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

A. Introduction

B. Economic issues

1. Economic developments

2. Implementation of recommendations for improvements

C. Commitments and requirements arising from the accession negotiations

1. Administrative and judicial capacity

Public administration

Judicial capacity

Anti-corruption measures

Translation of the acquis into Czech

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 the Czech Republic were successfully concluded on 13 December 2002 and the Treaty of Accession was signed on 16 April 2003. In a referendum held on 13-14 June 2003, a majority of Czechs expressed their support for membership of the European Union. Following ratification of the Treaty of Accession, the Czech Republic 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 the Czech Republic. The report contains two main parts.

The first part deals with economic issues. It describes briefly economic developments in the Czech Republic, 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 the Czech Republic as being in need of further improvements.

The second part gives an overview of where the Czech Republic 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. 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 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 the Czech Republic 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 the Czech Republic 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 the Czech Republic's obligations is duly reflected in the assessment.

Numerous sources of information have been used to compile this report. The Czech Republic was invited to provide information on its state of preparedness. The Report also draws on information provided by the Czech Republic 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 MR JÜRGEN SCHRÖDER.

B. ECONOMIC ISSUES

In its 2002 Regular Report, the Commission concluded that

"The Czech Republic is a functioning market economy. The continuation of its current reform path should enable the Czech Republic to cope with competitive pressure and market forces within the Union.

Improvements can be made as regards the management of public finance, in particular by addressing the high and rising mandatory and quasi-mandatory government expenditures. Reforms of social expenditure, such as pension and health care schemes must be pursued. Furthermore, a more decisive approach towards selling off bad assets of the Czech Consolidation Agency would free the economy of misallocated resources."

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 the Czech Republic including the continuation of the reform path since last year's Report.

1. Economic developments

The Czech Republic has broadly maintained macroeconomic stability. However, public finances have deteriorated. Despite the floods, the strengthened national currency (koruna) and sluggish external demand, GDP growth remained at 2% in 2002. Both private and public consumption and, to a lesser extent, exports have supported real GDP growth. Household demand remained robust, growing in 2002 at a rate around 4%, thanks to a sustained increase in disposable income supported by real wage growth. Public consumption also increased, at a rate of 5.7%, driven by one-off expenditures in military procurement, last year's flood-related spending and high pressure from unemployment and social payments. Fixed investment only went up by 0.6% in 2002. An increase in export capacity and competitiveness counteracted the appreciation of the national currency and weak external demand resulting in an increase of exports in 2002 by 3.8%. In 2002, inflation fell to 0.1% which was below the lower limit of the target band set up by the monetary authorities. The survey-based unemployment rate decreased over the last three years to 7.3% in 2002, however it started to worsen in the first quarter of 2003. Registered unemployment remained high and kept rising. The employment rate has slightly increased to 65.5%. The general government deficit in 2002 was 3.9% of GDP. When the Czech Consolidation Agency (CKA) activity is taken into account the deficit is estimated to rise to 6.7% of GDP (according to PEP 2003). An improvement in the terms of trade (export prices were falling by 1.4% but import prices by 4.3%) explains mostly why the trade deficit came down to 3.5% of GDP in 2002, two percentage points lower than the previous year figure. The current account deficit deteriorated to 5.3% of GDP in 2002, as the improvement in the trade balance deficit did not offset the decrease in the surplus of the balance of services. As in the previous years, the Czech economy continued to be able to finance those deficits thanks to FDI inflows, which amounted to 13.4% of GDP for 2002.

>TABLE POSITION>

a Moving 12 months average rate of change.

b Source: Website of the Czech National Bank.

P= provisional figures

The Czech Republic continued on its reform path, albeit hesitantly. According to government plans, coal mines, electricity, petrochemical and telecommunication firms are planned to be privatised. Coal mines in Northern Bohemia should be sold by the end of 2003. The petrochemical holding Unipetrol will be again offered for privatisation as a whole in a public tender to be held in 2004. Czech Telecom privatisation will not occur before 2005. The government has postponed it due to the difficult international market environment and with a view to increase potential privatisation receipts. Czech Airlines, Czech Airports Authority, Czech Post and Czech Railways are not yet for sale. In order to pave the way for privatisation, Czech Railways were transformed in January 2003 (the Railway Route Administration responsible for the management of the state-owned physical infrastructure and all liabilities, and Czech Railways, a public company, responsible for running the business). Last January, the largest domestic steel-maker Nova Hut Ostrava was privatised, after the restructuring plan for the Czech steel industry was agreed upon. The government has amended the commercial code and is preparing a new Bankruptcy Law. It also provided training to improve the skills of judges and trustees involved in the process of liquidation and restructuring of firms under financial distress. In particular, the regulation of the exit of non-viable firms to permit fast-track restructuring has to be implemented. The government also introduced a new administrative court circuit. Structural shortcomings in the labour market remain to be tackled to allow for an effective reduction of the actual unemployment. Weaknesses, both in the supply and demand side, were well identified in the Joint Assessment of the Employment Policy Priorities and the subsequent progress reports. Government policy should find the right balance between structural reforms in the labour market and the welfare system, on the one hand, and the priorities stemming from employment policy, social integration and learning development, on the other. Other crucial issues which continue to affect the labour market are the lack of geographical mobility caused inter alia by underdeveloped transport infrastructure and the rent controls in the housing

>REFERENCE TO A GRAPHIC>

market.

2. Implementation of recommendations for improvements

The continued deterioration of the general government deficit led the government to undertake steps towards the consolidation of the public finances and to present a set of measures aiming at bringing the deficit down to 4% by 2006. Last year's Report pointed to the need to address the high and rising mandatory and quasi-mandatory public expenditures. The tendency towards expenditure increases appears to be present in other areas of public spending. As mentioned before, the general government deficit in 2002 is estimated at 6.7% of GDP, after the activities of the CKA were included. This limits the leeway to let automatic stabilisers play, running the risk that the public budget may become pro-cyclical, counter to the objective of medium term fiscal consolidation. Not only the level of the deficit creates concerns, but also the structure of the budget. This situation led the government to approve a package for reforming the Czech public finances to save the equivalent of 3.6% of GDP spread over three years. The main objective of the reform proposal is to reduce the public deficit to 4% of GDP in 2006, the last year of the current legislature, from 7.6% estimated by the Czech authorities for the year 2003. The government plans that 30% of the deficit reduction should be achieved through revenue increases and 70% through cuts in expenditures, among them in salaries of civil servants and in discretionary spending of individual ministries. The Lower Chamber of Parliament approved the necessary laws on 26 September 2003. In addition, the Parliament should approve medium term expenditure frameworks with the budget for the next year. The expenditure frameworks set a binding trajectory of general government spending for three years. Spending by extra-budgetary funds would be incorporated in the expenditure ceilings of responsible ministries.

A deeper and a more comprehensive reform affecting the social benefits and the pension system and healthcare is needed. In order to achieve long-term fiscal stability, further measures have to be implemented, especially as regards mandatory and quasi mandatory expenditures, social benefits and the pension system and healthcare reform. The current pension system on a pay-as-you-go basis is planned to be modified from a defined-benefit into a new defined-contribution one (Notional Defined Contributions -NDC system) in which people could see their total contribution on their own accounts. The health care system remains to be restructured in order to control costs and eliminate the debts of the main health care facilities.

