COMPREHENSIVE MONITORING REPORT ON LATVIA'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 Latvian

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

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 Latvia were successfully concluded on 13 December 2002 and the Treaty of Accession was signed on 16 April 2003. In a referendum held on 20 September 2003, a majority of Latvians expressed their support for membership of the European Union. Following ratification of the Treaty of Accession, Latvia 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 Latvia. The report contains two main parts.

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

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

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

[1] For the European Parliament the rapporteur is Mrs Elisabeth Schroedter.

B. Economic issues

In its 2002 Regular Report, the Commission concluded that

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

Improvements can be made to the functioning of the labour markets, in particular by active labour market measures in favour of disadvantaged groups, reinforcing public and private infrastructure necessary for the mobility of the workforce and further reforms to the educational system. Fiscal policy has to maintain a prudent approach, also in view of the high current account deficit. In addition, improving the general business environment and strengthening the administrative and judicial capacity would support a more broad-based private sector development."

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

1. Economic developments

Economic activity has remained firm despite a weak external environment. GDP growth remained strong at 6.1% in 2002 and accelerated further to 8.8% in the first quarter of 2003 year-on-year. Private consumption and gross fixed capital formation were particularly robust and became the driving factors for growth, while export growth was relatively high and outpaced import growth. Despite high private consumption growth, inflation decreased to 2% in 2002, as inflation in Latvia's major trading partners was low and lower prices in mobile communication services contributed to attenuating domestic pressures. Inflation picked up to 2.5% in April 2003, driven by higher prices of consumer goods. High growth has contributed to lower unemployment, which decreased from 12.8% in December 2001 to 11.6% in December 2002 [2], and the employment rate was 60.4% in 2002, but upward pressures from enterprise and rural restructuring are expected to remain. The current account deficit decreased to 7.7% of GDP, but remains at a relatively high level. Because the savings-investment balance is likely to be under pressure from high private consumption growth and investment requirements, guaranteeing external sustainability in the medium term remains a point of concern. Financing the current account deficit in 2002 was not problematic, as net inflows of foreign direct investment showed strong growth and financed about 60% of the deficit. The decreasing path of fiscal consolidation was interrupted in 2002, when the general government deficit increased to 3%. The general government debt remains relatively low at 15.2% of GDP in 2002. Monetary conditions remained supportive to the exchange rate peg and contributed positively to macroeconomic stability. Interest rates have broadly followed developments in interest rates of the economies represented in the basket which, together with high banking competition, led to rapid credit growth. Very strong credit growth and a large share of non-resident deposits in the banking sector stress the need to closely monitor developments in this area.

[2] Data according to Labour Force Survey for the last quarter of the year.

>TABLE POSITION>

a Moving 12 months average rate of change.

b Source: Website of the National Bank.

P= provisional figures

The economic reform path has been sustained. The privatisation process continued, albeit with some controversies, with the sale of the shipping company (LASCO) and the remaining government stakes in Latvijas Gaze and Krajbanka. The government expects to complete the sale of remaining shares in Ventspils Nafta and Lattelekom, though several problems have caused delays. Restructuring plans are being put in place for public enterprises which are not expected to be privatised such as Latvenergo and the railway company. The tariff system for public utilities services is being overhauled to reflect more cost-recovery mechanisms and open the markets to higher competition, although competition is still low. The pension reform is being implemented as foreseen, setting the grounds for a more sustainable pension system. The land market reform is well advanced. Significant problems remain in the agricultural sector, which continues to be dominated by small farms where productivity remains very low. A number of active labour market initiatives have been put in place and are producing satisfactory results, but further efforts are necessary to decrease structural unemployment and regional disparities in terms of income and unemployment. Despite increased efforts, more focus is needed on developing entrepreneurship and innovation activities and decreasing corruption.

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2. Implementation of recommendations for improvements

Positive developments have taken place as regards active labour market policies, but several structural rigidities remain. Improvements have been made since last year's Report in several areas identified in the EU-Latvia Joint Assessment of Employment Policy Priorities and the subsequent progress reports. Good progress has been achieved concerning the preparation of initiatives to increase working opportunities for the young unemployed and to improve the skills of the aged and disabled unemployed. Labour mobility remains low despite very large regional income and unemployment disparities. Reinforcing public and private infrastructure is necessary for the mobility of the workforce, but the lack of appropriate skills in remote areas also hinders mobility. Further efforts are needed in adapting the educational system to the current demand for skills. Improving skills in IT, marketing, management and languages should allow Latvia to develop more value added activities and to keep the present good trend of productivity growth. Despite high GDP growth rates in the last years, employment growth has been relatively low. More focus is needed on developing local entrepreneurship and innovation activities and recent initiatives in this area need to be strengthened. In addition, the scarcity of links between enterprises and universities is perceived by the business community as a major problem hindering economic dynamism and entrepreneurship.

Fiscal policy turned into a more expansionary phase in 2002. The general government deficit increased to 3% of GDP in 2002, up from 1.6% in 2001. The level was significantly above the initial targets set by the government in 2002. Higher expenditure reflected supplementary spending by main ministries approved at the end of the year, as well as a higher than expected deficit of local government and significant wage increases in the public sector. Revenues increased along the lines of high GDP growth, induced by high personal, corporate income and social taxes, although it was not sufficient to fully offset the increase in expenditure. In the period January-May 2003, revenues increased by an estimated 8.9% over the same period of last year, underpinned by strong GDP growth and better tax administration, whereas expenditure increased by 4.6%. While revenues were higher than originally planned, expenditure developed very much according to budget plans, leading to a slight surplus of the general government balance in May. In view of these developments, the government decided to amend the budget in June 2003. The amendments entail additional expenditure, most of which will be spent on the teacher wage reform, subsidies of agricultural production, grants for investment of local governments and the financing of the healthcare sector. The original deficit target for this year, about 3% of GDP, is expected to be maintained. The robust domestic demand and the high current account deficit raise concerns about the suitability of the present fiscal policy. Recent tax cuts and higher expenditure related to wages, the health system and investment needs are likely to constrain fiscal consolidation in the medium term. More discipline could be exercised on the borrowing of local governments, and avoiding budget amendments that entail additional expenditure would allow the central government finances to reap the benefits of the current high growth rates. A less pro-cyclical fiscal stance would be more supportive to macroeconomic and external sustainability.

Overall, appropriate conditions to attract foreign investment have been established, but the environment for the creation of new enterprises remains somewhat problematic. Some progress has been made in improving administrative and judicial capacity as regards to the business community. Several initiatives have been taken to improve the situation. The Development Agency has set up an action plan to reduce barriers to creating new business, with greater focus on small local enterprises and particular attention to venture capital and the creation of a credit guarantee agency for SMEs. Following the positive experience with the Foreign Investors Council, which discusses with the government developments in the business environment and regulatory framework, the Ministry of Economic Affairs has recently set up an advisory council to discuss entrepreneurship issues. The council tries to bring together representatives of different business associations in co-ordination with the government, creating a common interest for business. Other recent initiatives include parliament's approval of state financing for consultancy projects for entrepreneurship, under which 50% of such consultancy costs will be financed by the state. As regards administrative and judicial capacity, funds and personnel within the Ministry of Economic Affairs are being increased to deal with the business environment. While steps have been taken to improve judicial capacity, judicial reform, including the establishment of a professional court administration and administrative courts, has only started.

