COMMISSION OPINION ON THE APPLICATION BY THE REPUBLIC OF CYPRUS FOR MEMBERSHIP
Date: 1993-06-30
Institutions: DG I – External Relations: Commercial Policy and Relations with North America, the Far East, Australia and New Zealand, European Commission
Subjects: Cyprus, accession to the European Union

CO:M.\AISSION  OF  THE  EUROPEAN  COI\t.\IDNITIES 

COM(93)  313  final 

Brussels,  30  June  1993 

COMMISSION  OPINION  ON  THE  APPLICATION 
BY  THE  REPUBLIC  OF  CYPRUS  FOR  MEMBERSHIP 

-A-

COY.llSSION  OPINION  ON  THE  APPLICATION 

BY  THE  REPUBLIC  OF  CYPRUS  FOR  MEMBERSHIP 

FOREWQRD 

1. 

On  3  July  1990,  the  government  of  the  Republic  of  Cyprus  submitted 

to  the  Counci  I  of  the  European  Communities  an  application  for  membership  of 

the  European  Coal 

and  Steel  Community  CECSC), 

the  European  Economic 

Community  (EEC)  and  the  European  Atomic  Energy  Community  C-EAEC). 

2. 

At 

Its  meeting  on  17  September  1990, 

the  Councl  I  noted 

the 

appl lcatlon  and  decided  to  set  in  motion  the  procedures  laid  down 

in  Article 

98  of  the  ECSC  Treaty,  Artlcie  237  of  the  EEC  Treaty  and  Article  205  of  the 

Euratom  Treaty,  asking  the  Commission  to  draw  up  an  opinion,  as  reQuired  by 

these  provisions. 

3. 

Applications  have  recently  also  been  received  from  several  EFTA 

countries  and  from  Malta,  and  an  application  was  previously  submitted  by 

Turkey.  The  Commission  delivered  its  opinion  on  Turkey's  application 

in 

December  1989,  followed  by  opinions  on  the  applications  of  Austria  (August 

1991),  Sweden  (July  1992),  Finland  (November  1992)  and  Norway  (March  1993). 

It 

Is 

transmitting 

its  opinion  on 

the  appl lcation  submitted  by  Malta 

simultaneously  with  this  document. 

4. 

The  European  Counc i I  cone luded  Its  discuss ion  of  the  Quest ion  of 

enlargement  at  its  Lisbon  meeting  on  26  and  27  June  1992  with  the  fol  lowing 

observations  relating  to  the  EFTA  countries: 

- 2  -

"The  European  Councl  I  considers  that  the  EEA  Agreement  has  paved  the 
to  an  early 
for  opening  enlargement  negotiations  with  a  view 

way 

conclusion  with  EFTA  countries  seeking  membership  of  the  European  Union 
...  The  official  negotiations  wi  I I  be  opened  immediately  after  the  Treaty 

on  European  Union 

is  ratified  and  agreement  has  been  achieved  on 

the 

Delors  I I  package." 

In  the  I lght  of  the  decisions  taken  by  the  European  Counci  I  at  its  Edinburgh 

meeting  on  11  and  12  December  1992,  enlargement  negotiations  got  under  way 

in  February  1993  with  Austria,  Finland  and  Sweden,  and 

in  April  1993  with 

Norway. 

regards  applications 

As 
continue  as  fol lows: 

from  other  countries, 

the  Lisbon  conclusions 

" 

if  the  cha I lenges  of  a 
European  Union  composed  of  a  larger  number  of  Member  States  are  to  be  met 

The  European  Counci  I  considers  that 

successfully,  para I lei  progress 

is  needed  as 

regards 

the 

internal 

development  of 
countries. 

the  Union  and 

in  preparation  for  membership  of  other 

In 

this  context 

the  applications 
wh i eh  have  been  submitted  by  Turkey,  Cyprus  and  Ma I ta.  The  European 

the  European  Councl  I  discussed 

Council  agrees  that  each  of  these  applications  must  be  considered  on  its 
merits. 

Relations  with  Cyprus  and  Malta  will  be  developed  and  strengthened 
their  application  for 

the  Association  Agreements  and 

by  building  on 
membership  and  by  developing  the  pol  ltical  dialogue." 

The  European  Counc I I  wh I eh  met 

In  Copenhagen  on  21-22  June  1993 
5. 
"considered  that  its  guidelines  with  regard  to  enlargement  with  the  EFTA 
countries  shall  be  without  prejudice  to  the  situation  of  other  countries 

which  have  appl  led  to  Join  the  Union.  The  Union  wl  I I  consider  each  of  these 
membership  applications  on  its  own  merits. 

The  European  Council  welcomed  the  Commission's  intention  to  present 

shortly  its  opinion  on  Malta  and  on  Cyprus.  These  opinions  wi  I I  be  examined 

rapidly  by  the  Counci  I  taking  into  consideration  the  particular  situation  of 
each  of  the  two  countries". 

- 3  -

INTRODUCTION 

6.  Since  the  Island  was  declared  Independent  In  1960,  the  "Cyprus  question" 
has  constantly  been  before  the  United  Nations  and  has  never  left  the  agenda 

of  the  Security  Councl  I. 

The  existence  of 

the  Greek  and  Turkish  communities  side  by  side,  but 

differing  in  language,  culture,  religion  and  national  traditions,  conferred 

on 

the  young 

republic  a 

turbulent  history, 

I ittered  with  crises  and 

outbreaks  of  intercommunal  violence,  culminating  In  1974  in  a  coup  inspired 
by  the  supporters  of  Integration  with  Greece.  This  resulted  in  a  military 

intervention  by  Turkey.  The  outcome  of  the  crisis  of  August  1974  and  the 
occupation  of  part  of  the  territory  of  Cyprus  by  the  Turkish  army  was  the  de 
facto  partition  of  the  Island,  which  led  to  large-scale  population  movements 
across  the  cease-fire  I lne  and,  more  especially,  from  the  northern  to  the 
southern  part  of  the  Island. 

in  the  north  and 
This  de  facto  separation  of  the  two  communities,  Turkish 
Greek  in  the  south,  remains  to  this  day.  With  very  rare  exceptions  neither 
In  1983  the 
people  nor  goods  nor  services  can  cross  the  dividing  I ine. 

northern  part  of  the  Island  declared  itself  an 

independent  republic.  With 

the  solitary  exception  of  Turkey,  no  member  of  the  international  community 

recent  years  the  diplomatic  efforts 
has  recognized  this  republic.  Until 
conducted  under  United  Nations  auspices  to  bring  about  a  mutually  acceptable 
institutional  solution  had  been  blocked  by  the  Intransigence  of  both  sides. 

7. 
In  1992  it  seemed  at  first  that  the  intercommunal  negotiations  arranged 
through 
the  good  off ices  of 
the  United  Nations  Secretary-General  might 
the  means  of  gradually  hammering  out  a  solution  based  on  a 
provide 
two-community  and  two-zone  federation.  The  principles  of  this  solution  were 
approved 
1992 
In 
(resolution  774/92).  The 
October  and  November  1992  revea I ed,  however ,  that  a  great  many  po I nt s  of 
disagreement  remained,  including  on  general  principles  and  institutional 

Se cur i t y 
lntercommunal  discussions 

Apr I I 
took  place 

unan I mous I y 

Counc I I 

that 

the 

by 

in 

- 4  -

aspects  of 

the  future  federation.  The  discussions  were 

resumed 

in 

the 

spring  of  1993  and  although 

it 

is  hoped  that 

they  may 

lead  to  a  final 

agreement, 

the  poss i bi  I i ty  of  continuing  disagreements  can  st i II  not  be 

ruled  out. 

a.  When  presenting  its  application  for  accession, 
Repub Ii c  of  Cyprus, 

recognized  by 

the  European  Community  and 

its  Member 

the  government  of 

the 

States  as  the  only 

legitimate  government- representing  the  Cypriot  people, 

addressed 

the  Community  on  behalf  of 

the  whole  of 

the 

island.  The 

application  was  strongly  challenged  by 

the  de  facto  authorities  of 

the 

northern  part  of  the  island.  Whl  le  acknowledging  that  it  would  be 

in  the 

interests  of 

the  Turkish  Cypr lot  community  to  form  part  of 

the  European 

Community, 

these  authorities  rejected  the  right  of  the  government  of  the 

Repub Li c  of  Cyprus  to  speak  for 

the  who I e  of  Cyprus 

in  such  an  approach. 

They  based  their  position  on  the  Guarantee  Treaty  and  the  wording  of  the 

1960  Constitution,  which  grants  the  president  and  vice-president  (a  Turkish 

Cypriot)  a  veto  over  any  foreign  policy  decision,  particularly  any  decision 

on  Joining  an 

international  organization  or  alliance  that  does  not  count 

both  Greece  and  Turkey  among  its  members.  They  consider,  accordingly,  that 

in  the  prevai I Ing  circumstances  the  Community  should  not  take  any  action  on 

the  app I i eat ion. 

The  Community,  however, 

fo I low Ing 

the 

logic  of  Its  estab Ii shed  posit ion, 

which  is  consistent  with  that  of  the  United  Nations  where  the  legitimacy  of 

the  government  of  the  Republic  of  Cyprus  and  non-recognition  of  the  "Turkish 

Republic  of  Northern  Cyprus"  are  concerned,  felt  that  the  application  was 

admissible  and  initiated  the  procedures  laid  down  by  the  Treaties  in  order 

to  examine  it. 

9.  The  Community  has  therefore  to  establish  its  position  on  whether  Cyprus 

is  eligible  for  membership,  its  capacity  to  adopt  within  a  reasonable  time 

scale 

the  acguis  communautaire, 

in  particular 

the  rules  concerning 

the 

single  market  and  the  common  policies,  in  order  to  become  a  dynamic  member 

of  the  economic  and  monetary  Union  and  participate  actively  in  the  common 

foreign  and  security  policy. 

- 5  -

This  opinion  deals  with  all  these  factors  and  for  the  most  part  confirms  -
at  least  with  regard  to  the  southern  part  of  the  island  -
the  Commission's 
in  its  communication  of  24  June  1992,1  namely  that  "adoption  of 
assessment 
the  acgu!s  communautaire  would  not  appear  to  present  insurmountable  problems 
in 
is 
the  case  of  Cyprus".  This  assessment  covers  both  how  democracy 
- confirmed  as  satisfactory  in  the 
organised  and  how  it  operates  in  Cyprus 
last  presidential  elections  - and  also  the  structure  of  its  economy  and  its 

regulatory  framework. 

10.  As  a  result  of  the  de  facto  division  of  the  island  into  two  strictly 

separated  parts,  however,  the  fundamental  freedoms  laid  down  by  the  Treaty, 

in  particular 

freedom  of  movement  of  goods,  people,  services  and 
and 
cap I ta I ,  right  of  estab I I shment  and  the  uni versa I I y  recognized  po I it i ea I , 

economic,  social  and  cultural  rights  could  not  today  be  exercised  over  the 
entirety  of  the  island's  territory.  These  freedoms  and  rights  would  have  to 
be  guaranteed  as  part  of  a  comprehensive  settlement  restoring  constitutional 
arrangements  covering  the  whole  of  the  Republic  of  Cyprus. 

11. 
In  examining  the  eligibi I ity  of  Cyprus  for  membership  and  its  capacity 
to  be  a  fully  participating  member  of  the  Community  and  the  European  Union, 
the  Community  must  therefore  also  have  the  greatest  regard  to  the  special 
links  binding  one  of  the  Cypriot  communities  to  one  of  the  Member  States, 
is 
and  the  links  between  the  other  Cypriot  community  and  a  country  which 

associated  with  the  Community  - and  also  an  applicant  for  accession  - and 
one  which 
importance  to  the 
Community. 

is  of  major  strategic,  pol iti.cal  and  economic 

in  Cyprus  provided  by  missions  visiting  the 

12. 
In  drawing  up  this  opinion,  the  Commission  relied  on  information  on  the 
the 
situation 
authorities  of  the  Republic  of  Cyprus,  with  which  it  has  maintained  close 
contact,  notab I y 
the 
Communities. 

the  Repub Ii c  of  Cyprus 

the  Miss ion  of 

island  or  by 

through 

to 

Europe  and  the  challenge  of  enlargement. 

- 6  -

In  keeping  with  their  challenge  to  the  application  for  accession  lodged  by 
the  government  of  Cyprus, 
to 
cooperate  with  the  Commission  In  the  technical  preparation  of  this  opinion. 
Data  on  the  northern  part  of  the  Island  were  therefore  obtained  from  the 

the  Turkish  Cypriot  authorities  declined 

government  of 

the  Republ  le  of  Cyprus  or 

from  aval lable 

International 

I ater  stage. 
sources.  They  m I ght  therefore  have  to  be  supp I emented  at  a 
The  Commission  Is  of  the  view,  however,  that  the  range  of  Information  In  Its 
possession  Is  such  as  to  enable  It  to  back  up  the  analyses  and  conclusions 
of  this  opinion. 

- 7  -

PART  ONE 

I. 

Outline  of  the  de  facto  situation  in  Cyprus 

I I.  Prospects  for  a  settlement  of  the  Cyprus  question  and  Integration  with 

the  Commun I ty 

Ill.  Current  state  of  relations  between  Cyprus  and  the  European  Community 

IV.  Economic  aspects  of  Cyprus's  transition  towards 

integration  with  the 

Community 

V. 

Cyprus's  participation  In  Community  institutions 

VI.  Cone lus ions 

I. 

Qutllne  of  the  de  facto  situation  In  Cyprus 

- 8  -

is 

an 

island 

the  north-east 
strategically 
13.  Cyprus 
Mediterranean  with  a  population  of  approximately  700  OOO  occupying  an  area 
i.e.  a  relatively  low  density  (76  inh./km 2 )  and,  at  about  1% 
of  9  251  km 2 , 
is  a  high  degree  of  urban I zat ion, 
per  year, 

low  popu I at Ion  growth.  There 

located 

in 

with  rates  of  literacy  and  school  enrolment  and  even  secondary  and  higher 

educat Ion, 

in  the  southern  part  of  the  Island  at  least,  are  comparable  to 

levels  In  the  most  advanced  countries. 

A  popu I at ion  of  some  570  OOO 
Is 
controlled  by  the  government  of  the  Republic  of  Cyprus.  In  addition  to  the 

in  the  south  of  the  is I and,  wh I eh 

Ii ves 

130  OOO  Turkish  Cypriots 
is  also  a  Turkish 
military  force  (some  30  OOO  strong  according  to  United  Nations'  estimates) 
and  a  large  number  of  Turkish  settlers  (between  45  OOO  and  50  OOO  according 
in  since  the  1974  military  intervention. 
to  the  same  source)  who  have  moved 

the  north, 

I iving 

there 

in 

It  should  be  mentioned  that  part  of  the  Turkish  Cypriot  population  that  was 
present  on 
to  Western 
Europe.  The  northern  part  of  the  Island  as  currently  divided  represents  37% 
of  the  total  area. 

