Making a success of enlargement - Strategy Paper and Report of the European Commission on the progress towards accession by each of the candidate countries [SEC (2001) 1744 to 1753]

I. The overall context

1. Introduction

2. Public opinion and enlargement

3. The enlargement process and neighbouring countries

a) The Western Balkans

b) The EFTA countries

c) The Newly Independent States

d) The Mediterranean

II. Progress by the candidate countries in meeting the membership criteria

1. Political criteria

a) Overall development

b) Conclusions

2. Economic criteria

a) Overall Developments

b) Conclusions

3. Other obligations of membership

a) Adoption, implementation and enforcement of the acquis

b) Sector overview and conclusions

c) EMU and the EURO

III. Making a success of enlargement

1. Following the road map - the remaining chapters

a) The financial framework and related chapters

b) Other chapters

2. Action plan for administrative and judicial capacity

a) Reinforcing Institution Building Actions

b) Enhanced Monitoring

c) Administrative capacity beyond accession

3. Turkey's pre-accession strategy - towards a new phase

4. The next steps

a) Meeting the accession criteria

b) The first accessions

c) Other negotiating candidate countries - towards an updated road map

IV. Conclusions

Annexes

Annex 1: Conclusions of the Regular Reports

Bulgaria

Cyprus

Czech Republic

Estonia

Hungary

Latvia

Lithuania

Malta

Poland

Romania

Slovakia

Slovenia

Turkey

Annex 2: Candidate countries: main statistical indicators (2000)

Annex 3: The pre-accession strategy

Annex 4: Human Rights Conventions ratified by the Candidate Countries, 30 September 2001

Annex 5: Twinning projects in 1998-2001

Annex 6: State of Play of the Negotiations on 26 October 2001 Error! Bookmark not defined.

I. The overall context

1. Introduction

Over almost half a century, the European Union has helped put an end to the conflicts of the past and to strengthening peace, security, justice and well being throughout Europe. Since the invitation to the candidate countries to become part of the European Union, the enlargement process has contributed decisively to achieving political stability, economic progress and social justice. Stable institutions, changes of government on the basis of free and democratic elections, reinforced protection of human rights, including rights of minorities, and market economy principles are now common features. The enlargement process makes Europe a safer place for its citizens and contributes to conflict prevention and control in the wider world.

Enlargement will benefit not only existing and new Member States but also neighbouring countries, with which the European Union has close ties. No new dividing lines will be drawn across our continent. Each new Member State will bring to the EU its own political, economic, cultural, historical and geographical heritage, thus enriching Europe as a whole.

A strong and united Europe is more important than ever before, against the background of the terrorist attacks of 11 September and subsequent developments. The candidates for European Union membership have aligned themselves with the EU's condemnation of terrorism and associated themselves immediately and fully with the Conclusions and Plan of Action of the extraordinary European Council on 21 September 2001.

The Commission renews its commitment to making a success of enlargement. This will enhance security and stability not only in Europe but also in neighbouring regions and further afield. The next year will be crucial for the successful completion of the ongoing accession negotiations and for the candidates' preparations for membership.

This year's progress reports and proposals for revised Accession Partnerships identify the areas where further efforts are most needed. Together with the road map, set out by the Commission last November and endorsed by successive European Councils, these provide a guide to the successful completion of the accession process with the countries concerned. The Commission will give its evaluation of the readiness of each candidate to assume the rights and obligations of membership in next year's progress reports. Provided their efforts are sustained, it should be possible to conclude the accession negotiations by the end of 2002 with those countries which fulfil the accession criteria. On this basis these countries would be ready to become members of the EU in 2004, in accordance with the objective set out by the European Parliament and by the European Council.

The principles for this process remain unchanged. The Berlin European Council has set out a clear framework for the financial aspects of enlargement. This framework provides a sufficient basis for the accession of up to ten new Member States in 2004. The European Council of Nice has defined the framework for the institutional reform necessary for enlargement. Negotiations are conducted on the basis of the existing acquis, applying the principles of own merits and catching-up, and will be concluded with those candidates that fulfil the criteria for membership. These are the necessary and sufficient conditions defined at the outset for accomplishing the first accessions. Any discussions within the European Union on the reform of policies or institutions should be clearly separated and not hinder or slow down the accession negotiations.

The pace of the negotiations with each candidate reflects, above all, the pace of its own preparations for membership. The application of the principle of differentiation based on each candidate country's own merit, together with the vigorous pursuit of preparations for membership backed up by the EU's pre-accession instruments, is also enabling candidates which began negotiations at a later stage to catch up. The enlargement strategy now in place provides a sound basis for completing the negotiations, on schedule, with the candidates that are sufficiently prepared.

The conditions for membership, set out by the Copenhagen European Council in 1993 and further detailed by subsequent European Councils, provide the benchmarks for assessing each candidate's progress. These conditions remain valid today and there is no question of modifying them. In the present phase of the accession process, however, it is necessary to focus as much on the candidates' capacity to implement and enforce the acquis as on its transposition into law. For this reason, particular attention is now being given to the candidates' administrative and judicial capacity. By means of an action plan, the Commission will increase support for institution building and monitor closely the fulfilment of undertakings made in the negotiations and the achievement of priorities set out in the Accession Partnerships.

The European Union will continue to lend its full support to the preparations for membership by candidates that are not in a position to complete negotiations within the timetable indicated above. Negotiations will be pursued with them, on the basis of the principles that have guided the accession process from the beginning. In its 2002 Enlargement Strategy Paper, the Commission will set out an updated road map, and, if necessary, a revised pre-accession strategy, for such candidates, taking into account the progress made in the next year and the conclusions of the Göteborg European Council.

To intensify preparations for enlargement, candidate countries are being increasinglyassociated with EU programmes and activities. Pre-accession economic programmes have been designed bearing in mind the requirements for economic and monetary union and national employment strategies are being developed. The Göteborg European Council conclusions invited the candidate countries to translate the Union's economic, social and environmental objectives into their national policies. The candidate countries should be associated as far as possible to the Lisbon process, which focuses on the strategic goal for the Union to develop a sustainable, highly competitive, knowledge-based economy.

Co-operation in justice and home affairs will become increasingly important, both in view of the fight against terrorism and organised crime and the longer-term discussions on the possible creation of common border control arrangements. The Schengen system will apply to all new Member States. Full participation in it will be based on a two-step process. The new Member States will first need to achieve a high level of external border control upon accession whereas the lifting of internal border controls with current Member States will take place only at a later stage, subject to a separate decision by the Council.

Joining the European Union is not identical with joining the euro. Whereas participation in the single currency is part of the acquis, candidate countries will have to conform to the convergence criteria for participation in the euro. This will be decided at a later stage, after accession, following assessment of the achievement of a high degree of sustainable convergence, as was the case for the initial participants in the euro zone. The first priority for each candidate must, however, now be to comply with the Copenhagen economic criteria.

Candidate countries will be increasingly involved in the discussion of the future of Europe including the Convention, which will prepare the way for the next Intergovernmental Conference. The work of the Convention and the IGC is capital for the future of Europe; it does not, however, constitute a new condition for enlargement.

As the debate on Europe's future advances and the date for enlargement nears, citizens in existing and future Member States will increasingly wish to understand the likely effects of enlargement. The Commission, working closely with the European Parliament, is ready to respond to this demand and to back up the efforts of political leaders in the countries concerned to explain to the public the issues involved.

It would be an inspiration for Europe as a whole, and for the world at large, if the whole of Cyprus was able to enter the European Union together on the basis of a settlement taking into account the interests and concerns of the respective parties. It is disappointing that the Turkish Cypriot leadership is not presently engaged in the process conducted under the auspices of the United Nations. All parties concerned should take full advantage of the window of opportunity before the completion of the accession negotiations to achieve a settlement. If, however, a settlement has not been reached by the completion of the accession negotiations, the Council will take its decision on accession, without this being a pre-condition, in accordance with the Helsinki European Council conclusions.

The Helsinki European Council concluded that Turkey is a candidate whose application will be judged on the basis of the same criteria as applied to other candidate countries. The pre-accession strategy, called for in those conclusions, is now well underway. The Commission welcomes the political and economic reforms which have been initiated. Turkey needs to ensure that these reforms are effective, especially with respect to the protection of human rights, and to contribute actively to efforts to resolve the Cyprus problem and the differences that have arisen over the European Security and Defence Policy.

The forthcoming enlargement of the European Union is being thoroughly prepared by means of the strategy set out in this document. It is founded on clear principles, which have been enunciated by successive European Councils, and on a transparent and objective method set out by the Commission in Agenda 2000 and applied each year in its Progress Reports. The present document, and the accompanying Reports, provide an analysis of the stage reached in the enlargement process in Autumn 2001 and point the way to ensuring that the next and decisive phase of the process is successful.

2. Public opinion and enlargement

In preparing the present round of enlargement, political and economic leaders in the European Union need to engage in a dialogue with the public about enlargement, and to contribute to the discussion of the Union in the candidate countries.