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

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

"Latvia is generally meeting the commitments it has made in the negotiations.

Bearing in mind the progress achieved since the Opinion, and in particular over the recent past, the level of alignment and administrative capacity that Latvia has achieved at this point in time, and its track record in implementing the commitments it has made in negotiations, the Commission considers that Latvia will be able to assume the obligations of membership in accordance with the envisaged timeframe. In the period leading up to accession, Latvia 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:

"Preparing its administrative capacity for membership remains one of the greatest challenges Latvia faces. With a view to the responsibilities Latvia will have to assume in managing and enforcing the acquis upon accession, a substantial portion of the necessary institutions have been restructured or created. While this process is well advanced, further substantial efforts are required to ensure that these institutions become fully operational. This is particularly important in areas such as internal market, agriculture, fisheries, transport, regional policy, environment, justice and home affairs and with regard to the implementation of information technology systems for taxation and customs. Finally, continued efforts are necessary to enhance Latvia's capacity to ensure sound, efficient and controllable management of EC funds."

As part of its continuous monitoring, the Commission services addressed two letters to Latvia in March and June 2003 expressing concern over its preparedness in the field of capital movements within the chapter on free movement of capital, the maritime sector within the transport policy chapter, administrative capacity within the taxation chapter, the reform of the judiciary, including legislation, implementation structures and training within the chapter on justice and home affairs, computerisation and IT interconnectivity within the customs union chapter and the alignment and implementation structures in the area of structural action expenditure within the financial control chapter, and calling for urgent action to remedy these shortcomings.

In order to give further guidance to Latvia 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 Latvia 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 Latvia 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 Latvia must be fully prepared as from accession. Naturally, in cases where transitional arrangements have been agreed, their effect on Latvia's obligations is duly reflected in the assessment. For each chapter, a conclusion is provided, which is structured in the following way. On the other hand, it should be underlined that, in order for Latvia 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 [3].

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

Firstly, it identifies those areas where Latvia 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 Latvian, are evaluated in a separate Section 1.

1. Administrative and judicial capacity

1.1. Public administration

Implementation of the reform of the public administration has continued. With the entry into force of the Framework Law on Public Administration in January 2003, which is to be fully implemented by January 2005, the horizontal policy framework is being put in place.

The State Chancellery, now responsible for strategic planning and horizontal coordination of government policy, has become fully functioning. The Secretariat for the Special Minister for Administrative Reform has been wound up and the State Chancellery now plays a leading role, not only in personnel policy development, but also in implementation of the Civil Service Law, development of a unified pay system and implementation of the Public Agency Law as well as supervision of training under the School of Public Administration. Accordingly, the tasks of the Civil Service Administration, under the supervision of the Prime Minister, have been reduced to personnel policy co-ordination and control of the civil service.

The present unclear set-up involving both the Civil Service Administration and the State Chancellery should not be allowed to hamper the necessary development of a strong civil service management. Clear and transparent rules and practices for promotion and career development based on merit and open competition are still needed.

The legal base for the status of civil servants has been established and the implementation of the Civil Service Law has continued with a view to ensuring adequate independence of the civil service, open recruitment and performance appraisal procedures. However, some recent amendments to civil service legislation regarding concentration of civil service management in the centre of the government, together with the Disciplinary Liability Law and other legal acts, are seen to carry some risk of reintroducing politically biased practices in civil service management against the background of a still fragile civil service framework.

The implementation of the new salary system, the so-called unified civil service pay system, met with particular difficulties notably regarding qualification categories, and was therefore suspended. In order to address the current problems, the process is now being reviewed with a view to providing transparent and competitive remuneration in the public sector, starting with increasing salaries in the most problematic sectors. More resolute decision-making is now needed in order to put the process back on track.

With the adoption of the Law on Administrative Procedure in October 2001, the legal base for administrative action and decision-making was defined and efforts of the administration to implement the law are encouraging. The law, which should ensure legal certainty, transparency and accountability of administrative actions through an appeal system, will finally come into force in February 2004. However, some further clarifications are required, for example concerning the judicial review of administrative acts. Generally, mechanisms to ensure better quality legislation should be strengthened, including through training. The strategic policy and budget planning system has started in some key ministries.

Regarding the transformation of state agencies into public agencies in the context of the implementation of the Law on Agencies, new legislation was adopted to re-examine the situation of each agency (about 70 out of 170 agencies in total) with a view to establishing their final status. This work, now falling under the State Chancellery, needs to be continued and carried out more consistently in order to achieve the objective of more transparency and accountability to government structures.

As concerns training, a well-organised training system for civil servants has been put in place. In 2002, nearly 12 000 civil servants attended training courses at the Latvian School of Public Administration. Training priorities included EU law, institutions and policies; administrative procedures; labour rights; performance assessment; conflict of interests; legal drafting and internal control.

The administrative territorial reform, which started in 1998, is advancing at a slow pace. The originally envisaged creation of 102 larger sized local governments has been revised with a view to decrease their number further. Alternative proposals are now being discussed with the local governments concerned.

The principles of the EU coordination were redefined in June 2003 with a view to accession. Under the supervision of the government, the Ministry of Foreign Affairs assumes a central role in the co-ordination system and ensures continuity of Latvia's positions at different stages of the EU decision-making process. It is responsible for the circulation of information and documentation related to the EU. Line ministries are fully responsible for handling EU matters within their respective policy areas.

1.2. Judicial capacity

The new government recognised the need for the reform of the judiciary as a priority, and some steps have been taken to strengthen the effectiveness and independence of the judicial system, including preparation of legislation, enforcement of court decisions, modernisation of courts, training of judges, and the adoption of an additional budget in 2003, primarily to cover salary increases for judges and court staff. Latvia needs, however, to take urgent action to ensure continued and effective implementation of the reform.

The two pieces of legislation which are most important for improving the functioning of the judiciary, the new Criminal Procedure Law and the Law on Judicial Power, are still pending. A comprehensive draft new Law on Judicial Power, aimed at improving the efficiency and independence of the judicial system, was finally not adopted, but some of the envisaged improvements were made already in separate steps.

Regrettably, the draft Criminal Procedure Law, aimed at simplifying and modernising the criminal procedure, including court proceedings, reducing the backlog of court cases, speeding up the consideration of juvenile cases, and extending the use of alternative penalties, is still pending. It is essential to adopt this law without further delay. With the entry into force of the Law on Sworn Court Bailiffs in January 2003, a professional court bailiff institution (101 members) has been established to provide more efficient enforcement of court decisions.

