COMPREHENSIVE MONITORING REPORT ON MALTA'S PREPARATIONS FOR MEMBERSHIP {COM(2003) 675 final}

A. Introduction

B. Economic issues

1. Economic developments

2. Implementation of recommendations for improvement

C. Commitments and requirements arising from the accession negotiations

1. Administrative and judicial capacity

Public administration

The judicial system

Anti-corruption measures

Translation of the acquis into Maltese

2. The chapters of the acquis

Chapter 1: Free movement of goods

Chapter 2: Free movement of persons

Chapter 3: Freedom to provide services

Chapter 4: Free movement of capital

Chapter 5: Company law

Chapter 6: Competition Policy

Chapter 7: Agriculture

Chapter 8: Fisheries

Chapter 9: Transport policy

Chapter 10: Taxation

Chapter 11: Economic and monetary union

Chapter 12: Statistics

Chapter 13: Social policy and employment

Chapter 14: Energy

Chapter 15: Industrial policy

Chapter 16: Small and Medium-sized Enterprises

Chapter 17: Science and research

Chapter 18: Education and training

Chapter 19: Telecommunications and information technologies

Chapter 20: Culture and audio-visual policy

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

Chapter 22: Environment

Chapter 23: Consumer and health protection

Chapter 24: Justice and home affairs

Chapter 25: Customs union

Chapter 26: External relations

Chapter 27: Common foreign and security policy

Chapter 28: Financial control

Chapter 29: Financial and budgetary provisions

D. Conclusion

Statistical annex

A. Introduction

The accession negotiations with Malta were successfully concluded on 13 December 2002 and the Treaty of Accession was signed on 16 April 2003. In an accession referendum held on 8 March 2003, a majority of 53.65% of Maltese voters expressed their support for membership of the European Union. Following ratification of the Treaty of Accession, Malta will join the EU on 1 May 2004.

In its Strategy Paper "Towards the enlarged Union", which accompanied the 2002 Regular Reports, the Commission stated that:

"Acceding countries need to implement the acquis by the date of accession, except in cases where transitional arrangements have been agreed. Commitments undertaken in the negotiations must be fully met before accession. The Regular Reports point to a number of areas where further improvements need to be made in the context of the political and economic criteria and in relationship to the adoption, implementation and enforcement of the acquis. These should be vigorously pursued. In order to analyse progress and to facilitate successful membership of the European Union, the Commission will regularly monitor this and report to Council. The Commission will produce six months before the envisaged date of accession a comprehensive monitoring report for the Council and the European Parliament."

The Copenhagen European Council in December 2002 concluded that:

"Monitoring up to accession of the commitments undertaken will give further guidance to the acceding states in their efforts to assume responsibilities of membership and will give the necessary assurance to current Member States."

and the Thessaloniki European Council in June 2003 stated that:

"...the ten acceding States are encouraged to keep up their efforts so that they are fully prepared to assume the obligations of membership by accession. This also includes the necessary translation of the Community acquis. With a view to making a success of enlargement, the monitoring of these preparations has been intensified on the basis of reports submitted regularly by the Commission."

As the accession date of 1 May 2004 draws closer, this report presents a comprehensive state of play of the findings of the regular monitoring carried out by the Commission, building upon the findings of the 2002 Regular Report for Malta. The report contains two main parts.

The first part deals with economic issues. It describes briefly economic developments in Malta, and then goes on to assess the implementation of the necessary economic reforms in the areas highlighted in the conclusions of the 2002 Regular Report for Malta as being in need of further improvements.

The second part gives an overview of where Malta stands in implementing all commitments and requirements arising from the accession negotiations for each acquis chapter, both in terms of legislation and from the perspective of implementing structures, including administrative capacity and enforcement. Considering their importance for the implementation and enforcement of the acquis, the overall state of readiness of the public administration and the judicial system, and the development of effective anti-corruption measures are assessed in an introductory section to this part.

This report reflects the situation at the end of September 2003. It records decisions actually taken, legislation actually adopted, measures actually implemented and structures actually in place and functioning by that date.

For each chapter of the acquis, this report identifies the areas in which Malta is expected to be, or is already, in a position to implement the acquis and the areas where further action is still needed. Where relevant, the report also points out issues where lagging or deficient preparations are a cause of serious concern. This assessment starts from the premise that Malta must be fully prepared for membership from the date of accession. In cases where transitional arrangements have been agreed in the accession negotiations, their effect on Malta's obligations is duly reflected in the assessment.

Numerous sources of information have been used to compile this report. Malta was invited to provide information on its state of preparedness. The Report also draws on information provided by Malta within the framework of the Association Agreement and the accession negotiations, as well as on peer reviews that have taken place to assess its administrative capacity in specific areas. Council deliberations and European Parliament reports and resolutions have been taken into account in drafting it. [1] Where relevant, the Commission has also drawn on assessments made by various international organisations such as the Council of Europe, the OSCE and the international financial institutions and by non-governmental organisations.

[1] For the European Parliament the rapporteur is Mrs Ursula Stenzel.

B. Economic issues

In its 2002 Regular Report, the Commission concluded that

"Malta is a functioning Market economy and it should be able to cope with competitive pressure and market forces within the Union.

Further improvements can be made to macroeconomic management by reducing the general government deficit and reforming public expenditure to ensure medium-term fiscal sustainability. More progress can be made on restructuring large loss-making public enterprises and public utilities. Attention should be paid to the supervision of non-performing loans in the banking sector."

The principal purpose of this part of the Comprehensive Monitoring Report is to assess the implementation of recommendations for improvements in the areas identified in last year's Regular Report. The focus is on the change since last year and not on the overall degree of functioning of the market economy or degree of competitiveness. The assessment can be found in Section 2. Section 1 briefly describes recent economic developments in Malta including the continuation of the reform path since last year's Report.

1. Economic developments

Economic activity remained weak, affected by low external demand and the downturn in the tourism sector. Although GDP growth resumed in 2002, it remained below potential at 1.2%. Output growth was primarily driven by higher private and public consumption. A contraction in fixed capital formation and a rundown in inventories were the main factors responsible for low growth. Despite a sharp increase in investment and government consumption in the first quarter of 2003, GDP fell by 1.9% year on year, largely due to a strong increase in imports that contrasted with slightly negative export growth. The twelve month average rate of inflation decelerated to 2.2% in 2002. Although the Maltese lira depreciated against the euro, the impact on import prices was moderate, influenced by modest domestic demand. The unemployment rate increased to 7.4% in December 2002. The employment rate is relatively low at 55.2 % in 2002. Developments in the private sector largely explain the increase in employment, as low activity in tourism and industrial restructuring in manufacturing accounted for significant job losses (see also the Joint Assessment of Employment Policy Priorities and subsequent progress reports). The current account deficit is estimated to decrease slightly to 3.9% of GDP in 2002. An improvement in the visible trade deficit, to which lower imports of capital goods largely contributed, compensated for a deterioration of the services surplus caused by a fall in tourist arrivals of 3.9% and transport activity. The general government deficit decreased to 6.2% of GDP in 2002 from 6.8% in 2001, remaining well above the levels previously estimated by the government. Interest rates were cut in December 2002 and May and June 2003, mirroring lower interest rates in Malta's major trading partners. Growth below potential, lower inflation, and the lack of pressures on foreign reserves were decisive for the interest rate cuts.

>TABLE POSITION>

a Index not yet harmonised.

b Source: Website of the National Bank.

c In order to reflect the importance banking activity, Eurostat has deducted from the series external liabilities of the banking sector held in the form of loans, currency and deposits.

d Retail Price Index. Source : Website of Statistical Office

P= provisional figures

Progress with structural reforms has been mixed. The privatisation process resumed in 2002 with a sale of shares of Maltapost and Malta International Airport. On the other hand, a number of technical and economic reasons have delayed the privatisation of the Freeport and Air Malta. The plan for dismantling import levies on manufactured goods proceeded as expected, with the final stage accomplished in January 2003. A new programme for dismantling remaining levies on agricultural and food products has been established. Early retirement schemes have been introduced as a major step in the restructuring process of the shipyards and Maltacom. It is important to continue the review of tax and benefit systems to enhance incentives for people to seek job opportunities and to increase labour supply in particular for women and older workers. Further efforts should be made to promote human capital investments and life long learning to make the labour force more adaptable and limit the use of early retirement schemes. The liberalisation of the telecommunications sector has proceeded as planned, reaching its final phase with the liberalisation of international calls and fixed telephony services in January 2003. A plan for reforming the energy sector has been drawn up and should form the basis for introducing competition in the market. The introduction of a price mechanism to gradually link fuel prices to international price developments is progressing as expected. Positive steps have been taken to adapt the price mechanisms of public utilities so as to better reflect production and investment costs, but important problems related to low labour productivity and lack of competition remain. In general, the restructuring process has advanced faster in the private sector, particularly in the least efficient sectors following the removal of import levies. The lack of in-depth reforms to guarantee the sustainability of the public finances is a matter of concern. Although there is general consensus on the need to reform the welfare system, long-awaited pension reform continues to be delayed.

