LATVIA: ACCESSION PARTNERSHIP (98/C 202/05)

1. INTRODUCTION

In the opinion which it submitted to the Council in July 1997, in accordance with the provisions of Article O of the Treaty, the Commission provided its recommendation to the Council regarding Latvia's application for membership of the European Union. The Commission considers that negotiations for accession to the European Union should be opened with Latvia as soon as it has made sufficient progress in satisfying the conditions of membership defined by the European Council in Copenhagen. This recommendation derives from the analysis contained in the opinion, in which the Commission is of the view that Latvia (i) presents the characteristics of a democracy, with stable institutions, guarantees the rule of law, human rights and the respect for and protection of minorities; but measures need to be taken to accelerate the rate of naturalisation of non-citizens to enable them to become better integrated into Latvian society, (ii) has made considerable progress in the creation of a market economy, but would face serious difficulties in coping with competitive pressure and market forces within the Union in the medium term, and (iii) has made some progress in transposing and implementing the acquis relating particularly to the single market and should with considerable further effort be able to participate fully in the single market in the medium term.

The Europe Agreement will remain the basis for the European Union's relations with Latvia. However the pre-accession strategy will be reinforced to enable assistance to be directed towards the specific needs of each applicant so as to provide support for overcoming particular problems identified in the opinion. As the Commission indicated in Agenda 2000: 'The reinforced pre-accession strategy has two main objectives. First, to bring together the different forms of support provided by the Union in a single framework, the Accession Partnerships, and to work together with the applicants, within this framework, on the basis of a clearly defined programme to prepare for membership, involving commitments by the applicants to particular priorities and to a calendar for carrying them out. Second, to familiarise the applicants with Union policies and procedures through the possibility of their participation in Community programmes.`

At its meeting in Luxembourg in December 1997 the European Council decided that the Accession Partnerships would be the key feature of the enhanced pre-accession strategy, mobilising all forms of assistance to the applicant countries within a single framework. This Accession Partnership has been decided by the Commission, after consulting Latvia and on the basis of the principles, priorities, intermediate objectives and conditions which have been decided by the Council.

2. OBJECTIVES

The purpose of the Accession Partnership is to set out in a single framework the priority areas for further work identified in the Commission's opinion on Latvia's application for membership of the European Union, the financial means available to help Latvia implement these priorities and the conditions which will apply to that assistance. This Accession Partnership provides a framework for a number of policy instruments which will be used to help the candidate countries in their preparations for membership. These will include, inter alia, the National Programme for the Adoption of the Acquis to be adopted by Latvia, the Joint Assessment of Economic Policy Priorities, the Pact against Organised Crime and the internal market road maps. Each of these instruments is different in nature and will be prepared and implemented according to specific procedures. They will not be an integral part of this Partnership but the priorities they contain will be compatible with it.

3. PRINCIPLES

The main priority areas identified for each candidate country relate to their ability to assume the obligations of meeting the Copenhagen criteria which state that membership requires:

- that the candidate country has achieved stability of institutions guaranteeing democracy, the rule of law, human rights and respect for and protection of minorities,

- the existence of a functioning market economy, as well as the capacity to cope with competitive pressure and market forces within the Union,

- the ability to take on the obligations of membership, including adherence to the aims of political, economic and monetary union.

At its meeting in Madrid, the European Council stressed the need for the candidate countries to adjust their administrative structures to ensure the harmonious operation of Community policies after accession and at Luxembourg it stressed that incorporation of the acquis into legislation is necessary, but not in itself sufficient; it is necessary to ensure that it is actually applied.