The Czech Consolidation Agency resumed the selling off of bad assets to private investors. This process should accelerate in order to free the economy from misallocated resources. In 2002, the CKA was estimated to hold bad assets amounting to roughly 15% of GDP at face value. Given this huge amount, the impact of the CKA activities on public finances needs to be fully assessed. The Agency auctioned in September 2002 and in June 2003 two bad asset packages, amounting in total to the equivalent of 4.4% of GDP at face value. Despite this progress, questions remain concerning the transparency of sales of bad assets.

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 the Czech Republic is fully prepared in all areas of the acquis from the start of its membership. In other words, the Czech Republic must meet its commitments and requirements arising from the accession negotiations.

In the 2002 Regular Report on the Czech Republic, the Commission found that:

"The Czech Republic is generally meeting the commitments it has made in the negotiations. However, delays have occurred with regard to the full alignment of public procurement legislation, completion of alignment regarding mutual recognition of professional qualifications, adoption of parts of veterinary legislation, and the completion of alignment of certain VAT and excise duties. These issues need to be addressed.

Bearing in mind the progress achieved since the Opinion, the level of alignment and administrative capacity that the Czech Republic 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 the Czech Republic will be able to assume the obligations of membership in accordance with the envisaged timeframe. In the period leading up to accession, the Czech Republic 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, the administrative capacity of the Czech Republic has been strengthened considerably. Efforts need to be pursued in particular as regards agriculture, the environment, regional policy, justice and home affairs as well as financial control. Special attention should be given to the structures necessary to ensure sound and efficient management of EC funds. Currently ongoing activities, notably the strengthening of the internal audit units through increasing human resources and training, need to be vigorously pursued in order to attain full operational capacity by accession."

As part of its continuous monitoring, the Commission services addressed two letters to the Czech Republic in March and June 2003 expressing concern over its preparedness in the field of mutual recognition of professional qualifications within the chapter on free movement of persons, the upgrading of agri-food establishments within the agriculture chapter, the establishment of a central harmonisation unit within the financial control chapter, and the alignment on VAT and excise duties within the taxation chapter, and calling for urgent action to remedy these shortcomings.

In order to give further guidance to the Czech Republic 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 the Czech Republic 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 the Czech Republic 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 met, and where delays have occurred, but the principal focus of the assessment remains the requirement that the Czech Republic must be fully prepared as from accession. Naturally, in cases where transitional arrangements have been agreed, their effect on the Czech Republic's obligations is duly reflected in the assessment. On the other hand, it should be underlined that, in order for the Czech Republic 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 and 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 undertaken by the acceding countries in the context of accession negotiations on Chapter 21 - Regional policy and coordination of structural instruments" of 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 the Czech Republic 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 Czech, are evaluated in a separate Section 1.

1. Administrative and judicial capacity

Public administration

As regards the structure of the central state administration, the basic principles are set forth in the 1969 Act on Establishing Ministries and other Central Bodies of State Administration, which has been frequently amended. The Act lays down the competencies and functions of the various departments. It currently identifies 15 ministries and 11 agencies of central administration.

The Czech Republic accomplished a significant step forward in May 2002 by providing a specific legal framework for its civil service with the adoption of its Civil Service Act. The act sets out the legal status of the central state administration officials and aims at creating an independent, transparent, stable, liable, efficient, professional and non-political public administration. The Act will improve professional standards through the introduction of open recruitment procedures and training methods. To that effect, an independent Institute of State Administration was established in July 2001. The system of remuneration will be clarified and standardised, and should result in an improvement of the salaries of civil servants.

However, the act sets forth a gradual implementation of its provisions during a transition period, which extends up to two years from entry into force. Moreover, further delay will occur as a result of the adoption by Parliament in July 2003 of a Government proposal to postpone its entry into force to 1 January 2005 due to the financial burden caused by the floods of 2002. This development is unfortunate, as the Czech Republic will enter the EU with a central administration at the very early stage of its reform process.

Beyond the existence of a code of conduct and the introduction of specific internal ethical norms, a proper degree of openness and transparency in the Czech public administration has still not been fully reached. Thus, the obligation of transparency embedded in the new act should create the legal basis for meeting this need and provide the necessary incentives.

The rather strong hierarchy that characterises the Czech administration represents an obstacle to the development of inter-service co-ordination and hampers planning and policy-making. However, the establishment in June 2002 of the General Directorate for the Civil Service should improve the allocation of human resources throughout the administration through a process of "systematisation" which will determine the number of civil servant posts and the funds earmarked for salaries in the ministries and other bodies.

Overall, human resources standards have improved at central level, enabling thereby an increase in the quality of administrative decisions. However, lack of prestige and relatively low levels of remuneration weaken the ability of the administration to retain employees. As a result, staff turnover is high and forces the different services to ensure training for their newcomers more frequently.

As regards the reform of territorial public administration, the process of decentralisation to the regional and local level is now near completion with the abolition of the districts on 1 January 2003. The 14 regions have received considerable powers notably in the areas of education, health care, territorial planning and environment. Moreover, many State administration competencies have been transferred from the 73 former districts (okresy) to 205 newly established municipalities, including competence for the state welfare system, issuance of building permits, management of construction proceedings, environment, landscape protection, management of forests, hunting, fishing, waste, small trades, and motor vehicle registers.

Regional self-government is now provided through regional assemblies directly elected. These assemblies elect the regional Presidents (hejtmans) and Councils, both executive bodies of the Region. At the local municipality level, the elected municipal assemblies elect municipal councils and Mayors.

Overall however, as a result of this transfer of competencies, the control of legality needs clarification and so does the financial reform accompanying this change. Resources from the regional budgets for the territorial self-governing units to assume their new autonomy are not yet defined.

The officials of regional and municipal authorities are governed by the Act on Officials of the Territorial Self-Governing Units adopted in June 2002. This Act aims to set up a framework for professionalism and focuses on more transparent procedures and stringent criteria for recruitment by strengthening continuous training of officials and increasing standards of service to the public.

Judicial capacity

The Czech judicial system is composed of four main tiers: 86 district courts, 8 regional courts, 2 high courts and the Supreme Court. In addition there is the Constitutional Court, which may be addressed directly by citizens in some cases of violation of fundamental rights. In January 2003, the Supreme Administrative Court was established, as required by the Constitution. Together with the 'administrative senates' based at the regional courts, this aims at ensuring the citizens' right of recourse against public actions.

Judges are nominated by the Ministry of Justice and appointed for life by the President of the Republic. Certain state prosecutors are subject to a security vetting procedure. The Ministry of Justice determines the number of judges and state prosecutors and their promotion, and administers the budgetary resources of the judiciary. Judges' salaries are higher than those of other categories of civil servants and are set by Parliament. The number of judges and state prosecutors has remained relatively constant: in May 2003, there were 3 043 judges' posts of which 2 633 are filled, while the total number of public prosecutors' posts is 1 250, of which 971 are filled.

