2003 REGULAR REPORT ON BULGARIA'S PROGRESS TOWARDS ACCESSION {COM(2003) 676 final}

A. Introduction

1. Preface

2. Relations between the EU and Bulgaria

Recent developments in bilateral relations

Community assistance

Twinning

Negotiations

B. Criteria for membership

1. Political criteria

1.1 Recent developments

1.2 Democracy and the rule of law

The parliament

The executive

The judicial system

Anti-corruption measures

1.3 Human rights and the protection of minorities

Civil and political rights

Economic, social and cultural rights

Minority rights and the protection of minorities

1.4 General evaluation

2. Economic criteria

2.1 Introduction

2.2 Economic developments

2.3 Assessment in terms of the Copenhagen criteria

2.4 General evaluation

3. Ability to assume the obligations of membership

3.1 Chapters of the acquis

Chapter 1: Free movement of goods

Chapter 2: Free movement of persons

Chapter 3: Freedom to provide services

Chapter 4: Free movement of capital

Chapter 5: Company law

Chapter 6: Competition policy

Chapter 7: Agriculture

Chapter 8: Fisheries

Chapter 9: Transport policy

Chapter 10: Taxation

Chapter 11: Economic and Monetary Union

Chapter 12: Statistics

Chapter 13: Social policy and employment

Chapter 14: Energy

Chapter 15: Industrial policy

Chapter 16: Small and medium-sized enterprises

Chapter 17: Science and research

Chapter 18: Education and training

Chapter 19: Telecommunications and information technologies

Chapter 20: Culture and audio-visual policy

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

Chapter 22: Environment

Chapter 23: Consumer and health protection

Chapter 24: Co-operation in the field of 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

3.2 Translation of the acquis into Bulgarian

3.3 General evaluation

C. Conclusion

Accession Partnership: global assessment

Annexes

Human rights conventions ratified by the candidate countries

Statistical annex

A. INTRODUCTION

1. Preface

In Agenda 2000, the Commission said it would report regularly to the European Council on progress made by each of the candidate countries of Central and Eastern Europe with preparations for membership, and that it would submit its first Report at the end of 1998.

The Luxembourg European Council in December 1997 decided that:

"From the end of 1998, the Commission will make Regular Reports to the Council, together with any necessary recommendations for opening bilateral intergovernmental conferences, reviewing the progress of each Central and Eastern European applicant State towards accession in the light of the Copenhagen criteria, in particular the rate at which it is adopting the Union acquis [...] The Commission's reports will serve as the basis for taking, in the Council context, the necessary decisions on the conduct of the accession negotiations or their extension to other applicants. In that context, the Commission will continue to follow the method adopted by Agenda 2000 in evaluating applicant States' ability to meet the economic criteria and fulfil the obligations deriving from accession."

Consequently, the Commission has published a series of yearly Regular Reports on Bulgaria covering the years 1998 to 2002.

The Thessaloniki European Council in June 2003 concluded that:

"Bulgaria and Romania are part of the same inclusive and irreversible enlargement process. Following the conclusions of the European Council in Copenhagen and depending on further progress in complying with the membership criteria, the objective is to welcome Bulgaria and Romania as members in 2007. [...] Building on significant progress achieved, the Union supports Bulgaria and Romania in their efforts to achieve the objective of concluding negotiations in 2004, and invites them to step up their preparations on the ground. [...] The European Council in December 2003, based on the regular reports from the Commission and the strategy paper, will assess progress achieved with a view to setting out the framework for the conclusion of accession negotiations."

It is therefore appropriate to produce a Regular Report this year on Bulgaria's progress towards accession, on the same basis as in previous years.

The structure followed for this Regular Report is largely the same as that used in previous years. The Report:

- describes the relations between Bulgaria and the Union, in particular in the framework of the Association Agreement;

- analyses the situation in respect of the political criteria set by the 1993 Copenhagen European Council (democracy, rule of law, human rights, protection of minorities);

- assesses Bulgaria's situation and prospects in respect of the economic criteria defined by the 1993 Copenhagen European Council (a functioning market economy and the capacity to cope with competitive pressures and market forces within the Union);

- addresses the question of Bulgaria's capacity to assume the obligations of membership, that is, the acquis as expressed in the Treaties, the secondary legislation, and the policies of the Union. In this part, special attention is paid to nuclear safety standards, which were emphasised by the Cologne and Helsinki European Councils. This part includes not only the alignment of legislation, but also the development of the judicial and administrative capacity necessary to implement and enforce the acquis. The European Council stressed the importance of this latter aspect at its meeting in Madrid in 1995 and on a number of subsequent occasions, most recently in Copenhagen in December 2002. At Madrid, the European Council stressed that the candidate countries must adjust their administrative structures, so as to create the conditions for the harmonious integration of these States. The Copenhagen European Council underlined again the importance of judicial and administrative reform in the candidate countries, stating that this will help bring forward their overall preparation for membership.

This Report takes into consideration progress since the 2002 Regular Report. It covers the period until 30 September 2003. In some particular cases, however, measures taken after that date might be mentioned. It looks at whether planned reforms referred to in the 2002 Regular Report have been carried out and examines new initiatives. In addition, this Report provides an overall assessment of the situation for each of the aspects under consideration, setting out for each of them the main steps still to be taken by Bulgaria in preparing for accession.

For each of the negotiating chapters, this Report provides a summary evaluation of the extent to which commitments made in the negotiations have been implemented, as well as an overview of transitional arrangements that have been granted. The commitments made by Bulgaria reflect the result of the accession negotiations and, in accordance with the principle of differentiation underlying the negotiation process, may differ from those made by other countries. Where Bulgaria has committed itself to completing specific measures by the time of accession, the Commission assesses the relevant preparatory processes. For chapters on which the accession negotiations continue, and final commitments remain to be defined, an indicative assessment is given of the state of implementation of the commitments that have been made to date.

Depending on further progress in complying with the membership criteria, the objective is to welcome Bulgaria as a member in 2007. The time scale for the implementation of commitments made by Bulgaria takes account of this perspective.

The Report contains a separate section examining briefly the extent to which Bulgaria has addressed the Accession Partnership priorities.

As has been the case in previous Reports, "progress" has been measured on the basis of decisions actually taken, legislation actually adopted, international conventions actually ratified (with due attention being given to implementation), and measures actually implemented. As a rule, legislation or measures which are in various stages of either preparation or Parliamentary approval have not been taken into account. This approach ensures equal treatment for all the candidate countries and permits an objective assessment of each country in terms of their concrete progress in preparing for accession.

The Report draws on numerous sources of information. Bulgaria has been invited to provide information on progress made in preparations for membership since the publication of the last Regular Report. The information it has provided within the framework of the Association Agreement and the negotiations, and various peer reviews that have taken place to assess its administrative capacity in a number of areas, have served as additional sources. Council deliberations and European Parliament reports and resolutions have been taken into account in drafting the Report. [1] The Commission has also drawn on assessments made by various international organisations, and in particular the contributions of the Council of Europe, the OSCE and the international financial institutions, and by non-governmental organisations.

[1] For the European Parliament the rapporteur is Mr Geoffrey van Orden.

2. Relations between the EU and Bulgaria

Recent developments in bilateral relations

Bulgaria has continued to implement the Europe Agreement and has contributed to the smooth functioning of the various joint institutions.

The Association Council met in November 2002. An Association Committee meeting was held in July 2003. The system of sub-committees continues to function as a forum for technical discussions.

The Joint Parliamentary Committee comprising representatives of the Bulgarian and European Parliaments met in April 2003.

An accession roadmap was developed in close consultation with Bulgaria and adopted in November 2002. A revised Accession Partnership was adopted by the Council in May 2003. More details on this instrument can be found in part D of this report.

As a candidate country for accession to the EU, Bulgaria was invited to participate as an observer in the Intergovernmental Conference on the future institutional architecture of the Union.

The share of the European Community in Bulgaria's foreign trade has continued to increase. Turnover in trade with the EC in 2002 was 4% up on 2001 and accounted for 52.7% of Bulgaria's overall trade. In 2002, exports to the EC were 3% up on 2001, accounting for 55.9% (EUR 3.44 billion) of Bulgaria's total export sales. Its main industrial exports to the EC were textiles and clothing, and iron and steel. Bulgaria's main agricultural exports to the EC were cereals, oil seeds and oleaginous fruits, and meat. In 2002, imports from the EC were up by 5% on 2001, accounting for 50.4% (EUR 4.13 billion) of Bulgaria's total imports. Its main industrial imports from the EU were textiles and clothing. Its main agricultural imports were meat, fats and oils, and fruits and nuts.

A new consolidated Additional Protocol on agricultural trade entered into force in June following adoption by the EU Council of Ministers in April 2003. This Protocol, which incorporates the results of the "double profit" negotiations concluded in October 2002 extends the liberalisation process to sectors where market protection has been substantial (e.g. cereals, dairy products, beef and sheep meat) and where Bulgaria has important export interests. It potentially covers trade worth EUR 300 million.

Based on the guidelines for processed agricultural products delivered by the Council in October 2002, several negotiation meetings have already been held with Bulgaria aiming at concluding an agreement before the end of the year.

The free trade agreement on fish and fishery products negotiated between the EC and Bulgaria came into force in March 2003.