Opinion polls, and Eurobarometer, show that in the existing Union information and understanding about the implications of enlargement need to be improved. In the candidate countries, public support for accession is generally high, but can vary as a result of different factors, including developments in the accession negotiations.

In May 2000 the Commission launched a communication strategy to make available information about the enlargement process. To succeed, it requires that the European institutions, but also elected representatives, political leaders, governments, economic and social partners and civil society in general participate in the dialogue.

The Commission is developing its communication strategy on a decentralised basis, taking account of the particular needs and conditions of the Member States and the candidate countries. The Commission's representations in the 15 Member States, and its delegations in the 13 applicant countries, have the responsibility for drawing up programmes adapted to needs. At the regional level, priority is being given to regions of the existing Union bordering the candidate countries. In developing the strategy the Commission is working closely with the offices of the European Parliament.

The Commission will keep the Council and Parliament informed of the results.

3. The enlargement process and neighbouring countries

When the EU enlarges it will acquire new neighbours and its relations with them will evolve to reflect the new situation. The EU has developed specific policies for each neighbouring region - the Stabilisation and Association process for the Western Balkans, the Barcelona process for the Mediterranean and the Partnership and Co-operation framework for Russia, Ukraine and other Newly Independent States (NIS). These complement the close and integrated relationship developed with the countries of European Free Trade Agreement and the European Economic Area.

These policies foresee the creation of a free trade area encompassing the EU and its neighbours in which democracy and respect for human rights and the rule of law prevail.

As the EU enlarges, the range of common interests of the EU and its new neighbours will expand. This will create new opportunities, acting as a stimulus for growth and investment. Enlargement will eventually create an internal market of over 500 million consumers. It will be in the mutual interest of the EU and its new neighbours to continue to work together to consolidate economic reform and strengthen business by creating a transparent regulatory environment. Progressive alignment with the rules of the EU's internal market and regulatory framework will facilitate trade and attract investment in the neighbouring regions. This will bring benefits to business in all the countries concerned.

Enlargement will also bring new challenges. It will heighten the need for the EU and its neighbours to work closely on issues such as justice and home affairs. The EU is likely to attract migrants from its neighbours and will want to develop with them ways of planning for legal migration while combating illegal migration and trafficking in human beings. Border management will take on increased importance with close co-operation in areas ranging from customs and veterinary/phyto-sanitary controls to combating organised crime and drugs trafficking.

The enlarged Union will need to deepen its relationships with its immediate neighbours and to develop further a common approach. The enlarged EU is likely to see an interest in linking together common elements of the three geographic policies currently in place. The future borders of the Union must not become a new dividing line. A well-designed proximity policy, building on the present policy framework, will ensure that the enlarged EU and its neighbours deepen their common interests and activities.

a) The Western Balkans

2001 has witnessed the consolidation of democracy in the Western Balkans region. Following the election of a new democratic leadership in the Federal Republic of Yugoslavia (FRY), the countries of the region have pushed ahead with political, economic and administrative reforms. Progress has not been even however and a resurgence of violence in the southern regions of the FRY and in the former Yugoslav Republic of Macedonia represents a set-back in the pursuit of peace and stability in the region. The challenge for the EU is to respond effectively to volatility in the region while progressing towards the goal of integration of the countries of the region into the EU, in line with the Feira European Council conclusions.

The Stabilisation and Association Process (SAP) provides a framework within which new contractual relationships and an assistance programme (CARDS) help each country to progress, at its own pace as potential candidates for EU membership. Regional co-operation is critical for the consolidation of stability and a vital component of the EU's commitment in Southeastern Europe. This will require additional efforts. All the countries in the region need to be assisted in their attempts to synchronise regional co-operation efforts with the requirements of EU integration. The Stabilisation and Association process, Stability Pact and financial assistance each play a complementary role in this respect.

b) The EFTA countries

The new Member States will accede to the Union's agreements with the members of the European Free Trade area (EFTA). The acceding countries will need to apply to join the European Economic Area (EEA), in accordance with Article 128 of the EEA Agreement. With this in view, the Commission keeps the EFTA partners informed of the progress of the accession negotiations.

c) The Newly Independent States

The EU is building a stronger partnership with Russia to take mutual advantage of the benefits of enhanced co-operation in areas such as energy, foreign policy, justice and home affairs and environment. The Partnership and Co-operation Agreement (PCA) with Russia provides a basis for political dialogue and wide-ranging co-operation including work related to Russia's application for WTO membership. The development of EU-Russia relations within the PCA framework was given new momentum at the EU-Russia Summit in October 2001 when agreement was reached on a High Level Group to develop a concept for a Common European Economic Space.

Russia welcomes EU enlargement and expects the EU to consider carefully its impact on Russia. Such issues are discussed in the Partnership and Co-operation Agreement institutions with a view to resolving any problems that might arise before enlargement. The case of Kaliningrad has been raised in this context. The Commission tabled a discussion paper in 2001 which examines the impact of enlargement on Kaliningrad and which also looks at other issues of mutual interest such as protection of the environment in the Baltic Sea region. It is in the EU's and Russia's mutual interest to ensure that Kaliningrad can gain from the beneficial economic consequences of enlargement. Practical issues like visas and border formalities for travel between Kaliningrad and the rest of Russia need to be discussed with a view to finding constructive solutions within the acquis.

The EU also has Partnership and Co-operation Agreements with Ukraine and Moldova and is committed to helping these two countries in their process of political and economic transition and progressive alignment with European laws and practice. They have both been invited to participate in the European Conference and are active in regional and sub-regional groups involving EU Member States, candidate countries and the countries participating in the Stabilisation and Association process. Belarus also borders on the future EU but relations are limited on account of the country's poor record on democracy, human rights and the rule of law.

d) The Mediterranean

EU relations with the countries of the Mediterranean take place within the Barcelona process which brings together the EU 15 with 12 countries of the Mediterranean littoral for co-operation on political and security matters, economic co-operation leading to free trade, and social and cultural co-operation A series of regional co-operation initiatives and a network of bilateral relationships underpin this framework. Although the process is affected by the lack of a lasting peace in the Middle East, it has been effective in maintaining dialogue since it was established in 1995 and provides a forum where Israel and the Arab states continue to meet.

Association agreements have entered into force between the EU and Morocco, Tunisia, Israel and the Palestinian Authority. Such Agreements have also been signed with Jordan and with Egypt, with the first, at least, due to enter into force very soon. Negotiations are proceeding with Algeria, Lebanon and Syria with a good prospect of concluding the first two before the end of 2001. The remaining three partners (Cyprus, Malta and Turkey) are covered by pre-existing agreements and are themselves on the accession path. In addition, the Barcelona process provides for the conclusion of free trade agreements between the partners ("South-South-Agreements"); the EU has therefore strongly welcomed, and offered its support to, the Agadir process launched on 8 Mai 2001 in which Morocco, Tunisia, Egypt and Jordan have agreed to establish free trade with each other.

In November 2000, the 27 foreign ministers agreed to re-invigorate Euro-Mediterranean co-operation and set ambitious new targets to carry forward the Barcelona process. Work has since been stepped up. The tragic events of 11 September 2001, however, have shown that there is a need for still closer co-operation, not least in social, cultural and educational areas. The Barcelona process provides an excellent framework for this purpose.

II. Progress by the candidate countries in meeting the membership criteria

As in previous years, this year's Regular Reports highlight legal measures actually adopted rather than those under preparation. The Commission has examined whether, since October 2000, announced reforms have in fact been carried out. For each of the 29 chapters of the European Union's acquis, the reports analyse the progress made by each candidate in adopting the acquis and in ensuring its implementation and enforcement through the necessary administrative structures. Each chapter includes not only an assessment of progress achieved since last year's report, but also an assessment of overall progress.

The assessment is based initially on information provided by the candidate countries themselves. The Commission has also drawn upon information provided in the context of the accession negotiations as well as in meetings held under the Association Agreements. It has compared information from these sources with that contained in the new National Programmes for the Adoption of the Acquis, which were transmitted to the Commission in the first part of 2001. The Commission has drawn on the reports of the European Parliament, evaluations from the Member States, the work of international organisations, in particular the Council of Europe and OSCE, and international financial institutions, European business associations as well as non-governmental organisations.

1. Political criteria

The Copenhagen European Council stated that "membership requires that the candidate country has achieved stability of institutions guaranteeing democracy, the rule of law, human rights, and the respect of and protection of minorities." Article 6 of the Treaty of the European Union indicates that "The Union is founded on the principles of liberty, democracy, respect for human rights and fundamental freedoms and the rule of law." These principles were emphasised in the Charter of Fundamental rights of the European Union, which was proclaimed at the Nice European Council in December 2000.

a) Overall development

In the 2000 Reports, the Commission concluded that all negotiating countries continued to fulfil the political criteria, and that the overall record in strengthening democratic institutions, in respecting the rule of law and in protecting human rights had improved since the previous year. The Commission drew attention, however, to the need to accelerate the reform or reinforcement of the judiciary, and to tackle the problem of corruption. Furthermore, the Commission called for vigorous measures in fighting the growing problem of trafficking in women and children, and emphasised the need for sustained efforts to improve the situation of the Roma. The Commission urged Turkey to take the necessary decisions to translate its intentions concerning the protection of human rights into concrete measures.