4. PRIORITIES AND INTERMEDIATE OBJECTIVES

The Commission's opinions and the Council's examination of these have highlighted the extent of the efforts which still have to be made in certain areas by the candidate countries to prepare for accession and took the view that none of these countries fully satisfies all of the Copenhagen criteria at the present time. This situation will require the definition of intermediate stages in terms of priorities, each to be accompanied by precise objectives to be set in collaboration with the countries concerned, the achievement of which will condition the degree of assistance granted and the progress of the negotiations under way with some countries and the opening of new negotiations with the others. The priorities and intermediate objectives have been divided into two groups - short and medium term. Those listed under the short term have been selected on the basis that it is realistic to expect that Latvia can complete or take them substantially forward by the end of 1998. In view of the short time span, and taking into account the administrative capacity required to achieve them, the number of priorities selected for the short term has been limited. The priorities listed under the medium term are expected to take more than one year to complete although work may and should also begin on them during 1998.

Latvia will be invited to draw up a National Programme for the Adoption of the Acquis (NPAA) by the end of March which should set out a timetable for achieving these priorities and intermediate objectives and, where possible and relevant, indicate the necessary staff and financial resources.

The Accession Partnership indicates that Latvia will have to address all issues identified in the opinion. The annex provides a summary checklist of these. Incorporation of the acquis into legislation is not in itself sufficient; it will also be necessary to ensure that it is actually applied to the same standards as those which apply within the Union. In all of the areas listed below there is a need for credible and effective implementation and enforcement of the acquis.

Drawing on the analysis of the Commission's opinion and the Council's examination of this, the following short and medium-term priorities and intermediate objectives have been identified for Latvia.

4.1. Short term (1998)

- Political criteria: take measures to facilitate the naturalisation process to better integrate non-citizens including stateless children and enhance Latvian language training for non-Latvian speakers.

- Economic reform: establishment of medium-term economic policy priorities and joint assessment within the framework of the Europe Agreement; acceleration of market-based enterprise restructuring, in particular through the completion of the privatisation process; continued strengthening of the banking sector; modernisation of the agriculture sector and establishment of a land and property register.

- Reinforcement of institutional and administrative capacity: further structural reform of public administration is needed and in particular in customs and tax administration, financial control capacity, reinforcement of the agriculture ministry and the establishment of a training strategy for the judiciary, reinforcement of the veterinary and phytosanitary administrations, particularly as regards facilities at external borders, institutional strengthening in the area of environment, begin to set up structures needed for regional and structural policy.

- Internal market: further alignment including in the areas of intellectual and industrial property rights, public procurement, financial services, competition, State aids and indirect taxation, adoption of a law on State aid and increased transparency through improvement of the aid inventory and reinforcement of the new anti-trust authority.

- Justice and home affairs: in particular further efforts to implement measures to combat corruption and organised crime and to continue judicial reform.

- Environment: continue transposition of framework and horizontal legislation, establishment of detailed approximation programmes and implementation strategies related to individual acts. Planning and commencement of implementation of these programmes and strategies.

4.2. Medium term

- Political criteria: accelerated integration of non-citizens by facilitating the naturalisation process including for stateless children.

- Economic reform: consolidation of the privatisation process; reinforcement of market-driven restructuring in the enterprise, finance and banking sectors, development of regulatory framework for utilities and financial services, and strengthening of competition policy.

- Economic policy: regular review of the joint assessment of economic policy priorities, within the Europe Agreement framework, focusing on satisfying the Copenhagen criteria for membership of the Union and the acquis in the area of economic and monetary policy (coordination of economic policies, submission of convergence programmes, avoidance of excessive deficits); while Latvia is not expected to adopt the euro immediately on accession, it is expected to pursue policies which aim to achieve real convergence in accordance with the Union's objectives of economic and social cohesion, and nominal convergence compatible with the ultimate goal of adoption of the euro.

- Reinforcement of institutional and administrative capacity: enforcement of European Community's internal market legislation and establishment of institutions able to implement the Community's regional development programmes and agricultural policy (including statistical capacities) including anti-fraud services, strengthening of the budgetary process and macroeconomic forecasting capacity; improved operation of the judicial system; training for the judiciary in Community law and its application, reinforcement of justice and home affairs institutions (ensuring sufficient and properly trained personnel, in particular police, border guards, ministries and courts), reform of customs and tax administrations to ensure readiness to apply the acquis and the reinforcement of food control administration.