The fundamental principle of independence of the judiciary is anchored in the Czech constitution of 1993, although the Minister of Justice remains responsible for appointing, transferring and terminating the appointment of the president and vice-presidents of courts. The constitution sets forth a general principle of incompatibility, whereby judges cannot hold high political office or have any other public function. Moreover, judges are required to refrain from anything which might threaten the impartiality of their judicial decision-making. With the exception of the Constitutional Court judges, judges are not banned from joining political parties or movements. The constitution does not provide for a system of immunity for judges.

The Act on Courts and Judges, which entered into force in April 2002, constituted a move towards self-government of the judiciary by the creation of Judicial Councils which have the status of consultative bodies at all court levels. The Act also created a Judicial Academy, which began its operations in October 2002. The main objective of the Academy is to provide life-long training to the judiciary, as well as supporting the 3-year initial training of judicial trainees, who are obliged by law to attend 15 working days training per year. Courses have thus far been organised on an ad hoc basis, but the first full academic year will begin in autumn 2003.

A complaint from the President of the Republic to the Constitutional Court, concerning the division of powers and the independence of the courts, led to the annulment of certain parts of the Act on Courts and Judges in 2002. This included provisions on the compulsory evaluation of competence of judges and the compulsory nature of training of judges in the Judicial Academy. The Act on Courts was amended in June 2003 to take into account the objections of the Constitutional Court.

Access to justice is satisfactory, however not all citizens may be fully aware of their entitlement. Legal aid is available both in criminal and civil cases, either by virtue of the code of criminal procedure (free legal representation for defendants and victims) or by request to the Chamber of Advocates under the Act on Attorneys.

The speed and efficiency of the enforcement of civil judgements have been significantly improved since the establishment of the Chamber of Judicial Executors, which began operating in 2001 under the Act on Private Bailiffs. 108 judicial executors' posts have been created and appear to be working efficiently.

A key area for further improvement remains the reduction in length of court proceedings. According to recent statistics provided by the Ministry of Justice, the duration of criminal proceedings in 2003 has actually worsened in most cases, compared to 2002. [3] However, one area where significant progress can be noted is in the processing of cases before the commercial registry in Prague.

[3] From January-April 2003, the duration of criminal proceedings was 271 days for cases in district courts against 273 days in 2002; 766 days for cases in regional courts against 726 days in 2002. The duration of civil proceedings was of 592 days for cases in district courts against 562 days in 2002; 277 days for cases in regional Courts against 276 days in 2002.

As regards administrative support for judges, staff shortages and a lack of financial resources persist especially at district court level. As of May 2003, there were 700 higher court officials, compared to 621 in 2002. Their training is ensured by a single school, the academy for judges' clerks, in Krom+iíz (South Moravia).

Anti-corruption measures

According to the 2003 evaluation report of GRECO (Council of Europe Group of States against Corruption), available indicators suggest that corruption remains a cause for concern. The Czech Republic has taken a number of administrative and legal measures to strengthen the fight against corruption. The legal instruments required by the acquis are almost all in place, and the necessary structures within law enforcement agencies and the judiciary have been created. However, the main problem remains the relatively unimpressive results in the prosecution of corruption cases.

Following the introduction of the governmental programme on combating corruption in 1999, each Ministry had to draw up its own anti-corruption programme and appoint a co-ordinator responsible for its implementation. Since April 2002, this requirement is now being extended to administrative bodies other than ministries. The Ministry of the Interior is the national co-ordinator of anti-corruption measures. The Ministry of the Interior's 2003 report on corruption drew attention to numerous defects in law and practice concerning public procurement. Several ministries, especially the Ministry of the Interior, have developed public awareness campaigns.

In 2002, 332 persons were charged with abuse of authority of a public official, 45 persons were accused of accepting bribes, 120 persons were accused of offering bribes and 3 persons were accused of indirect bribery. Several hundred convictions were secured in 2002.

In May 2003 the government approved its annual report on the fulfilment of its national programme on combating corruption, which concluded that corruption is still widespread. The report notes that corruption usually takes the form of abuse of power or acceptance of bribes. The report sees little progress in the results of anti-corruption measures and highlights the fact that corruption still continues to affect the proper functioning of the state administration, the police (especially the aliens police and the traffic police), healthcare, banking and the judiciary, and that it also influences the political sphere. Consequently, the government decided to intensify its effort with the planned introduction of several new measures.

The merger of two police services to form the Service for Criminal Police and Investigation represented a significant step forward. This was completed with further internal developments in April 2003, including in particular the merger of two specialised services (the Department for Revealing Corruption and Major Economic Crime and the Bureau for Financial Crime and Protection of the State). The merger was accompanied by important improvements in working methods, which are likely to enhance the effectiveness of the unit. (See also Chapter 29 - Financial and budgetary provisions)

The Ministry of the Interior has established an anti-corruption commission, which is responsible for detecting corruption among Interior Ministry employees and police officers. A special telephone hotline and e-mail address have been established to enable citizens to submit complaints of corruption. However, the number of cases of corruption detected remains extremely low. The Czech customs administration updated its Integrity Action Plan which was first adopted in 2000. An Internal Inspection Unit was recently established to combat corruption; two officers responsible for inspection have been appointed to each regional directorate.

The Czech Republic is a party to the Council of Europe Convention on Money Laundering, Search, Seizure and Confiscation of the Proceeds from Crime and to the Criminal Law Convention on Corruption, as well as to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. It also acceded to the Council of Europe Civil Law Convention on Corruption as of 1 January 2003. The Czech Republic continues to participate actively in the monitoring of anti-corruption measures adopted by the OECD Working Group on bribery in international commercial transactions. It joined GRECO, the Council of Europe Group of States against Corruption, in February 2002.

GRECO adopted a report on the Czech Republic as part of its first evaluation round in March 2003 in which nine concrete recommendations were made. GRECO expressed concern about the breadth of immunity from criminal prosecution enjoyed by Members of Parliament and recommended that clear criteria should be developed concerning when immunity should be lifted. GRECO also noted that it had the impression that corruption was more widespread than shown by the official data and that further measures should be taken without delay to prevent undermining the economic, social and political foundations of Czech society. In particular, GRECO drew attention to the low number of successful prosecutions for corruption offences.

Translation of the acquis into Czech

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.

The translation and revision of acquis acts provided by the Czech authorities has been conducted efficiently and cooperation with the EU institutions has been smooth. The number of Czech texts finalised by mid-September is high, between 25 and 30% of the total volume and further voluminous uploads are expected soon. The quality of Czech legal terminology seems to have been given sufficient attention.

2. The chapters of the acquis

As indicated, the following review of the Czech Republic'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.

Framework legislation for the horizontal and procedural measures necessary for the administration of the acquis in the new approach sector is in place, as are the implementing structures in the fields of standardisation, metrology, accreditation, conformity assessment and market surveillance. The national standardisation body, the Czech Standards Institute (SNI), is a full member of both CEN and CENELEC and is the national representative organisation in ETSI. Legislation on the procedures for provision of information in the field of technical regulations is in place. Market surveillance structures are satisfactory.

The Czech Republic has transposed the sectoral legislation under the new approach and in general alignment has been found to be satisfactory. New legislation on the safety of toys and on explosives for civil use has now been adopted.