Since the last Regular Reports, the candidate countries have continued to strengthen the functioning of their democratic systems of government. National or local elections were held in Bulgaria, Cyprus, the Czech Republic, Estonia, Latvia, Malta, Poland, and Romania. Those elections were free and fair.

Considerable further efforts were made to ensure the independence, transparency, accountability and effectiveness of the public administration. In several countries the legal framework for the civil service was reinforced, and training of civil servants and the modernisation of the public administration continued. These efforts need to be sustained.

Further progress was made in reforming and strengthening the judicial system, as a vital element in ensuring respect for the rule of law and in the effective enforcement of the acquis. Several countries advanced in adopting basic legislation, strengthening human resources and improving working conditions. Efforts in this area need to be further stepped up, with particular attention to ensuring the independence of the judiciary.

Previous reports identified corruption as a serious problem "exacerbated by low salaries in the public sector and extensive use of bureaucratic controls in the economy." This assessment remains largely valid, although several positive developments have taken place. In most countries anti-corruption bodies have been strengthened, and progress has been made in legislation, in such areas as public procurement and public access to information. Encouraging developments in several countries as regards the reform of public administration also contribute to the fight against corruption. Notwithstanding these efforts, corruption, fraud and economic crime remain widespread in many candidate countries, where they contribute to a lack of confidence by the citizens and discredit reforms. Continued, vigorous measures are required to tackle this problem.

In previous years, the Commission had underlined the problem of childcare institutions in Romania. The Romanian authorities have taken a number of legislative, administrative and financial measures, supported by PHARE. These efforts must be continued, so as to ensure tangible and long-lasting improvement in the living conditions of the children and families concerned, to prevent abuses and to address the problem of street children.

The alarming trend identified in last year's Reports as regards the trafficking in women and children has regrettably been confirmed this year. Several candidate countries remained countries of origin, transit and destination, and there are no signs that the problem is abating. Vigorous measures are required to counter this trend, with due respect for the rights of victims.

Limited improvement can be noted in the problems surrounding pre-trial detention in several countries. These are primarily related to the excessive duration of the detention, lack of access to a lawyer and, in some cases, maltreatment. These problems need to be addressed.

Further progress was made in several countries in ensuring gender equality, both in terms of legislation and the institutional framework. However, further efforts are needed to promote the economic and social equality of women. The steps taken in a number of countries to assist victims of violence are welcome developments, which should be accompanied by appropriate preventive measures.

As regards minorities, a number of encouraging developments can be noted. Estonia and Latvia further progressed in the integration of non-citizens, and continue to fulfil all OSCE recommendations regarding citizenship and naturalisation. In both countries, due care will need to be taken to ensure that the implementation of existing language legislation takes place in full respect of the principles of proportionality and justified public interest. In several countries, further steps were taken to strengthen the legal and institutional frameworks for the protection of minorities. In Bulgaria, Slovakia and Romania minorities are playing an important role in national political life

In all countries with sizeable Roma communities, national action plans are now in place to tackle discrimination, which remains widespread, and improve living conditions that continue to be extremely difficult. In most cases implementation of these action plans is underway and, in some countries, national budgetary resources have been reinforced. PHARE funding continues to be made available to support these actions. Further efforts are required to ensure that the various programmes are implemented in a sustained manner, in close co-operation with Roma representatives, and that appropriate budgetary support is made available in all countries.

In its 2000 Report, the Commission concluded that Turkey did not meet the Copenhagen political criteria. Despite a number of positive developments, this assessment still remains valid and further efforts are needed.

Turkey's national programme for the adoption of the acquis set the scene for a major constitutional reform package, building on the work of the Parliament's Conciliation Commission. This package was adopted in record time on 3 October 2001 with an overwhelming majority, showing the Parliament's determination to bring Turkey closer to EU standards.

This is a significant step towards strengthening guarantees in the field of human rights and fundamental freedoms and limiting capital punishment. In particular, the amendments have narrowed the grounds for introducing limitations to freedom of expression and communication, freedom of the press and freedom of association. Attention has now turned to the effective implementation of these important changes. Implementing legislation is under preparation.

Despite these changes, restrictions on the exercise of fundamental freedoms remain. The extent to which individuals in Turkey will actually enjoy an improvement in the exercise of fundamental freedoms will depend on the interpretation given to the constitutional amendments, the details of implementing legislation and the practical application of the law by the authorities.

The Commission strongly encourages Turkey to bring about substantial improvements, not only in the constitutional provisions and the laws concerning the protection of human rights, but above all in the human rights situation in practice. This requires reform of many existing structures and practices. The Commission welcomes the fact that the moratorium on the death penalty has continued and that constitutional reform has limited the death penalty but reminds Turkey that capital punishment itself should be abolished to bring Turkey into line with the principles of the European Union. The Commission urges Turkey to ensure that particular attention is devoted to improving significantly the situation in Southeast Turkey.

b) Conclusions

The Copenhagen political criteria continue to be met by all presently negotiating candidate countries. Turkey still does not meet these criteria.

The requirements set by the Copenhagen political criteria, and the Commission's regular assessment of progress achieved in meeting them, have continued to serve as important incentives for the candidate countries. Since the 1997 Opinions and the subsequent Regular Reports, overall progress in consolidating and deepening democracy and respect for the rule of law, human rights and the rights of minorities has been considerable. Building on this progress, the past year has generally seen further positive developments, and the overall record in strengthening democratic institutions, in respecting the rule of law, and protecting human rights has further improved.

However, while efforts to reform or strengthen the judiciary are slowly starting to bear fruit, these should be further accelerated and reinforced, in particular to ensure effective enforcement of the acquis. The fight against corruption should be further stepped up. Tangible results in this domain are needed to respond to public concern and help ensure a transparent business environment.

Continued problems related to pre-trial detention in certain countries should be addressed. The trafficking of women and children from, through or into several candidate countries remains a serious cause of concern, requiring vigorous measures. Further efforts are needed in ensuring gender equality and non-discrimination. It is also very important to sustain efforts to improve the situation of the Roma.

Turkey should take the necessary measures to ensure that the recent important constitutional amendments translate into concrete progress concerning human rights.

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 4.

2. Economic criteria

a) Overall Developments

This year's assessment of progress made by candidate countries in meeting the Copenhagen economic criteria takes place at a time of rapidly deteriorating global economic conditions. However over 2000, and the first half of 2001, growth in the candidate countries was relatively strong.

The year 2000 showed the best growth performance since the introduction of the Regular Reports. Average real GDP growth for the candidate countries was around 5%, much above the 1999 outcome of zero growth. The average performance of the 10 CEEC countries was 3.6%, considerably higher than the 2.2% achieved in the previous year. Growth resumed the in the Czech Republic, Estonia, Lithuania and Romania, and 8 countries exhibited higher rates of growth. The exceptions were Poland and Slovenia, where growth weakened slightly, although it remained solid at 4% for Poland and 4.6% for Slovenia. On average, the Mediterranean candidate countries outperformed the transition economies with real GDP growth rates of 5% for Cyprus and Malta, and 7.2% for Turkey. By contrast, average real GDP growth for the EU was 3.3%, indicating that catching up, although small, was higher than in the previous years.

In the first half of 2001, with a deteriorating EU economic performance, there has been, on average, a deceleration of GDP growth in the candidate countries. So far, countries that have been on a higher and more stable average growth path are more affected. Countries just returning to more normal output growth after having been in recessions, such as the Czech Republic and Romania, appear to be holding better. Similarly the Baltic states that went through a cyclical diminution of growth in 2000, seem to be withstanding the current slowdown, partly supported by the external demand pull of higher growth in Russia and the NIS. Poland is going through a stronger slowdown, largely the result of a poorly co-ordinated policy-mix combined with the deteriorating external environment and domestic political uncertainty. Turkey's growth performance has turned sharply negative. Two deep financial crises occurred at the end of 2000 and the beginning of 2001, taking their toll on GDP growth, but at the same time leading the government to take much needed reform and corrective measures.

GDP per capita as a percentage of the EU average, and measured in purchasing power standards (PPS), went up to 39% in 2000, against 38% in 1999 for the CEEC-10. For all thirteen candidate countries it stood unchanged at the previous year's level of 35%. The closing of the existing large income gap is a medium to long-term project that requires relatively higher average rates of growth over time. Comparing the situation in 2000 with that prevailing in 1995, 9 candidate countries have made gains over this period, while 3 (Bulgaria, Czech Republic and Romania) have not and Turkey remains essentially at the same level. Estonia, Latvia, Hungary, Poland and Slovenia have made very good gains. The income distribution has tended to become more unequal, particularly in the CEEC-10. This outcome is to be expected, first because under the old regimes the income distribution was rather egalitarian; secondly, because of uneven growth pushing the demand for certain labour skills in some areas and sectors ahead of others. However the rising level of income should benefit many. Inequality is still lower than in the EU.