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2. Implementation of recommendations for improvement

Very substantial efforts are necessary to guarantee the sustainability of public finances in the medium term. Although the general government deficit decreased to 6.2% of GDP in 2002, it remained well above the level estimated by the government in 2002. While revenues were positively affected by taxes and fees linked to the privatisation of Malta International Airport, current expenditure increased significantly on account of sizeable spending in health, social security benefits, the shipyards' early retirement schemes and agricultural subsidies. In addition, the increasing general government debt, which reached 66.6% of GDP at the end of 2002, led to significantly higher interest payments. Such expenditure increases, together with lower than expected GDP growth, were the leading factors in a slower than expected reduction of the deficit. Nevertheless, the deficit reduction appears to have been facilitated by the fact that the government transferred some expenditure items from 2002 into 2003. In order to counterbalance the impact, government departments were required to reduce their expenses significantly in 2003 but it remains to be seen whether such a measure will be effective. Developments in the period January-July 2003 are very disappointing, as government total expenditure increased by 8.2% year-on- year while current revenues decreased by 4.3%. Higher capital and current expenditure were largely influenced by the construction of the new hospital and the corresponding equipment supply, but other categories of expenditure also increased significantly, such as subsidies for agriculture support, social security contributions, civil service wages and contributions to government entities. Much needed in-depth reforms which allow for long-term savings are lacking. Achieving fiscal consolidation is necessary to face critical challenges ahead, as the public finances are expected to remain significantly constrained by demographic developments and investment needs required to comply with EU standards and catching up with EU income per capita levels. Furthermore, some of the necessary reforms to guarantee the sustainability of the public finances will entail initial costs for the budget, e.g. pension reform or the implementation of early retirement schemes. More profound reforms in large loss-making public enterprises and more control of government expenditure are necessary to decrease the deficit

Although restructuring of public enterprises is under way, more far-reaching measures need to be implemented, leading to higher productive efficiency and supporting fiscal consolidation. The privatisation process resumed in 2002 with the sale of 35% of Maltapost and the sale of Malta International Airport. Nevertheless, other pending transactions, such as the Freeport and Air Malta, which are expected to have a larger impact on overall economic efficiency and the fiscal balance, have been delayed. The lack of competition in the port is perceived as an important problem by the private sector, as the very high fees applied hinder the competitiveness of local enterprises. Progress continues in introducing more cost-recovery mechanisms in services provided by public utilities, such as the gradual linking of fuel prices to international prices over a period of three and a half years. The system is setting the grounds for the energy state monopoly to better reflect the cost of fuel, while it reduces the negative effects that higher international prices used to have in the government budget. Prices of electricity and water are also in the process of being adjusted to better reflect production costs, although further adjustments are necessary to achieve cost-recovery mechanisms, especially to cover the high infrastructure investment needs in these areas. Overall, the ongoing reforms in the public enterprise sector should contribute to increase productive efficiency in the medium term, but very substantial government subsidies continue to be directed to public enterprises, with the consequent negative repercussion in public finances. In general, there is a need to deal more decisively with the real reasons that compel those companies to run losses. While progress is ongoing in adapting prices to better reflect production and investment costs, important problems such as low labour productivity and the lack of competition in public enterprises could be addressed more severely.

The level of non-performing loans in the banking sector remains high, although several steps have been taken to improve supervision and credit assessment. The ratio of non-performing loans to total loans decreased to 15.3% in March 2003, from close to 18% in 2002. Several factors accounted for the improvement. In 2002, the implementation by banks of new stricter legislation on provisioning and classification of bad loans implied an increase in the proportion of non-performing loans over total loans. Once this statistical effect was fully reflected in bank portfolios, a tightening of risk management controls contributed to reduce the percentage of non-performing loans. The widening of the loan portfolio base due to the inclusion of a new credit institution in the local banking sector in March 2003, which had a low proportion of non-performing loans in its portfolio, contributed further to the improvement. However, the reduction in non-performing loans was also due to the write-off of a number of bad loans, as some of them were considered as irrecoverable. Some steps have been taken to improve financial supervision. The creation of the Financial Stability Division in 2002 is seen as a positive development to guarantee financial stability. During 2002, the Malta Financial Services Authority published several notices giving guidelines on effective management of credit and interest rate risk by credit institutions, providing a valuable instrument for risk assessment. Despite these initiatives, the level of non-performing loans remains high and the weak economic environment and increasing competitive pressures from abroad emphasise the need to continue with the progress towards tighter control and supervision mechanisms in the financial sector.

C. Commitments and requirements arising from the accession negotiations

As we approach the actual date of accession and the entry into force of the mutual rights and obligations enshrined in the Treaty of Accession, it is necessary to focus efforts on ensuring that Malta is fully prepared in all areas of the acquis from the start of its membership. In other words, Malta must meet its commitments and requirements arising from the accession negotiations.

In the 2002 Regular Report on Malta, the Commission found that:

"Malta is generally meeting the commitments it has made in the negotiations. However delays have occurred in the areas of free movement of persons (citizens' rights and free movement of workers), fisheries (vessel monitoring, market policy), agriculture (establishment of the Paying Agency), transport (road and maritime transport) and social policy (labour law and gender equality). These issues need to be addressed.

Bearing in mind the progress achieved since the 1999 update of the Opinion, the level of alignment and administrative capacity that Malta has achieved at this point in time, and its track record in implementing the commitments it has made in the negotiations, the Commission considers that Malta will be able to assume the obligations of membership in accordance with the envisaged timeframe. In the period leading up to accession, Malta needs to continue its preparations, in line with the commitments it has made in the accession negotiations."

As regards the administrative capacity to implement the acquis, the overall findings were as follows:

"Overall, provided Malta implements its plans to strengthen its administrative capacity as mentioned above, it should be able to ensure a reliable enforcement of the acquis and to participate adequately in the Union's policy-making processes. Malta's capacity to ensure sound, efficient and controllable management of EC funds is generally good and should be fully adequate once it has finalised its plans regarding the body in charge of fight against fraud and protection of EC financial interests."

As part of its continuous monitoring, the Commission services addressed two letters to Malta in 2003 expressing concern over its preparedness in the field of VAT legislation within the taxation chapter, the amendment of the Business Promotion Act, the extension of the scope of the Competition Act to include public undertakings and the implementation of the restructuring plan for the ship repair and shipbuilding industry within the competition chapter, and calling for urgent action to remedy these shortcomings.

In order to give further guidance to Malta in its preparation efforts and to give the necessary assurance to current Member States and other future Member States, this part of the comprehensive monitoring report, in Section 2, gives an overview of where Malta currently stands in implementing all commitments and requirements arising from the accession negotiations for each of the 29 chapters of the acquis. It covers the whole body of the acquis, on a chapter-by-chapter basis, both in terms of legislation and from the perspective of implementing structures, including administrative capacity and enforcement.

The principal commitment undertaken by Malta in the accession negotiations is to be fully prepared for membership in all areas by the date of accession. In a number of areas, however, commitments were made to put in place and implement the acquis according to specific timetables even before accession. This report examines the extent to which these commitments have been respected, and where delays have occurred, but the principal focus of the assessment remains the requirement that Malta must be fully prepared as from accession. Naturally, in cases where transitional arrangements have been agreed, their effect on Malta's obligations is duly reflected in the assessment. On the other hand, it should be underlined that, in order for Malta to make effective use of its eligibility for Community structural funds from 1 January 2004, the relevant acquis in areas such as public procurement, state aid or environmental protection will need to be fully respected from 1 January 2004 in relation to the implementation of structural funds actions [2].

[2] See also the Commission Communication on the implementation of commitments undertaken by the acceding countries in the context of accession negotiations on Chapter 21 - Regional policy and coordination of structural instuments, 16 July 2003 (COM(2003) 433 final).

For each chapter, a conclusion is provided, which is structured in the following way.

Firstly, it identifies those areas where Malta is essentially meeting the commitments and requirements arising from the accession negotiations and is expected to be, or is already, in a position to implement the acquis from accession. This does not exclude the possibility that certain actions are still to be taken, but these should under foreseeable circumstances not pose particular difficulties.

In a second paragraph, the assessment identifies any areas where important further action is still needed in order to complete preparations for membership. In some cases these preparations are ongoing, but enhanced efforts or quicker progress may be called for. These are issues which can still be remedied taking into account the accession date of 1 May 2004 but which require the special attention of the authorities.

Thirdly, where relevant, the assessment also identifies issues that are of serious concern. These are areas where serious shortcomings exist which are likely to persist after accession unless immediate remedial action is taken. These issues require the urgent attention of the authorities. In view of their importance for the implementation and enforcement of the acquis, the overall state of readiness of the public administration and the judicial system, and the development of effective anti-corruption measures, together with the question of the translation of the acquis into Maltese, are evaluated in a separate Section 1.