In September 2002 the EU adopted definitive safeguard measures on imports of certain steel products, with erga omnes effect. These measures are the absolute minimum necessary to protect EU steel producers from serious injury due to surging imports resulting from US protectionism, culminating in the US safeguard measures of March 2002.

On the basis of a Council Decision of May 1997, modified by a Council Decision of September 2002, and following a technical assessment mission which took place in September 2002, the Commission was mandated to open formal negotiations with Bulgaria on a PECA (Protocol to the Europe Agreement on Conformity Assessment and Acceptance of Industrial Products). Such negotiations have been opened.

Community assistance

Three pre-accession instruments have been financed by the European Community to assist the candidate countries of Central and Eastern Europe with their pre-accession preparations: the Phare programme; SAPARD, which provides aid for agricultural and rural development; and ISPA, which finances infrastructure projects in the fields of environment and transport. The support provided by these programmes is focused on the Accession Partnership priorities, which are intended to help the candidate countries meet the criteria for membership.

The Phare programme allocated commitments of EUR 1.35 billion to Bulgaria during the 1992-2002 period, including EUR 122.9 million in 2002. For the years 2000-2003, total financial assistance to Bulgaria amounted to around EUR 155 million annually from Phare, approximately EUR 55 million from SAPARD, and between EUR 83 and EUR 125 million from ISPA.

Phare provides support for institution building, investment to strengthen the regulatory infrastructure needed to ensure compliance with the acquis, and investment in economic and social cohesion. Phare also helps the candidate countries develop the mechanisms and institutions that will be needed to implement Structural Funds after accession and is supported by a limited number of measures (investment and grant schemes) with a regional or thematic focus.

In addition to its annual Phare allocation, Bulgaria receives additional Phare funding in the framework of the understanding reached in November 1999 on early closure dates for Units 1 to 4 of the Kozloduy nuclear power plant. The agreement makes provision for additional Phare funding of EUR 200 million over the period 2000-2006, subject to certain conditions being met. The funds are used for nuclear decommissioning and associated measures in the energy sector, and are largely managed by the EBRD.

The 2003 Phare Programme for Bulgaria consists of an allocation of EUR 122.9 million for the National Programme complemented by an allocation for nuclear decommissioning. The 2003 Phare programme focuses on the following priorities:

* Political criteria: projects for the Council of Electronic Media, civil society development, Roma health and education, and child welfare and mental health (EUR 9 million)

* Internal market and economic criteria: projects for the State Agency for Metrology and Technical Surveillance, Tourism Agency, cluster approach and food safety (EUR 8 million)

* Meeting other obligations of the acquis: projects for veterinary border control, agriculture, maritime transport, employment, social policy, education, energy and environment (EUR 23 million)

* Justice and home affairs: projects for civil and penal procedures, information technology for judicial reform, police academy, mobile border units and refugees agency accommodation ( EUR 14 million)

* Administrative reform and finance: projects for public administration reform, preparation for Structural Funds institution building, customs and financial control (EUR 19 million)

* Economic and social cohesion: projects for alternative employment, water supply for tourism areas and regional development (EUR 11 million)

An additional EUR 28 million was allocated for cross-border co-operation programmes, mainly for infrastructure projects on Bulgaria's borders with Greece and Romania.

In anticipation of the future EU external borders, an External Border Facility Programme of EUR 3.12 million was allocated in 2003 to prepare new cross-border co-operation programmes from 2004 onwards between Bulgaria and Turkey, Serbia, Montenegro and FYROM.

Bulgaria also participates in and benefits from Phare-funded multi-country and horizontal programmes, such as TAIEX (Technical Assistance Information Exchange Office), the Small and Medium-sized Enterprises Facility, SIGMA (Support for Improvement in Governance and Public Management) and the nuclear safety programme.

Furthermore, Bulgaria currently participates in the following Community programmes and agencies: Civil Protection Mechanism, Culture 2000, Customs 2007, Enterprise and Entrepreneurship, European Environmental Agency, Fiscalis 2007, Leonardo da Vinci II, Media (Plus), Socrates II and Youth. It also takes part in the Sixth Framework Research Programme, including Euratom. Phare helps meet part of the costs of participation in these programmes and agencies. In order to streamline Community legal procedures and thereby facilitate future participation by Bulgaria in Community programmes, a Decision was adopted in November 2002 by the EU-Bulgaria Association Council establishing the general terms and conditions for such participation.

Overall, the impact of Phare has been positive. Effective transfer of know-how, equipment and financial resources has taken place in a number of important fields such as agriculture, public administration, customs, border police, public sector finances and environment.

In Bulgaria, Phare played a particularly important role in the following:

* Minimising the social consequences of economic restructuring by supporting local job creation in former steel and mining regions through a grant scheme worth EUR 12 million. The total of 109 projects implemented in 5 regions of the country resulted in the creation of 2 950 job opportunities, with 20 % of the unemployed retaining their jobs after project completion. In addition, the project was instrumental in creating administrative capacity in the Bulgarian institutions involved for management of Economic and Social Cohesion grant schemes.

* Under a EUR 1.5 million twinning project of the Phare 2001 programme the Bulgarian National Bank (BNB) receives support from the French and the Dutch central banks. The project started in October 2002 and results obtained so far show that it is helping to consolidate BNB's leading role in the development of the banking sector, strengthen its administrative capacity and streamline activities with a view to accession to the European System of Central Banks.

* The implementation of medium-term strategy and restructuring of the Ministry of Finance was supported through technical assistance to the amount of EUR 2.3 million. As a result, a Financial Management Information System was made operational and a Public Finance School was established. Furthermore, the functions of different departments and divisions were clearly defined, the co-ordination within the Ministry was improved and the overall administrative capacity of the Ministry of Finance was enhanced.

The Phare programme permits extended decentralisation of management, which entails waiving the requirement for ex ante approval by Commission Delegations for tendering and contracting. This approach was again underlined in the Roadmap for Bulgaria. For this to be possible strict pre-conditions covering programme management, financial control and structures regarding public finance must be met. An extended decentralised implementation system (EDIS) is to be put in place by the end of 2004 at the latest.

Bulgaria has embarked on the preparation for EDIS in accordance with the four steps outlined in the "Roadmap to EDIS for ISPA and Phare". Bulgaria is starting stage 1, which is expected to be completed by the end of 2003.

The Commission approved the Bulgarian SAPARD programme in October 2000. The indicative allocation from the Community for SAPARD in Bulgaria for 2003 is EUR 56.1 million. The allocation for 2002 was EUR 55.6 million.

The Multi-annual Financing Agreement, which sets out the rules for implementing SAPARD, was signed in December 2000. The Annual Financing Agreement for the year 2003 was signed in July 2003.

Bulgaria was the first candidate country to have its SAPARD Agency accredited and to receive provisional conferral of management. Its initial mandate covered the implementation, on a fully decentralised basis, of three out of eleven measures of the SAPARD programme ("investments in agricultural holdings", "processing and marketing of agricultural and fishery products" and "diversification of economic activities"). In August 2003 the Agency was accredited for the implementation of the following measures: "setting up producer groups", "renovation of villages", "vocational training", "rural infrastructure", "forestry", "technical assistance" and the sub-measure "wholesale markets". With the accreditation for these measures the Agency manages 92% of the amount available for Bulgaria under the programme.

An initial payment of EUR 13 million EU contribution was made to the National Fund in May 2001. Additional payments of EUR 19 million were made for expenditure declared by Bulgaria since the start of the programme until the middle of September 2003 . During this period the SAPARD Agency approved 751 projects, involving around EUR 125.3 million of public support (the EU is contributing EUR 94 million of this amount). Of these projects, 263 have been completed and the total subsidy, EUR 34.7 million (of which the EU contribution is EUR 26 million), has been paid to the beneficiaries.

A Monitoring Committee has been established by the Managing Authority and has met four times. The ISPA programming framework is governed by the environment and transport strategies drawn up by the Bulgarian authorities in agreement with the Commission. These strategies are to be reviewed in 2003. In the case of transport infrastructure, the emphasis is on completing or upgrading the main trans-European networks and developing border connections. Priorities include the upgrading of railway infrastructure along priority sections of TINA (Transport Infrastructure Needs Assessment) corridors so as to permit higher speeds and improve services, and completing the construction and modernisation of major highway sections on the same corridors. In the environmental area, the Bulgarian Government has focused on the improvement of water quality via investments in waste water treatment, sewerage systems and water supply. Urban waste management and air pollution are also priority areas.

Six environmental projects and one transport project were approved in 2002.

Implementation of ISPA projects in Bulgaria is progressing slowly, reflecting the size and complexity of the projects and the limited capacities of some of the implementing agencies. Technical assistance with implementation is included in ISPA project costs, while wider ranging measures to reinforce the bodies concerned are also underway. Various assessments of capacity weaknesses have been carried out. The audit of financial management and control systems carried out in December 2001 was followed up in October 2002 and in June 2003. Recommendations for strengthening structures and improving procedures have been made and in some cases implemented by the Bulgarian authorities. An adequate pipeline of projects is being prepared so as to be ready to take up the full future allocation of ISPA resources. Technical assistance from ISPA is available for all preparatory stages of projects, including technical, financial and economic feasibility studies, and environmental assessments. A strategy for the extended decentralisation (EDIS) of ISPA implementation was adopted in 2002 and arrangements for the first stage are currently in progress.