Despite the relatively healthy overall growth factors in all candidate countries, except Turkey, many imbalances have widened and macroeconomic conditions across countries remain mixed.

The 2001 Regular Reports present two figures for the government balance. One is based on the most commonly used national concept, and the other is calculated according to the European System of Accounts (ESA 95), which was reported by the candidate countries for the first time this year. On average, the ESA 95 general government deficit has deteriorated somewhat from about 3% of GDP to 3.5%. Large one-off increases were recorded in Czech Republic and Slovakia, due mainly to the fiscal cost of cleaning-up a number of banks, which, under ESA 95 rules, has to be taken into account in the general government net balance, the year it is incurred.

A number of countries are experiencing difficulties implementing reforms which are key to medium-term fiscal sustainability. Some non-transparent fiscal practices are returning in Hungary. Poland's municipal reform has not been accompanied by a realistic plan to pay for the costs of municipal services. In some countries the reform of social security is too timid or still at an early stage, such as the Czech Republic, Slovakia and Slovenia.

Overall, inflation rates are on the increase in many candidate countries and the CEEC-10 average, at over 15%, is considerably higher than last year's of around 10%. The main immediate cause of inflation has been the high increases in oil prices. Particularly worrying are cases where the monetary policy framework and the pass-through structural features are largely contributing to inflation inertia. In this sense, there are positive developments in Hungary and Poland, with their new exchange rate and monetary framework while Slovenia is lagging behind. Romania and Turkey have failed, for another year, to bring inflation under control, but have recently adopted stabilisation programmes with the IMF. Slovakia's high inflation is the result of much needed, and delayed, increases in administered prices. Bulgaria's rising inflation, in the context of the currency board arrangement, needs to be closely watched.

Despite the good growth performance, unemployment in the CEEC-10, at 12.5%, has continued to increase from just below 11%, pointing to the still negative impact of structural labour shedding reforms and high productivity growth. Exceptions are Hungary and Slovenia, with declining unemployment. Participation rates are generally stable, but remain low in some cases. Labour market rigidities and skill mismatches are putting a lower limit to unemployment even in high growth economies. Cyprus and Malta can be said to be close to full employment levels.

There has been, for the CEEC-10, an improvement of the current account deficit from 5.6% of GDP to just about 5%, in spite of a deterioration in the terms of trade. The correction has been substantial in Latvia and Lithuania, whose exposure had been too high. Malta had a marked deterioration of its current account deficit with a large one-off component. The recovery has brought about a deterioration of the external balance in the Czech Republic, which needs to stand ready to take corrective measures. In almost all cases, foreign direct investment (FDI) has contributed significantly to finance the external imbalance. The component of FDI, often stemming from privatisation, still seems to dominate total inflows in all candidates. Therefore, the level of external debt remains at past year's levels, except in Turkey. Turkey, due to the sharp depreciation of its currency caused by the financial crisis, is in a more precarious situation as the domestic value of its relatively large external debt has greatly increased. The level of FDI in Turkey remains significantly below its potential.

Candidate counties, with the exception of Cyprus and Malta, are still facing some difficulties in setting-up some elements of the legal and institutional framework needed for the functioning of a market economy, including enforcement of judicial decisions. The extent of the difficulties varies from the severe case of Romania and, to a lesser extent, Bulgaria, to countries where there are no significant barriers to market entry and exit and where the degree of legal certainty is high, like Estonia and Hungary. The main problem remaining is the implementation of bankruptcy laws. Progress in this area is crucial before accession.

Privatisation of manufacturing enterprises is almost completed in many CEEC-10, with the exception of Romania, where the privatisation agenda is still large, and to a lesser extent Bulgaria. Poland still needs to devise viable privatisation and restructuring strategies for some important traditional sectors. Privatisation strategies have moved into sectors such as the utilities, transport and energy and are accompanied by efforts to restructure these sectors. In the financial sector, the bank privatisation agenda is completed in a number of candidates such as Estonia, Hungary, Latvia and the Czech Republic. It has advanced in Lithuania, Romania, Poland and Slovakia and is lagging considerably behind in Slovenia. Concerning the state-owned banks not intended for privatisation, it is important that governments do not interfere with their operating practices and credit policies. For other parts of the financial sector, progress in privatisation is hesitant and uneven across candidates. The completion of land reform with the creation of a functioning land market lingers in many CEEC-10. This is hindering the development of land and housing markets and of construction, with unfavourable implications for the labour markets and financial intermediation.

Financial intermediation is still overall at a low level in the CEEC-10 economies. The sector contributes little to the financing of investment in what should be a growing private sector. Intermediation is particularly low and inefficient in Bulgaria, Romania and Lithuania. In general, further progress is needed before accession, as a proper working of the transmission mechanism for monetary policy would require higher levels of more efficient intermediation. The expansion of the financial sector has been accompanied by improved supervision in the banking sector, but supervision of the other parts needs to improve, not only on regulations but also on the administrative capacity and independence of supervisors.

Cumulative progress on economic integration of candidate countries in the EU has mainly taken place through the two channels of trade and capital flows, essentially foreign direct investment.

As to trade integration, in 2000, candidate countries on the average, sent about 62% of their exports to the EU and 58% of their imports came from the EU. Excluding Turkey, the shares are about 65% for exports and 62% for imports. Each of the CEEC-10 has over the period 1995 to 2000 increased its share of exports to the EU. Also as a group, they have increased their EU market share. Over the past decade, the CEEC-10 region shows the fastest growth in trade with the EU and accounted in 2000 for about 11 percent of total EU trade with third countries up from 6 percent in 1992. In the EU, the effects are greatest in the EU Member States closest to the region. The trade between candidate countries remains comparably low, although it slightly increased for several of the CEEC-10 in 2000 compared to the previous year.

As to financial integration, two thirds of net capital flows in the 1990s originated from the EU Member States. Most net capital inflows to the candidates have been FDI flows. Because of privatisation, nearly half of the FDI flows have been directed to non-tradable sectors such as financial institutions (banks) and public utilities (e.g. telecommunications). Greenfield investments are increasing in some countries, and for instance represent over half of FDI in Bulgaria and dominate in Hungary. In the tradable sector, one fifth of total FDI has occurred in relatively labour-intensive industries such as textiles, clothing, electrical machinery and motor vehicles. In the context of transition and real economic convergence, FDI has, and will continue, to contribute to replace the outdated capital stock and to introduce new technology and management skills.

b) 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. These sub-criteria were defined in the Commission Communication on 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 second criterion ('capacity to withstand competitive pressure and market forces within the Union') depends on the existence of a market economy and a stable macroeconomic framework, allowing economic agents to make decisions in a climate of predictability. It also requires a sufficient amount of human and physical capital, including infrastructure. State enterprises need to be restructured and all enterprises need to invest to improve their efficiency. Furthermore, the more access enterprises have to outside finance and the more successful they are at restructuring and innovating, the greater will be their capacity to adapt. Overall, an economy will be better able to take on the obligations of membership the higher the degree of economic integration it achieves with the Union before accession. Both the volume and the range of products traded with EU Member States provide evidence of this.

Taking the two criteria together, it can be said that Cyprus and Malta have confirmed that they 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, Slovakia and Slovenia are functioning market economies. There are substantial economic differences among these countries, but provided they continue with, and in some cases reinforce, a number of differing measures detailed in each Regular Report, they should be able to cope with competitive pressure and market forces within the Union in the near term.

Bulgaria is close to being a functioning market economy. Provided it continues implementing reforms and intensifies the effort to remove persistent difficulties, it should be able to cope with competitive pressure and market forces within the Union in the medium term.

Romania does not yet meet either criterion but has, for the first time, made decisive progress towards this objective.

Turkey has been unable to make further progress towards achieving a functioning market economy, notably given the recent crises. Considerable parts of its economy are, however, already competing in the EU market, under the framework of customs union with the EC.

The detailed conclusions on the fulfilment of each sub criterion in each Regular Report can be found in Annex 1; main statistical indicators in Annex 2.

3. Other obligations of membership

The Copenhagen European Council indicated that membership requires 'the ability to take on the obligations of membership, including adherence to the aims of political, economic and monetary union'.

a) Adoption, implementation and enforcement of the acquis

The ability to take on the obligations of membership requires the adoption, implementation and enforcement of the acquis. The importance that candidate countries implement and enforce the acquis was underlined by the European Council on a number of occasions. In Madrid in 1995, the European Council highlighted the importance of adjusting the candidate countries' administrative structures in order to create the conditions for their gradual and harmonious integration. In 2000, the Feira European Council recalled that "progress in the negotiations depends on the incorporation by the candidate countries of the acquis in their national legislation and especially on their capacity to effectively implement and enforce it", by strengthening their administrative and judicial structures. In June 2001, the Göteborg European Council stressed again the importance that candidate countries make continued progress in transposing, implementing and enforcing the acquis, and that they pay particular attention to putting in place adequate administrative structures and to reforming their judicial systems and their civil service.

