation is largely in line with and covers most of the

acquis

provisions, though further liberalisation is needed. The recent adoption of a decision on block

exemption of vertical agreements was an important step. Further alignment is needed notably in

the areas of the new

acquis

on horizontal co-operation agreements.

The CPC has continued to establish a reasonably good enforcement record and raised public

awareness of competition policy. The CPC should develop a more deterrent sanctioning policy,

and should give priority to cases concerning the most serious distortions of competition. Further

efforts are needed to strengthen the CPC’s administrative capacity and its retention of qualified

staff.

As regards

state aid,

Bulgaria is finally starting to develop and implement a control system for

state aid, but cannot yet be considered as complying with the

acquis.

The existing Law on the

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Protection of Competition contains only the most basic provisions on state aid control. It is

essential that Bulgaria adopts comprehensive new legislation, and acts to raise public awareness

of EC state aid rules and practices. In this context, the on-going preparation of the draft state

aid law should be speeded up.

Responsibility for the monitoring of state aid rests with the Ministry of Finance, while state aid

control is handled by the CPC. An inter-institutional memorandum of understanding governs the

relations between the two organisations, but collaboration between them on state aid cases still

appears to be underdeveloped.

The current state aid notification system does not in practice ensure ex ante control of all state

aid projects by the CPC. Establishing a comprehensive ex ante notification system should be a

priority. The methodology and coverage of the state aid inventory and annual report need to be

improved: state aids granted via the tax system, for example, should be included in a

comprehensive manner. Bulgaria has not yet submitted a regional aid map. The division of state

aid monitoring and control responsibilities requires a sustained collaborative effort between the

relevant organisations if it is to work effectively in practice. In the absence of a sufficient

enforcement record, it is too early to judge the enforcement capacity of the CPC in state aid

control.

Further transparency and effective control is needed as regards any possible aid granted in the

context of steel restructuring.

Chapter 7: Agriculture

Bulgaria has made generally good progress in terms of approximation of legislation. The partial

accreditation of SAPARD can be considered a major success in this area.

The agriculture sector, including processed products, generated 14.5% of Bulgaria’s Gross

Value Added in 2000

. The sector accounted for 11.3% of employment in 2000.

. Agricultural

incomes are in many cases low or very low. Agricultural output fell to 90% of the previous

year’s level. In 2000, EC imports

of agricultural products originating in Bulgaria amounted to

€215.7 million and EC exports to Bulgaria to €265.7 million, the trade balance in favour of the

Community amounting to €50 million compared with the balance of €51.3 million in favour of

Bulgaria in 1999. The most important products groups in terms of EC imports from Bulgaria are

alcoholic beverages (24 %) with a decrease of 31 % since 1999, meat (18 %) and oilseeds (12

%). As far as EC exports to Bulgaria are concerned, the most important products are cotton

(13%) with an increase of 9%, since 1999, meat (12 %) with an increase of 46 %, and tobacco

(9 %) with an increase of 41 %.

Since the last Regular Report Bulgaria has taken further steps in developing its agricultural

policy. The 2000 report on the state of agriculture in Bulgaria, approved by the government in

The source for all agricultural statistics is Eurostat unless otherwise stated.

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. As Bulgaria only recently introduced the

LFS, figures should be treated with care.

Source of trade figures: Uruguay Round definition of agricultural products, figures taken from EUROSTAT COMEXT

(see EU 12/15: Agricultural Product Trade 1988-2000, 1 Part D.G. AGRI/A.2 Quantitative analyses, forecasts, statistics,

studies, 2001, p. 10-57and 86-89).

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February 2001, lists the main objectives including the further development of market structures,

the stimulation of the land market, the completion of restitution of forests, improving the

competitiveness of the farming and processing sectors, creating an environment favouring

export-oriented agriculture and exercising effective post-privatisation control. The report

envisages provision of investment aid to diversify business activities in agricultural regions and

promote rural tourism, traditional crafts and the development of services and small and medium-

sized enterprises in the processing industry. Preparation for EU accession is another priority

area. The preparation for efficient implementation of EC farming regulations, the introduction of

the common agricultural policy and of Eurostat methods are among measures planned.

In the area of land reform, following the adoption of the Cadastre and Property Register Act of

April 2000, the Bulgarian Government adopted in April 2001 a programme for the

establishment of a cadastre and property register. The agricultural cadastre should be ready by

2004. The programme for establishment of a property register covers 2001-2015. A working

group has been created by the Council of Ministers to co-ordinate and control the activities

involved in the establishment of the cadastre and the property register.

Ownership rights for 99.58% of arable land subject to restitution have been restored. Forestry

restitution is almost complete and 90% of rights have been restituted. For forests and forestland,

ownership rights have been acknowledged for 625 918 hectares. Of this, 534 213 hectares had

been returned to previous owners by March 2001, which represents more than 90%.

Horizontal issues

Being the first candidate country to have its SAPARD Agency partially accredited by the

European Commission, Bulgaria has taken a considerable step towards the implementation of

measures related to the

European Agricultural Guidance and Guarantee Fund (EAGGF).

This took place in May 2001. Following the approval of the Bulgarian National Agricultural and

Rural Development Plan by the Commission in October 2000, and the decision to allocate

Bulgaria € 53 million for the year 2000, the Commission decided on the conferral of

management of aid to the Bulgarian authorities for three types of measures: investments in

agricultural holdings, improvement in the processing and marketing of agricultural and fisheries

products and the development and diversification of economic activities and alternative income.

Bulgaria does not yet have a system for the administration and control payments similar to

Integrated Administration and Control System (IACS) but is in the process of establishing a

system. Bulgaria has already created some of the databases on which IACS will be built. The

obligations related to animal identification have been met for large ruminants and are underway

for small ruminants. Further progress has been made on the introduction of the Eurovet system,

which will be complete at the beginning of 2002.

organic farming,

Bulgaria adopted legislative acts on the control of organic production.

These cover the certification of products and the conversion period for plants and plant

products, and livestock and animal products.

Preparation for determining the typology of the agricultural farms and for the implementation of

Farm Accountancy Data Network

has started.

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Common Market Organisations

Bulgaria is at an early stage in the development of Common Market Organisations (CMOs).

Since the last Regular Report, it has finalised three studies for the alignment and implementation

of CMOs in the cereals, fruit and vegetables and milk sub-sectors, which is an important

contribution to preparation for accession. Studies cover legal, institutional and economic aspects

and include proposals on how to introduce CMOs in Bulgaria.

In the

cereals sector,

no new legislation has been adopted. However, the warehouse structure

which is necessary for intervention purposes continued to be reinforced.

In the field of

specialised crops,

Bulgaria has adopted a number of measures regulating wine

and spirit production. An Executive Vine and Wine Agency and National Vine and Wine

Chamber have been established. The role of the Agency is to ensure that laws related to wine

and viticulture are observed. Concerning fruit and vegetables, in April 2001 Bulgaria created an

administrative structure to carry out conformity checks and quality control of fresh fruit and

vegetables and to participate in the process of harmonisation with EC legislation. In July 2001,

an ordinance on the conditions and procedures for recognition of producer organisations in

fruits and vegetables as well as tobacco was adopted.

Rural development and forestry

Bulgaria’s development of the administrative capacity for the implementation of the SAPARD

programme contributes to preparation for the implementation of EC legislation in the area of

rural development. SAPARD procedures are closely modelled on the payment, monitoring and

financial control principles which are used in the preparation and implementation of EC rural

development measures. In addition, a number of advice centres have been established for rural

businessmen.

Veterinary and phytosanitary issues, including food safety

Significant progress has been made in terms of adoption of legislation for the veterinary and

phytosanitary sectors, but implementation capacity remains a serious problem. Further progress

has been made on animal identification and registration. Ear-tagging and identification of large

ruminants has been completed and is underway for small ruminants. A computer system for

animal identification and registration of animal holdings has been started and the system should

be fully operational in March 2002.

Concerning

animal nutrition,

there has been some progress through the establishment of a

Directorate on Feed Control, which will exercise control over products and substances

intended for animal nutrition. A register of producers and traders is maintained. In addition,

regulations were adopted on feed additives, circulation of feed materials and control on

products intended for animal nutrition.

On animal health, ordinances have been adopted covering prevention and control of a number

of diseases. The National Veterinary Service (NVS) has also developed surveillance and

monitoring programmes for control of diseases. Preparatory work for the introduction of the

Animal Disease Notification System (ADNS) has been completed since the last Regular

Report.

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As regards administrative capacity, there has been some progress. The NVS adopted its statute

in February 2001 which determines its staffing and organisation. It has 3,090 personnel,

including 1,515 veterinarians. The NVS has a general directorate and subordinate structures for

animal health, public health control of animal products, border veterinary control and animal

breeding and laboratory control. Its public health control units carry out inspections and control

through regional inspectorates, with the support of laboratories within the Regional Veterinary

Services. These cover public health controls on raw materials and products of animal origin in

production, slaughter and processing establishments, as well as on final products placed on the

market.

Concerning borders, detailed surveillance programmes on some diseases have been

implemented within a 10-kilometre zone on the border with Turkey. Bulgaria has also adopted

measures on general requirements for veterinary checks on import and transit of live animals.

There are currently 35 functioning veterinary border inspection posts, with 263 employees,

including 149 veterinarians. Staff training on registration, control and trade is still required.

Bulgaria has indicated that 10 locations will become long-term border inspection posts with

third countries.

Concerning the

phytosanitary sector,

there has been some progress in approximation of laws.

plant variety protection,

an ordinance on the official variety list was adopted in March

2001. A law on seeds and planting material was adopted in October 2000 and aims to create a

legislative framework for the introduction of the seeds and planting material

acquis

and for the

testing and inscription of varieties into the official plant variety list. In the area of plant health, a

number of ordinances have been adopted on the control of plant diseases.

As regards administrative capacity in the phytosanitary field, some border inspection points,

central and regional laboratories and trial stations have upgraded their equipment.

As regards

food safety

(see

also chapter 1 – free movement of goods)

the Bulgaria adopted

a Food Safety Strategy in June 2001. This outlines the systems for co-ordination between the

various official bodies involved, their competencies, organisation and staffing. The controls

carried out by the NVS and its regional offices include laboratory analysis of food safety.

However, upgrading of food processing establishments is needed.

Overall assessment

Bulgaria's overall level of alignment means that meeting the

acquis

in this area still poses a very

major challenge. Further efforts are needed to address the lack of capital and investment in

agriculture from the private sector.

In the area of

horizontal measures

in order to accomplish full harmonisation with the

acquis,

Bulgaria envisages the adoption of amendments to the Farmers Support Act and related

secondary legislation, which will regulate the establishment of an EAGGF Paying and

Intervention Agency and of an Integrated Administration and Control System (IACS).

However, the completion of government plans to establish market intervention institutions

needed under the CAP still lie some years ahead.

As regards

common market organisations,

Bulgaria will need to adjust further its agricultural

policy to conform to the CAP.

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Concerning

rural development,

significant progress has been made in building up the

administrative capacity for implementation of policies as a result of the accreditation of the

SAPARD agency.

Whilst land restitution was virtually completed in 2000 and progress was achieved in the

implementation of the Cadastre Law, Bulgaria does not yet have a functioning and transparent

land market.

With some exceptions in the richer agricultural areas, the land market is generally

still under-developed due to fragmentation of property, small size of plots and undivided family

co-ownership. These factors hamper both domestic and foreign investment in agriculture and

limit the possibility of land to be used as collateral.

Concerning

veterinary and phytosanitary issues,

whilst progress has continued, much

remains to be done to enforce veterinary/hygiene control standards and animal welfare. Human

resources need to be strengthened both at central and regional level in terms of number and

quality. Training is required for the industry to set up its own control systems and compliance

with EC regulations.

Bulgaria still needs to revise its law on plant protection, as some provisions of the current law

are not in line with the

acquis,

particularly in relation to the marketing of plant protection

products, the control of organic farming and marketing of fertilisers. The National Service for

Plant Protection, Quarantine and Agrochemistry covers administrative needs in line with

acquis

requirements in the area of plant health, however further improvements of human resource

capacity and equipment are needed.

Concerning food safety, considerable further steps will be needed to implement the strategy.

Bulgaria created a National Council for Food Safety in 2000. Upgrading of food processing

establishments is needed.

Chapter 8: Fisheries

Since the last Regular Report, Bulgaria has made legal, institutional and operational progress

aimed at the adoption and implementation of the Common Fisheries Policy (CFP).

The Fishery and Aquaculture Act (FAA), which replaces the 1982 Fish Farming Act, was

approved by the Parliament in April 2001. The FAA incorporates the basic principles of the EC

sectoral

acquis

and provides the legal basis for the implementation of all major aspects of the

CFP, but much has still to be done to put these into practice.

With regard to

resource management, inspection and control,

the increase of staff in the

National Agency for Fisheries and Aquaculture (NAFA) from 48 in December 2000 to 210,

and the increase in the number of Regional Fisheries Inspectorates from 6 to 27, are first steps

towards the reinforcement of administrative capacity which is necessary for effective

implementation of the

acquis

in the fisheries sector. The NAFA, including Regional Fisheries

Inspectorates, has lead responsibility for implementation of legislation in this sector. It reports to

the Minister of Agriculture and Forestry (MAF) and issues licences for commercial fishing.

In the area of

structural actions,

there has been progress since the last Regular Report on the

establishment of the Fishing Vessels Register as required by the CFP. The Register will be a

part of the State Shipping Register and will be maintained jointly by the Executive Agency

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Maritime Administration under the Ministry of Transport and Communications and the MAF

(NAFA). Staff have been recruited and trained to work on the development of the register.

Software has been acquired with a view to future enlargement of the system to carry out cross-

checking.

Concerning

market policy,

no concrete progress has been made. However a study on the

establishment of a market intervention institution is currently underway. As concerns

state aid,

there are no developments to report.

Overall assessment

Despite recent progress, considerable further work and investment is still needed for Bulgaria to

achieve compliance with the

acquis.

This includes in particular the adoption of secondary

legislation, development of administrative capacity, training of staff, upgrading the technical

resources of the inspection and control bodies, and the completion of the fishing vessels register.

Bulgaria is advanced on privatisation of both the processing and marketing industry which is

now almost complete.

Additional efforts are also required in the important areas of introducing producers’

organisations and of improving licensing and registration of fishing and aquaculture activities.

Market intervention in fisheries in Bulgaria is still at planning stage. There are no state aids for

the improvement of transport and storage conditions. There is still the need for harmonised

statistics and market (including price) information. At present, the NAFA lacks the required

equipment and trained personnel to implement EC statistical requirements effectively.

Further commercial development of marketing and wholesale infrastructure, as well as of the

markets themselves, is required before the Bulgarian government can sensibly plan the

structures most suited to Bulgaria’s situation.