- Internal market: including alignment of legislation in the fields of customs, audiovisual policies, statistics and financial services, upgrading of standardisation and conformity assessment structures, establishment of a market surveillance system and alignment of horizontal technical legislation on industrial products, further alignment of competition legislation in particular in the field of State aid, reinforcement of anti-trust and State aid authorities, promotion of enterprise development, including SMEs, alignment with the acquis in the fields of telecommunications, consumer protection and the internal energy market.

- Justice and home affairs: including development of effective border management in particular on the eastern border, implementation of migration policy and asylum and refugee legislation, continuation of fight against organised crime (in particular money laundering, drugs and trafficking in human beings) and corruption, and to align visa policy with that of the European Union and to complete alignment to international conventions, notably in view of the Schengen acquis.

- Agriculture: including alignment with the agricultural acquis (including veterinary and phytosanitary matters, in particular external border controls), attention to environmental aspects of agriculture and biodiversity, consolidation of land structure and development of a rural policy. Development of the capacity to implement and enforce the common agricultural policy, in particular the fundamental management mechanisms and administrative structures to monitor the agricultural markets and implement structural and rural development measures, adoption and implementation of the veterinary and phytosanitary requirements, upgrading of certain food-processing establishments and testing and diagnostic facilities, restructuring of the agri-food sector.

- Fisheries: development of capacity to implement and enforce the common fisheries policy.

- Transport: further efforts on alignment with acquis in particular in road freight transport (technical rules and taxation), shipping (safety) and rail transport, and to provide necessary investment for transport infrastructure, notably extension of trans-European networks.

- Employment and social affairs: development of labour market policies and joint review of these policies as preparation for participation in European Union coordination; alignment of labour and occupational health and safety legislation and development of enforcement structures, in particular early adoption of the framework Directive on health and safety at work; enforcement of equal opportunities between women and men; further development of active, autonomous social dialogue; further development of social protection, undertake steps to bring public health standards into line with European Union norms.

- Environment: including the development of monitoring and implementation control structures and capacities, continuous planning and implementation of approximation programmes related to individual legal acts. A particular emphasis should be given to drinking water, waste water, the waste sector and air pollution. Environmental protection requirements and the need for sustainable development must be integrated into the definition and implementation of national sectoral policies.

- Regional policy and cohesion: introduce the legal, administrative and budgetary framework for a national policy to address regional disparities through an integrated approach, in order to participate in European Union structural programmes after membership.

5. MAIN INSTRUMENTS FOR COMMUNITY TECHNICAL AND FINANCIAL ASSISTANCE

5.1. Programming of financial resources

The Phare allocation for the period 1995 to 1997 has totalled ECU 112 million. Subject to the approval of the Phare budget for the remaining period, the Commission will confirm the allocations for 1998 and 1999. In addition, Latvia is eligible for support from the 'catch-up` facility envisaged for 1998 to finance projects relating to privatisation/restructuring, promotion of foreign direct investment and the fight against corruption. Financial proposals will be submitted to the Phare Management Committee as provided for in Council Regulation (EEC) No 3906/89. Joint financing by the applicant countries will be systematically required for all investment projects. The Commission will work with Latvia, the EIB and international financing institutions, in particular the EBRD and World Bank, with a view to facilitating the co-financing of projects relating to pre-accession priorities. Financial assistance from the year 2000 onwards will comprise aid for agriculture and a structural instrument which will give priority to measures similar to the Cohesion Fund. In addition Latvia will have access to funding from multi-country programmes directly related to the acquis.