1. Administrative and judicial capacity

Public administration

The Maltese constitution provides for an independent Public Service Commission (PSC) to supervise the public service. Its seven members are appointed by the president, acting in accordance with the advice of the Prime Minister after he has consulted with the Leader of the Opposition. The PSC makes recommendations to the Prime Minister on the appointment, promotion or removal of civil servants. The functioning of the PSC and the recruitment and promotion procedures are regulated by law. The law provides for open and competitive selection of public servants. There are clear recruitment, career and salary structures in the public service. However there are autonomous agencies or authorities, some of which have been set up in relation with the enforcement of the acquis, which have different salary structures.

Malta has continued to implement change initiatives to reform its public service, with the aim to offer better value for money and deliver better quality services. It has also continued to strengthen its administration to meet the requirements of membership.

The main initiatives taken are a delegation of management powers in the field of human resource management together with a results-oriented employee appraisal system, a quality service charter initiative and an ambitious programme of electronic government. In addition public-private partnerships have been initiated to ensure a more effective use of the resources available in the public service.

While progress has been made in all these different areas, it is in the field of e-government that it has been the most noticeable. The government has launched a new government customer care portal system, whereby Maltese citizens can submit enquiries, suggestions and complaints to the government. The system was selected by the Council of Europe as a best practice model for the improvement of services. The first public internet access point was launched at the end of March in Valletta, with 100 more planned to be set up in the coming months. The Internet access point provides free access to a number of sites including e-government. An initiative called M-government was launched at the beginning of April to provide government services via mobile phone.

The Performance Management Programme, a results-oriented employee appraisal system that applies to staff below senior management level, has been further developed. Senior managers are also accountable for results and can be removed from their post if they fail to deliver. More delegation of management powers has taken place, particularly in the field of human resource management.

The first public-private partnership scheme was announced in November 2002. 301 workers from the Urban and Rural Landscape section of the Agriculture Department have been seconded to a private company for that purpose.

It should be noted however that the significant progress achieved through these initiatives concerns a limited part of the Maltese administration and much remains to be done to further improve the effectiveness of the Maltese public administration as a whole.

Transparency and accountability are enhanced by the presence of independent and effective internal and external audit systems (see also Chapter 28 - Financial control) and by the existence of an Ombudsman.

Both the National Audit Office (external audit body accountable to the parliament) and the Internal Audit and Investigation Directorate (internal audit structure reporting to the Cabinet office) have been consistently strengthened over the past years and appear able to fulfil their mission.

The Ombudsman, established in 1995, acts to protect the rights of individuals in their dealings with the public service, to recommend appropriate redress where this is found to be justified, and to promote good governance and high administrative standards. The Ombudsman deals primarily with complaints received from citizens, but he also has the right to investigate matters on his own initiative without receiving a formal complaint. He is appointed by a two-thirds majority in Parliament, which guarantees independence. In 2002 the Ombudsman received 673 written complaints for investigation and 352 enquiries. A total of 719 cases were concluded including 374, which had required a full investigation and a report. There are currently 122 cases pending. The Ombudsman also carried out three investigations on his own initiative. While the Ombudsman's work appears to be largely satisfactory, more attention to this important institution in the parliament would help enhance its status and its effectiveness.

The latest round of local council elections were held in March 2003 in 23 localities together with the referendum on EU membership, with a record turnout of 88% linked to the high turnout for the referendum. Although the local councils instituted in 1993 have limited powers, considerable progress has been achieved in a short period in asserting their role, as shown by the continuously increasing turnout at local elections. There is a Ministry for Gozo, which is responsible for the implementation in Gozo of all policies and projects decided by the Government.

The judicial system

The Judicial system in Malta comprises Inferior Courts, Civil and Criminal Courts of Appeal, and a Constitutional Court. There is a legal aid scheme offered to citizens lacking the means to afford legal defence.

The principle of the separation of powers is applied in Malta. Members of the judiciary are independent of the executive. According to the Constitution, judges and magistrates are appointed by the President upon the advice of the Prime Minister. They may not be removed from office, except by the President upon request by the House of Representatives supported by a two-thirds majority of its members. Consideration could however be given to the possibility of further improving the objectivity of the appointment procedure, which, in the current situation, is controlled by political bodies.

The reform of the judicial system has improved to some extent the situation regarding the backlog of cases. It is based on a strategy to tackle the backlog of pending civil court cases, the main planks of which are an increase in court fees and a wider remit for the Small Claims Tribunal. More efficient information technology tools have also been introduced for the administration of the judicial system. The reform has been partially successful. The statistical report on lawsuits shows a drop in the number of pending civil cases from around 16 000 cases in December 2000 to 13 000 cases in May 2003, with a slower progress in 2002.

The improvement seems to be largely due to a shift of cases from the Civil and Magistrates' Court to the Small Claims Tribunal. Following the extension of the Tribunal's remit, particularly in the financial field, its pending caseload has increased from 1 296 cases in December 2000 to 1 845 cases in May 2003, which offsets the reduction of the backlog at the Civil and Magistrates' Court. Also the backlog of criminal legal actions in courts of all levels in Malta has continued to rise.

A series of training sessions and seminars have been delivered to members of the judiciary both on EU law and on case management. Training has also been provided to court employees on case management and information technology tools. A training academy, set up in April 2002, started training activities in June 2002. It provided training courses on a variety of topics like management, legal and practical aspects of court staff, and recent amendments to legislation.

Anti-corruption measures

Only a few cases of alleged bribery have been brought to court in Malta, although some of them have been serious. However the public perception is that corruption is more widespread than these few cases would show. Indeed, a recent corruption case, which led to the resignation of a chief justice and a judge has affected the way in which citizens perceive the legal system and could be an opportunity for the Government to develop an efficient national strategy for the fight against corruption.

Malta does not have a specific anti-corruption programme, and there have been few developments in the fight against corruption. Recent events include the entry into force of legislation introducing a right to claim compensation for damages caused by corruption and the effective start of the Public Contracts Appeals Board.

This body examined its first case in June 2003, however it still needs to be strengthened and its procedures need to be streamlined. Malta urgently needs to align its procurement regulations with the acquis (see details under Chapter 1 - Free movement of goods). Draft regulations have been prepared, but they still need to be adopted. They would improve the overall transparency of public procurement in Malta.

Having been a member of the Council of Europe's Group of States against Corruption (GRECO) since May 2001, Malta received a group of experts from GRECO on an evaluation mission in March 2002 and an evaluation report was consequently published.

There have been no significant changes since last year in the status and functioning of the Permanent Commission against Corruption, and the actual impact of its work remains low. The GRECO report recommended that the Permanent Commission should be empowered to make use of means of compulsion, publish the results of its investigations itself, and present its reports before parliament. It also suggested that the Permanent Commission should be given the possibility to appoint persons with special knowledge when necessary for its investigations. Such measures are necessary to improve the effectiveness of the Permanent Commission.

More generally, Malta would benefit from a broad anti-corruption programme taking account of the GRECO recommendations such as the strengthening of the police anti-corruption skills and tools, training of the judiciary in matters pertaining to the fight against corruption, the strengthening and empowerment of the Permanent Commission against Corruption, and the adoption of public procurement regulations in line with the requirements of the acquis.

Malta has signed all relevant Council of Europe conventions on corruption but it must still ratify the Council of Europe's Civil Law Convention on Corruption, which it signed in January 2003.

Translation of the acquis into Maltese

In accordance with Articles 2 and 58 of the Act of Accession, all acts adopted by the Union's institutions and the European Central Bank prior to accession become applicable to the new Member States and are to be published in the Official Journal of the European Union in the new official languages. While the EU institutions take responsibility for the final revision and publication of the translations, it falls to the acceding states to produce the translations and to ensure a thorough legal and linguistic revision.

Malta started the process of translation of the acquis relatively late and is experiencing difficulties to catch up with the Commission's planning. There are probably more than 50 000 pages either not yet revised or not even translated. Due to a lack of human resources, the revision process remains slow. There have been improvements and the Maltese Translation Coordination Unit is now providing the legal revisers with a constant flow of texts so that finalisation goes on regularly and steadily, but the volume remains small. The quality of the Maltese version of the acquis appears to be generally satisfactory. Legal revision has improved considerably in recent months.

The number of revised texts must increase greatly in the coming weeks, otherwise the publication of the Special Edition of the Official Journal in Maltese may not be completed in time for accession.

2. The chapters of the acquis

As indicated, the following review of Malta's ability to assume the obligations of membership has been structured in accordance with the list of 29 acquis chapters. Accordingly, this section opens with an assessment of the acquis relating to the cornerstones of the internal market which are known as the "four freedoms", and continues with a systematic review of each of the chapters, covering all aspects of the acquis, including sectoral policies, economic and fiscal affairs, regional policy, environment, justice and home affairs, external policies, and financial questions.

Chapter 1: Free movement of goods

The principle of the free movement of goods implies that products must be traded freely from one part of the Union to another. In a number of sectors, this general principle is supplemented with a harmonised regulatory framework, following the "old approach" (imposing precise product specifications) or the "new approach" (imposing general product requirements). The transposition of harmonised European product legislation represents the vast majority of the content of this chapter. In addition, efficient administrative capacity to apply horizontal and procedural measures in areas such as standardisation, certification and market surveillance is essential. This chapter also covers detailed EC rules on public procurement, requiring specialised implementing bodies.

