TOWARDS THE ENLARGED UNION - Strategy Paper and Report of the European Commission on the progress towards accession by each of the candidate countries {SEC (2002) 1400 - 1412}

Table of Contents

1. The overall context

1.1. Europe on the eve of enlargement

1.2. Public opinion and the enlargement process

1.3. Administrative preparations for enlargement

1.4. The Copenhagen Criteria

1.5. Reinforcing administrative and judicial capacity

1.6. The accession negotiations

1.6.1. State of play

1.6.2. Commitments

1.6.3. Transitional arrangements

2. Progress by the Candidate Countries in Meeting the membership Criteria

2.1. Political Criteria

2.1.1. Overall development

2.1.2. Conclusions

2.2. Economic Criteria

2.2.1. Overall development

2.2.2. Conclusions

2.3. Other obligations of membership (including administrative capacity)

2.3.1. Overall development

2.3.2. Conclusions

2.4. Overall conclusions and recommendations

3. Completing the process

3.1. Concluding the negotiations

3.1.1. The financial framework

3.1.2. How to deal with new acquis and the revisiting of chapters

3.1.3. The chapter on "Other matters"

3.2. Finalising the Accession Treaty

3.3. Participation in the work of the Union before accession

3.4. Monitoring and safeguards

3.5. After enlargement

3.5.1. Institution building

3.5.2. EMU and the Euro

3.5.3. Schengen

3.5.4. The European Economic Area

4. A revised Accession Strategy for Bulgaria and Romania

4.1. Progress to-date

4.2. Indicative date

4.3. Accession roadmaps

4.4. Pre-accession assistance

5. A new impetus to the Enlargement process with Turkey

5.1. Strengthening the Pre-Accession Strategy

5.2. Additional financial support

6. Conclusions and Recommendations

Annex 1: Conclusions of the Regular Reports

Bulgaria

Cyprus

The Czech Republic

Estonia

Hungary

Latvia

Lithuania

Malta

Poland

Romania

Slovakia

Slovenia

Turkey

Annex 2 : The chapter "other matters"

Annex 3: Human Rights Conventions

Annex 4: Twinning projects

Annex 5: Peer Reviews

Annex 6: State of Play of Negotiations

Annex 7: Main statistical indicators

1. The overall context

1.1. Europe on the eve of enlargement

The next enlargement of the Union will further strengthen the unity of the European continent and help create an area of lasting peace and prosperity.

In 1993, the Copenhagen European Council opened up the perspective of enlargement to include the countries of Central and Eastern Europe. The EU subsequently launched an ambitious pre-accession strategy that has guided and sustained the candidates' preparations for membership until the present day.

In striving to fulfil the EU's accession criteria and adopting the EU's regulatory framework, candidates have been able to accelerate domestic reforms at the same time as they have been preparing for EU membership. Europe's citizens have grown closer together - as shown in the solidarity among current and future EU members during the severe floods which hit Central and Eastern Europe this summer.

The historical and political arguments in favour of enlargement are compelling. It will also produce substantial economic benefits.

Both the existing Member States and the prospective members benefit from political stability. Stable democracies have emerged in Central and Eastern Europe. The credit for this success belongs mainly to the people of those countries themselves. The political stability in the Central and East European candidate countries is rooted in common European values : democracy, the rule of law, respect for human rights and the protection of minorities. Causes of conflict, such as minority issues and border problems, are removed. A stable political framework is a precondition for lasting peace and neighbourly co-existence, as well as for a successful economy.

This means an opportunity for the candidate countries to improve their living standards and their prospects in global competition. Candidate countries already conduct between a half and two-thirds of their trade with the EU. The rapid growth in trade has helped to develop new markets and investment. Full integration with accession, together with the adoption of common rules and standards across the world's largest single market, will further enhance the opportunities to achieve socially and environmentally sustainable growth.

On the basis of political and economic stability, the enlarged Union will be better equipped to confront global challenges. An enlarged Union will add weight to the EU's external relations, in particular to the development of a common foreign and security policy. Improved co-operation between current and future Member States will help combat international crime and terrorism.

The enlarged EU will need to look beyond its own borders to develop a new neighbourhood policy for the benefit of all. Reflections on the policy for a 'wider Europe' are being developed. They aim for a more coherent approach of an enlarged Union to the neighbouring countries. The Commission is presently examining the options of enhancing the EU policy towards the new neighbours in order not only to counterbalance possible fears following enlargement but to ensure that enlargement provides opportunities, such as an expected increase in trade and economic growth on both sides. Such a new proximity policy will underline that an enlarged EU will ensure an open attitude and foster common interests and activities with its neighbours in the Western Balkans, Eastern Europe and the Mediterranean.

The future Member States are making valuable contributions to the discussions on the future of Europe in the context of the European Convention which prepares the way for the next institutional reform. The work of the Convention is essential for the future of Europe. The full participation of the candidate countries has clearly shown the added value of an enlarged Union.

The Commission's assessment of candidate countries in this year's Regular Reports carries three important messages:

* The Union's pre-accession strategy has proved a success. The transformation process in the candidate countries has been considerably accelerated by the prospect of enlargement.

* The accession negotiations, which have been based on the principles of own merits, differentiation and catching up, can be concluded with most candidates by the end of 2002. Preparations for enlargement will continue.

* Enlargement is an inclusive process which is not yet completed with the first accessions. The European Union continues to give its full support to current candidates that will not be in a position to participate in the next wave of enlargement.

Candidates have invested significant efforts in the enlargement process. Important political and economic decisions have been made in anticipation of enlargement. In order to reach the full benefits of integration for both future and current Member States, the envisaged timeframe for enlargement must be kept without compromising the quality of the accession process.

The Commission hopes to see a re-united Cyprus acceding to the European Union on the basis of a comprehensive settlement, as the best outcome for all concerned. . As indicated in the conclusions of the Seville European Council, the Union is ready to accommodate the terms of a political settlement in the accession arrangements in line with the principles on which the European Union is founded. The Commission welcomes that substantial UN involvement will continue. All parties concerned should now make a concerted effort to achieve such a settlement before the completion of the accession negotiations. Taking into account the statements of the UN Security Council, the Commission urges Turkey, in particular, to lend full support to efforts to reach a comprehensive settlement this year. In this event, Cyprus' terms of accession can be adapted to reflect the comprehensive settlement as well as its implications for the application of the acquis throughout the island.

The Commission continues to be active in contact with all the parties concerned to reinforce efforts to reach a settlement. It has proposed that the Union make available considerable resources to support the northern part of the island to catch up and to back up a settlement. The Commission notes that, in the absence of a settlement, the decisions to be taken in December by the Copenhagen European Council will be based on the conclusions of the Helsinki European Council.

In its successive meetings in Gothenburg, Laeken and Seville, the European Council reaffirmed that, if the present rate of progress in negotiations and reforms is maintained, the European Union is determined to conclude the negotiations with Cyprus, Malta, Hungary, Poland, the Slovak Republic, Lithuania, Latvia, Estonia, the Czech Republic and Slovenia by the end of 2002, if those countries are ready. The objective remains that these countries should participate in the elections for the European Parliament in 2004 as full members. The European Council in Seville added that, in order to enable it to decide with which candidate countries negotiations can be concluded at the end of 2002, the Commission would have to draft appropriate recommendations in the light of its Regular Reports.

The Seville European Council also encouraged Bulgaria and Romania to pursue their efforts and reiterated the Union's commitment to give them full support in their preparation for accession.

It added that an updated road map and a revised and enhanced pre-accession strategy should be adopted in Copenhagen for the candidate countries still engaged in negotiations. An increase in pre-accession financial aid could also be contemplated. Furthermore, if the current pace is maintained, a more precise timetable could be set for these countries' accession process by the end of the year.

This Communication examines the above-mentioned requests of the European Council.

1.2. Public opinion and the enlargement process

The major role in explaining enlargement to citizens in candidate countries, as in the Member States, should be played by the national governments. The Commission supports this effort and has developed a communication strategy for that purpose. The clear message, which should be given by all actors responsible for the success of the process, is that enlargement is a win-win game, in which the re-unification of Europe will extend the area of peace, prosperity and security throughout the continent.

Support for enlargement is generally strong in the candidate countries. In Member States, it is important to increase the awareness and knowledge of the countries that will soon be joining the Union and to explain the results of the enlargement process. More needs to be done to explain the benefits of an enlarged Union both in terms of increased political stability and the prospect for sustained economic growth, and the enormous progress that has been made in economic and political reform in the region since 1989. This will help to dispel perceived problems as to the preparedness of the candidates to join the Union.

1.3. Administrative preparations for enlargement

Ensuring a successful and smooth transition to an enlarged EU also requires preparations at the administrative level within the current EU Institutions. Such preparations have been underway for some time, to ensure that all necessary measures are in place by the date of accession. This ongoing work includes, inter alia, assessments of staffing needs and associated recruitment preparations, provision of translating and interpreting in additional languages, preparation of buildings, schools etc. The Institutions have been working together to ensure that such preparations are in place for each Institution. The Commission described the progress made on the tasks ahead in its Road Map for Administrative Preparations for Enlargement [1],which is based on the working hypothesis that ten acceding countries with nine additional languages will join on 1 January 2004. This roadmap will be updated once the decisions on the acceding countries and their date of accession have been taken.

