Commission Opinion on Bulgaria's application for Membership of the European Union
Date: 1997-07-15
Institutions: European Commission
Subjects: Bulgaria, EU relations, accession to the European Union, economic situation, political situation

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels,  15.07.1997 
COM(97)2008  final 

Commission Opinion 

on Bulgaria's Application 

for Membership of the European Union 

Contents 

A.  I N T R O D U C T I ON 

Page 

a)  Preface 

The Application for  Membership 
The Context of the Opinion 
The Contents of the Opinion 

b)  Relations Between the European Union and Bulgaria 

Historical and Geopolitical  Context 
Bulgaria's Position Concerning the European Union 
Contractual  Relations 
The Pre-Accession  Strategy 
Trade Relations 
General  Evaluation 

B.  C R I T E R IA  F OR  M E M B E R S H IP 

1.  Political  Criteria 

1.1..Democracy and the Rule of Law 

Parliament and Legislative Powers: Structure 
Functioning of Parliament 
The Executive:  Structure 
Functioning  of the Executive 
The Judiciary:  Structure 
Functioning of the Judiciary 

1.2  Human  Rights  and  the Protection  of Minorities 

Civil and Political  Rights 
Economic, Social and Cultural Rights 
Minority Rights and the Protection of Minorities 

1.3  General  Evaluation 

2.  Economic  Criteria 

2.1  The Economic  Situation 

Background 
Liberalisation 
Stabilisation of the Economy 
Structural  Change 
Financial  Sector 
Economic and Social  Development 

2.2  The Economy  in the Perspective of  Membership 

Introduction 
The Existence of a Functioning Market Economy 
The Capacity to Cope with Competitive Pressure and Market Forces 
Prospects and Priorities 

2.3  General  Evaluation 

3.  Ability  to  Assume  the  Obligations  of  Membership 

3.1  Internal Market Without Frontiers 

The Four Freedoms 

- General Framework  -
- Free Movement of Goods 
- Free Movement of Capital 
- Free Movement of Services 
- Free Movement of Persons 
- General  Evaluation 

Competition 
3.2  Innovation 

Information  Society 
Education, Training and Youth 
Research and Technological  Development 
Telecommunications 
Audio-visual 

3.3  Economic and Fiscal  Affairs 

Economic and Monetary  Union 
Taxation 
Statistics 

3.4  Sectoral  Policies 

Industry 
Agriculture 
Fisheries 
Energy 
Transport 
Small and Medium  Enterprises 

3.5  Economic and Social  Cohesion 
Employment  and Social  Affairs 
Regional Policy and Cohesion 
3.6  Quality of Life and  Environment 

Environment 
Consumer  Protection 
3.7  Justice and Home  Affairs 
3.8  External  Policies 

Trade and International  Economic Relations 
Development 
Customs 
Common Foreign and Security Policy 

3.9  Financial  Questions 
Financial  Control 
Budgetary  Implications 

4.  Administrative  Capacity  to Apply  the  Acquis 

4.1  Administrative Structures 
4.2  Administrative and Judicial Capacity 
4.3  General Evaluation 

C.  SUMMARY  AND  CONCLUSION 

Annexes 

Composition of Parliament 
Single Market:  White Paper Measures 
Statistical Data 

IV 

A.  INTRODUCTION 

a) 

Preface 

The Application for Membership 

Bulgaria  presented  its  application  for  membership  of  the  European  Union  on  14 
December  1995, and the Council  of Ministers decided  on 29 January  1996 to  implement 
the procedure laid down in Article 0 of the Treaty, which provides for consultation of the 
Commission. 

That is the framework  in which the Commission submits the present Opinion, responding 
to  the  request  of  the  European  Council  in  Madrid  in  December  1995  to  present  the 
Opinion  as  soon  as  possible  after  the  conclusion  of  the  Intergovernmental  Conference, 
which commenced  in March .1996 and concluded in June  1997. 

The Context of the Opinion 

The  Bulgarian  application  for  membership  is  being  examined  at  the  same  time  as 
applications  from  nine  other  associated  countries.  Bulgaria's  accession  is to  be  seen  as 
part  of  an  historic  process,  in  which  the  countries  of  Central  and  Eastern  Europe 
overcome the division  of the continent which has lasted for  more than 40 years, and join 
the area of peace, stability and prosperity created by the Union. 

The European Council in Copenhagen in June  1993 concluded that: 

"The  associated  countries  in  Central  and  Eastern  Europe  that  so  desire  shall  become 
members  of the Union.  Accession will take place as soon as a country  is able to  assume 
the  obligations  of  membership  by  satisfying  the  economic  and  political  conditions. 
Membership requires: 

that  the  candidate  country  has  achieved  stability  of  institutions  guaranteeing 

democracy, the rule of law, human rights and respect for and protection of minorities; 

-  the  existence  of  a  functioning  market  economy,  as  well  as  the  capacity  to  cope  with 
competitive pressure and market forces within the Union; 

-  the ability to take on the obligations of membership, including adherence to the aims of 
political, economic and monetary  union. 

The  Union's  capacity  to  absorb  new  members,  while  maintaining  the  momentum  of 
European integration, is also an important consideration in the general interest of both the 
Union and the candidate countries". 

This  declaration  spelled  out  the  political  and  economic  criteria  for  examining  the 
accession requests of the associated countries of Central and Eastern Europe. 

The  European  Council  in Madrid  in December  1995 referred  to  the  need,  in the  context 
of  the  pre-accession  strategy,  "to  create  the  conditions  for  the  gradual,  harmonious 
integration of the applicant countries, particularly through: 

the development  sf the market economy, 
the adjustment  of tl. eir administrative structure, 
the creation of a stable economic and monetary environment''. 

In  its  Opinion,  the  Commission  analyses  the  Bulgarian  application  on  its  merits,  but 
according to the same criteria as the other applications, on which it is delivering  Opinions 
at the  same time.  This way of proceeding  respects the wish, expressed  by the  European 
Council in Madrid, to ensure that the applicant countries are treated on an equal basis. 

In  addition  to  the  individual  Opinions  the  Commission  is  presenting  separately  to  the 
Council, in the framework of its communication "Agenda 2000", a general assessment  of 
the  accession  requests,  and  its  recommendations  concerning  the  strategy  for  successful 
enlargement of the Union.  At the same time, it is presenting  an evaluation  of the  impact 
of enlargement on the Union's policies policies. 

The Contents of the Opinion 

The structure of the Opinion takes account of the conclusions of the European Council  in 
Copenhagen. It: 

-  describes the relations  up to  now between  Bulgaria  and the Union, particularly  in  the 
framework  of the association  agreement; 

-  analyses the situation  in respect  of the political  conditions mentioned  by the  European 
Council (democracy, rule of law, human rights, protection of minorities); 

-  assesses  Bulgaria's  situation  and  prospects  in  respect  of  the  economic  conditions 
mentioned by the European Council  (market economy, capacity to cope with  competitive 
pressure); 

-  addresses the question  of  Bulgaria's  capacity  to adopt the obligations  of  membership, 
that  is the acquis of the Union  as expressed  in the Treaty, the  secondary  legislation,  and 
the policies of the Union; 

-  makes  finally  a  general  evaluation  of  Bulgaria's  situation  and  prospects  in  respect  of 
the conditions for membership of the Union, and a recommendation concerning  accession 
negotiations. 

In  assessing  Bulgaria  in  respect  of  the  economic  criteria  and  its  capacity  to  assume  the 
acquis,  the  Commission  has  included  a  prospective  assessment;  it  has  attempted  to 
evaluate  the  progress  which  can  reasonably  be  expected  on  the  part  of  Bulgaria  in  the 
coming  years,  before  accession,  taking  account  of  the  fact  that  the  acquis  itself  will 
continue  to  develop.  For  this  purpose,  and  without  prejudging  the  actual  date  of 
accession,  the  Opinion  is  based  on  a  medium-term  time  horizon  of  approximately  five 
years. 

During  the  preparation  of  the  Opinion,  the  Commission  has  obtained  a  wealth  of 
information  on Bulgaria's  situation from  the Bulgarian authorities, and has utilised  many 
other  sources  of  information,  including  the  member  states  and  numerous  international 
organisations. 

b)  Relations Between the European Union and Bulgaria 

historical and Geopolitical  Context 

Bulgaria, bounded  by the Black  Sea to the East, the Danube  to the North  and  mountains 
along its  frontiers  with  Greece  and the former  Yugoslav  Republic  of Macedonia,  has  an 
area of  111,000 km2 and a population of  8.3 million.  The existence of a Bulgarian  state 
goes back to 681,  and Bulgaria has contributed  significantly  to the evolution  of  Slavonic 
culture.  It gained independence from the Ottoman Empire in  1878, and until  1946 was a 
constitutional  monarchy.  Bulgaria participated  in the  First  Balkan  War  of  1912  against 
the  Ottoman  Empire;  and  in the  Second  the  following  year,  in  which  the  country  lost  a 
considerable  part  of  its  territory.  Bulgaria  sided  with  Germany  during  the  first  World 
War and lost further  land in its aftermath;  and again for  much of the Second  World  War, 
though  it  successfully  resisted  the  deportation  of  Jews  from  its  territory. 
In  1944, 
In  1946  Bulgaria's  pre-war  borders  were 
Bulgaria  joined  the  Allied  Powers. 
reconfirmed. 