The horizontal and procedural measures necessary for the administration of the Community product acquis in the new approach sector are in place. Legislation has been transposed and is in line with the acquis. The implementation structures for standardisation, metrology, accreditation, conformity assessment and market surveillance are all in place. Training programmes being carried out by these bodies should ensure their operational efficiency by the date of accession. Malta's standardisation body is a full member of CEN and CENELEC.

Malta has transposed all the sectoral legislation under the new approach with the exception of that on explosives for civil use. An agreement on conformity assessment and acceptance of industrial products has been signed with Malta after an assessment of the sectoral legislation involved (low voltage, electromagnetic compatibility, machinery, lifts, personal protective equipment, explosive atmosphere, radio and telecommunication terminal equipment, toys). This legislation complies with the acquis. Other new approach sectors, including recreational crafts, have been assessed and the corresponding legislation has been subsequently aligned with the acquis.

As regards the old approach legislation, Malta has transposed most of the acquis in these product sectors. It still needs to transpose the legislation on drug precursors and pharmaceuticals for human use. A new system for marketing authorisations of medicines has just been put in place, but the administrative capacity of the newly established Medicines Authority still needs to be strengthened. Having recognised that the identification of "new" chemical substances on its market is a matter of priority, Malta should provide for the appropriate notification of such substances in accordance with the acquis.

In the field of food safety, the transposition of the relevant acquis up to 2002 is essentially completed. However, it should be noted that some pieces of EC legislation (on labelling of genetically modified foods, and some provisions on novel foods) will be applicable only upon accession. The Food Safety Commission, designated by the legislation as the competent authority for food safety and the co-ordinating body for food control, is in place. Guides to good hygiene practice must still be finalised and the Hazard Analysis Critical Control Points (HACCP) system must be enforced at all stages. Training courses on HACCP have started in the food sector but food inspectors need further training, particularly in auditing companies' HACCP plans. The Public Health Laboratory and the Malta National Laboratory in the field of food safety need to be upgraded and accredited. Aspects of food safety are also covered under Chapter 7 - Agriculture.

In the course of the accession negotiations, Malta was granted a transitional period relating to the renewal of marketing authorisations for pharmaceutical products until the end of 2006.

In the field of public procurement, the adoption of the new Public Contracts Regulations has been pending and amended several times to ensure that they would fully align legislation with the acquis in this area. They need to be issued. A Public Contracts Appeal Board has been set up and presents the relevant guarantees of independence and impartiality. It needs to be strengthened and its procedures need to be further developed. The Directorate General of Contracts within the Ministry of Finance and Economic Services, responsible for all public procurement, needs to be further strengthened, particular as regards EU-related procurement. Its staff needs to be trained on new procurement rules and procedures.

In the non-harmonised area, following screening of its legislation, Malta has identified a considerable number of provisions that do not comply with the principle of free movement of goods and need to be amended. A timetable has been agreed to complete harmonisation before accession. Import and export licences, which are not in line with the acquis will have to be removed by accession. Malta still has to adopt horizontal legislation introducing a mutual recognition clause covering existing legislation. Transposition of the acquis as regards arms control and cultural goods is still pending.

In the course of negotiations, Malta was granted a transitional period relating to the existing monopoly in the importation, stocking and wholesale marketing of petroleum products until the end of 2005.

Conclusion

Malta is essentially meeting the requirements for membership in the horizontal and procedural measures necessary for the management of Community legislation in the new approach sectors, the new approach sectoral legislation, and the old approach sectoral legislation. Provided the preparations for the implementation of the food safety and the chemicals acquis will be completed and efforts are made to ensure quick adoption of the remaining pending legislation, in particular in the field of pharmaceuticals, Malta should be in a position to implement this acquis from accession. Efforts should be made to provisionally notify "new" chemical substances prior to accession so as to ensure the continued marketing of such substances.

The commitments and requirements relating to public procurement and the non-harmonised area are only partially met. Efforts need to be made to ensure quick adoption of pending legislation in the fields of public procurement, mutual recognition, arms control and cultural goods, and to further strengthen administrative capacity in the field of public procurement. The implementation of the foodstuffs acquis needs to be improved.

Chapter 2: Free movement of persons

The acquis under this chapter provides for non-discriminatory treatment of workers who are legally employed in a country other than their country of origin. This includes the possibility of cumulating or transferring social security rights, which requires administrative cooperation between Member States. In order to facilitate the practice of certain professions, the acquis under free movement of persons also includes specific rules concerning mutual recognition of qualifications and diplomas; for certain professions a harmonised training curriculum must be followed to be able to use the professional title. Furthermore, this area also covers the residence and voting rights of EU citizens in any Member State.

In the field of mutual recognition of professional qualifications, the Mutual Recognition of Qualifications Act and its implementing legislation globally aligns with the general system of recognition, but the transposition of the general system directives needs to be completed. Alignment with the sectoral rules on lawyers, architects, pharmacists, doctors, dentists, general care nurses, veterinary surgeons, and midwives has been partially achieved. The necessary implementing structures are in place. Malta must ensure that its legislation does not contain any nationality, residence or language requirements that are contrary to the acquis after accession.

In the area of citizens' rights, amendments to the Immigration Act have been brought into force. However, implementing legislation, in particular in the area of the right of residence, the right to participate in municipal elections and the right to participate in European Parliament elections has not yet been adopted. Legislation ensuring that non-national European Union citizens residing in Malta are entered on electoral rolls in time for the European Parliament elections has not been adopted. The main administrative structures for implementation are in place.

As for free movement of workers, Malta has been granted a safeguard clause as regards the free movement of workers. Until seven years after accession, Malta may retain its work permit system for nationals of other Member States provided permits are issued automatically. Implementing legislation in this area has not yet been adopted. Also, subsidiary legislation under the Social Security Act transposing the acquis on supplementary pension rights of workers moving within the Community still needs to be adopted.

With regard to co-ordination of social security systems no transposition into national legislation is needed to achieve alignment with the acquis, but appropriate administrative capacity still needs to be set up. A substantial reinforcement of staff and consequent training are needed.

Conclusion

Malta is essentially meeting the commitments and requirements in the area of citizens' rights, free movement of workers and co-ordination of social security systems. Attention must be paid to the adoption of the outstanding legislation in the area of citizen's rights, including voting rights, and to transposing the acquis on supplementary pension rights of workers moving within the EU. Some adjustments need to be made as soon as possible to the legislation on foreigners to allow EU citizens to participate in the European elections of June 2004. The ongoing measures to ensure adequate administrative capacity in these areas should continue.

Malta is partially meeting the requirements relating to the mutual recognition of professional qualifications. In order to complete preparations for membership in this area, Malta must enhance its efforts to finalise transposition of the general system directives and the sectoral rules on lawyers, architects and healthcare professions, and to adopt the relevant legislation on pharmacists. Administrative capacity to implement the acquis on mutual recognition of qualifications is in place.

Chapter 3: Freedom to provide services

Under this chapter, Member States must ensure that the right of establishment and the freedom to provide services anywhere in the EU is not hampered by national legislation. In some sectors, the acquis prescribes harmonised rules which must be respected if the internal market is to function; this concerns mainly the financial sector (banking, insurance, investment services and securities markets) but also some specific professions (craftsmen, traders, farmers, commercial agents). Harmonised rules concerning personal data protection and certain information society services must also be respected.

In the field of the right of establishment and the freedom to provide non-financial services, Malta has transposed most of the acquis. Legislation has been screened for potential legislative and administrative restrictions, and Malta is committed to removing any remaining restrictions before accession. The Trade Licence Act does not provide for a clear distinction between economic operators providing services in Malta temporarily and those established permanently in order to ensure the free provision of cross-border services, as required by the acquis.

In the field of financial services, Malta is completing the implementation of its commitments with regard to legislative alignment with the acquis in the banking sector. The legislation transposing electronic money and capital adequacy rules require fine-tuning. The transposition of provisions on winding-up is still outstanding. The regulations on the "European passport" rights for banks still have to be adopted.

As regards the insurance sector, the core insurance provisions are broadly already in place. The procedure for Malta becoming a signatory of the 'green card' Multilateral Guarantee Agreement, as foreseen in the 1st motor vehicle directive, still needs to be finalised and efforts should be made to cope with the responsibilities linked to this status. Some areas still require further fine-tuning, in particular the fourth motor insurance directive. Also, some major updates to the implementing regulations are needed (concerning, in particular minimum solvency and guarantee fund amounts in Euro).

In the field of investment services and securities markets, the legislation is broadly in line, although further legislative amendments are still needed. The directive on financial collateral remains to be transposed. Malta also needs to fully comply with the directives on undertakings for collective investment in transferable securities and with the guidelines of the capital adequacy directive, the provisions concerning the access to regulated markets and clearing and settlement systems as well as for off-exchange trading. Finally, Malta has to provide for new listing rules to be in line with the relevant acquis.