[1] see SEC(2002) 1015 of 25.09.2002

In its Communication on Activities and Human Resources of the Commission in the Enlarged EU [2], the Commission identified in particular its additional human resource needs in terms of full-time posts, which should be phased-in from 2004 and be completed by around 2008. Moreover, it is clear that in certain policy areas such as agriculture, structural policies and the linguistic services, the human resource needs arising from enlargement will be high not only after but also immediately prior to accession. For this reason the Commission undertook a thorough assessment of its additional resource requirements which resulted in its request for 500 non-permanent posts already in 2003 to meet priority needs, mostly to be filled by nationals from candidate countries.

[2] COM(2002) 311 of 05.06.2002

1.4. The Copenhagen Criteria

In June 1993, the European Council at Copenhagen laid down the foundations of the current enlargement process by declaring that "the associated countries in Central and Eastern Europe that so desire shall become members of the European Union" and by defining the membership conditions, the so-called Copenhagen criteria. Under the Copenhagen criteria, membership requires that the candidate country ensures :

* "stability of institutions guaranteeing democracy, the rule of law, human rights and the respect for and protection of minorities": the political criteria.

Since the entry into force of the Treaty of Amsterdam in May 1999, these requirements have been enshrined as constitutional principles in the Treaty on European Union, and have been emphasised in the Charter of Fundamental Rights of the European Union, that was proclaimed at the Nice European Council in December 2000.

* "the existence of a functioning market economy as well as the capacity to cope with competitive pressure and market forces within the Union" : the economic criteria.

These criteria are consistent with the principles for economic policies as enshrined in the EC Treaty by the Maastricht Treaty that entered into force on 1 November 1993.

* "ability to take on the obligations of membership, including adherence to the aims of political, economic and monetary union". This criterion refers to the implementation of the Union's legislation, known as the acquis communautaire. For that reason, it is referred to thereafter as the acquis criterion. Subsequent European Councils, in particular the Madrid European Council in 1995, have highlighted the importance, not only of incorporating the acquis into national legislation, but also of ensuring its effective application through appropriate administrative and judicial structures.

Since its 1997 Opinions on the applications for membership by the countries of Central and Eastern Europe, the Commission has evaluated annually in its Regular Reports, extended also to Cyprus, Malta and Turkey, the progress made by the candidate countries towards meeting the Copenhagen criteria. The Commission developed, in the context of Agenda 2000 [3], a methodology for that purpose.

[3] Agenda 2000: For a stronger and wider Union, COM (97) 2000 final. See in particular Part Two - The Challenge of Enlargement: I. Assessment on the basis of the accession criteria.

Under this methodology, the Regular Reports assess progress in terms of legislation and measures actually adopted or implemented. This approach ensures equal treatment for all candidates and permits an objective assessment of the situation in each country. Progress towards meeting each criterion is assessed against a detailed standard checklist, which allows account to be taken of the same aspects for each country and which ensures the transparency of the exercise. The Reports draw on, and are cross-checked with, numerous sources, starting from information provided by the candidate countries themselves, and many other sources including reports from the European Parliament, evaluations from Member States, or the work of international organisations and non-governmental organisations. This year's Reports also contain some forward-looking elements.

In order to evaluate the extent to which candidates meet the political criteria, the Commission not only provides a description of their various institutions (Parliament, Executive, and Judiciary), but examines how the various rights and freedoms are exercised in practice. With regard to human rights, the Commission analyses the way in which the candidate countries respect and implement the provisions of the major human rights conventions, including in particular the European Convention for the Protection of Human Rights and Fundamental Freedoms. As regards respect for minority rights and the protection of minorities, the Commission devotes particular attention to the implementation of the various principles laid down in the Council of Europe Framework Convention for the Protection of National Minorities. Measures undertaken by the countries in order to fight against corruption are also examined.

The economic criteria consist of two elements : the existence of a functioning market economy, and the capacity to withstand competitive pressure and market forces within the Union. These two elements are assessed through a number of sub-criteria which have been defined in Agenda 2000. The existence of a functioning market economy requires that prices, as well as trade, are liberalised and that an enforceable legal system, including property rights, is in place. Macroeconomic stability and consensus about economic policy enhance the performance of a market economy. A well-developed financial sector and the absence of any significant barriers to market entry and exit improve the efficiency of the economy. The capacity to withstand competitive pressure and market forces within the Union requires the existence of a market economy and a stable macroeconomic framework. It also requires a sufficient amount of human and physical capital, including infrastructure. It depends on the extent to which government policy and legislation influence competitiveness, on the degree of trade integration a country achieves with the Union and on the proportion of small firms.

The ability to take on the obligations of membership requires the adoption, implementation and enforcement of the acquis. In its Reports, the Commission analyses, for each of the twenty-nine chapters of the acquis, the extent to which the necessary legislative measures have been taken to enable implementation of the acquis in that chapter, and what remains to be done in this regard. Furthermore, the Commission assesses to what extent each candidate country has established administrative structures required to implement the acquis.

This year's Regular Reports take a broader perspective than in previous years. In addition to assessing progress made by each candidate, they also evaluate to what extent the candidates will fulfil the Copenhagen criteria by accession, taking into account the envisaged timeframe for enlargement defined by the European Council.

This requires a careful examination of the progress achieved by each country over the past years [4], of their track record in implementing the commitments made in the negotiations and of whether the countries sufficiently fulfil the Copenhagen criteria. These latter aspects are particularly important when assessing the ability to take on the obligations of membership. The implementation already now by a given candidate country of a critical mass of the acquis in the various chapters, and a positive track record over the past years, are necessary conditions for concluding that this country will be able to apply the acquis upon accession. Information available to the Commission on the relevant ongoing preparations, in particular in the context of the monitoring process, is also taken into account.

[4] since the 1997 Opinions for the Central European candidates, since the 1998 Regular Report for Cyprus and Turkey, and since the 1999 update of the Opinion for Malta

The Regular Reports identify the candidate countries which will meet the Copenhagen criteria within the envisaged accession timeframe. They are the basis upon which the Commission recommends the conclusion of the negotiations with these countries at the end of 2002. For all countries, the Reports identify the areas where further efforts are needed or reforms have to be pursued.

1.5. Reinforcing administrative and judicial capacity

The Commission attaches the greatest importance to ensuring that the candidates further reinforce their administrative and judicial capacity. It is an essential requirement for creating mutual trust among Member States, indispensable for membership. In its 1997 Opinions and subsequent Regular Reports, the Commission has carefully monitored the progress made by each country in this area. Large parts of the Community pre-accession assistance have been programmed since the early 1990s to help candidates in their efforts to build and reinforce their administrative and judicial structures.

As announced in its 2001 Enlargement Strategy Paper, Making a success of enlargement, the Commission has prepared in the first quarter of 2002 jointly with each negotiating country an Action Plan to reinforce their administrative and judicial capacity. Based on the 2002 Accession Partnership priorities, the Action Plans identify the concrete measures that remain to be taken for each country to achieve an adequate level of administrative capacity by the time of accession.

The Action Plans identify targeted assistance required to support the countries in their efforts. For that purpose, the Commission has mobilised additional financial assistance of up to EUR 250 million in 2002 to accompany these efforts, bringing the Community's total support to strengthen the administrative and judicial capacity of the negotiating countries in 2002 to around EUR1 billion.

Furthermore, the Action Plans note the relevant commitments made in the negotiations and any additional monitoring actions, in particular peer reviews, that may be required in certain areas to assess each country's preparations. All 12 negotiating countries have been subject to peer reviews to different degrees. In total, 205 peer reviews have been conducted through the Technical Assistance Information Office (TAIEX) in 17 sectors and involving the mobilisation of over 800 experts (details provided in Annex 5). Some peer reviews, in the financial control sector, have been organised through Support for Improvement in Governance and Management (SIGMA), while the Commission services have themselves undertaken a number of monitoring actions in other areas. A special peer review on nuclear safety was carried out during the first half of 2002 under the auspices of the Council that resulted in a status report in June 2002.

The exchange of information between experts from equivalent bodies in the candidate countries and Member States is a key component of the peer review exercise. The reports of the peer reviews, which have been made available to the candidate countries and to the Member States, have contributed to the Commission's analysis contained in the Regular Reports. The results of the peer reviews will be used by the candidates to identify further necessary actions. They should also contribute to developing peer assistance activities for the candidates, in order to exchange best practice, in the period up to their accession and beyond.

The Action Plans have given a new impetus to the candidates' efforts in reinforcing their administrative and judicial capacity. On the whole, they are being implemented according to schedule. It is important that candidate countries continue to make sustained efforts in implementing the Action Plans.