The State Fund for Agriculture has been given the task of managing future aid and acting as

paying agency for the fisheries sector, however it is not yet adequately equipped and trained to

perform these functions in compliance with EC structural action requirements. Regarding

administrative capacity in the area of structural funds, the SAPARD paying agency in the

Ministry of Agriculture is intended as the future platform for financial management of the

Financial Instrument for Fisheries Guidance (FIFG).

As regards international fisheries agreements, Bulgaria is a party to a number of conventions and

international agreements: North-West Atlantic Fisheries Organisation, North Eastern Atlantic

Fisheries Commission, General Fisheries Commission for the Mediterranean and various

bilateral or multilateral agreements, in particular covering fishing in the Black Sea. A draft

Convention on Fishing and conservation of life resources in the Black Sea is under negotiation.

Chapter 9: Transport policy

Bulgaria has continued to make reasonable progress not only in adopting the necessary laws to

transpose the transport

acquis,

but also to create, for each sector, the administrative structures

necessary to implement and enforce the

acquis.

Investments in transport infrastructure are

increasing.

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As regards

Trans-European Transport Networks,

in February 2001 Bulgaria presented its

programme for transport infrastructure development, excluding road infrastructure, for the

period 2001-2005, in compliance with the National Strategy for Development of the Transport

Sector drawn up in 2000. This programme foresees investments of around € 4,900 million of

which about 31% will come from the national budget. Preparation for the construction of the

second Danube bridge between Romania and Bulgaria, at Vidin-Kalafat, is well under way.

In the

land transport

sector, progress has continued with the adoption of further secondary

legislation on the application of the 2000 Road Traffic Law and Road Transport Law.

However, no concrete progress can be reported in the field of vehicle taxation (minimum tax

levels), which forms a key element of fiscal harmonisation in this sector. The institutional

framework for the

road transport

sector now relies in particular on the Road Transport

Administration (RTA), the Traffic Police and the Road Executive Agency. The RTA is a legal

entity funded through the budget of the Ministry of Transport and Communications. The Traffic

Police is under the Ministry of Interior. The Road Executive Agency, which succeeded the

General Road Administration, is funded through the Ministry of Regional Development and

Works. The Road Executive Agency is responsible mainly for the design and management of

the national road infrastructure and is the competent authority for issuing and controlling permits

for freight transport, controlling vehicles which exceed the maximum allowed norms and

collecting road charges. It has 3210 staff.

The bilateral agreement establishing certain conditions for the carriage of goods by road and the

promotion of combined transport, signed last year with the EC, entered into force in May 2001.

The European Agreement on International Occasional Carriage of Passengers by Coach and

Bus (INTERBUS) was signed in December 2000. Its implementation will result in partial

harmonisation with the road passenger transport

acquis.

railways,

a new law on railway transport was adopted in November 2000 as part of the

third phase of railway transport restructuring. This law is due to enter into force in 2002, and

will be the basis for the sector’s unbundling and the end of the state monopoly on transport of

passengers and goods by rail. The law should ensure separation of railway infrastructure,

administered by the state, from services operation. BDZ (Bulgarian Railways) will be

transformed into a state-owned joint stock company, with its own accounts and budget, and

will prepare its own business plan. The law includes measures for ensuring the independence of

the resulting companies, market access, professional qualifications, liability and insurance, and

safety certification. It also contains a separate chapter on combined transport. The law also

resulted in the creation, in July 2001, of an executive agency, the ‘Railway Administration’,

which employs 65 people and which is answerable to the Ministry of Transport and

Communications. A regulation on the agency's structure, functions and activities was adopted.

In the

inland waterways

sector, no particular developments can be reported. The blockage of

the Danube still has severe effects: 43% of the workforce has had to be cut and 82% of oil

barges are not in operation.

As concerns

air transport,

over 30 acts have been adopted, including an amendment to the

Civil Aviation Act and a Regulation on airports and airport procurement. This has resulted in the

strengthening and more precise definition of the legal status of Air Traffic Service Authorities

(ATSA). The overall situation and prospects of the national carrier, Balkan Airlines, currently in

liquidation, has however affected the privatisation process across in this sector.

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As regards

maritime transport,

according to 2000 statistics under the Paris Memorandum of

Understanding, the percentage of Bulgarian flag vessels detained following port state control

was 7.2%, a decrease compared to 1999 (8.1%) and 1998 (12.5%). This compares to an

average for EU-flagged vessels of 3.9 % in 2000

Overall assessment

Bulgaria’s legislative framework has reached a fair level of alignment with the

acquis.

Bulgaria

still needs to adopt further legislation in the field of maritime safety (Merchant Shipping Code)

as well as further amendments to the road transport laws. The new administrative structure of

the sector is now substantially in place as are the main administrative bodies. However, one

problem is the frequent lack of experience in the new administrative structures in dealing with

the obligations stemming from the new market conditions. Efforts need to be made to adopt

and enforce the necessary secondary legislation. Regulatory efforts, in particular on land

transport legislation, will have to focus on the transposition of the technical provisions of the EC

acquis

and its implementation. Technical, safety and in particular fiscal harmonisation will be

key issues. In the road sector, for example, whilst the new laws and secondary legislation are

important developments, Bulgarian road charging and taxation systems are still not compatible

with EC norms. However, a calendar for developing these systems, involving a progressive

reduction of the difference between charges applied to Bulgarian and to EC vehicles, has been

adopted.

Bulgaria will need to prepare for the significant investments that will be needed in infrastructure

(in particular to ensure that Bulgarian roads can cope with EC vehicle axle weight standards)

and by operators to ensure conformity of their fleets, particularly as regards the part of the road

haulage fleet which carries out national operations only. The Bulgarian road transport fleet is still

divided into vehicles carrying out international transport, which conform to EC technical and

safety norms, and those reserved for domestic transport only.

The inland waterways fleet will also need to be adapted to ensure conformity with EC technical

and safety norms.

Rail restructuring should continue, bearing in mind that infrastructure charging and capacity

allocation, as well as the managerial independence of Bulgarian railways, are issues that will

need to be addressed soon in order to comply with the most recently adopted railway

acquis.

Bulgaria is engaged in a process of legislative harmonisation in the air transport sector. Further

efforts will be needed to ensure the objective of transposing most of the aviation legislation by

the entry into force of the European Common Aviation Area agreement. Part of the

acquis

has

been implemented including some Joint Aviation Requirements, Eurocontrol standards and EC

rules on civil aviation accident investigation. An ordinance under the civil aviation act transposes

some principles of the

acquis

on access to the ground-handling market although full compliance

will need to be ensured.

As regards maritime safety, Bulgaria’s vessel detention rates as a result of Port State controls

has notably improved in the past two years, but is still well above the average for EU-flagged

vessels. Bulgaria should continue with its efforts. Improving the performance of maritime safety

administrative institutions, firstly as a Flag State, and then as a Port State, must be a priority.

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The enforcement of EC legislation on maritime safety and prevention of pollution will require

additional human resources and training for ship inspectors and associated support personnel.

Chapter 10: Taxation

Bulgaria has continued to make legislative progress in the field of taxation, although at a reduced

pace compared to the previous period.

In the area of

indirect taxation,

an amendment to the VAT Act has reduced the time for tax

credit refunds from 6 to 4 months. Also, a procedure for VAT refunds to foreign legal entities

for services used on the territory entered into force in April 2001. According to this refund

scheme, the minimum refund must exceed 500 Bulgarian Leva (€ 255.65) per year and the

foreign entity must be registered in a country providing reciprocal refunds to Bulgarian entities.

The introduction of a special scheme for travel agents was postponed until 2002.

As regards excise duties, Bulgaria has unified the duty on wine, regardless of the percentage of

alcohol, thus aligning its legislation with the

acquis.

direct taxation,

no particular developments can be reported.

In the area of

administrative co-operation and mutual assistance,

no progress can be

reported.

As regards administrative capacity, Bulgaria has continued to modernise its tax administration. It

has established a public web-site with information on the structure of the administration,

statistics, return forms and instructions. The site also contains a public bulletin of all VAT-

registered entities, in order to allow companies to verify tax registration of their counterparts. An

advisory board to the General Tax Director representing different taxpayers groups has been

established, which provides advice on taxpayers’ issues. Furthermore, a tax fraud unit was

established and is now operational. The establishment of the Unified Revenues Agency, which

was mentioned in last year's report, has been postponed until the end of 2001. The agency will

become operational as of 1 January 2003.

Overall assessment

Bulgaria's legislation is broadly in line with the

acquis

on VAT and excise duties, and Bulgaria

has continued to align its legislation. Nevertheless, further alignment is still needed in the area of

VAT, in particular with regard to exempt transactions, the right of deduction of input VAT and

special schemes for travel agents and second-hand goods. As regards excise duties, the

structure of the duty on cigarettes is contrary to the

acquis

as it provides different duty rates for

filter and non-filter cigarettes. Moreover, the levels of the duties are still considerably below the

EC minimum.

With the exception of Greece, international agreements on avoidance of double taxation have

entered into force with all EU member states and most candidate countries.

Regarding

administrative capacity,

some progress has been achieved in the modernisation of

the tax administration, but significant further effort is needed in order for Bulgaria to be able to

implement fully and enforce the EC

acquis

upon accession. The extensive reform of the tax

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administration, which began last year, has resulted in a structure consisting of 10 horizontal and

28 geographical directorates, including 121 tax offices, which, in several cases, have a number

of local offices. Out of the total staff of about 9500 employees, there are currently 2300

auditors and 900 operational inspectors (who carry out inspections on compliance with VAT

rules). It can be noted that the law on tax procedures, which has been in force since 1 January

2000, significantly increased the enforcement powers of the tax administration and has had a

positive impact on collection figures. However, better techniques to select and implement tax

audits are needed. On the whole, co-operation with other state enforcement agencies remains

unsatisfactory.

It will be important to ensure that existing and future legislation complies with the principles of

the Code of Conduct for Business Taxation.

In addition, work on the establishment of the Unified Revenue Agency should be pursued

intensively.

Chapter 11: Economic and Monetary Union

A detailed assessment of Bulgaria’s economic policy in its various aspects has been given 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, there have been no substantial legislative changes.

Over the reporting period, no changes have been introduced for

direct public sector

financing

by the Bulgarian National Bank (BNB).Also, no further progress can be reported in

ensuring the full

independence of the central bank.

Overall assessment

Bulgaria 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.

Bulgaria is already well advanced in implementing the

acquis.

However it has not completely

aligned its legislation with the requirements of the Treaty concerning the independence of its

central bank, notably in the area of personal independence of the members of the board of the

bank.

Amendments to the BNB Act to explicitly prohibit the Central Bank from all forms of direct

financing of the public sector still have to be adopted.

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According to the Bulgarian authorities, there is no provision in the BNB Act allowing for

privileged access to the public sector to financial institutions, but compliance with the acquis in

this area will need to be monitored further.

Chapter 12: Statistics

Bulgaria has continued to make progress over the past year.

As regards

statistical infrastructure

, in April 2001 an amendment to the statistical law was

adopted. This includes provisions resulting from the Civil Service and Public Administration

Laws, as well as provisions dealing with statistical data confidentiality and provision of data for

statistical surveys. The National Statistical Institute (NSI) is an independent state agency

attached to the Council of Ministers. The Prime Minister nominates the President and Deputy

Presidents of the NSI, but once nominated they have 7-year mandates and can only be

dismissed for specific reasons. On the basis of the Strategy for the Development of Statistics

from 2000-2006, a detailed plan for priority tasks until 2005 was developed. This further

defines tasks, objectives, and those responsible for undertaking these. A Strategy for staff

training in the national statistical system for the period 2001-2006 has been prepared. This sets

out training needs, the main challenges ahead, policies for staff selection and career

development and training possibilities. To implement this an annual training plan for 2001 has

been prepared. This emphasises training in statistics, computer skills and foreign languages.

Concerning

classifications

, national classifications, providing direct implementation of

European classifications and nomenclatures such as NACE and CPA, came into force on 1

January 2001.

Concerning

demographic and social statistics,

further progress has been made. In line with

the Law on a Census of Population, Housing Fund and Agricultural Farms adopted in 2000, the

census was carried out in March 2001. A household budget survey was conducted in

December 2000 and data has been published. The Labour Cost survey is included in the 2001

Bulgaria statistical programme.

As regards availability of statistics at

regional

level, efforts have been made to improve

infrastructure for production of regional statistics. Staff from regional offices have received

further training.

In the field of

macro-economic statistics,

there is little new to report but legal compliance is

generally high. However, there is need for work on enforcement and practical implementation.

For

business statistics,

there has been progress with improving the quality of the business

construction indicators was launched.

For

transport statistics,

the register for motor vehicles has been updated and is now

operational. A survey on road transport was conducted in 2000 in line with EC regulations.

Inland waterways transport statistics are still incomplete and new laws are in preparation to

oblige ports to compile and transmit data. Transit transport through inland waterways is not

monitored.

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For

external trade

, work is underway to improve the quality of primary data involving co-

operation between the Customs Agency and the NSI to develop additional requirements for

data control and checks. The NSI is also conducting comparisons on trade flows data with

seven partner countries.

For

agricultural statistics,

during the past year, Bulgaria has made progress in testing the

methodologies and questionnaires for the farm structure survey, livestock survey, slaughterhouse

survey and the survey of milk processing enterprises. Good progress has been made to

strengthen the administrative infrastructure and there are additional staff in the central agro-

statistics department and the 9 regional offices. There is no farm register but data from the

population census will be used to establish a provisional one.

Overall assessment

Overall, Bulgaria is quite well advanced in the field of statistics. The population census was

conducted on schedule and there have been steps to build the basis for a stronger administration

for statistics. However, in a number of areas, more work is needed on methodology, quality and

completeness of data to achieve compliance with the

acquis.

Whilst some progress has been made in training of staff and improving their capacity to conduct

work according to the

acquis,

turnover of staff dealing with EU matters is still very high at the

NSI. Staffing of the Ministry of Agriculture and Forestry's agro-statistics department has been

reinforced.

The building of IT capacity remains a priority. Whilst investments have been made under Phare

projects, further training is needed in making effective use of the equipment and the software

applications, in particular for staff of the regional statistics infrastructure.

Chapter 13: Social Policy and Employment

Bulgaria has made some progress in this area since the last Regular Report.

Progress has been made in the area of

labour law

through amendments to the Labour Code

adopted in March 2001, which entered into force in April 2001. Some of the amendments aim

at full or partial transposition of the

acquis

concerning certain aspects of the organisation of

working time, protection of young people at work, the employer’s obligation to inform

employees of the conditions applicable to the contract of employment relationship, the

safeguarding of employees’ rights in the event of transfers of undertakings and the

acquis

collective redundancies. A number of the amendments aim at enhancing labour market flexibility

and promotion of employment through eliminating some of the more restrictive provisions of the

old code, including unduly generous standards for layoffs, or the reduction of the cost of

overtime work, and the introduction of the possibility to terminate contracts for economic

reasons and of flexibility in working hours.