Transposing, implementing and applying the acquis is not only a matter for government and administration, but also for business, regional and local bodies and professional organisations. The European Parliament, the Economic and Social Committee and the Committee of Regions have called for the closer involvement of civil society in the process. The candidate countries' national authorities need to enhance dialogue with representative institutions to explain the acquis and to facilitate its countrywide implementation.

b) Sector overview and conclusions

Overall this year's Regular Reports again note significant progress in the adoption of legislation for alignment with the acquis in most candidate countries and for most areas. In a number of areas such as transport [1], telecommunications, energy and justice and home affairs, however, important elements of new Community legislation have been or will be adopted shortly, in most cases building on previous Community law.

[1] The White Paper on European Transport Policy for 2010: Time to decide (COM (2001) 370 fin) advocates moreover a better regulation of competition between the modes of transport by giving rail and other environmentally friendly modes of transport the means to become competitive alternatives to road transport.

Some countries still have difficulties in transposing parts of the acquis. Nevertheless, despite the progress made over the past year, the major need now consists of building up adequate administrative structures and strengthening of administrative capacity to implement the acquis.

For most or all of the candidate countries, the Regular Reports and the proposed revised Accession Partnerships identify:

* in the field of the internal market, the need to establish or reinforce horizontal administrative infrastructures related to standardisation, accreditation, certification, conformity assessment, market surveillance, mutual recognition of qualifications, the supervision of financial services and to strengthen the enforcement of industrial and intellectual property rights;

* in the field of competition, the need to develop or strengthen enforcement capacity for state aid rules and anti-trust provisions;

* in the field of transport and energy, the need to strengthen or set up appropriate regulatory structures (also in view of forthcoming new acquis) and inspection arrangements, in particular to ensure road and maritime safety;

* in the field of telecommunications and culture and audio-visual policy the need to set-up or strengthen independent regulatory structures, for telecommunications especially also in view of the forthcoming new acquis;

* in the field of environment, the need to further strengthen administrative, monitoring and enforcement capacity, in particular in the field of waste, water and chemicals;

* in the field of social policy and employment, the need, in particular, to ensure the enforcement of occupational health and safety rules and to strengthen labour inspectorates;

* in the field of justice and home affairs, the overall need to strengthen the judicial system, the need to strengthen border management, most urgently at future EU external borders, and to prepare for the participation in the Schengen information system, as well as the need to ensure better co-operation of all actors to fight organised crime;

* in the field of customs and taxation, the need to develop IT-systems to allow for the exchange of electronic data with the Community and its Member States and the capacity of the tax and customs administration to enforce and control Community legislation, including external border controls;

* in the field of agriculture, the need to upgrade inspection arrangements according to veterinary and phyto-sanitary legislation, in particular to ensure food safety, and the capacity to implement and enforce the management mechanisms of the Common Agricultural Policy, in particular the Integrated Administration and Control System and the Paying Agency (for which, in the field of rural development, the respective SAPARD agency may be a precursor);

* in the field of structural policy, the need to strengthen administrative capacity in key ministries and to build up the appropriate administrative structures for programming, managing and controlling structural funds;

* in the field of financial control, the need to strengthen administrative capacity for public internal financial control and for the fight against fraud.

In a number of other areas, individual candidate countries equally need to improve administrative capacity. This can be the case in the chapters mentioned above, for example the need, for a number of countries, to establish or reinforce independent supervisory authorities for data protection, or in other chapters such as, for instance, fisheries, statistics or economic and monetary union. These priorities are specifically identified in each Regular Report and taken up in the proposed revised Accession Partnerships for each candidate country.

The Regular Reports also identify those chapters which do not pose major difficulties of administrative capacity, either because, in those chapters, there is little administrative capacity needed for the implementation of the acquis, or because the countries' preparedness can in general be considered adequate.

The conclusions of the Regular Reports, country by country, are contained in Annex 1.

c) EMU and the EURO

Candidate countries need to prepare for participation in the multilateral surveillance and economic policy co-ordination procedures currently in place as part of Economic and Monetary Union. One of the economic priorities of previous Accession Partnerships was the establishment of an annual pre-accession fiscal surveillance procedure. It consists of two elements: the fiscal notification and the Pre-accession Economic Programme (PEP), which are discussed in a multilateral setting with Member States.

The framework of exchange rate strategies for the candidate countries has been clarified. Three successive stages in the transition process towards adoption of the euro, namely, the pre-accession stage, the stage following accession and the adoption of the euro are identified. Any unilateral adoption of the single currency by means of "euroisation" would run counter to the underlying economic reasoning of EMU in the Treaty, which foresees the eventual adoption of the euro as the endpoint of a structured convergence process within a multilateral framework. Therefore, unilateral "euroisation" would not be a way to circumvent the stages foreseen by the Treaty for the adoption of the euro.

Regarding the ERM-II, some time after accession, new Member States will be expected to join the ERM II. The ERM II could accommodate the main features of a number of exchange rates regimes, provided their commitments and objectives are credible and in line with those of the ERM II. The only clear incompatibilities vis-à-vis the ERM II that can be identified already at this stage are fully floating exchange rates, crawling pegs and pegs against anchors other than the euro.

III. Making a success of enlargement

The Göteborg European Council has set a high level of ambition. It concluded that "provided that progress towards meeting the accession criteria continues at an unabated pace, the road map should make it possible to complete the accession negotiations by the end of 2002 for those candidate countries that are ready. The objective is that they should participate in the European Parliament elections of 2004 as members".

Meeting these objectives will require efforts from both the Union and the candidate countries. The Union should define common positions within the timeframe provided by the road map. The candidate countries must continue preparations to meet fully the accession criteria, with particular attention to enhancing their administrative capacity to implement the acquis. Indeed, progress in the negotiations is based on convincing progress in adopting, implementing and enforcing the acquis.

1. Following the road map - the remaining chapters

Considerable progress has been achieved in the negotiations. Candidate countries have communicated their positions with respect to the acquis under the various negotiating chapters, including their requests for transitional measures. In many cases where candidates have provided sufficient commitments to apply the acquis, chapters have been provisionally closed (see Annex 6). The number of provisional closures of chapters, however, does not always give an accurate picture of the state of negotiations. In some cases under negotiation, only few issues of political importance remain; these can be solved if the necessary political decisions are taken.

The road map has proved to be useful in ensuring that all negotiating parties commit themselves to a realistic timetable. The Commission's report to the European Council in Ghent has reviewed the track record and outlined a number of issues where decisions still need to be taken during the Belgian presidency [2]. The paper identified a number of issues at stake on which the EU needed to define a position in the context of the chapters on transport, taxation, agriculture, justice and home affairs and energy. The Commission has in the meantime, where possible, forwarded negotiating positions on these chapters to the Council and the Belgian Presidency is swiftly advancing in defining negotiation positions. In the context of the last mentioned chapter, the Communication underlined the need to examine the positions of the candidate countries on the EU recommendations on nuclear safety and that "concerning non-upgradable units [of nuclear power plants] - Ignalina (Lithuania), Bohunice-V1 (Slovakia) and certain units of Kozluduy (Bulgaria)- closure commitments must be respected, and therefore duly included in the Accession Treaties."

[2] Communication of the Commission: Information Note to the European Council on a mid-term review of the implementation of the enlargement strategy, COM (2001) 553 final of 2 October 2001.

The commitment of the Union to define common positions within a certain time frame, also in areas where there are particular difficulties, has sent a positive signal to the candidate countries. In doing so, the Union has shown the necessary flexibility in taking positions that are important in terms of public acceptability, both in the Union and in the candidate countries. This approach should be maintained.

According to the road map for the first half of 2002, the Union will define common positions with a view to closing provisionally the last group of chapters: agriculture, regional policy, financial and budgetary provisions, institutions and 'other matters'. The Commission will submit the necessary proposals to the Council in good time. In preparing its proposals, the Commission will be guided by the approach outlined below.

a) The financial framework and related chapters

The chapters of the negotiations concerning agriculture and regional policy have important budgetary components and are related to the chapter concerning financial and budgetary provisions. Negotiations on these three chapters must therefore be conducted within a coherent overall framework.

The Berlin European Council in March 1999 agreed the financial framework for the period 2000-2006, including arrangements for enlargement based on the assumption that 6 new members would accede in 2002. The results were laid down in an inter-institutional agreement between the Parliament, the Council and the Commission.

The comprehensive agreement reached in Berlin covered at the same time policy reform and the reservation of the necessary funds for pre-accession and accession, including:

* a maximum ceiling for total payments (set at 1.27% of GNP) and absolute ceilings for annual budgetary commitments for each category of expenditure (the Financial Perspective for the period 2000-2006). Together, the absolute ceilings were expected to stay well below the maximum ceiling of 1.27%, including after enlargement;

* the reform of the common agricultural policy, structural and cohesion funds;

* the doubling of pre-accession support for the candidate countries (EUR3.1 billion per year [3]);

[3] All amounts are commitment appropriations in constant 1999 prices.