1.6. The accession negotiations

1.6.1. State of play

The accession negotiations are well advanced. Six countries have been negotiating since 1998 (Cyprus, Czech Republic, Estonia, Hungary, Poland, Slovenia), and six further countries entered negotiations in early 2000 (Bulgaria, Latvia, Lithuania, Malta, Romania, and Slovakia). The European Council in Nice in December 2000 decided on a roadmap for the accession negotiations, which established a timeframe for the Union to define its position on outstanding negotiating chapters. The roadmap has been very useful in moving the negotiations forward, by helping all sides to follow a realistic plan. The Union has defined common positions in accordance with the roadmap, leading to provisional closure of a considerable number of chapters. The state of play of the negotiations is presented in Annex 6.

1.6.2. Commitments

The provisional closure of a chapter depends inter alia on the Union accepting the credibility of the commitments made by the candidate countries. Generally, this is based on key parts of the acquis having been already transposed. Candidate countries have to ensure that they meet all their commitments as planned. The Commission closely monitors the implementation of these commitments, in particular through monitoring reports and the Action Plans on administrative and judicial capacity. So far, the implementation of commitments made in the negotiations has been largely on track; in the few cases where problems or delays had arisen, solutions were found and there was no need for the Commission to recommend the reopening of any chapter.

The assessment made in this year's Regular Reports confirms that, in most cases, candidates generally meet the commitments made in the negotiations. Where the commitments refer to measures to be completed by the time of accession, the Commission's assessment is based on the relevant preparatory process. The Reports identify some cases where candidates experience problems in meeting their commitments. This concerns mainly the areas of agriculture, environment and fisheries. In such cases candidates should take all necessary remedial actions in order to ensure that commitments are fully met.

1.6.3. Transitional arrangements

While accession negotiations are based on the principle that candidate countries effectively apply the acquis upon accession, a number of well-justified transitional measures have been agreed in the negotiations, in line with the principles laid down for transitional measures. These principles state that any transitional measure has to be limited in time and scope and be accompanied by a plan clearly defining stages for the application of the acquis. In addition, transitional measures must not involve amendments to the rules and policies of the Union, disrupt their proper functioning, or lead to significant distortions of competition. Transitional measures have been agreed, upon request of both the candidate countries (some 190 requests accepted so far) and the Union (some 28 requests accepted so far). The scope of these measures varies across sectors and countries.

Transitional measures requested by candidate countries have been agreed, for example in areas where the effective application of the acquis requires substantial prior financial investments. Examples are the construction of waste water treatment plants in municipalities or the building up of emergency oil stocks. Investment plans and detailed strategies for the gradual compliance with the acquis have been agreed in such cases. Also, the free movement of capital from current into new Member States with the aim to buy land and secondary homes has been temporarily restricted.

Upon request of the Union, few well-defined and limited transitional arrangements have been agreed in response to perceived regional or sectoral disturbances resulting from the full application of the acquis in the enlarged Union. The free movement of workers from new into current Member States has been temporarily restricted, the protection of industrial property rights for pharmaceutical products and community trademarks from the EU has been enhanced and access to the national road transport markets (cabotage) between current and certain new Member States has been temporarily restricted.

2. Progress by the Candidate Countries in Meeting the membership Criteria

2.1. Political Criteria

2.1.1. Overall development

In its 1997 Opinions and subsequent Regular Reports, the Commission has been evaluating candidates' progress towards meeting the Copenhagen political criteria. Since 1999, the Commission has judged that all candidates involved in the negotiations meet these criteria. Over the past five years, progress in consolidating and deepening democracy and respect for the rule of law, human rights and the rights of minorities has been considerable.

Over the past year, the functioning of the democratic systems of government in the candidate countries was confirmed. National or local elections, which were free and fair, were held in several countries.

Work continued to consolidate and modernise the public administration. A legal framework for the civil service has now been established in all candidates, and training of civil servants has become the norm. Several countries have progressed with establishing codes of conduct, clear distinctions between political and administrative responsibilities, and putting in place legislation on access to public information.

Most countries have advanced in reforming and strengthening their judicial system, a key factor in ensuring respect for the rule of law and the effective enforcement of the acquis. Decisive steps forward were taken in most countries in adopting basic legislation, strengthening human resources and improving working conditions. In several countries, progress was made in developing and reinforcing mechanisms to ensure that court decisions are duly enforced, and in improving citizens' access to justice. In most countries, further progress was made in tackling the problem of judicial backlogs. Efforts to further consolidate reforms in this area will need to continue.

Progress has been made in the fight against corruption, fraud and economic crime, but this area remains a source of concern. Anti-corruption strategies are now in place in most countries and anti-corruption bodies have been further reinforced. Further progress has been made in terms of legislation, including in such areas as public procurement and the financing of political parties, and significant efforts have been made in terms of awareness raising. There are indications that in a number of countries, popular awareness of the dangers of corruption for the economy and society as whole is increasing. Encouraging developments noted as regards transparency, accountability and efficiency of the public administration are of relevance also in this field. Efforts must be sustained.

In a number of countries further steps were taken to reinforce the legislative and institutional framework for ensuring gender equality. In some countries significant steps forward were taken also to assist victims of domestic violence. Further efforts are needed to promote the economic and social equality between women and men.

In all countries with considerable Roma communities, progress has been made with the implementation of national action plans to improve the difficult situation the members of these communities are facing. Continued efforts are required to ensure that the various action plans continue to be implemented in a sustained manner, in close co-operation with Roma representatives. Adoption and due implementation of comprehensive anti-discrimination legislation, in line with the Community anti-discrimination acquis, would be an important step forward where such legislation is still missing.

Further positive developments can be noted with regard to the protection of minorities. In Estonia and Latvia, continued progress was made in the integration of non-citizens. In several countries, the legal and institutional framework for the protection of minorities was further reinforced. In Bulgaria, Slovakia and Romania members of minority communities continued to play an important role in national political life.

In previous years, the Commission had underlined the problem of childcare institutions in Romania. The legislative, administrative and financial measures taken by the Romanian authorities are beginning to bear fruit. The number of children in residential care has decreased, and their living conditions have improved. Efforts need to be maintained.

2.1.2. Conclusions

All presently negotiating countries continue to meet the Copenhagen political criteria. This has been confirmed over the past year.

Turkey's progress and situation as regards the political criteria is presented in section 5 below.

The conclusions of each Regular Report are contained in Annex 1. The list of Human Rights conventions ratified by the candidate countries is in Annex 3.

2.2. Economic Criteria

2.2.1. Overall development

This year's Regular Reports' assessments of candidates' progress towards meeting the Copenhagen economic criteria take a broader look than in previous years. They look at progress achieved since the last Regular Reports, and take stock of achievements in meeting these criteria over the period since 1997, when the Commission drafted its Opinion for most candidates. A summary of main developments is presented below and selected economic indicators per country are presented in Annex 7.

Over the period 1997-2001, most candidate countries registered average rates of economic growth well above the EU average of 2.6%. The global slowdown that started in late 2000 also affected the EU, and with it, the candidates. As a result, growth slowed down in a number of candidate countries in 2001, but over the first half of 2002, the aggregate economic development has been fairly stable. GDP per capita measured in Purchasing Power Standards reached, on average for the ten transition economies, 39.3% of the EU average in 2001, up from 38.5% in 2000. Over the five year period, most candidates witnessed some catching up.

Candidate countries have continued to adjust their production structures. They saw their agricultural sector's share in GDP decline over the period, and the service sector further increase, although not yet reaching EU levels.

Inflation in most candidate countries has been on a downward trend over the period. This trend towards lower inflation continued in 2001 with single digit inflation in most countries. Over the past 5 years, most candidates have established an independent central bank, many of which have adopted inflation targeting strategies aiming at price stability.

On average for all candidate countries, the period has been marked by falling employment, mainly driven by the ongoing restructuring of domestic industries and partly by some structural deficiencies in labour markets. Unemployment rates are still high in many countries. In 2002, a number of countries appear to be ending a period of labour shedding and are recording employment growth.

All candidates reported general government deficits over the period. In 2001 the average deficit of the 10 Central and Eastern European countries rose from 3.2% to 3.8%, as a result of the economic slowdown, loosening of fiscal policy, transition related one-off expenditures and better measurement.

Over the period, the trade and current account deficits have remained relatively high in most countries but they stay within sustainable levels. Most countries have been able to attract sufficient inflows of foreign direct investments to finance these deficits. In general, the trade and current account deficits improved somewhat in 2001.

Privatisation of the economy has made impressive progress since 1997, reaching levels comparable to the EU, but efforts are required to complete the restructuring of a number of sectors.

Financial intermediation has strengthened. Almost all countries now have a more efficient and stable banking sector. The average of the transition economies' domestic bank lending to the private sector is still low at nearly 27% of GDP in 2001.

Market entry and exit conditions have reached sufficient degrees of efficiency and legal certainty. Property rights are well established and important progress has been made on bankruptcy legislation and procedures. However, in most countries, implementation of the legal framework needs to be further enhanced.

The European Union is the main trading partner and foreign investor for all candidates. A high degree of economic integration of candidates with the EU has been achieved.