In  1974  has  since  emigrated,  notably 

Island 

the 

14.  The 

Island's  economic  development  since 

its  de 

facto  division  has 

fol  lowed  very  different  courses.  The 

south  has  experienced 

remarkable 

economic  growth,  based  largely  on  service  Industries  and  especially  tourism, 
inhabitant  of  about  ECU  9  OOO  on  average  for  1991,  i.e. 
giving  a  GDP  per 
in  the  north, 
higher  than  In  several  Community  Member  States.  Development 

which  ls  more  agriculture  oriented,  has  not  been  so  fast.  As  a  result  of  the 

north's  diplomatic  Isolation,  its  potential  and  Infrastructure  for  tourism 
have  not  been 
to 
employment,  added  value  and  foreign  trade  continues  to  be  very  signlf lcant 

fully  exploited.  The  contribution  of  agriculture 

In  this  part  of  the  Island.  The  GDP  per  Inhabitant  is  three  or  four  times 
smaller  than  in  the  south. 

15.  Politics  in  Cyprus  has  also  fol lowed  different  courses  since  1974.  The 
Republic  of  Cyprus,  whose  authority  extends  in  practice  only  to  the  south  of 
the  island,  has  retained  the  constitution  of  1960  although,  of  course,  all 

- 9  -

provisions  relating  to  the  participation  of  the  Turkish  community 

in  the 

exercise  of  executive, 

legislative  and 

judicial  powers  are  no 

longer 

applied.  Indeed,  some  have  not  been  applied  since  the  inter-communal  crisis 

of  1963. 

Cyprus  has  a  presidential-type  constitution  and  a  par I lament  with  a  single 

chamber.  The  current  President,  Mr  Clerides,  was  elected  for  five  years  in 
February  1993  with  the  support  of 
in  the 

two  parties  forming  a  majority 

chamber. 

There  Is  a  wide  consensus 

in  par I I ament  beh Ind  Cyprus's  app l I eat I on  for 
liberal-influenced  economic 
Community  membership  and 
policy  which  has  been  fol  lowed  for  several  years  and  has  been  maintained  by 

long-standing, 

the 

the  government  of  Mr  Cler ides. 

16.  The  government 

in 

the  north,  which 

is  not 

recognized  by 

the 

international  community,  adopted  a  constitution  by  referendum  in  1975.  The 

constitution  was  later  modified  In  1985. 

Mr  Denktash  was  elected  President  under 

this  constitution  and 
re-elected  In  1985  and  1990.  He  holds  a  large  majority  in  parliament  owing 
mainly  to  the  Turkish  settler  vote.  Mounting  opposition  is  being  voiced  by 
the  Mr  Denktash's  stance  both  on 
to 
some  sections  of  public  opinion 
economic  issues  and  on  the  settlement  of  the  Cyprus  question. 

17.  On  the  subject  of  respect  for  democracy  and  human  rights,  two  points 
must  be  taken  Into  account,  namely  that  the  Island's  forced  partition  alone 
represents  a  serious  Infringement  of  the  fundamental  freedoms  of  citizens  of 

Cyprus  and  that  the  rights  of  victims  of  the  events  of  1974  have  not  yet 

been  restored  owing  to  the  lack  of  apolitical  settlement.  The  presence  of  a 

the  demographic  changes  that 
considerable  number  of  Turkish  settlers  and 
result  from  this  are  also  considered  as  an  infringement  of  the  political  and 

economic  rights  of  the  people,  including  by  some  sectors  of  Turkish  Cypriot 

pub I I c  op In ion . 

- 10  -

Apart  from  the  direct  and  indirect  consequences  of  the  partition  of 
the  Island,  human  rights  situation  is  as  fol lows.  The  constitution  of  Cyprus 
protects  the  rights  of  people  belonging  to  the  three  national  minorities  and 
establishes  freedom  of  speech  and  the  right  to  free  assembly 
,  equality  of 
al I  before  the  law  and  bans  al I  forms  of  discrimination.  The  Independence  of 
the  Judiciary  Is  guaranteed.  Al  I  these  provisions  are  effectively  respected. 
Island,  opposition  parties  have  mentioned 
However, 

the  North  of 

the 

In 

certain  constraints  and  restrictions  In  their  activities,  in  particular  as 

regards  access  to  the  media. 

18.  Another  aspect  of  the  pol ltlcal  tension  in  Cyprus  comes  in  the  shape  of 

the  extensive  mi  I itary  presence  and  excessive  presence  of  weapons. 

In  addition  to  the  estimated  force  of  some  30  OOO  Turkish  troops, 
the  north  of 

is  a  permanently  mobilized  Turkish  Cypriot  force-

In 

there 

Cyprus  of  an  estimated  4  OOO.  A  further  26  OOO  form  the  reserve  force. 
In 
the  south,  Greece  maintains  a  force  of  Just  under  a  thousand  alongside  the 
Greek  Cypriot  national  guard  consisting  of  10  400  men  plus  reserve  force  of 
100  OOO. 

Weapons  on 

the  Island  are  becoming 

increasingly  sophist lcated,  to. 

the  point  where  the  defence  effort  maintained  by  each  party  is  eating  deeper 
into  national  budgets. 

The  United  Nations  .force  UNFICYP  (1  513  strong  in  March  1993),  which 

was  dispatched 
ceasefire 

in  the  wake  of  the  civi I  war 

I ine.  After  much  hard  debating, 

in  1964,  sti 11  occupies  the 
the  United  Nations  recently 

adopted  a  dee is Ion  wh I eh  changes  the  way  this  force 
structure  and  is  to  reconsider  Its  mandate  in  December  1993. 

is  financed  and  Its 

Mention  should  also  be  made,  finally,  of  the  two  military  bases  in 

southern  Cyprus  maintained  by  the  United  Kingdom  under  British  sovereignty. 

- 11  -

11.  Prosoects  for  a  settlement  of  the  Cyorus  question  and  Integration  with 

the  CQllftlnlty 

The  need 

for  close  cooperation  between 

19. 
to 
achieve  the  integration  of  Cyprus  with  the  European  Community  Is  highlighted 
In  the  "set  of  Ideas  on  a  comprehensive  framework  agreement  on  Cyprus".  This 
document,  unanimously  endorsed  by 
the  Security  Council  under  resolution 
774/92,  formed  the  basis  for  Inter-communal  negotiations  carried  out  by  the 

two  communities 

the 

It  proposes  a 
Secretary-General  of 
settlement  based  on  a  Cypriot  state  with  a  single  sovereignty,  International 
independence  and 
personality  and  citizenship,  with  guaranteed  territorial 

the  United  Nations  during  1992. 

Integrity  and  Including  two  pol  ltlcal ly  equal  communities  In  a  bl-zonal,  bi-

communal  federation. 

However, 

as 

it 

stands, 

the 

text  was 

not 

accepted  by 

the 

representatives  of  the  two  communities.  Amongst  Issues  which  stl II  remain  to 

be  settled,  as  can  be  seen  clearly  from  the  report  presented  by  the  United 

Nations  Secretary-General  at  the  conclusion  of  the  talks  In  October-November 

Is  more 
the  "set  of  Ideas".  President  Clerldes,  on 

Is  the  fact  that  the  Turkish  Cypriot  side  wants  a  solution  to  the 
1992, 
solution 
constitution  question  which 
the  other  hand, 
suggested  by 
while  accepting 
the  will,  since  his 
election,  to  Introduce  amendments,  notably  so  as  to  reinforce  references  to 
human  rights,  make 
Improvements  on  the  operational  side  of  the  executive 
branch  and  make  It  more  compatible  with  future  membership  of  the  Community. 

Ideas",  has  expressed 

the  "set  of 

"confederal" 

than 

the 

As  a  result,  the  final  balance  of  the  settlement,  especially  on  the 

institutional 

Issues, 

Is  still  the  subject  of  talks  between 

the  parties 

concerned. 

20. 

As  a  measure  of  support  for 

the  efforts  of  the  Secretary-Genera I, 

the  Security  Council  has  called  on  all  parties  to  continue  striving  for  a 
pol ltlcal  settlement.  More  recently,  the  emphasis  seems  to  have  shifted 

- 12  -

towards  Implementation  of  practical  measures  aimed  at  building  confidence 
between  the  two  communities.  Agreement  on  these  measures  could  make  clear 
the  wl  I I lngness  of  both  parties  to  advance  to  an  overal I  settlement. 

21. 

It 

Is  of 

the  utmost 

Importance  that 

the  process  started  by 

the 

United  Nations  Secretary-General 

leads  to  an  equitable  solution  which  deals 

fairly  with  the  Interests  of  each  community.  It  is  equally  Important  that, 

whatever 

the 

institutional  balance  decided 

In 

the  final  settlement, 

the 

process  results  in  the  establishment  of  Institutions  which  ar·e  capable  of 

carrying  out  their  responslbi I I ties  both  effectively  and  efficiently. 

In  this  context  care  should  therefore  be  taken  with  a  view  of  the 

posslbi I ity  of  Community  membership 
the  decision-making 
process  of  the  executive  and  legislature  is  compatible  with  the  Community's 
discussion  and  decision-making  apparatus  and  wi  I I  enable 
the  Cypriot 
authorities  to  adopt  the  acguls  communautaire  and  Implement  It  effectively 
throughout  the  Island. 

to  ensure 

that 

22. 
promote  a  political  settlement 
situation  would  make 

In  relation  to  the  Common  Foreign  and  Security  Policy,  the  need  to 
the  more  paramount  as  the  current 
Implement 
to  accept  and 

It  difficult 

for  Cyprus 

is  all 

commitments  made  under 

the  European  Union  Treaty.  The  political  problems 

linked  to  the  status  guo  would  Inevitably  have  an  Impact  on  the  Community's 
policies,  especially  those  concerning  Turkey.  Cyprus  must  also  give  up  Its 
membership  of  the  Non  Aligned  Movement  of  which  it  was  a  founder-member  and 
In  which  It  continues  to  participate  actively. 

- 13  -

Ill. 

Relations  between  Cyorus  and  the  Eurooean  community 

The  Association  Agreement 

23. 

Cyprus  has  been  I Inked  to  the  European  Community  s i nee  1973  by  an 

the  estab Ii shment  of  a  customs 
Assoc i at Ion  Agreement  wh i eh  provides  for 
union  In  two  stages.  This  Agreement  excludes  discrimination  between  Cypriot 

or  Community  nationals  and  contains  arrangements  on  trade  and  on  f lnanclal 

and  technical  cooperation  which  are  to  be  applied  for  the  benefit  of  the 
entire  population  of  the  Island. 

The 

f I rst  stage  provided  for 

the  phased  reduction  of  tar I ffs  on 

Industrial  goodJ  and  agricQltural  products.  This  stage  was  due  to  expire  In 

June  1977  but  was  extended  to  the  end  of  1987,  the  dead I lne  by  which  all  the 
alms  we~e achieved. 

The  Protocol  governing  the  transition  to  the  second  stage  of  the 
Agreement,  I.e.  the  completion  of  the  customs  union,  I ikewlse  In  two  phases, 
entered  Into  force  on  1  January  1988. 

The  f lrst  chase,  from  1988  to  1997,  provides  for: 

the  reduction  by  Cyprus  of  customs  duties  and  quantitative  restrictions 
on  Industrial  products  (except  for  petroleum  products  and  15  categories 

of  sensitive  products)  and  on  the  43  agricultural  products  covered  by 

the  Agreement; 

the  adoption  of  the  Common  Customs  Tariff  by  Cyprus; 

the  harmonization  of  accompanying  policies:  competition,  state  aids, 
approximation  of  laws. 

from  1997 

The  second  phase, 
the  free  and 
unrestricted  movement  of  industrial  and  agricultural  products  and  the 
adoption  of  the  accompanying  policies  required  for  completion  of  the 
the  abolition  of  the  origin 
customs  union, 

to  2002,  provides 

in  principle, 

including, 

for 

rules  appl  lcable  to  manufactured  products. 

- 14  -

Current  trade  arrangements 

24. 

The  customs  union  agreement  covers  82%  of  all  trade  between  Cyprus 

and  the  Community.  The  current  situation  is  as  fol  lows: 

the  Community  has  entirely  eliminated  the  final  remaining  restrictions 
on 
industrial  products  originating  In 
Cyprus,  including  text I le  products,  ~lothing and  processed  agricultural 

into  the  Community  of 

imports 

products  not  falling  under  Annex  I I  to  the  EEC  Treaty; 

by  1  January  1993,  the  Republ  le  of  Cyprus  had  already  reduced  duties  by 

64.25%  by  comparison  with  the  rates  applied  to  the  Community 

in  1973. 

However,  the  dismantling  of  tariffs  in  the  north  of  the  island  has  not 

in  the  Association  Agreement  and 
kept  pace  with  the  timetable  fixed 
Community  exports  attract  duty  at  rates  wh i eh  are  usua 11 y  far  higher 
than  those  appl led  in  the  south. 

Adaotlng  to  the  acguls  communautaire 

the 

A  large  number  of 

instruments  required  for 

the  progressive 
25. 
adaptation  of  the  Cypriot  economy  to  the  mechanisms  of  the  single  market 
established  by 
the  common 
the  Association 
commercial  pol Icy  are  already  contained 
Agreement  and  the  1988  Protocol. 

the  Community  and 

lmpl  !cations  of 

therefore 

the 

to 

In 

The  Commission 

considers 

that 

continuing  with 

the 

proper 

implementation  of 

the  abovementioned 

instruments 

in  accordance  with 

the 

agreed  timetable 
Cypriot  economy  towards  possible  accession. 

is  the  best  means  of  ensuring  a  smooth  passage  for 

the 

On 

26. 

the  acguis  communautaire, 
the  adoption  of 
Article  27  of  the  1988  Protocol  guarantees  that  certain  principles  laid  down 

the  subject  of 

in  the  EEC  Treaty  are  applicable  in  relations  between  the  two  parties  to  the 
Association,  e.g.  competition  rules,  provisions  on  tax  and  approximation  of 
laws.  It  is  also  stipulated  that  the  measures  relating  to  the  application  of 
these  principles  which  are  essential  to  ensure  the  smooth  functioning 

- 15  -

of  the  customs  union  shall  be  agreed  by  common  accord  by  the  beginning  of 

the  second  phase  at  the  latest,  which  should  normally  mean  by  1998.  If  this 

deadline  is  to  be  met,  the  Cypriot  government  and  the  Commission  must  work 

in  close  collaboration 

to  ensure 

that 

the 

two  parties  can  honour 

the 

commitments  made  and  that  Cyprus  can  adapt  Its  legislation  in  ful I  knowledge 

of  the  facts. 