Very little progress has been made concerning

equal treatment for women and men.

The

amendments to the Labour Code, adopted in March 2001, introduce the concept of “indirect

discrimination”, but not for the self-employed. They introduce the principle of equal pay for

equal work and aim to protect women’s jobs during leave for pregnancy and childbirth.

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Limited progress has been made since the last Regular Report concerning

occupational health

and safety.

Amendments to the Labour Code which were adopted in March 2001 further

transpose the

acquis

on the introduction of measures to improve the safety and health of

workers at work. An ordinance of the Ministry of Social Policy and the Ministry of Health

adopted in April 2001 introduces further alignment with the

acquis

on personal protective

equipment. The General Labour Inspectorate has improved its administrative capacity. By the

end of 2000, Regional Councils on Working Conditions were established in all 28 districts,

thereby strengthening the social dialogue on occupational safety and health. By March 2001,

223 Occupational Health Services aiming at assisting employers in fulfilment of their obligations

on health and safety had been registered.

Bulgaria has continued its

public health

reform, starting with outpatient health care reform on 1

July 2000 and inpatient health care reform from 1 July 2001. More than 16,000 medical

specialists were transferred from the state to the private health care sector. The emergency care

system regulated under the Health Care Establishments Act was further improved by upgrading

the existing 28 emergency care centres and their 183 branches. Some progress has been made

in strengthening the administrative capacity of the National Health Insurance Fund, the body

responsible for the development, operation and management of the compulsory health insurance

scheme, at central and regional level. Secondary legislation which aims at transposing the

acquis

on labelling of tobacco products entered into force in January 2001. In October 2000, the

World Health Organisation approved the Bulgarian national health care strategy 2001-2010.

With a view to preparation for participation in the Community Network for epidemiological

surveillance and control of communicable diseases, a network for registration and reporting of

communicable diseases in the Balkan region is currently being established. The implementation

of a national strategy for prophylactics and control of AIDS and other sexually transmitted

diseases (2001-2007) started in March 2001. Furthermore, a 5- year national programme for

prevention, treatment and rehabilitation in the area of drug abuse was adopted.

The recent amendments to the Labour Code determine in which cases organisations of

employees or employers can be considered as representative organisations at the national level.

Furthermore, they strive for a more autonomous bipartite

social dialogue

by clarifying the

conditions under which the application of a collective agreement of industry at branch level can

be extended to all enterprises of that industry or branch. A law adopted in April 2001

establishes an Economic and Social Council, which is consulted on draft laws and national

programmes concerning economic and social development.

The unemployment rate fell to 16.4% of the labour force at the end of 2000 (from 17.0% in

1999) of which 58.9% are long-term unemployed. In the second quarter of 2001,

unemployment increased to 19.4

Bulgaria has continued, in close co-operation with the European Commission, an Employment

Policy Review to examine progress made in adapting the employment system to implement the

European Employment Strategy. This includes work on a Joint Assessment Paper that started in

2000. Though the government has recently started a more active employment policy, including

some decentralisation of labour market policies through Regional Employment Councils, there

were few measures, such as training, in enterprises threatened with redundancies. This was

mainly due to the chronic deficit of the Unemployment and Vocational Training Fund; the

National Employment Service still concentrates on passive labour market policies. Positive

steps are the preparation of a Strategy on Human Resource Development, the adoption, in

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March 2001, of a National Action Plan for Employment based on the four pillars and the

guidelines of the European Employment Strategy, and the adoption of the law on the Social

Investment Fund in April 2001. The latter strives to support priority projects identified in the

National Economic Development Plan and the National Plan for Regional Development as well

as in the National Action Plan for Employment.

Little progress has been made on preparations for administering support received through the

European Social Fund,

although a new Directorate was created by the Ministry of Labour

and Social Policy in March 2001. The administrative capacity of this unit needs to be further

strengthened.

As regards

social protection,

substantial progress has been made toward the introduction of a

diversified multi-pillar pension system, which will gradually shift a share of contributions into a

second pillar and private pension funds, thereby restoring long-term viability of the traditional

pay-as-you-go scheme. The adoption of certain amendments to the mandatory social security

code which entered into force in January 2001, aim to establish a stronger link between

contributions and benefits. Preparations for the introduction of a fully funded second pillar from

2002 and for the creation of voluntary private contribution funds (third pillar) are underway.

Amendments to the Act on Protection, Rehabilitation and Social Integration of Disabled People

were adopted in March 2001 aiming for better opportunities for disabled people. The

amendments envisage

inter alia

the establishment of a National Council on Rehabilitation and

Social Integration within the Council of Ministers including representatives of NGOs active in

this field, the government and employers.

No progress has been made in adopting detailed and effective anti-discrimination legislation.

Overall assessment

Overall, Bulgaria has advanced little in this area. It still needs to make major efforts to achieve

compliance with the

acquis.

Concerning labour law, Bulgarian legislation is partly in line with worker’s rights as defined by

the

acquis.

The latest amendments to the Labour Code include several provisions aiming for

consistency with the

acquis.

However, further strengthening of administrative capacity is needed

if the

acquis

is to be implemented. Further alignment will need to take place to achieve full

compatibility with the

acquis,

including on European Works Councils, protection of employers

in the event of an insolvency, part-time work and posting of workers.

Much of the

acquis

in the field of equal treatment for women and men remains to be transposed

and it is a matter of concern that transposition of the

acquis

in this area is slow.

There is an urgent need to introduce a legal definition of discrimination into Bulgarian law. The

current lack of such a definition significantly hinders the implementation of existing Bulgarian

anti-discrimination legislation.

Adoption of legislation in the field of occupational safety and health appears rather slow: for

example, no progress has been made concerning hazardous work and the application of labour

and occupational safety and health regulations by employers remains weak. Further alignment of

legislation is needed to cover the whole range of specific Health and Safety at Work Directives,

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particularly the use and protection from hazardous agents, including chemical, biological or

carcinogenic materials. In addition, administrative capacity in this area will need to be further

developed to enforce health and safety at work rules. With regard to communicable diseases,

further steps are needed for the development of a health monitoring system in order to obtain

health data and indicators comparable to the EC system, in particular in view of the Community

network for the epidemological surveillance and control of communicable diseases.

While further progress has been achieved in continuing the public health reform, further efforts

are necessary to reduce unequal access to medical care as well as to improve the relatively

poor health status of the population. Alignment to the EC tobacco

acquis

requires further

adoption of legislation.

Structured involvement of social partners in the decision-making process needs to be improved.

While there has been some progress in developing a framework for social dialogue at sectoral

level, social dialogue in general is still characterised by a high degree of centralised bargaining

and direct government involvement in labour negotiations. Also local bargaining tends to apply

only to specific and rather less important issues. Further progress needs to be made to improve

autonomous social dialogue, particularly more decentralised bargaining to address high and

persistent regional unemployment differentials and working conditions, especially in view of the

implementation of the

acquis.

There is also an urgent need to improve the coverage rate of

collective bargaining, especially among new private enterprises. Tripartite consultations should

also be improved in order to give a real opportunity to social partners to influence policy-

making. This is particularly needed on employment, enlargement issues, and social policy in

general. Social dialogue in the public sector also needs to be developed.

The overall labour market situation continues to be of concern. Access to the labour market

remains difficult for ethnic minorities, the disabled and young people. The Bulgarian government

has started a number of employment programmes, but the skill mismatch is not sufficiently

addressed through active labour market measures. Special attention should be given to

developing an effective delivery system for public employment services. Temporary employment

and training programs could be better targeted at vulnerable groups for which they would have

the highest impact.

The timely finalisation of the Joint Assessment Paper should help focusing the national

employment strategy on the main challenges for the employment policy.

As regards preparation for the European Social Fund, substantial efforts are required to

improve both the administrative capacity and the mechanisms for co-ordination of ESF

interventions in the context of the European Employment Strategy and the social inclusion

process.

In the field of social protection, sustained efforts are required to implement the reforms

introduced. Though some progress has been made, further efforts are needed to strengthen the

role of NGOs in the provision of social services to people who are socially excluded, in

particular for ethnic minorities and disabled people.

The combat against exclusion, as laid down in Article 136 of the Treaty establishing the

European Community, is part of the objectives of EC social policy. As decided at the Lisbon

and Nice European Councils, policies to combat social exclusion combine commonly agreed

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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.

Further efforts are needed to ensure alignment with the

acquis

on anti-discrimination based on

Article 13 of the EC Treaty.

Chapter 14: Energy

The restructuring of Bulgaria’s energy sector progressed at a very slow pace throughout 2001,

following delays in the planned revision of the legislative framework. On the basis of the 1999

Energy and Energy Efficiency Law, a number of laws and secondary legislation were adopted

but delays in the adoption of other key texts have hindered efficiency improvement and

preparation for privatisation.

Concerning

security of supply,

there has been no progress as regards harmonisation with the

acquis

on oil stocks.

In relation to

competitiveness and the internal energy market,

the implementation of the

Energy and Energy Efficiency Law (EEEL), adopted in July 1999 and which lays down the

basis for the restructuring of the sector, has been slow and is still not satisfactory. Amendments

to the Law, required so as to bring it into full conformity with the Electricity Directive, have not

been passed. The National Electricity Company (NEK) has been split into 15 entities: as well as

the Transmission System Operator, there are 7 generation and 7 distribution companies. The

main existing generation branches of NEK were split off as independent producers, with the

exception of the thermal power plant Maritsa East 3, the large hydropower plants and the

pumped-storage hydropower plant. The performance of the Transmission System Operator has

still to be checked , especially as regards economic dispatching and planning. The State Energy

Regulatory Committee (SERC) has begun its licensing activity. SERC is entirely state-funded.

Despite its limited experience, the authority works well and its staff have been increased to

reach 70 out of the planned 85. Energy prices, which were intended to remain frozen until

2002, (when this issue was to become the responsibility of the regulatory authority) rose in

October 2001. Long-term marginal costs are, however, still not being met with the current price

rates.

In the

gas sector,

accounts have been unbundled. Bulgargaz has reported a significant loss for

the year 2000.

Regarding

district heating,

a strategy and related action plan for the development of this sector

have been prepared. Progress has been reported in the area of subsidy restructuring, by

switching to subsidisation of specific needy customer groups.

Restructuring of the

solid fuels

sector is continuing with a view to privatising viable coal-mining

companies and liquidating others. The Government has adopted an Action Plan for this sector

which should be implemented by 2003.

As regards

energy efficiency

and the use of renewable energy sources, limited progress can

be reported. There is a gap between the stated strategic policy goals and the actual support

given to this matter. The State Agency for Energy Efficiency, the main government body in

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charge of this policy, has not been given the appropriate means to carry out its role, despite the

fact that the Energy and Energy Efficiency Law calls for an increase of its mandate to implement

the national policy for energy conservation. It is still insufficiently staffed although an increase by

11 positions was granted in the 2001 budget.

In the field of

nuclear energy,

Bulgaria operates the Kozloduy Nuclear Power Plant with 4

units of VVER 440/230 design type (Units 1 to 4), and 2 units of the VVER 1000/320 design

(Unit 5 and 6). In addition to the Kozloduy reactors, Bulgaria has one research reactor in

Sofia, which is presently shut down pending decisions on its future. Spent fuel from the power

reactors is stored at Kozloduy and spent research reactor fuel at the research reactor. Existing

waste treatment and disposal facilities are being upgraded and new ones are planned.

Regarding nuclear material safeguards, Bulgaria has concluded a full scope safeguards

agreement with the IAEA. An Additional Protocol to this agreement entered into force in

October 2000.

As regards nuclear safety, Bulgaria has made progress on improving the legislative and

regulatory framework. In particular, a decree on nuclear damage liability has been adopted.

Kozloduy will be held responsible for any damages incurred by civil nuclear accidents, in

compliance with the Vienna Convention. A national insurance pool was formed in June. The

restructuring of the Kozloduy Nuclear Power Plant is continuing, with outsourcing and

unbundling of a number of activities.

During the reporting period, Bulgaria undertook various steps to implement its below-mentioned

commitment to close reactors 1 to 4 of the Kozloduy Nuclear Power Plant as set out in the

Understanding signed between the Government of the Republic of Bulgaria and the European

Commission in November 1999, and has proceeded with the assistance package offered by the

Commission under this Understanding. A special unit has been established in the Kozloduy

Nuclear Power Plant to oversee the process of decommissioning Units 1 and 2. A set of

projects is currently being finalised in this respect, including the construction of a new dry

storage spent fuel facility on the Kozloduy site. An ordinance, setting out the requirements of the

Bulgarian nuclear safety authority for ensuring safety in the process of decommissioning

activities, has been adopted. Furthermore, Bulgaria concluded a Grant Framework Agreement

with the EBRD as manager of the Kozloduy International Decommissioning Support Fund, thus

allowing the international grant fund to commence its operations. In June 2001, the Fund held its

first meeting of the Assembly of Contributors and the first work plan was approved. The

Assembly is chaired by the European Commission representing the European Community, as

the main contributor to the Fund. The Fund has attracted several other donors. Regarding Units

3 and 4, which are of the same design type as units 1 and 2, Bulgaria has undertaken a

programme of major investments. It is understood that these are intended to ensure their safe

operation until final shut down in accordance with the early closure commitment contained in the

Understanding. The modernisation of the VVER 1000 design type units 5 and 6 officially

started in June 2001. The first part of the Euratom loan, which is part of the assistance package

provided for under the Understanding and amounting to € 212.5 Million, has been disbursed.

The various elements of the Understanding form an integral whole.

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Overall assessment

Bulgaria has reached a certain degree of alignment with the

acquis

but this is still not sufficient

notably as concerns preparation for the internal energy market and oil stock

acquis.

Bulgaria needs to enhance its efforts to be able to to comply with the energy

acquis.

Particular

attention should be given to the creation of a legislative framework compatible with the

acquis

as regards emergency oil stocks. Given the costs involved, Bulgaria should begin immediately to

adopt the necessary legislation, implement a comprehensive programme to harmonise the

acquis,

ensure adequate administrative capacity. It should also start to constitute the necessary

storage facilities and stocks themselves. In addition, the fact that the level of oil stocks

continues to be considered a state secret raises serious concern.