The full allocation for Bulgaria was committed in 2000 and 2001 (EUR 104 million and EUR 106.8 million respectively), but there was a small shortfall in 2002 as a result of late and relatively weak applications for assistance, especially in the environment sector. The budgetary commitment in 2002 was EUR104.5 million and the indicative allocation for 2003 will be around EUR 110 million.

Twinning

One of the main challenges still facing the candidate countries is the need to strengthen their administrative and judicial capacity to implement and enforce the acquis. As of 1998, the European Commission began to mobilise significant human and financial resources to help them with this process, using the mechanism of twinning administrations and agencies. The Commission further strengthened this emphasis on institution building through the action plans for strengthening administrative and judicial capacity and through the elaboration of a roadmap for Bulgaria.

The twinning process, funded under Phare, makes the vast body of Member States' expertise available to the candidate countries through the long-term secondment of civil servants and accompanying short-term expert missions and training.

Furthermore, the candidate countries can draw on Member States' expertise through "Twinning Light", an exchange of expertise mechanism to support projects of limited scope.

For Bulgaria, 64 projects have been delivered over the period 1998-2002. Twinning will again be an important element of the 2003 programme, contributing to the results of around 16 projects. These span a broad range of sectors including administrative reform and capacity, judicial reform, environment, structural funds and cohesion fund, finance, energy, food safety, electronic media, and transport.

Negotiations

Negotiations were opened with Bulgaria in February 2000. All 30 acquis chapters have been opened. Of these, 26 have been provisionally closed. The following chapters remain to be concluded: Competition policy, Agriculture, Regional policy and co-ordination of structural instruments, Financial and budgetary provisions. Negotiations continue on the basis of the same principles that have guided the accession negotiations until now, whereby each country is judged on its own merits.

B. CRITERIA FOR MEMBERSHIP

1. Political criteria

The political criteria for accession to be met by the candidate countries, as laid down by the Copenhagen European Council in June 1993, stipulate that these countries must have achieved "stability of institutions guaranteeing democracy, the rule of law, human rights and respect for and protection of minorities." [2]

[2] In the meantime, through the entry into force of the Treaty of Amsterdam in May 1999, the political criteria defined at Copenhagen have been essentially enshrined as a constitutional principle in the Treaty on European Union. Article 6(1) of the consolidated Treaty on European Union reads: "The Union is founded on the principles of liberty, democracy, respect for human rights and fundamental freedoms and the rule of law." Accordingly, Article 49 of the consolidated Treaty stipulates that "Any European State which respects the principles set out in Article 6(1) may apply to become a member of the Union." These principles were emphasised in the Charter of Fundamental Rights of the European Union, that was proclaimed at the Nice European Council in December 2000.

In its 1997 Opinion on Bulgaria's application for EU membership, the Commission concluded:

"Bulgaria has set up democratic institutions and their stability now seems secure. They must be reinforced by practices more in keeping with the rule of law at all levels of the State apparatus. Free and fair elections produced changeovers of government in 1994 and 1997.

Shortcomings remain on respect for fundamental rights but the new government elected in April 1997 has announced a series of reforms in the right direction. Considerable efforts must be made to combat corruption, improve administration of justice and provide fuller protection for individual freedoms, particularly as cases of abuse of power on the part of the police and the secret services are still all too frequent.

Although the Turkish minority seems well integrated, this is not the case with the Romany (tzigane) population.

The improvements since the new government came to power suggest that Bulgaria is on the way to meeting the political conditions set by the European Council in Copenhagen."

In its 2002 Regular Report, the Commission found that:

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

Significant progress has been made on the judicial reform strategy with the adoption of an Action Plan and major amendments to the Law on the Judicial System. These need now to be implemented in order to translate them into concrete improvements in the functioning of the system. Issues relating to the structure of the judicial system and immunity still need to be addressed.

There have also been positive further developments in the fight against corruption, which remains a cause for serious concern, with inter alia the adoption of an action plan to implement the National Anti-Corruption Strategy. Whilst the need to tackle corruption is now high on the agenda Bulgaria needs to continue to make concerted efforts to implement the measures.

There has been some further progress on public administration reform with revisions to the legislative framework and the adoption of a Strategy for Modernisation of the State Administration but serious efforts are now required to develop and implement reforms to ensure an efficient, transparent and accountable public administration.

Bulgaria continues to respect human rights and freedoms. Bulgaria has considerably improved the legal framework, for tackling trafficking, corruption and organised crime as well as for asylum. However, there are a number of areas which continue to give cause for concern. A new issue that has been identified is the very poor living conditions of people in institutions, in particular the mentally handicapped. This needs to be addressed urgently. Bulgaria also needs to strengthen its efforts to reform the child care system, to make sure that the best interests of the child are reflected and reduce the number of children in institutions. Poor conditions for detainees in particular in police stations and pre-trial detention also need to be addressed.

The recent changes to the Penal Code are an important step in removing discrimination on the grounds of sexual orientation.

Concerning the Roma community, little has been done to remedy problems of social discrimination or to take concrete action to improve very poor living conditions. The adoption of comprehensive anti-discrimination legislation would be an important step forward in this regard."

The section below provides an assessment of developments in Bulgaria, seen from the perspective of the Copenhagen political criteria, including the overall functioning of the country's executive and its judicial system. Such developments are in many ways closely linked to developments regarding its ability to implement the acquis, in particular in the domain of justice and home affairs. Specific information on the development of Bulgaria's ability to implement the acquis in the field of justice and home affairs can be found in the relevant section (Chapter 24 - Co-operation in the field of justice and home affairs) of part 0 of this Report.

1.1 Recent developments

The political situation has remained stable over the past year.

Accession to the European Union remains high on the political agenda of the government and enjoys broad political and public support. Efforts to make progress in accession preparations have been intensified.

The Protocol on Bulgaria's accession to NATO was signed in March 2003.

In September 2003, an important amendment to the constitution was adopted, introducing a number of changes in the context of the further reform of the judicial system.

1.2 Democracy and the rule of law

Bulgaria has achieved stability of institutions guaranteeing democracy and the rule of law. This was the conclusion of the 1997 Opinion and the subsequent Regular Reports, and has been confirmed by developments over the past year. This section focuses on the most significant developments since the last Regular Report.

The parliament

Parliament continues to function satisfactorily. The overall law-making process is advancing steadily, with good results as to further alignment with the acquis.

With the formation of a new parliamentary group, there are now five political groupings represented in Parliament.

The Directorate for Legislation and European Law established in April 2002 has ensured that legal expertise on EC law is available at all stages of the parliamentary process. This should help to bring about an improvement in the quality of legislation. Continued attention should be paid to ensuring adequate staffing.

In May 2003, an ad hoc parliamentary commission was mandated to draft certain changes to the Constitution; these are needed to implement further necessary reforms and to align with the practices in EU Member States, in particular as regards the judiciary. This work resulted in the adoption of an important amendment to the Constitution.

The executive

In line with the Strategy for Modernisation of the State Administration of June 2002, the reform of the Bulgarian public administration has made progress with the adoption of certain pieces of legislation. Further legislation remains to be adopted. Overall, sustained efforts will be required in order to achieve the ambitious objective of the Strategy, which is to have a qualified and efficient civil service in place in the medium term.

The main structural changes to the organisation of the Government since the last Regular Report are the creation of a Ministry for Youth and Sport in October 2002 and of a Council for the Modernisation of the State Administration in March 2003.

The specific structures for co-ordinating European integration have remained the same as those described in the previous Regular Report. They continue to function well. In addition, a Deputy Prime Minister for European affairs was nominated in July 2003. He is chairman of the Council for European Integration, the Council for Nato and the Council for the Modernisation of the State Administration.

To proceed with the reform of the state administration, a programme and an action plan for the implementation of the Strategy for Modernisation of the State Administration were adopted in January 2003. The programme provides for the establishment of a Council for the Modernisation of the State Administration, which is responsible for the management and control of the action plan. The Council reports directly to the Council of Ministers and is chaired by the Deputy Prime Minister in charge of EU integration. The Council is assisted by an administrative unit within the "State Administration" Directorate of the Council of Ministers, which has, however, only one permanent member of staff.

The action plan sets out changes to several pieces of legislation, such as changes to the laws on the Civil Service and on Administration and the new law on limiting the Administrative Regulation and Administrative Control of Economic Activity.

The latter law was adopted in June 2003 and aims to increase transparency in administrative decision-making as well as positive administrative silence in certain cases. It also regulates the legal procedures applicable for obtaining different licences and permits, such as business authorisations and building permits.

The amendment to the Civil Service law adopted in early October 2003 provides for new conditions for entering the Civil Service (requirements in terms of professional experience, compulsory competition), better career opportunities based on merit, the introduction of a salary system linked to performance, the right to training (including mechanisms for its funding), the revision of the code of conduct and procedures for the prevention of conflicts of interests.

The envisaged amendments to the law on Administration are not yet adopted.