The Phare programme is the main financial instrument of the reinforced pre-accession strategy. Phare's prime objective is to help prepare Central and East European countries for accession by focusing the assistance it provides on the adoption of the Community acquis and in particular on the priorities identified in this Accession Partnership and in the National Programme for the Adoption of the Acquis. Each year the Commission will sign a financing memorandum with Latvia in which Latvia will undertake to meet a number of the priorities identified in this Accession Partnership and the Commission will undertake to contribute financially to their realisation. Programming of Community financial assistance will take into account the priorities and timetable of the NPAA.

In addition, the subsequent allocation of financial assistance will be closely tied to the respect by the Latvian Government of the commitments made in the NPAA. Certain pre-accession activities can be reinforced now (e.g. support for institution building) but others, such as the financing of major investment projects designed to meet the requirements of the acquis in areas such as environment and nuclear safety will have to be programmed over a period of five to six years.

From 1998 Phare assistance will be channelled through the following types of actions:

- Institution building (around 30 %), which involves the strengthening of democratic institutions, rule of law, public administration and all entities responsible for public services in order to establish the necessary institutional and administrative structures and train the people required to apply the acquis. Institution building support will be implemented, inter alia, through, training actions, technical assistance and twinning of institutions and administrations in Latvia with relevant bodies in the Member States. Initially this twinning will focus on priority areas such as finance, agriculture, environment, justice and home affairs.

- Investment support (around 70 %), in order to make the necessary investments possible for the adaptation of Latvian infrastructure to the Community acquis. This support will concentrate on: (i) structural actions, covering in particular agricultural restructuring, regional development and investment in human and intellectual capital, which could include Phare contributions to participation in the research and technological development framework programme; (ii) compliance with Community norms, in particular as regards environment, agriculture, industry, occupational safety and health, transport and telecommunications; (iii) co-financing of large scale infrastructure (1) and (iv) small and medium-sized enterprises development (2).

5.2. Role of international financial institutions

Cooperation between Latvia and the international financial institutions will receive a new impetus and a new focus through the Accession Partnership. The grant resources made available under the Accession Partnership will serve as seed money and a catalyst for larger amounts of development finance from the IFIs. This process will be developed by the Commission in liaison with the candidate countries, the EIB and the IFIs, in particular the EBRD and the World Bank with a view to facilitating the co-financing of projects relating to pre-accession priorities.

Under a new lending mandate covering the period 1997 to 1999, the EIB can make available ECU 3 520 million in Central and Eastern Europe. The new pre-accession facility approved by the EIB's governors in early 1998 increases this amount to ECU 7 billion. EIB loans shall be used in all sectors eligible for EIB financing to facilitate the accession process.

6. CONDITIONALITY

Community assistance will be conditional on respect by Latvia of its commitments under the Europe Agreement, further steps towards satisfying the Copenhagen criteria and progress in implementing this Accession Partnership. Failure to respect these general conditions could lead to a decision by the Council on the suspension of financial assistance on the basis of Article 4 of Council Regulation (EC) No 622/98.

7. IMPLEMENTATION OF PRE-ACCESSION ASSISTANCE

The provision of financial assistance to Latvia will depend on the maturity of projects proposed by the Latvian Government for inclusion in a financing memorandum. Where projects need to be tendered the Commission will only finance those projects which are ready for tendering at the stage of the signature of the financing memorandum. In addition any previous/existing commitments in the same sector must have been fully contracted or be on track. In order to ensure efficient implementation, projects to be financed must not, in principle, fall below a threshold of ECU 2 to 3 million, in particular in the case of infrastructure projects. If these principles lead to a situation where Latvia cannot absorb its full indicative allocation, the allocation will be reduced accordingly. The difference between the indicative and final allocation will be transferred to the horizontal SME and/or the large scale infrastructure facility. No subsequent compensation of this amount will be made.

The Government of Latvia is invited to put in place an implementation structure which ensures coherence and complementarity between all types of European Union financial assistance and national resources. A national coordinator will be responsible for ensuring a close link between the general accession process and the programming of the Community financial assistance.