A thorough reform of the judicial administration is scheduled to start in January 2004. The reform entails a transfer of administrative functions from the Ministry of Justice to a Court Administration, supervised by a Judicial Council, to strengthen the independence and efficiency of the court system. The concept regarding the Court Administration, adopted in August 2003, entails the establishment of specialised administrative courts. The necessary legislative basis for the reform, the new Law on Judicial Power, that provides for the establishment of the Judicial Council and the division of powers between Courts, the Council and the Ministry of Justice, as well as implementing regulations are, however, still pending and its implementation requires further strengthening of administrative capacities. Latvia needs therefore to pay urgent attention to the adoption of this legislation and to the establishment of the related implementation structures, including training.

The entry into force of the Administrative Procedure Law (adopted in 2001) was delayed to February 2004, mainly due to the need to provide for premises and equipment for new administrative courts together with the recruitment and training of new administrative court judges.

In order to address the independence of the judicial system, amendments to the previous Law on Judicial Power, adopted in June 2003, introduced a timetable for gradually raising judges' remuneration, starting from July 2003 (until 2006), when they will be several times higher than before the reform, e.g. LVL 720 (EUR 1 137) for a newly appointed judge, compared to LVL 269 (EUR 425) today.

It will be important now to keep up the work and implement duly the commitments undertaken in order to increase the standing of the profession and the judicial system as a whole. In this context, efforts to establish and implement a strategy to increase transparency for selection, appointment as well as consistent professional development of judges need to be continued.

The situation regarding pending cases has improved. The number of criminal cases went down to 4 423 in July 2003 (compared to 5 062 in July 2002) and 19 003 civil court cases were pending as of July 2003 (compared to 22 829 in July 2002. The hearing of juvenile cases slightly speeded up in 2002.

The implementation of a training policy for judges and other legal professions has continued, mainly through the Judicial Training Centre. A series of specialised training courses on EU law, human rights, corruption, cybercrimes, customs law, drug-related crimes and international judicial cooperation took place. The training of judges and other legal professions, especially in EC law and human rights issues, continues to depend largely on pre-accession and international support. In order to improve qualifications in these fields and to increase capacity to enforce the acquis upon accession, training needs to be intensified and adequate funding from the state budget secured. A long term training strategy for the judiciary should also be developed.

The development of the computerised Uniform Court Information System has been finalised and computerisation of the courts was completed in August 2003. It is now important to ensure that the criminal management system is fully implemented and that an administrative case management system is developed.

In the field of legal aid, planned legislative measures have been delayed. It is important to complete the legal framework to improve citizens' access to justice and to ensure adequate funding of legal aid.

1.3. Anti-corruption measures

While a number of measures have been taken, the level of corruption still remains a concern in Latvia. However, the current Government remains strongly committed to further combating corruption. In order to increase the effectiveness of the anti-corruption policy, legislation has been improved and the institutional set-up has been clarified and consolidated through the establishment of a central Corruption Prevention and Combating Bureau (CPCB), fully operational since February 2003. This process should be continued in order to reach tangible results.

In January 2003, a new strategy for preventing and combating corruption was prepared by the newly established CPCB in co-operation with other governmental institutions and NGOs. The aim of the document was to serve as a policy document to increase public confidence. It is now important to complete work to define specific tasks, allocate responsibilities and set implementation timetables.

Some steps have been taken to improve legislation, in particular to empower the CPCB to carry out investigative functions on all corruption cases in the public sector, income and asset declaration by public officials. In addition, in June 2003, amendments to the Public Procurement Law and Administrative Violations Code were adopted. The new rules on procurement provide that all disputed tenders in public procurement are submitted to the CPCB for investigation. Moreover, amendments to the Administrative Violations Code introduced administrative liability for violations of the law on political party financing, and authorised the CPCB to impose on political parties fines up to LVL 10 000 (EUR 15 798).

Further legislative developments are required. In particular, amendments to criminal law, establishing liability of legal persons, are essential to complete the legislative basis for efficient anti-corruption policies. So far, however, no time frame for drafting and adoption of these amendments has been set.

The work of the CPCB has been considerably strengthened both in terms of funding and human resources. Its budget was increased fivefold compared to the year 2002. At present, there are 110 employees, and the number of staff could exceed 120 by the end of 2003. All employees of the Bureau have been trained on anti-corruption issues within a special programme prepared in co-operation with the School of Public Administration. While the setting-up of the Bureau is considered to be a very ambitious project among similar bodies, the CPCB's structure and staffing is, however, still under development. It is now important to ensure stability at management level, including appointment of the Head of the Bureau. The Bureau remains vulnerable due to a lack of professionalism in some areas, a stretched budget, a heavy workload, and high expectations from society and other state institutions.

The CPCB has initiated five criminal cases against high ranking officials, namely, for violations of public procurement procedure, for fraud, and for bribery. The Bureau has also asked the courts to suspend the activities of 11 political parties for not submitting financial declarations, and started a thorough examination of 85 cases in the field of public procurement and conflicts of interests. More than 440 claims, enquires and proposals have been received from different institutions and individuals so far.

Several steps to tackle conflicts of interest in law enforcement agencies, State Revenue Service and other public administration bodies have been taken. A series of in-house investigations have been launched, resulting in the resignation or dismissal of several senior officials in the Ministry of the Interior, the police and the State Revenue Service. At 'street' level, anti-corruption measures have mainly focused on eradicating corruption and related crimes, such as smuggling, by police officers and customs officials. Increases in excise tax revenues suggest that smuggling of excise goods might have indeed decreased in 2003.

It is important to establish efficient and smooth co-operation mechanisms between the other institutions involved in the fight against corruption, including the State Police, Financial Police of the State Revenue Service, State Audit Office and the Prosecutor Office.

The creation of a Parliamentary Commission on oversight of corruption prevention and organised crime combating, is a positive signal. Moreover, the Commission has taken leadership of the oversight of the Bureau and of the promotion of several laws, such as the law on lobbying, political party finance and the establishment of an ombudsman.

Implementation of anti-corruption plans and codes of ethics has continued within the various state institutions such as the customs and police services. In customs, anti-corruption measures include, inter alia, double checking decisions made by officials occupying positions with a high risk of corruption, rotation of customs officers, and the promotion of electronic declarations of goods (10.75 % of all declarations in 2002). 110 customs officials were punished as a result of internal audits in 2002. Both customs and the police have organised training on corruption-related topics. More generally, the Latvian School of Public Administration organised training in 2002 for a total of 1 345 civil servants on issues such as prevention of corruption, conflicts of interest, and ethics in the public sector.

In order to reduce corruption risk among judges, the budget for salaries increased by more than LVL 1 million (EUR 1 579 780). Training on the code of ethics was carried out for 50 judges. 160 judges were trained in anti-corruption issues and transparency in courts was increased with the establishment of the court information internet portal.

While public awareness is generally rising, continued efforts are needed to increase awareness among the law enforcement bodies, the business sector and the community in general. Continued attention should be paid to training of public officials, in central and local agencies, including specific measures to minimise the risk of corruption opportunities in the public procurement area.