2.2.2. Conclusions

The progress of each country has been assessed according to the sub-criteria of the Copenhagen economic criteria - the existence of a functioning market economy and the capacity to withstand competitive pressure and market forces within the Union.

Taking the two sub-criteria together, it is re-iterated that Cyprus and Malta are functioning market economies and should be able to cope with competitive pressure and market forces in the Union.

The Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, the Slovak Republic and Slovenia are likewise functioning market economies, as previously concluded. According to this year's assessments, these countries have made further and sufficient progress in macroeconomic stabilisation and economic reform and the continuation of their current reform paths should enable them to cope with competitive pressure and market forces within the Union.

Hence, taking into account the commitments which have to be met by accession by these ten countries, the Commission considers that they will have fulfilled the Copenhagen economic criteria within the timeframe envisaged for accession. The conclusions of the Regular Reports identify the major areas where improvements to the functioning of the market economy or the competitiveness in the Union should still be made. These areas, whilst not exhaustive, indicate priority areas of action.

After having been considered close to being a functioning market economy, this year's Regular Report for the first time concludes that Bulgaria is a functioning market economy. Provided it continues implementing its reform programme to remove remaining difficulties, it should be able to cope with competitive pressure and market forces within the Union in the medium term.

Romania has continued to make progress towards being a functioning market economy, for which the prospects have improved. Sustained and full implementation of planned measures together with the completion of the reform agenda should allow Romania to be able to cope with competitive pressure and market forces within the Union in the medium term.

Turkey has made progress on the functioning of its market economy which should improve its capacity to cope with competitive pressure and market forces within the Union, but is still undergoing the consequences of two deeply destabilising financial crises.

The conclusions of each Regular Report are contained in Annex 1.

2.3. Other obligations of membership (including administrative capacity)

2.3.1. Overall development

This year's Regular Reports' assessment of developments with regard to the Copenhagen acquis criteria also take a broader look than in previous years. In addition to evaluating progress made by each candidate since the last year, this year's Reports look at progress achieved by each country since the 1997 Opinions (since the 1998 Regular Report for Cyprus and Turkey, and since the 1999 update of the Opinion for Malta), their track record in implementing the commitments made in the negotiations and the degree of alignment and implementation of the acquis. As the acquis has considerably developed over the last 3 to 5 years, progress during that period has also been assessed as regards the new acquis adopted by the Union. In addition, information available to the Commission on the relevant ongoing preparations and detailed implementation plans has been taken into account.

The Reports show that, overall, candidate countries have generally reached a high degree of alignment in many areas, as a result of the considerable progress in transposing the acquis over the last years. Steady progress has also been made in building up the administrative and judicial structures required for implementing and enforcing the acquis and most countries are well advanced towards reaching an adequate administrative capacity in a considerable number of fields. Moreover, commitments made in the negotiations are generally being fulfilled.

The acquis is already being implemented in a number of sectors. In other sectors, alignment with the acquis needs to be finalised and the building up of the necessary administrative capacity needs to be completed in view of accession. The continuation of countries' efforts in line with the commitments or requirements agreed in the negotiations should enable them to assume their obligations of membership with regard to these sectors within the envisaged enlargement timeframe.

For example, in the internal market sector, substantial progress has been made and most countries have now reached a reasonable level of alignment and implementation of the acquis. Good progress has been made in particular in the areas of standardisation and certification where framework legislation and basic infrastructure are in place in most countries. Transposition of the acquis on financial services, in particular the banking legislation, is generally well advanced. Liberalisation of capital movements in line with the acquis is now almost complete in most countries.

Further efforts are still needed in order to reinforce the administrative capacity in areas such as market surveillance and food safety. In public procurement, legislative transposition needs to be completed and enforcement structures reinforced. Attention should be paid to the area of mutual recognition of professional qualifications, where legislative alignment with respect to the health care professions still needs to be completed and, in some cases, curricula and training adapted to Community requirements Attention also needs to be paid to the proper implementation of the money laundering directives and financial services legislation, in particular the independence of supervisory authorities. While the transposition of the intellectual and industrial property rights advances at a satisfactory pace, the degree of enforcement of the legislation can still be improved.

In the field of competition, anti-trust legislation is already largely in line with the acquis in most countries, but continuous attention has to be devoted to ensure the effective application and enforcement of the rules. As regards state aid, in a number of countries incompatible existing aid schemes, often in the form of fiscal incentives, should be brought into line with the acquis and the countries' enforcement track record needs to be developed. In addition, a number of countries still need to improve state aid control in certain sensitive sectors, such as shipbuilding and steel, where in particular restructuring plans need to be implemented.

In the area of consumer policy, where legislative alignment is generally advanced, candidates need to continue their efforts to complete transposition and to implement the legislation. Effective implementation of the acquis will make sure that the products on the enlarged internal market are safe and that the rights of the consumers are protected.

In the environment sector, in addition to finalising the transposition of the acquis, candidates need to focus their efforts on reinforcing their overall administrative capacity to apply it, in particular in the areas of waste management and industrial pollution. For a number of issues, the provision of necessary financial means needs to be ensured.

In the field of transport, legislative alignment has been progressing in most candidate countries, with implementing legislation outstanding. However, some candidates still need to complete alignment and to carry out reform in the rail sector. Others have to make important progress in the field of maritime transport. Administrative capacity needs to be strengthened in all areas to enforce the acquis strictly, in particular in the field of road transport (including the social acquis). Similarly, a number of countries need to strengthen their efforts in order to comply with the acquis concerning maritime safety The extended Trans-European Transport Network will require substantial investments over the coming decade.

In the field of energy, some countries still need to complete the additional requirements arising from the necessary legislation for the internal energy market. This is also important in view of the forthcoming acquis. Most need to strengthen their administrative capacity. The recommendations of the Council report on 'Nuclear Safety in the context of Enlargement' are being addressed. In particular, some countries need to continue efforts to strengthen their nuclear safety authorities. Two candidates have made firm commitments to close certain nuclear power plants. These commitments will need to be included in the Accession Treaty.

In the field of telecommunications, efforts are still needed for full implementation of the telecommunication acquis, to strengthen the administrative capacity and the independence of the regulator in most countries. The economic impact of full implementation of the universal service obligations has to be assessed.

In the area of social policy and employment, while alignment with the acquis is well advanced, most countries still need to strengthen their administrative capacity in particular in the areas of public health and health and safety at work. In addition, social inclusion should be further promoted in the light of the common objectives set out for the Union and candidate countries need to continue translating the Union's objectives into their national employment policies. Candidate countries should strengthen their efforts in the areas of social inclusion and employment to prepare for their future participation in the open method of cooperation at EU level and for their preparation for the future intervention of the European Social Fund. The importance of investing in sustainable health systems also needs to be underlined.

In the fisheries sector, the main priority is to reinforce the capacity of the national administrations concerned to apply Community legislation, particularly in the area of market regulations and maintenance of the fishing fleet register. Enforcement of Community rules on fishing, such as catch limits and technical regulations, will also require a significant increase in resources in some candidate countries.

In the field of justice and home affairs, most countries have made good progress in all areas of the acquis. In particular, each country's Schengen Action plan has allowed them to structure the necessary key actions and to advance in their implementation. Administrative and judicial capacity needs to be markedly reinforced, in particular in the context of border management, fight against fraud, corruption, money laundering and organised crime.

In the field of taxation, the generally good legislative alignment needs to be completed in most countries, in particular as concerns VAT and excise legislation. Administrative capacity needs further strengthening and efforts need to be mobilised for the computerised tax information systems to be implemented and become operational.

In the area of external relations, candidates have reached a good level of alignment with the acquis. However, decisive steps are needed as a matter of urgency to bring the bilateral investment treaties in conformity with Treaty obligations. Failure to do so will mean that the conflict between the bilateral investment treaties and Treaty obligations will need to be resolved through the Accession Treaty.

For a limited number of sectors, this year's Reports identify, for individual countries, areas of the acquis where special efforts are needed, underlining, in some cases, the measures which need to be urgently taken. Special efforts from several candidates are required, in particular in the sectors outlined below.

In the customs sector, alignment with the acquis, although very advanced, still needs to be completed in some countries. Special efforts should now focus on further reinforcing the administrative capacity to apply the acquis in this sector and on information technology development. In particular, preparations for ensuring full interconnection of the national systems with Community customs information technology systems need to be pursued or accelerated depending on the countries. The capacity of the customs services to combat customs fraud also needs to be strengthened in a number of countries. In addition, all countries need to take the necessary steps to prepare for the application of measures and provisions that will be introduced only at the time of accession, including in some cases in relation to free zones.

In the agriculture sector, most countries need to focus their efforts on finalising alignment of their legislation with the Common Agricultural Policy acquis and further reinforcing their administrative capacity to implement and enforce it. In particular, very few candidate countries are at an advanced stage regarding the setting up of the integrated administration and control scheme (IACS), including the land parcel identification system which is indispensable for the management and control of direct payments. Many candidates need to step up their efforts to build up an operational IACS by accession and for some candidate countries urgent and very serious efforts are required on key decisions and related funding if IACS is to be operational by accession. If the required administration and control structures are not fully operational or do not operate correctly upon accession, the candidates concerned will be unable to benefit fully from the support systems under the common agricultural policy, or will be required to reimburse EC funds already received. A number of countries need to complete preparations for the paying agency and others still need to conclude the process of agricultural land reform.