After the adoption of recent amendments to the Data Protection Act, eliminating possible conflict of interest and safeguarding the independence of the Data Protection Commissioner, Malta has reached a high level of alignment in the area of the protection of personal data and the free movement of such data.

As regards information-society services, legislation has mostly been brought into line with the acquis. More specifically, the full transposition of the e-commerce directive needs to be completed.

Conclusion

Malta is essentially meeting the commitments and requirements arising from the accession negotiations and is expected to be in a position to implement the acquis in the areas of banking, insurance, investment services and securities markets, protection of personal data and information-society services by the time of accession. Malta needs to complete alignment with the acquis in these areas.

Malta is meeting the majority of the requirements for accession in the areas of the right of establishment and the freedom to provide non-financial services. Enhanced efforts are needed to remove all possible administrative and legal restrictions to the right of establishment and the freedom to provide non-financial services.

Chapter 4: Free movement of capital

Under this chapter, Member States must remove all restrictions in national law on the movement of capital between themselves, but also with third countries (with some exceptions) and adopt EU rules to guarantee the proper functioning of cross-border payments and transfers of all forms of capital. The acquis under this chapter also includes harmonised rules on payment systems and the fight against money laundering, requiring adequate enforcement capacity.

In the area of capital movements and payments, Malta is to a large extent in line with the acquis but did not meet its commitment to completing the liberalisation programme by 1 January 2003. A new law abolishing a number of restrictions relating mainly to short-term capital movements has been recently adopted. Concerning the permanent special arrangement Malta was granted for the purchase of secondary residences, restricting the purchase of such property by EU citizens who have not been resident on the island for at least five years, legislation has been aligned, and a non-discriminatory system of acquisition of real estate and authorisation procedures in line with the acquis has been adopted.

In the field of payment systems, Malta has completed its legislative alignment. The necessary implementing structures are in place.

Malta has aligned its legislation in the area of money laundering. Moreover, Malta is completing implementation of the Financial Action Task Force recommendations by phasing out bearer accounts. With regard to implementing structures, the financial intelligence analysis unit is now fully operational (see also chapter 24 - Justice and home affairs).

Conclusion

Malta is essentially meeting the requirements for membership and should be in a position to implement the acquis in the area of free movement of capital from accession. Concerning capital movements and payments, a limited number of specific issues regarding the liberalisation programme will still need to be addressed before accession.

Chapter 5: Company law

Under this chapter, Member States must adopt and apply harmonised rules required for the proper operation of companies in the internal market. They concern five legislative fields: company law in the strict sense, accounting law, intellectual property rights, industrial property rights, and the recognition and enforcement of judgements in civil and commercial matters as well as of contractual obligations.

In the field of company law as such, Maltese legislation is essentially in line with the acquis.

With regard to accounting, Malta has met its commitments and it should be in a position to implement the acquis in this field from the date of accession. The administrative structures are adequate.

In the field of protection of intellectual and industrial property rights (IPR), following the adoption of the new legislation on patents, trademarks, and copyright and related rights, Malta has broadly aligned its legislation with the acquis. But further legislation remains to be adopted, notably on exceptions to the rights, exhaustion and revival of term. Important parts of the information society directive and provisions on inter-Member State retransmission via cable remain to be transposed. The directive on artists' resale rights needs to be transposed by 1 January 2006 at the latest. Before accession, Malta must fully transpose the Directive on legal protection of biotechnological inventions and adopt legislation on the legal protection of designs. Malta should finalise the preparation of the necessary measures to accede the European Patent Office.

Specific transitional rules will apply in relation to the granting of supplementary protection certificates for medicinal and plant protection products, and in relation to the extension of registered or pending Community trademarks to the territory of Malta.

As regards enforcement of IPR, administrative structures are in place but need to be strengthened. Training, especially of judges and prosecutors, needs to be intensified. Staffing has been increased and training carried out, but there remains a lack of resources and fines lack sufficient deterrent effect. Further efforts are needed especially to cope with the high level of piracy in music and video products. Better co-ordination among enforcement bodies (in particular customs, police and judiciary) needs to be pursued.

The Regulation replacing the Brussels Convention on mutual recognition and enforcement of foreign judgements in civil and commercial matters will be directly applicable upon accession, and accession to the Rome Convention will only be possible upon accession. Malta should designate the relevant courts or other authorities to ensure swift implementation of these provisions (see also Chapter 24 - Justice and home affairs).

Conclusion

Malta is essentially meeting the requirements for membership, and is expected to be by accession in a position to implement the acquis, in the areas of company law and accounting, and the Regulation replacing the Brussels Convention and the Rome Convention.

The majority of commitments and requirements arising from the accession negotiations in the field of the protection of intellectual and industrial property rights have been met. Further legislative adjustments are required in respect of copyright and related rights, including information society rules. Although the legislation and administrative structures are generally in line with the acquis, enhanced efforts must be made to strengthen enforcement of intellectual and industrial property rights. Better co-ordination among enforcement bodies is required, training of enforcement bodies is required (mainly, customs, police and judiciary) and the efficient functioning of a well-trained judiciary should be given particular attention.

Chapter 6: Competition Policy

The competition acquis covers both anti-trust and state aid control policies. It includes rules and procedures to fight anti-competitive behaviour by companies (restrictive agreements between undertakings and abuse of dominant position), and to prevent governments from granting state aid which distorts competition in the Internal Market. Generally, the competition rules are directly applicable in the whole Union, and Member States must fully co-operate with the Commission on the enforcement of these rules.

In the anti-trust sector, Malta has adopted legislation containing the main principles of Community anti-trust rules as regards restrictive agreements, abuse of dominant position and merger control. Following the extension of the scope of application of the Maltese Competition Act to public undertakings, the legal framework for antitrust can now be considered complete. Preparations should, as appropriate, continue for the application of the EU's new procedural regulation.

Malta has the necessary implementing structure in place, and the Office for Fair Competition is functioning satisfactorily. Additional resources need to be devoted to enforcement, especially in view of the decentralised application under the new EU antitrust procedural regulation. Further efforts would be opportune to raise awareness of the anti-trust rules of all market participants and to build up a credible and transparent competition culture. A Judicial Committee was set up for the training of the judiciary, but special training for judges could still be usefully developed further.

The enforcement record is generally satisfactory, but has suffered from an apparent lack of activity in the field of public companies. With the amended Competition Act, the Office is now well placed to develop a record of enforcement also in this field. In general, efforts to develop a more effective deterrent sanctions policy must be reinforced. Further efforts would also be particularly opportune to address serious distortions of competition, such as cartels, as well as to focus investigations on practices that are important for the market structure.

In the field of state aid, Malta has adopted State aid rules covering the main principles of the acquis. With respect to the transposition of the substantive rules, Malta satisfies the basic requirement for the establishment of the necessary legislative framework.

The necessary implementing structures are in place, and the State Aid Monitoring Board is functioning satisfactorily. Malta needs to ensure the enforcement of state aid rules for all new aid measures. Further efforts are needed to raise awareness of state aid rules among all market participants and aid grantors. Malta must also pay further attention to training the judiciary.

On the whole, whilst the enforcement record can be considered generally satisfactory, and the assessment of the aid measures has been carried out in line with the acquis, the number of scrutinised cases remains relatively small. The State Aid Monitoring Board would need to remain vigilant on all new measures proposed by the Government, with a view to ensuring satisfactory enforcement in the period leading up to accession.

Malta has a transitional arrangement until 2008 under the Accession Treaty to grant State aid for the restructuring of its shipyards. The first implementation report shows that the restructuring of the yards has so far not been carried out in accordance with Malta's restructuring plan and with the specific provisions of the Accession Treaty. This puts into serious doubt the proper implementation of Malta's commitments. Malta also benefits from a transitional arrangement in relation to certain fiscal aid benefits (a phase out of incompatible fiscal aid to SMEs by the end of 2011, and modification of incompatible fiscal aid to large companies). Furthermore, Malta is eligible for certain type of operating aid until the end of 2008. These have necessitated amendments to the national legislation, which have been adopted in June 2003. The assessment of the modifications shows that the measures have been satisfactorily brought into conformity with the Accession Treaty.

As regards public undertakings and undertakings with special or exclusive rights, Malta benefits from a transitional arrangement to adjust the market in the importation, stocking and wholesale marketing of petroleum products by the end of 2005.

Conclusion

Malta is essentially meeting the commitments and requirements arising from the accession negotiations in the anti-trust area and is expected to be in a position to implement this acquis from accession. In completing preparations for accession, Malta must further strengthen the administrative capacity of its competition authority as well as improve the enforcement record.

Malta is meeting the majority of the commitments and requirements arising from the accession negotiations in the state aid area. In order to complete preparations for membership, Malta should ensure effective enforcement of all new state aid measures in the run-up to accession.

There are serious concerns as regards delays in the implementation of the restructuring plan of the ship-repair/shipbuilding industry. Unless urgent remedial action is taken, Malta will not meet the requirements for membership in this area by accession.