Latvia continues to participate in the Council of Europe Group of States against Corruption (GRECO). Following GRECO's evaluation report of May 2002, Latvia can be regarded as having implemented eight out of the 15 specific recommendations made by GRECO. While the respective long-term tasks have been included in the national programme for preventing and combating corruption, Latvia needs to continue work concerning recommendations such as strengthening the anti-corruption power of the State Revenue Service regarding banking institutions, enforcing respective legislation particularly regarding investigations, monitoring of police actions, strengthening of co-operation and co-ordination role of the Prosecutor General Office, awareness raising about the witness protection programme, reinforcing efforts in the field of public procurement at all levels and establishing of guidelines for lifting of immunity by Parliament, including of judges. Latvia is to present a report to GRECO on the implementation of the recommendations before end of 2003.

Latvia has ratified the relevant Council of Europe Conventions, with the exception of the Civil Law Convention on Corruption which was approved by the government in October 2002). Latvia participates in the Baltic Anti-Corruption Initiative (BACI), which is supported by the OECD Secretariat.

1.4. Translation of the acquis into Latvian

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 of the translations and of their publication, it falls to the acceding states to produce the translations and to ensure a thorough legal and linguistic revision.

The performance of the Latvian authorities responsible for translation the acquis has been constantly improving since the finalisation process started. Both the numbers of acts provided for finalisation as well as the numbers of acts finalised by the EU institutions seem to be within a safe range according to the Commission's schedule. The production of finalised texts has been impeded by an evolving terminology, but is approaching the figure of 30%. Even though it is vital to keep a vigilant approach to the evolution of the present trend, prospects are reasonably encouraging. Latvian legal terminology has undergone a major change over recent months. However, a stable phase seems to have been attained with the collaboration of all the major partners concerned, including the Latvian Academy of Sciences.

The present flow must be at least maintained to ensure the timely publication of the Special Edition of the Official Journal in Latvian by accession.

2. The chapters of the acquis

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

Chapter 1: Free movement of goods

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

The horizontal and procedural measures necessary for the administration of the Community product acquis in the new approach sector are in place. Legislation has been transposed and is in line with the acquis. The implementation structures for standardisation, metrology, accreditation, conformity assessment and market surveillance are all in place. Training programmes being carried out by these bodies should ensure their operational efficiency by the date of accession. Latvia's standardisation body applied for CEN and CENELEC membership and expects to be member by the end of 2003.

Latvia has transposed all of the sectoral legislation under the new approach and in general the legislative transposition has been found to be in line with the acquis.

As regards the old approach directives, Latvia has transposed most of the acquis in these product sectors following the adoption of legislation aiming at alignment in the areas of legal metrology and pre-packaging, chemicals, cosmetics, motor vehicles, glass, textiles, footwear and wood. Transposition of the acquis on pharmaceutical products for human and veterinary use remains partial. Latvia has taken the steps necessary to ensure the creation, reinforcement, and operational capacity of the institutions required to manage the acquis regarding the sectors covered by old approach directives. Having recognised that the identification of "new" chemical substances on its market is a matter of priority, Latvia should provide for the appropriate notification of such substances in accordance with the acquis.

As regards foodstuffs, Latvia needs to further transpose the foodstuffs acquis adopted from 2001 onwards. Latvia also still needs to transpose legislation on irradiation. The legislation in the field of particular nutritional uses, contact materials and official control need to be further amended. Further attention is required as regards the strengthening of administrative capacity, in particular inspection activity should be increased, adequate sampling programmes should be developed and performed, and new analytical methods should be implemented. Latvia has made adequate progress in its preparation for future membership of the Rapid Alert System for Foodstuffs and Feed. More efforts are needed to ensure appropriate control of genetically modified and novel food. Latvia needs to proceed to implementing the action plan for implementing Hazard Analysis Critical Control Points (HACCP) principles. Particularly important is the training of inspectors to audit the implementation of HACCP principles and the establishment of Guides to Good Hygiene Practice. Aspects of food safety are also covered under Chapter 7 - Agriculture.

In the field of public procurement, Latvia's legislation is largely in line with the acquis. The amendments, which entered into force in July 2003, brought significant progress to the legislation covering classical sectors. However, some additional adjustments are still required, notably with respect to thresholds and several exceptions. The legislation covering utilities also needs to be amended, in particular as regards coverage and publicity. The Procurement Supervision Bureau has been established and is operational. However, administrative structures need to be further strengthened in order to comply with the requirements of the acquis.

In the non-harmonised area, the screening of Latvian legislation possibly in contradiction with the principle of free movement of goods is ongoing. This screening must be completed and the identified barriers must be removed, in particular as regards the licensing systems applicable to alcohol, tobacco products and fuel. Latvia still has to implement the principle of mutual recognition. The acquis as regards arms control has largely been transposed, even if some clarifications are still needed. The acquis regarding cultural heritage objects has been transposed with the adoption of the regulation on the return of unlawfully exported art and antique. Latvia still has to implement the EU rules on control of product safety at external borders and efforts in this area will have to be stepped up to ensure an effective system of safety controls as of accession.

Conclusion

Latvia is essentially meeting the requirements for membership as regards the horizontal and procedural measures necessary for the implementation of Community legislation in the new approach sectors and the new approach sectoral legislation. Once the remaining work is completed, Latvia should be in a position to implement this acquis from accession.

Latvia is partially meeting the requirements in respect of the old approach sectoral legislation, public procurement and the non-harmonised area. Certain aspects of the old approach legislation must still be transposed, in particular as regards 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. Latvia must pay particular attention to abolishing the identified barriers to trade and to completing the alignment with EC rules on public procurement. Enhanced efforts are also needed to ensure the implementation and enforcement of the principle of mutual recognition.

Chapter 2: Free movement of persons

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

In the field of mutual recognition of professional qualifications, Latvia's legislation is not in line with the acquis. Legislation on the general system of recognition remains to be amended. Moreover, further legislative work is necessary in the form of the adoption of implementing regulations. The implementation of the relevant sectoral legislation on the recognition of qualifications of doctors, dentists, general care nurses, midwives, veterinary surgeons, pharmacists and architects is deficient and urgently needs to be improved. Furthermore, legislation concerning lawyers and commercial agents also shows substantial shortcomings. The necessary implementing administrative structures are in place but need to be strengthened.

In the area of citizens' rights legislative alignment has been largely completed, except on legislation on the right to participate in municipal and European Parliament elections. The main administrative structures for implementation are in place.

As for 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 Latvia to their labour markets. These arrangements may continue up to a maximum of seven years. Legislative requirements on language proficiency and their implementation must be in full respect of the principles of justified interests, proportionality and non-discrimination and can only be applied in very exceptional circumstances, on a case by case basis. Latvia's legislation in the area of free movement is in line with the acquis.

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.

Conclusion

Latvia is essentially meeting the commitments and requirements in the area of citizens' rights, free movement of workers and co-ordination of social security systems. Some adjustments need to be made as soon as possible to the legislation on foreigners to allow EU citizens to participate in municipal and European elections of June 2004. The ongoing measures to ensure adequate administrative capacity in these areas should continue.

The requirements relating to the mutual recognition of professional qualifications are only partially met. In order to complete preparations for membership in this area, Latvia must substantially enhance its efforts to implement the relevant legislation as regards pharmacists and architects. Latvia also has to reinforce its administrative capacity to implement the acquis on mutual recognition of qualifications.