Also the preparation for the internal energy market (electricity and gas directives) needs

attention. In this respect, Bulgaria should speed up substantially adoption of amendments to the

Energy and Energy Efficiency Law of 1999 and should continue to determine an appropriate

and efficient regulatory mechanism able to carry out the functions as defined in the internal

energy market directives. The failure to pass these amendments further delays necessary

changes, including the adoption of bylaws, creating practical problem for the implementation of

this Law by entities in the sector. This could cause delays in the modification of the model of

access to the network that should gradually change from that of a single buyer to regulated third

party access in 2003. In particular, the “eligible customer” called for in the Law and the

approach to be followed are still to be defined. Investments in the distribution network and to

improve energy resources are under way, in order to make a full interconnection to the western

European electricity networks (UCTE) possible, hopefully in 2002. In the gas sector, it is still

unclear how market opening in accordance with the

acquis

can be ensured, given the quantities

of gas Bulgaria has already contracted to buy from abroad, notably from Russia, which exceeds

national consumption. The lack of financial discipline of energy companies continues to be a

problem, even if improvements have been recorded in the recovery of unpaid bills. The main

non-payers are state budget-funded organisations. In district heating, the collection rate varies

between 40-45% and 70% depending on the region. Removal of price distortions should

continue while “stranded costs” also need attention.

The National Energy Strategy is to be updated next year, taking into consideration in particular

the early closure commitments for Units 1-4 of the Kozloduy Nuclear Power Plant. Forecasts

for energy demand confirm that this is not growing at the rate foreseen in the previous strategy

(1998). This will be taken into account in the new strategy. It must be pointed out that Bulgaria

still has an energy consumption per capita three to four times the EU average. Despite plans to

activate an energy efficiency fund, it is of concern that Bulgaria has not been able to put into

practice an active policy on energy efficiency during the period under consideration. The lack of

such an active policy, both on the production and end-user side, should be underlined.

Substantial efforts must be made rapidly in this area, a first step would be substantially

improved co-ordination between the State Agency for Energy Resources (SAER) and the State

Energy Efficiency Agency (SEEA). Concrete steps to enhance support for energy efficiency,

energy saving and the use of renewable energy sources should be taken rapidly.

In general, the co-ordination of energy sector activities, under the Ministry of Economy, has

been weak. There is still uncertainty and apparent disagreement on the division of

responsibilities between the State Agency for Energy and Energy Resources and the State

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Energy Efficiency Agency. Nevertheless, the provisions contained in the Energy and Energy

Efficiency Law give the latter a mandate to implement the national policy for energy

conservation.

As regards nuclear energy, the European Union has repeatedly emphasised the importance of a

high level of nuclear safety in candidate countries, including the need to respect closure

commitments and to set precise dates for the closure of units 3 and 4 of the Kozloduy NPP. In

June 2001, the Council of the European Union took note of a Report on Nuclear Safety in the

Context of Enlargement. This report contains findings on the situation and perspective of nuclear

safety in each candidate country, as well as recommendations for specific improvements. In

July, the Commission conveyed this report to the candidate countries.

General recommendations of the Council Report call for all candidate countries with Nuclear

Power Plants to complete their plant-specific safety improvement programmes, and to ensure

that their programmes include measures considered good practice within the European Union,

particularly regarding various specified safety measures such as assessment practices,

emergency procedures, feedback of experience, resources of the regulatory authority and other

aspects.

The report recommends that all candidate countries continue their national programmes

regarding the safe management of spent fuel and radioactive waste, and regarding the safety of

their research reactors.

With regard to Bulgaria, the Council Report recommends twelve specific measures to ensure

the safe operation of the Kozloduy NPP and other nuclear installations, including nuclear

legislation, resources of the regulatory authority, national emergency exercises and other

specified technical aspects.

It is recalled that reactors 1 to 4 of the Kozloduy Nuclear Power Plant are subject to early

closure commitments of the Republic of Bulgaria, contained in the Understanding signed in

November 1999 between the Government of the Republic of Bulgaria and the European

Commission. Under the Understanding, the Republic of Bulgaria commits itself to close

definitively Units 1-4 of the Kozloduy Nuclear Power Plant at the earliest possible dates. Units

1 and 2 of the Kozloduy Nuclear Power Plant will therefore be closed down before the year

2003. The definitive closure dates for Units 3 and 4, which will be before the currently

envisaged closure dates of 2008 and 2010 respectively, will be decided in 2002 in agreement

with the European Commission and on the occasion of the updating of the National Energy

strategy. The Commission’s understanding is that the definitive closure of units 3 and 4 will take

place in 2006 at the latest. Bulgaria should accelerate preparations for a comprehensive

decommissioning plan and start to implement it soon.

The status and the resources of Bulgaria’s regulatory authority should be further strengthened in

the short term and its independence should be guaranteed.

Bulgaria 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 undertakings operating nuclear installations or storing nuclear material.

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Chapter 15: Industrial policy

Since the last Regular Report, Bulgaria has made some further progress in its efforts to develop

and implement a market-oriented industrial policy aimed at creating a competitive and dynamic

market economy.

Industrial policy

is conducted within the framework of the Strategy for Improvement of the

Productive Sector, an integral part of the National Economic Development Plan 2000-2006. A

revised version of the Plan was drawn up under the overall co-ordination of the Ministry of

Regional Development and submitted, together with an independent

ex ante

evaluation, to the

Commission in May 2001.

Privatisation and restructuring

of state-owned enterprises and banks neared conclusion in

2000, including the sale of residual state shareholdings. The Privatisation Law was amended in

November 2000 to improve the efficiency and transparency of privatisation procedures and

reduce incentives favouring management and employee buy-outs.

There has been some further progress in restructuring the steel industry, though the process

remains incomplete. Following the sale of a majority stake in its largest steel plant, Bulgaria

submitted to the Commission in 2000 a viability plan for this plant which provided for a

significant restructuring including a reduction of capacity and employment over the coming

years. The authorities have emphasised that the steel industry does not receive any ongoing state

aids, and will not do so in future.

Many unviable state-owned enterprises are still being liquidated. Bankruptcy and liquidation

procedures were reformed during 2000, and special bankruptcy chambers established in 2001.

Overall assessment

Bulgaria’s policy towards industry is largely in conformity with the principles of EC industrial

policy, being market-based, stable and predictable. The National Economic Development

Plan, which states clearly national priorities in this field, needs to be finalised and fully embedded

in national decision-making to ensure that it plays an operational role in guiding policy.

Privatisation of commercial state-owned banks and enterprises is now nearing completion,

though the sales of the telecoms and tobacco companies have not yet taken place. There

continue to be complaints about a lack of transparency in some privatisation procedures. Less

progress has been made in placing the public utilities, notably in the energy and transport

sectors, on a financially sound and competitive basis. It is uncertain whether the steps so far

taken to restructure the steel industry are sufficient to assure its medium-term viability. There

remain concerns about the viability of some privatised enterprises, particularly those sold by

management or employee buy-out, where the new owners may lack the financial resources and

management skills to run the enterprises successfully.

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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It is too soon to assess whether recent changes to the legal framework and procedures for

bankruptcy and liquidation have succeeded in streamlining the exit of unviable enterprises and

the recycling of their assets to more productive use.

It should be noted that an important element of any industrial policy is the control of state aid

and the compatibility of support schemes with EC rules, including the current rules of state aid

of the ECSC Treaty, which will have to be examined.Bulgaria maintains a restrictive approach

to granting state aids to industry, though the monitoring and control of state aids needs to be

improved

(see chapter 6, competition).

The Ministry of Economy is responsible for developing and implementing industrial policy, with

supporting roles for the Ministries of Finance and Regional Development, the Privatisation

Agency, the National SME Agency and the Foreign Direct Investment Agency.

The Ministry of Economy generally plays a pro-active approach to industrial policy for the

sectors for which it has responsibility. Now that privatisation and restructuring is nearing

completion, the Ministry is re-orienting its role away from the control of state enterprises and

towards the wide-ranging reforms necessary to create a more favourable business environment.

This will require the Ministry to strengthen its co-operation with other ministries and public

agencies and to consult with business organisations on an equal and transparent basis.

While the Ministry of Finance has successfully implemented policies for macroeconomic

stability, it also needs to play a more pro-active role in developing and implementing economic

strategies to encourage private sector development. The capacity and profile of the Foreign

Direct Investment Agency and Centre for Export Promotion could usefully be enhanced.

Chapter 16: Small and medium-sized enterprises

Bulgaria has made some further progress in encouraging the creation and development of

SMEs.

While no particular developments can be reported regarding the overall

SME policy

as such,

efforts continued to create a more favourable

business environment,

and some of the reforms

will benefit small enterprises in particular. The work of an inter-institutional working group

resulted in the actual or proposed simplification or abolition of 121 licensing and other

requirements by the end of 2000. At the beginning of 2001, a number of tax reforms were

implemented to encourage incentives and business development, including a 5- percentage point

reduction in the rate of profit tax and a reduction of the VAT reclaim period. Dialogue between

the public administration and the business community intensified, with the Ministry of Economy

holding regular consultative meetings with business associations.

As far as access to finance is concerned, several new initiatives were launched with the

encouragement of the National SME Agency. The state-owned Promotional Bank increased its

lending activities to SMEs, while a variety of other state-owned and commercial banks stepped

up their SME lending, some with the support of donor credit lines. There remains a dearth of

venture capital for the provision of external equity finance to small businesses.

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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The Ministry of Economy and the National SME Agency in the Council of Ministers, with its six

regional offices, are responsible for developing and implementing SME policy. The Agency’s

staff rose to 34 persons during the past year, of which 12 are employed in the six regional

offices.

No development can be noted regarding the alignment of the

SME definition.

Overall assessment

Bulgaria’s SME policy is in line with the principles and objectives of EC enterprise policy,

though the Bulgarian definition of SMEs, notably as regards medium-sized enterprises, still

differs from the EC definition and should be aligned.

Bulgaria needs to persist with and intensify its efforts to develop a more favourable business

environment, and to address the administrative, financial, fiscal and managerial obstacles to

SME creation and development. Despite the removal and streamlining of numerous licensing

procedures, there remain significant administrative barriers to setting up and running a business

in Bulgaria. The slow and unpredictable functioning of the judicial system and the prevalence of

petty corruption are also cited by business people as deterrents to economic activity. Much

activity still takes place in the informal economy. Further efforts are required to develop the

capacity of business associations and ensure they are consulted in an even-handed and

transparent manner.

Greater resources for policy development and particularly implementation are required at the

Ministry of Economy and National SME Agency, at both central and regional levels. The

respective responsibilities of these two organisations for SME policy could usefully be clarified.

Co-ordination of both national and donor-supported activities in the area of SME development

should be improved.

Chapter 17: Science and research

Little progress has been made in this area since the last Regular Report.

Amendments to the Act on Higher Education were adopted in March 2001; they aim at

improving the system of institutional accreditation. A National Centre for Agricultural Science

was established in December 2000 and includes a national network with approximately 30

branches.

During the reference period, Bulgaria continued to be fully associated with the Fifth Framework

Programme, as well as with the Euratom Framework Programme. As for other candidate

countries associated with the Fifth Framework Programme, Bulgaria has been granted observer

status to CREST (Comité

pour la Recherche Scientifique et Technique).

Overall assessment

Though the framework for co-operation in the field of science and technology is well

established, the research-related administrative capacities and infrastructure should be further

reinforced,

inter alia

to ensure successful association of Bulgaria to the Fifth Framework

Programme. For the further development of the sector and for an effective integration of

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Bulgaria into the European Research Area, it is important to increase the gross domestic

expenditure on research and technological development. The promotion of science and research

in Bulgaria will particularly need a further increase of business expenditure on research and

development (BERD), i.e. of expenditure on science and research activities from the industry,

small and medium-sized enterprises and the private business sector in general. Furthermore,

there is a need to foster research activities in universities and to introduce proper risk capital

legislation. Emigration of young and experienced specialists continues to hamper the

development of this sector.

An overall framework strategy for the development of research – although under- preparation –

is still missing. The same goes for legislation dealing with promotion of scientific research as well

as with high-tech parks and activities. The fact that almost no legislative developments have

taken place in the reference period, combined with the lack of an effective policy maker for this

sector (the National Council for Research and Technological Development lacks administrative

structure and support) and the still low percentage of GDP spent on science and research,

indicates that improvement of research and technological development has not been given

particular attention by the government in the reference period. The Ministry of Education and

Science lacks staff to deal effectively with research-related issues.

Chapter 18: Education and training

Some further progress has been made in this area over the past year.

During the reference period, Bulgaria started to participate in the second generation of the

Community programmes

Leonardo da Vinci and Socrates (

section A.b – Relations

see

between the European Union and Bulgaria).

Procedures for participation in the new Youth

programme (which incorporates European Voluntary Service activities) are underway.

No particular developments can be reported regarding the

Directive concerning education

of children of migrant workers.

Bulgaria has made little progress in

reforming its education and training system

and in

further introducing European standards. Secondary legislation was adopted which introduced

some state requirements for education and qualification of teachers as well as standard

conditions for progressive decentralisation concerning the admission of pupils to general

secondary schools. Concerning vocational education and training, expert groups have been

established on curricula reform and the National Agency for Vocational Education and Training

has drawn up a new list of vocations which has been approved by the Ministry of Education

and Science. Furthermore, a number of criteria and specific procedures for licensing have been

worked out for vocational education and training, as well as national educational programmes

for children (September 2000) and young people (September 2001).

Some measures were taken to improve equal access to higher education. Secondary legislation

on the organisation and activities of the National Evaluation and Accreditation Agency as well

as on the recognition of higher education in some foreign universities was adopted.

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Overall assessment

Participation in the Community Socrates and Leonardo da Vinci programmes is satisfactory and

the established national agencies are functioning. However, co-operation between the Ministry

of Education and Science and the National Agency for Socrates needs to be improved.

The Directive concerning the education of children of migrant workers still has to be fully

transposed and implementation ensured.

Though legislation for a mobile and adaptable vocational education and training system is in

place, including the regulation governing the organisation, management and financing of

vocational education and training, progress in implementing this comprehensive reform of the

vocational education and training system has not progressed significantly. There is no clear

strategy for and linkage between the planned optimisation and decentralisation of the vocational

education and training system. Capacity-building and development of vocational education and

training at regional level as well as teacher training reform should be given higher priority. Co-

operation between companies and schools remains limited. Investment in active labour market

measures, including workforce participation in continuing training, needs to be further enhanced.

Structured involvement of social partners in vocational education and training issues – though in

principle legally enshrined in existing legislation - is still insufficient and has resulted

inter alia

the absence of any national standards for acquiring vocational qualifications. The National

Agency for Vocational Education and Training – the body

inter alia

responsible for

accreditation and licensing in the area of vocational education and training - lacks human and

financial resources. Co-operation with the Ministry of Education and Science needs to be

improved.

Co-operation between enterprises, universities, the Ministry of Education and Science and

social partners needs to be further enhanced to overcome the existing (partial) skills mismatch in

the area of higher education. The current system of institutional evaluation and accreditation

lacks transparency.

Chapter 19: Telecommunications and Information Technology

Some progress has been made since the last regular report.