Financial  and  technical  cooperation 

Fi nanc i a I  a Id  from 

the  First 
27. 
the  Commun I ty  to  Cyprus  began  with 
Financial  Protocol  on  1  January  1979.  From  that  date,  up  to  and 
including 
the  Third  Financial  Protocol,  which  is  currently  in  force,  the  Community  has 
loans  (ECU  92 
granted  Cyprus  a  total  of  ECU  136  mi  II  ion  in  the  form  of  EIB 
risk  capita I 
loans  or 
and 
mi  11  ion),  grants 
CECU  15  mill ion).  The  projects  financed  mainly  concern  Infrastructure  (urban 

(ECU  29  m I I I ion) 

spec I a I 

development,  drainage,  electricity)  and  have  benefited  the  entire  population 

of  the  island.  These  projects  have  mostly  been  concentrated  in  the  area  of 

Nicosia. 

- 16  -

IV.  Economic  asoects  of  cvorus•s  trans It Ion  towards  lntegrat Ion  wl th  the 

community 

Study  of  the  economic  situation  of  Cyprus  confirms  the  view  that  not 
28. 
only  would 
insurmountable 
difficulties  but,  on  the  contrary,  as  long  as  it  was  carefully  planned  and 

the  Community  create  no 

its  accession 

to 

backed  up  by  the  appropriate  policies,  would  bring  about  greater  prosperity 

and,  In  particular,  would  help  the  north  make  up  the  economic  ground  on  the 

south. 

29. 

In 

the 

introduction  to  this  opinion,  reference  was  made 

to  the 

island's  political  division  and  how  this  went  hand 

in  hand  with  different 

levels  of  economic  development. 

Th Is  different I at I on 

Is 

In 

the  extent  of  openness 

production, 
international  specialization,  In  monetary  policy  and, 
economic  performance 
foreign  trade. 

terms  of 

income, 

In 

ref I ected 
to 

In 

eQua I I y 
structures  of 
the  outside  world  and  of 
In 
lnf lat ion  and 

in  the  long  run, 

ful I  employment, 

30. 

The  southern  part  of  the  island  is  more  geared  towards  Industry  and 

services  - mainly  International  tourism  -

though  its  comparative  advantages 

in  agriculture  are  also  worth  mentioning. 
quarters  of  exports  of  goods.  The 
compensated  by  the  earnings  from  tourism.  More 

Industry  accounts  for 

three 
less 
than  half  of  all  trade  is 

is  more  or 

large  trade  deficit 

with  the  Community. 

Economic  growth  Is  strong,  averaging  6%  over  the  last  decade  and,  on 
31. 
account  of  a  lack  of  manpower,  the  Republic  of  Cyprus  resorts  to  labour  from 
Eastern  Europe  and,  lately,  has  even  agreed  to  al low  workers  from  the  north 
to  cross  the  border  for  the  day.  Despite  overheating  of  the  economy  and  full 
level  of  6%.  These  good 
employment, 
inflation  has  been  pegged 
performances  have  been  greatly  aided  by  adherence  to  a 
long-term  policy  of 
stabilization  of  the  Cypriot  pound  against  the  currencies  of  its  trading 

to  a 

partners  and,  more  recently,  the  ECU. 

- 17  -

32. 

Despite 

this 

record,  accession 

to 

the  Community  wi  I I 

require 

determined  efforts  from 

the  state  and 

the  business  sector.The  economy 

continues  to  be  overdependent  on  tourism,  which  implies  a  risk,  in  the  long 

term,  of  an  excessive  drain  on 
limited  natural  resources  (e.g.  water)  and 
Infrastructure  and  represents  a  factor  of  considerable  uncertainty  for  the 
economy  In  apolitically  sensitive  region,  as  the  Gulf  crisis  demonstrated. 

It 

Is  vital,  therefore, 

to  diversify  services  and 

to  consolidate 

industrial  development,  especially  as  analysis  of 

industrial  structures 

reveals  a  considerable  degree  of  vulnerabi I ity  to  the  required 
exposure 

international  competition.  Despite 

the  steps 

level  of 
taken  so  far 

to 

towards  approximation  to  the  Common  Customs  Tariff,  most  sectors  of  industry 

still  hide  behind  high  tariffs.  Duty  in  excess  of  50%  is  not  uncommon,  even 
in  trade  with 
local  production.  Many 

the  Community,  where  there 

is  also 

sectors  suffer  from  a  lack  of  innovation  and  the  quality  of  their  products 
foreign 
Is  vastly 

to  equivalent  Community  goods.  Unti  I  now, 

Inferior 

source  of 

technological 

Investment,  one 
encouragement  and 
competitiveness  of 
protect Ion  and  espec i a 11 y  to  aid 
exemptions,  investment  or  export  f lnance  subsidies  from  the  state. 

little 
the 
linked  to  external 
tax 

to  severe  restrictions.  Maintaining 

in  a  var I ety  of  forms:  guarantees, 

Is  subjected 
industry 

is  thus  still  too  closely 

advance,  has 

received 

33. 

Progress  towards  Community  membership  would  Involve  completing  the 

dismantling  of  tariff  protection,  reducing  aid  and  giving  foreign  investors 
greater  freedom.  The  restructuring  that  such  a  policy  requires,  and  which  is 
already  one  of  the  economic  goals  of  the  present  government,  will  be  made 

easier  by  the  situation  of  ful I  employment  in  Cyprus. 

Changes  would  also  be  necessary  in  the  banking  and  financial  system. 
34. 
Although  payments  relating  to  current  transactions  with  the  outside  world 

are  relatively  unrestricted,  capital  movements  are  strictly 

- 18  -

regulated.  Liberal lzlng  capital  movements  wi  I I  require  a  fundamental  reform 
of 
the  f i nanc i a I  and  monetary  system  and  of  procedures  for  credit  and 
currency  regulation. 

the  markets 

With  the  exception  of  Interest  rates,  which  are  f lxed  by 

law  at  9%, 
is  carried  out  solely  on  a  Quantitative 
this  regulat Ion  of 
basis.  The  introduction  of  market  mechanisms  in  the  system,  i.e.  use  of  the 
interest  rate  and  greater  compet It ion 
the  banking  sector,  wou Id  he Ip 
improve  economic  performance  by  reducing  the  activities  of  speculators  -
Increasing  the 
e.g. 
range  of 
the 
to 
authorities,  which  at  the  moment  consist  only  of  exchange  rate  management 
and  budgetary  policy. 

the  property  market  - and  at  the  same 

In 
Instruments 

regulation  available 

for  macroeconomic 

investment 

In 

The  Isolation  of  the  northern  part  of  the  island  has  weighed  heavily 
35. 
on  its  development  policies  and  economic  performance.  The  economy 
in  the 
north  is  closely  linked  to  the  economy  of  Turkey,  from  where  it  receives  a 
substantial  amount  of  budgetary  support  and  which  provides  40%  of 
Its 
Imports,  as  wel  I  as  being  the  second  export  market  after  the  Community.  The 
absence  of  International  air  links,  except  to  Turkey,  has  not  allowed  the 
north  to  take  full  advantage  of  international 
tourism,  despite  possessing 
the 
infrastructure.  Tourist  arrivals, 
including  three-quarters  of  Turkish  nationality,  generate  only  a  quarter  of 
the  earnings  from  tourism  in  the  south.  Agriculture,  In  which  the  north  has 
considerable  potential,  provides  a  quarter  of  employment  and  10%  of  added 
value.  Industry  provides  about  10%  of  employment  and  contributes  some  11.5% 
of  GDP.  Public  service  workers  form  a  high  percentage  of  total  employment 
and  state-owned  enterprises  play  a  significant  role  In  economic  activity. 

initial  potential 

the  way  of 

in 

to 

Introduce 

the  north's  own  currency,  but 

The  Turkish  lira  Is  the  currency  used  in  transactions.  There  was  a 
36. 
to 
proposal 
fruition.  The  Cypriot  pound  is  in  paral lei  circulation.  Inflation  is  high  at 
about  60% 
in  1991;  the  public  sector  finance  deficit  is  substantial  and  is 
only  partially  covered  by  the  budgetary  aid  from  Ankara.  Borrowing  Is  thus 
standard  practice.  To  improve  this  situation  would  require  a  considerable 

It  never  came 

- 19  -

effort  and  would  present  the  future  federal  government  and  the  heads  of  the 
future  Turkish  Cypriot  federal  state  with  the  delicate  task  of  deciding  on 

the  al location  of  tax  resources. 

37. 

Thus, 

in 

the  northern  part  of  Cyprus, 

the  main  economic 

issue, 

whether  In  relation  to  the  settlement  of  the  Cyprus  Question  or  with  a  view 

to  Community  membership,  Is  how  to  make  up  the  ground  lost  to  the  south. 

The  potent i a I 

in 

terms  of  agr i cu I tura I  and  tourist  resources  and 

manpower  exists,  as  does  the  basic  infrastructure  required  to 

launch  the 

economy,  but  a  large  productivity  gap  has  opened  with  the  south  as  a  result 
of  the  north's  isolation  and  under-capital lzation,  which  Is  in  turn  linked 
to  uncertainty  about  the  political  future  of  this  part  of  Cyprus. 

If  Cyprus  were  to  Join  the  Community,  resources  could  be  allocated 
infrastructure.  A  political  settlement  would  also 
Improvement  of 
to  the 
island. 
re-establ lsh 
Likewise,  the  restoration  of  international  I inks  and  the  full  opening-up  of 
into 
Community  markets  would  boost 

the  complementarities  between 

investment.  Taking 

local  and  foreign 

two  parts  of 

the 

the 

account 

the  orders  of  magnitude 

involved 

for 

a 

region  of  130  OOO 

inhabitants,  there  is  no  shadow  of  a  doubt  that  the  north  could  make  up  the 

ground  on  the  south  or  at  the  very  least  enjoy  a  substantial  improvement  of 

its  economic  performance  and  income  as  a  result  of  a  successful  accession  to 
the  Community  and  a  satisfactory  po lit i ea l  sett I ement. 
in 
addition  to  the  transitional  problem  of  the  reduction  of  the  public  sector 

In  this  respect, 

financial 

imbalances  referred  to  above,  mention  should  a1s·o  be  made  of  the 

dlff iculty  of  choosing  a  common  currency  and  of  the  need,  at  the  least  in  a 
to  maintain  wage  differentials  between  the  two  parts  of  the 
first  phase, 

island. 

The 

adopt Ion 

to 
38. 
macroeconomic, 
the 
southern  and  the  northern  parts  of  Cyprus  with  several  problems,  although 

re I at Ion 
therefore  present 

trade  policy  wi  I I 

industrial  and 

communauta ire 

acgu is 

the 

of 

In 

none  of  these  appears  to  be 

insurmountable 

in 

the  context  of  an  overal I 

settlement  of  the  Cyprus  Question. 

- 20  -

In 

the  south,  as  was  shown 

in  sect ion  111  of  this  opinion, 

the 
Instruments  to  carry  out  the  transition  and  the  political  will  to  use  them 
techn I ea I 
are  a I ready  ava i I ab I e.  The  Community,  wh i eh  has  a I ready  g I ven 
assistance  for  the  Introduction  of  VAT  and  for  other  measures  related  to  the 
transposition  of  the  acguis  communautaire,  is  prepared,  If  the  government  so 
wishes,  to  step  up  its  technical  cooperation. 

In 

Indispensable 
requirement  to  break  the  Isolation  to  which  this  part  of  the  Island  has  been 

the  prospect  of  a  settlement 

the  north, 

is  an 

subjected  and  which  prevents  al I  contact  and  all  preparation  for  accession. 
It  Is  evident  that  considerably  more  effort  wl  11  be  required  to 
However, 

adjust 

to  the  acguls  communautaire 

than 

in 

the  south.  Nevertheless, 

the 

Commission 

Is  convinced 

that,  when 

the 

time 

is 

ripe  and  with  close 

this 
cooperation  from 
effort  can  succeed  as  part  of  the  necessary  economic  transition  of  this  part 
of  Cyprus. 

the  Turkish  Cypriot  community, 

the  authorities  of 

V. 

Partlcloatlon  In  eommunlty  Institutions 

In  sect ion  11  of  this  opinion,  the  Commission  raised  the  issue  of 
39. 
Cyprus's  active  participation  in  the  Community's  Institutions  in  the  context 
of  the  prospects  for  a  pol  ltical  settlement  of  the  Cyprus  question. 

Aside  from  this  key 

in  its  report 
"Europe  and  the  challenge  of  enlargement"  that  the  Question  of  participation 

the  Commission  observed 

Issue, 

by  Malta  and  Cyprus  in  the  Community  institutions  would  have  to  be  resolved 

in  an  appropriate  manner 
envisaged  addressing 
app I i eat ions ' . 

in 
'this  Question 

the  accession  negotiations.  The  Commission 
these  countries' 

its  opinions  on 

in 

In 

the  same  report  the  Commission  expressed  some 

initial  thoughts 
(in  points  23  to  26)  on  the  various  institutional  Questions  which  will  have 
to  be  addressed  and  resolved  if  the  institutions  of  an  enlarged  Union  are  to 
operate  smoothly  and  efficiently. 

- 21  -

40. 

In 

the  case  of  Cyprus,  one  Quest ion 

is 

the 

introduction  of  an 

additional 

language,  Turkish,  which  is  one  of  the  two  official  languages  of 

the  Republ  le  of  Cyprus. 

41. 

There  wou Id  a I so  appear  to  be  the  pract i ea I  di ff i cu It i es 

i nvo I ved 

for  a  state  of  Cyprus's  characteristics  in  coping  with  the  ful I  range  of 

responslbllltles  and  obligations  entailed  in  the  day-to-day  running  of  the 

Community's  institutions. 

The  Republic  of  Cyprus  has  senior  public  officials  with  experience. 
As  there  Is  not  sufficient  information  available  and  In  view  of  the  north's 

I so I at Ion, 

in 
long 
respect  of  that  part  of  the  island.  In  short,  the  Turkish-Cypriot  community 

is  unable  to  draw  a  similar  conclusion 

the  Commission 

may  have  difficulty  In  finding  appropriately  Qualified  persons  amongst  Its 

own 

peop I e 

and, 

as 

a 

resu It, 

prob I ems 

concerning 

the 

respect I ve 

representation  of  the  two  communities  in  Community  bodies  could  wel  I  occur. 