The Czech Republic has transposed most of the old approach directives. However, the acquis on wood has not yet been transposed. Amendments to the Act on Metrology and a new Act on Chemicals were adopted. Having recognised that the identification of "new" chemical substances on its market is a matter of priority, the Czech Republic should provide for the appropriate notification of such substances in accordance with the acquis. Legislation in the areas of fertilisers, drug precursors, pharmaceuticals, cosmetics, textiles and glass has been adopted. Implementation structures are in place and essentially satisfactory. Minor amendments are being made to the Act on Consumer Protection in relation to transposition of the acquis on footwear and to legislation on motor vehicles and wheel tractors. In the area of pharmaceuticals, the Czech Republic has not yet completed the revision of marketing authorisations nor preparations for the application of EU centralised procedure and mutual recognition of national authorisations. The Czech Republic is carrying out improvements to implementation on a continuous basis, but particular attention should be paid to medicinal products and cosmetics. Preparations for Czech participation in the RAPEX information system on dangerous products are ongoing.

Transposition of the foodstuffs acquis is almost complete, though further amendments to framework legislation (notably for the deletion of the pre-market approval for food for particular nutritional uses) and to national measures on labelling, official control irradiation, novel foods, labelling of genetically modified foodstuffs and monitoring of temperatures are necessary to ensure full alignment. Gradual administrative strengthening (from a high base) continues at the State Veterinary Administration, which is the main supervisory body for animal-origin foodstuffs, and at the Czech Agricultural and Food Inspection (CAFI) under the Ministry of Agriculture, which is in charge of such issues as official control on contaminants, pesticide residues, food hygiene in processing plants and labelling. Further efforts are still needed to: ensure that Hazard Analysis Critical Control Points (HACCP) is enforced at all stages and that overall strategy and co-ordination between implementing bodies is ensured; improve the procedures for handling alerts (RASFF); and guarantee effective controls concerning food irradiation (and to adopt and implement the necessary labelling requirements). Efforts by the Ministry of Health in the accreditation and specialisation of laboratories and training of officials and inspectors following re-organisation should continue. Aspects of food safety are also covered under Chapter 7 - Agriculture.

The adoption of the Act on Public Procurement still needs to be finalised, to ensure equal access for Community companies through abolition of the national preference clause, alignment on remedies, transparency, time limits and thresholds.

The Ministry of Regional Development has overall responsibility for public procurement legislation. The lack of qualified staff working at the ministry in this area should be urgently addressed. The Office for the Protection of Economic Competition exercises the surveillance of adherence to the Act on Public Procurement when awarding public contracts. The level of administrative capacity seems sufficient. Staff in both organisations, as well as in other relevant institutions (ministries, regional bodies, etc.) will need re-training once the adoption of the new, aligned public procurement act is finalised.

In the non-harmonised area, the Czech Republic has conducted a screening of national legislation possibly in contradiction with the principle of free movement of goods. An inter-ministerial group has been established to oversee identification and removal of any such obstacles. This screening must continue and the identified barriers must be removed. Potential obstacles to the free movement of goods posed by the legislation should primarily be solved by inclusion of mutual recognition clauses. Czech legislation ensures inclusion of such clauses in all new laws regulating non-harmonised areas. The Ministry of Industry and Trade is responsible for ensuring the insertion of these clauses in existing legislation, but there remains some uncertainty as to how this will be effected. The acquis on arms and ammunition has been transposed. The acquis concerning cultural heritage objects has been largely transposed. Preparations have been made to apply the rules on product safety checks at external borders from accession. Administrative co-operation arrangements between customs and market surveillance authorities have been set up and contact points appointed; however, the future activities of custom officers are not yet specified, and this should be addressed.

Conclusion

The Czech Republic is essentially meeting the requirements for membership as regards horizontal and procedural measures, new approach sectoral legislation and in the non-harmonised area and is expected to be able to apply this acquis from accession. Attention should be paid to ensuring that remaining legislative steps are taken in good time and that administrative preparations are finalised. In the non-harmonised area, attention must be paid to inclusion of mutual recognition clauses into the existing legislation.

The Czech Republic is meeting the majority of the requirements for membership as regards old approach sectoral legislation and public procurement. Further efforts are still needed to complete alignment and implementation of legislation in the area of foodstuffs. Additional efforts should be made to provisionally notify "new" chemical substances prior to accession so as to ensure the continued marketing of such substances. In the area of public procurement, legislative alignment must be finalised. After that has been accomplished the required implementing measures, administrative preparations and training must be effectively pursued.

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.

Significant work remains to be done in the field of mutual recognition of professional qualifications, where the Czech Republic's legislation is not in line with the acquis. Legislation to transpose the general system of recognition and many of the sectoral directives remains to be adopted. Particular efforts are needed to ensure alignment with the relevant sectoral legislation on the recognition of qualifications of doctors, dentists, pharmacists, general care nurses and midwives. Subordinate provisions, e.g. the training curricula, also remain to be adopted. Requirements concerning veterinary surgeons have only been partly transposed, an amendment aligning legislation on architects has been adopted, and the transposition of the acquis on lawyers has been largely completed.

The Ministry of Education, Youth and Sports will be the central authority responsible for co-ordination of administrative activities in the recognition of professional qualifications. The existing National Academic Recognition Information Centre (NARIC) and the National Institute for Technical and Vocational Education will support the Ministry in its co-ordination. Professional associations and the Ministry of Trade will also be involved according to the specific field of activity. It will be important to ensure that all such bodies have enough well-trained staff to carry out their tasks effectively.

In the area of citizens' rights legislative alignment has been largely completed through legislation on residence, education, elections to the municipalities and elections to the European Parliament. An amendment to the Act on Registration of Residents remains to be adopted and the Ministry of Education, Youth and Sports must ensure that there are no breaches of equal treatment in the provision of education. The main administrative structures for implementation are in place; electoral rolls including EU nationals will need to be prepared for the 2004 European Parliament elections.

As regards free movement of workers, a transitional arrangement has been agreed. For the first two years following accession, current Member States will apply national measures, or bilateral agreements, to regulate the access of workers from the Czech Republic to their labour markets. These arrangements may continue up to a maximum of seven years. An amendment will be needed to the Civil Service Act to ensure that access for EU citizens to employment in the public sector is not overly restricted. An amendment to pensions legislation to align on supplementary pension rights of workers moving within the European Union remains 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 needs to be ensured through staffing increases and training. The Centre for International Reimbursements will co-ordinate administration of health care expenses. Although these structures remain to be completed, preparations, including training, are on track.

Conclusion

The Czech Republic is essentially meeting the commitments and requirements in the areas of citizens' rights, free movement of workers and co-ordination of social security systems and is expected to be in a position to apply the acquis from accession after the remaining legislative work is completed. Equal treatment in the provision of education and access to employment in the public service must be guaranteed and the supplementary pension rights system must be adapted. The ongoing measures to ensure adequate administrative capacity in these areas should be continued.

Serious concerns exist relating to the Czech Republic's preparations in the area of mutual recognition of professional qualifications. The Czech Republic must substantially enhance its efforts to transpose both the general system and the sectoral directives on doctors, dentists, pharmacists, general care nurses and midwives. The required administrative bodies must be fully established and the capacity to implement this acquis reinforced. In addition, all necessary steps concerning training and curricula need urgently to be taken. Unless immediate action is taken across an important and extensive range of issues, the Czech Republic will not meet the requirements for membership in this area.