Chapter 7: Agriculture

The agriculture chapter covers a large number of binding rules, many of which are directly applicable. The proper application of these rules and their effective enforcement by an efficient public administration are essential for the functioning of the common agricultural policy. This includes the setting up of management systems such as a Paying Agency and the Integrated Administration and Control System, which are covered under "horizontal issues" below, and also the capacity to implement rural development actions. The acceding countries must be ready to be integrated into the common market organisations for a range of agricultural products, including arable crops, fruits and vegetables, and meat. Finally, this chapter covers detailed rules in the veterinary field, which are essential for safeguarding animal health and food safety in the internal market, as well as in the phytosanitary field, including issues such as seed quality, harmful organisms and plant protection products.

Horizontal issues

The Paying Agency functions will be the responsibility of a Paying Agency placed within the Ministry for Rural Affairs and Environment. Subsidiary legislation required for the organisation and operational functions of the Paying Agency - including laying down accreditation criteria - remains to be adopted. The administrative structures still remain to be established. Although Malta's agriculture in absolute terms is of limited size, sustained and accelerated efforts are needed to ensure that the agency is operational by accession. Given the lack of experience in managing EAGGF Guarantee aid, developments in Malta need to be followed closely.

Progress with regard to Integrated Administrative Control System (IACS) is limited. Unless significant additional efforts are made over the coming months, there is a serious risk that Malta will not have a functioning IACS in place by the date of accession.

As regards trade mechanisms, the Paying Agency will manage export refunds and issuing of licenses. The relevant control tasks will be under the responsibility of customs. Administrative structures and procedures remain to be established. Given the amount of work remaining, there are concerns as to whether Malta can have functioning systems in place by the time of accession.

Administrative procedures for quality policy have been established but need to be finalised. As regards organic farming, Malta is at a very early stage of its preparations and needs to accelerate its preparations to be ready by accession.

Malta has been defined as one region for Farm Accountancy Data Network (FADN) purposes. The Ministry of Rural Affairs and Environment acts as liaison agency. There has been progress in this area but enhanced efforts are required on collecting and processing of data.

As regards state aid, Malta obtained an eleven year transition period to grant state aid to support agricultural producers, a seven year transition period to grant state aid to support processors and recognised retailers of imported agricultural products and a five year transition period for the granting of state aid for ferry transport of agricultural products from Gozo. The administrative structures to implement these transitional measures will need to be put in place.

As concerns direct payments to farmers, Malta decided not to apply the single area payment scheme (SAPS).

Common market organisations (CMOs)

Land under arable crops is currently being registered under the Land Parcelling Identification System (LPIS) of IACS. Administrative structures responsible for monitoring imports and exports, price reporting and statistics remain to be put in place. Quality inspection procedures and bodies, intervention centres and storage premises remain to be set up.

Subsidiary legislation for marketing standards, and a quality requirements and producers organisation for fruit and vegetables remains to be adopted. Administrative structures are in place for the recognition of producers' organisations and management of operational programmes but application of quality standards is still at a planning stage. An inspection body compliant with EU requirements must still be set up. Mechanisms for reporting of entry prices need to be set up. Malta is granted a 5-year transition period for the application of the processed fruit and vegetable regime to individual producers.

In the area of wine and alcohol, the CMO for wine remains to be fully set up. A wine Act has been adopted but secondary legislation remains to be adopted. The distribution of competence between the Vine Products Commission and the Department of Agriculture remains to be established. Further progress is needed with the setting up of the vineyard register and the management and control of new plantings, replanting and grubbing up of grapevines. Inventory of the wine potential should be prepared in accordance with the relevant regulations.

As regards olive oil, Malta must finalise the setting up of the register of olive growers. Preparations concerning the Geographical Information System must be speeded up. The setting up of the structures for the management and control of production aid as well as the control of quality standards also need to be finalised. Enhanced efforts are required in the areas mentioned above if Malta is to have functioning systems in place by accession.

Concerning the milk quota management, the existing quota mechanism still needs full harmonisation with Community rules. Administrative structures responsible for the management of the CMO are in place, including a national Quota Control Board set up for the management of the quota system. However, they have to be up-graded to ensure that Malta has functioning market mechanisms for milk and milk products by accession.

As regards beefmeat and sheepmeat, administrative structures for the setting up of the CMO, the carcass classification and price reporting system and labelling system remains to be set up. Concerning pigmeat, legislative measures need to be adopted regarding carcass classification and price reporting, as well as the administrative structures for the setting up of the CMO for pig meat and price reporting system. Carcass classification is carried out but needs to be aligned.

For eggs and poultry, legislative measures as well as administrative structures for marketing standards, price reporting and the reporting of production statistics still need to be adopted.

Rural development

The rural development planning unit was set up in February 2002 and the draft institutional plan was presented, however the unit needs to be considerably strengthened to allow Malta to utilise the resources allocated to it for rural development. A Draft Rural Development Plan has been submitted, but it remains to be finalised. In order to complete preparations for the EAGGF Guarantee funded rural development measures, Malta still has to submit the information and justifications specified during the accession negotiations, in particular the cost of establishing producer groups, the extent of rubble walls and the level of farm incomes.

Veterinary and phytosanitary issues

Transposition of legislation on transmissible spongiform encephalopathies (TSEs) and animal by-products has largely been achieved. TSE surveillance and removal of Specific Risk Material are close to compliance with some shortcomings. Collection and treatment of animal waste is not in compliance. There are serious concerns as regards the finalisation of the construction of incineration plants. A total feed ban is in place.

The legislation on the veterinary control system in the internal market has been largely transposed and Malta is participating in the computerised network linking veterinary authorities, ANIMO. As regards the identification and registration of animals, the legislation has been largely transposed and a computerised database is in place but needs to be further developed. The identification system for pigs, sheep and goats also needs to be further developed. The regulation transposing the financing of veterinary inspections and controls has been adopted but it is not yet implemented. Transposition regarding veterinary checks of imports from third countries and rules for imports is not yet complete. As regards their implementation, significant work is still needed to finalise the setting up of border inspection posts in compliance with EU requirements.

The legislation on animal disease control measures has been largely transposed. Contingency plans for classical swine fever, food and mouth disease, Newcastle disease and avian influenza have been provided. Malta is participating in the Animal Disease Notification System (ADNS).

Steps have been taken to align the legislation on trade in live animals and animal products with the acquis.

Legislation on public health protection is in place but not fully implemented. The upgrading of establishments needs to be accelerated, in particular in the milk sector. The upgrading of establishments located in Gozo has yet to start.

The acquis on common measures (including zoonoses) has been transposed. The laboratory capacity for residue-monitoring needs to be improved.

The acquis in the field of animal welfare has largely been transposed but efforts are needed in order to ensure actual implementation and enforcement. Malta has been granted a transitional arrangement until the end of 2006 as regards the conditions for laying hens in certain farms.

In the field of zootechnics, steps have been taken to align the Maltese legislation with the acquis.

The acquis for animal nutrition still needs to be transposed and the evaluation of feed mills completed.

In the field of phytosanitary legislation, considerable work is needed to ensure full transposition of the relevant acquis, whether it concerns harmful organisms and quality of seed or plant protection products. Attention needs to be given to ensuring effective implementation in the fields of plant quarantine and pesticide residues. The Registration system of operators in the seeds and propagating material sector is in place.

Malta has to ensure that international veterinary and phytosanitary agreements are brought into compliance with the EU acquis by accession.

In order to ensure a comprehensive approach to enhance food safety throughout the food chain, the Food Safety Commission, designated by the legislation as the competent authority for food safety and the co-ordinating body for food control, has been put in place. Aspects of food safety are also covered under Chapter 1 - Free movement of goods.

Conclusion

Malta is essentially meeting the commitments and requirements arising from the accession negotiations, among the horizontal issues as regards quality policy, state aid; among the common market organisations (CMOs) as regards arable crops, milk, sheep and pigmeat and eggs and poultry; and in the veterinary field as regards animal disease control, trade in live animals and animal products, animal welfare and zootechnics. Subject to good progress being maintained in the areas, Malta should be in the position to implement the acquis by accession.

Malta is partially meeting the commitments and requirements for membership as regards organic farming, the Farm Accountancy Data Network (FADN) and the CMOs for beefmeat, wine, fruit and vegetables and for olive oil; as regards rural development; in the veterinary field as regards, veterinary control systems in the internal market (import controls), common measures (as regards residues), public health in agri-food establishments and animal nutrition; and as regards phytosanitary issues. Unless efforts are accelerated in these areas, there is a risk that functioning systems will not be in place at accession.

There are serious concerns about Malta's preparations to set up its Paying Agency, to implement the Integrated Administration and Control System (IACS) and in the areas of trade mechanisms and TSEs and animal by-products (availability of rendering plants). Substantial additional efforts are urgently needed in these areas. Unless immediate remedial action is taken, Malta will not be in a position to implement the acquis in these areas by the date of accession.