42. 

Another  Question  that  has  to  be  asked  in  the  light  of  the  above  is 

whether  Cyprus  would,  in  the  foreseeable  future,  be  able  to  take  on  the  wide 

range  of  responsibilities  and  obligations  entailed  by  the  Presidency  of  the 

Councl I. 

The 

Institutional  problems 

the  possible 
43. 
accession  of  Cyprus  or  any  other  applicant  of  siml lar  size  should  be 
examined  as  part  of  a  more  general  assessment  of  the  Institutions  of  an 
enlarged  European  Union  that  has  a  vocation  for  even  further  enlargement. 

that  would  be  posed  by 

The  Intergovernmental  conference  scheduled  for  1996  should  address 
these  Issues  with  a  view  to  streamlining  the  operational  structures  of  an 

enlarged  Community  and 

improving 

the  efficiency  of 

its  decision-making 

procedures,  while  at  the  same 
regardless  of  its  size  -

time  ensur Ing  that  each  new  Member  state  -
including  possibly  Cyprus,  is  able  to  take  part  in 

an  appropriate  manner 

in  the  discussion  and  adoption  of  decisions  and  to 

assume  Its  responsibll I ties  as  a  member. 

VI •  CONCLUS I ONS 

- 22  -

Cyprus's  geographical  position,  the  deep-lying  bonds  which,  for  two 
44. 
the  very  fount  of  European 
Island  at 
thousand  years,  have 
culture  and  civilization,  the  intensity  of  the  European  Influence  apparent 

located 

the 

in 

the  values  shared  by 

the  people  of  Cyprus  and 

in 

the  conduct  of  the 

cultural,  political,  economic  and  social  I lfe  of  its  citizens,  the  wealth  of 
its  contacts  of  every  kind  with  the  Community,  all  these  confer  on  Cyprus, 

beyond  al I  doubt, 

its  European 

identity  and  character  and  confirm  Its 

vocation  to  belong  to  the  Community. 

45. 

A  pol It lcal  settlement  of  the  Cyprus  Quest Ion  would  serve  only  to 

reinforce  this  vocation  and  strengthen  the  ties  which  I ink  Cyprus  to  Europe. 

At  the  same  time,  a  settlement  would  open  the  way  to  the  ful I  restoration  of 
freedoms  throughout  the  Island  and  encourage 
human  r lghts  and  fundamental 
the  development  of  pluralist  democracy. 

The  Commission  is  convinced  that  the  result  of  Cyprus's  accession  to 
46. 
the  Community  would  be 
increased  security  and  prosperity  and  that  It  would 
help  bring  the  two  communities  on  the  island  closer  together.  If  there  were 
re 
to  be  a  political 
establ lshment  of  fundamental 
I lberties  would  help  overcome  the  Inevitable 
practical  difficulties  which  would  arise  during  the  transition  period  In 

the  prospect  of 

the  progressive 

settlement, 

regard  to  the  adoption  of  the  relevant  Community  legislation.  In  regard  to 

the  progress 
economic  aspects, 
towards  a  customs  union  achieved 
the  acguls 
communautaire  by  Cyprus  wi  I I  pose  no  insurmountable  problems.  The  Commission 

In  view  of 
the  adoption  of 

this  opinion  has  shown 

thus  far, 

that, 

Is  not  underestimating 
the  economic  transition  poses. 
However,  the  economy  of  the  southern  part  of  the  Island  has  demonstrated  an 

the  problems 

that 

ready 

to  face 

to  adapt  and  seems 

ab 111 ty 
I ntegrat Ion 
provided  that  the  work  already  started  on  reforms  and  on  opening  up  to  the 
in  the  context  of  the  customs  union. 
outside  world 
This  opinion  also  has  also  shown 
that  there  wi  11  be  a  greater  chance  of 
narrowing  the  development  gap  between  north  and  south  in  event  of  Cyprus's 
integration  with  the  Community. 

is  maintained,  notably 

the  cha 11 enge  of 

The  government  of 

the  Repub Ii c  of  Cyprus  shares  this  conv i et ion. 
though  they  object  to  the  conditions  under  which  the  application  for 
Even 
membership  was  made,  the  leaders  of  the  Turkish  Cypriot  community  are  fully 

conscious  of  the  economic  and  social  benefits  that  integration  with  Europe 
would  bring  their  community. 

- 23  -

47. 

This  opinion  has  also  shown 

that  Cyprus's 

integration  with 

the 

Community  Implies  a  peaceful,  balanced  and  lasting  settlement  of  the  Cyprus 

question  - a  settlement  which  will  make  it  possible  for  the  two  communities 

to  be 

reconciled, 

for  confidence 

to  be 

re-established  and 

for 

their 

respective 

leaders 

to  work 

together.  While  safeguarding 

the  essential 

balance  between  the  two  communities  and  the  right  of  each  to  preserve  its 

fundamental 

Interests, 

the 

institutional  provisions  contained 

in  such  a 

settlement 

should  create 

the  appropriate  conditions 

for  Cyprus 

to 

participate  normally 

In 

the  decision-making  process  of 

the  European 

Community  and 

in  the  correct  application  of  Community 

law 

throughout 

the 

island. 

48. 

In  view  of  all 

the  above  and 

In 

the  expectation  of  significant 

progress 

in  the  talks  currently  being  pursued  under 

the  au$pices  of 

the 

Secretary-General  of 

the  United  Nations, 

the  Commiss.ion 

feels 

that  a 

positive  signal  should  be  sent  to  the  authorities  and  the  people  of  Cyprus 

conHrming  that  the  Community  considers  Cyprus  as  eligible  for- membership 

and  that  as  soon  as  the  prospect  of  a  sett I ement  is  surer,  the·  Community  is 

ready  to  start  the  process  with  Cyprus  that  should  eventual·ly  ~ead  to  its 

accession. 

49. 

The  United  Nations  Secretary-General 

is  aware  that  he  can  count  on 

the  Community's  support 

in  his  continued  endeavours  to  produce  a  political 

settlement  of  the  Cyprus  question. 

Even  before  such  a  settlement 

is 

forthcoming, 

the  Commission 

undertakes 

to  use  al I 

the 

instruments  available  under 

the  Association 

Agreement  to  contribute, 

in  close  cooperation  with  the  CypriQt  government, 

to 

the  economic, 

social·  and  political 

transition  of  Cyprus 

towards 

integration  with  the  Community. 

If  the  Council  agrees,  and  in  the  hope  of  facilitating  the  conduct 

of  the  future  accession  negotiations, 

the  Commission 

is  wi  IHng  to  begin 

Immediately  talks  with  the  government  of  Cyprus.  These  talks  would  serve  to 

familiarize  the  Cypriot  authorities  with  all  the  elements  that  constitute 

the  acguis  communautaire,  partly 

in  order  to  al low 

them  to  prepare  their 

negotiating  position  under  the  best  possible  conditions  and  partly  to  permit 

an  assessment  of  the  need  for  any  technical  cooperation  and  assistance  that 

their  country  might  require  to  adopt  and  implement  Community  legislation  and 

- 24  -

the  policies  and 

instruments  that  wi  I I  be  needed  for  Its  Integration  and  to 

prepare 

the  way, 

in  due  course, 

for 

the  north  of  the 

island  to  catch  up 

econom I ea I I y . 

The  Commission  also  undertakes 

to  examine 

the 

Issue  of  Cyprus's 

future  institutions  and  their  compatibi I ity  with  the  requirements  of  active 

participation  in  the  day-to-day  running  of  the  Community 

in  the  event  of 

accession. 

50. 

The 

Community  must 

ensure,  moreover, 

that 

the 

general 

assessment  to  be  carr led  out 

in  the  context  of  the  1996 

intergovernmental 

conference 

results 

in  greater  efficiency 

in 

the  operation  of 

the 

institutions  of  an  enlarged  Community  - and  one  that  could  wel I  be  enlarged 

further  - whl  le  at  the  same  time  providing  Cyprus,  and  any  other  new  Member 

state  of  asimilar  size,  with  a  guarantee  that  it  will  receive  appropriate 

treatment 

In 

the  decision-making  process  and 

in 

the  discharging  of 

Its 

responsibl I itles. 

51.  Lastly,  the  Commission  must  envisage  the  possibi I ity  of  the 

failure  of 

the 

I ntercommuna I 

ta I ks 

to  produce  a  po Ii t  i ea I  sett I ement  of  the  Cyprus 

question  in  the  foreseeable  future,  in  spite  of  the  endeavours  of  the  United 

Nations  Secretary-General.  Should  this  eventuality  arise, 

the  Commission 

feels 

that 

the  situation  should  be 

reassessed 

in  view  of 

the  positions 

adopted  by  each  party 

in 

the 

talks  and 

that 

the  question  of  Cyprus's 

accession  to  the  Community  should  be  reconsidered  in  January  1995. 

- A/1  -

PART  TWO 

SPECIFIC  ASPECTS 

1. 

2. 

3. 

4. 

s·. 

6. 

7. 

8. 

Agriculture  and  f  lsherles 

Internal  m~rket  and  Industrial  affairs 

customs  and. indirect  taxation 

Employment,  working  conditions  and  social  affairs 

Competition 

Financial  Institutions,  company  ·1aw  and  ~irect  taxation 

Energy 

Environment 

9.~  ., 

Telecommunications 

1 (). 

11'. 

12. 

13. 

.14. 

15. 

16. 

Transport 

Enterprise  policy  and  tourism 

Consumer  policy 

lmpl  !cations  for  the  Community  budget 

Cooperation  In  the  fields  of  Justice  and  home  affairs 

Regional  pol Icy 

Statistics 

Stftlstrcal  annexe•,  Country  Profile 

- A/2  -

1.  AGRICULTURE  AND  FISHERIES 

I.  AGRICULTURE 

in 

Although  agriculture 
island  accounts  for 
only  7.2%  of  GDP  and  12.8%  of  total  employment,  it  sti I I  provides  20%  of 
total  exports,  which  go  mainly  to  the  Community  (75%)  and  comprise  new 
potatoes,  citrus  fruit  and  grapes.  Most  farmers  have  an  additional  Job 
in  one  of  the  urban  areas. 

the  southern  part  of  the 

In 
terms  of  cultivated  area,  non-irrigated  agriculture  is  preponderant 
(cereals,  fodder,  olives,  almonds  and  wine  grapes),  although  it  accounts 
for  only  30-40%  of  production  by  value.  The  rest,  i.e.  the  bulk,  comes 
lemons,  bananas,  fresh 
from 
vegetables  and  table  grapes.  Cyprus  imports  cereals,  animal  feed,  beef 
and  veal  and  sheepmeat,  and  also  milk  products  and  sugar. 

irrigated  farming  and 

the  form  of 

takes 

in  various 

forms.  The  market 

is  strong I y  organized  and  receives  government  aid 
Cypriot  agr i cu I ture 
is  fairly  extensively 
and  protection 
receives  direct 
regulated.  Production  of  wheat,  barley  and  grapes 
subsidies;  state  or  semi-state  monopolies  have  been  established  for 
cereals,  olive  oil,  potatoes  and  grapes; 
imports  of  milk  are  prohibited 
and  beef  and  veal 
imports  are  covered  by  strict  Quota  arrangements; 
imports  of  the  main  agricultural  and  food  products  are  still  subject  to 
the  most  part.  Coordination 
a 
between  government  and  trade  bodies  is  close  and  provides  the  necessary 
flex ibl 1 lty 
tourists  who 
visited  the  island  in  1992,  for  example.  The  Protocol  on  customs  union 
signed  In  1987  left  this  system  largely  Intact  and  put  off  completion  of 
customs  union  for  agr i cu I tura I  products  unt I I  the  f i na I  stage  between 
1999  and  2003. 

I icensing  system  - discretionary  for 

the  population  plus 

the  2  mi  11  ion 

to  feed 

the  budget  standpoint  (see  section  13),  statistical  analysis  by 
in  the  event 
in  all,  comprising  ECU  25  million  for 
for  wine, 
sheepmeat, 
f lanl<ing 
for  fruit  and  vegetables,  ECU  6  mi  11  ion 

From 
productC1)  points  to  the  following  estimated  reQuirements 
of  accession: 
cereals, 
ECU  8  mi  I I Ion 
measures  and  ECU  2  mi  I I ion  for  oi I seeds. 

ECU  64  million 

ECU  14  million 

9  million 

for 

ECU 

for 

so 

through  diversification.  Early-season  products 

Accession  would  be  unlikely  to  have  any  notable  impact  on  production  of 
the  typically  Mediterranean  products,  given  existing  production  levels. 
If  Cyprus  wished  to  develop  its  agricultural  production,  it  would  have 
to  do 
such  as 
potatoes  and  table  grapes  might  even  gain  from  access  to  the  single 
market.  On 
the  subsidy  arrangements  for  grapes  (and 
hence  also  for  wine),  price  fixing  and  the  ban  on  milk  imports, 
import 
Quotas  for  beef  and  veal  and  also  the  various  monopolies  would  have  to 
increase  and 
be  adapted. 
consumer  pr Ices  on 
to  rise. 

the  Cypr lot  market  wou Id  probab I y 

the  mainland  would  probably 

the  other  hand, 

Imports 

tend 

from 

(1)  Assuming  the  fol  lowing: 

(i) 

( i I) 

CAP  reforms  to  apply  in  ful  I  as  from  the  entry  into  force  of 
the  accession  treaty; 
access ion  to  take  p I ace  at  a  point  when 
wi  I I  be  fully  operational. 

the  reformed  CAP 

- A/3  -

I I.  FISHERIES 

1.  GENERAL 

The  f lsher les  sector 
marginal  contribution  to  the  country's  economy  (0.3%  of  GDP). 

in  the  southern  part  of  the  island  makes  only  a 

As  product Ion  can  not  meet  nat Iona I  demand,  Cyprus  re Ii es  heav 11 y  on 
the  resulting  trade  deficit  was 
imports,  which  far  exceed  its  exports; 
in  trade  with  the 
ECU  18. 3  mi  I I ion 
Community.  Cyprus  appl les  preferential 
the 
Imports 
Community,  but  the  Community  grants  no  preferences  to  Cyprus,  other  than 
under  the  generalized  preferences  system. 

i nc I ud i ng  ECU  6. 2  m I I I ion 
to 

in  1991 , 

rates 

from 

2.  ADAPTATION  TO  THE  ACQUIS  COMMUNAUTAIRE 

authorities  have 

the 
The  Cypriot 
conservation  and  efficient  management  of  stocks.  The  accession  of 
Cyprus  would,  however,  have  to  be  accompanied  by  a  strengthening  of  the 
necessary  research  and  inspection  resources  (eQuipment,  institutions  and 
staffing). 

themselves 

capable 

proved 

In 

Given  its  size,  the  Cypriot  fleet  could  probably  be  Incorporated  Into 
It  wi  11  be  necessary  to  see 
the  Community  fleet  without  difficulty. 
that 
I lne  with  Community 
is 
this  sector 
directives. 

loans  scheme 

the 

in 

in 

The  main  problem  concerning  the  Cypriot  fishing  fleet  relates  to  the 
registration  of  fishing  vessels  with  foreign  owners.  The  Community  will 
be  unable  In  any  circumstances  to  accept  such  a  practice  and  flagging 
terms  w i I I  conseQuent I y  have  to  be  a 11 gned  on 
in  the 
Commun I ty. 

those  In  force 

Is  marginal 
the  aQuaculture  sector 
Generally  speaking, 
compared  to  that  of  the  Community.  However, 
the  rapid  development  of 
fry  product ion,  espec i a I I y  of  sea  bass  and  sea  bream,  may  have  some 
et fects  on 
some  Convnun I ty  Med I terranean 
countries. 

the  hatchery 

In  Cyprus 

sector 

In 

Adopt Ion  of  every  aspect  of  the  common  organlzat ion  of  markets  could 
present  administrative  problems  for  Cyprus,  as  no  legislation  exists  on 
pricing  systems,  trade  bodies  or  marketing  and  Qual  lty  standards. 