After  the  War,  Bulgaria  was  briefly  occupied  by  Soviet  troops.  In  September  1946, 
following  a referendum,  the monarchy  was  abolished  and  a People's  Republic  declared. 
By  1947 the Communist  Party had  fully  established  its control.  In  1956 Todor  Zhivkov 
came  to  power,  and  was to  rule  the  country  for  over  thirty  years.  A  highly  centralised 
economic  policy  gave  priority  to  nationalised  industry,  resulting  in  a  rapid  rise  in 
industry's  share  in  the  economy. 
In  agriculture,  collectivisation  was  imposed  and 
cooperatives  were  reorganised  into  larger  agro-industrial  complexes.  From  the  1970s 
onwards  economic  growth  slowed;  by  the  second  half  of  the  1980s  it  came  to  a 
standstill. 

In November  1989 communist  rule  in Bulgaria  collapsed.  The transition  to  democracy, 
inspired  by  similar  developments  in other  former  communist  countries, was  sudden  and 
peaceful.  Todor  Zhivkov  was  removed  from  office  and  an  interim  government  led  the 
country  to  its  first  free  elections  since the  War.  Since  then,  Bulgarian  political  life  has 
seen  repeated  changes  of  government  and  a  significant  degree  of  polarisation,  but  also 
respect  for  the  constitutional  order  and  a virtual  absence  of violence.  Elections  in  June 
1990  were  won  by  the  Bulgarian  Socialist  Party  (BSP),  successor  of  the  Communist 
Party;  but  the  BSP  government  was  forced  by  economic  crisis  to  resign  in  November 
1990,  to  be  replaced  by  a  "programme"  government.  New  elections  in  October  1991 
resulted  in  a  coalition  government  led  by  the  Union  of  Democratic  Forces  (UDF);  but 
that too was replaced  by  a non-party  government  the  following  year.  Elections  in  1994 
gave a majority  to a BSP government  which, however, was forced  by renewed  economic 
troubles to resign in February  1997, to be replaced  by an interim  government.  President 
Stoyanov,  elected  two  months  earlier  with  UDF  support,  played  a  substantial  role  in 
bringing  the  country  through  the ensuing  political  crisis to  new elections  in April  1997, 
which produced  a majority  for the UDF and its allies. 

The  strategic objective  of integration  with the  EU  has been  maintained  by  consensus  by 
all  the  governments  since  1990.  Bulgaria's  application  for  Union  membership,  backed 
by  a virtually  unanimous  endorsement  from  the  National  Assembly,  was  lodged  on  14 
December  1995.  The  Government  Memorandum  accompanying  the  application  states: 
"Bulgaria's  membership  of  the  European  Union  constitutes  a  strategic  goal  and  is  a 
matter of national interest.  It will consolidate the results of the democratic reforms  which 

have  been  carried  out  since  the  beginning  of  the  1990s  and  will  represent  a  political 
acknowledgement of their success.  Membership of the EU will be an important factor  for 
the  further  economic  development  of  the  country.  The  stabilisation  cf  the  democratic 
process  and  the  establishment  of  a  market  economy  in  Bulgaria  correspond  to  the 
interests of the countries in the neighbouring region and of all Europe.  They will have a 
positive  impact  on  the  security  and  stability  of the  continent.  Bulgaria's  aspiration  for 
full  membership of the EU reflects the will and readiness to take part in the realisation  of 
the vision of a united Europe living in peace, prosperity and social justice". 

On  29  January  1997,  during  his  visit  to  the  European  Parliament,  President  Stoyanov 
stated: "I would  like to reaffirm,  before  this high forum,  our determination  to follow  the 
path of integration with the European Union and realisation of common European values. 
This  is  the  top  priority  of  Bulgarian  policy  on  which  ...  there  exists  broad  consensus 
among  the  political  forces.  The  main  driving  forces  of  the  dynamic  development  of 
cooperation  and  ever  fuller  integration  of our country  with the European  Union  are:  the 
consistent  implementation  of  the  Europe  Agreement  and  the  EU-adopted  strategy  of 
preparation  of the  associated  states for  full  membership  as well  as the  recommendations 
of the White Paper regarding participation in the common market...". 

On  21  May  1997,  in  his  inaugural  address  to  the  National  Assembly,  the  new  Prime 
Minister  Kostov  stated:  "Bulgaria's  European  choice  is  an  expression  of  a  consensus 
which has taken  shape  in the course of a long and painful  path of Bulgarian  society  over 
the last seven years". 

Contractual  Relations 

Diplomatic  relations  between  the European  Communities  and  Bulgaria  were  established 
in  1988.  A  Trade  and  Cooperation  Agreement  was  signed  in  May  1990.  The  Europe 
Agreement was  signed  on 8 March  1993 and entered  into force  on  1 February  1995.  An 
Interim Agreement  covering the trade  aspects of the Europe Agreement  came  into  effect 
on 31 December  1993, replacing the  1990 Agreement. 

The  Europe  Agreement  is  now  the  legal  basis  for  relations  between  Bulgaria  and  the 
Union.  Its aim is to provide a framework for political dialogue, promote the expansion of 
trade  and  economic  relations  between  the  parties,  provide  a  basis  for  Community 
technical  and  financial  assistance,  and  an  appropriate  framework  to  support  Bulgaria's 
gradual  integration  into  the  Union.  The  institutional  framework  of  the  Agreement 
provides  the  necessary  mechanism  for  implementation,  management  and  monitoring  of 
all  areas  of  relations.  Sub-committees  examine  questions  at  a  technical  level.  The 
Association  Committee,  at  senior  official  level,  provides  for  in-depth  discussion  of 
matters  and  often  finds  solutions  to  problems  arising  under  the  Agreement.  The 
Association  Council  examines  the  overall  status  of  and  perspectives  for  relations  and 
provides the opportunity to review Bulgaria's progress in preparation for  accession. 

In  March  1995  the  previous  government  set  up  an  inter-ministerial  coordination 
arrangement  for  promotion  of  the  European  integration  policy.  The  arrangement 
involves a Ministerial  Commission chaired by the Prime Minister, a committee at deputy-
minister  level  chaired  by  the  Government  Secretary  on  European  integration,  various 

technical  working  groups  and  a  European  Integration  Secretariat. 
government is considering modifications  to these arrangements. 

The  current 

The Pre-Accession Strategy 

Implementation of the Europe Agreement and the White Paper 

The  institutional  framework  of  the  Europe  Agreement  is  fully  operational,  and 
functioning  in accordance with the agreed timetable.  Three meetings have taken place of 
the Association  Council, and two of the Association  Committee.  Nine  multidisciplinary 
sub-committees have been established and are meeting regularly.  The EU-Bulgaria Joint 
Parliam .ntary Committee has met three times. 

Implemsntation issues have occurred in respect of compensation for  Bulgaria" for  the  late 
entry  into  force  of  the  Agreement,  che  alignment  of  tariffs  and  quotas  for  Bulgaria's 
exports  to  those  applicable  to  the  V'segrad  countries,  and  the  adaptation  of  the  Europe 
Agreement  following  the Uruguay  Round and the Union's  most recent enlargement.  All 
these issues have been solved. 

The  Commission's  White  Paper  of  1995  on  the  Internal  Market  set  out  the  legislation 
which the  candidate  countries would  need to transpose  and  implement  in order  to  apply 
the  acquis,  and  identified  elements  essential  to  the  implementation  of the  single  market 
(known  as  Stage I  measures)  which  would  need  priority  attention.  In  response  to  the 
White  Paper  the  Bulgarian  Government  adopted  a  "Strategy  for  implementing  the 
recommendations  of  the  White  Paper"  in  May  1996.  The  document  provides  a 
comprehensive  survey  of  existing  Bulgarian  legislation  in  the  light  of  requirements 
emanating  from  the  acquis. 
It  also  gives  a  timetable  for  the  process  of  legislative 
approximation and defines the government bodies responsible.  Under the auspices of the 
Ministry  of  Justice  (recently  renamed  the  Ministry  of  Justice  and  Legal  European 
Integration) a legislative council was given the role of ensuring the compatibility  of  draft 
legislation  to  EU  laws  and  practices.  The  new  government  has  promised  a  national 
strategy for accelerating preparation for EU membership. 

Bulgaria  is  making  good  progress  under  the  Europe  Agreement.  There  have  been  few 
problems  on  trade  issues.  The  weakness  of  Bulgaria's  internal  coordination  structures 
^as  made  it  difficult  to  exploit  the  Agreement  fully,  but  the  new  government  is 
committed to improving these. 