Chapter 8: Fisheries

The acquis on fisheries consists of regulations, which do not require transposition into national legislation. However, it requires the introduction of measures to prepare the administration and the operators for participation in the Common Fisheries Policy (in the areas of market policy, resource and fleet management, inspection and control, structural actions and state aid). In some cases, existing fisheries agreements or conventions with third countries or international organisations need to be adapted.

In the field of resource and fleet management, inspection and control, the fishing fleet regulation remains to be adopted under the Fisheries Conservation and Management Act. In the course of the accession negotiations Malta sought and obtained a specific management regime within 25 nautical miles of baselines of Malta. Malta has ensured the creation, the reinforcement, and the operational capacity of institutions in the field of fleet management, resources, inspection and control. A management plan for fleet capacity has been adopted. A Fishing Vessel Register (FVR) already exists and is operational. Re-measurement of fishing vessels has not yet started. A Vessel Monitoring System (VMS) has not yet been installed on all eligible vessels, including overseas fishing vessels, and the necessary level of personnel has not been reached.

In the area of structural actions, the chapter on fisheries in the Maltese Single Programming Document (Development Plan) is currently being negotiated with the European Commission. The Multi-annual Guidance Plan has been completed and a fishing vessel registration database already exists and is continuously up-dated. However, the Paying Agency has not been set up and additional staff needs to be allocated to the Ministry of Rural Affairs and the Environment. Allocation of sufficient administrative capacity for the managing and paying authorities for Financial Instrument for Fisheries Guidance (FIFG) funded measures remains to be ensured.

With the adoption of the Producer Organisations Act the legal basis for the producer groups as regards market policy has been created. Implementing legislation on marketing standards, fishery freshness, size criteria and aquaculture remains to be transposed. The administrative structures in the area of producers' organisations are being established but need further strengthening. Further recruitment of fisheries protection officers is ongoing.

As regards state aid to the fisheries sector, Malta allocates limited aid to the fisheries sector. These aid measures must be brought into conformity with the acquis by accession.

Malta is not party to any international fisheries agreements. Malta has not yet applied for membership to the International Commission for the Conservation of Atlantic Tuna (ICCAT).

Conclusion

Malta is essentially meeting the commitments and requirements arising from the accession negotiations in the areas of resource and fleet management, inspection and control, market policy, state aid and international agreements and is expected to be in a position to implement the relevant acquis from accession. Malta needs to complete alignment with the acquis, particularly as regards fish standards and the implementing legislation on producers' organisations. A Vessel Monitoring System needs to be installed on all eligible vessels, and the strengthening of the administrative capacity should be pursued as planned.

Malta is meeting the majority of its commitments in the area of structural actions. In order to complete preparations for membership, Malta must accelerate its efforts to establish its Paying Agency.

Chapter 9: Transport policy

EC transport legislation aims at improving the functioning of the Internal Market by promoting efficient and environment- and user-friendly transport services. The transport acquis covers the sectors of road transport, railways, aviation, maritime transport and inland waterways. Member States are required to adopt and implement legislation concerning technical and safety standards as well as social standards. In order to further develop the European Single Transport Market, EC legislation also includes rules on market liberalisation. An important aspect of EC maritime policy is the establishment of Union-wide maritime safety standards.

The extension of the trans-European transport networks has been defined. While the necessary implementing structures in this area are in place, the administrative capacity to prepare for the investments that will be needed in transport infrastructure requires further strengthening, in both qualitative and quantitative terms.

In the land transport sector, Malta needs to complete its legislative alignment with the road transport acquis. Framework legislation is in place and in line. According to the transitional arrangement granted to Malta, it should finalise its implementation of the fiscal acquis by the end of December 2004 for vehicles operating internationally and by the end of December 2005 for vehicles operating nationally, in accordance with a timetable for the staged introduction of vehicle taxes. As regards the social field, Malta needs to complete its alignment with the acquis, notably regarding the three "admission to the occupation" criteria for all new and existing transport operators. In the technical field, implementing legislation remains to be adopted before accession with regard to transportable pressure equipment and dangerous goods transport. The necessary administrative structures - the Malta Transport Authority - in this area are in place. This body has been strengthened, but it will have to be further reinforced and training of its staff should be pursued, notably as regards enforcement issues.

Malta has been granted transitional arrangements for the phasing-in of roadworthiness tests for certain vehicles used in domestic transport (until end of December 2004), and for the retrofitting of certain vehicles used in domestic transport with speed limitation devices (until end of December 2005).

In the area of air transport, the framework legislation is in place and essentially in line with the acquis, but some modifications are needed, notably regarding noise reduction and ground handling. In addition, rules on fares still need to be transposed and some secondary legislation still requires adoption. The administrative capacity is satisfactory in overall terms, but specific vacancies need to be filled and training of staff should be pursued.

In the field of maritime transport, framework legislation is in place and in line with the acquis. However, the adoption of implementing legislation remains to be completed, in particular in relation to classification societies, Port State control, Vessel Traffic Management Information System, port reception facilities, system of mandatory surveys for the safe operation of regular ro-ro ferry and high-speed passenger craft services, marine equipment and fishing vessels. The relevant administrative structures in this area are in place, but staffing levels should be further strengthened. Malta should pursue its efforts to further improve safety standards. Delays have occurred in the implementation of the Maltese Action Plan. According to statistics for 2002 under the Paris Memorandum of Understanding, the percentage of Maltese flag vessels detained following Port State control was 7.4%. This compares with an average for EU-flagged vessels of 3.5% in 2002. The Maltese flag is still on the black list of the Paris Memorandum of Understanding. Efforts should be sustained to ensure that Malta will meet its objective of removing the Maltese flag from the Paris MoU black list.

Conclusion

Malta is essentially meeting the requirements arising from the negotiations as regards trans-European transport networks and in the areas of road and air transport, and is expected to be in a position to implement the acquis from the time of accession, provided that the current pace of progress is maintained. In completing preparations for membership, Malta needs to reinforce administrative capacities for project management regarding trans-European transport networks and complete alignment in air transport. In the area of road transport, Malta needs to complete alignment and further reinforce its administrative capacity.

Malta must give urgent attention to adopt implementing legislation and further reinforce its administrative capacity to implement the acquis in the area of maritime transport. There are serious concerns as regards resources allocated to the fulfilment of flag state obligations in the field of maritime transport. The implementation of these tasks requires urgent improvements. Unless substantial efforts are made, Malta risks not to meet the requirements for membership in this area by accession.

Chapter 10: Taxation

The acquis on taxation largely covers indirect taxation, as concerns VAT (value-added tax) and excise duties. It lays down definitions and principles of VAT. Excise duties on mineral oils, tobacco products and alcoholic beverages are regulated at EU level as concerns the structure of the duty, the level of minimum rates and the holding and movement of excisable goods. As concerns direct taxation, the acquis covers some aspects of corporate taxes and aims mainly at removing obstacles to cross-border activities between enterprises. Finally, the Community legislation in the area of administrative co-operation and mutual assistance provides tools to prevent intra-Community tax evasion and tax avoidance on both direct and indirect taxation.

In the area of indirect taxation, Malta is almost fully in line with the acquis on VAT. The remaining limited issues concern completing alignment of the scope of the reduced VAT rate (electricity) and defining more precisely the scope of the application of the reduced VAT rate and zero-rating (as for the latter, this should be done in relation to the scope of the relevant transitional measures granted, see below). Malta also needs to address taxable transactions by public authorities (electricity and steam) and to fully ensure equal treatment irrespective of origin of certain goods in a few areas. Moreover, Malta should further address the application of certain special schemes which may not be applied without prior EU authorisation. During accession negotiations Malta was granted a transitional period concerning the continued application of zero rate on foodstuffs for human consumption and pharmaceutical products until 1 January 2010. Malta has obtained derogations as concerns VAT exemption of international and inland passenger transport and domestic inter-island sea passenger transport, VAT exemption without credit of input VAT on water supplied by public authorities and on buildings and building land. Finally Malta was granted a derogation concerning the VAT exemption and registration threshold of EUR 37,000, EUR 24,300 and EUR 14,600 for particular categories of small and medium-sized enterprises (SMEs).

The capacity of the tax administration in the area of VAT is adequate. However, control methods, including the introduction of computerised auditing, remain to be improved. Ongoing efforts to improve the level of non-collected tax revenue should be continued and the developed electronic tax return system should be made operational.

As concerns excise duties, further alignment is still required, in particular on the taxable scope and the definition of some products; on the level of rates on some products; and on some exemptions, including the elimination of those granted on an ad-hoc basis. Malta also needs to extend its suspension arrangements to include intra-community movements, and to limit its special scheme for small breweries to small independent breweries only, and to ensure that such scheme is implemented in a non-discriminatory manner, irrespective of origin.

The necessary administrative structures remain to be strengthened further, and efforts in this respect should continue. Priority should be given to improving the efficiency of excise duty collection and to introducing risk analysis and auditing techniques.