The  existing  restrictions  or  prohibitions,  the  import  I icensing  system 
and 
income  support  measures  are  contrary  to  established  Community 
rules  and  practices. 

the 

Lastly,  the  state  aids  which  represent  operational  assistance  for  firms 
would  also  have  to  be  abolished. 

- A/4  -

CONCLUSION 

The  size  and  nature  of  the  Cypriot  fishing  fleet  are  such  as  to  suggest 
that  its  incorporation  into  the  Community  fleet  would  not  be  difficult. 
the  administrative 
The  hardest 
standpoint, 
the  common  organization  of 
markets. 

in  adopting  al I  aspects  of 

for  Cyprus  would 

task 

from 

I le, 

- A/5  -

2. 

INTERNAL  MARKET  AND 

INDUSTRIAL  AFFAIRS 

I. 

INDUSTRY 

IN  CYPRus1 

Uni  ike  agriculture,  industry  has  been  of  growing  economic  importance  in 
the  southern  part  of  the  island  during  the  last  ten  years. 
In  1990, 
manufacturing 
Industry  contributed  14.5%  of  GDP  at  current  prices, 
accounted  for  some  20%  of  the  employed  workforce  - estimated  to  number 
252  700  in  1990  - and  provided  73%  of  total  exports  of  locally  produced 
products.  The  corresponding  figures  are  lower  for  the  northern  part  of 
the  island,  which  possesses  25%  of  total  industrial  capacity,  as  wel  I  as 
industry  contributed 
the  north,  manufacturing 
the  copper  mines. 
11.5%  of  GDP  at  constant  prices 
the 
employed  workforce  and,  in  1990,  provided  54%  of  total  exports. 

In  1991,  accounted  for  9.5%  of 

In 

southern  part,  nevertheless, 

them  accounted  for  21.3%  of  GDP 

important 
the 
In 
economica I ly 
than  the  service  sector,  particularly  tour ism  and  trade, 
in  1990.  The  service 
which  between 
in  1988  and  1989, 
sector  also  has  a  higher  growth  rate,  reaching  10% 
whereas  manufacturing  production  growth  slipped  back  from  7% 
in  1988  to 
3%  in  1989  and  1990.  The  average  growth  rate  for  manufacturi-ng  has  also 
fallen  back 
for  different 
reasons,  from  a  level  of  over  15%  to  below  5%. 

the  northern  part  since  1990, 

industry 

though 

less 

is 

in 

I ight 
Industrial  development 
industry,  notably  the  clothing,  agri-food,  furniture,  footwear  and  metal 
fabrication 
industrial 
production. 

the  southern  part  wi  I  I  depend  on 

sectors,  which 

75%  of 

account 

total 

for 

in 

In  value  terms,  the  food  Industry  is  dominant  (26.8%  of  industrial  added 
value),  fol  lowed  by  textiles  and  clothing  (18.5%).  Leaving  aside  the 
two  cement  works 
industry  also  has  the  highest 
in  operation,  the  food 
productivity  and  the  heaviest  investment. 

It 

the  other  hand, 

The  biggest  employer,  on 
is  the  textile  and  clothing 
sector,  with  30%  of  the  industrial  workforce  - against  18%  for  the  food 
industry,  with  the  Community  as 
industry; 
its  chief  market.  The  wood  and  furniture 
industry  employs  12%  of  the 
workforce  and  accounts  for  10.4%  of  added  value.  Chemicals  are  also 
important,  employing  5.2%  of  the  labour  force  and  accounting  for  7.3%  of 
added  value. 

Is  also  the  main  export 

Cypriot  industry  is  dominated  by  family  firms  and  is  viewed  by  the  World 
Bank  as  being  seriously  deficient  from  the  standpoint  of  the  technology 
in 

information  on 
Detailed 
the  southern  part  of  the  island. 

industry  relates  only  to  the  situation  In 

- A/6  -

use,  workers'  skills  and  production  quality.  Not  having  undergone  any 
process  of  rationalization  or  special lzation,  many 
firms 
would  be.  very  vulnerable  to  international  competition  on  both  external 
markets  and  the  domestic  market. 

Industrial 

The  studies  on  specific  sectors  carried  out  by 
the 
basis  of  the  information  aval lable  back  up  this  assessment,  particularly 
lack  of  competitiveness  is 
in  the  case  of  the  footwear  Industry,  whose 
put ·down  to  structural  weaknesses  such  as  absence  of  specialization,  the 
shortcomings  of 
labour  (both  skilled  and  unskilled),  poor  management, 
difficulties  with  supplies  of  raw  materi~ls and  lack  of  innovation. 

the  Commission  on 

Chemicals,  notably  on 
mechanica1  ·engineering,  are  also  considered 
Cypriot  products 
Community  products. 

the  organic  side, 

in  the  latter  two  sectors  being  markedly 

together  with  electrical  and 
to  be  vulnerable,  with 
inferior  to 

Cyprus'ss  dependence  on  external  markets,  especially 
the  Community 
market,  for  its  supplies  of  chemicals  and  also  engineering,  electrical, 
electronic  and  transport  eQuipment  should  be  noted. 

Notwithstanding· the  measures  already  adopted  to  dismantle  tariffs  and 
approximate  the  Cypriot  customs  tariff  to  the  Community  customs  tariff, 
Cypriot  industry  sti I I  operates  behind  high  tariff  wal  Is,  duties  of  over 
In  sectors  where 
50%  be Ing  not  unusua I ,  even  on  Community  products, 
there  exists  a  local  Industry. 

Jobs 

soon 

to  be 

Joined.  by 

faci I lties 

for·  graduates, 

Cypriot  1·ndustry  also  enjoys  varied  forms  of  official  assistance  for 
Includes  exemptions  from 
investm~nt  and  exports.  The  first  category 
customs  duty,  tax  concessions  to  promote  the  modernization  of  firms  and 
the  creation  of 
the 
establishment  of  firms  in  the  seven  Industrial  and  regional  development 
areas  -
tax 
advantages  for  firms  setting  up  in  the  Larnaca  free  zone.  On  top  of  al I 
these  there  Is  the  government  guarantee  for 
industrial  schemes  helping 
to  modernize  local 
industry  and  make  it  more  competitive,  the  granting 
of  loans  on  favourable  terms  for  Industrialists  who  moved  from  the  north 
industrial 
of  the  Island  following  the  events  of  1974,  and  grants  for 
jn  rural  areas.  Export  aids  take  the  form  of  export 
firms  setting  up 
guarantee  arrangements  < gov·ernment  guarantee 
for  obtaining  finance, 
export  ~redit  insurance), 
the  halving  of  tax  on  export  earnings  from 
products  manufactured  locally,  and  the  refund  of  customs  duties  charged 
on  raw  ma~erials used  in  the  manufacture  of  export  products. 

and  also  further 

to  encourage 

three  more 

-

There  has  been  I lttle  encouragement 
investment 
in  industry,  despite  the  fact  that  it  can  be  a  source  of  technological 
rules 
progress; 
in, the 
preventing· non-residents  from 
the  most 
sens i t i v'e  . 

taking  a  majority  holding; 

in  the  past  for  foreign 

industrial  sectors, 

traditional 

there  are 

In 

" ,,'<:.· 

- A/7  -

sectors,  such  as  pumps  and  turbines,  furniture,  leather  and  footwear  and 
In  exceptional 
the  food  Industry,  the  maximum  holding  is  normally  24%; 
cases  It  may 
Is  regarded  as 
investment 
the  restr let ions  do  not  apply  to 
part lcular ly  advantageous.  However, 
new 
commercial  projects  geared 
Industries,  nor 
exclusively  to  export. 

If  the  proposed 

industrial  or 

r I se  to  49%, 

to 

I I.  ADAPTING  CYPRIOT  LEGISLATION  TO  THE  ACQUIS  COMMUNAUTAIRE 

Because  of  the  lack  of  adequate  information  on  existing  legislation  in 
Cyprus, 
Is  difficult  at  this  stage  to  assess  the  extent  to  which 
approximation  to  Community  legislation  has  already  taken  place. 

It 

the  Cyprus  authorities. 

In 
the  sphere  of  technical  rules,  i.e.  standardization  and  conformity 
testing,  alignment  of  Cypriot  legislation  on  that  of  the  Community  is  a 
It  would  seem  that  this 
priority  target  for 
is  either  already  partially  under  way  or 
is  being  prepared. 
alignment 
It  will 
technical 
to  check, 
be  necessary 
in  Cyprus  are  optional  or  mandatory, 
specifications  currently  in  force 
as 
the 
It  should  also  be  noted  that 
conformity  of  products  to  technical  rules. 
Cyprus  Is  still  not  a  party  to  the  GATT  Agreement  on  technical  barriers 
to  trade. 

the  arrangements  for 

however,  whether 

for  assessing 

is  crucial 

testing 

this 

the 

the 
With  regard  to  Intellectual, 
Cyprus  authorities  point  out 
they  have  either  already  adopted 
measures  to  align  local  legislation  on  Community  rules  or  that  they  are 
preparing  such  legislation.  Nevertheless,  it  is  considered  that  there 
are  still  gaps  in  Cypriot  legislation  where  it  should  correspond  to  the 
Community  acguls. 

industrial  and  commercial  property, 
that 

Similarly, 
currently  governing  public  procurement,  where 
national  preference  is  incompatible  with  Community  rules. 

there  wi  I I  certainly  have 

to  be  changes 

the 

in 

the 

requirement 

rules 
for 

I I I. 

IMPACT  OF  ACCESSION  ON  CYPRIOT 

INDUSTRY 

instruments  providing  the  means  for  Cyprio-· 

industry  to  adjust  to 
The 
the  common 
the  Community's  single  market  and 
the 
the 
commercial  policy  already  exist.  This 
accession  of  Cyprus 
is  still  only  a  possibility, 
appl  icatlon  of  the  Association  Agreement  and  the  1988  Protocol  providing 
for  completion  of  the  customs  union  by  the  end  of  the  second  stage  wil  I 
compel  Cypriot 
to  adjust  progressively  to  a  market  open  to 
competition  not  only  from  Community  firms  but  also  from  non-Community 
countries. 

impl  ~ations  of 
is  because,  even  while 

the  Community 

industry 

to 

It  would  seem,  however,  that  the  Cypriot  business  community  is  adopting 
though  fu 11 y  aware  of  the  need  to  reorganize 
a  wait-and-see  po Ii cy; 
it  off  untl I  competitive 
their  business  methods, 
pressure  starts  to  become  a  reality. 
impossible,  therefore,  to 
overestimate  the  need  for  the  proper  application,  in  accordance  with  the 
agreed  timetable,  of  the 

they  are  putting 

is 

It 

- A/8  -

instruments  referred  to  above.  This  would  appear  to  be  the  best  means 
industry  - given  the  vulnerability  ·to  which 
of  ensuring  that  Cypriot 
attention  has  already  been  drawn  -
is  given  a  smooth  preparat'lon  for  the 
new  situation. 

for  Cyprus 

legislation, 

two  parties  In 

taking  over  Community 

As 
the  19.88  Protocol 
ensures  that  certain  principles  of  the  EEC  Treaty  will  be  applicable  in 
the  context  of  the  association. 
relations  between  the 
They  Include  the  competition  rules,  tax  provisions  and  the  article  on 
approximation  of 
for 
implementing  these  principles  are  to  be  adopted  by  mutual  agreement  not 
later  than  the  start  of  the  second  stage.  Hence  this  should  hormal ly 
take  place 
then  beginning  wU  L  provide  an 
in  1998.  The  new  period 
opportunity  for  any  additional  adjustments  required. 

Is  also  stipulated 

that  provisions 

laws. 