Structured Dialogue 

Bulgaria  has  participated  in  the  Structured  Dialogue,  seeing  it  as  an  instrument  in  its 
preparation  for  accession.  Bulgaria  has  submitted  position  papers  to  various  meetings, 
including a paper on Bulgaria's pre-accession policy. 

Phare 

The  total  PHARE  budget  for  1990-1995  was  476  MECU,  and  the  allocation  for  1996 
62.5 MECU.  Over the past two years, the overall contracting rate has risen to 70%.  Lack 
of  momentum  for  reform  has  made  assistance  for  enterprise  restructuring,  the  financial 

sector,  privatisation  and  agriculture  less  successful,  but  this  is  changing  with  the  new 
government's reform  programme. 

The  Cross-Border  Cooperation  programme  with  Greece  has 
important 
implementation  delays due to Bulgaria's  inability  to  match its constructive  regional  role 
with  administrative  and  management  measures.  More  than  40  MECU  have  not  been 
used;  no new budget was allocated in 1996 or  1997. 

faced 

Participation  in Community Programmes 

In  1996  Bulgaria  became  eligible  to  participate  in  Community  programmes  under  the 
Additional  Protocol  to  the  Europe  Agreement.  Discussion  has  started  of  Bulgarian 
participation in Youth for Europe and SAVE from 1998.  Preparations are also under way 
for participation in Socrates and Leonardo. 

Trade Relations 

Economic  relations  between  Bulgaria  and the  Union  have  developed  positively  over  the 
past  six  years.  EU  imports  from  Bulgaria  increased  by  260% over  those  years, to  1.83 
BECU  in  1995.  The  most  important  products  are  iron,  steel,  base  metals,  textiles, 
agricultural  and chemical products.  EU exports increased  by 37% over the same period, 
to  2.05  BECU  in  1995.  The  most  important  sectors  are  machinery  and  equipment, 
agricultural  products,  textiles  and  chemicals.  Bulgaria's  four  main  EU  trading  partners 
are  Germany,  the  United  Kingdom,  Italy  and  Greece.  Trade  between  Bulgaria  and  its 
non-EU neighbours is modest. 

General  Evaluation 

Since  1989  relations  between  Bulgaria  and  the  Union  have  evolved  positively.  There 
have  been  no  significant  policy  obstacles  to  overcome  though  Bulgaria  will  need  to 
amend  its Constitution  so that nationals of EU Member  States can acquire (other than by 
inheritance)  land,  and  to  tighten  its  border  controls.  But  Bulgaria's  progress  in 
integration  has  been  hampered  by  its  political  and  economic  problems  and  by  the 
continuing  weakness  of its administrative  structures.  The new government  is  committed 
tackling these. 

B.  CRITERIA FOR MEMBERSHIP 

1. 

Political  Criteria 

The  European  Council  in  Copenhagen  decided  on  a  number  of  "political"  criteria  for 
accession  to  be  met  by  the  candidate  countries  in  Central  and  Eastern  Europe.  These 
countries  must  have  achieved  "stability  of  institutions  guaranteeing  democracy,  the  rule 
of law, human rights and respect for and protection of minorities". 

In carrying out the assessment required in this connection, the European Commission has 
drawn on a number of sources of information:  answers given by the Bulgarian  authorities 
to the questionnaire  sent to them by Commission  staff  in April  1996, bilateral  follow-up 
meetings,  reports  from  Member  States'  embassies  and  the  Commission's  delegation, 
assessments  by  international  organisations  (including  the  Council  of  Europe  and  the 
OSCE), reports produced by non-governmental organisations, etc. 

The  following  assessment  involves  a systematic  examination  of the main ways  in which 
the public authorities are organised  and operate, and the steps they have taken to  protect 
fundamental  rights.  It does not  confine  itself to a formal  description  but  seeks to  assess 
the extent to which democracy and the rule of law actually operate. 

This  assessment  relates to the  situation  in June  1997.  It does not  examine  in detail  any 
changes  which  have  taken  place  since  the  fall  of  the  Communist  regime  or  which  may 
come  about  in  the  future,  though  it  generally  takes  account  of  any  stated  intention  to 
reform  a  particular  sector.  The  situation  of the  government  is  mentioned  here  only  in 
passing: it will be examined in greater depth in chapter 4. 

1.1 

Democracy and the Rule of Law 

to 
In  July  1991,  Bulgaria  adopted  a  new  Constitution,  marking  the  transition 
parliamentary  democracy.  The  Bulgarian  institutions  work  smoothly,  the  various 
authorities being mindful  of the limits of their powers and of the need for  cooperation. 

Parliament and Legislative Powers: Structure 

Parliament  consists  of  a  single  house  -  the  National  Assembly.  Its  240  members  are 
elected  for  four  years  by  proportional  representation.  There  are  no  rules  specifically 
ensuring the representation  of minorities.  At the last elections,  15 members  representing 
the Turkish minority were elected. 

Under  Article  99.5  of  the  Constitution,  the  President  of  the  Republic  can  dissolve  the 
National  Assembly  if it fails  to form  a government.  He cannot, however, use this  power 
during  the  last  three  months  of  his  term  of  office.  These  provisions  were  applied  in 
January  1997. 

Members of Parliament enjoy  a traditional array of immunities.  Under Article 79.3 of the 
Constitution,  the  National  Assembly  can  set  up  parliamentary  select  committees  with 
extensive powers of investigation. 

The fact  that there were  34 political  parties and groupings  in existence at the time of the 
April  1997 General  Election  campaign  shows that there is a genuine multi-party  system 

in  Bulgaria.  Political  parties  receive  State  funding  to  help  finance  their  election 
campaigns.  The Bulgarian  Constitution prohibits the setting up of political parties on an 
ethnic, racial  or religious  basis.  This ban, however,  did not prevent free participation  in 
the  elections  and  in  political  life  by  the  'Movement  for  Rights  and  Freedoms"  (MRF), 
which  largely  represents  the  interests  of  the  Turkish  minority.  in  December  1996  the 
Constitutional Court confirmed  that the creation of this party was not unconstitutional. 

Legislative  power  lies  with  the  National  Assembly,  which  shares  its  right  of  initiative 
with  the  Government.  The  Government  has  regulatory  power  when  conferred  only  by 
legislation  and  for  the purposes  of applying the  law.  Individual  ministers  also have  this 
power. 

The National Assembly can decide to hold a referendum. 

Functioning of Parliament 

The  elections  of  1994 and  1997 were free and  fair,  and  in both  cases they  resulted  in  a 
different  party coming to power. 

Parliament  operates  satisfactorily.  Its powers  are  respected  and  the  Opposition  plays  a 
full  part in its activities. 

The Executive:  Structure 

The  President  of  the Republic  is elected  by universal  suffrage,  with majority  voting  in a 
double  ballot,  for  a  five-year  term,  renewable  once  only.  He  is  assisted  by  a  Vice-
President elected at the same time.  The President exercises the traditional prerogatives of 
a Head of State.  He may ask Parliament to reconsider a law which it has adopted but the 
Council  may  override  his veto by a simple majority  vote of its members.  The  President 
of  the  Republic  can  be  dismissed  from  office  only  for  high  treason  or  for  violating  the 
Constitution  (Article  103  of  the  Constitution).  The  National  Assembly  must,  by  a  2/3 
majority  vote  of  its  members,  refer  the  matter  to  the  Constitutional  Court,  which  must 
then give its judgment on the proposed dismissal from  office. 

The  Government  is  accountable  to  Parliament,  which  can  bring  it  down  by  a  simple 
majority  vote  of  MPs.  The  Prime  Minister  is  appointed  by  Parliament,  on  a  proposal 
from  the  President  of  the  Republic.  Parliament  appoints  and  dismisses  ministers  on  a 
proposal  from  the  Prime Minister  (Article  84 of the  Constitution); the ministers  are  also 
individually answerable to Parliament. 

The  administrative  organisation  of  the  country  depends  on  nine  decentralised  regional 
arms of the central  government  in which the regional  Governor coordinates action by the 
State.  Bulgaria has only  one type of local authority, the municipality,  of which there are 
255.  Their governing bodies - the mayors and town councils - are elected  for a  four-year 
term.  The  law of  1991 gives the municipalities  responsibility  for  managing  local  public 
services. 

There  is no  Civil  Service  Act  or regulations, though  the  Bulgarian  Constitution  requires 
such regulations to be introduced. 

The army, the secret services and the police are under the control of the Government.  A 
National  State Security Council was set up in  1994: it has an advisory role and is chaired 
by the President of the Republic. 

Functioning of the Executive 

The main central institutions of the State operate smoothly, in spite of a certain  instability 
at  ministerial  level  due  to  the  fact  that  there  have  been  seven  governments  since  1990. 
The political  crisis  of  December  1996  - January  1997 was  resolved  in  accordance  with 
the procedures laid down in the Constitution. 

Although  the  Constitution  provides  for  the  autonomy  of  the  local  authorities,  this 
autonomy  is as yet  limited, particularly  on the  financial  level, since the  local  authorities 
are  largely  dependent  on  State  funding.  The  new  government  has  committed  itself  to 
giving the local authorities greater economic and financial  independence. 