* amounts reserved for the financing of accession, gradually increasing from EUR 6.5 billion in 2002 to EUR16.8 billion in 2006.

The assumptions underlying the Berlin agreement have changed, notably as regards possible dates for accession and the potential number of new Member States.

However, if it is assumed that the first accessions will take place in 2004 instead of 2002 and that more than 6 and up to 10 new Member States will join, the updated cost of enlargement in each of the years 2004-2006 would stay below the amounts agreed in Berlin. This takes into account updated information on agricultural production and consumption data in the 10 candidates.

The annual amounts reserved for accession in the Financial Perspectives increase substantially from 2002 to 2006. Since the first accessions will take place later, the annual amounts needed for the corresponding years are smaller than if the first accessions had taken place in 2002. This allows the Berlin figures to accommodate a larger number of up to 10 new Member States.

The Commission will present proposals to the Council for common negotiation positions in the fields of agriculture, regional policy and budgetary issues on the basis of the existing acquis and the principles inherent in the Berlin agreement. The accession negotiations can thus be concluded independently of decisions for financing the EU after 2006.

The Commission will ensure that the budgetary implications of its proposals for common negotiation positions are in line with the expenditure ceilings agreed in Berlin for the period until 2006, incorporating the foreseen necessary adjustments for the potential number of new Member States. In particular, the Commission will, without prejudicing future decisions for the financing of the EU:

* in the agriculture chapter, examine how to tackle the issues of direct payments and supply management instruments in the negotiations;

* in the area of structural policy, identify the organisational and institutional conditions to be met by the various countries for provisionally closing the negotiations in this chapter as well as explain the method for the allocation of the structural funds to new Member States until 2006;

* as to the budget chapter, examine possible transitional arrangements.

The Commission will ensure that the Council can debate these issues in a common framework early in 2002, with a view to preparing the further pursuit of the accession negotiations in line with the road map.

b) Other chapters

The chapters 'Institutions' and 'Other matters' have not yet been opened with any of the candidates. Following the road map, the Union should also define its positions on these chapters in the first half of 2002.

The institutions chapter concerns the inclusion of new Member States in the Union's institutional framework. As the Union emphasised at the opening of the accession negotiations, membership involves both rights and obligations. The Union expects new members to comply with the obligations of membership, subject to the conditions agreed in the accession negotiations. The new members will exercise their rights, on the same terms as other Member States, through participation in the EU institutions. Traditionally, the chapter 'Institutions' has been handled in accession negotiations after all the other chapters relating to the acquis.

In the present negotiations, the chapter 'Institutions' will be based principally on the conclusions of the Intergovernmental Conference at Nice in December 2000, and in particular on:

- the provisions set out in the Treaty of Nice, including particularly the dispositions for adjustment of the institutions in the perspective of enlargement;

- the provisions set out in the Declarations of the Intergovernmental Conference, including particularly Declaration no. 20 on the common positions to be adopted in the accession negotiations in matters relating to the distribution of seats in the Parliament, the weighting of votes in the Council, and the composition of the Economic and Social Committee and the Committee of the Regions.

The conclusion of the new Treaty at Nice reaffirmed the Union's firm commitment to the enlargement process. It is now in the process of ratification by the Member States. The Commission notes that the Treaty has been ratified by three Member States and in most other cases ratification is proceeding satisfactorily. In the case of Ireland, following the referendum in June 2000, the Irish government is organising a national convention to clarify the issues related to the Treaty.

The Commission hopes that Member States will complete the process of ratification, as planned, in the course of 2002. The Commission will liaise with the Presidency concerning the appropriate timing and procedure to be envisaged for the institutional chapter, taking account of progress in the ratification of the Nice Treaty.

The final chapter of the negotiations, as in the case of previous accession negotiations is 'Other matters'. This chapter serves as a framework for questions not covered in the preceding chapters - notably, problems which are not directly related to the acquis. In the preceding accession negotiations, for example, discussions under the chapter 'Other matters' led to a number of declarations on transparency, the status of 'certain territories', etc., which were subsequently annexed to the Accession Treaty. It will become clear in the course of 2002 what questions may need to be handled under this chapter in the present negotiations.

2. Action plan for administrative and judicial capacity

Member States need an adequate level of administrative and judicial capacity to implement and enforce the acquis. This is why successive European Councils have insisted on institution building in the run up to accession.

A stable public administration with an independent civil service is a common objective for all candidate countries. Most have made impressive efforts in the field of public administration reform and have implemented civil service reforms. Some have taken steps to attract good staff and to improve their quality by training and better remuneration. Nevertheless, as reflected in the Regular Reports much remains to be done. In addition, a number of candidate countries need to intensify the fight against corruption.

A predictable and efficient judicial system is also essential for the citizen and business. Work has progressed on the reform of the judiciary in most candidate countries but in a number of countries the strengthening of the independence of the judiciary, the improvement of remuneration and working conditions as well as the training of judges still need to be further pursued.

In a number of chapters related to the acquis, the major challenges have been identified above (section II 3 b). They concern the administrative capacity to ensure:

* First, a smooth functioning of the internal market. This often requires appropriate and effective regulatory authorities such as competition authorities, telecommunications, energy or transport regulators or implementation of appropriate information technologies.

* Secondly, sustainable living conditions in the European Union. This needs to be ensured, inter alia by assuring application of environmental standards, imposing appropriate levels of health and safety at the work place, ensuring a high level of nuclear safety and improving transport safety. These measures require a number of inspection arrangements.

* Thirdly, the overall protection of the European Union's citizens. This needs to be ensured, inter alia, by securing borders for a variety of purposes, adequate market surveillance for consumer protection, enforcing sufficient levels of food safety and co-operation in the field of justice and home affairs. These measures require various inspection and law enforcement arrangements

* Fourthly, the proper management of Community funds. This requires appropriate structures in central and regional administrations for application of public procurement rules, financial control, audit, fight against fraud and corruption.

The Regular Reports and the proposed revised Accession Partnerships identify in detail the areas where actions needs to be undertaken by each candidate country in order to achieve an adequate level of administrative capacity.

To identify the next steps, the Commission will establish an action plan. It will analyse with each of the candidate countries, early in 2002, their approach to implement these priorities and, if necessary, their intentions to reinforce efforts for institution building. Furthermore, the Commission will undertake specific monitoring actions, where appropriate together with Member States and the candidate countries.

The action plan will:

* be based on the priority areas identified in the revised Accession Partnerships, the Regular Reports and commitments made in the negotiations;

* identify actions already under way to build administrative capacity and mobilise further means to reinforce such efforts (using established mechanisms such as twinning or TAIEX - see Annex 3 and 5);

* confirm or initiate monitoring mechanisms such as monitoring reports, peer reviews etc which will ascertain the state of preparation of each candidate country.

The action plan will, as the Regular Reports and the proposals for revised Accession Partnerships, reflect each negotiating country's situation and take into account the accession dates envisaged by them.

a) Reinforcing Institution Building Actions

Substantial Community assistance is already being provided to the candidate countries to help them develop adequate administrative capacity to implement and enforce the acquis. Altogether up to two thirds of national PHARE programmes has been earmarked for institution building and related investment. Programming has been accelerated and national annual assistance programmes should be adopted much earlier in 2002 than in previous years.

Moreover, the Commission will, over and above the yearly budgetary envelope identified in 1999 for each of the 10 PHARE countries, allocate up to EUR 250 million from the existing PHARE programme to additional institution building efforts in 2002. This supplementary institution building facility constitutes an offer to candidate countries that should be taken up and programmed by Summer 2002. Similar weight could, if necessary, be put on the allocation of the pre-accession assistance for institution building in the case of Malta and Cyprus.

The Commission will analyse with the candidate countries the need to continue with additional institution building efforts in the 2003 programming exercise. Institution building projects could then, under the usual Commission rules on contracting and disbursement, continue on the ground at least for three more years.

These efforts are supplementary to the major efforts each candidate country is making, often assisted by PHARE and by bilateral actions of the Member States, international organisations and international financial institutions.

b) Enhanced Monitoring

Monitoring actions are already underway. The Commission regularly provides the Council with detailed monitoring tables and reports that look at the way commitments undertaken in the framework of negotiations have been implemented. These also concern commitments on building up adequate administrative capacity.

The Commission does not always have the relevant expertise to judge the readiness of the candidate countries' administrations since implementation is largely up to Member States. This is why in a number of areas peer reviews have been established. Peer reviews allow candidate countries to involve experts from Member States and the Commission in the evaluation of administrative capacity. Peer reviews have already started or are being considered in the field of financial services, justice and home affairs, budget, agriculture, nuclear safety and environment. The Commission will provide practical support in particular through the Technical Assistance Information Exchange Office (TAIEX) or through other mechanisms (for example SIGMA).