The implementation of the legislation on the general system directives, lawyers, commercial agents, and on mutual recognition and minimum standards of training for the healthcare professions is substantially deficient and gives rise to serious concern. Unless immediate remedial action is taken across an important and extensive range of issues, Latvia 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.

In the field of the right of establishment and the freedom to provide non-financial services, Latvia needs to complete the screening for obstacles caused by legal and administrative restrictions, and those obstacles identified must be removed upon accession in order to comply with the principle of free provision of services. In this context, amendments to the Law on security services remain to be adopted. The distinction between economic operators providing services temporarily in Latvia and those established permanently should be reflected in the Latvian legislation in order to ensure the free provision of cross-border services.

In the field of financial services, Latvia has completed the legislative alignment with the acquis in the banking sector. Latvia has committed itself to ensuring full application of the acquis in respect of deposit-guarantee schemes by the end of 2007, in accordance with the transitional arrangement it has been granted.

As regards the insurance sector, core-provisions on life and non-life insurance are transposed. Latvia must still adopt the legislation on reinsurance and insurance against civil liability for inland motor vehicles. The procedure for Latvia becoming a signatory of the 'green card' Multilateral Guarantee Agreement, as foreseen in the 1st motor vehicle directive, still needs to be finalised and efforts should be made to cope with the responsibilities linked to this status.

In the field of investment services and securities markets, Latvia still has to transpose substantial parts of the Investment Services directive, as well as one of the recent directives on Undertakings for Collective Investment in Transferable Securities. Further legislative amendments are still needed, in particular regarding the transposition of the acquis on settlement finality in payment and securities settlement systems. Latvia has committed itself to ensuring the full application of the acquis in respect of investor compensation schemes by the end of 2007, in accordance with the transitional arrangement it has been granted. The Financial and Capital Market Commission essentially has the required infrastructure and human resources to deal with the acquis-related tasks as a unified autonomous supervisory authority for the financial sector. The directive on financial collateral remains to be transposed.

Concerning the protection of personal data and the free movement of such data, the recent amendments to the law on personal data protection only tackled a limited number of outstanding issues. Latvian legislation is thus not in line with the respective acquis regarding important data protection provisions. The lack of sufficient independence needs still to be addressed.

As regards information-society services, Latvia's legislation is broadly in line with the acquis. However, the more recent acquis on electronic commerce and transparency remains to be transposed and implemented before accession. The administrative structure still needs to be established, and the human resources necessary for effective implementation and enforcement of the acquis need to be allocated.

Conclusion

Latvia is essentially meeting the requirements for membership and is expected to be in a position to implement the acquis in the area of banking by the time of accession. It should complete preparations in this sector.

Latvia is partially meeting the requirements for accession in the areas of insurance, investment services and securities markets, as well as in the field of the protection of personal data and information-society services. In order to complete preparations for membership, a number of major directives remain to be properly transposed in these areas. This work must now be accelerated. Enhanced efforts are also needed to remove all administrative and legal restrictions on the right of establishment and the freedom to provide non-financial services.

Chapter 4: Free movement of capital

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

In the area of capital movements and payments, Latvia is to a large extent in line with the acquis, but a few further measures remain to be taken. It still has to remove restrictions concerning citizenship and language requirements in the Law on security services. With regard to two funds administering the compulsory civil liability insurance for motor vehicles, Latvia still needs to adopt the legislation on investment conditions in order to comply with the acquis. Latvia must liberalise the real estate transactions not covered by transitional arrangements and adopt the necessary amendments to bring the regime of taxation of companies' dividends in line with the acquis. A new law dealing with privatisation has been adopted.

In accordance with an agreed transitional arrangement, Latvia will remove 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, Latvia is completing its legislative alignment while most of the implementing structures are in place and function adequately.

In the area of fight against money laundering, Latvia is in line with the acquis. In terms of implementing structures, the financial intelligence unit has to continue to be further strengthened both in terms of staff and equipment, especially to maintain the security of data and premises (see also chapter 24 - Justice and home affairs).

Conclusion

Latvia is essentially meeting the requirements for membership and should be in a position to implement the acquis in the area of payment systems and the fight against money laundering from accession. A limited number of specific issues will still need to be addressed in these areas before accession. Latvia must continue to reinforce its administrative capacity to implement the acquis on money laundering.

The commitments and requirements in the area of capital movements and payments have been partially met. In order to complete preparations for membership, Latvia has to eliminate all remaining restrictions to free movement of capital.

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, Latvia's legislation is largely in line with the acquis. Latvia committed itself to alignment with the acquis by 1 January 2003, but delays have occurred as regards inter alia the implementation of the Commercial Law including smooth completion of the re-registration process. As regards administrative capacity, further efforts are still needed. Co-operation between the State Enterprise Register, the State Revenue Service, the State Insolvency Agency and Law enforcement institutions needs to be strengthened.

With regard to accounting, Latvia's legislation is largely in line with the acquis. However, further amendments to the Law on annual accounts of undertakings and to the Law on consolidated annual accounts remain to be adopted to allow fair value accounting, including derivatives in consolidated and individual annual accounts. The administrative structures are adequate.

In the field of protection of intellectual and industrial property rights (IPR), on copyright and related rights Latvia's legislation is meeting the majority of the commitments. However, important parts of the recent directive on copyright in the information society remain to be transposed. The acquis on the legal protection of designs and on the legal protection of biotechnological inventions remains to be transposed.

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

As regards enforcement of IPR, administrative structures are in place but need to be strengthened. Training especially of judges and prosecutors needs to be intensified. Staffing has been increased and training carried out, but there remains a lack of resources. Further efforts are needed especially to cope with the high levels of piracy in the sectors of music, videos and software. Better co-ordination among enforcement bodies (in particular customs, police and the judiciary) needs to be pursued. The new Law on Criminal Procedure, which should help to make judicial enforcement in IPR-related cases more effective, still needs to be adopted.

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

Conclusion

Latvia is essentially meeting the requirements for membership, and is expected to be by accession in a position to implement the acquis, in the areas of company law and accounting, and the Regulation replacing the Brussels Convention and the Rome Convention. The transposition of the company law and accounting acquis will need to be 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 in particular with respect to the information society rules. Although the legislation is mostly in line, enhanced efforts must be made to strengthen enforcement of intellectual and industrial property rights. Better co-ordination among enforcement bodies is required, training of enforcement bodies is needed (mainly, customs, police and judiciary) and the efficient functioning of the 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, Latvia has adopted legislation containing the main principles of Community anti-trust rules as regards restrictive agreements, abuse of dominant position and merger control. However, further implementing legislation still needs to be adopted, primarily in relation to the policy represented by the three EC block exemptions for vertical and horizontal agreements. Preparations should also be made for the application of the EU's new procedural regulation.