In the area of direct taxation, Malta needs to complete transposition of the acquis as concerns the taxation of raising of capital and on mergers, and transpose the acquis on interests and royalties and on taxation of savings income. In order to comply with the principles of the Code of Conduct for Business Taxation and taking into account the conclusions of the Council, Malta should remove the preferential treatment of international trading companies for non-residents, remove the preferential treatment of foreign income as defined in its legislation for non-residents; and it should introduce appropriate anti-abuse measures in relation to profit distributions from foreign shareholdings. Malta should also significantly limit the discretionary power of the Minister in granting special tax exemptions and remove the entitlement to additional tax deductions currently granted to investment service companies. The capacity of the tax administration in the area of direct taxation is adequate and qualified staff is gradually being recruited. Methods for the verification of transfer pricing should be established.

On administrative co-operation and mutual assistance, Malta is taking the necessary steps to transpose the acquis and implement it by accession, both from the legislative point of view and as concerns organisational structures including information technology systems. The Central Liaison Office (CLO) and the Excise Liaison Office (ELO) have not yet been established. Preparations for setting up the VAT Information Exchange System (VIES), the VAT on e-services application, and the excise electronic database (SEED) are ongoing.

Conclusion

Malta is essentially meeting the commitments and requirements arising from the accession negotiations in the area of excise duties, VAT and administrative co-operation and mutual assistance, and is expected to be in a position to implement this acquis by accession. Malta needs to complete legislative alignment, in particular as concerns the scope and the definition of the application of the reduced VAT rate, and of VAT zero-rating, as for the latter where transitional measures were granted. Subject to good progress being maintained as concerns the VIES project and the 'VAT on e-services' application, Malta should have these functioning systems in place by accession.

Malta is partially meeting the commitments and requirements arising from accession negotiations in the area of direct taxation. In order to complete preparation for membership, urgent attention must be given to remove the preferential treatment of international trading companies for non-residents and the preferential treatment of foreign income, and to introduce appropriate anti-abuse measures in relation to profit distributions from foreign shareholdings, taking into account the conclusions of the Council on the Code of Conduct for Business Taxation. Unless remedial action is taken by Malta, the Maltese tax system will not be in line with the principles of the Code of Conduct for business taxation by the date of accession.

Chapter 11: Economic and monetary union

EC legislation on Economic and Monetary Union (EMU) contains specific rules ensuring the independence of central banks in Member States, prohibiting indirect financing of the state by the central bank, and disallowing privileged access of the public sector to financial institutions. These rules must be transposed into the national legislation, despite the fact that Malta will not yet adopt the euro as a currency from accession. EMU policy also includes the co-ordination of exchange rate and economic policies, adherence to the stability and growth pact and the statutes of the European System of Central Banks.

Malta has met the commitments and requirements arising from the accession negotiations in the area of economic and monetary union and is in a position to implement the acquis as from accession.

Chapter 12: Statistics

The acquis in the field of statistics requires adoption of basic principles such as impartiality, reliability, transparency, confidentiality of individual data and dissemination of official statistics. It also covers methodology, classifications and procedures for data collection in various areas such as statistical infrastructure, macro-economic and price statistics, business statistics, transport statistics, external trade statistics, demographic and social statistics, agricultural statistics and regional statistics. The focal point of the statistical system of a country is the National Statistical Institute, which acts as the reference point for the methodology, production and dissemination of statistical information.

Malta is essentially meeting the commitments and requirements arising from the accession negotiations in the area of statistics and is expected to be in a position to implement the acquis as from accession. Malta needs to make minor legislative adjustments in the areas of demographic and social, regional, macro-economic and external trade statistics. Further strengthening of Malta's administrative capacity is still needed.

Chapter 13: Social policy and employment

The acquis in the social field includes minimum standards in fields such as labour law, equal treatment of women and men in employment and social security, and health and safety at work. Specific binding rules have also been developed in public health (on tobacco control and surveillance and control of communicable diseases) and recently also with respect to non-discrimination on grounds of racial or ethnic origin, religion or belief, disability, age or sexual orientation. The European Social Fund (ESF) is the main financial tool through which the EU supports the implementation of its Employment Strategy and contributes to social inclusion efforts (implementation rules are covered under Chapter 21, which deals with all structural instruments). The acceding countries are expected to be able to participate in social dialogue at European level, and in the EU policy processes in the areas of employment, social inclusion and social protection.

In the area of labour law, transposition of legislation is still required in the field of fixed-term work. Some legal adjustments are necessary with regard to posting of workers, transfer of undertakings and insolvency. Concerning working time, a transitional arrangement was granted until the end of July 2004 and until the end of December 2004 with respect to existing collective agreements in the sectors concerned. Transposition of the new acquis concerning involvement of workers in the European Company and information and consultation of workers is foreseen after accession. The National Labour Inspectorate is in place. Additional posts have been approved and the recruitment of inspectors is ongoing. Further strengthening, in terms of both staffing and technical facilities, is needed.

In the field of equal treatment of women and men, further alignment is still needed on equal treatment in matters of occupational social security schemes. The pensionable age for male and female civil servants will have to be equalised upon accession, when the pension scheme constitutes pay within the meaning of the Treaty and EC case law. Implementing structures should be put in place.

In the area of health and safety at work, legislation has been partially transposed. Further legislative alignment is required in the areas of mineral and extracting sites, fishing vessels, work in potentially explosive atmospheres and limit values. The Occupational Health and Safety Authority has been set up. Further strengthening in terms of staff and technical facilities is still needed. Sustained efforts to ensure effective application of the acquis are needed. Transposition of the Directives on mobile construction sites and noise at work has to be done. Malta was granted a transitional period up to the end of December 2005 with regard to the use of work equipment by workers.

As regards social dialogue, the institutional and administrative framework is in place, but effective tripartite social dialogue, as well as bilateral sectoral social dialogue, should be strengthened. In general, the administrative capacity of both government and social partners needs to be reinforced.

In the field of public health, Malta has recently adopted legislation aiming at transposing the tobacco acquis. The legislation with regard to surveillance and control of communicable diseases has been aligned with the acquis. However, its implementation needs to be strengthened, and the EU case definitions should also be taken over. New laboratory equipment and training in modern epidemiology, as well as additional computerisation, are needed. Efforts should continue in order to develop a health monitoring system with a view to obtaining health data and indicators comparable with the Community health monitoring system.

Concerning employment policy, efforts are still needed to effectively implement the priorities identified in the Joint Assessment of the Employment Priorities (JAP). In particular it is important to enhance employment rates, especially for women and older workers, to address the emerging skills mismatches, to increase incentives for people to take up work, to address informal and undeclared work and further improve the public employment services.

As regards the European Social Fund (ESF), the administrative framework is in place. However, development of the administrative structures for the management of the ESF should be accelerated. Preparations for participating in the transnational operations of the EQUAL initiative need to be reinforced. The capacity of the Ministry of Labour and Social Affairs (one of the intermediate bodies for the human resource development priority) should be further strengthened to effectively monitor, evaluate and financially manage the fund, through expansion of its ESF unit. The capacity of the other intermediate body, the Ministry of Education, should be developed and its tasks clarified.

The Commission and Malta are finalising the Joint Memorandum on Social Inclusion (JIM), which identifies key challenges and possible policy orientations for promoting social inclusion. On this basis, an integrated strategy and a National Action Plan on social inclusion will have to be developed. Analytical work and social statistics systems on poverty and social exclusion should continue to be developed in line with EU commonly agreed indicators on social inclusion.

In the field of social protection, the activities of the National Commission for Persons with Disability need to be further developed, to ensure the enforcement of the various provisions of the Equal Opportunities Act.

Concerning anti-discrimination, Malta has not yet transposed the non-employment aspects of the Race Directive. Adjustments are needed to ensure the full transposition of the Directive on equal treatment in employment. Moreover, the Equality Body required by the acquis needs to be established.

Conclusion

Malta is essentially meeting the commitments and requirements arising from the accession negotiations in the areas of labour law, equal treatment of women and men, social dialogue, employment policy, social inclusion and social protection and is expected to be in a position to implement this acquis from accession. Alignment with specific aspects of the acquis in the fields of labour law and equal treatment of women and men as well as strengthening of the relevant implementing structures should be pursued.. As regards employment policy, the effective implementation of the priorities identified in the Joint Assessment Paper is necessary to prepare for full participation in the European Employment Strategy.

Malta is meeting the majority of the requirements for membership in the field of health and safety at work, public health (with regard to communicable diseases), European Social Fund and to a lesser extent anti-discrimination. Further alignment of legislation is needed in order to achieve transposition of all the acquis on health and safety at work. With regard to European Social Fund, including EQUAL, while considerable progress has been achieved during the last few months, further efforts are urgently needed in order to strengthen the administrative capacity for management, implementation, monitoring, audit and control at both national and regional level. Enhanced efforts are required in order to ensure full transposition and implementation of the anti-discrimination acquis.

Chapter 14: Energy

EU energy policy objectives include the improvement of competitiveness, security of energy supplies and the protection of the environment. The energy acquis consists of rules and policies, notably regarding competition and state aids (including in the coal sector),