Concerning the

liberalisation of the telecommunication market,

Bulgaria’s second GSM

licence, valid for 15 years was awarded in January 2001 after a transparent international open

tender.

As regards the

regulatory framework,

the Ministry of Transport and Communications holds

ownership rights of the current main operator the Bulgarian Telecommunications Company

(BTC), but also performs some regulatory functions. In order to achieve a more effective

separation between ownership and regulatory functions, the Ministry of Transport and

Communications has undertaken to transfer ownership rights to another state body if BTC has

not been privatised by 1 January 2005.

The National Frequency Plan was updated in November 2000 and in May 2001. The

frequency allocation for GSM is now in line with the

acquis.

Amendments to the

telecommunications law were adopted in April 2001. They further transpose the Licensing

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Directive and update the definition of Universal Service, although this still does not include

explicitly data and facsimile services in line with the

acquis.

The amendments provide the State

Telecommunications Commission (STC) with the possibility

inter alia

to withdraw licenses of

any mobile operator that presents a threat to national security. The regulation of Voice Over

Internet Protocol was brought into line with the

acquis.

A number of pieces of secondary legislation were adopted in 2001 thereby revising the licensing

arrangements for different telecommunication activities and establishing licensing regimes for

private mobile radio, fixed relay lines and VSAT services.

In 2001, Bulgaria revised its sector policy in telecommunications and its National Programme

for the development of the information society.

Concerning

postal services,

in December 2000 Bulgaria adopted a strategy for the

development of this sector. Priorities include the upgrading of the national postal infrastructure,

the creation of proper conditions for attracting investments and the promotion of fair

competition among postal operators in view of planned liberalisation by 1 January 2003.

Overall assessment

Bulgaria has achieved a reasonable degree of alignment with the

acquis

but further efforts are

required on both transposition and enforcement in a number of areas.

Competition has finally been introduced into the GSM market in Bulgaria although there is

probably room for more operators in the market.

However, further transposition and enforcement of the

acquis

is required particularly in the

areas of cost orientation for operators with significant market power, and in carrier selection,

number portability and unbundling of the local loop. Progress needs to be made in improving the

efficiency of BTC so that the company can withstand competition after liberalisation envisaged

for 2003. It is still unclear how necessary investments to modernise fully BTC’s fixed line

network will be attracted. Consideration should be given to bringing forward the date for the

introduction of UMTS services which is envisaged for 2006 at the latest. The proposed

regulatory regime in Bulgaria needs to be reviewed to ensure that national security concerns do

not distort the civilian market.

Further steps will be necessary to strengthen the administrative capacity of the National

Regulatory Authority to enforce the

acquis,

including an upgrading of its frequency management

capabilities. Several bodies share the responsibility for frequency allocation with the STC,

including the National Radio Frequency Council. Their respective roles need to be clarified. In

view of liberalisation on 1 January 2003 and the need to attract investments, consideration

should be given to bringing the date of 1 January 2005 forward for separation of ownership

from regulatory responsibilities.

Concerning postal services, further steps need to be taken to ensure that service quality does

not suffer from the lack of a fully independent regulatory authority after the planned full

liberalisation on 1 January 2003. Also, attention needs to be paid to ensuring the provision of

Universal Service.

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Although Bulgaria attaches some importance to the development of the information society,

consideration should be given to the allocation of greater financial resources to this area.

Chapter 20: Culture and audio-visual policy

Some developments have taken place in this area as concerns administrative capacity.

Concerning the

audio-visual

area, the administrative capacity of the National Council on Radio

and Television has improved in terms of human resources: staffing has increased from 30 in

2000 to 45 in 2001 (nine members of the Council and 36 in the secretariat).

A number of activities have been conducted in the area of monitoring, particularly as far as

prevention of violations of the Law on Radio and Television is concerned. The sanctioning

powers of the National Council on Radio and Television have been significantly strengthened

through the amendments to the Law on Radio and Television adopted in October 2000.

Sanctions on broadcasters can now be imposed without the involvement of the State

Telecommunication Commission.

No significant developments are to be reported in the field of

culture.

Overall assessment

Bulgaria has achieved substantial alignment with the

acquis

under this chapter.

Bulgaria has signed and ratified the Council of Europe Convention on Transfrontier Television

and its Protocol.

Though the administrative capacity, budget allocation and infrastructure of the National Council

on Radio and Television have somewhat improved in the reference period, further efforts in

these areas will be necessary.The premises, staff and infrastructure of this body are still

insufficient: for instance, monitoring activities are under-resourced, with inadequate equipment

and a base away from the main building. Proper monitoring structures still need to be developed

and particularly proper technical equipment will need to be at this body’s disposal. Given the

high number of license applications (525 license applications were received in 2000 and 320

licenses granted), the National Council on Radio and Television still needs to strengthen the

human resources it allocates to this activity. Only two people are currently dealing on a full-time

basis with licensing. Both the capacity and transparency of this body need to be strengthened, in

particular the transparency of the criteria used in licensing procedures. The current way in which

both the National Council of Radio and Television and the State Telecommunications

Commission are involved in the licensing process does not provide adequate transparency.

In the field of culture, the Directorate for International Cultural Policy at the Ministry of Culture

is responsible for Bulgarian cultural centres abroad as well as for cultural relations with the EU,

the Council of Europe, UNDP and other organisations.

Chapter 21: Regional Policy and co-ordination of structural instruments

Since the last Regular Report, little progress has been achieved in preparing for the

implementation of structural policies.

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No new developments can be reported concerning the

territorial organisation.

With regard to the

legislative framework,

a Council of Ministers decision was adopted in

December 2000 which creates a Regional Development and Sector Monitoring Sub-

Committee for cross border co-operation at central level. The Law on the Social Investment

Fund entered into force in April 2001. The Fund will provide financial assistance for the

implementation of projects given priority in the National Economic Development Plan. A law on

spatial planning was adopted in March 2001. Secondary legislation was adopted in June 2001

which revises the structure and functions of the Ministry of Regional Development and Public

Works. This aims to improve the

institutional structure

of the ministry by defining more

precisely the functions and responsibilities as regards planning, programming, management,

control, monitoring and evaluation of the relevant pre-accession programmes. New units

dealing with strategic planning and co-ordination are created. There has been some

administrative strengthening of the inter-ministerial Commissions for Economic and Social

Cohesion set up in 2000 in the six planning regions corresponding to NUTS II level.

Programming

capacity remains very limited. There has been some progress at the regional

level, where Commissions for Economic and Social Cohesion have started to participate in the

programming process. Sector strategies have been established for the relevant pre-accession

instruments. A revised version of the National Economic Development Plan was forwarded to

the Commission in May 2001 after an evaluation by consultants.

Very little progress has been made in setting up

evaluation and monitoring systems.

This is

the responsibility of the Ministry of Regional Development. The secondary legislation of June

2001, which revises the structure and functions of the Ministry of Regional Development and

Public Works, addresses this issue for the first time by envisaging the creation of a new

monitoring committee for the implementation of the National Economic Development Plan.

With a view to

financial management and control,

recently adopted secondary legislation

also creates a new structure for payment and accounting within the Ministry of Regional

Development. No developments can be reported concerning the preparation for a multi-annual

budgeting system.

No developments can be reported in the area of regional

statistics.

Overall assessment

Bulgaria has advanced little in developing the necessary structures for the implementation of the

Structural Funds. Bulgaria needs to strengthen and accelerate considerably its efforts to be able

to manage these successfully upon EU accession.

Concerning territorial organisation, Bulgaria has six planning regions corresponding to NUTS II.

There is a need to define clearly the responsibilities of the ministries and all other bodies

involved in the preparation for future Structural Funds both at national and regional level.

Bulgaria needs to ensure that the structures for inter-ministerial co-ordination are efficient and

based on political consensus.

While administrative structures at regional level have been established, their role in programme

development, implementation and evaluation needs to be further clarified. Genuine partnership

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structures need to be established at regional level, including the regional and local authorities and

economic and social partners. This would ensure a more transparent involvement of the regions

in programming, implementation, monitoring and evaluation of EC assistance in line with the

partnership principle.

The existing legal framework does not provide clear provisions for institutional arrangements.

Recently passed legislation lacks a structured approach.

Administrative capacity on projects for regional development and economic and social cohesion

in key ministries remains a substantial problem. Capacity on preparation, implementation,

financial management and control, monitoring and evaluation is weak. Better-qualified and

better-trained staff are needed at all levels. The poor performance of the Ministry of Regional

Development in co-ordination and implementation of these projects is a matter of concern.

The experience from various preaccession programmes indicates that insufficient administrative

co-ordination between the Ministry of Regional Development and relevant line ministries has a

negative effect on the quality of programming, management and implementation of programmes.

The identification and development of projects continues to rely heavily on technical assistance.

Consequently, substantial improvement in the technical preparation of projects is necessary.

As regards programming, the significant number of programming documents results in the lack

of an integrated development framework. The National Economic Development Plan is not yet

fully embedded in national policy-making, including the preparation of the budget.

Consequently, it does not serve as an integrated and operational development tool. The quality

of this plan, which will serve as a programming document for pre-accession instruments prior to

accession, has somewhat improved compared to the previous version. However, it still contains

a number of inconsistencies. There is a lack of selectivity and prioritisation of measures

envisaged, notably in terms of coherence between the different development axes. This stems

from a lack of inter-ministerial co-ordination and consultation of relevant stakeholders, including

economic and social partners.

In the field of financial management and control, Bulgaria has made some progress. The legal

basis for adequate public internal financial control has been established. However, the newly

established internal audit departments still need to be strengthened. The training of internal

auditors should be a priority. To fulfil the specific requirements of the Structural Funds

regulations, appropriate systems and procedures for financial management and control need to

be established in relation to the structure of the managing and paying authorities. The

mechanism for the allocation of co-financing in the national budget is still not clear.

Significant work to ensure compliance with the

acquis

requirements for monitoring and

evaluation is still necessary, in particular as regards the ex-ante evaluation of the National

Development Plan and the collection of the relevant statistical information and indicators. The

timely availability and functioning of an effective monitoring and evaluation system will be of

crucial importance for the effective and efficient implementation of the Structural Funds.

In relation to the European Social Fund, substantial efforts are required to improve both the

administrative capacity and the mechanisms for co-ordination of European Social Fund

interventions in the context of the European Employment Strategy and the Inclusion Process.

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As to regional statistics, further efforts are necessary to bring these up to the level required for

regional policy planning and programming, in particular for ex-ante evaluation. Bulgaria still

needs to improve the system for the collection and processing of relevant statistical information.

Chapter 22: Environment

Since the last Regular Report, Bulgaria has made some significant progress in terms of

transposition of the EC environmental

acquis.

The development of approximation programmes

and implementation strategies has continued. Implementation and cost of alignment remain,

however, challenges.

Efforts have been maintained towards the

integration of the environment into other

policies,

notably at local level.

In the field of

horizontal legislation,

no progress has been made in the reporting period, as the

delay in the adoption of the new Environmental Protection Act, designed to improve compliance

with a number of EC directives, has postponed the transposition of the

acquis

on environmental

impact assessment and access to environmental information.

As regards

air quality,

there was progress with transposition. The law on ratification of the

Protocol on persistent organic pollutants to the Convention on long-range transboundary air

pollution was adopted.

In the area of

waste,

harmonisation of legislation continued with the adoption of new

Regulations on batteries and accumulators, waste oils and sewage sludge. The Regulation

regarding permission for import, export and transit of waste was amended to align with the

acquis.

In the field of

water quality,

secondary legislation was adopted regarding drinking

water, bathing water, fish and shellfish, groundwater and water management based on river

basins. Authorities responsible for water management have been designated.

In the field of

nature protection,

progress to align with the Directives on birds was made

through adoption of a law on hunting and game protection. In terms of administrative capacity,

directorates of the three national parks have been significantly reinforced.

As regards

industrial pollution control and risk management,

the transposition of the

Directives on integrated pollution prevention and control and on control of major accident

hazards has been delayed. An inventory of enterprises and sites covered by the Directive on

control of major accident hazards was commenced. As regards administrative capacity, the

Ministry of Environment and Water has developed a multi-annual implementation plan.

As regards

genetically modified organisms

, there was no new development. Regarding

chemicals,

a number of laws and secondary legislation were adopted in order to align with the

acquis.

Bulgaria ratified the Rotterdam Convention on international trade in certain dangerous

chemical substances and pesticides and the Cartagena Protocol on bio-safety.

There were no new developments as regards

noise

from vehicles and machinery.

In the field of

radiation protection

(see

also chapter 14 - Energy),

there were no further

developments in the reporting period.

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Whilst it is difficult to give a precise figure on investment and expenditure on environment, there

has been an increase in funding from the national budget, national environmental protection fund

and other sources (e.g. municipalities, donor funding and private investors). The total amount is

over 2.0% of GDP for 1999.

Overall assessment

Bulgaria has reached a fairly good level of alignment with the

acquis.

Efforts will however

continue to need strengthening, in particular in relation to transposition of the

acquis

environmental impact assessment, air quality, waste management, water quality, nature

protection, industrial pollution control and risk management and radiation protection.

Achieving full implementation continues to be a challenge. Particular emphasis needs to be put

on the development of implementation plans, including financing strategies, and institutional

strengthening to ensure proper implementation. This is relevant for all sectors.

The environmental situation has generally improved in Bulgaria, also as an effect of the

economic restructuring and the closure or modernisation of polluting enterprises. There are still

environmental hot spots which should be treated, for example the air quality in big cities such as

Sofia and Plovdiv. Major efforts are still needed, as was pointed out last year, in terms of

consultation with, and information for, industry on its responsibilities and obligations, notably as

regards the preparation of necessary investments. The national programmes for investments that

have been finalised to date must be followed by concrete results on the ground. Further

progress is needed, however, regarding transposition and implementation, in particular as

regards landfill and incineration of waste. Bulgaria benefits from a well-preserved nature and

wild life that is attracting more and more visitors in many areas of the country. Further

transposition is still needed on the habitats directive and certain aspects of the birds’ directive,

and concrete implementation measures are still needed. The attention that has been paid to

nature protection should be maintained and enhanced.

In the field of radiation protection, delays in adopting the new act on protection of the

environment have postponed the adoption of a legislative basis for radiation background

monitoring.

Meeting the requirements of the environment sector requires enhanced efforts and co-operation

between the various ministries and with the other relevant organisations. Most European issues

are centralised in the European Integration Unit in the Environment Ministry. Co-ordination with

other ministries remains strongly dependent on the resources allocated, in particular by the

Ministries of Agriculture and Health. The Ministry of the Environment needs to be strengthened.

Administrative capacity at local level also remains a matter of concern. Implementation of

environmental policy is entrusted to the regions and municipalities, a level at which there are still

major weaknesses. Training is needed on the requirements of the

acquis.