It 

the 

that 

Importance 

industrial 

is  of  vital 

It 
restructuring  and 
reorganization·  programme  being  implemented  by  the  Cypriot  government  be 
carried  out  effectively.  The  aim 
the  productive  sector 
become  more  f I ex I b I e  and  better  adapted  to  the  chang Ing  cond It ions  of 
It  shou Id  be  observed  that  the  po Ii cy  1 nit i ated  by 
the  wor Id  market. 
is  geared  to  modern I zat ion  of  the  ·ma-in  existing 
the  Cyprus  government 
industries,  i.e.  the  food 
.furniture  and 
metal  fabrication,  rather  than  to  conversion  and  the  developm~nt  of  new 
industrial  activities. 

industry.  clothing,  footwear, 

to  help 

Is 

- A/9  -

3.  CUSTOMS  AND 

INDIRECT.TAXATION 

I .  CUSTOMS  UN I ON 

the  whole  of  the 
In  the  event  of  accession,  Cyprus  wl 11  ~ave  to  adopt 
transitional 
Community 
customs  acguls.  Should  Cyprus 
arrangements  could  probably  be  made,·  w1·th  a  view 
the 
Cypriots  to  adjust  fully  to  the  Common  customs  Tariff  and  the  provisions 
of  the  Community  customs  Code. 

to  al lowing 

request, 

so 

regard 

computerized 

the  Cypriot 
With 
to 
in  setting  up  a  system  .with  a  view 
administration  is  currently  engaged 
the 
Importers'  data  bases, 
to  computerization  of 
the  automatic 
Introduction  of  the  single  administrative  document  and 
calculation  of  customs  duties  and  VAT 
·from  ·this  year  onwards.  This 
would  constitute  a  first  step  towards  the  upgrading  of  procedures  which 
wi I I  be  necessary  to  match  Community  standards. 

tariff  and 

clearance, 

customs 

the 

Along  with  the  Common  Customs  Tariff,  Cyprus  would  also  have  to  adopted 
the  Combined  Nomenclature,  which  is  considerably  more  .detal led  than  the 
Harmonized  System  currently  In  use  In  Cyprus. 

customs 
wi  I I  have 
adjustments  during  the  transitional  period. 

legislation  proper,  which  forms  part  of  secondary 
to  be  adopted  by  Cyprus,  subject  naturally 

legislation, 
to  certain 

11.  TAXATION 

1.  Value  added  tax 

i.e.  5%.  However,  zero  rating, 

Since  1992  Cyprus  has  been  operating  a  VAT  system  based  on  that  of  the 
In  principle  it  Is  a  single  ra_te  system  which  is  notable  by 
Community. 
I .e.  exemptions  with 
low, 
being  very 
credit  for  previously  paid  VAT, 
range  of  goods  and 
services  such  as  foodstuffs,  water  supplies,- pharmaceutical  products, 
newspapers,  periodicals  and  books,  children's  clothing  and 
footwear, 
urban  and  rural  bus  services,  fertilizers  and  agricultural  machinery, 
etc.-

Is  applied  to  a 

the  purpose  of  his  taxable  transactions, 

As  for  the  taxable  person's  right  to  deduction  for  goods  and  services 
used 
In 
for 
legislat Ion. 
general  siml lar 
However,  . arrangements 
taxab I e  persons  not 
estab 1·  I shed  in  Cyprus  st i 11  have  to  be  enacted. 

the  Community  VAT 

refund  of  VAT 

the  rules  are 

those  set  out 

for 

to 

to 

in 

Cyprus  does  not  operate  any 
farmers.  However, 
farmers  are  not 
their  fnputs  and  outputs  are  covered  by  the  zero  rate. 

flat-rate  or  slmi tar  scheme 

for  smal  I 
requ I red  to  register  and  most  of 

- A/10  -

The  processing  of  the  VAT  returns  Is  computerized  and 
system  developed 
requirements. 

the  Danish  VAT 

system,  adapted 

for 

is  based  upon  a 
to  Cyprus'ss 

The  VAT  system  applied  In  Cyprus  conforms  In  the  main  to  the  VAT  system 
In  the  event  of  Cyprus'ss  accession  certain  technical 
of  the  Community. 
adjustments  would  be  needed, 
In  part lcular  as  regards  the  rate  level. 
Adjustments  regarding  the  adoption  of  the  new  Intra-Community  VAT  system 
wi  I I  also  be  required. 

2.  Excise  duties 

In  addition. to  VAT,  Cyprus  levies  excise  duties  on  a  I imited  range  of 
goods  such  as  alcohol le  beverages,  tobacco  products,  mineral  ol ls  and 
soft  drinks. 
In  addition  to  customs  and  excise  duties,  Imported  goods 
are  subject  to  the  payment  of  a  temporary  levy.  This  levy  wi  I I  need  to 
be  abolished  in  the  event  of  Cyprus'ss  accession.  Furthermore,  imported 
goods  will  need  to  be  treated  the  same  way 
in  respect  of  taxation  as 
slmi lar  domestlcal ly  produced  products. 

- A/11  -

4.  EMPLOYMENT.  WORKING  CONDITIONS  AND  SOCIAL  AFFAIRS 

Information  available  would  suggest 

the 
The 
accession  of  Cyprus  would  not  raise  major  difficulties  in  the  social 
sphere. 

that,  broadly  speaking, 

The  social  situation  In  Cyprus  Is  comparable  in  many  respects  to  that  of 
the  event  of 
the  Community  Member  States  and  should  enable  it, 
accession,  to  take  over  the  Community  acguis  in  social  matters  without 
too  many  problems  and  with  only  a  few  adjustments. 

In 

I .  EMPLOYMENT 

long  time  there  has  been  little  unemployment,  and  the  level  has 
For  a 
been  stayed  below 
ten  years. 
Neither  women  nor  men  are  particularly  disadvantaged  by  unemployment  and 
there  is  relatively  I ittle  youth  unemployment.  Similarly,  the  long-term 
Jobless  are  few  in  number. 

the  high  Community  rates  of 

last 

the 

I I.  HEALTH  AND  SAFETY  AT  WORK 

Cypriot  legislation  is  similar  to  that  of  the  United  K~ngdom. 
at  present 
transposing 
adopting  draft 
directives  into  national  law. 

legislation 

for 

Cyprus  is 
Community 

I I I . 

FREE  MOVEMENT  OF  WORKERS 

The  number  of  work  permits  Issued  to  Community  nationals  by  the  Cypriot 
In  1990  nearly  9  OOO 
authorities  has  been  fairly  stable  since  1986. 
permits  were  issued,  more  than  half  of  them  to  British  nationals.  The 
permits  are  valid  for  one  year. 

IV. 

LABOUR  LAW  AND 

INDUSTRIAL  RELATIONS 

Collective  bargaining  is  the  foundation  of  the  Cypriot  labour  relations 
system  and  there  is  a  strong  tripartite  tradition. 

Labour  legislation  is  kept  to  a  minimum: 
in  which 
the  main  principles  established  are  freedom  of  association  and  the  right 
to  strike.  There 
legislation  on  protection  of  certain 
vulnerable  categories  of  workers  on  the  labour  market. 

it  forms  a  framework 

is  also  some 

- A/12  -

the  event  of  accession,  Cyprus  wou Id 

to  adopt 
1 n 
cert a In  adjustments 
Ii ne  w Ith  specific  Community  directives 
(ma I ntenance  of  workers·  rights  In  cases  of  transfer  of  ownersh Ip  of 
f  lrms,  and  protection  of  w~ges or  salaries  due  in  cases  of  bankruptcy  of 
employers). 

In  any  case  have 

in 

V.  EQUAL  TREATMENT  FOR  WOMEN  ANQ  MEN 

to.  adjust 

Here  too,  In  order  to  be  fully  In  line  with  Community 
have 
provisions 
In  such  matters  a~  equal 
protect I on  of  pregnant  ·women..  The  same  app I I es 
directive  on  equal 
treatment 
including  In  farming. 

law,  Cyprus  would 
legislation  or  contractual 
the 
the 
fo.r  m_en  and  women  who  are  self-employed, 

treatment,  equal  pay  and 
the  case  of 

its  current 

somewhat 

in 

Application  of  the  EEC  soci.al  security  Directive  (statutory  systems) 
does  not  present  major  diff icultles; 
in  occupational  schemes  there  is 
sti I I  a  degree  of  dlscrimiriatlon. 

VI.  EUROPEAN  SOCIAL  FUND 

the  context  of  aid  granted  under 

In 
some 
operat Ions  could  be  con~_idered  as  coming  under  Objective  1  and  hence 
could  take  the  form  of  operations  to  develop  human  resources  (training 
and  employment). 

the  Structural  Funds, 

to-

seem 

indicate  significant 

in 
Certain  data  would 
Investment 
implementing  social  policies.  The  percentage  of  GNP  al·located 
to 
education  and  training  (5.3%  In  1990)  compares  to  the  Community  average 
and  is-bi'gher  than  in  some  Member  States. 
I I literacy  would  appear  to  be 
non...:existent_  and  the  educational  qualifications  of  people  in  employment 
seems  to  be  fairly.hJgh: 
for  example,  17%  of  the  active  population  is 
the  stay Ing-on  rate  for  young 
of  graduate  ·I eve I.  on·  th~  c)'ther  hand, 
t;>etween  15  and  1'9  years  of  age 
people 
low,  as  compulsory 
Is  rather 
school Ing_  ends  at  the  'age  ·of  15.  Administrative  services  (notably  the 
employment  services)  are  of  good  quality. 

The  above:-· cons tderat ions  suggest 
to 
combat  unemployment  under  the  European  Social  Fund  would  be  re I at ively 
margina·I 
though  by  no  means 
negligible  for  Cyprus~ 

that  any  operations  undertaken 

from.  the  standpoint  of 

the  Community, 

- A/13  -

5.  COMPETITION 

1.  COMPETITION  RULES  FOR  COMPANIES 

legislation  is  the 

law  to  ensure  competition,  which  was 
The  relevant 
adopted  In  1989  and  entered  Into  force  In  June  1990. 
It  reproduces  the 
text  of  Art'tcles  85  and  86  of 
the  EEC  Treaty,  and  also  certain 
provisions  of  Regulat Ion  No  17.  A  close  watch  wl 11  have  to  be  kept, 
however,  on  state-controlled  undertakings,  which  are  not  covered  by  the 
I eg Is I at ion •. 

With  regard  to  merger  control,  there  Is  a  requirement  that  mergers  must 
be_  notif led  not  later  than  30  days  after  they  take  place,  which  raises  a 
questionm~rk over  the  effectiveness  of  such  supervision. 

Although  'there  is  as  yet  I lttle  case-law,  there  has  been  one  instance  in 
the 
to  Joint  pr lce 
f  ix ing  practices. 

the  Commission  objected 

insurance  sector,  where 

the  Cypriot 
The  conclusion 
legislat ton  dat tng  from  1990  approx I mates  to  that  of  the  Commun I ty,  but 
it ·Is  -too  ear I y  to  pronounce  on  the  effectiveness  of  its  imp lementat Ion. 

to  be  drawn 

foregoing 

from 

that 

the 

is 

2.  STATE  AfDS  -

tourism,  exports). 

lncurre.d  on  guarantees 

for  a  number  of  purposes 
It  Is  not  clear  whether 

(e.g. 
Gover·nment  .  guarantees  are  given 
industr'lal  'i:>"r:OJects, 
these 
guarantees  are  given  under  commercial  conditions  and  whether  In  case  of 
the 
losses 
recipient  th~  amount  due,  If  necessary  by 
is 
especl'ally_important 
If  state  aids 
are  -Involved,  H- should  be  pointed  out  to  the  Cypr lot  author It les  that 
for  exports  within  the 
the  Cornmlssion  does  not  approve  of  any  aid 
Communl.ty •. · 

In  the  case  of  the  export  sector. 

the  Cypr lot  government  claims 

legal  means.  The  above 

from 

facilities  for  export-oriented  companies  and 
the 
Except  -for  special 
information  has  been  given  about  a Id  programmes 
tourist  sector,  no 
directed. at  specific  sectors.  However, 
it  should  be  signal led  to  the 
Cypriot _authorities  that  schemes  which  grant  aid  to  companies  in  general 
are 
to 
industrial  sectors  covered  by  specific  Community  policy  state~ents,  and 
also  aids  to  the  agriculture,  fisheries,  transport  and  coal  sectors.1 

to  companies  pertaining 

concerns  aid 

restricted 

in  what 

1 

Aid  to  the  agriculture  and  transport  sectors  has  not  been  subject  of 
this  analysis. 

- A/14  -

the  establishment  of  Industrial  estates  and  free  zones, 

For 
the  aid 
element  must  be  evaluated  and  cumulation  conditions  with  other  aids  must 
be  specified.  This  may  constitute· an  operating  aid,  and 
is 
such 
Include  some 
normally  not  acceptable. 
export  aid  that  would  not  be  acceptable. 

In  addition,  the  free  zone  may 

No  aid 
companies,  the  necessary  information  should  sti I I  have  to  be  provided. 

If  state  aid  for  R&D 

Is  mentioned  for  R&O. 

Is  granted 

to 

regards  pub I ic  undertakings  and  holdings 

As 
the  government 
participates  several  points  should  be  mentioned.  For  example,  it  is  not 
clear  whether  the  conditions  on  the  transparency  of  financial  relations 
are 
the 
the  activities  are 
Commission's  communication  on  public  enterprises 
the  manufacturing 
sector. 

fulfilled  or  whether 

I ine  with 

in  which 

in 

in 

provided 

A  first  assessment  of  the  state  aids  situation  in  Cyprus  shows  that  the 
sti I I 
information 
tax 
is 
industrial  restructuring,  role  of 
incentives,  regional  aids, 
loans  for 
the 
the  Cyprus  Development  Bank,  etc.). 
Cypriot  e.conomy, 
involved  and  the 
the  probable  size  of  the  companies 
nature  of  their  activities,  it  Is  however  I ikely  that  in  many  cases  the 
threshold  of  "de  minimls"  rules  wi  I I  be  exceeded. 

the  extent  of 

In  view  of 

exemptions, 

Incomplete 

(tax 

3.  STATE  MONOPOLIES  - UNDERTAKINGS  WITH  SPECIAL  OR  EXCLUSIVE  RIGHTS 

A.  Trading  monopolies 

There  are  monopolies  In  Cyprus  for  electricity,  oil  and  wine.  Various 
restrictions  relating 
to 
Article  30,  34  or  37  of  the  EEC  Treaty. 

these  monopol  les  are  clearly  contrary 

to 

B.  Public  undertakings 

The  Cypri'ot  authorities  contend 
transparency  of 
that 
financial  relations  between  public  authorities  and  public  undertakings. 
but  no  details  appear  in  the  aval lab le  information. 

is  full 

there 

telecommunications 
is 
(CTA) 

In 
the. 
Authority 
telecommunications 
recognize 
Community 
of  telecommunications  equipment. 

the  Cyprus  Telecommunications 
the  provision  of 
authorities 
that 
incompatible  with 
legislation  would  be 
law.  Some  further  liberalization  Is  also  needed  in  the  field 

sector, 
the  only  authorized  body 
services 
the  present 

in  Cyprus.  The  Cypriot 

for 

The  posta I  serv Ice  has  an  over a 11  monopo I y,  except  for  express  ma  i  I 
services,  which  are  provided  both  by  the  public  service  and  by  private 
firms.  The  Cyprus  government 
legal 
framework  for  the  postal  service  with  a  view  to  institutional  reform. 

is  at  present  examining 

the 

There  do  not  appear  to  be  any  special  or  exclusive  rights  in  Cyprus  for 
air  or  sea  transport. 

- A/15  -

6.  FINANCIAL  INSTITUTIONS.  COMPANY  LAW  AND  DIRECT  TAXATION 

the  basis  of  the  available  legislative  Information  which 

On 
I imlted  the  situation  appears  to  be  as  fol  lows.1. 

ls  quite 

I.  BANKS 

The  Central  Bank  of  Cyprus  has  prepared  a  new  banking  bi  II,  the  purpose 
of  which 
ls  to  modernize  banking  practice  and  align  It  with  most  EC 
banking  legislation. 

banks 

receive  national 

EC 
appear 
establ lshment  and 
branches 
In  Cyprus  and  one 
is  also  al lowed 
establishment  of  offshore  business2 
financial  services  firms,  subject  to  specific  conditions. 

to 
regards  both 
the  carrying-on  of  activities.  Two  EC  banks  have 
incorporated  as  a  subsidiary.  The 
foreign 

treatment 

for 

as 

is 

II. 