The Government of Latvia will establish (preferably in the Ministry of Finance) during 1998 a national fund for investment promotion and institution building functioning under the responsibility of a National Authorising Officer (NAO). As the central entity through which Phare and other forms of Community financial assistance will be channelled, the national fund will be responsible for the management of these funds under decentralised implementation in order to increase transparency and reduce dispersion of funds. It will have overall responsibility for management of funds including respect of provisions of the financing memorandum and be accountable to the Commission for the use of the funds. It will also ensure and supervise the flow of national and other co-financing resources as set out in the financing memorandum. The detailed functions and responsibilities of the national fund will be set out in the individual financing memoranda.

In cooperation with the Government of Latvia, the Commission will pursue a policy of further decentralisation of the implementation of the financial assistance where certain pre-conditions are met, and to the extent permitted by the European Communities' Financial Regulation, in particular Article 105(3). This will be done with the intention to establish, within limits and in a gradual manner, a relationship between the Commission and Latvia where responsibility is shared along the lines of the relationship existing with the Member States for implementing the Structural Funds.

In this context, the possibility of applying national procurement procedures in the tendering and contracting of Phare projects may be explored by the Commission, if so requested by the Government of Latvia, in particular in the field of investment. The Commission's decision on this matter will be taken following, inter alia, examination of the Latvian national procurement law for respect of and compatibility with the basic provisions of the European Community's public procurement rules and its Financial Regulation, including equal participation in tenders and the provisions of Article 118. Any decision on the use of national procurement rules will be taken by the Commission on a case-by-case basis and will be confirmed in the individual financing memoranda.

The monitoring of programme implementation shall be carried out jointly with the Commission through procedures established in the individual financing memoranda. In order to ensure effective monitoring of implementation of assistance under the Phare programme, each Phare programme will incorporate quantified physical and financial objectives which will be specified in the financing memorandum. In order to gauge their effectiveness all operations financed under the Phare programme will be subject to ex-post evaluation to appraise their impact with respect to their objectives.

8. MONITORING

The implementation of the Accession Partnership will be monitored in the framework of the Europe Agreement. This will commence in 1998 before the Commission presents its first regular report to the Council reviewing the progress made by Latvia including implementation of the Accession Partnership.

The relevant sections of the Accession Partnership will be discussed in the appropriate subcommittee. The Association Committee will discuss overall developments, progress and problems in meeting its priorities and intermediate objectives as well as more specific issues referred to it from the subcommittees. The Association Committee will report to the Association Council on the implementation of the Accession Partnership.

The Phare Management Committee will ensure that financing decisions are compatible with the Accession Partnerships.

The Accession Partnership will be amended as necessary in accordance with Article 2 of Regulation (EC) No 622/98. The Commission will propose a review of this partnership before the end of 1999 and at regular intervals thereafter. These reviews will include consideration of the need to further specify intermediate objectives in the light of the progress made by Latvia in meeting the objectives set out in this partnership.

(1) Concerning investment projects in general, Latvia will be required to fulfil the principle of complementarity by means of contributing a minimum amount of 25 % to jointly financed projects.

(2) A horizontal facility for SMEs will be available to remedy the shortage of investment capital available to small enterprises.

ANNEX

Latvia will have to address all issues identified in the opinion. The purpose of this Annex is to provide a summary checklist of these issues mentioned in the opinion on Latvia. These are formulated as recommendations for action. They are listed in the order in which they appear in the opinion without any ranking in terms of importance or urgency. The priority areas for action by each candidate are set out as priorities and intermediate objectives in the Accession Partnership itself.

1. Political criteria

Efforts should be made to enhance the judicial system, to improve conditions in prisons and to intensify the fight against corruption.