In view of increasing the openness and transparency of public information, the Law on Access to Public Information was amended in May 2003 expanding the range of public institutions that are mandated to provide public information. As a new measure, an administrative appeal against refusal (including silent refusal) of access to public information is introduced in addition to an appeal at court level. The term "public information" was redefined in order to reduce the scope for discretionary judgements by the persons responsible for ensuring access to public information. Requests for access to public information have increased by around 40 % compared to the previous reporting period. Most administrative units have a focal point for dealing with such requests.

The legal framework for creating the institution of an Ombudsman was adopted by Parliament in May 2003 and will enter into force in January 2004. The Parliamentary Ombudsman and his Deputy will be in charge of investigating violations of citizens' rights and liberties by state or municipal bodies and their administrations, as well as by persons who provide public services. In this context, they are entitled to access and receive any relevant data for inspection. Financial independence is provided for, as well as immunity. The Ombudsman and his deputy are elected for five years by a simple majority of votes in Parliament. They are exclusively answerable to Parliament and have to present an annual report on their activity. Their opinions and recommendations will be made public.

In order to improve administrative services, a "one-stop shop" concept was approved by the government in December 2002. The concept introduces standards for administrative servicing, in particular as regards the procedures for treatment of requests for public services, the improvement of access to services and better co-operation between services. It is being piloted by five ministries.

A report on the performance of the administration is published annually. It is a basis for assessing the efficiency of the state administration and for further necessary changes.

Over the reference period, the overall number of staff with civil-servant status has continued to grow and had reached 26 701 by the end of 2002, corresponding to an increase of around 32% compared to the previous year. The increase concerned mainly the central administration, and a large part of it resulted from the decision of the Ministry of the Interior to grant its employees the status of civil servants. The proportion of civil servants is around 33 % of all employees in the public administration.

During 2003, salaries in the public sector have increased by an average of 7 % (3.5 % as of January 2003 and another 3.5 % as of July 2003). Additional allocations have been granted, in particular a new bonus system for staff dealing with European affairs and pre-accession funds. However, salaries in the public sector still remain relatively low. In January 2003 a system of job descriptions and performance appraisals for public employees was introduced. The system provides the basis for performance-related pay.

Another priority part of the reform programme is training, and as of 2003 up to 0.8 % of the budget for civil servants' salaries has been made available for training purposes. The Institute for Public Administration and European Integration provided training for over 15 000 people in 2002, which represents an increase of 40 % compared to 2001. The Institute organises compulsory training for newly appointed civil servants as well as specialised training on European integration issues.

Progress has been made with implementation of the e-Government Strategy. Around two-thirds of the state administration has been interconnected. The objective is to provide information about the work of the public administration to citizens and to facilitate compliance with legal duties.

Transparency on the legislative process has improved, thanks to more systematic consultations with civil society and economic and social partners. Since the last Regular Report, there have been several good examples of co-operation with civil society, notably in the social field and in the fight against corruption (see also section on Civil and Political Rights). However, more consideration should be given on how the implementation of the acquis can also be fully ensured on regional and local level. Continued attention should also be given to monitoring and enforcement, in particular by the court system.

Local administration is the responsibility of municipalities. Bulgaria has 263 municipalities, which are legal entities with their own budgets and property. Mayors and municipal councils are elected directly by the local community. Over the reference period, concrete steps were taken to advance the decentralisation of government functions. In September 2002, the Government decided to divide the responsibilities for delivering public services between the central and local government, including the transfers needed to finance those services that fall under local government's responsibility, notably education, health and culture. The 2003 budget marked a significant step forward, as resources to local governments for the execution of their tasks were considerably increased.

The judicial system

The Bulgarian judicial system has a four-level court structure containing three separate instances: regional courts, district courts, appeal courts and a Supreme Court of Cassation. There is also a Supreme Administrative Court and a system of military courts. The Presidents of the Supreme Court of Cassation, Supreme Administrative Court and the Prosecutor General are elected by a qualified majority of two thirds from all members of the Supreme Judicial Council and are appointed by the President of the Republic.

The judiciary is composed of three independent entities: judges, prosecution and investigation service. They are selected on basis of an open competition announced for particular positions and are appointed by the Supreme Judicial Council as magistrates following a compulsory six-month training. After five years in office and a positive professional track record the magistrates become immovable following a decision by the Supreme Judicial Council.

The Constitutional Court is in charge of reviewing the constitutionality of laws and statutes brought before it, as well as the compliance of these laws with international treaties that the Government has signed. Parliament elects, by a two-thirds majority, the 12 members of the Constitutional Court, who serve a nine-year term.

Judicial control over decisions of the executive authorities is regulated and guaranteed by the Constitution. Accordingly, appeals can be lodged with the Supreme Administrative Court, which registered a slight increase of its caseload over the reference period. Besides that, an overall evaluation of the administrative justice system has started, including improving judicial control over acts of the government.

The Supreme Judicial Council is in charge of the self-administration and organisation of the judiciary. It has 25 members, of which three are ex-officio members: the President of the Supreme Court of Cassation, the President of the Supreme Administrative Council and the Prosecutor General; they have a seven-year mandate. The other 22 members are elected for five years, 11 by Parliament with simple majority and the other 11 by the judiciary. A permanent staff of 40 supports the work of the Council, which was strengthened over the reference period. The Council is mandated to prepare and present an annual report to Parliament on the functioning of the judiciary. This should help to ensure the accountability of the judiciary to the public.

The Council is furthermore in charge of drawing up the budgetary proposal for the judiciary and proposing it directly to Parliament without interference by the government. However, in 2003 the government, as in previous years, changed the proposal of the Council by cutting it considerably. In April 2003, the Constitutional Court declared the part of the judicial budget related to the Supreme Court of Cassation as unconstitutional. Following the ruling, a revised budget for the Supreme Court of Cassation was adopted in May 2003. The 2003 budget law provides for the possibility of using the additional income resulting from an increase of judicial taxes for expenditures related to the modernisation of the judicial administration. The allocation of these funds is decided by the Supreme Judicial Council. Nevertheless, public expenditure on the judiciary remains low and Bulgaria will need to ensure that the judicial budget is adequate for the smooth functioning of the judicial system and for the effective implementation of the ambitious reform programme.

The Ministry of Justice is responsible for carrying out the government's policy in the field of justice. The Minister chairs the meetings of the Supreme Judicial Council as a non-voting member. The ministry controls the administrative work of courts, collects information and analyses judicial practice. The Ministry of Justice and the Supreme Judicial Council co-operate on the preparation of legislation related to the judiciary. In order to co-ordinate their respective activities, a joint expert working group was set up at the end of April 2003. Amendments to the law on the Judicial System, aimed at replacing those provisions which were annulled by the December 2002 ruling of the Constitutional Court (see below), were adopted in July 2003. The new provisions regulate in particular the division of powers between the executive and the judiciary, i.e. the Ministry of Justice and Supreme Judicial Council, by providing the latter with more powers, especially as regards training for magistrates. This issue is also being reviewed in the context of the planned changes to the Constitution.

After the significant progress in preparing a thorough judicial reform in late 2001 and early 2002, part of the judicial reform came to a standstill when the Constitutional Court declared certain provisions of the revised law on the Judiciary to be unconstitutional and annulled them in December 2002. In another decision of April 2003, the Constitutional Court issued an interpretation with important implications for the planned amendments to the Constitution relating to the structure and mandate of the judiciary. According to the Constitution, any modification of state governance or state structure can only be adopted by a constituent Grand National Assembly, which requires new elections to be held. Other elements of the reform, such as the question of the status of judges, prosecutors and investigators, especially with regard to immunity and immovability, can be addressed by the current Parliament.

Following a consensus of all political parties represented in Parliament to proceed with the reform, an ad-hoc parliamentary commission was created in April 2003 and mandated to elaborate a proposal for amendments to the constitution. The proposal, presented in July 2003, suggested that magistrates should have only a functional penal immunity rather than an absolute one. This immunity could be lifted for actions taken in the context of their duties by a decision of the Supreme Judicial Council based on grounds laid down in the constitution or legislation. For actions beyond the duties of magistrates, the criminal and civil liability provisions would be applicable. Permanent status would be accorded after five years in office (instead of three years), subject to fulfilling a number of criteria. The proposal was adopted unanimously by Parliament in September 2003 and represents an important step forward in the overall reform of the judicial system.

However, the investigation service still exercises functions which are generally carried out by the executive authorities in Member States. The re-organisation of the investigation service as part of the executive needs to be addressed in a subsequent step, in order to solve current structural weaknesses in the pre-trial phase and make it more efficient by avoiding overlaps with other services.

In parallel with the work of the ad hoc commission, the reform plans for the judicial system (strategy and action plan) have been updated. Their scope has been extended and now also covers the necessary constitutional changes, administrative justice and procedural legislation. However, the reforms needed in the prosecution, notably as regards improving efficiency and accountability, have not been addressed.

In October 2002 and May 2003 amendments to the Civil Procedural Code and to the Penal Procedural Code were adopted, and should make court proceedings more efficient. The main changes concern mechanisms for enforcing judgements and reducing the duration of procedures. However, it is too early to assess concrete effects of these changes on the length of judicial proceedings. Also, comprehensive statistics are lacking. As mentioned in previous reports, a high proportion of cases are returned by the courts to the prosecution and there is a lack of transparent conditions for this return.