Corruption is a serious problem in Bulgaria.  The new government and the new President 
of the Republic have given priority in their work programme to combating corruption and 
organised  crime.  The  fact  that  there  is  no  Civil  Service  Act  has  made  it  easier  for 
political  parties  to  gain  control  of  the  Civil  Service,  and  changes  of  government  have 
been  accompanied  by  changes  at  all  levels  of  the  administration.  Considerable 
discretionary power and a lack of clarity in allocating responsibilities  and powers  among 
Civil  Service  departments  has  allowed  corruption  to  take  hold  easily.  Bulgaria  must 
therefore  introduce  transparent  public  administration  procedures  particularly  with  regard 
to public contracts, and must establish a professional  and impartial public service. 

There  appears  to  be  insufficient  control  of  the  secret  services  and  they  are  not 
accountable  to  Parliament  for  their  activities.  The  only  body  playing  a positive  role  in 
this  field  is  the  National  Audit  Office,  which  exercises  financial  control  over  these 
services.  The new government  has announced  its intention of tightening  civilian  control 
over the secret services. 

The Judiciary:  Structure 

The independence  of the Bulgarian judiciary  is guaranteed  in a number  of  ways.  Judges 
are  confirmed  in  their  posts  after  serving  a three-year  probationary  period.  Thereafter, 
they  can  be  dismissed  only  if  they  have  committed  a  crime  or  become  incapable  of 
carrying  out  their  duties.  Their  work  is  overseen  by  the  Supreme  Council  of  the 
Judiciary,  an  independent  body  consisting  of  25  members  (11  elected  by  the  National 
Assembly;  11  designated  by  the  judiciary;  the  President  of  the  Supreme  Court  of 
Cassation; the President of the Supreme Court of Administration; the Procurator  General) 
which  also  has  responsibility  for  managing  the  judiciary's  budget.  Similarly,  the 
presidents  of the  Supreme  Court  of  Cassation  and the  Supreme  Court  of  Administration 
are appointed  for  a seven-year  term, which may  not be renewed,  by the President  of the 
Republic  acting  on  a proposal  from  the  Supreme  Council  of the Judiciary.  Judges  may 
not  be members  of  political  parties  and they  enjoy  the  same  immunities  as  members  of 
Parliament. 

The Supreme Council of the Judiciary plays the same role in respect of the procurators as 
it does vis-à-vis  the judges.  The  Procurator  General  is appointed  for  a seven-year  term, 
which may  not  be  renewed,  by  the  President  of the  Republic  acting  on  a proposal  from 

the Supreme Council  of the Judiciary.  The Procurator General is the guardian of legality 
and  gives  "procedural  guidelines"  to  the  procurators  as  a  whole  (Article  126  of  the 
Constitution). 

The monitoring  and review of administrative measures is the task of the ordinary  courts, 
whose  decisions  may  be  challenged  before  the  Supreme  Court  of Administration  which 
has just been set up. 

Bulgaria has no  Ombudsman. 

The Constitutional  Court comprises  12 judges appointed  for  a nine-year term which may 
not be renewed.  The National  Assembly, the President  of the Republic  and the  Supreme 
the 
Court  each  appoint  four  members  of  the  Constitutional  Court. 
constitutionality  of  laws  and  treaties,  judges  presidential  and  parliamentary  elections, 
settles  conflicts  which  may  anre  between  the  various  public  authorities  regarding  their 
respective  spheres  of  responsibility,  and  can  give  legally  binding  interpretations  of  the 
Constitution.  Matters  may  be referred  to it by one-fifth  of the members  of the  National 
Assembly,  the  President  of  the  Republic,  the  Government,  the  Supreme  Court  of 
Administration,  the  Supreme  Court  of  Cassation,  the  Procurator  General  and,  under 
certain  circumstances,  by  town  councils.  There  is  no  procedure  whereby  citizens  can 
refer  matters directly  to the  Constitutional  Court.  This  is possible  only  where  a  dispute 
has already been brought before the Supreme Court, and then only at the latter's initiative 
(Article  150 of the Constitution). 

It  verifies 

Functioning of the  Judiciary 

The  process  of  dispensing  justice  in  Bulgaria  is  still  marked  by  serious  shortcomings. 
The  courts  are  overburdened  with  work  and take  a long time  to deliver  their judgments, 
though  Bulgaria  has  recently  introduced  an  accelerated  penal  procedure  for  certain 
crimes.  A  shortage  of qualified judges, low salaries, the complexity  of  legal  procedures 
and a plethora of new rules to be applied all contribute to this situation.  It is particularly 
serious where penalties  and sentencing are concerned,  as a number of procedures  are not 
fully  completed.  The  new  government  has  included  in its programme  for  1997 - 2001  a 
section on reforming  the judiciary. 

Moreover,  Bulgaria  has  still  not  set up the  Supreme  Court  of  Cassation  provided  for  in 
the  Constitution.  In the  meantime,  the  functions  of this  institution  are  being  performed 
by  the  Supreme  Court.  Bulgaria  should  take  the  necessary  steps  to  set  up  these 
institutions  as  soon  as  possible,  so  as  to  avoid  prolonging  an  unsatisfactory  state  of 
affairs. 

In  recent  years, the  Constitutional  Court  has  played  a constructive  role  in  ensuring  that 
the Constitution  is complied with and that the various institutions keep to their respective 
spheres of responsibility.  Since  1990, the Court has given about  100 rulings. 

1.2 

H u m an  Rights  and  the  Protection  of  Minorities 

Bulgaria has introduced various internal rules designed to ensure respect for human rights 
and minorities'  rights.  Such respect may also be guaranteed  by the application  of certain 
international  conventions,  most  notably  the  European  Convention  for  the  Protection  of 
Human  Rights  and  its main additional  protocols.  Under  Article  F of the EU Treaty, this 

10 

set of provisions  forms  part of the acquis: any  State wishing to join  the European  Union 
must first have ratified  the said texts. 

Bulgaria,  which  has  been  a  member  of  the  Council  of  Europe  since  1992,  ratified  the 
European  Convention  for  the  Protection  of  Human  Rights  and  its  additional  protocols 
Nos.  1, 2 and  11 in September  1992.  It also grants private individuals the right to appeal 
to the European  Court  if they consider that their rights under that Convention have  been 
violated. 

Among  the  other  conventions  on  human  rights  and  minorities'  rights,  Bulgaria  has 
ratified  the  European  convention  for  the  prevention  of  torture. 
It  has  not,  however, 
signed  the  European  Social  Charter  or the  Framework  Convention  for  the  Protection  of 
National  Minorities.  It  has  signed  but  not  ratified  the  main  human  rights  conventions 
concluded under the aegis of the United Nations. 

Under  Article  5  of  the  Constitution,  any  duly  ratified  international  treaty  is  directly 
incorporated into Bulgarian law and takes precedence over any provisions of national law 
which might conflict  with it. 

Civil and Political  Rights 

The Bulgarian  Constitution recognises the right of any individual to have recourse to the 
judicial  system  to  defend  his  or  her  rights.  A  system  of  legal  aid  makes  it  easier  to 
implement  this  right:  however,  the Code of Criminal  Procedure  does not provide  for  the 
application of this rule during the preliminary hearing, and this effectively  means that the 
poorest  individuals  are unable  to  obtain the  services  of a lawyer during  this  stage  of the 
proceedings.  Furthermore, victims  of police violence  cannot bring a legal  action  against 
the police if the Procurator's  Office  refuses  to do so. 

The death penalty  has not been abolished  in Bulgaria, but since  1990 it has been  subject 
to a moratorium decreed by the President of the Republic. 

Protection  against  arbitrary  arrest  is  enshrined  in  the  Constitution.  The  police  cannot 
make an arrest without a warrant issued by the Procurator's Office.  An exception may be 
made  in  an  emergency,  but  in  that  case  the judicial  authorities  must  decide  within  24 
hours whether the  arrest  is legal or not.  Preventive detention cannot exceed two months, 
but  this  period  may  be  extended  to  six  months  by  order  of  the  Procurator  General.  It 
should  also  be  noted  that  the  detention  of  juvenile  delinquents  in  "Labour  Education 
Schools" does not  comply with the essential rules of judicial procedure, and in particular 
the audi alteram partem  principle. 

All citizens over  18 years of age enjoy  electoral rights. 

Freedom  of association  and  demonstration  is also  guaranteed  by the  Constitution  and  is 
exercised without difficulty.  In  1997 there are nearly 4 800 associations in Bulgaria.  The 
tax  arrangements  for  NGOs  should  be  improved,  particularly  with  regard  ta  donations 
and other income received by such organisations. 

Freedom  of  expression  in  Bulgaria  is  evidenced  by  pluralism  in  the  press  and  other 
media: there are some  30 radio stations, three public broadcasting networks and a private 
national  network  as  well  as  several  private  local  television  networks.  The  situation  and 

11 

independence  of  the  audio-visual  media  was  threatened  when,  in  1996,  the  National 
Assembly  adopted  a  new  law  giving  greater  powers  to  the  broadcasting  regulators. 
However,  the  Constitutional  Court  censured  much  of  this  text,  and  a  new  law  is  now 
being  drafted. 