Particular measures must be taken to accelerate the process of naturalisation and to improve the integration of non-citizens into Latvian society including the review of the 'window policy` and facilitation of naturalisation of stateless children. Latvia should also pursue its efforts to ensure general equality of treatment for non-citizens and minorities, in particular with regard to access to professions. The efforts undertaken to teach Latvian to non-Latvian speakers need to be continued.

2. Economic criteria

The liberalisation process should continue. In particular remaining obstacles to the entry of new firms into the market, such as excessive bureaucracy and inconsistent legislation, should be removed. The privatisation process should be completed. Special attention should be paid to enterprise restructuring, and to eliminating structural constraints which prevent faster restructuring. In this regard, the establishment of a functioning land and property register is a priority. Competition authorities should be strengthened, and regulatory bodies for the utilities and the financial sector should be established.

Strengthening of the banking system, and measures to encourage the deepening of the financial sector should continue.

High levels of investment will be required in such fields as the environment, energy and transport. Economic policy needs to stimulate proper training of the labour force with a view to increasing flexibility and orientation towards a market economy.

3. Ability to assume the obligations of membership

3.1. Internal market without frontiers

The four freedoms

General framework - efforts must be made to accelerate law reform in the field of public procurement, for instance as regards the utilities sector and the rules concerning services and tendering procedures. In the field of intellectual and industrial property, legislation, as well as control mechanisms, must be substantially enhanced. As regards company law full compatibility with the third, 11th and 12th Directives must be ensured. Legislation on accounting and auditing must be fully aligned with European Union requirements, while efforts must be made as regards the shortage of qualified accountants and auditors. The protection of personal data must be improved in order to correspond to the level of protection in the European Community framework Directive.

Free movement of goods - the framework legislation which will enable Latvia to take up the basic principles of the European Union system has already been adopted and should be implemented. Strengthening of the standardisation and conformity assessment infrastructures is now needed. In parallel, progress on alignment of sectoral Directives should be accelerated, in particular in the case of pharmaceuticals, chemicals and motor vehicles. Once the technical legislation is fully harmonised a market surveillance mechanism will have to be set up to become fully operational in the longer run.

Free movement of capital - Latvia has introduced current account convertibility and almost completed liberalisation of capital movements and should be able to abolish remaining restrictions in the medium term.

Free movement of services - the banking sector needs to be strengthened in order for it to function as a financial intermediary supporting domestic investments. In addition, legislation in the banking sector must be fully amended to fulfil European Union requirements, including provisions for bank deposit guarantee schemes and money laundering. Legislative amendments in the securities (e.g. insider dealing and stock exchange listings) and insurance fields are also necessary in order to comply with European Community legislation.

Free movement of persons - as regards mutual recognition of professional qualifications, efforts must be made to ensure the necessary legislative and enforcement measures. Further efforts must be made to ensure the necessary legislative and enforcement measures as regards the coordination of social security schemes.

Competition

Further alignment of competition law is required, in particular in the field of merger control. Proceedings for the adoption of legislation on the control of State aid, including both substantive and procedural rules, should be finalised. Improved transparency is required regarding the granting of aid through the establishment and continuous updating of a comprehensive aid inventory in accordance with Community practice. A review of all existing aid measures should be undertaken and those measures which are not compatible with the Europe Agreement must be modified or abolished. New aid measures must be effectively monitored on a systematic basis. Certain exclusive rights and State monopolies which are not compatible with the Community acquis must be progressively adjusted and/or abolished.

3.2. Innovation

Education, training and youth

In order to achieve progress in competitiveness and quality of production, efforts must be made to ensure considerable investments in curriculum reform, teacher training, text books, equipment and buildings.

Research and technological development

Continued support must be given to reform initiatives aiming to modernise and rationalise the research system.

Telecommunications

Substantial changes of policy and legislation are needed to comply with European Union Directives, in particular to curtail the monopoly granted to the main national operating company. At the same time, the acquis now requires governments to ensure that a modern telephone service is available everywhere at an affordable price. Meeting this obligation will require significant investment in the system.