Latvia has the necessary implementing structure in place. However, priority needs to continue to be given to increasing the level of resources of the Competition Council, including its investigative Competition Bureau. Efforts must be stepped up to enhance the competence of staff, as well as to decrease its turnover rate. The proper functioning and independence of the Council in its decision-making capacity must still be ensured (including the appointment of all five members). Further efforts are needed to raise awareness of anti-trust rules of all market participants and to build up a credible and transparent competition culture. Special training for judges should be further developed.

The enforcement record is generally satisfactory. However, in order to ensure further strengthening, priority needs to be given to cases, which most seriously distort competition. Furthermore, more deterrent sanctions should be imposed.

In the field of state aid, Latvia has adopted state aid rules covering the main principles of the acquis. A new State aid control Law has entered into force taking into account recent developments of the acquis. As regards the legislation on Special Economic Zones and Free Ports, Latvia has made further amendments to its legislation bringing it closer in line with the acquis. The necessary implementing structures are in place, and the State Aid Surveillance Commission and its secretariat, the State Aid Control Department of the Ministry of Finance, are functioning well. Further efforts are needed to raise awareness of state aid rules among all market participants and aid grantors. Latvia must also pay further attention to training the judiciary.

The enforcement record is generally satisfactory. Latvia should continue to ensure that all aid measures are monitored and controlled.

Conclusion

Latvia is essentially meeting the commitments and requirements arising from the accession negotiations in the state-aid area and is expected to be in a position to implement this acquis from accession. In completing preparations for membership, Latvia must continue to develop a track record of proper application and enforcement of state aid legislation.

Latvia is meeting the majority of the commitments and requirements in the area of anti-trust. In order to complete preparations for membership, Latvia must step up its efforts to strengthen the administrative structures needed to implement the anti-trust acquis more effectively. Latvia should complete the legislative fine-tuning that will enable such strengthening of the enforcement record.

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 Rural Support Service has been assigned, formally, as a Paying Agency to be responsible for the administration of national and EU support to rural areas, agriculture and forestry. A substantial amount of work remains to be done (such as agreements with delegated bodies, written procedures, development of IT systems) if Latvia is to have a functioning Paying Agency by the date of accession.

With regard to the Integrated Administration and Control System (IACS), Latvia has made good progress so far, but much remains to be done if Latvia is to have a fully functioning IACS by accession. Particular attention should be given to ensuring that the IT software is ready according to the timetable.

The legal framework concerning trade mechanisms still needs to be adopted. The main administrative institutions concerned are the Rural Support Service, the Customs Board and the Food and Veterinary Service. Administrative structures and procedures remain to be completed. Accelerated efforts are required in the customs field.

The administrative structures concerning quality policy have been put in place. The Food and Veterinary Service is expected to perform the state supervision and handling of organic farming food. Latvia has met the commitments and requirements arising from the accession negotiations in the area of 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 in line with the acquis at the time of accession.

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

Common market organisations (CMOs)

The Rural Support Service is responsible for implementing the acquis in the field of arable crops. Further progress is required on intervention centres and private storage.

Most implementing legislation for marketing standards of fruit and vegetables has been adopted. However, legislation on the control of EU marketing standards and on procedures for the recognition of producers' organisations as well as control of operational fund remains to be adopted. The mechanisms for reporting entry prices remain to be set up.

Legislation concerning sugar has been transposed partly. Further rules are necessary for full harmonisation of the quota system, in particular the super levy and the communication system. A national quota system has been established (2000). The structures responsible for the administration of the common market organisation have been designated but need further upgrading for proper management of the CMO. Procedures for the different mechanisms of the CMO of sugar are established to a limited extent. Inter-professional agreements need to be developed.

In the area of wine and alcohol, the CMO for wine remains to be fully set up. Legislation regarding "champagnised wines" remains to be brought in line with the acquis. Legislation on labelling of wines has to come into force. Ex officio protection remains to be ensured effectively.

The implementing legislation for the main mechanisms of the common market organisation for milk, including the allocation and administration of milk quotas, remains to be adopted. Most mechanisms of the common market organisation for milk and milk products as well as the quota system remain to be put into place. The Rural Support Service is to be the main body responsible for the implementation of the common market organisation together with the Breeding Information Data Processing Centre managing mainly the milk quota system. The system has to cover all producers and the direct sellers need to be identified and covered. There is a need to develop an information system accessible to all participants.

Legislation remains to be adopted in the beefmeat and sheepmeat sector. In particular, the adoption of legislation on carcass classification and its practical implementation has been significantly delayed. Price reporting cannot be correctly implemented as long as carcass classification is not carried out according to EU requirements. Concerning pigmeat, administrative structures for carcass classification and the price reporting system remains to be put into place by the date of accession.

As far as eggs and poultry are concerned, administrative structures regarding marketing standards, price reporting, and the reporting of production statistics remain to be put into place by the date of accession.

Rural development

Some implementation procedures for rural development measures remain to be completed. The Rural Support Service will be responsible for the administration of all EU financed rural development. Additional staff has been recruited, both centrally and in the regional offices to reinforce those already operating the SAPARD programme. The formal draft rural development plan for EAGGF Guarantee expenditure has been submitted to the Commission.

Veterinary and phytosanitary issues

A special effort needs to be made as regards legislative alignment in the veterinary field as the level of transposition to date is relatively low.

The transposition of legislation on transmissible spongiphorme encephalopathies (TSEs) and animal by-products has been partly achieved. TSE surveillance is not yet in compliance; in particular, testing remains insufficient. The removal of SRM is close to compliance. The collection and treatment of animal waste still not in compliance, mainly because there is no system for the collection of cadavers and the rendering and incineration plant are not yet in place. There is a total feed ban in place but is not yet properly controlled.

The transposition of legislation on the veterinary control system in the internal market has been largely adopted but some significant adjustments are still required. Administrative structures need to be strengthened. Latvia has not joined the computerised network linking veterinary authorities, ANIMO. The legislation transposing the acquis concerning the identification and registration of animals is in place with the exception of sanctions and control issues. The bovine ID and registration database is in place. The transposition of the acquis on the financing of veterinary inspections and controls has been partially achieved. Implementation has not taken place yet. As regards veterinary checks on third country imports and rules for imports, legislation concerning intra-community trade and imports from third countries remains to be finalised. Only two Border Inspection Posts (no ports included) are foreseen to be in compliance by the date of accession.

Some legislation still needs to be transposed in the area of animal disease control measures. Latvia has joined the Animal Disease Notification System (ADNS). The contingency plans for classical swine fever, foot and mouth disease, Newcastle disease and avian influenza have been provided. Legislation on trade in live animals and animal products remains to be transposed

Legislation on public health protection has been largely transposed, except in the poultry meat and egg products sectors. Latvia has been granted a transitional arrangement until January 2005 for 29 fish processing establishments and 11 milk processing establishments and until January 2006 for 77 meat establishments. Products from these establishments will be restricted to the national market. The review plan on upgrading the establishments has been provided, however the situation of certain establishments needs to be reassessed. The system of raw milk quality control is not in full compliance with EU requirements.