The  impartiality  of  public  radio  and  television  in  Bulgaria  has  often  been  questioned, 
since the Opposition was given much  less air time than the governing  majority  not  only 
during the presidential election campaign in November  1996 but also in the run-up to the 
April  1997 general election. 

The  right  of  ownership  is  now  assured,  arid  expropriation  may  take  place  only  in  the 
public  interest  and  with  fair  compensation  paid  in  advance.  Arrangements  for  restoring 
their property - or, failing that, for paying compensation - to those who had been deprived 
of  it  under  the  Communist  regime  have  been  introduced  in respect  of  claims  registered 
before  June  1993.  The restoration  of real  estate  in urban  areas has been  completed;  the 
restoration  of land, on the other hand  has been greatly delayed  and the new  government 
has  undertaken  to  remedy  this  situation.  The  land  register  is  still  rather  inaccurate  and 
must  be  updated  when  restoration  takes  place.  The  restoration  of  property  confiscated 
from  various  religious  communities  was  begun in  1991 and  is continuing  apace  without 
major  difficulties. 

Under  Article  22  of  the  Constitution,  foreign  nationals  cannot  own  land  in  Bulgaria, 
unless  they  have  inherited  it.  The  government  has  announced  its  intention  of  putting 
before  Parliament,  by  the  end  of  1997,  a  proposal  to  amend  the  Constitution  so  as  to 
allow land to be owned by nationals of countries which reciprocally  grant the same right 
to Bulgarian citizens. 

Respect  for  private  life  is  guaranteed  in  Bulgarian  law:  searches  cannot  be  undertaken 
without  a warrant.  However,  the effective  application  of this  legislation  is  considerably 
reduced by numerous exceptions to the rule and frequent  abuses by the police. 

Although  Bulgaria  has  ratified  the  Geneva  Convention  on  asylum-seekers,  its  national 
procedures  do  not  meet  international  standards.  A  new  law  is  being  drafted  to  remedy 
this  situation  and  to  define  more  precisely  the  status  and  rights  of  asylum-seekers  and 
refugees. 

Several  organisations  have reported  numerous  instances of the police  inflicting  inhuman 
and  degrading  treatment  on  persons  in  detention.  Judicial  proceedings  are  not  always 
initiated  as  a  result  of  such  incidents.  Prison  conditions  are  also  extremely  difficult, 
largely because of inadequate  funding. 

Where  children's  rights  are  concerned,  living  conditions  for  children  in  orphanages  are 
still difficult  because these institutions are short of money. 

12 

Economie. Social and Cultural Rights 

The right to the minimum income required for survival and to social security is enshrined 
in the Constitution. 

Trade union  freedoms  are guaranteed,  and are respected  in practice.  Between  30% and 
50% of workers are members of a trade union. 

The  right  to  strike  is  recognised  by  the  Labour  Code  adopted  in  1992,  except  within 
organisations providing essential pubic services.  Political strikes were originally banned, 
but the Constitutional Court censured this provision in September  1996.  The government 
places no obstacle in the way of this right, which is freely exercised in Bulgaria. 

Freedom  of  education  and  religion  are  guaranteed  in  Bulgaria.  The  Constitution 
recognises  the  Eastern  Orthodox  confession  as  the  country's  "traditional"  religion,  but 
there is separation  between  Church and  State (Article  13 of the Constitution).  The  State 
grants financial  assistance to Bulgaria's main confessional  groups, in particular Muslims, 
Catholics and Jews. 

Minority Rights and the Protection of Minorities 

Between  15% and  18% of the population  of Bulgaria  consists  of minorities,  principally 
Turks  (9.4%)  and  gypsies  (Romanies)  (3.4% to  7%  depending  on  estimates).  Mention 
should also be made of the Pomak minority, consisting of Slavic-speaking Muslims. 

Bulgaria has not signed the Council of Europe's framework  convention* on minorities, but 
has  signalled  its  intention  of  doing  so  shortly.  It has  not  subscribed  to  recommendation 
1201  of  the  Parliamentary  Assembly  of  the  Council  of  Europe,  which  provides  for  the 
collective rights of minorities but is not legally binding. 

The  situation  of  the  Turkish  minority,  which  had  suffered  considerable  discrimination 
before  1989 under the Communist regime, has improved very appreciably  in the past  few 
years.  Its relations  with the rest  of the population  also appear more harmonious.  Some 
members of the Turkish minority  sit in Parliament  (fifteen  Members  of the MRP  elected 
in April  1997).  In  the  1995 local  elections,  25 MRF mayors  and  more  than  1000  MRF 
town  councillors  were  elected.  The  Turkish  minority  receives  education  in  its  own 
language.  There  are, however, no arrangements  for  allowing minorities to use their  own 
language  for  official  communications  in  areas  where  they  represent  a  significant 
percentage of the population. 

The  gypsies  (Romanies)  continue  to  suffer  considerable  discrimination  in  daily  life  and 
are the target  of violence  either  directly  by the police  or by individuals  whom  the  police 
do  not  always  prosecute.  Their  social  position  is  difficult,  though  here  sociological 
factors  play  a  part  alongside  the  discrimination  they  suffer  from  the  rest  of  the 
population.  One  of  the  particular  problems  facing  these  people  is  the  situation  of  the 
street  children  (4 000  to  5 000  in  Sofia),  virtually  all  of  whom  belong  to  this  minority. 
The  government  should  take  appropriate  steps  to  ensure  that  the  specific  difficulties  of 
these people  are  genuinely  taken  into  account.  In this connection,  it  would  be  useful  to 
carry  out  a  reliable  survey  of  the  numbers  of  gypsies  resident  in  Bulgaria  and  of  their 

13 

social situation (levels of unemployment, statistics on their health and educational level): 
no precise statistics of this kind are available at present. 

1.3  General Evaluation 

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

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

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

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

14 

2. 

E c o n o m ie  Criteria 

In  examining  the  economic  situation  and  prospects  of  Bulgaria,  the  Commission's 
approach  is  guided  in  particular  by  the  conclusions  of  the  European  Council  in 
Copenhagen  in  June  1993,  which  stated  that  membership  of  the  Union  requires  "the 
existence  of  a  functioning  market  economy  as  well  as  the  capacity  to  cope  with 
competitive pressure and market forces within the Union". 

This  part  of  the  Opinion therefore  gives a concise  survey  of the economic  situation  and 
background,  followed  by  a  review  of  Bulgaria's  progress  in  key  areas  of  economic 
transformation  (liberalisation  of the price and trade system, stabilisation of the  economy, 
structural  change,  reforms  of  the  financial  sector)  as  well  as  its  economic  and  social 
development.  It  then  reviews  the  prospects  and  priorities  for  further  reform,  and 
concludes  with  a  general  evaluation  of Bulgaria  in relation  to  the  criteria  mentioned  by 
the European Council. 

2.1  The Economic Situation 

Background 

Bulgaria,  with  a  population  of  8.3  million,  had  a  gross  domestic  product  (GDP) of  35 
billion  ECU IN 1995  (expressed  in purchasing  power  parity)  with  a  fall  in  the  following 
year. Its population  is thus about 2 percent of that of the Union, while its economy is only 
about 0.5 percent; GDP per capita is therefore about 24 percent of the Union average. 

Average monthly  wages were low at the equivalent of about  80 ECU per month in  1995. 
Exchange  rate  movements  in  1996  and  early  1997  drastically  reduced  the  real  value  of 
wages: the average wage fell at one stage to as little as  10 ECU per month. 

Bulgaria joined the WTO in  1996 and is seeking to become a member of CEFTA. 

Progress  in Economic  Transformation 

Bulgaria  started  its  transition  to  a  market  economy  later  and  under  more  unfavourable 
conditions  than  most  central  European  countries.  Economic  reforms  were  not  launched 
until  1991, by which time the country  was undergoing  a deep economic  crisis. In  March 
1990,  the  country  declared  a  moratorium  on  the  servicing  of  its  foreign  currency  debt, 
effectively  cutting itself off from  international  finance. 

Additional  external  shocks  to  the  economy  came  from  the  break-up  of  the  CMEA,  with 
which  Bulgaria  conducted  a  particularly  large  share  of  its  foreign  trade,  and  from  the 
Gulf  War:  Bulgaria  had  important  commercial  relations  with  Iraq. In the early  stages  of 
the reform  programme  a further  external  shock came in the form  of the disintegration  of 
Yugoslavia.  The  subsequent  embargo  on  Serbia-Montenegro  cut  Bulgaria's  main 
overland transit route to Western markets. 