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.

Although the acquis on commercial agents has been transposed, legislative alignment is not complete concerning the right of establishment and freedom to provide non-financial services. In particular, in Czech legislation regulating economic activity a clear distinction should be made between economic operators providing services in the Czech Republic temporarily and those established permanently, so as to ensure free provision of cross-border services. This has not been done sufficiently in the existing trade licence legislation, which needs to be improved in order to ensure the free provision of cross border services. Screening needs to be completed as regards other legislative or administrative restrictions which are not compatible with the principle of the freedom to provide services in the light of the relevant case law of the European Court of Justice, and the identified restrictions will need to be removed upon accession.

In the field of financial services, banking-sector legislation is largely in line with the acquis. The e-money directive and capital adequacy rules have not been fully implemented.

Legislative progress is necessary in the insurance sector, where some further transposition is needed concerning life, non-life and motor vehicle insurance, insurance contracts, intermediaries and loss adjusters.

In the area of investment services and securities markets, alignment needs to be completed. The directive on financial collateral needs to be transposed.

In the field of banking supervision, the performance of the Czech National Bank is satisfactory. However, the financial independence of the Securities Commission has not yet been guaranteed. An agreement signed in February 2003 aims to reinforce co-operation between the authorities in banking and financial-market supervision. In the field of insurance, the supervisory body is not yet fully independent in political and budgetary terms. The Czech Republic should ensure that it is able to meet its target in establishing this regulator; and in particular that it has sufficient specialised staff.

The Czech Republic has broadly aligned its legislation on protection of personal data and the free movement of such data. However, a number of amendments are necessary to refine the Data Protection Act and the Banking Act. The Office for Personal Data Protection has proved to be fully independent and effective. Additional staff needs to be recruited to guarantee a long-term sustainable performance.

In the area of information-society services, a White Paper on e-commerce was finalised in May 2003 but the e-commerce directive has not yet been transposed. The acquis on conditional access has not yet been implemented and minor amendments are needed to the Law on Electronic Signatures.

Conclusion

The Czech Republic is essentially meeting the requirements for membership and is expected to be in a position to implement the acquis in the areas of banking, investment services and securities markets and the protection of personal data by the time of accession. Full transposition of the acquis in these areas needs to be completed and the independence of the supervisory bodies safeguarded. The Office of Personal Data Protection would benefit from further strengthening.

The Czech Republic is meeting the majority of the requirements for accession in the areas of right of establishment and freedom to provide non-financial services, insurance, as well as in the field of information-society services. In order to complete preparations for membership, legislative alignment must be accelerated in those areas. Urgent action needs to be taken in the field of trade licensing in order to ensure that the Czech Republic is in accordance with fundamental EU rules on the free provision of services and the right of establishment by accession.

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 payments systems and the fight against money laundering, requiring adequate enforcement capacity.

In the area of capital movements and payments, the Czech Republic is to a large extent in line with the acquis but a few measures remain to be taken. The Czech Republic still needs to harmonise fully the prudential rules relating to the placement of assets of insurance companies, pension funds, and saving and credit unions. The assessment of whether the special rights retained by the state in privatised companies are compatible with the acquis, also remains to be carried out. The Czech Republic must still remove the restrictions on foreign direct investment in the air transport sector.

In accordance with the transitional arrangement, the Czech Republic will remove the restrictions on the acquisition of secondary residences by EU nationals non-resident in the Czech Republic and by EU companies by May 2009 at the latest. Similarly, in accordance with the transitional arrangement it has been granted, the Czech Republic will remove the restrictions on the acquisition of agricultural land and forests by EU nationals and by EU companies by May 2011 at the latest.

In the field of payment systems, the Czech Republic is completing its legislative alignment, while the implementing structures are in place and function adequately. In particular, the provisions on securities settlement systems of the acquis on securities finality remain to be adopted.

In the area of money laundering, the Czech Republic still has to amend its anti-money-laundering legislation in line with the most recent acquis and, inter alia, extend the range of subjects obliged to report suspicious transactions to cover lawyers, accountants, tax advisors, auditors and notaries. Moreover, the Czech Republic is completing implementation of the Financial Action Task Force recommendations and is fulfilling its commitment to phasing out anonymous accounts. Implementing structures, the financial intelligence unit needs to be further strengthened both in terms of staff and equipment (see also chapter 24 - Justice and home affairs).

Conclusion

The Czech Republic is essentially meeting the requirements for membership and is expected to be in a position to implement the acquis in the area of capital movements and payments and payment systems from the date of accession. A limited number of specific issues will still need to be addressed in these areas before accession.

The Czech Republic is meeting the majority of the requirements for membership as regards the fight against money laundering. In order to complete preparations for membership, the Czech Republic must transpose the recent acquis and further reinforce its administrative capacity to effectively implement the acquis on money laundering.

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, the Czech Republic has aligned its legislation with the acquis. Further efforts are still needed to improve administrative capacity and the overall business environment (in particular the efficient enforcement of commercial judgements). As regards the commercial registry, significant progress has been made in speeding up company registration and reducing the backlog of cases of the Prague Commercial Registry. Efforts need to be maintained in order to secure this positive trend at a national level.

The Czech Republic's commitments in the field of accounting have been met and it will be in a position to implement the acquis in this field from the date of accession. The administrative structures are adequate.

As regards protection of intellectual and industrial property rights (IPR), the majority of commitments have been met on copyright and related rights. However, with respect to the Directive on copyright in the Information society, further alignment is needed with regard to the provisions relating to the protection of technological measures and rights management information. The Trademark Act still remains to be adopted.

Special transitional rules will apply in relation to pharmaceutical product patents, involving the non-applicability of Community exhaustion to certain exports from the Czech Republic, as regards the granting of supplementary protection certificates for medicinal and plant protection products, as well as in relation to the extension of registered or pending Community trademarks to the territory of the Czech Republic.

Concerning the enforcement of IPR, the necessary structures are in place but need to be strengthened, in particular to combat media piracy. Video piracy has been reduced due to enforcement measures, but software and music piracy levels remain high. Further training and better co-ordination between enforcement bodies (customs, police and judiciary) should remain a priority, as should the control of cross-border trade in counterfeit goods and the speed and efficiency of court procedures in this area. The specialised police unit foreseen in the field of IPR has not yet been established.

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. The Czech Republic should designate the relevant Courts or other authorities to ensure swift implementation of these provisions (see also Chapter 24 - Justice and home affairs).

Conclusion

The Czech Republic is essentially meeting the commitments and requirements arising from the accession negotiations in the areas of company law and accounting, as well as on the Regulation replacing the Brussels Convention and the Rome Convention. The Czech Republic is expected to be in a position to implement the acquis from accession, provided that the final legislative alignments are completed.

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, and trademark rules. Although the legislation is mostly in line, however, enhanced efforts must be made to strengthen enforcement of intellectual and industrial property rights. Better co-ordination among enforcement bodies is required 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, the Czech Republic has adopted legislation containing the main principles of Community anti-trust rules as regards restrictive agreements, abuse of dominant position and merger control. The Czech Republic needs to ensure that its legislation is not in contradiction with the most recent Community block exemptions. Preparation should continue, as appropriate, for the application of the EC's new procedural regulation.