The acquis concerning common measures (including zoonoses) has been transposed both for zoonoses and residues. Attention must be given to improving the implementation of controls in relation to residues and veterinary medicinal products. The diagnostic methods applied to all samples at animal level collected for monitoring purposes should be adjusted to comply with international recognised methods and standards.

Important elements of EU legislation have not yet been transposed in the area of animal welfare, notably the height of battery cages, space allowances for laying hens and the tethering of calves. The administrative structures and the necessary capacity are in place both at central and local levels. Stunning remains to be improved. Further training in the application of the new legislation is also needed.

In the field of zootechnics, the monitoring of transposition needs to be completed. The maintenance of herd books by breeding organisations or specific ministries/departments has also to be monitored.

Despite the fact that the law on animal feeding stuffs is already in force, some parts of the acquis on animal nutrition remain to be transposed and fully implemented.

The transposition of phytosanitary legislation is at a rather advanced stage although it is not complete. In the field of quality of seeds and propagating material, the legislation that has been transposed remains to be implemented. The national seed-testing laboratory has been accredited by the International Seed Testing Association. Concerning harmful organisms (plant health), the legislation that remains to be transposed concerns the protected zones and the notification of interceptions. The registration of operators has been finalised. For plant protection products, the legislation concerning maximum residue limits remains to be transposed.

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

A new Food Council with representatives from several ministries now has a co-ordinating role in relation to food safety issues. Aspects of food safety are also covered in Chapter 1.

Conclusion

Latvia is essentially meeting the commitments and requirements arising from the accession negotiations, among the horizontal issues as regards quality policy and organic farming, the Farm Accountancy Data Network (FADN) and state aid; among the common market organisations (CMOs) as regards arable crops, fruit and vegetables, wine, sheep and pigmeat and eggs and poultry; and as regards rural development. In the veterinary field, the requirements are essentially met as regards zootechnics and animal nutrition. Subject to good progress being maintained in these areas, Latvia should be in a position to implement the acquis from accession.

Latvia is partially meeting the commitments and requirements for membership as regards the horizontal issues of the Paying Agency, the Integrated Administration and Control System (IACS), trade mechanisms, the CMOs for sugar, milk and beefmeat,; in the veterinary field as regards veterinary control systems in the internal market, public health protection (for the upgrading of agri-food establishments), trade in live animals and animal product, animal disease control measures, common measures, animal welfare and phytosanitary issues. In the area of beefmeat, significant efforts still need to be made in order to rapidly adopt and implement the necessary legislation and to correctly implement price reporting. Unless efforts are accelerated in these areas, there is a risk that functioning systems will not be in place by accession.

There are serious concerns about Latvia's preparations in the area of TSEs and animal by-products as regards the setting up of a system of collection of cadavers and the building of rendering and incineration plants. Substantial additional efforts are urgently needed in this area. Unless immediate remedial action is taken, Latvia 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 Law on Fisheries has been amended in line with the acquis. Legislation on commercial fishing is in line with the acquis although some amendments to the implementing legislation on resource management and inspection and control of fishing are still needed. Legislation on fleet registration and safety requirements has not yet been adopted. A fishing vessel registration database has been established at the National Board of Fisheries. The data on fishing vessels with fishing licences, operating in the Baltic Sea (currently 197 vessels) and high seas (9 vessels) for commercial purposes, is available. The rate of the re-measurement of fishing vessels is currently 37%, but re-measurement should be completed upon accession. As agreed in the accession negotiations, there will be a specific management regime for the Gulf of Riga. Enhancement of administrative capacity continues while current staffing levels and co-ordination among the various institutions are not yet satisfactory. This is particularly relevant as regards human resources available for control and enforcement. The control system is too dependent on a category of staff (landing controllers) with inadequate powers of enforcement. Control equipment is lacking. The satellite monitoring of fishing vessels is in place and the Fishing Vessels Monitoring Centre (FMC) is operational. According to the latest figures, all vessels above 24 metres in length are equipped with satellite tracking devices (Vessel monitoring System or VMS). The integrated control and information system in fisheries (ICIS) has been established and is operational. However, routines for the collection of data need to be improved.

In the area of structural actions, the chapter on fisheries in the Latvian Single Programming Document (Development Plan) has been submitted to the European Commission. Additional staff needs to be allocated to the Rural Support Service of the Agriculture Ministry for the administration of the Financial Instrument for Fisheries Guidance (FIFG).

Regarding market policy, the amendments to the Food Circulation Monitoring Law are in line with the acquis. The implementing legislation stipulating the recognition criteria, the recognition procedure and control of operations of producer groups, together with the legislation concerning marketing standards, fishery freshness, size criteria and aquaculture remains to be transposed. The administrative structures in the area of producers' organisations have not yet been established.

As regards state aid to the fisheries sector, Latvia allocates aid with the annual state support programme for agriculture. The aid measures have to be brought into conformity with the acquis by accession.

Concerning international fisheries agreements, Latvia has reached a solution with Estonia, Lithuania and Russia on the division of the block quotas of the North Atlantic Fisheries Organisation (NAFO). Latvia has not yet withdrawn from the International Baltic Sea Fisheries Commission (IBSFC).

Conclusion

Latvia 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 structural actions, state aid and international fisheries agreements. However, some adjustment is needed in order to reach an adequate level of administrative capacity in the area of structural actions.

Latvia is meeting the majority of the commitments and requirements for membership in the area of market policy. Attention must be given to the adoption of implementing legislation related to the creation of producers' organisations. As regards resource and fleet management, and inspection and control Latvia is partially meeting the commitments and requirements. In particular, enhanced efforts are required in the adoption of the legislation on fleet registration and safety requirements. Special attention must be given to the strengthening of the system of control of landings and follow-up on infringements.

Chapter 9: Transport

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.

As far as the trans-European transport networks are concerned, the necessary administrative capacity (in both qualitative and quantitative terms) needs to be reinforced beyond its present level in order to prepare for the significant investments that will be needed in transport infrastructure .

Within the land transport sector, the transposition of the road transport acquis continues. The framework legislation has been transposed. Some implementing legislation, especially in the social and technical fields, remains to be adopted. Two transition periods have been granted to Latvia in this area. The installation of tachographs for vehicles registered before January 2001 and operating exclusively on the domestic market is to be accomplished before January 2005, and the introduction of the financial standing criterion for domestic road transport operators needs to be completed by January 2007. Latvia 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). Administrative capacity is essentially good, although improvement is required in several areas such as roadside technical inspections, dangerous goods transport and social regulations. However, as regards roadside checks and roadside enforcement, Latvia still has to implement its concept on control in road transport. In particular the staffing structures and the co-ordinating role of the Ministry of Transport need to be clarified, and adequate numbers of specialist roadside units need to be put in place.

In the field of rail transport, transposition is taking place according to schedule, but the interoperability acquis remains to be transposed and existing legislation needs to be modified regarding charges, cross-subsidy and licensing. In the framework of the ongoing reorganisation process, the capacity of the Railway Inspectorate and the Railway Administration, as well as the relevant department of the Ministry of Transport, should be strengthened further. However, 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 independence of the infrastructure allocation and charging function remains to be ensured.