Bulgaria made a late but bold  start to economic reform.  In February  1991, prices of most 
goods  were  liberalised,  subsidies  were  sharply  reduced,  a unified  floating  exchange  rate 
was  introduced,  the  state  monopoly  on  foreign  trade  was  abolished,  and  a  two-tier 
banking  system was created. Good progress was made also in establishing the  legislative 

15 

basis  for  a  market  economy:  by  mid-1992  much  of  the  legal  framework  was  in  place, 
with the notable exception, however, of a bankruptcy law. 

Structural  change  has  been  the  weak  point  of  Bulgaria's  reforms.  Initial  progress  in 
demonopolisation  and  restructuring  state  enterprises  stalled  in  the  absence  of  clear 
political  support.  Privatisation  has  been  extremely  slow.  In the  enterprise  and  financial 
sector,  market  disciplines  remained  largely  absent.  Central  planning  was  abolished,  but 
basic  institutions  of  a  functioning  market  economy,  such  as  well-defined,  readily 
enforceable  property  rights,  were  not  put  in  its  place.  Six  years  into  its  transition  to  a 
market  economy,  Bulgaria  is  still  in  the  early  stages  of  structural  reform.  Faced  with 
looming  domestic  and  external  financial  crises,  the  authorities  attempted  to  relaunch 
structural reforms  of the financial and enterprise sectors in mid-1996. 

The  government  which took office  following  the April  1997 elections  is unambiguously 
committed  to  rapid  reforms.  Progress  will  depend  on  how  effectively  the  limited 
resources  of the  administration  are  able to operate  largely  untested  legal  procedures  and 
provisions. 

Foreign Direct Investment 

Reflecting  the  slow pace  of  privatisation,  and  an unstable  political,  economic  and  legal 
climate,  foreign  direct  investment  (FDI)  inflows  have  been  low.  Up  to  the  end  of  1996, 
cumulative  FDI since  1989 amounted to under 400 million ECU - little more than 40 ECU 
per capita - reflecting  an annual inflow  averaging  less than  1% of GDP (SOURCE: EBRD). 
In  the  first  months  of  1997  there  has  been  a  significant  acceleration  in  FDI  related  in 
particular to privatisation of a number of large state enterprises. 

Economic  Structure 

During  the  period  of  central  planning,  the  state  came  to  own  virtually  all  the  means  of 
production,  distribution  and  exchange,  and accounted  for  almost  all  of the  output  of  the 
economy.  In  comparison  with  most  transition  economies, the  subsequent  growth  of  the 
private  sector  has  been  relatively  slow.  In  1996,  about  45%  of  GDP  was  privately 
generated. 

The one exception to public ownership was agriculture. In this sector private plots  leased 
from  state collectives  produced  close to one-half  of output,  although they  occupied  only 
about 28% of farmland.  Agriculture now contributes about  12.6% of Gross Value Added, 
but  over  one-fifth  of  total  employment.  Agriculture  is  a  significant  net  earner  of  hard 
currency  for  Bulgaria:  about  one-fifth  of  exports  are  agriculture-based  products,  while 
such goods make up under one-tenth of imports. 

16 

Main indicators of economic  structure 

(all data for  1996 unless otherwise indicated) 

Population 

GDP per head 

as % of EU-15 average 

Share of agriculture in: 

gross value added 
employment 

million 

PPS-ECU (1995) 
per  cent (1995) 

per  cent (1995) 
per  cent (1995) 

Gross foreign  debt/GDP 

per  cent 

Exports of goods & services/GDP 

per  cent 

Stock of foreign  direct  investment 

billion ECU 
ECU  per  head 

Source:  Commission services, national sources,  EBRD 
(1) 1995 

8.3 

4200 
24 

12.62.6 

222 

99 

45(1) 

0.4 
40 

Agricultural  output  has  fallen  substantially  during  the  1990s. A  number  of  factors  have 
contributed  to this. Asymmetric  price  liberalisation  freed  prices  of  inputs, but  left  prices 
of  farm  produce  subject  to  government  intervention  aimed  at  limiting  consumer  price 
rises. The  land  reform  process  has not taken place  smoothly.  Policy  aimed  at  restituting 
agricultural  land  to  its  pre-collectivisation  owners.  While  most  land  was  rapidly 
restituted,  farm  machinery  remained  in  the  possession  of  farm  collectives,  which 
disposed of their assets in a haphazard manner. Moreover, allocation of definitive  titles to 
land has lagged, so that individuals are unable either to sell land or use it as collateral. In 
1995,  amendments  to  the  land  restitution  law  sought  to  restrict  private  land  sales,  and 
gave priority to the re-establishment of co-operatives. 

The  inadequacy  of  agricultural  policy  in particular,  and  of economic  reforms  in  general, 
became  acutely  evident  in  1996  when  a  wheat  shortage  emerged.  Policy  now  aims  at 
rapidly  remedying  past  errors.  Land  restitution  and  privatisation  of  the  food  processing 
industry are to be accelerated. Most food prices have been liberalised again. 

Bulgarian  industry  remains  dominated  by  state enterprise, with private  firms  accounting 
for  under  one-fifth  of  output;  overall,  little progress  in restructuring  or  privatisation  has 
been made. A recovery in output which took place in  1994 ran out of momentum  towards 
the  end  of  1995.  The  pick-up  in  output  had  been  concentrated  in  branches  such  as 
chemicals  and  metallurgy  which  were  particularly  energy-intensive  and  export-oriented: 
these  branches  were  able  to  take  advantage  of  subsidised  energy  and  of  the  boost  to 
external  competitiveness  provided  by  the  sharp  depreciation  of  the  currency  which 
occurred  in Spring  1994. However, real appreciation  of the lev during  1995 eroded  away 
this price advantage. In  1996, weak  international  demand  for  metals  resulted  in  Bulgaria 
being  unable  to  take  advantage  of  the  renewed  depreciation  of  the  lev  to  boost  exports. 
Moreover,  from  mid-1996  onwards, prices  for  oil  and  gas  have  been  increased  to  world 

17 

market  levels,  depriving  Bulgaria's  energy-intensive  production  of  much  of 
competitiveness. 

its 

The  artificially  low  prices  charged  for  energy  up  until  mid-1996  encouraged  waste: 
Bulgaria  is  estimated  to  use  two  to  four  times  more  energy  per  unit  of  output  than 
European  Union  economies.  Pricing  energy  at  an  economic  rate  should  reduce  this 
disparity, as industry (and private consumers) cut back on their energy usage. 

Restitution  of  urban  property  was-completed  at  a  relatively  early  stage  of  reform.  This 
has  resulted  in  a  relatively  dynamic  private  retail  trade  sector.  The  services  sector 
(excluding transport and communications) has attracted a large share of the limited  flows 
of foreign direct investment that Bulgaria has received during the transition period. 

Public services have inevitably been weakened by the cutbacks in public expenditure that 
have taken place  in recent years. Telecommunications  services  are poor; the  intention  to 
sell a majority  stake  in the  state telecommunications  company  has  been  announced,  and 
should be followed  by much-needed  investment in upgrading the system. Several existing 
projects are beginning to produce results. 

The  banking  sector,  which  is  largely  state-owned,  suffered  a  deep  crisis  in  1996.  The 
causes of this are discussed in section 6.5 below. 

Liberalisation 

Price Regime 

Far-reaching  price  liberalisation  was  undertaken  in  1991, and  extended  in  1992.  By  this 
time, almost all prices were in principle free  of state control, except for energy and goods 
and  services provided  by public utilities. The prices of  13 basic  food  items were  subject 
to  "price  monitoring",  although  in practice  this  did  not  appear  to  restrict  price  increases 
for these goods. 

The range of goods  subject  to this form  of indirect  control  was extended,  to  cover  about 
30  items  during  1993  and  1994.  The  Prices  Act  adopted  by  Parliament  in  September 
1995 represented  a step backwards  with regard to market  determination  of prices, which 
is  one  of  the  fundamental  institutions  of  a  market  economy.  This  law  empowered  the 
government  to regulate  prices  of goods  and services. In early  1996 it was  estimated  that 
approximately  50%  of  goods  (weighted  by  their  share  in  the  consumer  price  index 
"basket") were subject to some form of official  monitoring or control. The artificially  low 
price of wheat  contributed  to bread  shortages in  1996 and  1997. Since early  1997, prices 
of most goods and services have been freed  again. 

Trade Regime 

Since  abolishing  the  state  monopoly  of  foreign  trade  in  1990  and  1991  Bulgaria  has 
maintained  a liberal trade regime. There are virtually no quantitative restrictions on trade, 
other than for health and security reasons. A notable exception is a ban on wheat exports, 
introduced  in  1994 and  still  in force.  Inadequate  implementation  of this ban was  another 
factor  in the bread  shortage. 

18 

Bulgaria  has  recently  been  accepted  as  a  member  of  the  World  Trade  Organisation 
(WTO),  and  is  seeking  to join  the  Central  Europe  Free  Trade  Association  (CEFTA).  In 
addition to the trade liberalisation provisions of the Europe Agreement, Bulgaria also has 
a free trade agreement with EFTA. 