Administrative capacity also needs to be reinforced in the veterinary field and that of food safety, where particular attention should be given to ensuring that establishments are duly upgraded to meet Community standards. Failure to do so could preclude candidates from availing fully of the opportunities presented by the Internal Market in this domain.

In the regional policy sector, while a legislative framework for the implementation of the acquis has generally been introduced, candidates need to clearly define their final implementation structures and reinforce their administrative capacities. In particular, countries need to focus their efforts on completing their programming documents. They need to strengthen inter-ministerial co-ordination and partnership as well as to reinforce their systems and procedures for effective monitoring, financial management and control of structural and cohesion funds at all levels. The Commission draws also the attention to the fact that Community funding can not be approved until all conditions ensuring sound management of the funds are in place.

In the financial control sector, where legislative alignment is well advanced in most countries, candidates need to focus their efforts on implementing adequate Public Internal Financial Control and External Audit systems. For Community funding to be available, all conditions ensuring the sound management of these funds need to be in place. Countries need to ensure the proper management of pre-accession funds and future structural funds and to strengthen their administrative structures to protect the Community's financial interests by the second half of 2003.

The progress made over the past years results in a situation where most candidate countries already implement considerable parts of the acquis. In most countries, the necessary legislative framework and implementing structures are in place to a large extent. Detailed plans have been agreed, in particular in the negotiations and in the Action Plans, to cover the identified remaining gaps and are being implemented.

2.3.2. Conclusions

Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, the Slovak Republic and Slovenia have reached a high level of alignment with the acquis and have made considerable advances towards ensuring adequate administrative and judicial capacity. Bearing in mind the progress achieved by these countries, their track record in implementing the commitments they have made in the negotiations, and taking into account their preparatory work in progress and foreseen, the Commission considers that these countries will be able to assume the obligations of membership in accordance with the envisaged timeframe.

These countries should continue their efforts in legislative alignment and administrative capacity building as foreseen. The Regular Reports show that they need to undertake urgent action in a limited number of specific areas within certain chapters. The candidate countries have been informed. The Commission expects them to initiate the necessary measures in order to overcome the problems identified. This will be closely monitored.

Bulgaria, Romania and Turkey do not fully meet the acquis criteria. These countries should focus further efforts on the areas identified in the Regular Reports.

The conclusions of each Regular Report are contained in Annex 1.

2.4. Overall conclusions and recommendations

This year's Regular Reports show that all candidate countries have made considerable further progress in implementing the Copenhagen criteria.

Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, the Slovak Republic and Slovenia fulfil the political criteria. Bearing in mind the progress achieved by these countries, the track record in implementing their commitments, and taking into account their preparatory work in progress, the Commission considers that these countries will have fulfilled the economic and acquis criteria and will be ready for membership from the beginning of 2004.

The Commission therefore recommends to conclude the accession negotiations with these countries by the end of this year. They will be referred to below as the ten acceding countries.

The Regular Reports point to a number of areas where further improvements need to be made in the context of the political and economic criteria and in relationship to the adoption, implementation and enforcement of the acquis. These should be vigorously pursued.

Bulgaria and Romania fulfil the political criteria but do not fully meet, to various extents, the economic and acquis criteria. Turkey does not fully meet the political, economic or acquis criteria. The political criteria for Turkey are assessed below.

3. Completing the process

3.1. Concluding the negotiations

For all ten acceding countries, negotiations on both the chapters "agriculture" and "financial and budgetary matters" are not yet provisionally closed, although most issues in these chapters which are not linked to the financial framework to be proposed by the Union have been dealt with. Moreover, even if the chapters "regional policy" and "institutions" have been provisionally closed, specific questions linked respectively to the budgetary allocations and to institutional matters (transition rules in 2004; number of Parliamentarians and qualified majority threshold) have been reserved for the last stretch of negotiations. As to the chapter 'other matters', a number of issues still need to be considered. Furthermore, eight other chapters still need further negotiation: the chapters "competition" for five countries, "transport" for the Czech Republic, and "taxation" and "customs union" for Malta.

In the following, the Commission lays out its view on how to address some essential points for completing the negotiations.

3.1.1. The financial framework

In its information note of 30 January 2002, the Commission has proposed a common financial framework for the accession negotiations. This framework was based on the overall Berlin financial framework and on the assumption that ten new Member States would join the European Union. The Commission's proposals remain valid. In particular, the Commission considers that:

* In the field of agriculture, the objective of gradually introducing direct payments for farmers in the new Member States from the year 2004 should be maintained.

* The structural actions should be based on a share of one third for the cohesion fund and be based on the overall volume proposed in January 2002. Once this overall envelope is agreed, the individual amounts per country and per policy will be determined on the basis of the percentages of the total allocation which has been determined following the methodology applied for current Member States for the period 2000-2006.

* As to internal policies, additional funds should be allocated for a transition facility for institution building and continuous decommissioning efforts for the Ignalina nuclear power plant in Lithuania and, in order to fully commit funds allocated under pre-accession assistance, for the Bohunice nuclear power plant in Slovakia.

* A temporary budgetary compensation, through a lump sum payment, should be envisaged for each new Member State which would find itself in a net budgetary position which is worse in comparison with its situation in the year before accession as beneficiary of pre-accession funds.

* The Commission reiterates the need to earmark additional funds for the northern part of Cyprus in order to back up a political settlement.

3.1.2. How to deal with new acquis and the revisiting of chapters

Acceding countries will be required to apply fully the acquis of the European Union in force by the date of accession, except in those areas where transitional arrangements will have been granted.

All the acquis adopted and published by the end of the first semester of 2002 has been transmitted by the Commission to the negotiating countries. The latter have been called upon to take a position on that acquis, including any possible need for transitional arrangements, and to communicate the technical adaptations that may be needed. Positions of the candidate countries on all new acquis transmitted so far have been taken into account in the negotiations. In some cases, such as recently for the chapter "environment", positions taken by the candidates on new acquis can make it necessary to revisit a chapter.

In line with a practice followed in previous enlargements, it will not be possible to go beyond a certain point in time when considering new acquis in the negotiations. The Commission has proposed to limit the scope of the negotiations as such to all acquis adopted and published up until 1 November 2002. For the new acquis adopted between 1 July and 1 November 2002, such as in the field of telecommunications, negotiating countries are requested to transmit their positions as well as any necessary technical adaptations by mid November. This would allow to deal with any additional requests for transitional arrangements which might lead to possible revisiting of chapters in the negotiations in the second half of November.

The Accession Treaty will, as in previous enlargements, include provisions that will permit decisions on the necessary adaptations and temporary arrangements to the acquis adopted between 1 November 2002 and the date of signature of the Accession Treaty to be taken at a later stage, upon duly substantiated requests from the future Member States. [5] Such provisions may be necessary in fields where important parts of the acquis are in the process of being adopted, such as transport, energy or Justice and Home Affairs.

[5] See for example Articles 30, 151 and 169 of the Act concerning the conditions of Accession for Austria, Finland and Sweden.

3.1.3. The chapter on "Other matters"

The chapter on "other matters" will not be treated as the other negotiating chapters. It essentially constitutes a negotiating box in which a number of elements, which are largely uncontroversial but do not have their place in the other negotiating chapters, can be placed. The chapter "other matters", which should be dealt with in early November, is likely to include the following elements :

- the rules applicable to the management and phasing out of pre-accession funds;

- the definition of the envisaged transition facility for certain institution building actions;

- the legal basis for the management of funds for the decommissioning of the nuclear power plants of Ignalina in Lithuania and Bohunice in Slovakia;

- a number of declarations, protocols and additional elements to be included in the Treaty, such as the closure commitments for the above-mentioned nuclear power plants ;

- a legal basis for the above mentioned facility for the northern part of Cyprus.

Further details on these elements are given in Annex 2.

3.2. Finalising the Accession Treaty

The Seville European Council stated that "drafting of the Treaty of Accession should continue so that it can be completed as soon as possible after the conclusion of the accession negotiations. It would seem reasonable to expect that the Treaty of Accessioncould be signed in spring 2003."

The results of the accession negotiations in terms of transitional arrangements agreed and the technical adaptations to the acquis as a result of enlargement will be embodied in one legal instrument and its associated acts: the Accession Treaty. Work on the drafting of this Treaty formally started in March 2002 and is already well advanced. Most negotiated measures and necessary adaptations have already been incorporated in the draft Treaty. Taking the conclusions of the Laeken European Council as a point of departure, the Treaty is being drafted based on the assumption of an enlargement of ten new Member States, and following a structure very similar to that of the previous enlargement. Because of the technical adaptations necessary, the Treaty may have around 1000 pages in the Official Journal.