In order to relieve judges and accelerate court proceedings, two new administrative positions, court administrator and court assistant, were created in January 2003. First appointments were made at the Supreme Administrative Court and the Supreme Court of Cassation. The court administrator is responsible for the organisation of courts, while the role of court assistants is to relieve the work of judges in preparing cases, drafting court decisions and analysing the practice of higher courts.

Over the last year, salaries of magistrates increased by 18-20%. Further salary development will be linked to the public sector. The working conditions of judges, prosecutors, investigators and judicial staff were also improved, but still remain difficult in most cases. The total number of posts for judges is 1 467, which represents a slight increase compared to the previous year.

The non-governmental Magistrate Training Centre has continued to provide training to judges, prosecutors and investigators. So far, around a quarter of the magistrates have received specialised training in EU law. Plans to transform the Training Centre into a public training institution -- the National Institute for the Judiciary -- were formalised with the new amendments to the Law on the Judiciary of July 2003, according to which the National Judicial Institute will be set up under the financial and organisational responsibility of the Supreme Judicial Council. Newly appointed magistrates have to undergo a six-month compulsory training in the National Judicial Institute.

The modernisation of court infrastructure is ongoing. Since September 2002 three new court buildings have been opened and courts are gradually being equipped with computer systems. A unified information system remains to be set up.

Anti-corruption measures

Public opinion still perceives corruption as a serious problem. Customs authorities, occupations linked to the judicial system, police and the health sector are considered to be amongst the most corrupt groups. The fight against corruption remained high on the political agenda of the Government.

Following the adoption of a National Strategy against Corruption (October 2001) and of an Action Plan (February 2002), various pieces of the national legislation have been amended to align with the main international instruments in the fight against corruption. The new measures should now be fully enforced.

The Action Plan expires at the end of 2003 and is currently being updated. In September 2003 the Government adopted a report on the implementation of the National Strategy. The report concluded that the administrative set-up of specialised structures for the fight against corruption should be strengthened, as well as the overall control over the implementation of the Action Plan.

Income and property declarations became compulsory for magistrates following the most recent amendments to the law on the judicial system (July 2003). The declaration also covers spouses and children and is included in a public register. Similar registers exist for customs officers. In February 2003 the National Association of Court Officials adopted a code of ethics specifying how court clerks should act in the event of being offered a bribe. Amendments to the Law on Civil Service law contain a new conflict-of-interest regulation.

Since the beginning of 2003, the collection and processing of statistical information on bribery has been further developed and now distinguishes between active and passive bribery in the private and public sector, trade in influence and abuse of official positions.

The institutional set-up in the fight against corruption has been further consolidated. An inter-ministerial committee, chaired by the Ministry of Justice, has been in charge of co-ordinating and controlling the implementation of the National Strategy and the Action Plan since February 2003. In addition, in October 2002 Parliament set up a 24-member permanent Commission to fight corruption. Its main task is to bring legislation into line with the EU acquis and practices, to monitor its implementation and to supplement it should weaknesses occur. Special units within various ministries and within the police and border guards are in charge of fighting corruption (see also chapter 24: Justice and home affairs). In particular, special measures have been taken with a view to ensure proper police behaviour at the borders and along transit routes. The impact of these measures needs to be assessed.

Bulgaria's legislation is to a large extend aligned with the Convention on the Protection of the European Communities Interests and its Protocols - although further legislative steps are required to introduce the concept of liability of legal persons and related sanctions, as well as the definition of fraud.

Bulgaria signed the additional Protocol to the Council of Europe Criminal Law Convention on Corruption in May 2003, but it still needs to be ratified. Bulgaria is participating in the monitoring of anti-corruption measures carried out by the OECD Working Group on Bribery in International Commercial Transactions. In February 2003, Bulgaria was subject to a Phase-2 review under the monitoring process of the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. The report adopted in June 2003 by the OECD working group on bribery recommends that Bulgaria put in place effective mechanisms for preventing and detecting foreign bribery, and that it introduce adequate mechanisms for the effective prosecution of foreign bribery offences. Bulgaria is a party to the Council of Europe Convention on Money Laundering, Search and Seizure and Confiscation of Proceeds from Crime. It is also a member of GRECO, the Council of Europe Group of States against Corruption, which regularly evaluates its member countries. The May 2002 evaluation report by GRECO noted that Bulgaria had so far made more progress in the adoption of legislation than in its implementation and enforcement.

1.3 Human rights and the protection of minorities

Bulgaria continues to respect human rights and freedoms. This was the conclusion of the 1997 Opinion and the subsequent Regular Reports, and has been confirmed over the past year. The following section focuses on the most significant developments since the last Regular Report.

Bulgaria has ratified the main human rights conventions (see Annex I). The Bulgarian Constitution incorporates the European Convention on Human Rights and Fundamental Freedoms (ECHR) into Bulgarian law, and accords the Convention supremacy over domestic legislation. In practice, there are hardly any cases of direct application of the Convention's provisions or of the jurisprudence of the European Court of Human Rights (ECtHR).

In December 2002 Bulgaria ratified Protocol No 13 of the ECHR on the abolition of the death penalty in all circumstances. The death penalty had already been suspended in Bulgaria in 1990.

The principle of non-discrimination is enshrined in the Constitution. In September 2003 Bulgaria adopted a comprehensive anti-discrimination law, which is aimed at reaching a large degree of alignment with the acquis. It introduces a system of sanctions and envisages the establishment of a Commission for protection against discrimination as an independent body. This Commission will appoint permanent panels, dealing amongst others with ethnic and racial discrimination and gender equality (see also Chapter 13 - Social policy and employment).

Civil and political rights

The situation as regards degrading treatment by the police has improved marginally over the year, and there continue to be reports of ill-treatment and the use of force during interrogation. Although the data protection law prohibits the identification of individuals by ethnic origin, Roma appear to be at particular risk of such treatment. The government has taken steps to address the situation, which should be further enhanced: some training in human rights awareness has started within the police and a special group has been formed to attract citizens of Roma origin to the services of the national police. In March 2003 new legislation prohibited the use of firearms during arrest, in line with European standards.

Trafficking in human beings -- especially of women and children for the purpose of sexual exploitation -- continues to be a serious problem in Bulgaria, which is a country of origin, transit and to a lesser extent destination. The government has continued its efforts to tackle this problem. Trafficking is prohibited by law and defined as a criminal offence. In addition, the new Law of May 2003 on Countering Illegal Trafficking in Human Beings introduces measures to prevent trafficking, improve co-ordination between state bodies and NGOs and protect the victims of illegal trafficking in human beings. The law is drawn up in line with the UN Convention against transnational organised crime and its supplementing Protocol to prevent, suppress and punish trafficking in persons, especially women and children. Both have been ratified by Bulgaria. The National Border Police and the National Service for Combating Organised Crime are mandated to fight trafficking.

Conditions in Bulgarian prisons remain inadequate, despite some improvements. Facilities are often overcrowded, below standard and do not offer appropriate services for inmates. With a view to improving the situation, five new facilities were constructed in 2002 (Sofia, Sliven, Burgas, Pleven, Bobov). Over the reference period, the conditions for pre-trial detention were improved as many of the underground locations for pre-trial detention were closed. In November 2002 a permanent working group on human rights, set up by the Ministry of Interior, adopted an action plan to implement the recommendations of the Council of Europe Committee for the Prevention of Torture report, in particular as regards access to health care for inmates. Accordingly, new procedures entered into force in September 2003 and a new pre-trial detention center equipped according to European standards was opened.

Although access to legal aid is supposed, according to the constitution, to be available for everybody from the moment of detention or of being charged, empirical surveys have shown that in practice there was no defence counsel in nearly 50% of criminal cases in first instance. If convicted, the accused must pay the costs of the proceedings, as well as the expenses incurred by the private accuser and the civil claimant. This practice is contrary to the principles generally applied. The reform and further enhancement of the legal-aid system should therefore be a priority, in order to guarantee equal access to justice for all citizens.

In the area of asylum, further progress was made with the entry into force of a new law in December 2002. The new asylum law contains, inter alia, clear provisions on the procedures for application, the timeframe for taking a decision and an accelerated procedure. Decisions can be appealed against and appeals have suspensive effect. The number of asylum seekers in Bulgaria remains limited. Within the first eight months of 2003, 19 nationals of seven countries were granted refugee status under the Geneva Convention. Over the same period, applications by 258 people from 27 countries were rejected. Humanitarian status was granted to a total of 362 nationals of 20 countries (see also Chapter 24: Justice and home affairs).

Acts inspired by racism and xenophobia are prohibited by law, but implementation reportedly remains unsatisfactory. Despite some efforts by the government to address the issue, there continue to be reports of public expressions of racism and racist attacks against Roma. It remains to be seen whether the recent adoption of a comprehensive anti-discrimination law will improve the situation.

Freedom of expression is enshrined in the Constitution, and legal provisions are further developed in the legislation. The Law on Access to Public Information regulates the openness and transparency of public information (see above under "the executive"), as does the Radio and Television Law. Under the latter law, radio and television broadcasters in Bulgaria are independent, and any opinion may be freely expressed in radio and television broadcasts. Journalists and artists who have concluded contracts with radio and television broadcasters may not be given any instructions or directions as to the practice of their pursuits. However, the situation regarding libel, already described in the previous Regular Report, has not changed. Libel by a journalist is defined as a criminal offence. In practice only a small number of cases have ended with journalists being sentenced, and fines commonly replace criminal sanctions. However, the fact that a few courts did impose high fines is a matter of concern from the point of view of developing a free and independent media.