The Czech Republic has the necessary implementing structure in place and the Office for the Protection of Competition is functioning well. In view of the decentralised application of the antitrust rules under the EU's new procedural regulation, further strengthening of the administrative capacity would still be opportune. Further efforts are needed to raise the awareness of all market participants and to build up a credible and transparent competition culture. Specialised training for judges in economic and competition issues is still not sufficient.

The enforcement record of the Competition Office is generally satisfactory. In order to strengthen it further, priority should be given to cases creating the most serious distortions to competition. Furthermore, the policy on sanctions (fines on competition infringements) should be reinforced.

As regards state aid, the Czech Republic is applying state aid rules covering the main principles of the acquis. The amendment of the Investment Incentives Act, which aims inter alia to establish a fully compatible investment incentives scheme, remains to be completed.

The Czech Republic has the necessary implementing structure in place. Further efforts are needed to raise awareness of state aid rules among all market participants and aid grantors. Further attention needs to be paid to training in this field, both at the level of the national state aid authority (the Competition Office) and the judiciary.

The enforcement record of the Competition Office is not wholly satisfactory. The assessment of the aid measures has not always been carried out in line with the acquis and has diverged from the Commission's practice. The Czech Republic must ensure that all State aid measures, including investment incentives, are properly monitored and controlled. In general, reinforced efforts are required to ensure fully satisfactory enforcement.

The Czech Republic is fulfilling its commitment to create full transparency as regards all State aid measures taken in the process of restructuring of its banking sector. The Czech Republic would need to remain vigilant on any new measure in the run up to accession.

The Czech Republic benefits from a transitional arrangement in relation to the restructuring of the steel industry until December 2006. In this context, the Czech Republic is allowed to grant restructuring aid to a pre-defined group of steel companies until the end of 2003 for which the restructuring process would have to be completed by 2006. The Czech Republic is also obliged to report on the implementation of the restructuring program on a half-yearly basis. Furthermore, it is important to observe that no restructuring aid may be granted exceeding the specified amounts or to companies outside the group of steel mills specified in the special Protocol of the Accession Treaty. As regards public undertakings and undertakings with special or exclusive rights, the Czech Republic still needs to fully adopt the Transparency Directive by the date of accession.

Conclusion

The Czech Republic is essentially meeting the commitments and requirements arising from the accession negotiations in the area of anti-trust and is expected to be in a position to implement this acquis from accession. In completing preparations for membership, the Czech Republic should finalise the necessary legislative fine-tuning, and should continue to develop a track record of proper application of the antitrust rules.

The Czech Republic is meeting the majority of the commitments and requirements arising from the accession negotiations in the area of State aid. In order to complete preparations for membership, the Czech Republic must ensure proper enforcement of all State aid measures. The Czech Republic must also ensure full implementation of the agreed framework for the restructuring of the steel industry, and in particular, guarantee that no restructuring or any other incompatible aid is granted to steel companies that are not covered by the Protocol on steel.

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 Czech Republic has decided to merge the State Agriculture Intervention Fund (SAIF) and the Agrarian Paying Agency (APA) into one single paying agency but appropriate legal and administrative arrangements have yet to be completed. A substantial amount of work remains to be done, notably in terms of organisation (internal and with the delegated bodies) and the IT system. Attention should be given to ensuring that the timetable for the remaining work is respected.

The Czech Republic has made progress in establishing of a functioning Integrated Administration and Control System (IACS), notably in setting up of the Land Parcel Identification System, but substantial efforts are still needed in order to have the system operational by accession.

The SAIF will be responsible for the administration of trade mechanisms. The relevant control tasks will be the responsibility of the customs services and the State Veterinary Service. Legislation in this area remains to be adopted and administrative structures and procedures remain to be fully put in place. In particular, clear agreement must be reached on the sharing of responsibilities amongst the services involved.

The Responsibility for quality policy and organic farming rests with the Ministry of Agriculture, for quality policy in co-ordination with the Office for Industrial Property. Legislation in this field is largely in line with the acquis.

The Czech Republic has met the commitments and requirements arising from the accession negotiations in the area of the Farm Accountancy Data Network (FADN) and is expected to have implemented the FADN by accession.

State aid measures in the field of agriculture remain to be brought into line with the acquis by the time of accession.

As concerns direct payments to farmers, the Czech government has decided to apply the single area payment scheme (SAPS) in the first years after accession.

Common market organisations

SAIF will be responsible for intervention as well as inspection and authorisation of payments for arable crops. Implementing rules on potato starch and cereals remain to be adopted. The establishment of the actual structures, including intervention centres, needs to be accelerated. Further progress is required as regards the acquis on fibre crops.

SAIF has been designated as the body responsible for the sugar common market organisation (CMO). A system of sugar quotas has been in place since 2001 but only in 2003 was the appropriate legislation adopted to make the system operational. However, the Czech legislation is still not in compliance with the acquis. Other mechanisms of the CMO for sugar, such as inter-professional agreements and provisions for trade with third countries, still need to be established at the legal and administrative level.

Implementing legislation as regards marketing standards for fruit and vegetables has been adopted, but it is still lacking on recognition of producers' organisations, approval and control of operational programmes and control of operational funds. Administrative capacity needs to be strengthened, in particular concerning price reporting, controls for producers' organisation and inspection at the export stage.

In the area of wine and alcohol, the CMO for wine remains to be fully set up. A new Act on Viticulture needs to be adopted. Administrative capacity has already been more or less designated or is already in place, but the vineyard register is only partially aligned with the acquis. The implementation of controls on wine circulation (in particular the accompanying documents) also requires particular attention.

Since 2001 the Czech Republic has a milk quota system, which remains to be aligned on the acquis. The legal basis for implementing the milk CMO has not yet been adopted. Proper administrative structures are in place and preparations for full implementation of all mechanisms in the milk sector are ongoing.

Legislative measures have been adopted regarding carcass classification for beefmeat, sheepmeat and pigmeat. Regarding beef, legislation remains to be adopted on labelling and price reporting and controls on carcass classification need to be reinforced. Regarding pig meat the legal basis for controlling carcass classification is not yet in place. Appropriate administrative structures are in place, with the exception of those required for the labelling system.

For eggs and poultry, legislative measures as well as administrative structures are in place as regards marketing standards, price reporting and the reporting of production statistics.

Rural development

The horizontal legislation and administrative structures for implementation of rural development measures have largely been put in place. APA will be the paying agency for rural development and will be responsible for implementation of the measures. The Agency already has substantial experience with the implementation of SAPARD. The Czech Republic has transmitted its formal draft Rural Development Plan for EAGGF Guarantee expenditure to the Commission

Veterinary and phytosanitary issues

Transposition of legislation on transmissible spongiform encephalopathies (TSEs) and animal by-products has been partly achieved. Full implementation needs to be accelerated, in particular as regards the total feed ban.

The establishment of the veterinary control system in the internal market needs to be completed. The administrative structures in this area need to be strengthened. The Czech Republic has not joined the computerised network linking veterinary authorities ANIMO. Transposition of the acquis for identification and registration of animals remains to be completed. A central computer database for bovine animals has been operational since January 2002 but needs to be updated. The law on financing of veterinary inspections and controls has been partly transposed but remains to be implemented. Implementating regarding veterinary checks of imports from third countries and rules for imports has not yet been adopted. The only border inspection post that the Czech Republic plans to bring into continue after accession is the one located at Prague's airport. Considerable work is still needed at these premises.