Audiovisual

The existing legislation must be amended, in particular with regard to the questions of freedom of reception, promotion of European works, advertising rules and the protection of minors.

3.3. Economic and fiscal affairs

Economic and monetary union

The provisions and the practice of the Central Bank's budget deficit financing should be amended to ensure full compatibility with European Community rules. Efforts to strengthen the banking sector, which is still vulnerable, should be sustained.

Taxation

Substantial adjustments must be made in the legislation on VAT and excise duties to achieve full compliance with European Union requirements to ensure a consistent and less general application. Particular efforts need to be made as regards the scope of the exemptions from VAT and the VAT refund scheme applicable to foreign taxable persons.

Discrepancies between the Latvian excise regime and European Union requirements need to be addressed. In the field of excise duties particular attention should be given to the setting up of a warehousing system for the movement of goods under duty suspension arrangements. Tax structures and the level of excise rates need to be aligned with the Community model.

Statistics

Efforts must be made in the field of official statistics, in particular with regard to business statistics, national accounts, agricultural accounts, and the application of classifications and nomenclatures.

3.4. Sectoral policies

Industry

To enhance competitiveness, further efforts should be made to pursue policies aimed at promoting open and competitive markets and taking on the instruments which make up European Community industrial policy, relating both to the operation of markets (product specification and market access, trade policy, State aids and competition policy) and measures related to industry's capacity to adapt to change (stable macroeconomic environment, technology, training, etc.).

Agriculture

Substantial efforts must be made to ensure the alignment of Latvian legislation with European Union requirements. With regard to veterinary and phytosanitary requirements, special attention must be paid to the upgrading of establishments and the inspection and control arrangements for protecting the European Union's external borders. Administrative structures must be strengthened to ensure the implementation and enforcement of the policy instruments of the common agricultural policy including the import arrangements. The agri-food sector must be further restructured to ensure its competitive capacity.

Fisheries

The fisheries administration must be strengthened to ensure the effective implementation of the common fisheries policy, in particular as regards the conservation and the management of resources, the implementation of a monitoring and control system, the management of the common organisation of the market in the fishery and aquaculture sector, the implementation of a structural policy in the fisheries and aquaculture sector, the keeping of a fishing vessel register, the collection of statistical data as well as the implementation of European Union fishery policy on environmental protection.

Energy

Current efforts need to be intensified in particular with regard to legislative alignment, adjustment of monopolies, including import and export issues, access to networks, energy pricing, energy efficiency, environmental norms and to emergency preparedness including the building up of mandatory oil stocks.

Transport

Further efforts in assimilating European Community legislation in the transport field must be made to ensure the necessary legislation and its effective implementation, in particular regarding road freight transport (access to profession, weights and sizes, road tax), shipping (safety) and rail (public service and standardisation of accounting procedures) sectors. Latvia needs to invest in infrastructure used by international traffic, for example in improvements to its east-west rail network, and to improve border crossing infrastructures at all borders as well as in the ports. Latvia would be advised to improve its administrative structures, including inspection bodies such as those responsible for safety. At a national level there is a need to develop specific strategies for transport infrastructure development and financing.

Small and medium-sized enterprises

Steps must be taken to further refine and increase the coherence of SME policy, to simplify legislation and the administrative environment to make it more SME-friendly, to strengthen support infrastructures, to improve the tax environment and to develop SMEs' access to financing.

3.5. Economic and social cohesion

Employment and social affairs

Legislation must be aligned with European Union requirements in such areas as occupational health and safety, labour law and equal opportunities and structures must be developed to ensure effective implementation of such legislation. Social reform must be pursued while investments in the public health system need to be significantly enhanced. Active labour market policies must be developed and jointly reviewed as preparation for participation in European Union coordination. An active, autonomous social dialogue and social protection must be developed.