Once the negotiations are concluded, the drafting of the Treaty will need to be finalised in order to incorporate in it the final results of the negotiations. Taking into account the advanced stage of the drafting process, it seems reasonable to expect that the Accession Treaty could be finalised no later than six weeks after the conclusion of the negotiations.

Once the text of the Treaty has been agreed by all parties to the negotiations, the Commission should adopt its Opinion on the applications for accession of the concerned countries. The European Parliament should then be asked to give its assent in accordance with Article 49 of the EU Treaty, followed by a decision of the Council on the admission of new Member States. Provided that the Commission can issue its Opinion in February 2003, and allowing sufficient time for the decision making process in Parliament and Council, the Accession Treaty can be expected to be signed in spring 2003, as foreseen by the Seville European Council. Thereafter, the Treaty, drawn up in all present and future Community languages, will be signed by the parties.

After signature, the Treaty will be submitted for ratification by the present and future Member States, in accordance with their respective constitutional requirements. The Accession Treaty should, as in the past, contain a date for the accession of the new Member States, provided that the necessary instruments of ratification are deposited, with the possibility to adjust relevant provisions if any of the acceding countries do not ratify.

3.3. Participation in the work of the Union before accession

Candidate countries already participate in a number of Community committees and agencies [6]. In order to reinforce the gradual integration of acceding States into Community structures, these states should be given, after the signature of the Accession Treaty, the possibility to further participate, wherever legally possible, as observers in all committees set up by the comitology procedure and all other committees. The Commission, furthermore, considers that acceding States should also be able to participate at least as observers in the relevant structures of all Community agencies.The general principles and details of this participation will be defined at a later stage. In order to facilitate financing the costs of effective participation, each acceding State could, if it so wishes, reserve appropriate amounts in the envelope of its national pre-accession programme.

[6] See Commission communication of 20.12.99 on "Participation of candidate countries in Community programmes, agencies and committees", COM (1999) 710 final

The European Parliament is equally planning to let observers from the candidate countries participate in the work of the Parliament.

There will also be a need to define the modalities of involving the acceding countries in the process of adopting new acquis during the period between the signature of the Accession Treaty and the date of accession. This has traditionally been done by an exchange of letters on the information and consultation procedure for acceding countries prior to decisions taken by the Council. The Council intends, as in past enlargements, to take appropriate decisions in order to allow the acceding countries to take part in the decision shaping process.

3.4. Monitoring and safeguards

The Commission has been closely monitoring how candidate countries are meeting their commitments made in the accession negotiations. It is highly important that the commitments undertaken by the future Member States in the framework of the accession negotiations be implemented as foreseen. In order to assess precisely this situation, the Commission will continue to monitor this closely until the signature of the Treaty and report on this to the Council on the basis of current procedures.

The Regular Reports identify areas where further efforts are required. The Commission will continue the monitoring process also between the signature of the Treaty and accession. This continuous monitoring, which will also include the monitoring of the implementation of the Action Plans, should be done through established channels such as the structures of the Association Agreements.

The Commission will, building on its present practice, signal any delays or problems in economic reform or the fulfilment of commitments, in particular through early warning letters at a political level.

Specific targeted actions such as high level groups in the field of food safety, or on the introduction of extended decentralisation as well as peer reviews, technical meetings, workshops, seminars and questionnaires will continue to be used in specific fields until accession.

For economic matters, candidate countries are continuing to prepare for EMU's multilateral surveillance and economic policy co-ordination. They are participating in the Pre-accession Fiscal Surveillance Procedure (PFSP) which has three components - the fiscal notification, the pre-accession economic programme and the multilateral dialogue. The PFSP has started in spring 2001 and will continue also until accession.

All relevant information resulting from these activities will be pulled together in monitoring reports presented regularly to the Council Six months before the accession date, the Commission will produce a comprehensive Monitoring Report, which will look at the advancement of the implementation of necessary reforms and all commitments in the field of the Community acquis by each of the acceding countries. This comprehensive Monitoring Report will be, for the ten acceding countries, a precursor of the Annual Report on the Monitoring of the Application of the Community Law, issued regularly by the Commission for all Member States [7] At the latest in July 2003, the Commission will assess the implementation of commitments necessary for the programming of structural funds.

[7] See the "Nineteeth Annual Report on Monitoring the Application of the Community Law (2001) of 28.6.2002, COM (2002) 324 final.

After accession, the Commission, in its role as guardian of the treaties, will continue to check how the acquis is implemented by the new Member States, using the same mechanisms as those applied to the existing Member States. These include in particular benchmarking, peer pressure, annual reporting on implementation of Community law and the launching of infringement procedures with the European Court of Justice if necessary. In the specific area of nuclear safety, the Laeken European Council envisaged the need to monitor the security and safety of nuclear power stations in the Union.

The Accession Treaty will, as in the previous enlargement, contain a general economic safeguard clause. This clause is already being discussed in the Council drafting group of the Treaty on the basis of a text modelled on Art. 152 of the Act of Accession for Austria, Finland and Sweden. As the acceding countries do not form part of the European Economic Area, the Commission considers that the duration of the validity of the safeguard clause should be two years and not one year, as in the previous enlargement.

This general economic safeguard clause applies to situations where "difficulties arise which are serious and liable to persist in any sector of the economy or which could bring about serious deterioration in the economic situation of a given area". The safeguard clause would allow the Commission to determine the necessary protective measures. Both, new and current Member States would be able to make use of this safeguard clause. The draft text, as in the previous enlargement, specifies that the protective measures "shall not entail frontier controls".

The safeguard clause does not cater for situations, which, on the one hand, are due to failure to comply with accession obligations, and on the other hand, which may have serious non-economic consequences such as for the protection of health or life of humans, animals or plants, protection of intellectual property or general reasons of public policy as defined in Art 30 EC Treaty. For these cases, either Art. 30 of the EC Treaty applies, or specific safeguard clauses may have been introduced into specific sectoral legislation according to Art 95, para. 10 EC Treaty.

However, in a number of cases, the Community legislation either does not contain a safeguard clause or the safeguard clause does not cover the specific situations arising from enlargement. The Commission therefore considers that the Accession Treaty should as a precautionary measure envisage the introduction of a specific internal market related safeguard mechanism.

Such a mechanism could be based on the following elements:

* The mechanism should be implemented by the Commission on request of a Member State or on its own initiative.

* The Commission should be authorised to take the decisions on the necessary measures. The measures should be proportional and limited in time.

* The scope should be limited to a serious breach of the functioning of the internal market or an imminent risk of such breach and should also cater for particular situations in respect of food safety.

* The mechanism should be triggered where the Commission establishes a failure to meet the commitments made by the new Member States in the context of the accession negotiations.

* During the period of application of the measures, the new Member State concerned shall provide regular information to the Commission on steps taken to redress the breach. The measures should be lifted as soon as the Commission has determined that the breach has been redressed .

* The safeguard clause should only exist for a limited time span. The possibility to invoke the internal market safeguard mechanism should be limited to 2 years.

The comprehensive Monitoring Report will identify any areas where, in the absence of remedial action, such safeguard measures may be considered. This would also allow to give an early warning before membership. Moreover, until accession, the safeguard clauses under the Association Agreements will remain applicable.

In this context, the particular situation in the area of Justice and Home Affairs deserves a special mention. Unlike at the time of the last enlargement, there is now a considerable acquis in this area, and it is still evolving as the process of implementation of the Amsterdam Treaty and the Tampere European Council conclusions continues. It covers difficult and politically sensitive subjects, in particular where the freedom of movement of people and the consequences of the suppression of internal frontiers are concerned. As explained in paragraph 3.5.3 below, the implementation of these Schengen-based objectives is subject to a two-stage process, which eliminates the need for any separate safeguard mechanism. There are, however, other non-Schengen components in the area of freedom, security and justice (for instance regarding the implementation of judicial co-operation, in particular mutual recognition) where the monitoring process may indicate a need for a sui generis safeguard clause to address any serious breach or a threat of a serious breach in the functioning of this area, by e.g. providing for a temporary suspension of mutual recognition provisions.

3.5. After enlargement

3.5.1. Institution building

The process of building up administrative and judicial capacity will need to continue after enlargement. A number of transitional arrangements agreed in the negotiations also demonstrate that in certain areas candidate countries need to continue efforts until they are in a position to apply fully the Community acquis. This is why the Commission has proposed to make available for the first three years after enlargement a special transition facility for institution building (see Annex 2).

The Commission proposes to continue to use in specific identified areas Community financed instruments which have proven their usefulness, such as twinning and twinning light. Moreover, mobilisation of experts from other Member States through such tried mechanisms as TAIEX will continue to be used in order to provide peer assistance. Furthermore, the Commission proposes to finance short-term placements of the new Member States' officials in the administrations of the EU 15. Additionally, the transition institution building facility could also be used to co-finance investments in the acquis in particular in such areas as border controls, customs administrations, statistics, food safety and integrated agricultural administration and control systems.