INSURANCE 

EC 
insurance  companies  appear  to  receive  national  treatment  as  regards 
both  establishment  and  the  carrying-on  of  the  activities.  They  may  be 
estab Ii shed  as  either  a  subsidiary  or  as  a  branch.  The  number  of  EC 
insurance  companies  present  is  25,  onshore  and  offshore. 

Ill.  SECURITIES 

The  present  Cyprus  securities  market 
market,  which  does  not  have  any  EC  presence. 

is  an  unoff lcial  over-the-counter 

A stock  exchange  bi I I  has  been  submitted  to  Parliament  providing  for  the 
development  of  the  securities  market~  the  establishment  and  operation  of 
a  Cyprus  Stock  Exchange,  the  establishment  of  a  Stock  Exchange  Council 
and  other  related  matters.  This  proposal  does  not  contain  any  reference 
to  access  or  to  operation  by  foreign  companies. 

IV. 

CQMPANY  LAW  AND  DIRECT  TAXATION 

The  Commission  is  not  in  the  possession  of  any  legislation  pertaining  to 
company  law  and  direct  taxation. 

V. 

ASSESSMENT 

to  assess  at 

Is  not  possible 

the  application  of  Community 

this  stage  which  specific  points 
It 
to  financial 
concerning 
institutions,  company 
law  and  direct  taxation  will  need  to  be  addressed 
In  the  accession  negotiations.  Although  the  laws  of  Cyprus  generally  set 
the  framework  for  national  treatment  pertaining  to  establishment  and  the 
carrying-on  of  activities,  the 
legislation  does  not  go  as  far  as  EC 
legislation,  so  the  fol lowing  comments  are  called  for. 

law  pertaining 

OnlylvaAcduferceanuhaa~aiaet  of  the  island. 

1 
2  Offshore  banks  are  licensed  to  carry  on  banking  business  from  within 
Cyprilbe batqwhs I t:.>mmnauta::itf:shmrsrt:  t:Ds i accalla~at  bJrnlChl;usus l-blmseis 
rest U et et1.t I ., x d lnJB 8neht a t>ion p rtSm:mei:rfanrU y  tle  <lldi war e:d  Wlm"  ar es hoot 
permpeerhd>d  ms itdsret&ooa I ltne t 6e~rtazprdfl ttCyt:JJ~I  and  amn i clisteat i ve 
otheadl~lattbe.C}¥Pnlet~rtttansitional  period  should  be  of  strictly 

- A/16  -

limited  duration,  sensitive  questions  could  arise  regarding  the 
capacity  of  the  authorities  of  Cyprus  effectively  to  apply  the 
prudential  regime  imposed  by  the  Community  directives. 

2.  Aoproxlmatlon  of  laws 

The  Association  Agreement  with  Cyprus 
contain 
provisions  relating  to  financial  services,  company  law  or  direct 
taxation.  Although  Cyprus  has  decided  to  align  its  legislation 
in  these  areas  specific  efforts  appear  only 
with  Community 
the  banking  area.  Cyprus  should  be 
to  have  been  made 
encouraged 
the  other  areas  as 
legislation 
quickly  as  possible,  as  this  would  only  faci I itate  the  accession 
negotiations. 

to  align  Its 

does 

not 

law 

in 

In 

VI. 

CONCLUSION 

It  would  be  useful 
if  the  authorities  of  Cyprus  could  be  persuaded  to 
continue  and  Intensify  the  exercise  of  approximation  of  laws  in  the  area 
of  financial  Institutions,  company 

law  and  direct  taxation. 

- A/17  -

7.  ENERGY 

1. 

2. 

3. 

4. 

In 

is 

some 

scope 

the  domestic 

resources  and 

indigenous  energy 

to  develop  hydroelectric  power 

therefore 
Cyprus  has  no 
completely  dependent  on 
imported  energy,  particularly  oil,  with 
50%  of  export  earnings  being  spent  on  petroleum  products.  There 
Is 
and  other 
renewables  such  as  solar  power  heating,  which 
is  already  well 
energy 
estab I I shed 
consumption  In  Cyprus  is  1.2  mill Ion  toe  (1990)  compared  to  723 
million  toe  in  the  Community  (12).  Energy  intensity  in  Cyprus 
than 
(gross 
to 
double 
taking  steps 
reduce 
encourage  energy  efficiency  and  conservation 
the 
the  private 
growth 
sector  w Ith  support I ve  measures  and  f i sea I  I eg is I at ion  by 
the 
government. 

Inland  consumption 
the  EC 

to 
is  done  main I y  by 

figure  of  286.  Cyprus 

in  energy  demand.  This 

in  1990  was  610,  more 

sector.  Tota I 

f i na I 

/GDP) 

is 

the  sole  responslbi I ity  of 

Electricity  power  generation  (+/-500mw) 
is  oil-based  and  uses 
about  a  third  of  oi I  imports.  Electricity  generation  and  supply 
the  Electricity  Authority  of 
is 
Cyprus,  which  supplies  the  whole  island,  for  which  there  is  an 
integrated  grid  network,  an  important  link  between  the  two  parts 
of 
the 
Is 
the  Turkish 
unbi I led  consumption  of  electricity  suppl led 
commun I ty. 

island.  A  major  problem 

this  Authority 

the 

for 

to 

and 

the 

is  not  a  member  of 

in  meeting 
It 

the  Community's  crisis 

In  the  event  of  accession  to  the  Community,  Cyprus  may  have  some 
difficulty 
stock 
I nternat Iona I  Energy 
d I rect Ives. 
Agency.  Moreover.  at  the  moment  stocks  to  meet  only  around  30 
lnformat Ion  on  the  north  of  the 
days  ol I  consumpt Ion  are  held. 
not 
Island 
to 
Is 
is  currently 
in  oil  markets, 
developments 
reviewing  this  situation.  Cyprus  may  also  find  difficulty  in 
conforming  to  directives  prohibiting  the  development  of  new  oil 
based  generating  units 
its 
the 
the  environmental 
electricity  generating  system.  As 
impact  of  energy  use.  at 
the  moment  power  generators  do  not 
operate 
in  conformity  with  EC  directives,  although  steps  are 
being  taken  to  remedy  this. 

Its 
the  government 

avai I able.  Given 

future 
regards 

expansion  of 

vulnerabl I ity 

in 

I ittle 

In  conclusion,  given  Cyprus'ss  island  situation,  somewhat  remote 
from  the  existing  Community  of  twelve,  Its  energy  situation  wi  I I 
the  Community's  energy  situation  and 
have 
the  other  hand  Cyprus 
present  energy  po I icy  deve I opment .  On 
wi  II 
EC 
to  adapt  or 
requirements  in  the  energy  sector. 

legislation 

Impact  on 

introduce 

to  meet 

have 

- A/18  -

8.  ENVIROt&tENT 

It  can  be  said  that  there  Is  no  major  environmental  problem  In  Cyprus. 
the  spec If I c  geographic,  c I I mat I c  and  economic  cond it Ions,  some 
G I ven 
: 
Issues  are  of  more  particular 
ensuring 
and 
sustainable 
agricultural  activities,  protection  of 
resources, 
preservation  of  the  quality  of  the  marine  environment  and  of  the  natural 
assets  of  Cyprus,  AND  management  of  waste. 

industrial, 
the  scarce  water 

development  of 

than  others, 

importance 

instance 

tourist 

for 

a 

Existing  contacts  between  the  Community  and  the  Cypriot  authorities  show 
the  obvious  wl  11  ingness  and  also  the  capacity  of  Cyprus  to  conduct  a 
sound  environmental  pol Icy,  based  on 
its  integration  with  the  overal I 
development  policy.  Approximation  of  Cypriot  environmental  policy  and 
is  actively  sought  and  has  already 
legislation  with  those  of  the  EC 
taken  place  in  some  f  lelds. 

The  most  recent  environment-specific  legislation  adopted  or  planned  for 
adoption 
legislation. 
This  concerns  areas  such  as  water  and  atmospheric  pollution,  dangerous 
substances,  noise  or  Industrial  effluents. 

Is  based  on  principles  in  I ine  with  relevant  EC 

Therefore  one  may  well  conclude  that  as 
long  as  this  trend  is  followed 
and  cooperation  between  the  EC  and  Cyprus  continues  on  the  same  basis, 
integrating  EC 
Cyprus  would  not  meet 
environmental  po I Icy  and 
in  the  event  of 
the  expertise  and  experience 
accession. 
tackled  by 
acquired  already  at  EC 
Cyprus. 

in 
leglslat ion  Into  its  system 

any  major  difficulty 

It  would  only  benefit 

in  areas  not  yet 

including 

level, 

from 

- A/19  -

9.  TELECQMMUN I CAT I ONS 

(or 

the 

that 

Indicates 

Information  available 

legislation 
The 
covering  telecommunications,  which  confers  on  the  CYTA1  both  regulatory 
funct Ions 
and 
operational  functions,  and  also  gives  It  a  monopoly  over  the  supply  of 
services, 
rules.  Should  negotiations 
Is 
the  Cypriot  authorities  would  have  to  adopt 
take  place  on  accession, 
appropriate  measures  In  this  respect,  subject  to  the  usual  transitional 
provisions. 

Incompatible  with  Community 

respons I b 111 ty 

the  current 

dee Is Ions) 

prepar Ing 

for 

In  many  other  respects,  however,  accession  would  raise  no  particular 
difficulty.  An  example 
the  CYTA  applies  both 
ls  standards,  where 
international  standards  and  those  set  by  ETSl,2  of  which  Cyprus  was  a 
founder  member.  The 
terminal 
equipment,  for  which  the  market  was  liberalized  In  1989. 

telecommunications 

applies 

same 

to 

in 

the  southern  part  of 

Moreover, 
developed.  With  46  direct 
stands  slightly  above  the  overall  average  for 
(43); 
mob lie  phones  are  already  available. 

the 
I Ines  for  every  100 

island 

In  add it Ion,  new  serv Ices  cover Ing  data  transm i ss Ion, 

the  network 

Is  wel  I 
inhabitants,  Cyprus 
the  Community  and  EFTA 
fax  and 

1  Cyprus  Telecommunications  Authority. 
2 

European  Telecommunications  Standards  Institute. 

- A/20  -

10. 

IRANSPORT 

I. 

ROAD  TRANSPORT 

regard  to  market  access,  pub I ic  transport 

WITH 
subject  to 
International  road  transport  goods  agreements  with  Cyprus. 

Is 
licences.  A  majority  of  Member  States  have  signed 

in  Cyprus 

In  the  areas  of  social 
legislation,  technical  standards,  taxes 
and  road  safety,  there  exists  a  legal  basis.  Current  legislation 
concerning  environment  and  pub I le  health  Is  minimal. 

I I . 

SEA  TRANSPORT 

Conditions  for  the  establishment  of  shipping  companies  in  Cyprus 
and  accession  to  Its  flag  are  too  loose  as  compared  with  those 
generally  appl led  by  EC  Member  States. 

Operating  conditions  under  the  Cyprus  flag  may  raise  problems  of 
distortions  of  competition  due  to  low  taxation  and  non-existence 
of  manning  nationality  requirements. 

the 

Moreover, 
i nternat Iona I 
standards  of  safety  and  pollution  prevention  differs  from  the 
Community  fleets'  average. 

imp I ementat ion  of 

degree  of 

111  .AVIATION 

is 

transport 

Air 
traditional  bi lateral 
agreements.  Cyprus  has  signed  35  bilateral  agreements,  Including 
with  all  EC  Member  States.  Cyprus  is  a  signatory  of  the  ICAO  as 
wel  I  as  of  Eurocontrol  and  ECAC  agreements. 

largely  governed  by 

Regarding  market 
restrictions  are  much 
are  in  Cyprus. 

access 

and 

less  apparent 

ownership 

fares, 
in  the  Community  than  they 

air 

and 

CONCLUSION 

In  the  course  of  any  accession  negoclations,  the  fol lowing  would  have  to 
be  discussed  in  detail  : 

transport 

Road 
public  health  and  technical  standards. 

legislation  on  social  aspects,  environment, 

transport 

Maritime 
registration  and 
pollution  prevention  standards. 

the 

cargo 

for 
implementation  of  maritime  safety  and 

reservation, 

conditions 

Aviation 
process. 

the 

legislation  concerning 

the 

liberalization 

- A/21  -

11.  ENTERPRISE  POLICY  AND  TOURISM 

to 

is  general 

The  Cypriot  economy  is  dominated  by  smal  I  and  medium-sized  enterprises. 
targeted 
Enterprise  policy 
according 
the  Cyprus 
government's  main  alms  of  encouraging 
in  rural  areas  (by 
means  of  grants),  stimulating  exports  (through  guarantees  and  grants  for 
implementing  industrial  projects  (guarantees,  grants  for 
missions)  and 
studies  on  restructuring). 

the  size  of  businesses,  as 

in  nature,  rather 

this  meets 

than  being 

Investment 

Since  mld-1992  Cyprus  has  been  connected  to  the  BC-Net  network  and  It  is 
planned  to  set  up  a  Euro-Info  Centre  in  1993/94. 

The  recent  growth  of  tourism  in  Cyprus  is  impressive.  For  example,  both 
the  number  of  beds  and  the  number  of  tourists  visiting  the  island  more 
than  doubled  between  1985  and  1990. 

Since  1990  the  government  has  been  pursuing  a  tourism  policy  aimed  at  a 
more  targeted  growth  in  tourist  numbers  and  also  a  more  varied  range  of 
tourist  attractions,  with  the  aim  of  achieving  a  more  even  spread  of 
tourist  visits  throughout  the  year. 

This  Is  entirely  consistent  with  Commission  policy  in  this  f leld. 

CONCLUSION 

It  Is  clear  from  the  foregoing  that  the  accession  of  Cyprus  would  not 
present  any  special  problems  in  respect  of  enterprise  pol  Icy  or  tourism. 

- A/22  -

12.  CQNSUMER  POLICY 

1.  Health  and  safety 

Information  available  does  not  permit  a  conclusive  assessment 
The 
regard Ing 
It  wou Id  appear,  however, 
that  the  rules  In  force  In  Cyprus  would  have  to  be  revised  completely  In 
order  to  be  brought  into  line  with  the  relevant  Community  directive. 

the  genera I  safety  of  products. 