Regional

inspectorates need to be reinforced, notably as regards waste management and nature

protection. Awareness at regional and local levels should also be improved. Dialogue and co-

operation with NGOs and local populations remains limited, especially in terms of access to

information and of the environmental impact assessment procedure.

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Bulgaria should pay increasing attention to the integration of environmental protection

requirements into the definition and implementation of all other sectoral policies with a view to

promoting sustainable development.

Chapter 23: Consumer and health protection

During the reference period little progress has been made in terms of legal alignment.

Some progress was made on

safety-related measures.

Secondary legislation was adopted in

May 2001, which is intended to transpose the

acquis

on dangerous imitations.

No major progress can be reported as regards

non-safety related measures.

Some progress has been made in implementing the Law on Consumer Protection and Trade

Rules of 1999, which creates the general framework for consumer protection in Bulgaria. Some

efforts have been made to enhance the administrative capacity and infrastructure of the

Commission on Trade and Consumer Protection, which is the main enforcement body in the

field of consumer protection and

market surveillance.

The Commission on Trade and

Consumer Protection has concluded some agreements with other controlling bodies (e.g.

Standardisation Agency, Ministry of Interior, Ministry of Health, Ministry of Ministry of

Agriculture and Forests, Customs Agency) in 2000, aiming at better co-ordination and co-

operation in the area of market surveillance.

Following checks carried out, the Commission on Trade and Consumer Protection issued 7063

penalty acts in 2000. An information system has been established. This contains consumer

claims a register of sites checked and the result of the checks. Progress has been made in the

handling of consumer complaints. A number of out of court settlements have been made through

the nine Conciliation Commissions.

The National Council on Consumer Protection, a consultative body to the Minister of Economy,

has been more active in this period. A step forward is that this body has triggered a public

discussion on how to deal with consumer rights to provision of public utilities, even though these

issues are not yet specifically mentioned in existing legislation. A plan of priorities for 2001 has

been developed and partly implemented, including continued efforts to strengthen the market

surveillance system, the information exchange system for dangerous products and the

administrative capacity of Conciliation Commissions. Some measures were taken to develop the

system for exchange of information on dangerous goods, both at national level and through the

TRAPEX system, which operates in countries of central and eastern Europe.

Overall assessment

Bulgaria has already transposed a considerable part of the

acquis.

The adoption of the Law on

Trade and Consumer Protection in 1999 has been followed by the adoption of a number of

implementing regulations. However, further alignment is needed particularly as concerns certain

aspects of the sales of consumer goods and associated guarantees, injunctions for the protection

of consumer interests, package travel, timeshare and consumer credit, which have not been

transposed into national legislation or, as it is the case for distance contracts, are only partially

transposed.

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Full adoption and implementation of the

acquis

is hampered by a number of factors. Effective

co-ordination between market surveillance authorities and other control bodies with regard to

product safety is still lacking. This is partly due to existing legislation which indicates that the

Commission on Trade and Consumer Protection is responsible for market surveillance in all

areas where sector specific legislation has not been issued. While implementation of the Law on

Trade and Consumer Protection has improved, market surveillance continues to be conducted

on an ad hoc basis and lacks a proper strategy and is not co-ordinated. The quality of checks

of the Commission on Trade and Consumer Protection is limited due to the lack of funding for

testing laboratories. The consumer protection department in the Ministry of Economy works in

relative isolation. Though the National Council for Consumer Protection has been slightly more

active, no legislative proposals have been made concerning consumers interests in the area of

public utilities.

Municipal consumer protection units envisaged by existing legislation are only partly established.

However, the major municipalities are already covered by the structures of the Commission of

Trade and Consumer Protection.

Insufficient attention has been paid to misleading advertising and to the protection of consumers’

interests in cases of unfair contract terms.

Overall, further strengthening of the market surveillance and enforcement capacity of the

Commission of Trade and Consumer Protection is necessary. Effective consumer access to

justice with a view to individual redress remains limited since relevant courts lack proper

capacity to deal with consumer protection legislation. The capacity of Conciliation Commissions

needs to be further strengthened. A number of out of court dispute settlements have been

suspended, partly due to a lack of understanding as to which issues are to be dealt with by

these bodies.

Though consumer associations are relatively numerous and have in general a good working

relationship with the government, they lack proper capacity themselves which results in a

relatively low impact on the development of a culture of consumer protection within the

population. Currently, seven consumer associations are operational in Bulgaria. Six of them

participate in the National Council on Consumer Protection. However, none of them takes on

the role of an umbrella organisation.

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

Since the last report, Bulgaria has continued to make progress in most areas in terms of aligning

its legislation to the

acquis.

Substantial efforts to strengthen administrative capacity will need to

continue.

The adoption of a

personal data protection

act has been delayed several times, but is in

Parliament. No progress is to be reported as regards the ratification of the Council of Europe

Convention for the protection of individuals with regard to Automatic Processing of Personal

Data.

Significant efforts over the past few years have brought Bulgaria’s

visa

policy largely into line

with the policy of the EU. As a result, since 10 April 2001 Bulgaria has enjoyed a visa-free

regime with all Schengen member states. From October 2001, Bulgaria introduced visa

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obligation for citizens from Russia, Ukraine and Georgia. At the end of 2000, a new Training

Centre for Consular officers was established. The equipment of the Visa Centre in the Ministry

of Foreign Affairs is being updated with the introduction of a new visa control computer system.

Bulgaria has introduced a visa classification that is in line with the Schengen classification. The

provisions of the Bulgarian Identity Documents Act and the Regulation on the Terms and

Conditions for Issuing Visas by the Diplomatic and Consular Missions of the Republic of

Bulgaria are in line with the requirements for a uniform visa format. Border police officials have

access to the database on all visas issued by the visa centre, thereby reducing the possibilities

for misuse or falsification. The Automated Fingerprint Identification System (AFIS) has been

operational since October 2000 at the main border check points.

The preparation for future participation in

Schengen

is partially underway. Border police

officials operate an automated information system, which contains categories of information

similar to those of the Schengen Information System. However, some of the legal framework is

still missing.

The process of replacing the identity documents of Bulgarian citizens and long-term residents,

which started in 2000, continued and is due to be completed by the end of 2001. The new

Bulgarian passports and identity documents are considered to be of very high quality from the

point of view of document security.

Some progress has been registered in alignment with, and implementation of, the

acquis

in the

field of

external border

control. Demilitarisation of the border police has continued, but at a

slower pace than envisaged last year. The Bulgarian border police is being transformed into a

modern agency with increasing focus on human resource policy. The first specialised border

police training centre was established in October 2000. However, there is still room for

improvement as regards co-operation with other national agencies working in the field of border

security.

According to statistics from the National Border Police Service, 6,071,759 border crossings

were registered in the period 1 January - 20 June 2001. This is about the same number as the

previous period. However, 862 people were denied exit, which is 25.62% more than in the

first half of 2000. 2,602 foreign nationals were denied entry for violating the passport and visa

regime (2.47% less compared to last year). Over the reference period, 859 foreign nationals

were expelled from Bulgaria and the number of readmitted persons was 1.268 (40.62% less

than last year). The latter figure does not take into account the high number of Bulgarian citizens

returned from Norway over the summer of 2001.

As regards

migration,

the 1998 Foreign Nationals Act, which regulates the conditions of entry,

stay and control of foreigners in Bulgaria, has been brought further into line with the

acquis.

Amendments entered into force in April 2001 in areas such as family reunification, travel

facilities for school pupils from third countries residing in a Member State, marriages of

convenience and admission of self-employed persons. Since November 2000, the border

police at Sofia airport has been checking identity documents of persons coming from countries

representing a risk whilst the passengers are still on board aeroplanes.

A readmission agreement between Bulgaria and Ukraine was signed in September 2001. In

May 2001, Bulgaria and Croatia approved a readmission agreement. Bulgaria also submitted

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draft readmission agreements to Latvia, Estonia, Georgia, Russia, Tunisia and Lebanon, and

signed a readmission agreement with FYROM in June 2001. Bulgaria and Turkey have

exchanged readmission agreement drafts. A readmission agreement with the Federal Republic

of Yugoslavia entered into force in August 2001.

As regards administrative capacity, in May 2001, the Ministry of Interior established a Human

Trafficking Task Force. This comprises representatives from different ministries and the

judiciary. It started working on the preparation of a Memorandum of Co-operation, which

should lead to a common action framework against trafficking. A permanent working group has

been established to solve urgent migration problems in Bulgaria.

The National Action Plan on

asylum

policy has been followed by a report on further

harmonisation of national legislation with the

acquis.

An interdepartmental working group

chaired by the Agency for Refugees has been formed to ensure full compliance of the Refugees

Act, with the 1951 Geneva Convention (e.g. as regards the non-refoulement principle) and the

acquis.

Apart from the ratification of the Agreement between Bulgaria and Belgium on

police-co-

operation

in March 2001, no progress can be reported in the area of police co-operation.

Bulgaria is still negotiating a co-operation agreement with Europol.

Also, with regard to the

fight against organised crime

, little progress can be reported.

Proposed amendments to the Penal Code were rejected by the last National Assembly before

the recent elections took place. In September 2001, Bulgaria and Ukraine signed an agreement

on co-operation in combating crime and a protocol on co-operation between the respective

Ministries of Interior.

As far as the

fight against fraud and corruption

is concerned, (see

also Section B.1.1. -

Democracy and the rule of law)

little progress can be reported. However, in October 2001,

Bulgaria adopted a national anti-corruption strategy, which is a positive step.

In the area of

drugs,

some progress can be noted as regards approximation of legislation

through the adoption of several legal instruments to make the 1999 narcotic drugs and

precursors control act operational, but the legislation is not yet fully harmonised with the

acquis.

In 2000, the Bulgarian Customs Agency intercepted a total of 2,620 kg of narcotics. 71% of

this was heroin originating from the Middle East. Between January 2001 and August 2001 the

Bulgarian Customs authorities seized a total of 1,260 kg of narcotic substances, including 948

kg of heroine.

Regarding

money laundering,

the Bureau of Financial Intelligence was established as a

separate agency by virtue of a law adopted in the beginning of 2001. The bureau collects,

inspects, analyses and reveals information related to money laundering activity. It may use inter-

service, banking or commercial confidential information, as well as protected personal data. The

new provisions widen the range of legal entities under an obligation to identify their clients in

case of operations over € 15 320 to include for example the Bulgarian National Bank, pension

funds and sports organisations. Entities obliged to provide relevant information to the bureau

must adopt internal rules of control and submit these to the agency for approval.

In the area of

customs co-operation,

in July 2001 Bulgaria adopted a strategy for rationalising

border operations performed by Bulgarian Customs. Bulgaria included the provisions of the

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Istanbul Convention on temporary admission in the Customs Act and its implementing

regulation, so that it can join the convention in 2002. It also concluded a bilateral customs co-

operation agreement with the USA and entered into arrangements with Slovenia, Slovakia and

the Czech Republic, through CEFTA. As to administrative capacity, the Customs Agency

adopted a strategy on organisation and management of human resources.

As regards

judicial co-operation in criminal and civil matters,

some progress has been

made. In April 2001, Bulgaria ratified the UN Convention against trans-national organised

crime including the Protocol to prevent, suppress and punish trafficking in persons, especially

women and children, and the Protocol against smuggling of migrants by land, sea and air. In

March 2001, it adopted a law on withdrawal of Bulgaria’s reservation on article 12 of the

European Convention on Extradition. This reservation allowed Bulgaria to retain its right to

request evidence of crime from the country claiming extradition, which hampered the quick

examination of the extradition requests.

Overall assessment

Overall, Bulgaria is quite well advanced in alignment in the areas of visa policy, migration,

border control, customs co-operation and judicial co-operation. However, in all these areas,

efforts to upgrade the administrative capacity will need to continue. Shortcoming remains in

implementation capacity, training and equipment.

Bulgaria has not yet adopted a law on

data protection,

so it does not yet have a system of

protection of personal data compatible with the

acquis.

Bulgaria has already largely aligned its

visa

policy with that of the European Union. It maintains

visa-free regimes with FYROM, Romania, Tunisia, and Yugoslavia. Despite recent efforts,

the capacity of the visa centre will need to be strengthened to deal efficiently with the large

increase in the number of requests for visas.

Bulgaria has established an automated information system, which contains categories of

information similar to those of the

Schengen

Information System, and has introduced a visa

classification in compliance with the Schengen classification, but needs to adopt the necessary

laws in order to have a comprehensive legal framework in this field. It still needs to bring the

procedure for issuing transit visas for Turkish citizens at the Bulgarian border into line with the

acquis.

Bulgaria should continue its overall preparation for future participation in the Schengen

area and develop and present a Schengen Action Plan.

As regards

external borders

, demilitarisation of the border police continues and a border

management strategy has been developed. However there is a need to widen it towards an

integrated border management strategy whereby all agencies active in the border region - in

particular the future external border of the EU - are involved.

Although the border police has started the process of modernising its mobility, communication

and surveillance equipment, the equipment used at the green and blue borders is to a large

extent outdated and not fully operational, in particular as concerns radio communication.

Regarding administrative capacity, the current structure comprises a central directorate with ten

main divisions and 13 regional border sectors. The central directorate directs and controls 28

border checkpoints. As of March 2001, the strength of the National Border Police Service was

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8,168 , of whom 4,468 were professional police officers and sergeants, 3,013 military

conscripts and 687 technical personnel.

With regard to

migration,

there are now readmission agreements with all EU member states

(except the United Kingdom and Ireland) and with Norway, the Czech Republic, Poland,

Hungary, Slovakia, Slovenia, Romania, and Yugoslavia. Bulgaria is negotiating with the United

Kingdom and Ireland. Bulgaria should continue its current efforts and sign further agreements

with candidate countries and third countries.

Bulgarian legislation on

asylum

is already to a large extent aligned with the

acquis

and the main

international instruments such as the UN Geneva Convention on the Status of Refugees of

1951, the New York Protocol on the Status of Refugees of 1967, and the European

Convention on the Protection of Human Rights and Fundamental Freedoms of 1950. However

a number of gaps in the legislation exist and will need to be addressed in the amendments to the

Refugees Act. The current role of the police, in particular the border police, in the accelerated

procedure for asylum applications, as well as the lack of a fully independent appeal procedure

against these decisions, is not in line with EU standards and provisions. This needs to be

addressed. The number of asylum seekers in Bulgaria remains limited, although a sharp increase

in the number of applications lodged in the past year can be noted. According to the Agency of

Refugees, 1,513 filed for asylum in Bulgaria between January and August 2001. Refugee status

has been granted to 292 people, and humanitarian status to 750 in this period. From March

1993 to the end of August 2001, 7,451 asylum request were filed in Bulgaria. Refugee status

was granted in this period to 1,188 persons.