The Commission will inform the Council of peer reviews or any other relevant action to assess administrative capacity in candidate countries by Spring 2002. This will allow the results of these actions to be taken up in the single framework of the accession negotiations.

Peer reviews are not a panacea. They complement the ongoing monitoring process. They should only be used where appropriate and should focus on areas of particular concern identified by the Regular Reports, proposals for revised Accession Partnerships or in the course of the negotiations.

These activities will contribute to the monitoring of commitments made by candidate countries during the accession negotiations. The Commission will report on its action plan, including on the monitoring of these commitments, by the time of the Seville European Council in June 2002

The 2002 Regular Reports will then closely examine what has been done and whether, in the different areas of the acquis, the candidate countries will be able to have the adequate structures in place to implement and enforce the acquis by accession.

c) Administrative capacity beyond accession

Member States are expected to adjust regularly their administrative capacity to the evolving needs of the acquis. Building up an adequate administrative capacity is a process that will not end with the conclusion of the negotiations; indeed, the process will continue up to accession and beyond.

During the period between the signature of accession treaty and the actual accession of the countries concerned, the Commission will continue to follow developments on issues identified in the course of the accession negotiations. In addition, it will also follow developments on economic issues identified in the assessment of the economic criteria. It will report accordingly to the Council.

Pre-accession programmes will continue to operate during that period. For the first acceding countries, 2003 may be expected to be the last year in which pre-accession funds are programmed. Training of civil servants may become one of the most important needs in this period. Implementation will normally continue for up to three years. Transitional arrangements for the management and eventual closure of the programmes in the first years after accession need to be defined.

For the period after accession, the Commission will check, in its role as guardian of the Treaties, how the acquis is implemented by the new Member States, using the same mechanisms applied to existing Member States. Such mechanisms include periodic Commission reports to the Council on the application of Community law, infringement proceedings, and dialogue between the Commission and the Member States on implementation problems (such as the internal market problem-solving network or co-ordination centres).

Benchmarking and peer pressure are increasingly used inside the Union in order to develop interoperable and compatible administrative structures. The participation of candidate countries in Community programmes and agencies already contributes to the effective integration of the candidate countries. The e-Europe initiative, national employment strategies or activities in the context of the EMU have already been extended to the candidate countries through e-Europe plus, the Joint Assessment of Employment Policy Priorities in preparation for their participation in the European Employment Strategy and the pre-accession economic programmes. Candidate countries should continue on this road towards integration into existing policies and mechanisms of the EU.

In addition, the new Member States will benefit from any new mechanisms that may be introduced in order to improve the implementation of Community law. In its White Paper on Governance, the Commission has indicated that it will propose in 2002 twinning arrangements between national administrations to share best practice in implementing measures, drawing on the experience with candidate countries, and promote the knowledge of Community law with national courts and lawyers. The introduction of such twinning between Member States would allow candidate countries to continue to benefit from such arrangements after accession. This would contribute to a better implementation of the acquis in an enlarged Union.

3. Turkey's pre-accession strategy - towards a new phase

The implementation of the pre-accession strategy, defined by the Helsinki European Council, is now well underway. By the end of this year, all elements of this strategy will be in place. In the next phase, attention will turn to a more detailed preparation for EU membership requirements.

In this new phase, Turkey is encouraged to intensify and accelerate the process of political and economic reforms in line with the Accession Partnership priorities. This entails further constitutional, legislative, administrative and judicial reforms aimed at bringing Turkey closer to EU standards. The recent constitutional reform and the implementation of the new economic plan are a promising start of this process.

Fuller use should be made of the enhanced political dialogue to further stimulate progress on key issues which are priorities of the Accession Partnership, such as human rights, Cyprus and the peaceful settlement of border disputes.

The support Turkey has expressed in the political dialogue for the UN Secretary General's efforts to find a comprehensive solution of the Cyprus problem should now be followed by concrete steps by Turkey to facilitate a solution.

On European Security and Defence policy (ESDP), Turkey should be forthcoming in solving the issue of the modalities for participation in decisions on EU-led operations in view of the decision to be taken by the Laeken European Council, in accordance with the Nice European Council conclusions.

A number of confidence building measures in the context of Greek-Turkish relations are being further developed and implemented. This should create a climate conducive to the peaceful settlement of border disputes in line with the Helsinki European Council conclusions.

Financial assistance will be used to help Turkey meet Accession Partnership priorities. Turkey is invited to strengthen its administrative capacity for project design and management in keeping with the de-centralised approach followed with all candidate countries. The Commission will mobilise advice and assistance from Member State experts to support Turkey's efforts. On the basis of the framework agreement to be signed between the EU and Turkey on Turkey's participation in Community programmes, Turkey is invited to put into place effective structures for the management of these programmes, in particular in the field of education.

The negotiations on the extension of the Customs Union in the area of public procurement and public services are to be finalised as a matter of priority.

The Feira European Council asked the Commission to report on progress in preparing the process of the analytical examination of the acquis. This report is annexed to the Regular Report 2001.

On the basis of experience to date and of the gaps that have been identified in Turkish legislation and administrative preparations for membership, it is now recommended that a new phase starts in the pre-accession strategy. This will involve detailed scrutiny of Turkey's legislation and its timetable for alignment with the acquis. In this phase, particular attention will also be given to the capacity of the Turkish administration and judiciary to implement and enforce the acquis effectively.

Henceforth, the EU and Turkey will engage in a more detailed dialogue on the requirements for the transposition, implementation and enforcement of the acquis, focussing on precise sectoral issues to be examined by the relevant experts in the existing fora. Sub-committee agendas will therefore focus on detailed priorities for action. Turkish officials will receive additional and more detailed information on specific parts of the acquis. EU experts will review draft legislation under preparation in Turkey. Workshops on selected issues will be organised by TAIEX.

Turkey will be invited to contribute actively to the Commission's database on the approximation of legislation to permit detailed and continuos monitoring of progress.

It is recommended that the EC-Turkey Association Committee at its next meeting should establish the subjects on which this process will focus and the schedule of meetings.

4. The next steps

a) Meeting the accession criteria

Accession requires that candidates fulfil the conditions for membership, that is the political and economic criteria, and the ability to take on the obligations of membership. The Commission will give a favourable recommendation on the accession of a country if it is convinced that it will be able to meet the criteria by accession.

This year's Regular Reports and the present stage of the accession negotiations do not yet allow the Commission to conclude that the conditions for accession are fulfilled by any of the candidate countries. However, given the present pace of negotiations and the progress made so far, the Commission should be able to make recommendations on which candidate countries are ready for accession on the basis of its 2002 Regular Reports. Among the twelve negotiating countries, ten have target dates of accession compatible with the Göteborg timeframe.

The reforms still needed in each country are identified in this year's Regular Reports and revised Accession Partnerships. In its 2002 Regular Reports, the Commission will complement its assessment of progress made on the implementation of these remaining reforms with an evaluation of each country's track record since the Opinions. The Union should, thus, be prepared to conclude the accession negotiations by the end of the Danish Presidency in 2002 with countries meeting the necessary conditions and in view of their accession in 2004.

b) The first accessions

The conclusions of the accession negotiations will be embodied in a treaty of accession, bringing together, probably as in past accessions in one legal instrument, the results of the separate accession conferences. The drafting of the legal texts requires technical preparation, which has already started.

For the last enlargement, this legal instrument - consisting of a brief treaty and a lengthy Act of Accession mainly devoted to the technical adaptations of secondary legislation necessary for the accession of the four applicant countries concerned. It also included a provision for adaptation of the treaty in the event that a candidate country failed to ratify; this permitted the treaty to come into force in spite of the rejection of ratification in Norway.

For the next accession treaty, work on drafting should start in the first half of 2002 within the framework of the Council and the accession conferences. The Commission will assist by making the necessary technical proposals. It will also identify those parts of the acquis which require technical adaptations and will provide the Council with an inventory of all such technical adaptations, taking into account the information collected from each candidate country.

Enlargement will be subject to approval on the Union's side by the Council and by the European Parliament, taking account of the final Opinion which the Commission will submit on the outcome of the negotiations. The Treaty resulting from the accession negotiations will then be formally signed by the parties concerned (Member States and candidate countries) and submitted for ratification by the contracting States in accordance with their respective constitutional requirements.

c) Other negotiating candidate countries - towards an updated road map

For those negotiating candidate countries which will not form part of the first accession, the Commission will continue to issue Regular Reports, until the overall level of preparation allows them to fulfil the criteria for accession. The European Union will continue to lend its full support to the preparations for membership by these candidates.

Negotiations will be pursued with them, on the basis of the principles that have guided the accession process from the beginning. The opening of all 29 acquis related negotiating chapters should be possible next year, provided the candidates are sufficiently prepared.

In its 2002 Enlargement Strategy Paper, the Commission will set out an updated road map, and, if necessary, a revised pre-accession strategy, for such candidates, taking into account the progress made in the next year and the conclusions of the Göteborg European Council.