The  current  regulatory  situation  in  Cyprus  with  regard  to  cosmetics  is 
incompatible  with  Community  rules. 

2.  Consumer  transactions 

There  does  not  appear  to  exist  any  legislation  at  present  comparable  to 
legislation  on  the  following:  misleading  or  comparative 
the  Community 
than 
advert Ising,  package  holiday  tours, 
those  negot I ated 
in 
contracts. 
It  would  therefore  be  necessary  to  incorporate  the  Community 
directives  Into  Cypriot  law. 

in  commerc i a I  estab Ii shments  and  unfair  c I auses 

t  imeshar ing,  contracts  other 

3. 

Information  and  orotection  of  consumers'  economic  interests 

the  provisions  contained 

the  case  of  textiles, 

In 
directives  have 
legislation,  but  gaps  - major  ones 
would  also  appear 
the  Cypriot 
products  and  ana I yt I ea I  methods  used 
optional,  and  this  would  not  be  acceptable. 

large  extent  been 

to  a 

that 

in 
incorporated 

in  some  cases  - still  exist. 

the  Community 
Into  Cypriot 
It 
labelling  of 
in  conformity  test Ing  are  mere I y 

rules  concerning 

Cypriot  legislation  on  the  labelling  of  foodstuffs  does  not  present  any 
special  problems,  even  though  generally  speaking  it  falls  short  of  the 
relevant  Community  directives. 

the  matter  of 

In 
Cypriot 
far 
directives  and  major  adjustment  efforts  would  be  required. 

the  pricing  of  foodstuffs  and  non-food  products, 
relevant  Community 

legislation 

removed 

from 

the 

is 

To  sum  up,  the  accession  of  Cyprus  would  entai I  adjustments  to  Cypriot 
legislation  on  consumer  policy,  and  in  some  cases  the  adjustments  would 
be  substantial. 

- A/23  -

13. 

IMPLICATIONS  FOR  THE  COMMUNITY  BUDGET 

The  estimate  of  the  budget  Impact  was  drawn  up  on  the  assumption  that 
the  Commun I ty  acgu Is  w 111  app I y,  and  on 
the  Commun I ty 
budget  adopted  for  1992. 

the  basis  of 

It  was  not  possible  to  allow  for  any  dynamic  aspects  of  the  Impact  of 
access I on  on 
the  econom I c  structure  of  Cyprus, 1  the  main  features  of 
which  from  the  budget  standpoint  are  as  fol  lows: 

(  I) 

( I i ) 

(  i  i  I) 

agricultural  production  accounts  for  some  7%  of  gross  domestic 
falls  short  of  ensuring  self-sufficiency,  as 
product 
and 
Indicated  by 
Imports  of  agricultural  products 
the  fact 
exceed  exports  by  over  20%  In  value  terms; 

that 

trade 

external 
considerable  need 
production  and 
Trade  wl th 
total  trade  flows; 

Is  substantially 

the 
in 
for  manufactured  consumer  goods. 
the  European  Community  accounts  for  over  ha If  of 

in  deficit  because  of 
to  be  used 

intermediate  products 

for 
the  demand 

GNP  In  Cyprus  Is  equivalent  to  some  1%  of  that  of  the  Community, 
the 
which  corresponds 
to  a  oer  caoita  average  of  48%  of 
Island, 
Community 
the 
In 
average 
the  southern  part 
(viz.  19%  as  against  55%  of  the  average  per  capita  Community 
GNP). 

the  northern  part  of 
in 

Is  only  one  third  of  the 

level. 

level 

the 

In  the  light  of  all  this  the  following  quantified  estimates  have  been 
arrived  at: 

1.  Expenditure 

A.  Agricultural  expenditure 

the  I lght  of  the 
A  basic  calculat Ion  was  carr led  out  by  product 
recent  developments  In  the  common  agricultural  policy.  The  assumptions 
used  concern  both  economic  parameters  (production,  consumption,  trade, 
unit  assistance  rates,  and  so  on)  and  structural  ones 
(numbers  of 
persons  involved  in  agriculture,  herd  numbers,  and  so  on). 

In 

Total 
requirements  were  estimated  at  some  ECU  60  million, 
ECU  24  ml  I I Ion  for  cereals  and  ECU  14  mil  I ion  in  the  sheepmeat  sector. 

Including 

These  figures  are  a  guide  only,  since  the  statistics  available  are  not 
sufficiently  detailed. 

E.g.  changes  in  trade  flows  or  the  structure  of  agriculture. 

- A/24  -

B.  Structural  Funds 

Given  the  average  per  capita  GNP  of  Cyprus,  applying  the  amount  of  aid 
per  head  of  population  for  Greece, 
regional  and  social 
assistance  (Including  IMPs} 
together,  to  the  population  of  the  Island 
results  In  a  figure  of  around  ECU  120  ml  I I ion,  the  distribution  of  which 
the 
between 
the  regional 
appropriate  time.  This  figure  covers  contributions  from 
funds, 
the  EAGGF  Guidance  Section  and  assistance  for 
the  f lshery  sector. 

island  would  be  establ I shed  at 

the  Social  Fund, 

two  parts  of 

taking  all 

the 

the 

c.  Other  policies 

Applying  the  GNP  ratio  In  respect  of  Industrial  policy  expenditure  and 
the  population  ratio  In  respect  of  administrative  expenditure  results  In 
figures  of  ECU  3  ml  I lion  and  ECU  4  ml  I I Ion  respectively. 

D.  Language 

In  present  circumstances  the  accession  of  Cyprus  would  Involve  a  further 
language-
200  translators  and 
Interpreters  at  an  annual  cost  of  around  ECU  8  mi  I I ion. 

(Turkish}  which  would 

require 

some 

2. 

Income 

given 

resources  as  trad It Iona 11 y  def I ned  wou Id  br Ing 

In  an  est I mated 
Own 
ECU  55  ml  I I Ion, 
compr lse 
ECU  8  mill Ion  from  farm  levies  and  ECU  47  million  from  customs  duties. 
At  the  same  time  accession  would  result  in  an  estimated  drop  In  budget 
receipts  of  ECU  6  ml  I I Ion.  Resources  from  VAT  and  GNP  would  bring  in 
ECU  39  million  and  ECU  14  mll  I Ion  respectively. 

and  would 

trade, 

level 

the 

of 

CONCLUSION 

terms 

the  accession  of  Cyprus  might  result 

In  budget 
Increased 
expenditure  of  ECU  195  million,  notably  on  account  of  payments  from  the 
Income  would  increase  by  ECU  96  mi  I lion,  however,  due 
Structural  Funds. 
allowance  being  made  for  the  loss  of  duties  and  levies  on  trade  between 
Cyprus 
the  costs  of  collection.  Overall, 
therefore,  accession  would  represent  an  additional  budget  cost  of  some 
ECU  100  m I I I I on. 

the  Community 

and 

and 

In 

1. 

2. 

- A/25  -

14.  COOPERATION 

IN  THE  FIELDS  OF  JUSTICE  AND  HOME  AFFAIRS 

The  Cyprus  government  has  undertaken  to  meet  al I  obligations  and 
the  Treaty  on  European  Union. 
responslbllltles  deriving 
the  Cypriot  authorities  of  al I 
This 
dee Is Ions  concern Ing  cooper at Ion 
in  the  f  I e Ids  of  Just Ice  and 
In  Title  VI  of  the  Treaty  on  European 
home  affairs  as  set  out 
Union. 

Imp lies  acceptance  by 

from 

in 

Involvement  of  Cyprus 

The 
the  obligations  resulting  from 
Title  VI  of  the  Treaty  could  entail  a  major  effort  on  the  part 
of  the  authorities  of  the  island  in  order  to  ensure  that  al I  the 
necessary  means  are  employed  so  that 
in  the 
areas  concerned  becomes  a  rea I i ty.  The  ex tent  of  this  effort 
can  be  established  only  by  Joint  examination  of  the  details  of 
the  relevant  acauis. 

fu I I  cooper at ion 

- A/26  -

15.  CQtA4UNITY  REGIONAL  POLICY 

in 
Given  the  total  population  (around  700  OOO)  and 
population  terms  of  the  NUTS  II  regions  of  the  Community,  Cyprus  would 
constitute  a  unique  NUTS  II  reglon.1  Under  Community  rules  the  regions 
eligible  under  Objective  1  of  the  Structural  Funds  are  NUTS 
II  regions 
whose  oer  caolta  GDP  Is,  over  the  last  three  years,  less  than  75%  of  the 
Community  average. 

the  average  size 

According 
Cyprus  as  a  unique  NUTS  I I  region,  could  be  included  under  Objective  1. 

the  various  estimates  available, 

it  would  appear 

to 

that 

1 

NUTS:  Nomenclature  of  Territorial  Units  for  Statistics,  subdividing 
the  territory  of  the  Community  into  statistical  regions. 

- A/27  -

16.  STATISTICS 

on  the  basis  of  the  limited  information  available  and  the  few  bilateral 
contacts  there  have  been  In  the  past,  the  s I tuat ion  appears  to  be  as 
fol lows. 

THE  CYPRIOT  STATISTICAL  SYSTEM 

The  stat i st i ea I  system  of  Cyprus 
the  Department  of 
St at i st I cs  and  Research  CDSR)  wh i eh 
Is  a  separate  department  of  the 
the  British  colonial 
Ministry  of  Finance. 
administration.  Since  Independence  In  1960  the  government  has  drawn  up  a 
succession  of  f lve-year  development  plans  in  statistics. 

is  based  around 

founded  under 

It  was 

fulfl Is  a  role  similar 

that  of  a  central lzed  national 
The  DSR 
I lmited 
statistical  office 
knowledge  of 
its 
pub I lcatlons  have  a  full  set  of  statistical  information  in  the  economic, 
agricultural  and  social  fields. 

the  Member  States.  We  have 
resource  base  of 

in  one  of 
the  workings  and 

the  DSR,  but 

to 

STATISTICAL  LAW 

In  many  EC  Member  States 

As 
legal  act  underpinning 
there 
statistical  activities.  This  was  passed  in  1968  and  empowers  the  DSR  to 
co I I ect 
its 
confl.dentlal  nature.  This  outlines  the  rights  and  responsibilities  of 
increasingly 
the  DSR.  The 
Important  with  Community  statistics. 

subject  of  confidentiality 

Is  becoming 

sta t I st I ea I 

I nf or mat I on 

necessary 

protect 

is  a 

and 

any 

ASSESSMENT 

Given  the  size  of  the  country,  Cyprus  has  a  relatively  well-developed 
statistical  system  which  could,  given 
resources,  be 
adapted  to  the  statistical  acguls  after  a  reasonable  transition  period. 

the  necessary 

the  quality  of 

the  DSR  are  broadly 

The  subject  areas  covered  by 
the 
statistical  requirements  of  the  Community.  There  Is,  however,  no  guide 
Is  particularly 
to 
Important  In  the  f lelds  such  as  national  accounts  where  statistical  data 
are  used  to  determine  contributions  to  the  EC  budget).  This  type  of 
lnformat Ion  would  have 
the  start  of 
membership  negotiations. 

the  statistics  produced 

to  be  obtained  at 

I ine  with 

t lme  of 

(this 

the 

in 

- A/28  -

LIST OF TABLES 

1.  GDP/Inhabitant  at  current  prices  and  exchanges  rates 

2.  GDP  growth  In  Cyprus  and  the  EC.  1978-1992 

3.  Unemployment  In  Cyprus  and  the  EC,  1978-1991 

4. 

Investment/GDP  ratio  In  Cyprus  and  the  EC.  1978-1991 

5.  Public  deficit  (%of  GDP) 

*  *  *  *  * 

GDP/inhabitant  at  current  prices  and  exchange  rates 

,.. 

(%  of  EC  average). 

80 

70 

60 

'.)0 

•W 

'-'0 

,) 

I 
:w  .f. 

PORTUGAL 

1· 

•••o:yo••n• 

1982 

1983 

1984 

1985 

1986 

1987 

1988 

1989 

1990 

Sources 

IFS  & EUROSTAT 

)> 
......... 
N 

'° 

;I' 

I 

I 

- A/30  -

GDP growth in Cyprus and the EC 1978 - 1992. 
Arinual volume growth, %  p/a 

1978 

1980 

1982 

1984 

1986 

1988 

1990 

1992 

Sources; EUROSTAT, EC Commission services, Cypriot Ministry of finance. 

- A/31  -

Unemployment in CYPRUS and the EC,  1978 - 1991 

EUR12 

1978 

1986 
Source: EUROSTAT (EC) and national sources (C'yprus). 

1980 

1982 

1984 

1988 

1990 

- A/32  -

Investment/GDP ratio in Cyprus and the EC 1978 - 1991 
% of GDP; current prices 

40 

30  ! 
1 

I 

! 
' ! 
20  L 

10 

0  78/81 

0  82/86 

1988 

1987 
~Cypr~s  .EC 

1989 

1990 

1991 

Source: EC Commission services, Cypriot Ministry of finance. 

- A/33  -

PUBLIC DEFICIT 
%  of GDP 

-1 

-4  ,,_ _ ___ __  __ 

1981 

1983 

1985 

1987 

1989 

1991 

Sources: EC Commission services. Cypriot Ministry of finance. 

- A/34  -

CYPRUS  - PROFILE 

I.  Area  : 

9.250  km2 

II.  POPUiation 

700.000  en  1990  dont 

population  active 

277.000 

Ill.  GDP  per  Capita  : 

9.000  Ecus 

IV.  GDP  Growth  Rate 

8,6% 

8,3% 

6,5% 

1% 

v. 

Inflation  Rate  in  1991 

VI.  Unemployment:  1 ,8%  en  1991 

8% 

5. 1 

VII.  Structure  of  employment  and  GDP 

in  1990  <X> 

Emploi 

Origine  du  PIB  (X) 

7% 
15% 
68% 
10% 

14% 
20% 
57% 
9% 

2621 
951 
-1670 
1243 

lmoorts 

Exports 

34% 
28% 
15% 
10% 

41% 
12% 
35% 
5% 

Agr i cu I ture 
Industry 
Services 
Construction 

VI.  Trade  Relations  (en  mio  US$) 

Imports 
Exports 
Trade  Balance 

NB  :  Tourism  incomes 

Trade  structure  (  X of  1991  total) 

Manufactured  Goods 
Transport  Equipment 
Food  Products,  Beverages 
Mineral  Fuels 

CQnnunltY  Share  in  1991 

-
-

In  Cypriot  Exports 
in  Cypriot  imports 

43,4% 
51  ',., 

EEC-Cyprus  Trade  (MECU) 

Imports 
Exportats 
Trade  Balance 

596 
2029 
1433