Infrastructure remains to a certain extent underdeveloped; there is one refugee centre in Sofia

with a capacity of about 500 persons and another centre in Banya with a capacity of 60

persons. In addition, a temporary transit centre for refugees has been opened at the Kapitan

Andreevo border checkpoint with the assistance of the UNHCR and a non-governmental

organisation. The Government has adopted a decree establishing two registration centres at

Sofia airport and the Kapitan Andreevo border checkpoint, but work is still at a preparatory

stage. In this perspective, Bulgaria needs to make substantial efforts to have sufficient capacity

in refugee transit centres and administrative screening. Additional efforts are needed also to

better integrate recognised asylum seekers and refugees into Bulgarian society.

In the field of

police co-operation and the fight against organised crime

, Bulgaria has

signed intergovernmental agreements on combating international organised crime with Austria,

Belgium, Greece, Italy and Spain, as well as with the Czech Republic, Hungary, Poland,

Romania and Slovakia.

As regards administrative capacity, the Bulgarian Police Services are handicapped by a

complicated organisational structure which results in a significant overlap of responsibilities (e.g.

between the Criminal Police and the National Service to Combat Organised Crime), services

with unclear roles (e.g. the Gendarmerie) and a lack of communication between different police

forces (especially at local and regional level). Despite the fact that police officers are

comparatively well paid (above the national average), the police force suffers from a poor image

linked to perceived corruption. The main reason for this is the lack of transparency and

accountability in the Bulgarian Police. The introduction of a modern human resources policy is

indispensable to improve the efficiency within the Police services.

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Bulgaria is a source of, and transit country for, trafficking of human beings. Women from

Romania, Moldova, Russia, Ukraine, Armenia, Azerbaijan, and Georgia are trafficked for

sexual exploitation to FYROM, Greece, Turkey, Kosovo, Bosnia, Italy, Poland, and other

countries in western Europe. Although Bulgaria is making significant efforts to combat

trafficking, these need to be strengthened. Bulgaria does not have a specific anti-trafficking law

but uses other provisions to prosecute trafficking, which makes taking cases to court more

difficult. Bulgaria does investigate trafficking, encourages victims to testify, and has two police

units dedicated to the problem. Statistics on prosecutions are unavailable, but it appears that

few traffickers have been prosecuted yet. Bulgaria also needs to adopt a programme for

prevention and for the protection of victims.

As regards the

fight against fraud and corruption,

significant further efforts need to be

undertaken. A new strategy to combat organised crime needs to be developed. With regard to

the protection of the financial interests of the European Communities, Bulgaria needs to

complete aligning its legislation with the

acquis,

and in particular with the 1995 Convention on

the Protection of the Financial Interests of the European Communities and its protocols.

In the area of

drugs,

Bulgaria has adopted several legal instruments to make the 1999 narcotic

drugs and precursors control act operational, but needs to make further efforts to harmonise its

legislation with the

acquis.

It also needs to elaborate a comprehensive national anti-drugs

strategy, covering not only the law enforcement side but also the prevention and health aspects,

and to strengthen the administrative capacity in this area. Regarding administrative capacity, the

National Council on Narcotic Drugs has set up a secretariat, which should become the National

Focal point for co-operation with the European Monitoring Cemtre for Drugs and Drugs

Addiction in Lisbon. However, the Focal Point is not operational yet.

The Bureau of Financial Intelligence (BFI) still lacks the capacity to deal efficiently with the

documents submitted by the numerous entities and thus additional resources should be

provided. Co-operation between the BFI and other law enforcement agencies and the judiciary

in particular remains an issue of great concern. The BFI is a modern agency with a small but

highly motivated staff. However, an anti-money

laundering

policy can only be successful if

co-operation between BFI and all other law enforcement agencies is successful and in particular

if all cases brought to the attention of the court by the BFI are also treated with the attention

they deserve.

Bulgaria is party to the major international agreements in the area of

customs

co-operation and

is preparing for accession to the EC conventions in this area upon accession. It has concluded

bilateral agreements with Armenia, Austria, Azerbaijan, Greece, FYROM, Mongolia, Romania,

Russia, Turkey, the United Kingdom, Ukraine, the USA and Yugoslavia. Intelligence and

investigation services within the Bulgarian customs are being established but do not yet meet EU

standards. They are in need of both administrative strengthening and specialised training,

including in covert surveillance techniques. The effectiveness of their work will depend on the

further development of risk analysis and modern methods to fight fraud and corruption.As

regards the fight against fraud and corruption, significant further efforts need to be undertaken.

As regards

judicial co-operation

in criminal and civil matters, Bulgaria has signed 37 bilateral

agreements on judicial co-operation and multilateral agreements with its neighbours to combat

transnational organised crime. Judges and practitioners still face major difficulties in extradition

cases. Bulgaria's existing reservation on article 23 of the European Convention on Extradition,

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which requires an extradition request to be submitted to the court with a translation into one of

the official languages of the Council of Europe, causes delay and loss of procedural time.

The capacity to deal with international legal cases, and in particular for extradition matters,

needs to be reinforced in order to deal rapidly with incoming requests. The Directorate

responsible for this in the Ministry of Justice needs to be strengthened. The appropriate level of

co-operation as regards mutual recognition and enforcement of judicial decisions, and direct

court-to-court dealings in cross-border situations also needs to be ensured.

The

human rights

legal instruments covered by the Justice and Home Affairs

acquis

have been

ratified by Bulgaria, with the exception of the 1981 Council of Europe Convention on the

protection of individuals with regard to automatic processing of personal data.

Chapter 25: Customs Union.

Bulgaria has made some progress in this field since the last Regular Report.

As regards alignment with the

EC Customs Code and its implementing provisions,

it can be

noted that Bulgaria has already achieved a high degree of alignment. Bulgaria made further

progress in aligning its legislation on free zones, transit, recovery of customs debt and customs

regimes with economic impact.

As far as the

customs

acquis

outside the Customs Code

is concerned, legislation was

adopted which further aligns Bulgaria’s legislation in the field of duty reliefs and cultural goods

with the

acquis.

A more detailed procedure for administering tariff quotas, defining the

responsibilities of the customs offices and the central customs directorate was introduced.

As far as the

administrative and operational capacity

to implement the

acquis

is concerned,

little progress can be reported. Rules of procedure for the National Customs Agency were

adopted and an ordinance on the procedures related to the customs declaration was amended.

In order to prevent corruption among customs officials, Bulgaria formalised ethics rules,

provided training, introduced a rotation system, strengthened control of employees and their

secondary income, and increased sanctions.

The legal framework has improved with the adoption of the law on the civil service, which

applies to customs officers and which stipulates that civil servants shall be recruited through

general selection tests only. However, transitional rules are being applied, and recruitment is

often done by local offices on the basis of diverging criteria. Only about 750 customs officers,

out of a total of about 3,750, are likely to be employed as civil servants, as opposed to

employment under a fixed-term contract. Salaries are low and staff turnover is high.

A regulation determining the organisation of the central administration of the customs

administration has been adopted, but the rules for the organisation of the 5 regional directorates

have not yet been published. Compared to the previous structure, it can be noted that a post-

clearance control directorate in charge of preventing and collecting customs debts has been

added.

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Overall assessment

Bulgarian legislation is in a large part identical to the EC Customs Code, so a high degree of

legislative alignment has been achieved. Some further adaptation is needed, for example in

customs debts appeals procedures.

As far as the customs

acquis

outside the Customs Code is concerned, further alignment is

required. Bulgaria’s integrated customs tariff contains a number of elements of the EC

Integrated Tariff (TARIC), however, some elements such as anti-dumping and countervailing

duties, reference and minimum prices, export and import restrictions and prohibitions are not yet

included in the integrated tariff.

Regarding the administrative and operational capacity to implement the

acquis,

Bulgaria needs

to strengthen substantially its administrative capacity and capacity to combat fraud.

Communication between the various directorates should be improved as regards analysis and

discussion of regulatory changes. A basic declaration processing system has been set up, but

the issue of interconnectivity and compatibility with systems used by EU customs administrations

will need to be addressed. Many border crossing points still lack modern equipment, in

particular laboratory and detection equipment, e.g. for container screening.

Considerable further efforts are needed in order to combat corruption among customs officials.

Apart from improving detection mechanisms, Bulgaria will have to ensure that sufficient numbers

of its customs staff benefit from the statutory protection offered by the status of civil servant, in

particular with regard to staff performing clearance operations or post-clearance audits. The

rules on recruitment have to be more coherent and transparent, and the criteria of dismissal must

be made much more precise. Salaries remain low and career management needs to be

improved. Moreover, officials need strengthened investigative powers.

Training is necessary to ensure that customs offices apply the rules in a uniform way. There is

also a need for better co-ordination with other border-related services, especially the border

police and the other police forces.

Chapter 26: External relations

Since the previous Regular Report, Bulgaria has continued to align with the

acquis

with regard

to the common commercial policy and to co-ordinate positions and policies within the World

Trade Organisation with those of the EU. Bulgarian policy in this area follows the path of further

liberalisation of global trade, notably its trade relations with preferential partners, in particular

with the EU.

As regards the

common commercial policy,

upon accession Bulgaria will be required to align

its tariffs with those of the EU. Bulgaria’s applied MFN tariffs currently average 12.7% on all

products, 23.7% on agricultural products, 10.1% on industrial products and 11.8% on fish and

fish products. By comparison the EC tariffs

currently stand at 6.3% on all products, 16.2% on

agricultural products, 3.6% on industrial products and 12.4% on fish and fish products.

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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Bulgaria increased its tariff rates from 25% to 40% for fertilisers (only ammonium nitrate, not

carbamide) during the reporting period, but abolished the measure before schedule. This

safeguard measure was justified by the need to ensure higher protection for the local fertiliser

plants against relatively low-cost import mainly from Romania. The rate did not concern EU

companies but was applicable on imports from CEFTA countries.

Legislative progress has been made in further liberalising and streamlining the licensing

procedures to facilitate imports and exports.

Amendments to the law on export insurance, ensuring further alignment with the

acquis,

indicated as a short-term priority in the NPAA, were not adopted as foreseen. Nevertheless,

there has been progress in implementing the provisions of the law on export insurance.

In the field of dual-use goods, the law on controlling arms was not passed by the Parliament,

although the first reading took place in 1999.

Negotiations on a new wine and spirits agreement with the EC were finalised in December

2000. Negotiations on further trade concessions for processed agricultural products have been

concluded on a technical level.

Concerning

bilateral agreements with third countries,

a Free Trade Agreement (FTA) was

signed with Lithuania and the FTA with Israel was ratified in 2001. Negotiations are ongoing for

concluding FTAs with Latvia, Estonia, Croatia and Morocco.

Bulgaria became a signatory to the Memorandum of Understanding on Trade Liberalisation and

Facilitation in the framework of the Stability Pact for South Eastern Europe on 27 June 2001.

Under this Memorandum of Understanding, Bulgaria has committed to conclude with the six

other signatories (Albania, Bosnia-Herzegovina, Croatia, the Federal Republic of Yugoslavia,

FYROM and Romania) a network of bilateral free trade agreements by 2002, liberalising at

least 90% of their trade, within a transitional period of six years.

Bulgaria progressed further towards accession to the WTO Public Procurement Agreement. It

submitted the questionnaire/check-list required by the WTO Committee on Public Procurement.

The next step will be for Bulgaria to prepare its offer on public procurement.

Concerning the Information Technology Agreement (ITA), Bulgaria has been applying its

provisions on an autonomous basis. In February 2001 Bulgaria submitted its list of commitments

concerning tariff reductions on IT products and the list was approved by the WTO. At present

the formal decision by the committee on the accession of Bulgaria to the ITA is expected.

In the field of

development policy and humanitarian aid,

Bulgaria has so far no specific

budget allocation for these purposes.

Overall assessment

Bulgaria is rather advanced in the area of bilateral free trade agreements with EC preferential

partners, in regional trade liberalisation as well as with regard to its overall trade policy. Further

progress is however still needed to achieve full alignment with the EC’s international trade

obligations.

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Bulgaria has progressed towards acceding to WTO instruments, particularly in the fields of

public procurement and IT. It will need to have joined the WTO plurilateral agreements on IT

and Government Procurement by the time of accession to the EU. In addition, further co-

operation is needed to ensure the alignment of Bulgaria's GATS commitments with EC

commitments and MFN exemptions. With regards to the WTO Agreement for Textiles and

Clothing (ATC), Bulgaria needs to use its third stage notification to align its list of integrated

products under the ATC to the EU's while avoiding integrating products that have not yet been

integrated by the EC.

Bulgaria actively co-ordinates its policy in the WTO with the EU and has been supportive of

EU policies and positions within the WTO framework. As regards a new WTO round, Bulgaria

concurs with the EU on the need to launch a comprehensive trade round as soon as possible

and shares the view that the results of work under the built-in agenda would be less substantial

in its absence.

Bulgaria has bilateral Free Trade Agreements with the CEFTA countries, EFTA, FYROM,

Lithuania and Israel.

Bulgaria should keep the Union fully informed about existing trade agreements or negotiations

aimed at the conclusion of any new trade agreements with a third country. Any international

agreement which is incompatible with the obligations of membership will have to be renegotiated

or renounced prior to accession.

Where medium and long-term export credits are granted, further alignment with the

acquis

still necessary.

Further alignment is also necessary in the field of dual-use goods.

Bulgaria’s alignment with and future participation in the common commercial policy is

administered by the Ministry of Economy, the Ministry of Foreign Affairs and the Export

Insurance Agency. The administrative capacity in the area (particularly in the trade policy area,

FTAs and bilateral relations) is good overall; human resources have a high level of qualification

and are sufficiently experienced. Substantial work still lies ahead in the area of export control.

The administrative infrastructure which needs to be in place as regards customs services is

addressed under

chapter 25 –Customs union.

Decisions on development and humanitarian aid are made by the Council of Ministers. Bulgaria

should ensure that preparations are made to ensure the administrative infrastructure

(participation in EU committees and working groups) for development co-operation is in place

upon accession. For the purpose of Bulgaria’s future financial contribution to the European

Development Fund, Bulgaria’s management of its national budget organisation and management

of flow of funds to the EC budget is addressed under

chapter 29 – Financial and budgetary

provisions.

Chapter 27: Common foreign and security policy

Since the previous Regular Report, Bulgaria 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 (CFSP).

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The regular

political dialogue

established by the Association Agreement with Bulgaria is

proceeding smoothly and Bulgaria continues to orient its foreign and security policy towards the

Union. It continues to participate actively in the framework of the CFSP, including all the

relevant meetings at the level of Political Directors, European Correspondents and Working

Groups.