Regarding animal disease control measures, national contingency plans on-foot-and mouth disease, classical swine fever, Newcastle disease and avian influenza have been provided. The Czech Republic has joined the Animal Disease Notification System (ADNS) on a voluntary basis. Legislation on trade in live animals and animal products still needs to be transposed and implemented.

Legislation on public health protection has been largely transposed but gaps remain in the fish sector. Transitional arrangements have been granted for certain red meat, poultry, egg and dairy establishments until the end of 2006. Products from these establishments will be restricted to the national market. The upgrading of establishments needs to be accelerated. The Czech Republic has given a commitment that all establishments in operation after accession will be in compliance with the acquis. There is a high probability that a significant number of agri-food establishments will not be in compliance with the relevant EU requirements at the date of accession.

The acquis on common measures (including zoonoses) largely remains to be transposed. The residue control system is not fully effective.

The acquis in the field of animal welfare remains to be transposed, and efforts need to be stepped up in order to ensure actual implementation and enforcement. The Czech Republic has been granted a transitional arrangement until the end of 2009 as regards the conditions for laying hens in certain farms.

In the field of zootechnics, transposition and implementation of the acquis remain to be achieved.

Alignment with the acquis on animal nutrition still needs to be completed by an Amendment to the Act on Feedingstuffs.

In the field of phytosanitary legislation, the Plant Health Act (harmful organisms and plant protection products) and legislation related to pesticide residues still need to be adopted. The Seeds Act has been adopted. Numerous implementing decrees remain to be adopted. Plant passport and registration of producers, growers and traders have been introduced. The administrative structures in this field are adequate.

The Czech Republic must ensure that international veterinary and phytosanitary agreements are brought into compliance with the EU acquis by accession.

The Czech Republic has made very little progress in ensuring a comprehensive approach to enhancing food safety throughout the food chain. Aspects of food safety are also covered under Chapter 1 - Free movement of goods.

Conclusion

The Czech Republic is essentially meeting the commitments and requirements arising from the accession negotiations, in (as far as the horizontal issues are concerned) quality policy and organic farming, the Farm Accountancy Data Network (FADN) and state aid; as far as the common market organisations (CMOs) are concerned, in arable crops, fruit and vegetables, milk, sheep and pigmeat and eggs and poultry; and in rural development. In the veterinary field, the requirements for animal disease control measures are essentially met. The Czech Republic is expected to be in a position to implement this acquis in these areas from accession.

The Czech Republic is partially meeting the commitments and requirements for membership as regards the Paying Agency, Integrated Administration and Control System (IACS), trade mechanisms, CMOs for sugar, wine and beefmeat, and most f veterinary and phytosanitary issues (TSEs and animal by-products, veterinary control systems in the internal market, trade in live animals and animal products, common measures, animal welfare, zootechnics, animal nutrition, and phytosanitary measures). 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 the progress with public health protection (upgrading of agri-food establishments). Unless immediate remedial action is taken, the Czech Republic will not be in a position to implement the acquis in this area 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, and inspection and control, the Czech Republic needs to adopt the remaining legislation, including a new Act on the import control system, in order to be able to implement the acquis by accession. Administrative capacity in this sector should be further strengthened through an increase of staff.

In the area of structural actions, the Czech Republic has submitted to the European Commission the chapter on fisheries in the Czech Operational Programme on "Rural Development and Multifunctional Agriculture". A Managing Authority for this Operational Programme has also been established. However, additional specific staff needs to be allocated to the Rural Support Service of the Ministry of Agriculture for the administration of the Financial Instrument for Fisheries Guidance (FIFG).

Regarding market policy, the Czech Republic has met the commitments and requirements arising from the accession negotiations. The administrative structures are adequate to implement the acquis in this area.

As regards state aid to the fisheries sector, the Czech Republic must bring its national aid schemes into conformity with the acquis by accession.

The Czech Republic is not party to any international fishing agreements.

Conclusion

The Czech Republic 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 area of fisheries as from accession. The administrative capacity is adequate overall, but needs to be strengthened for the management of the fisheries part of the Operational Programme.

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 capacity of the Ministry of Transport to prepare, manage and monitor transport projects requires further strengthening, in both qualitative and quantitative terms.

In the land transport sector, serious delays have occurred in the implementation of the Czech Republic's commitments with regard to the road transport acquis. While framework legislation is in place and in line, secondary legislation remains to be completed in order to ensure alignment with the acquis. Alignment with the fiscal acquis is not yet completed as regard rules on charges for the use of infrastructure. In the area of the social acquis, legislation is in line with the acquis, but implementation remains insufficient. The administrative capacity needs to be increased rapidly in order to reach the volume of checks required by the acquis. This is needed in order to ensure compliance with driving times and rest periods. In the technical field, implementing legislation remains to be adopted, notably with regard to speed limitation devices, driving licences, safety advisers for the transport of dangerous goods, vehicle registration documents and roadside inspections. The implementation of roadworthiness testing at the roadside for commercial vehicles and the supervision of the privately-run vehicle test centres are insufficient. Ministry supervision of the enforcement structures and the inadequate enforcement are of particularly serious concern. Moreover, checks on the transport of dangerous goods by road need to be significantly increased. Administrative capacity should be strengthened through further staff increases and the training of specialised staff in supervisory and control functions. The Czech Republic has agreed to a transitional arrangement put forward by the EU concerning gradual reciprocal access to the cabotage market in the road haulage sector (for a maximum duration of five years).

Transposition of the rail transport acquis is taking place according to schedule. The process remains to be completed with regard to the revised railway acquis of February 2001 and the interoperability directives. In the framework of the ongoing reorganisation process, the capacity of the railway administrations needs to be further strengthened. In particular as regards track access charging and capacity allocation, procedures and task allocation should be reviewed and training of staff should be pursued. The separation of accounts between infrastructure rail freight and rail passenger transport must be completed.

On inland waterways transport, legislative alignment is not yet completed, in particular as regards the establishment of the Inland Waterway Fund, the reciprocal recognition of navigability licences, the technical requirements for waterway vessels, and the reciprocal recognition of boatmasters' certificates. Apart from the need to establish the Inland Waterway Fund, administrative structures in this area are in place and satisfactory.

In the area of air transport, the relevant legislation has been transposed and is generally in line with the acquis. On licensing, some modifications are needed. Secondary legislation is still being adopted in order to complete alignment with the acquis. Administrative capacity needs further strengthening.

In the field of maritime transport, framework legislation is in place and in line with the relevant acquis. However, the adoption of implementing legislation remains to be completed, in particular in relation to the acquis adopted under the "Erika" packages relevant to the Czech Republic. The administrative structures in this area are in place and satisfactory.

Conclusion

The Czech Republic is essentially meeting the commitments and requirements arising from the accession negotiations as regards trans-European transport networks, rail transport, air transport, maritime transport and in the area of inland waterways. The Czech Republic needs to reinforce administrative capacities regarding trans-European transport networks and air transport and to complete alignment in the areas of air transport, maritime transport and inland waterways. The Czech Republic needs to adopt legislation transposing the revised railway acquis and continue implementing the re-organisation of the railway sector.