3.5.2. EMU and the Euro

In accordance with the EU Treaty, new Member States cannot immediately adopt the Euro upon accession. However, as for all Member States, economic policies become a matter of common concern and hence are subject to policy co-ordination and multilateral surveillance procedures. The main instruments for co-ordination are the Broad Economic Policy Guidelines, the Stability and Growth Pact and a number of processes which deal with specific policy areas. The exchange rate policy becomes a matter of common interest. Participation in the Exchange Rate Mechanism II is expected some time after accession.

Participation in the euro area is the ultimate goal of new Member States. They will integrate, at that moment, into the single, stability-oriented monetary policy and the single exchange rate policy, in addition to the full application of the economic policy co-ordination and surveillance procedures. Until that time, the Treaty obliges Member States to pursue the high degree of sustainable convergence required for the adoption of the euro, but does not specify the timetable to attain this. Its attainment will depend on the economic characteristics of each country and its success in applying the policies geared to sustainable convergence.

3.5.3. Schengen

The Union has made clear that full application of the Schengen acquis necessitates a process in two stages. In the first stage, by the date of accession, acceding countries will need to have achieved a high level of border control, even though certain special arrangements such as shared infrastructure and equipment or joint patrols could be envisaged with other Member States. The lifting of internal border controls will only occur some time after accession and will be subject to a separate decision making process for each new Member State separately, based on the full implementation of the Schengen acquis.

3.5.4. The European Economic Area

The acceding countries will need to apply to join the European Economic Area (EEA), in accordance with Article 128 of the EEA Agreement. In order to ensure a smooth functioning of the extended EEA, accession of candidate countries to the EEA should take effect at the same time as accession to the EU. The EEA Agreement needs to be adapted to enlargement in accordance with the procedures stipulated in Article 128. The process of agreeing on the terms and conditions of membership of the EEA should start right after the conclusion of negotiations on accession to the EU in order to provide as far as possible for a simultaneous entry into force of the EU- and the EEA-membership.

4. A revised Accession Strategy for Bulgaria and Romania

The Seville European Council encouraged Bulgaria and Romania to pursue their efforts and reiterated "its commitment to give them full support in their preparation for accession. An updated road map and a revised and enhanced pre-accession strategy should be adopted in Copenhagen for the candidate countries still engaged in negotiations. An increase in pre-accession financial aid could also be contemplated. Furthermore, if the current pace is maintained, a more precise timetable could be set for these countries' accession process by the end of the year".

The criteria set by the Copenhagen and Madrid European Councils as well as the principles which have guided the accession process from the outset remain valid. All candidates participate on an equal footing and all are expected to join the European Union on the basis of the same criteria and depending on their individual progress. As confirmed by the 2001 Laeken European Council, the accession process is now irreversible.

As the accession negotiations with all twelve negotiating candidate countries are an inclusive process, the Accession Treaty should acknowledge that the results reached in the negotiations with those candidates which will not join in the first round of enlargement will not be put into question.

4.1. Progress to-date

This year's Regular Reports show that Bulgaria and Romania have made further progress towards meeting the Copenhagen criteria. In order to successfully complete their preparations, they need to strengthen their efforts in meeting the economic criteria and in transposing, implementing and enforcing the acquis. They also need to continue the reform of public administration and the judiciary.

Bulgaria and Romania have made considerable progress in the negotiations. All negotiating chapters have now been opened with Bulgaria and almost all with Romania. With Bulgaria, the remaining chapters were opened in the first half of 2002 and with Romania it should be possible to open the last four chapters before the end of this year, thus fulfilling the Laeken European Council's objective to have all chapters opened with these two countries in 2002.

4.2. Indicative date

Bulgaria and Romania have set 2007 as their indicative date for accession. Negotiation chapters have been provisionally closed on the basis of this indicative accession date. 22 chapters have been provisionally closed with Bulgaria and 13 with Romania.

The time scales made for the implementation of negotiation commitments take account of this perspective. As in the past, progress towards the completion of the accession negotiations will reflect progress in the adoption, implementation and enforcement of the necessary measures in each country.

The Commission will strongly support the two countries in achieving this objective, which will continue to be guided by the principles of differentiation and own merits.

4.3. Accession roadmaps

As announced in its 2001 Enlargement Strategy Paper, the Commission will propose, on the basis of the analysis in the 2002 Regular Reports, detailed roadmaps for Bulgaria and Romania before the Copenhagen European Council. These roadmaps will cover the period up to accession and will be prepared on the basis of a close dialogue with each country.

The roadmaps will be based on the commitments made in the negotiations and on the requirements to fulfil the Copenhagen criteria. They will indicate the steps each country needs to take to be ready for membership, with particular emphasis on administrative and judicial capacity and on economic reform. The roadmaps will provide clear benchmarks against which commitments made in the course of the negotiations as well as progress with economic reform can be monitored. Progress in implementing the road maps will be monitored in particular through the Europe Agreement structures and the Regular Reports.

4.4. Pre-accession assistance

The Commission will propose to revise next year the Accession Partnerships for Bulgaria and Romania in the light of the findings of the Regular Reports and the roadmaps. The Accession Partnerships will continue to be the basis for programming pre-accession assistance, but priorities for assistance will also be drawn from roadmaps, Regular Reports and revised National Development Plans. Phare assistance will continue to focus on strengthening public administration and the judiciary, institution building, investment related to the adoption of the acquis as well as economic and social cohesion and cross-border co-operation. Work on extending decentralised implementation systems should be accelerated. With regard to SAPARD, although it is already fully decentralised, the instrument will continue to prepare the candidate countries in terms of agricultural structures and rural development as well as strengthening the related institutional capacity. ISPA will continue to provide financial support to infrastructure investments in the field of environment and transport.

The Commission considers that financial assistance to Bulgaria and Romania should be increased considerably from the date of the first round of accessions, linked to progress in implementing the roadmaps and their absorption capacity..

5. A new impetus to the Enlargement process with Turkey

The Seville European Council in June 2002 concluded that "new decisions could be taken in Copenhagen on the next stage of Turkey's candidature" in the light of developments before the Copenhagen European Council, on the basis of the Commission's Regular Report and in accordance with the Helsinki and Laeken conclusions.

The 2002 Regular Report makes a detailed analysis of Turkey's progress in the pre-accession strategy over the past twelve months. Turkey's progress is assessed by means of the same criteria and the same methodology as applied to all candidates. As with all candidates, and pursuant to the conclusions of the Copenhagen and Madrid European Councils, the report pays attention both to legislative changes and to Turkey's administrative capacity to implement and enforce the acquis properly.

The Report shows that Turkey has moved forward in the three major areas covered by the Accession Partnership: the political, economic and acquis criteria established by the Copenhagen European Council in 1993.

Turkey has made noticeableprogress towards meeting the Copenhagen political criteria. Through constitutional reform, and a series of legislative packages, Turkey has addressed several of the key priorities specified in the Accession Partnership. The legal changes adopted by Parliament in August 2002 are particularly welcome as they show a willingness to introduce far-reaching reforms. The death penalty has been lifted except in case of war and important steps have been taken to permit broadcasting and education in languages other than Turkish. The lifting of the state of emergency in two of the four provinces where it had applied, and the undertaking to lift it, this year, in the two provinces where it still applies should open the way to greater protection of human rights.

The Commission welcomes these developments and recognises the break-through they represent in the Turkish political context. In addition, the reforms were adopted in particularly difficult circumstances. These reforms are promising for the future as they demonstrate the will and the capacity of the Turkish political system to make progress even in areas hitherto regarded as highly sensitive.

Nonetheless, Turkey does not fully meet the political criteria. First, the reforms contain a number of significant limitations, which are set out in the Regular Report, on the full enjoyment of fundamental rights and freedoms. Secondly, many of the reforms require the adoption of regulations or other administrative measures and, to be effective, will need to be implemented in practice by executive and judicial bodies at different levels throughout the country. Thirdly, a number of important issues arising under the political criteria have yet to be adequately addressed. These include the fight against torture and ill-treatment, certain questions concerning civilian control of the military, and the situation of persons imprisoned for expressing non-violent opinions and in compliance with the decision of the European Council of Human Rights..

In the light of the considerable progress made in recent years and of the remaining areas requiring further attention, Turkey is encouraged to pursue the reform process to strengthen democracy and the protection of human rights, in law and in practice. This should enable Turkey to tackle the remaining obstacles to full compliance with the political criteria.

The Commission recalls that efforts to resolve the Cyprus problem form part of the enhanced political dialogue between the European Union and Turkey. Noting the statements issued by the United Nations Security Council, following reports by the UN Secretary General's Special Adviser for Cyprus, Mr.Alvaro de Soto, the Commission urges all parties concerned and particularly, in the present context, Turkey, to lend full support to the efforts of the United Nations to achieve a comprehensive settlement of the Cyprus problem this year.

With respect to the economic criteria, Turkey has made progress in the functioning of its market economy, which should improve its capacity to cope with competitive pressure, but is still undergoing the consequences of recession and financial crises.