Bulgaria has shown a keen interest in the development of the European Security and Defence

Policy (ESDP) as part of CFSP and has actively participated in the exchanges in this context

with the EU, in the EU + 15 format (i.e. non-EU European NATO members and candidates for

accession to the EU). Bulgaria has developed considerable efforts to support international

peacekeeping missions and has participated in a series of UN, KFOR and OSCE

peacekeeping observer operations.

Bulgaria played an active role in the first Capabilities Commitment Conference in November

2000 and, in March 2001, held bilateral consultations with the EU on its participation in ESDP

missions. It has announced its preparedness to contribute both to the EU Rapid Intervention

Force missions and to EU civilian instruments for crisis management.

As regards alignment with

EU statements and declarations

, Bulgaria's statements have

consistently been in line 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

sanctions and restrictive

measures.

Since October 2000, it associated itself with 8 EU common positions, including 3

on the Federal Republic of Yugoslavia.

Bulgaria has trilateral co-operation relationships with Greece and Romania, Romania and

Turkey, FYROM and Albania, and Greece and Turkey. It is an active member of the Stability

Pact. Relations with most neighbours remain good or even improved (Romania, FRY). The

developments in FYROM have been of great concern in Bulgaria and a priority of the

government.

Regarding arms exports, the law on control of trade in arms, which had its first reading in

Parliament in 1999, has not yet been adopted and will need to be amended to ensure full

compatibility with EU rules. On 5 April 2001 a decree was adopted imposing a ban or

restrictions on the sale and supply of armaments and equipment of any kind, including arms and

ammunition, military means of transportation, spare parts and military assistance and training of

military personnel to 19 countries. The decree was adopted in compliance with UN Security

Council resolutions and decisions of the EU and the OSCE. Bulgaria thus adopted the practice

of EU Member States where the government indicates which countries are subject to sanctions.

Overall assessment

Bulgaria’s alignment in this field is satisfactory. Bulgaria continues to contribute substantially and

actively to regional stability. Bulgaria maintains good relations with its neighbours and adopted a

constructive attitude to the FYROM crisis (supporting the EU initiatives and the international

community). As the

acquis

in the field of foreign policy and security develops further, Bulgaria

should maintain the orientation of its foreign policy in line with that of the Union.

Concerning the administrative capacity to implement the provisions relating to the CFSP, the

Bulgarian Ministry of Foreign Affairs has an administrative set-up compatible with EU Member

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States’ CFSP structures. The Bulgarian MFA is connected to the Associated Correspondent’s

Network’s information system through which the EU communicates within the CFSP with the

associated partners.

Chapter 28: Financial control

During the period covered by this Regular Report, Bulgaria has made further progress in this

area.

As regards

public internal financial control,

the new Public Internal Financial Control (PIFC)

law came into effect at the beginning of 2001. The law allows the independent PIFC Agency in

the Ministry of Finance to perform

ex ante

control and a centralised version of internal audit.

The Agency is also responsible for harmonising internal audit systems and financial management

and control in the wider public sector. Regulations relating to the implementation of the new law

were adopted in May. Meanwhile, a regulation on the structure of the Agency was adopted in

February 2001, the Agency now has a total of 1 421 staff, including 1 134 auditors, in Sofia

and the country’s 28 administrative regions.

As regards

external audit,

the National Audit Office (NAO) prepared new legislation in 2000

to bring the legal framework into line with internationally accepted and EU-compliant external

audit standards, in consultation with the European Court of Auditors and as foreseen in the

NAO’s Strategic Plan. The draft legislation was withdrawn from the National Assembly in

September 2000 for modifications Meanwhile, the NAO made progress in harmonising its audit

methodology with INTOSAI standards and European implementing guidelines, and in drawing

up and testing national audit standards. The NAO, which has 474 staff including 355 auditors,

has also put considerable efforts into training, qualification and other activities to improve the

professional capacity of the organisation.

With regard to

EC pre-accession funding,

the National Fund in the Ministry of Finance has

overall responsibility for managing EC funds. An ongoing programme of institution-building

aims to improve the capacity of the National Fund and the various Implementing Agencies, in

preparation for the eventual extended decentralisation of Phare and ISPA implementation. Both

the National Fund and CFCU are now staffed by permanent civil servants. Bulgaria’s

SAPARD Agency was the first in any candidate country to secure partial accreditation from the

Commission, in May 2001. New arrangements were made in 2001 to ensure that national co-

financing for projects supported by EC funds was made available in a more systematic and

timely way. The PIFC Agency will certify the accounts of the newly accredited SAPARD

Agency in addition to auditing the use of Phare and ISPA funds.

In the field of

protecting EC financial interests,

the PIFC Agency is entitled to carry out

investigations, including joint on-the-spot checks in relation to EC pre-accession and other

funds.

Overall assessment

Public financial control is a key priority in Bulgaria’s preparations for accession. With the

adoption of the new PIFC law, the legal basis for adequate public internal financial control has

been achieved. The functional independence of the PIFC Agency itself will have to be

reviewed. The adoption of new legislation on external audit has been significantly delayed but

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the latest draft legislation contains all the necessary provisions for organising and operating

external audit to international standards. It is important that the new legislation is adopted as

soon as possible.

There will need to be a sustained and determined effort to implement the new legislative

frameworks and ensure that the PIFC Agency and the NAO discharge their responsibilities in

an effective manner that delivers tangible improvements in public sector financial control. As far

as the PIFC Agency is concerned, the priorities include developing manuals for financial

management and control systems and internal audit, including the audit of EC funds, and phasing

out the practice of funding the PIFC Agency partly from funds recovered during investigations.

As far as the NAO is concerned, the priorities include a redirection towards systems based and

performance audit activities.

These activities will need to be supported by a substantial investment in training staff in the PIFC

Agency, NAO and line ministries. The establishment of a Public Finance School should be

considered. Some first steps have been taken to plan for the eventual extended decentralisation

of Phare and ISPA implementation. Bulgaria needs to strengthen the capacity of the National

Fund, CFCU and other Implementing Agencies dealing with pre-accession funds in preparation

for the eventual extended decentralisation of Phare and ISPA implementation, which will itself

be essential preparation for participation in Structural Funds after accession. The Ministry of

Finance should play a pro-active role in ensuring progress in this area.

Bulgaria should nominate as soon as possible, in consultation with OLAF, an institution or

administrative structure with the appropriate competencies to co-ordinate investigations into

cases of fraud and irregularities affecting the EC's financial interests, and to act as a single

contact point for relations with OLAF.

Chapter 29: Financial and budgetary provisions

Bulgaria has made some progress over the reporting period, notably as regards the

national

budget and EC co-financed measures.

A new text in the State Budget Law covers the

domestic and foreign currency guarantees of budgetary organisations. The Decree

implementing the latest State Budget Law was adopted in January 2001, which reflects a

substantial improvement in the timeliness of budgetary procedures. The Ministry of Finance

approved the Chart of Accounts for budget entities in February 2001; this will ensure the

preparation of public sector accounts on an accrual basis.

The state budget planning process has been improved by using cost-benefit analyses, bringing

forward the planning process, preparing medium-term spending and revenue forecasts,

increasing control on budgetary spending, and placing a greater emphasis on the outputs of

public spending programmes. The number of extra-budgetary accounts is being gradually

reduced. The Ministry of Finance has started implementing a new treasury system to improve

management of national and EC funds; it should cover all budgetary and extra-budgetary

accounts by 2003. A new system for electronic budgetary payments has become operational.

The Ministry has set up a department for budgetary aspects of European integration.

As regards

Own Resources and administrative infrastructure

, Bulgaria’s customs and tax

administrations have continued to strengthen their administrative and operational capacity

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through new information systems, training and improving their internal organisation

(see also

chapters 10, taxation, and 25, customs union).

Overall assessment

Although basic budgetary rules are broadly satisfactory, Bulgaria should ensure that further

efforts are made to bring the budgetary principles and rules into line with those standards

generally applicable in the Community. Public expenditure management and control has

improved. The broadened scope and medium-term perspective of public expenditure planning

and control, the phasing out of extra-budgetary funds, and the introduction of the Treasury

Single Account and Chart of Accounts are positive developments. There has been less

progress in improving the analysis of policy, programme and project outputs, with public

expenditure still essentially input-driven.

In the immediate future, the priorities include extending and implementing the Treasury Single

Account, the new accounting system and the Financial Management Information System,

strengthening top-down mechanisms for making budget decisions, and implementing the multi-

annual budgeting framework. In the medium term, national accounts statistics must be brought

into compliance with the ESA95 standard, a more detailed functional budget classification

should be developed, budget legislation should be aligned with EU and international standards,

the remaining extra-budgetary funds should be closed and the number of budget entities

reduced, and the Ministry of Finance should pursue its own internal restructuring to strengthen in

particular its strategic capacity to evaluate the composition and quality of public expenditure.

In relation to the control of future EC Own Resources, Bulgaria should strengthen its efforts to

set up effective instruments to combat fraud relating to VAT and customs duties so that the

protection of the financial interests of the EC can be assured. In addition to the need for central

co-ordination for the proper collection, monitoring and payment and control of funds to and

from the EC budget, administrative capacity should be strengthened in the context of the

relevant policy areas described elsewhere in this report such as Financial Control, Customs,

Taxation, Regional Policy and Agriculture. Appropriate administrative steps should be taken by

Bulgaria to ensure adequate co-ordination between the various authorities involved in the

application of the system of Own Resources. The capacity to calculate in a reliable, accurate

and transparent way the level of customs duties and VAT collected by Bulgaria and to calculate

Bulgaria’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 language

Applicant countries are required to translate the various legal texts constituting the

acquis

into

their national languages by the time of their accession. Primary and secondary legislation alone

represents a considerable volume of acts, roughly estimated at 60,000-70,000 pages of the

Official Journal. To help the candidate countries in this process, assistance is being provided

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under the Phare programme. With the help of TAIEX, a centralised Translation Co-ordination

Unit has been created in each of the ten candidate countries of Central and Eastern Europe.

In Bulgaria, a Central Translation Unit was created in 1997 within the Ministry of Justice and

Legal European Integration. A strategy on the priorities for translation of the

acquis

during the

process of accession to the EU was drawn up. This strategy provides for four stages in the

translation process: initial translation, linguistic revision, legal revision and final revision. In 2001,

in order to meet the increasing need for translations of the

acquis,

the Central Translation Unit

was replaced by the National Document and Translation Centre under the responsibility of the

Minister of Public Administration. This new centre brings together the functions of the Central

Translation Unit, the National Documentation Centre of the Ministry of Justice, and the editorial

unit on regulatory acts. The new centre, which was only set up in May 2001, is currently in the

process of taking on new staff following the holding of competitions.

The basic treaties have been translated. Regarding secondary legislation, 13 785 pages of the

Official Journal have been translated and 3 000 of these have been fully revised. Last year’s

report mentioned that by 2001, a minimum of 17 000 pages of the Official Journal will be being

translated each year. Current performance appears to be well below this target, but it is hoped

that the new centre will be able to speed up work once staff are in place. Without prejudice to

the outcome of the accession negotiations, considerable further efforts are required in this area.

Due attention must also be given to the training of conference interpreters.

3.3.

General evaluation

Bulgaria has continued a good pace of alignment of legislation with the

acquis

but still needs to

pay more attention to how this will be implemented and enforced. Progress on public

administration reform has continued and is a positive sign. This needs to be sustained to ensure

public administration is prepared for its role at EU accession. However, little has been done to

prepare the judicial system, which needs to be modernised and strengthened, in particular to

ensure effective enforcement of the

acquis.

Regarding the internal market, Bulgaria has made further progress in most areas. In free

movement of goods progress continued with membership of European Accreditation as a major

achievement. Reinforcement of administrative infrastructure for standardisation and certification,

and of market surveillance systems, is still necessary. On financial services, Bulgaria has

developed sound banking supervision practices. Company law has been further aligned and the

legal framework for protecting intellectual and industrial property rights improved, but further

steps are needed to ensure this is enforced. On state aids, Bulgaria is at last starting to develop

and implement a framework for state aids but this is not yet compatible with the

acquis.

Bulgaria still lacks a legal framework on data protection compatible with the

acquis.

In agriculture, Bulgaria has continued generally good progress on approximation of legislation

but implementing the

acquis

poses a significant challenge. Veterinary and phytosanitary

inspection arrangements need further upgrading. The partial accreditation of SAPARD is a

noteworthy success. Progress on fisheries has accelerated compared to previous years.

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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Whilst progress has been made to amend labour law towards alignment with the

acquis,

progress on equal treatment legislation remains slow. Whilst administrative capacity of the

general labour inspectorate has been reinforced, the capacity to implement the

acquis

occupational health and safety will need to be increased.

Concerning regional policy, Bulgaria has made little further progress and much more attention

needs to be paid to preparation for implementing structural policies.

Bulgaria has continued its positive efforts on transposition of the EC environmental

acquis

but

implementation and the cost of alignment remain a challenge.

The pace of progress on transport has been pursued both on adoption and creation of

implementing structures. There has also been an increase in investments.

The restructuring of the energy sector has progressed at a very slow pace throughout 2001

following delays in the planned revision of the legislative framework. These delays have

hindered efficiency improvement and preparation for privatisation. As regards nuclear energy,

Bulgaria must respect the de-commissioning commitments of the Memorandum of

Understanding and ensure a high level of nuclear safety.

In justice and home affairs, further progress has been made in most areas in terms of legislation

but progress on strengthening administrative capacity was not as strong as required. Some

progress has been made on control of external borders; however, there is scope for further

improvement, in particular in inter-agency co-operation.

In external policies, Bulgaria’s performance remains strong, continuing to make a substantial

contribution to regional stability and following the path of trade liberalisation with the EC and its

preferential partners.

For customs and taxation, Bulgaria will need to develop IT systems that allow for exchange of

data with the EC.

Further progress has been made to strengthen financial control and on improving public

expenditure management and control. Efforts should be pursued.

Whilst some progress can be noted on establishment of the institutions necessary to implement

the acquis and on public administration reform, the capacity of the Bulgarian administration

remains limited. Further sustained progress and allocation of the necessary resources will be

necessary to meet the challenges ahead. Further efforts are also required in establishing the

necessary administrative capacity to ensure the sound, efficient and controllable management of

EC funds.

Whilst work on public administration is progressing, the slow pace of preparation of the judicial

system to enforce the

acquis

is worrying. Progress on judicial reform needs to be substantially

accelerated.

Bulgaria has fulfilled partially and made progress since last year on all of the short-term

Accession Partnership priorities relating to the

acquis.

Concerning administrative capacity,

Bulgaria has moved forward on priorities, with the exception of that of strengthening the

judiciary, where little progress has been made. The implementation of the recently adopted

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strategy for judicial reform should make a difference. Bulgaria has started to address the

majority of medium-term Accession Partnership priorities.

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C. Conclusion