As regards religion, a new Law on Denominations was adopted by Parliament in December 2002. It aims at ensuring equality before the law, regardless of religious affiliation or creed. State inference in the internal organisation of religious communities and institutions is declared inadmissible. The Law has also conferred on the Bulgarian Orthodox Church the status of a legal person.

The 2002 Regular Report commented on progress as regards discrimination on the grounds of sexual orientation, following amendments to the penal code. However, the amended penal code still contains a different level of sanctions for rape and a different age of consent.

NGOs continue to play an important role in public life. The rules of organisation and procedure of Parliament provide for the participation of NGOs in the preparatory legislative process, notably in the social field. Public-private consultative bodies, such as the National Council on Child Protection, the Council for Social Assistance and the National Council for Rehabilitation and Social Integration, have provided support for the formulation and implementation of government policies. Co-operation has been strengthened in the fight against corruption. Budgetary sources are still scarce and the sector is mostly funded by external donors. The financial conditions for NGOs have been slightly improved through recent amendments to the legislation on taxes, social assistance and health.

During the reference period, the ECtHR ruled against Bulgaria in six cases for violation of Article 5 of the ECHR. In five cases, the Court ruled that the right to a fair trial or release pending trial had not been respected. In addition, in two cases the lawyers of the applicants were refused access to the case file, which is in breach of the principle of 'equality of arms'. Furthermore, in two cases, the applicants' detention in a psychiatric clinic was found to be arbitrary and unlawful.

Economic, social and cultural rights

Further progress has been made concerning the adoption of general legislation on equal opportunities. Specific legislation on employment has been in place since March 2001, which introduced the principle of equal pay for women and men. The new law on anti-discrimination aims at transposing inter alia the acquis on equality of treatment for women and men, including the acquis on pregnant workers, parental leave, equal pay, equal treatment in employment and burden of proof. (see also Chapter 13 - Social policy and employment). Furthermore, a consultative commission on equal opportunities of women and men has been set up at the Ministry of Labour and Social Policy. Women represent 47.5% of the economically active population and represent around 25% of ministers and of members of Parliament.

In the area of children's rights, the legal framework has been further consolidated. The Law on Child Protection was amended in April 2003, reinforcing measures for child protection, notably by providing the following: special protection in public places; information on the rights and obligations of children and parents; preventive measures for the security and protection of children; legal aid by the state; special care for children with physical and mental disabilities. The law also introduces stricter rules for the placement of children: placement of children outside the family must be decided by courts; placement in specialised institutions is only possible if all other possibilities for keeping the child in a family environment have been exhausted. The law defines specialised institutions as establishments for the upbringing and tutoring of children who are permanently separated from their family environment. According to the latest statistics, the number of children in these institutions accounts for 2% of the child population.

Rules on the implementation of the Law on Child Protection were adopted in July 2003. Key issues addressed are: the introduction of financial support as an incentive to prevent abandonment of children and foster re-integration of children from institutions back to their families, the establishment of harmonised criteria and standards for child services through a procedure of licensing together with adequate control mechanisms and improved co-operation between competent bodies in the field of child protection. However, the licensing procedure is only foreseen for natural and legal persons and does not apply to state-owned or municipal legal entities. This may put at risk an uniform application of the legal provisions. In August 2003, the Hague Convention on the Civil Aspects of the International abduction of children entered into force in Bulgaria. The European Convention on Recognition and Enforcement of Decisions concerning Custody of Children and on Restoration of Custody of Children was ratified in June 2003.

Despite these efforts, the situation of children placed in institutions has changed little during the reference period. In particular, the living conditions in these specialised institutions continue to be inadequate. The challenge will now be to maintain the momentum to ensure full enforcement of the new legislation.

In June 2003, the rules for adoption of Bulgarian children were changed via amendments to the Law on Family. Inter-country adoption is allowed if all options for accommodation with relatives and family friends or for domestic adoption have been exhausted and if three Bulgarian candidates have declined to take the child within six months. For this purpose, adoption boards and registers for children who could be adopted are being prepared at regional level. The establishment of these registers needs to be co-ordinated with the national information system on adoptive parents and candidates for adoption, which is being developed by the Agency for Child Protection. In line with the UN Convention on the Protection of the Child, inter-country adoption should remain an exception in order to ensure to a maximum extent the continuity of the child's upbringing in line with the child's ethnic, religious, cultural and linguistic background.

A National Strategy for Equal Opportunities for Disabled Persons, adopted in June 2003, contains measures to improve access to buildings and transport, education, employment, social services, legal protection and social and medical rehabilitation. The financial situation of people with disabilities has improved as a result of the allocation of a guaranteed minimum income, as provided for in the amendments to the Social Assistance law in December 2002 (see also Chapter 13 - Social policy and employment).

As regards the mentally disabled persons, a review of the situation in social care homes has been carried out by the Agency for Social Assistance. On this basis, a programme for the further rehabilitation or closing down of a number of institutions has been elaborated, which will be implemented up till 2006. So far seven of them have been closed. Living conditions in psychiatric hospitals and in social care homes continue to be inadequate, and opportunities for rehabilitation and therapy are scarce. There continue to be reports of ill-treatment.

The ECtHR ruling on the Varbanov v. Bulgaria case identified deficiencies in the legal system allowing for arbitrary detention of mentally disabled. To address these and to improve the legal protection of mentally disabled persons living in institutions, amendments to the law on Public Health are being prepared.

As regards social dialogue, further progress has been noted as a result of the amendments to the Labour law in December 2002. A National Institute for Conciliation and Arbitration was set up in April 2003. It assists in the voluntary settlement of collective labour disputes between employees and employers. The government is consulting the social partners on a regular basis within the Council for Tripartite Co-operation on issues related to salaries, social security, labour law, social implications of restructuring and privatisation and budgetary policy. However, autonomous social dialogue is still at an early stage and needs to be further improved. There are few collective agreements and social dialogue at the enterprise and sectoral level is weak.

Bulgaria is a party to the revised European Social Charter. It has not signed the Additional Protocol providing for a System of Collective Complaints.

Minority rights and the protection of minorities

Already in 1999 Bulgaria adopted a "Framework Programme for Equal Integration of Roma into Bulgarian Society", which has so far not been properly implemented. In September 2003, an action plan for the implementation of the Framework Programme has been adopted including some budgetary support. The Action Plan contains a range of short term measures in the areas of anti-discrimination policy, education, culture, housing, employment and social protection.

Since the last Regular Report the situation of the Roma minority has barely improved. In general, Roma face poor living conditions, social disadvantages and very high rates of unemployment. The health status of Roma is substantially worse than that of the majority of the population. This is due to poverty and poor sanitation conditions, as well as to an underdeveloped basic infrastructure in Roma settlements. Roma children are a special health-risk group, with a mortality rate around 6 times higher than the national average. As Roma children have the highest dropout rates from school, the levels of education of Roma are dramatically low. Many Roma still live in separate districts, where their own schools are located, and rarely mix with non-Roma. There continues to be widespread discrimination in education, employment, access to health and access to public services.

In the period under consideration, there has been some progress in the areas of education and health in particular. During the last year, various pilot projects were started in Roma schools with the aim of integrating Roma children in mainstream society. In August 2002 the Ministry of Education and Science issued new legislation on the education of children with special educational needs. This laid down stricter criteria for the allocation of children to special schools and attempted to stop the process of uncontrolled acceptance of normally developed children into special schools by using welfare criteria. In September 2002 new "instructions for the integration of minority children and pupils" were published, outlining a strategy for integration through education. The main elements of the strategy are the integration and preservation of Roma culture and the fostering of socialisation of young people from different ethnic communities. Mandatory free-of-charge pre-school preparation for children was introduced in September 2002 via amendments to the law on National Education. This preparation should help Roma children to facilitate their integration in the mainstream educational system.

In the area of health, the adoption of the new law on Public Health Insurance in January 2003 is a positive signal. Not all of the Roma population is aware of the procedures. An action plan in the field of Roma health for the years 2003-2008 is being prepared by the Council of Europe Development Bank.

With a view to reducing the high level of unemployment that the Roma are generally facing, the Ministry of Labour and Social Policy has launched a national programme called "From Social Care to Providing Employment". The major objective of this programme is to offer employment and social integration to the long-term unemployed through the targeted opening-up of jobs in public works. The programme started in autumn 2002 and anticipates approximately 100 000 jobs in 2003, of which around 89 000 have been occupied so far. Most of the people involved in the programme are of Roma origin.

Furthermore, some steps have been made to preserving Roma culture and identity. Traditional Roma holidays have been included in the official cultural calendar. Publication of a Romany press and of books has started, but mainly funded by NGOs or foreign donors. Various cultural and educational events, organised by Roma organisations, were supported by the Government.

Work has also begun on projects related to the improvement of infrastructure in Roma settlements and the building of homes, and in the area of Roma culture and media.