With respect to the acquis criteria, Turkey has made progress in aligning legislation in the areas covered by the customs union and a number of other sectors, such as banking, telecommunications, energy and agriculture. The financial sector has been restructured and administrative capacity in this field has been streamlined. In most other areas there remain major differences between the acquis and Turkish legislation.

The outstanding issues as regards the modalities for participation by Turkey in the decision making process as regards EU-led operations using NATO assets need to be resolved as a matter of priority.

5.1. Strengthening the Pre-Accession Strategy

The Helsinki European Council set out the pre-accession strategy for Turkey in 1999. The Laeken European Council endorsed a new phase of this strategy last year. Since then, substantial progress has been made in its implementation.

Against this background, the Commission recommends that the European Union should enhance its support for Turkey's pre-accession preparations, in view of the next stage of its candidature. More detailed recommendations are given below as to how this objective can be achieved.

- The Accession Partnership has proved to be a valuable instrument in the pre-accession strategy. It should be updated and revised to focus clearly on areas where priority action is still needed.

- The enhanced political dialogue between the EU and Turkey covers political reforms, human rights, the Cyprus issue and the matter of the peaceful settlement of border disputes, and will be pursued intensively. There is a need for detailed discussions on the various initiatives taken by Turkey to meet the Copenhagen political criteria. New ways will be sought to ensure improved understanding of the reforms and other issues requiring attention.

- The enhanced economic dialogue between the EU and Turkey covers issues of macroeconomic performance and stability and economic reforms, and will be pursued intensively. The various measures taken by Turkey to restore economic stability and to meet the Copenhagen economic criteria have to be discussed in detail.

- The process of legislative scrutiny, focusing on precise sector issues, supplemented by TAIEX assistance, is well underway and will be further developed. This process guides Turkey in the requirements for transposition of the acquis, including administrative capacity and enforcement.

- Additional efforts are being made to reinforce and extend the scope of the customs union to cover services and public procurement, as well as removing obstacles to the free circulation of goods. This will have an impact on the wider work to be undertaken by Turkey in accordance with its candidate country status.

- The deepening of trade relations with Turkey, both on a bilateral basis and in relations with third countries, should be pursued. For example, preferential market access for EC-Turkey trade in agricultural products could be extended on a reciprocal basis; this should be accompanied by greater co-operation on veterinary and phyto-sanitary matters. In negotiating trade agreements with third countries, the EU will step up efforts to ensure that such countries agree similar arrangements with Turkey. The dialogue between the EU and Turkey on trade issues should be enhanced and the use of trade defence instruments kept under review.

- In order to stimulate investment flows, a further liberalisation of foreign direct investment between the EU and Turkey should be pursued.

- Co-operation with Turkey should be reinforced in the area of Justice and Home Affairs, including illegal immigration and adoption and implementation of the Schengen acquis, as well as the free movement of persons, and maritime safety.

- Turkey will participate in a number of Community programmes and agencies.

- The new financial management system has begun to bear fruit. The substantial backlog in commitments of EU finance for Turkey is now being cleared. The pre-accession driven approach in the financial assistance programmes is being fully implemented. From 2003 greater responsibility will be passed to the Turkish authorities for the implementation of these programmes.

The Commission will take the necessary initiatives to put this strengthened pre-accession strategy into place. The Commission will put forward a revised Accession Partnership, taking account of progress made and the areas where further efforts are needed. Progress will be discussed in appropriate fora, such as the EC-Turkey Association Committee and in the Customs Union Joint Committee.

It is therefore necessary to increase the availability of financial assistance to Turkey, bearing in mind Turkey's specific needs and capacity to absorb such funds.

5.2. Additional financial support

In order to help accelerate the implementation of Turkey's pre-accession strategy, increased financial assistance will be provided from 2004. This increase is intended to enable Turkey to strengthen its public administration, support the adoption of the acquis, and to facilitate Turkey's integration into the European economy.

Pre-accession assistance will focus on helping Turkey meet the Copenhagen criteria, and in particular on strengthening public administration at all levels, institution building, and investment related to the adoption of the acquis. Assistance will also be available for improving the functioning of Turkey's economy and its capacity to cope with competitive pressure within the internal market. Cross-border cooperation with existing EU Member States and other candidate countries will also be promoted. Priorities for assistance will be drawn from the Accession Partnership and the Regular Reports.

In order to facilitate the full devolution of implementation, Turkey will need to take further measures to ensure sound financial control.

Capacity building for Turkey's public administration will be matched by resources for investment in regulatory infrastructure, acquis-related investment and economic and social cohesion. Turkey will be asked to prepare a National Development Plan to guide the commitment of resources to addressing economic and social cohesion issues.

The Commission will put forward early next year a revised Accession Partnership for Turkey based on priorities emerging form this year's Regular Reports. In this context, the Commission will propose to the budgetary authority that grant assistance to Turkey should be allocated under heading 7 of the financial perspectives 2000-2006 and should be steadily increased in the period from 2004 to 2006. The size of annual allocations will be linked to performance in meeting the Copenhagen criteria and in the effective management of pre-accession assistance. It can be expected that total assistance could at least double by 2006, taking into account Turkey's needs and absorptive capacity

6. Conclusions and Recommendations

In the light of the above, the European Commission's conclusions and recommendations are the following:

(1) This year's Regular Reports show that all candidate countries have made considerable progress over the last year in implementing the accession criteria.

(2) Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, the Slovak Republic and Slovenia fulfil the political criteria. Bearing in mind the progress achieved by these countries, the track record in implementing their commitments, and taking into account their preparatory work in progress and foreseen, the Commission considers that these countries will have fulfilled the economic and acquis criteria and will be ready for membership from the beginning of 2004. The Commission therefore recommends to conclude the accession negotiations with these countries by the end of this year with the aim to sign the Accession Treaty in spring 2003.

(3) The Commission hopes to see a re-united Cyprus acceding to the European Union on the basis of a comprehensive settlement, as the best outcome for all concerned. As indicated in the conclusions of the Seville European Council, the EU is ready to accommodate the terms of a political settlement in the accession arrangements in line with the principles on which the European Union is founded. The Commission welcomes that substantial UN involvement will continue and urges all parties concerned and, in particular Turkey, to lend full support to efforts to reach a comprehensive settlement this year. Cyprus' terms of accession can be adapted to reflect the comprehensive settlement as well as its implications for the application of the acquis throughout the island. The Commission has proposed that considerable resources should be made available to support the northern part of the island to catch up and to back up a settlement. In the absence of a settlement, the decisions to be taken in December by the Copenhagen European Council will be based on the conclusions of the Helsinki European Council .

(4) Acceding countries need to implement the acquis by the date of accession, except in cases where transitional arrangements have been agreed. Commitments undertaken in the negotiations must be fully met before accession. The Regular Reports point to a number of areas where further improvements need to be made in the context of the political and economic criteria and in relationship to the adoption, implementation and enforcement of the acquis. These should be vigorously pursued. In order to analyse progress and to facilitate successful membership of the European Union, the Commission will regularly monitor this and report to Council. The Commission will produce six months before the envisaged date of accession a comprehensive monitoring report for the Council and the European Parliament. The Commission considers that a specific safeguard clause needs to be introduced in the Accession Treaty. This clause should allow the Commission for a limited period of time to take appropriate measures in the internal market field.

(5) Conclusion of negotiations requires that the necessary solutions be found to the remaining open questions in the negotiations. As to the financial offer of the Union, such solution should be based on the financial framework for negotiations put forward by the Commission on 30 January 2002 and the principles contained therein.

(6) Bulgaria and Romania have set 2007 as their indicative date for accession. The Commission will strongly support the two countries in achieving this objective, which will continue to be guided by the principles of differentiation and own merits. The Commission will propose, on the basis of the analysis in the 2002 Regular Reports, detailed roadmaps for Bulgaria and Romania before the Copenhagen European Council. In order to prepare Bulgaria and Romania for membership in the European Union, an increased focus will be put on judicial and administrative reform. Furthermore, pre-accession assistance provided to Bulgaria and Romania should be increased considerably from the date of the first round of accessions, linked to progress in implementing the roadmaps. As the accession negotiations with all twelve negotiating candidate countries are an inclusive process, the Accession Treaty should acknowledge that the results reached in the negotiations with those candidates which will not join in the first round of enlargement will not be put into question.

(7) Through constitutional reform and a series of legislative packages Turkey has made noticeable progress towards meeting the Copenhagen political criteria, as well as moving forward on the economic criteria and alignment with the acquis. Nonetheless, considerable further efforts are needed. Against this background and in view of the next stage of its candidature, the Commission recommends that the EU should enhance its support for Turkey's pre-accession preparations and should provide significant additional resources for this purpose. The Commission will propose a revised Accession Partnership and intensify the process of legislative scrutiny. It recommends renewed efforts to extend the Customs Union and improve its functioning, with a view to deepening EC - Turkey trade relations and increasing investment flows. Turkey is encouraged to pursue its reform process and thus to carry forward its candidature for EU membership.

Annex 1: Conclusions of the Regular Reports

Bulgaria

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