On inland waterway transport, legislative alignment is completed. Administrative structures in this area are in place and satisfactory.

In the area of air transport, the relevant legislation has been transposed and is essentially in line with the acquis, but some modifications are needed, notably with regard to ground handling. Implementing legislation is still being adopted. Administrative capacity needs further strengthening. Full membership of the Joint Aviation Authorities remains to be achieved through the implementation of the Action Plan. Enhanced efforts are needed in order to become a full member before accession as required by the acquis and irrespective of the setting up of the European Aviation Safety Agency (EASA).

In the field of maritime transport, framework legislation is now in place and in line with the acquis. However, the adoption of implementing legislation remains to be completed, notably as regards Flag State and Port State control, Vessel Traffic Management Information System (VTMIS), system of mandatory surveys for the safe operation of regular ro-ro ferry and high-speed passenger craft services, marine equipment and fishing vessels The reinforcement and reorganisation of the maritime administration must be pursued and must lead to a more effective oversight of the work of classification societies, to an upgrading of Port State Control and to a better division of tasks between the Maritime Department and the Maritime Administration. According to statistics for 2002 under the Paris Memorandum of Understanding, the percentage of Latvian flag vessels detained following Port State control was 6.25%. This compares with an average for EU-flagged vessels of 3.5% in 2002. The Latvian flag has now been moved from the black list to the grey list of the Paris MOU.

Conclusion

Latvia is essentially meeting the commitments and requirements arising from the accession negotiations in the areas of trans-european transport networks, road transport, rail transport, inland waterway transport and maritime transport, and Latvia is expected to be in a position to implement the acquis in these areas from the time of accession, provided that the current pace of progress is maintained. In completing preparations for membership, Latvia must complete the transposition of the railway acquis, in particular as regards interoperability. In the areas of road and maritime transport, Latvia needs to adopt implementing legislation and further reinforce its administrative capacity.

Latvia is meeting the majority of the commitments and requirements arising from the accession negotiations in the area of air transport. Latvia needs to strengthen administrative capacity and enhanced efforts are required in order to become a full member of the Joint Aviation Authorities before 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, with regard to VAT Latvia should align its definition of taxable persons as concerns public authorities and the place of taxation, introduce the special scheme for investment gold and align the special scheme for second-hand goods. Latvia needs to pay particular attention to the transposition of the intra-Community regime. It should also eliminate the numerous and significant discrepancies existing in respect of the scope of exempt transactions and reduced VAT rate, except in the areas where it has obtained transitional periods (see below). Furthermore, Latvia needs to align the discrepancies concerning the provisions for gifts of minor value, freight services, and the right of deduction for capital goods.

Transitional periods were granted as concerns the exemption from VAT rate on the supply of heat energy for private households (until 31 December 2004), and the application of simplified procedures for charging VAT on timber transactions (for one year after accession). Latvia has also been granted derogations as concerns the continued application of a VAT registration and exemption threshold of EUR 17857 VAT for small and medium-sized enterprises, and the application of a VAT exemptions on international passenger transport, and on services supplied by authors, artists and performers. As regards the necessary administrative structures, Latvia should accelerate its efforts to modernise and enhance the efficiency of the State Revenue Service, which suffers from a lack of human resources, in particular as concerns control and audit functions. Priority should be given to improving staff policy and to enhancing the collection, control and audit functions. Latvia's implementation capacity is seriously hampered by delays in information technology and interconnectivity (see below).

As concerns excise duties, in order to complete alignment Latvia should align the structure of the rate on beer, the scope of exemptions, the duty rates on mineral oils and tobacco products, introduce the provisions for travellers' allowances, and extend the suspension movement regime to intra-community transactions. Latvia also has to eliminate some remaining discrepancies with the acquis, concerning the definition of alcoholic products, certain mineral oils, and cigars and cigarillos. The gradual increase of excise duties on cigarettes is proceeding according to schedule, in order to reach the minimum rate level on 31 December 2009, as agreed in the accession negotiations. Latvia has taken the necessary steps to put into place the required administrative structures to apply and implement effectively the acquis in the area of excises.

In the area of direct taxation, Latvia needs to transpose the directives on interests and royalties and on the taxation of savings income. In order to comply with the principles the Code of Conduct for Business Taxation, Latvia should improve transparency of its legislation on special economic zones and free ports. The necessary administrative capacity is in place, however it needs to be further strengthened especially regarding control and audit functions.

On administrative co-operation and mutual assistance, further steps need to be taken. A Central Liaison Office (CLO) was set up and is in the process of being staffed. The Excise Liaison Office (ELO) remains to be established. As concerns the setting up of information technology system, Latvia has recently procured an external VAT information exchange system (VIES) system, trying to limit previously accumulated delays. However, continued serious concerns remain that the Latvian VIES system could not be fully operational by the date of accession. The main reasons are that the systems implementation has not started during the reference period and the system procured is not yet fully tested. Latvia must focus urgent attention on accelerating efforts in this area.

Conclusion

Latvia is essentially meeting the commitments and requirements arising from the accession negotiations on excise duties and direct taxation and is expected to be ready to implement the acquis as of accession. Latvia needs to adopt legislation to complete alignment in these areas, as well as to strengthen its tax administration.

In the area of VAT, Latvia is partially meeting its commitments. Latvia must urgently accelerate its efforts to align its legislation. Unless significant additional efforts are made there is a risk that Latvia will not be in a position to fully implement the acquis in this area. Particular attention must be given to the full alignment of the scope of exempt transactions and the reduced rates, as well as to the introduction of the intra-Community regime. As for administrative capacity, Latvia must accelerate efforts to modernise its structures, in particular as concerns collection, control and audit functions and personnel policy.

In the area of administrative co-operation and mutual assistance there remain serious concern as regard the implementation of the information technology systems, and in particular the interconnectivity to the VIES system, by accession. Latvia must focus urgent attention on accelerating efforts in this area.

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 Latvia 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.

In the area of prohibition of direct financing of the public sector Latvia has met the commitments and requirements arising from the accession negotiations, and is in a position to implement the relevant acquis as from the date of accession.

In the area of prohibition of privileged access of the public sector to financial institutions, Latvia has met the commitments and requirements arising from the accession negotiations, and is in a position to implement the relevant acquis as from the date of accession, since the rules of investment of pension capital abroad included in the Law on Private Pension Funds were amended.

In the field of independence of the national central bank, legislation is in place and in line with the acquis. However, the issue of personal independence of members of the central bank remains to be solved. A possibility of judicial review about the decision of dismissing members of the decision making bodies - dealing with ESCB related tasks - should be provided for. The necessary administrative structures are in place and function adequately.

Conclusion

Latvia has met the commitments and requirements arising from the accession negotiations concerning the prohibition of direct financing of the public sector and the prohibition of privileged access of the public sector to financial institutions and will be in a position to implement this acquis from accession. Latvia is essentially meeting the requirements arising from the negotiations in the area of independence of the national central bank and is expected to be able to implement the acquis as of accession. Latvia should adopt one final amendment to the Central Bank Law concerning the personal independence of its members.

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, exter