On the whole, initiatives have started to address the situation of the Roma minority. In this respect the adoption of the new Action Plan for the implementation of the Framework Programme with more specific activities and a timetable covering the period 2003-2004 will provide a good basis, as it will receive a specific budget for its implementation. Determined and sustained efforts will be needed to fight discriminatory attitudes and behaviour and to address the widespread social disadvantage affecting the Roma community. The recent adoption of a new, comprehensive anti-discrimination law should be a step forward in this respect .

The Turkish minority is integrated into political life through elected representation at national and local levels and through increasing representation in public administration. Further efforts are still needed for the socio-economic integration of ethnic Turks who live in economically underdeveloped regions.

1.4 General evaluation

Bulgaria continues to fulfil the Copenhagen political criteria.

Progress was made with the adoption of a programme and an action plan for the implementation of the Strategy for Modernisation of the State Administration, which aim at consolidating the legal framework in this area. Sustained efforts will be necessary to further implement the public administration reform and to fulfil Bulgaria's aim to have a qualified and efficient civil service in place in the medium term, to ensure the effective application and enforcement of the acquis when Bulgaria joins the Union.

The overall reform process for the judiciary continued in line with the 2002 Action Plan. In particular, the amendments to the Constitution regarding the status of magistrates represent an important step forward. Other legislative measures aim at reducing the duration of court proceedings and strengthening judicial control of decisions of the executive. However, further efforts are necessary to re-organise the investigation service as part of the executive in line with best practice in Member States. Bulgaria also needs to ensure that the judicial budget is adequate for the smooth functioning of the judicial system.

Corruption remains a problem, and Bulgaria should maintain concerted efforts to implement measures in this respect. The fight against corruption remained high on the political agenda and further measures in this context were adopted.

Bulgaria continues to respect human rights and fundamental freedoms.

The legal framework for asylum and child protection improved considerably. However, the living conditions of children placed in institutions changed little during the past year. As regards the mentally disabled, the required legal framework is still missing, notably to ban arbitrary detention. Despite some efforts to address the situation, the living conditions in institutions for mentally disabled people are difficult and opportunities for rehabilitation and therapy are scarce. Further efforts are necessary to address the situation as regards degrading treatment by the police and trafficking in human beings. In the area of social and economic rights, progress can be reported notably as regards equal opportunities and anti-discrimination.

The new Action Plan for the implementation of the "Framework Programme for Equal Integration of Roma into Bulgarian Society" represents a positive step, as specific budgetary support is provided for measures in the areas of anti-discrimination policy, education, culture, housing, employment and social protection. Determined and sustained efforts are needed to fight discriminatory attitudes and behaviour and to address the widespread social disadvantage affecting the Roma community.

2. Economic criteria

2.1 Introduction

In its 1997 Opinion on Bulgaria's application for EU membership, the Commission concluded:

"Bulgaria's progress in the creation of a market economy has been limited by the absence of a commitment to market-oriented economic policies; it would not be able to cope with competitive pressure and market forces within the Union in the medium term."

In its 2002 Regular Report the Commission found that:

"Bulgaria is a functioning market economy. It should be able to cope with competitive pressure and market forces within the Union in the medium term, provided that it continues implementing its reform programme to remove remaining difficulties."

Based on the findings of the 2002 Regular Report, the Roadmap for Bulgaria - adopted by the Commission in November 2002 - summarised a number of benchmarks for further economic reforms.

In examining economic developments in Bulgaria since the Opinion, the Commission's approach was guided by the June 1993 conclusions of the Copenhagen European Council, which stated that membership of the Union requires:

* the existence of a functioning market economy;

the capacity to cope with competitive pressure and market forces within the Union.

In the analysis below, the Commission has followed the methodology applied in the Opinion and in the previous Regular Reports.

2.2 Economic developments

In spite of the global economic slowdown, the Bulgarian economy continued to benefit from high growth and stability. In 2002, the real GDP growth rate was 4.8% which was the third year in a row with a growth rate above 4%. Inflation is on a downward path, mainly due to low food prices and low import prices following the depreciation of the dollar, and is currently mainly driven by increases in indirect taxes and administered prices. Unemployment has decreased significantly due to jobs created in both the private sector and government employment schemes. The current account deficit in 2002 was lower than in 2001, but higher in the first half of 2003 than in the first half of 2002, and not fully covered by net inflows of foreign direct investment.

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Further progress has been made in the restructuring of the economy and privatisation, but not without difficulties. Privatisation under the new procedures, which were put in place in April 2002 to provide clearer rules and greater transparency, advanced more slowly than hoped for because of procedural problems and moderate interest by foreign investors, the latter also due to the weak state of the global economy. While some measures have been taken to enhance the efficiency of the public administration and the judicial system, clear signs of a reduction in their constraints on business in Bulgaria are not yet visible. The largely foreign-owned banking sector is developing rapidly in terms of credit growth and savings deposits, while the capital market is still underdeveloped.

Average per capita income is low at 25% of the EU average (in purchasing power standards) while the labour market situation is improving. Catching up of income and productivity towards levels reached elsewhere in Europe remains a major challenge for Bulgaria. The employment rate of the working-age population is slightly up but is still low at only 50.6% in 2002. The unemployment rate decreased from 19.2% in 2001 to 18.1% in 2002 and 15.7% in the first quarter of 2003. Almost two thirds of all unemployed were long-term unemployed. Unemployment rates for men are slightly higher than for women, and 35.6% of persons between 15 and 24 years were unemployed. Regional income differences are small, as per capita incomes in 2000 ranged from 21% to 26% of the EU average, with the exception of the Southwest region, which includes Sofia, with 33.6% (data for level-2 statistical regions). Regional differences in unemployment are more pronounced. While in December 2002 the unemployment rate was 11.8% in the Southwest region, it was above 15% in all other regions, reaching up to 22.8% in the Northwest.

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2.3 Assessment in terms of the Copenhagen criteria

The existence of a functioning market economy

The existence of a functioning market economy requires that prices, as well as trade, are liberalised and that an enforceable legal system, including property rights, is in place. Macroeconomic stability and consensus about economic policy enhance the performance of a market economy. A well-developed financial sector and the absence of any significant barriers to market entry and exit improve the efficiency of the economy.

There has been continued support for the medium-term economic reform programme and for EU accession-related policies. Prudent fiscal policies and market-based economic reforms are the main priorities of the government. Announced policies have mostly been implemented by the government, although some structural reforms were delayed. In July 2003, the International Monetary Fund successfully completed the third review of a two-year stand-by arrangement agreed in February 2002. Prior to the review a "Memorandum on Economic Policies of the Government and the Bulgarian National Bank" had been submitted which re-confirmed the economic policy programme based on the currency board arrangement, a cautious and flexible fiscal policy aimed at a balanced budget over the medium term and an acceleration of structural reforms to create a fully functioning and competitive market economy. In August 2003, the Bulgarian authorities submitted their latest Pre-accession Economic Programme to the Commission which had been prepared by the Ministry of Finance, following consultations of social partners, NGOs, academic circles and various government institutions. The programme confirms the government's commitment to its reform agenda.

Macroeconomic stability has allowed sustained economic growth of real GDP at rates above 4% since 2000. Last year, real GDP growth was 4.8%, despite the adverse global economic conditions, and real GDP growth in the first half of 2003 compared to the corresponding period of 2002 is estimated at 4.1%. Growth was largely based on buoyant domestic demand, while the contribution of net foreign trade was more neutral than in previous years. Investment growth in real terms was at 9.3% in 2002, while the investment-to-GDP ratio was almost stable, compared to 2001, at 18.1% in 2002.

The current account deficit decreased in 2002, but deteriorated again in the first half of 2003. The current account deficit, 6.0% of GDP in 2001, was 4.7% of GDP in 2002 due to a lower trade deficit, higher revenues from tourism, lower interest payments and higher current transfers. However, the current account deficit in the first half of 2003 was about 5.2% of projected GDP, much higher than in the same period one year earlier, mostly due to higher import than export growth and a higher deficit of the income balance. Net inflows of foreign direct investment (FDI) of 3.9% of GDP in 2002, after 2.6% in 2001, have again been lower than the current account deficit, but preliminary balance of payments data for the first half of 2003 suggest that FDI inflows have almost reached the level of the full year 2002. Nevertheless, because of other net capital inflows, the foreign reserves of the central bank increased further to an amount equalling about 6 months of imports in goods and services and continue to give credibility to the currency board arrangement. Total foreign debt declined substantially from 77% of GDP at the end of 2001 to 70% of GDP at the end of 2002 resulting from tight fiscal policies, two Brady bond exchange operations and the depreciation of the US dollar.

Unemployment is decreasing as a consequence of job creation in both private sector and government schemes. The unemployment rate decreased steadily from 19.2% in 2001 to 18.1% in 2002 (ILO definition, Labour Force Survey) as a result of both an increase in employment and a reduction in the labour force. Registered unemployment stood at 13.2% in July 2003 and was more than 4 percentage points lower than in July 2002. The net job creation can be attributed to both a buoyant private sector, where new activities outnumber job reductions from restructuring, and government-financed employment schemes for the unemployed which created about one third of the new jobs. Due to the importance of active labour market policies, the large informal economy and the difficulty in defining agricultural employment in structures of predominantly small-scale farming, the real situation in the labour market remains difficult to assess. In order to reduce the evasion of social security contributions, obligations for employers to register all labour contracts were reinforced and hypothetical minimum salaries as a base for social security contributions, differentiated by sectors, were introduced at the beginning of 2003. These efforts to reduce the high amount of informal employment improved the base for taxation and social security contributions and give room for a reduction of rates and of subsidies to social security. They should go along with measures to increase labour market flexibility and to reduce non-wage labour costs in order to enhance the functioning of the rather rigid labour market in the formal sector of the economy.