There are serious concerns as regards the implementation of the road transport acquis. Urgent improvement is needed in the implementation of the social and technical acquis. Unless immediate action is taken, the Czech Republic will not meet the requirements for membership in this area by the time of 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, alignment needs to be completed as concerns the scope and definition of the application of the reduced VAT rate for some supply of goods and services, and to a lesser extend the scope of exempt transactions. The Czech Republic also needs to align its legislation to the acquis in the following areas: VAT refunds to foreign taxable persons not established within the Czech Republic; further reduction of the registration and exemption threshold for small and medium-sized enterprises (SMEs) to the equivalent level for which a derogation has been granted in the accession negotiations (see below); introduction of certain special schemes including for second hand goods, travel agents, investment gold; introduction of the intra-Community regime. The necessary administrative structures for VAT are in place. Further modernisation and reinforcement of the tax administration is in progress and should be completed.

The Czech Republic has been granted transitional periods as regards the continued application of the reduced VAT rate on the supply of construction work for residential housing not provided as part of a social policy (until 31 December 2007), and on the supply of heat energy used by households and small entrepreneurs who are not registered for VAT for heating and hot utility water preparation (until 31 December 2007). The Czech Republic obtained derogations concerning the application of a VAT exemption on international passenger transport and of a VAT exemption and registration threshold of EUR35,000 for SMEs.

As concerns excise duties, the Czech Republic has recently adopted legislation aiming to fully align with the acquis, except for the areas where transitional measures were granted in the accession negotiations. The necessary administrative structures are in place. The transfer of the administration of excise duties to the customs administration is progressing according to plan, but it should be ensured that remaining actions are completed as scheduled.

The Czech Republic was granted a transitional period regarding delayed implementation of the excise duty rates on cigarettes and other tobacco products (until 31 December 2006 in respect of the minimum excise duty equivalent to 57% of the retail selling price and the minimum excise duty of EUR 60 per 1000 cigarettes of the category most in demand, and until 31 December 2007 in respect of the minimum excise duty of EUR 64 per 1000 cigarettes of the category most in demand), and a derogation to continue to apply its excise duty rate scheme for small fruit growers' distillation, provided that the quantity does not exceed 30 litres of fruit spirit per year per household and that the reduced excise rate is not less than 50% of the standard national duty rate for ethyl alcohol.

Significant delays have occurred in the permanent closure of duty free shops at land borders, which have still not been closed, despite the commitment of the Czech Republic to ensure this by December 2001 and subsequently by 31 December 2003. There has been a recent decision to further delay the closure of the duty free shops until 31 March 2004.

As regards direct taxation, the Czech Republic needs to complete alignment with the Directive on indirect taxes on the raising of capital and the Merger and Parent/Subsidiary Directives and to transpose the Directives 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, the Czech Republic should improve transparency of its investment incentive legislation. The administrative structures are in place as regards the direct taxation field, and they are essentially satisfactory.

On administrative co-operation and mutual assistance, the Czech Republic 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. A Central Liaison Office (CLO) has been set up, but needs to be expanded to cover intra-Community transactions. The Excise Liaison Office (ELO) has also been established, but needs to be further staffed. Preparations for the VAT Information Exchange System (VIES) and for the System for Exchange of Excise Data (SEED) databases are ongoing and are proceeding according to plan.

Conclusion

The Czech Republic is essentially meeting the commitments and requirements arising from the accession negotiations in the taxation chapter, except for duty free shops at land borders. In light of the repeated failure to close such shops and in particular in light of the recent further postponement of their closure until end March 2004, it is most important that shops are now closed without any further delay. Subject to legislative alignment being completed, the Czech Republic is expected to be in a position to implement the acquis from 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 the Czech Republic 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.

The Czech Republic 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.

The Czech Republic 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. The Czech Republic needs to improve the quality and the timeliness of data in certain domains such as national accounts, government finance statistics, household budget surveys, business statistics, and data for agricultural prices and incomes. Furthermore, the Czech Republic needs to complete data-bases for regionally structured data.

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.

Recent amendments to the labour law have further aligned Czech legislation with the acquis. However, transposition of legislation has to be completed on some aspects as regards protection of young people, part-time and fixed-term work, working time, transfer of undertakings and insolvency. The legislation transposing the acquis on posting of workers needs significant technical revision to ensure its full compatibility. The transposition of the new acquis concerning the involvement of workers in the European Company and the information and consultation of workers is foreseen after accession. The independent guarantee fund for employees is in place and functioning well.

The Czech Republic has transposed almost all legislation in the field of equal treatment of women and men, and, in general, the legislative transposition is in line with the acquis. However, the acquis on equal treatment in occupational social security schemes still remains to be transposed. Moreover, 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 EC Treaty and case law. With regard to equal access to employment, effective sanctions against discrimination must be provided and provisions in the labour code protecting women in preventing them from work underground and physically heavy work need to be removed. It will also be necessary to introduce a compulsory period of maternity leave for pregnant workers as well as a clear clause to cover protection of workers on parental leave against dismissal. Implementing structures are largely in place, but need further strengthening.

In the area of health and safety at work, most of the legislation has been transposed. Further legal adjustments are necessary with regard to the Framework Directive. Moreover, transposition needs to be completed in the areas of workplace requirements, work equipment, temporary or mobile construction sites, workers potentially at risk from explosive atmospheres, medical treatment on board vessels and work at a height (new acquis). The National Labour Inspectorate is in place, but needs further strengthening, in particular as regards computerisation. Co-operation and co-ordination between the occupational safety inspection and health at work inspection bodies should be considerably improved. The use of risk premiums to compensate for hazardous working conditions should be abolished.

As regards social dialogue, effective tripartite social dialogue is well established. Autonomous bipartite social dialogue between employer and worker representatives needs to be strengthened notably through giving more autonomous collective bargaining space to social partners, and with the view to progressively increasing social dialogue coverage in terms of labour force and enterprises covered by collective agreements. Specific emphasis should also be given to the emergence of autonomous social dialogue in the public sector. In general, the administrative capacity of both government and social partners needs to be reinforced.

In the field of public health, the Czech Republic has recently adopted legislation aiming at transposing the new tobacco acquis. The system of surveillance, prevention, and control of communicable diseases in the Czech Republic is aligned with the acquis. The Czech Republic also has the necessary capacity to be incorporated into the EU communicable disease surveillance and control structures. Attention should be paid to the improvement of the health status of the population and to health expenditure.

Concerning employment policy, efforts are still needed to effectively implement the priorities identified in the Joint Assessment of the Employment Priorities (JAP). Further action should focus on the reform of the education and vocational training systems, in particular the implementation of a new comprehensive life-long learning facility, providing stronger incentives for job creation and people to take up jobs and strengthening the public employment service. In view of the ageing of the population and the consequent pension problem, more and continued efforts are needed to increase the participation of older workers.

The administrative capacity of the structures for European Social Fund (ESF) management and implementation has been strengthened in order to be ready for efficient use of the ESF. Further efforts are, however, necessary, especially a