Faced  with  a  deepening  economic  crisis,  in  mid-1996  the  Government  announced  the 
imposition  of an import  surcharge, as part of its unsuccessful  attempt to meet targets  for 
the  budget  deficit  agreed  with the IMF under  a stand-by  arrangement.  The  surcharge  is 
to be phased out over a period of four years. 

Foreign Exchange  Regime 

On  1 July  this  year,  Bulgaria  introduced  a  fixed  exchange  rate  under  a  currency  board 
arrangement,  pegging  the  lev to the deutsche  mark.  This replaced  the  floating  exchange 
rate regime which  was introduced  at the outset  of Bulgaria's  economic  reforms  in  1991. 
This initial decision to allow the currency to float, rather than to peg it to a hard  currency 
"basket"  was  essentially  pragmatic:  the  central  bank  had  no  reserves  with  which  to 
defend  a fixed exchange rate. 

Although the foreign  exchange market is very free,  in that there are very few  formalities 
involved  in buying  or  selling  foreign  currency, the  size of the market  is quite  small: the 
daily  value  of  transactions  has  typically  been  about  $20  million  or  less.  Partly  in 
consequence, the  floating  exchange  rate tended  to follow  a pattern of periods of  stability 
(resulting  in  real  exchange  rate  appreciation)  interrupted  by  sudden  deprecations. 
Particularly violent adjustments  occurred in Spring  1994, and again from  April/May  1996 
until February  1997. 

This  instability  in  the  exchange  rate  clearly  caused  difficulty  for  producers,  consumers, 
and  policy  makers.  However,  in the  absence  of  economic  policies  which  could  achieve 
lasting macroeconomic  stability, a floating  exchange rate policy was realistically the only 
option  open  to  Bulgaria.  Successful  implementation  of  the  currency  board  arrangement 
crucially depends in the short-term on supportive fiscal  policy. Medium- and  longer-term 
economic  stabilisation  and  growth  requires  vigorous  implementation  of  comprehensive 
structural  reforms. 

Stabilisation  of the  Economy 

Domestic 

After  the initial price jump  following  liberalisation,  inflation  stabilised  at a monthly  rate 
of between 4 to 6 percent  from  1991 to  1994. This pattern was disrupted  by a temporary 
acceleration  following  the rapid  exchange rate depreciation  in  Spring  1994. In  1995 and 
the  first  months  of  1996, inflation  slowed:  the  annual  rate  fell  below  30%, helped  by  a 
prolonged  period  of  exchange  rate  stability.  The  collapse  in  the  exchange  rate  which 
started  in  April/May  1996  brought  this  favourable  development  to  an  end.  Consumer 
prices rose by  310% in  1996. A deepening of the exchange rate crisis was followed  by a 
short burst of hyperinflation  in early  1997. 

Gross  domestic  product  (GDP)  fell  sharply  during  the  first  years  of transition.  Economic 
growth restarted  in  1994, and continued into  1995. During the latter part of the year, there 
were  increasing  signs  of a renewed  economic slowdown.  This intensified  in  1996, when 

19 

GDP fell  by approximately  10%. The severity of the recession in the first months of  1997 
was  such  that  Bulgaria  is  expected  to  suffer  another  large  decline  in  real  GDP this  year. 
Some  recovery  in  output  is, however,  likely  following  the  stabilisation  of  the  economy 
during the second quarter of 1997. 

Main economic trends 

1994 

1995 

1996 

real GDP growth rate 

per  cent 

1.8 

2.1 

-10.9 

Inflation  rate 

annual average 
December-on-December 

per  cent 
per  cent 

96 
122 

62 
33 

123 
311 

Unemployment rate, end-year 

per  cent 
ILO definition 

20.5 

14.7 

13.7 

General 
balance 

government 

budget 

per  cent of GDP 

-4.9 

-5.2 

-11.5 

Current account balance 

per  cent of GDP 

-0.3 

-0.2 

-0.2 

Debt/export ratio 

per  cent 

220 

151 

159 

Foreign direct investment  inflow 

per  cent of GDP 

1.0 

0.8 

1.6 

Source: Commission services,  national sources, EBRD,  IMF 

Unemployment  rose  rapidly  following  the  end  of  central  planning,  reaching  10% of  the 
labour  force  by  end-1991.  Ceilings  on overall  wage  bills  in  state  enterprises  resulted  in 
substantial reductions  in employment. Registered unemployment peaked at about  14% of 
the  labour  force  in  early  1994. It then  declined  to  around  10%, before  again  starting  to 
rise from  mid-1996. 

The  public  finances  in the  1990s  have  been  characterised  by  a  steep  fall  in  the  ratio  of 
government  revenues  and  expenditures  to  GDP,  and  the  persistence  of  large  budget 
deficits,  which  averaged  well  over  10%  of  GDP from  1990  to  1993,  before  falling  to 
around  6% in  1994 and  1995. Interest payments on both foreign  and domestic  debt  are a 
major  drain on the public finances:  in  1996, interest  payments  amounted  to over  20% of 
GDP. The  budget  deficit  could  only  be  held  at  around  10%  of  GDP in  1996  by  severe 
cutbacks  in spending:  for  example, pensions  and public  service wages were not  adjusted 
in  the  final  quarter  of  the  year,  during  which  time  prices  rose  by  more  than  60%.  The 
adoption of the budget for  1997 was delayed until mid-year, due to the political crisis and 
elections  in the  first  months  of the year, and the need to ensure consistency  between  the 
budget and the operation of the currency board arrangement.  The  1997 budget foresees  a 
deficit  of 6.2% of GDP. 

20 

External 

Only support from  the international community  enabled Bulgaria to avert a default  on its 
foreign debt in 1997. 

A lack of foreign  currency reserves had already obliged Bulgaria to declare a moratorium 
on its foreign  debt  service in  1990. Agreement with the London club of private  creditors 
on  a  debt  and  debt  service  reduction  (DDSR)  in  1994,  while  substantially  reducing  the 
burden  of  foreign  debt,  nonetheless  left  Bulgaria  a  quite  heavily  indebted  country:  the 
ratio  of  external  debt  to  GDP was  about  80% at  the  end  of  1995.  The  shrinkage  of  the 
Bulgarian economy in  1996 brought this ratio to  100% again. 

Debt service will remain a significant  difficulty  for Bulgaria in the medium-term,  even if 
the pick-up in FDI inflows in the early months of  1997 continues over the coming years. 

Structural  Change 

Foreign Trade 

There has  been  a remarkable  change  in the  direction  of  Bulgaria's  trade. Trade  with  the 
EU accounted  for  as little as 5% of exports, and under  10% of imports in  1990. By  1996, 
the share of Bulgaria's foreign trade conducted with the EU had risen to about 35%). 

At the outset of transition,  Bulgaria conducted the vast majority  of its external trade with 
the countries of the CMEA. According to some estimates over four-fifths  of trade was with 
these  countries,  and  as  much  as  60%  of  total  trade  took  place  with  the  Soviet  Union. 
Moreover,  the majority  of  Bulgaria's  exports  to  CMEA countries  were  investment  goods, 
which were not in demand in the initial stages of the recession in transition countries. The 
collapse of the CMEA hit Bulgaria particularly  hard, therefore,  and was compounded  with 
the  impact  of  Bulgaria's  unilateral  moratorium  on  debt  service  declared  in  1990.  The 
latter  measure  left  Bulgaria  without  access  to  short-term  trade  credits.  The  aggregate 
consequence was a steep fall  in trade flows, of the order of 50%. 

Changes  in  the  commodity  composition  of  trade  are  difficult  to  assess  for  statistical 
reasons,  but  also  appear  to  have  been  dramatic.  Machinery  exports  have  fallen 
substantially  in  relative  terms,  while  chemicals  and  base  metals  accounted  for  close  to 
40%  of  exports  in  1995,  compared  with  no  more  than  30%  in  1992.  Much  of  the 
expansion  in  exports  of  these  products  was  due  to  temporary  factors,  such  as  the  large 
exchange  rate  depreciation  of  Spring  1994  allied  with  continued  access  to  subsidised 
energy.  The raising  of  energy  prices  to  world  levels  in mid-1996  removed  this  artificial 
and  unsustainable  advantage.  Despite  the  boost  to  price  competitiveness  given  to 
Bulgarian  exports  in  1996 by the  sharp exchange rate depreciation,  export  volumes  have 
fallen  sharply,  perhaps  by  as  much  as  10-15%.  A  contributing  factor  to  this  fall  is  the 
disruption  to  economic  activity  caused  by  the  collapse  of  the  banking  system,  which  is 
discussed in more detail in section 6.5 below. 

Labour Market 

A feature  of the decline  in unemployment  which occurred  in Bulgaria  in  1994  and  1995 
was  that  those  leaving  the  register  were  in  general  those  who  were  younger  and  more 
skilled.  On  the  one  hand,  this  was  encouraging,  in  that  it  suggests  that  new jobs  were 

21 

being  created  in the  economy.  On the  other  hand,  it points to the presence  among  those 
who remain unemployed  of a large group of older, less skilled  or unskilled  workers who 
can  be  expected  to  face  increasing  difficulties  in  finding  employment  the  longer  they 
remain  unemployed. 