Regional policy and cohesion

Latvia must introduce an integrated and efficient regional policy. It should develop the administrative structures and budgetary procedures necessary to participate fully in European Union structural policy and efficiently channel the Structural Funds after membership.

3.6. Quality of life and environment

Environment

Steps must be taken to ensure the full transposition of the environmental acquis as well as substantial progress in effective compliance. Particular attention should be given to the quick transposition of framework Directives dealing with air, waste, water and the Integrated Pollution Prevention and Control (IPPC) Directive. Investments must be strengthened, in particular as regards urban waste water treatment, drinking water, aspects of waste management and air pollution legislation. A considerable effort must be made to develop adequate implementation and enforcement structures.

Consumer protection

Legislation must be amended in such areas as protection of economic interests of consumers (sales away from business premises, distance selling, timeshare property, and consumer credit). Amendments are also needed to align legislation on misleading advertising, unfair contract terms and for product safety in some sectors. Alignment of legislation on package travel and indication of prices needs to be completed. A strong and independent consumer movement, sustained by public authorities, will need to be developed.

3.7. Justice and home affairs

Important gaps need to be filled in Latvia's legislation and implementation systems. The fight against financial crime should be intensified. Border management systems on the eastern frontier need substantial upgrading of human resources, technical resources and control structures. The physical demarcation of the frontier between Latvia and Belarus remains to be completed. The effective implementation of the 1951 Geneva Convention as well as the Law of Refugees must be ensured. The fight against organised crime must be intensified in such fields as drug trafficking, trafficking in women, prostitution, money laundering and smuggling. Enforcement of anti-drugs legislation must be further enhanced. The Latvian judiciary needs to be prepared for European Union membership. Institutional resource constraints and lack of experienced personnel, as well as management weaknesses leading to inefficiencies and some corruption must be tackled.

3.8. External policies

Trade and international economic relations

Preparations must be made for applying, on accession, the Community's various cooperation and preferential agreements, multilateral and bilateral commercial policy commitments and its autonomous commercial defence instruments. At the same time, national legislation in the field must be repealed.

Development

Preparations must be made for applying, on accession, the Lomé trade regime to the ACP States and participating, together with the other Member States, in financing the European Development Fund.

Customs

Customs legislation must be aligned with that of the European Community and the organisation and duties of staff must be aligned with those of a modern customs administration. Great efforts are needed to ensure the probity of the customs services as a whole. An effort must be made to introduce computerised systems for full participation in the customs union and the internal market. Particular attention must be paid to preparing the customs administrations for the operation of all the customs procedures with economic impact, the system of tariff suspensions and the administration of tariff quotas and ceilings. Strategic planning has to take account of the reinforcement of border posts along the external frontier that Latvia will have with countries other than European Union Member States at the time of accession.

3.9. Financial questions

The necessary financial management and control mechanisms must be established to ensure satisfactory implementation of Community policies. The existing accounting system as well as the customs system should be amended to ensure the efficient administration of the 'own resources` system. The reliability of the national accounts must be ensured with a view to the accurate calculation of the GNP resource.

4. Administrative capacity to apply the acquis

To ensure the effective implementation and enforcement of the acquis, major reform efforts must be made to strengthen Latvia's administrative structures in virtually all European Union relevant sectors. Special efforts must be made to strengthen the authorities ensuring the correct application of Community requirements in the Single Market and the customs authorities. The regulatory and monitoring bodies must be strengthened in such fields as competition, securities, insurance, banks, money laundering, public procurement, consumer protection, transport safety, standards and certification, environment, financial control, veterinary and phytosanitary controls and food control and the labour inspectorates.

Increased efforts must be made for the upgrading of staff qualifications on European Union related issues and efficient public management in general. This must include the elaboration of a comprehensive national training strategy for civil servants.

The judicial system must be strengthened in terms of resources and relevant expertise. A comprehensive upgrading of judges, in particular in European Union matters, must be carried out.