Inflation has declined further. Measured by the (interim) harmonised index of consumer prices on annual average, inflation has come down to 5.8% in 2002 from 7.4% in 2001. Compared to the corresponding month of the previous year, inflation was at 3.8% at the end of 2002 and decreased to levels below 2% in the first half of 2003, due to a base effect and the reduction of import prices as well as moderate wage increases. Higher excise taxes on fuel and alcohol at the beginning of 2003 were not fully passed through to consumer prices, while higher electricity, district heating and telephone prices, implemented at the beginning of July 2003, had only a moderate effect on inflation. The overall year-on-year growth of administered prices declined from a peak of 29.5% in July 2002 to 8.4% in July 2003. Inflation excluding administered prices was -0.8% in July 2002 and 0.2% in July 2003.

Bulgaria continues to adhere to the currency board arrangement which fixes the Bulgarian lev (BGN) against the euro. The currency board arrangement, which was introduced in July 1997, continues to be well covered by foreign exchange reserves. Nominal short-term interest rates remained broadly stable throughout 2002, while real short-term interest rates turned negative at the end of 2002 [3]. The broad monetary aggregate M3 grew by 19.6% in nominal terms and by 17.6% in real terms between July 2002 and July 2003. As, under a currency board, money supply is determined exclusively by economic actors' demand for money, this shows that the economy is being remonetised and re-establishing confidence in the Bulgarian currency.

[3] In terms of one-month credit and deposit rates, corrected for by CPI inflation.

Fiscal policy has continued to be tight. The general government deficit has been 0.6% of GDP in 2002 and is targeted at 0.7% of GDP in 2003. At the end of July 2003 the consolidated budget had a cash surplus of 1.8% of projected GDP. An active debt management strategy, including two Brady bond exchange operations, as well as the depreciation of the US dollar contributed to a strong reduction of general government debt from 66.4% of GDP at the end of 2001 to an estimated 53.0% of GDP at the end of 2002. A new law on government debt has been adopted which forbids the government to take on new debt if the ratio of consolidated general government debt to GDP exceeds 60%. The government is shifting from direct to indirect taxation and is reducing the share of the government's budget in GDP. Ongoing restructuring of the customs and tax administration in the context of preparations to create a National Revenue Agency is already increasing revenues. Measures to reduce fiscal fraud have been decided, including the creation of a fiscal investigation agency and better control of the sale of excise goods as well as the closure of certain duty-free shops. By July 2003, the government's fiscal reserve, from which it can draw in the case of unforeseen events, had increased to above 12% of GDP. Fiscal decentralisation is on-going by transferring certain tasks and funds from the central to municipal budgets.

The macroeconomic policy mix has been adequate. In the absence of monetary policy instruments and the possibility of changes to the nominal exchange rate in a currency board arrangement, fiscal policy is the main instrument of macroeconomic stabilisation. The tight fiscal stance - in spite of a worsening global economic environment - was appropriate in order to maintain the credibility of the currency board arrangement, to avoid a deterioration of the current account deficit and to make further progress in the reduction of public and foreign debt. The current account deficit has so far not been a cause of concern, since it allowed higher investment than domestic savings alone would do and was partly covered by net inflows of foreign direct investment. In order to maintain external competitiveness vis-à-vis the euro area as the main trading partner against which the Bulgarian lev had some real exchange rate appreciation, moderate wage increases in the budgetary sector, which tend to serve as a benchmark for the private sector, have also contributed to stability. Wages and salaries of employees with a labour contract have increased by 5.6% in real terms comparing the first half of 2003 to one year earlier, with slightly lower growth rates in the public than in the private sector. The IMF performance criterion of a maximum increase of 2% in the wage bill of 60 state-owned enterprises relative to their wage bill in the third quarter of 2002 has been respected.

Liberalisation of prices has progressed, in particular in energy and telecom, but is not yet complete. Prices for tobacco, water supply, waste disposal, electricity, district heating, medicines, certain hospital and medical services, passenger rail transport, postal services as well as fixed phone subscriptions and calls are administered or regulated. The current weight of these products and services in the consumer price index is 23%, slightly up from 22.4% last year due to their higher importance for consumers. Although the number of goods and services with administered prices has not decreased, important steps have been taken to reduce their number, in particular in the energy and telecom sectors. An average increase of 15% for electricity prices, 10% for district heating prices and 14% for local phone calls was implemented in July 2003. The price hikes in the energy sector are part of a three-year schedule aiming to achieve cost recovery prices in 2004 which allows to reduce state aid as well as cross-subsidisation between firms and households. For the telecom company, the objective is to reduce the cross-subsidisation of local by long-distance and international phone calls in view of increasing competition.

Private ownership has progressed further. In June 2003, 62.6% of all employees with a labour contract were working in the private sector, compared to 61.5% one year earlier. The private sector's share in gross value added grew from 71.4% in 2001 to 72.7% in 2002. Houses and land property are largely in private hands. A total of 275 privatisation deals were sealed in 2002 and 133 until the end of August 2003 of which 73 sales of minority packages, bringing the percentage of privatised assets which were state-owned in 1995 excluding infrastructure up to 82.3%.

The privatisation programme advanced more slowly than expected. The last major state-owned bank Banka DSK was sold in October 2003. In autumn 2002, preferred buyers for 80% of the national tobacco company (Bulgartabac Holding) and for 65% of the national telecom monopoly (BTC) were selected, but - after long negotiations with many procedural problems - in September 2003 a decision was still pending for BTC while a new privatisation strategy was under preparation for Bulgartabac. Procedural uncertainties such as those experienced with BTC and Bulgartabac do discourage potential international investors to get involved in the privatisation of a major company in Bulgaria. In 2003, the Privatisation Agency launched the sale of minority stakes in 11 major companies on the stock exchange. They have been grouped into two pools of which one includes energy companies and the other minority stakes in the State Insurance Institute (DZI), Bulgarian Maritime Shipping, an oil and gas prospecting company in Pleven, Bulgartabac and BTC. State minority stakes in 425 enterprises were offered in an open tender in June 2003.

Market entry and exit are not yet working smoothly, but recently introduced measures could improve the situation. The proportion of new companies (including self-employed) in the business register relative to all existing companies was 4.6% in 2001 and 3.4% in 2002. At the same time, the number of companies eliminated from the business register was 0.7% in 2001 and 0.8% in 2002. While these figures indicate high, though falling, net creation of new firms, they may also reflect both the overall business cycle and a lack of rigour in market exit procedures. Market entry is still hampered by various administrative procedures, which slow down start-ups and bind considerable amounts of enterprises' and public administrations' resources. Many licensing regimes have been eliminated or simplified and a public register of all required licensing, permission and registration regimes, accessible via Internet, has been created. In June 2003, a law establishing general principles on administrative regulation and control, including silent consent if the administration does not react within the foreseen time, has been adopted and will come into force in December 2003; it gives clearer rules and less discretion to administrations in their regulatory decisions. The law also establishes a list of 39 activities for which licensing is required, whereas only prior registration is required for all other activities, and it encourages the administration to introduce one-stop-shops. In spite of these improvements, there is still a widespread perception that starting and running a business is difficult because of complex rules and major inefficiencies in administrations and courts. Regarding market exit, insolvency procedures remain slow. For the year 2002, court statistics show that 432 insolvency cases were pending from previous years, 1707 new cases were initiated, and 1740 cases were completed, so that 399 cases were still pending at the end of the year. In order to speed up insolvency proceedings, amendments were made to the Commercial Code in June 2003 such that a company that fails to make an outstanding payment within 60 days after the payment was due will be considered insolvent. In addition, special legal chambers are being created at regional level which deal exclusively with bankruptcy cases.

Enforcement of property rights remains difficult in some areas. The slow and inefficient proceedings of the judicial system often discourage parties from taking cases to court, which contributes to the lack of reliable enforcement of property rights. Some progress has been made in streamlining administrative procedures, but these still impose substantial costs on the private sector. While large and foreign-owned companies are often able to bridge these shortcomings in the legal and regulatory environment by turning directly to the higher levels of decision-making, this path is not always available to smaller or domestic companies. In spite of amendments to legislation on intellectual property rights and on counterfeiting, the actual enforcement is still insufficient, in particular as regards border controls. Housing property is mostly clearly defined and markets are working properly. Following the finalisation of land restitution in 2001, trade in agricultural land has decreased in terms of total size, but leasing of land has seen a sharp increase in 2002, although the share of idle agricultural land is estimated to have remained stable at one third. Land prices are generally low and stable although they vary according to regional and local conditions. Prices for agricultural land are low because profits in agriculture are low. Therefore, farmers hardly have access to credit and do not invest so that profits remain low. For similar reasons, landowners do not want to sell because they expect higher land prices in the future. This combines with high transaction costs for buying and selling because of a disperse