IV. Conclusions

In the light of the above the European Commission recommends to the European Council to conclude on the basis of the following elements:

1) The Regular Reports show that all negotiating countries have made substantial progress over the last year in implementing the accession criteria, which, together with the road map, has permitted considerable advances in the negotiations.

2) The principles for this process remain unchanged. The Berlin European Council has set out a clear framework for the financial aspects of enlargement. This framework provides a sufficient basis for the accession of up to ten new Member States in 2004. The European Council of Nice has defined the framework for the institutional reform necessary for enlargement. Negotiations are conducted on the basis of the existing acquis and will be concluded with those candidates that fulfil all the criteria for membership, applying the principles of own merits and catching-up. These are the necessary and sufficient conditions defined at the outset for accomplishing the first accessions.

3) To this end, the road map should be followed as foreseen. The EU will now have to determine common positions for the remaining chapters. The Commission will ensure that the Council can debate financial issues in a common framework early in 2002 and will present proposals to the Council the fields of agriculture, regional policy and budget on the basis of the existing acquis and the principles inherent in the Berlin agreement. The accession negotiations can be concluded independently of decisions for financing the EU after 2006.

4) This year's Regular Reports and the present stage of the accession negotiations do not yet allow the Commission to conclude that the conditions for accession are fulfilled by any of the candidate countries. Given the present pace of negotiations and the progress made so far, the Commission should be able to make recommendations on those candidate countries ready for accession on the basis of its 2002 Regular Reports. Among the twelve negotiating countries, ten have target dates of accession compatible with the Göteborg timeframe. The Union should therefore be prepared to conclude accession negotiations by the end of the Danish Presidency in 2002, in view of accession in 2004, with all countries meeting the necessary conditions. Necessary administrative preparations inside the Institutions are already under way and should be continued.

5) In the framework of an action plan, the Commission will analyse by early 2002 with each of the candidate countries their on-going efforts for institution building and, if necessary, their intentions to reinforce them, using a supplementary institution building facility. The Commission will inform the Council on monitoring actions including peer reviews by Spring 2002, so that they can be taken up in the single framework of the accession negotiations. The Commission will, by the time of the Seville European Council in June 2002, report on its action plan including on the monitoring of commitments made by the candidate countries during the accession negotiations. The 2002 Regular Reports will examine whether the candidate countries will have, by accession, adequate administrative capacity to implement and enforce the acquis.

6) Negotiations will be pursued with those candidates, which will not form part of the first accessions, on the basis of the principles that have guided the accession process from the outset. The opening of all 29 acquis related negotiating chapters should be possible next year, if the candidates are sufficiently prepared. In its 2002 Enlargement Strategy Paper, the Commission will set out an updated road map, and, if necessary, a revised pre-accession strategy, taking into account the progress made in the next year and the conclusions of the Göteborg European Council.

7) All candidate countries should be associated as far as possible to the Lisbon process. Candidate countries will be involved in the discussions on the future of Europe and in the Convention which will prepare the way for the next Intergovernmental Conference.

8) The parties involved in efforts to resolve the Cyprus problem need to take full advantage of the window of opportunity before the completion of the accession negotiations to achieve a settlement. Provided the necessary political will is shown, a settlement reflecting the concerns of the respective parties is attainable through the process under the auspices of the United Nations. It is particularly important that the Turkish Cypriot leadership should re-engage in the UN process. The provisions of a political settlement can be accommodated within EU accession arrangements for Cyprus in line with the principles on which the EU is founded. However, as decided by the European Council in Helsinki, if a settlement has not been reached before the completion of the accession negotiations, the Council will take its decision on accession, without this being a pre-condition, in accordance with the Helsinki European Council conclusions.

9) By the end of this year, all elements of the pre-accession strategy for Turkey, decided by the European Council in Helsinki, will be in place. The pre-accession strategy should move into a new, more intense phase, with the detailed scrutiny of Turkey's legislation and preparation for alignment with the acquis. Turkey is encouraged to pursue the process of political and economic reform, in order to make further progress towards satisfying the Copenhagen criteria and the Accession Partnership priorities. In the short term, particular importance is attached to improving the respect for human rights in practice and to creating the conditions for economic stability and growth. Turkey should be forthcoming in working towards a solution of the Cyprus problem. Furthermore, Turkey should contribute actively to overcome the differences that have arisen over the European Security and Defence Policy.

10) To ensure that the public in Member States and in candidate countries is well informed about the process of enlargement, its implications and its potential benefits, the communication strategy will be pursued with the full assistance of Member States and the European Parliament. Indeed, it is imperative that the historical process of re-unifying the European Continent is strongly rooted in the support of its people.

Annexes

Annex 1: Conclusions of the Regular Reports

Bulgaria

In its 1997 Opinion, the Commission concluded that Bulgaria fulfilled the political criteria. Since that time, Bulgaria has made considerable progress in further consolidating and deepening the stability of its institutions guaranteeing democracy, the rule of law, human rights and respect for and protection of minorities. Over the past year, further efforts have been made in this direction. Bulgaria continues to fulfil the Copenhagen political criteria.

Since last year, further progress has been made in public administration reform. Many employees have civil servant status and there is now a Code of Ethics for Civil Servants. The Law on Access to Public Information is a positive step, but needs further clarification to ensure effective implementation. Further steps are needed to ensure an efficient, transparent and accountable public administration.

The recent adoption by the government of two strategies, one on judicial reform and the other on combating corruption, is a significant development. The challenge now is to implement these. The judicial system remains weak and there is as yet no reason to change the assessment made last year that further efforts are needed for it to become strong, independent, effective and professional and able to guarantee full respect for the rule of law as well as effective participation in the internal market. Corruption has continued to give serious cause for concern. Enforcing the legal framework effectively presents a challenge and greater focus is needed on prevention of corruption.

Some progress has been made on human rights training of police and on combating trafficking of human beings. However, there is a need to address police behaviour, notably as regards reported cases of ill-treatment. continues to give cause for serious concern.

A child protection agency and a national advisory council for child protection have been set up. Further steps need to be taken to make the Child Protection Agency operational. On child welfare, there is not yet a significant change in the number of children in institutions. Poor conditions in some homes for children with mental disabilities are cause for concern.

Roma continue to suffer from widespread social discrimination. Political commitment from the government to remedy their problems has still not been matched by concrete action. One more positive development is that some NGOs have pursued projects on desegregation of Roma schools.

Very little further progress has been made to meet the Accession Partnership priority to start implementation of the Roma Framework Programme, and to strengthen the National Council on Ethnic and Demographic Issues.

Concerning other related Accession Partnership priorities, Bulgaria has made further progress to implement the Civil Service Law. However, the priority of strengthening the judiciary has not yet been met.

Bulgaria is close to being a functioning market economy. It should be able to cope with competitive pressure and market forces within the Union in the medium term, provided it continues implementing reform and intensifies the reform effort to remove persistent difficulties.

The Bulgarian macroeconomy is going into its fourth year of stable conditions, having established a satisfactory track record of macroeconomic performance. Good progress has been made in privatisation, especially as regards banks, and with structural reform, setting the microeconomic basis for sustained growth.

However, inflation has risen considerably in 2000. Investment remains insufficient. Financial intermediation continues to be low and inefficient. Specific deficiencies remaining in the land market affect the performance of this market and of other economic sectors. The authorities should give priority to strengthening the judiciary and the enforcement of the regulatory framework. Administrative obstacles to private sector development, affecting enterprise creation, their development and their closing down, including bankruptcy procedures, must be eliminated. A sustained implementation of these reform measures and higher levels of private and public investment are key requirements for sustainable growth, and building up competitiveness.

Bulgaria has continued a good pace of alignment of legislation with the acquis but still needs to pay more attention to how this will be implemented and enforced. Progress on public administration reform has continued and is a positive sign. This needs to be sustained to ensure public administration is prepared for its role at EU accession. However, little has been done to prepare the judicial system, which needs to be modernised and strengthened, in particular to ensure effective enforcement of the acquis.

Regarding the internal market, Bulgaria has made further progress in most areas. In free movement of goods progress continued with membership of European Accreditation as a major achievement. Reinforcement of administrative infrastructure for standardisation and certification, and of market surveillance systems, is still necessary. On financial services, Bulgaria has developed sound banking supervision practices. Company law has been further aligned and the legal framework for protecting intellectual and industrial property rights improved, but further steps are needed to ensure this is enforced. On state aids, Bulgaria is at last starting to develop and implement a framework for state aids but this is not yet compatible with the acquis. Bulgaria still lacks a legal framework on data protection compatible with the acquis.

In agriculture, Bulgaria has continued generally good progress on approximation of legislation but implementing the acquis poses a significant challenge. Veterinary and phytosanitary inspection arrangements need further upgrading. The partial accreditation of SAPARD is a noteworthy success. Progress on fisheries has accelerated compared to previous years.

Whils