The  relaunch  of  structural  reforms  in  1997  will  place  considerable  pressure  on  active 
labour  market  policies. A  substantial  retraining  effort  will  be needed  for  those  who  lose 
their  jobs,  or  lack  of  suitably  qualified  labour  could  become  an  obstacle  to  economic 
growth.  Moreover,  the  effective  exclusion  of  significant  segments  of  society  from  the 
benefits  of  higher  wages  and  living  standards  could  result  in  economic  and  social 
instability. 

Public  Finances 

The  share  of  government  revenues  and  expenditures  in  GDP has  shrunk  considerably  in 
recent  years. Revenues  fell  from  53% of GDP in  1990 to  less than  35% of  GDP in  1996; 
expenditures  declined  from  65.7% of GDP in  1990 to under  50% in  1996, of which two-
fifths  was  made  up  of  interest  payments.  The  primary  balance  of  the  budget  -  i.e., 
excluding interest payments - has recorded large surpluses since 1994. 

The  drop  in the  share of GDP accounted  for  by government  revenue  and  expenditure  has 
been  accompanied  by  substantial  restructuring  in  the  make-up  of  taxes  and  spending. 
Profit  taxes  and  non-tax  revenues  have  declined  in  relative  importance,  while  indirect 
taxation  (VAT took  effect  in  1994) has become  a more  significant  source  of revenue. On 
the  expenditure  side,  there  have  been  severe  cuts  in  capital  investment,  and  in 
maintenance  and  operating  expenditure.  Social transfers  and  interest payments,  although 
they  have  remained  approximately  constant  as  a proportion  of  GDP, each  accounted  for 
approximately  25-30%  of  public  expenditure  up 
to  1995.  The  slow  pace  of 
implementation  of the structural reform  measures announced  in mid-1996 appears in part 
to be due to inadequate resources in public administration, compounded  by an absence of 
a strong political commitment to economic  reform. 

EnterpriseSector:  Privatisation  and Enterprise Restructuring 

Slow  privatisation  and  restructuring  lie  at  the  root  of  the  difficulties  of  the  enterprise 
sector  in Bulgaria. In the absence of appropriate incentives for  state enterprise  managers, 
there was widespread  decapitalisation,  or "profits  privatisation" of state enterprises. This 
is  part  of  the  reason  why  creditors  have  been  unwilling  to  initiate  bankruptcy 
proceedings:  many  state  enterprises  are  likely  to  have  very  little  value  in  liquidation. 
From  a creditor's  perspective,  it has been  more worthwhile  to keep the enterprise  afloat, 
in the hope that the state would assume responsibility for the enterprise's debts. 

the  government, 

The  slow  pace  of  privatisation  resulted  partly  from  an  excessive  division  of 
the 
responsibilities  between 
Privatisation  Agency,  and  the  Centre  for  Mass  Privatisation,  and  partly  from  a  lack  of 
political  will.  The  mass  privatisation  scheme  which  got  underway  in  October  1996  has 
the  potential  to" strengthen  the  constituency  in  favour  of  market  reforms.  A  possible 
weakness  of  the  scheme  is  that  it  leaves  the  state  with  a blocking  minority  of  shares  in 
most  of the enterprises  to be sold. In a radical departure  from  previous years, the  current 

local  authorities, 

line  ministries, 

22 

Government  has pledged  to privatise  all  commercial  enterprises  and  half  of  the  utilities 
during the first half of its term in  office. 

In  some  sectors  of  the  economy,  a  large  number  of  small  private  enterprises  has 
developed.  Branches  such  as construction  and  retail  trade are now  mainly  comprised  of 
small private firms. The development  of the private sector has been  stifled,  however,  by 
the  situation  in the  state enterprise  and financial sector, and by the state's  need  for  loans 
to  finance  the  budget  deficit.  This  combination  of  circumstances  has  both  limited  the 
amount  of  funds  available  for  lending  to  private  companies,  and  has  kept  interest  rates 
unaffordably  high.  It  was  not  until  1996 that  a  serious  attempt  was  made  to  tackle  the 
problems caused  by the continued  existence of large loss making  state enterprises:  these 
efforts  have begun to produce clear results. 

Investment  has  fallen  to  very  low  levels:  fixed  investment  accounted  for  under  15% of 
GDP in  1996. This fall  can be ascribed to several factors: slow privatisation, coupled  with 
a  lack  of  incentives  for  managers  to  run  state  enterprises  efficiently,  poor  lending 
practices in the banking system, a lack of funds  for private investment, cutbacks in public 
investment,  and  uncertainty  about  economic  policy.  Successful  implementation  of  the 
new government's programme should remove or reduce most of these obstacles. 

Financial Sector 

The problems  of  the  financial  sector  in Bulgaria  are  connected  with  the  situation  of  the 
enterprise  sector.  Imprudent  lending,  poor  supervision,  and  an  absence  of  "hard  budget 
constraints" - the idea that debts have to be repaid  - resulted  in mounting  losses  in  these 
sectors, which derailed  progress towards macroeconomic  stabilisation. The  stock  of  debt 
owed  to  banks by  loss-making  state-owned  enterprises  was estimated  in  late  1995  to  be 
of the order of 20%) of GDP. 

In common with most of the countries in transition, the inheritance of central planning  in 
Bulgaria  included  a  burden  of  non-performing  loans,  and  an  absence  of  experience  in 
assessing creditworthiness  of borrowers. These difficulties  were exacerbated  by the  slow 
pace  of  structural  reform,  and  the  inadequate  and  partial  implementation  of  the  reforms 
that have been attempted. Previous recapitalisations of banks were not followed  by action 
to prevent a recurrence of bad debts. 

This  created  an  expectation  that  the  state  would  ultimately  bail  out  insolvent  banks  and 
firms  -  which  spread  to  the  private  sector.  Weaknesses  in  banking  supervision  and  in 
legislation  have  contributed  to the  emergence  of  a private  sector  banking  and  enterprise 
"bad loans" problem also. 

The Bulgarian National Bank  (BNB), the central bank, while keeping interest rates high in 
support  of  the  exchange  rate,  adopted  a  broadly  accommodating  attitude  to  these 
practices.  Gaps  in  the  regulatory  framework,  ineffective  banking  supervision,  and 
perhaps a certain reluctance to act in isolation of  structural  measures in other parts of the 
economy,  contributed  to the central  bank engaging  in excessive  uncollateralised  lending 
to  commercial  banks  to  prevent  their  collapse.  This  contributed  to  the  onset  of  the 
exchange  rate  instability  in early  1996. When the BNB then froze uncollateralised  credit, 
the weak state of the banking  and enterprise sectors quickly became apparent. The  assets 
of  several  banks  were  frozen  and  their  operations  suspended.  Liquidation  or  bankruptcy 

23 

procedures  were  initiated  against  a  number  of  these  banks.  Delays  in  successfully 
concluding these proceedings have exposed weaknesses in the legal  framework. 

Those  banks  that  remained  open  were  for  the  most  part  in  fragile  condition.  Lack  of 
confidence  in banks, due to their poor lending practices, left  them without funds  for  even 
short-term  lending.  This  had  serious  spillovers  onto  the  enterprise  sector.  Firms  were 
unable  to  borrow  to  finance  imports  of  raw  material  inputs  for  export  goods.  This 
inability  to  purchase  imports  explains  a  large  part  of  the  fall  in  Bulgaria's  exports  in 
1996.  The  resultant  fall  in  income  and  output  was  a  contributing  factor  to  the  deep 
economic recession. 

Very  high  inflation  in  1996 and the first months of  1997 caused  a huge redistribution  of 
wealth from creditors to debtors.  The real value of enterprise  debts  and  non-performing 
loans held by banks was greatly reduced. 

The  independence  of  the  BNB  was  established  by  law  in  1991,  but  subsequent 
amendments  to  the  legislation  somewhat  undermined  this  independence.  In  late  1996, 
and  again  in  1997,  it  was  legally  obliged  to  provide  large  loans  to  the  budget.  This 
contributed to the surge in  inflation. 

Prior  to  the  introduction  of  the  currency  board  arrangement,  the  BNB had  the  normal 
range  of  monetary  policy  instruments  at  its  disposal.  However,  the  effectiveness  of 
monetary policy was hampered  by lax fiscal  policy, the weakness of the banking  system, 
and  delays  in  structural  reform  in  general.  Under  the  currency  board  arrangement 
introduced  on  1 July  the  BNB's  scope  for  conducting  discretionary  monetary  policy  is 
severely  restricted,  since it is required  to ensure that the amount  of domestic  currency  in 
circulation  is fully  backed  by  its own  holdings  of  foreign  reserves.  Successful  operation 
of the currency board will be a key instrument in restoring economic stability. 

Capital  markets  are  underdeveloped.  The  equity  market  is  in  an  embryonic  state  and 
cannot be viewed as an alternative  source of finance  for the corporate sector.  State-owned 
insurance  companies  have  a  dominant  share  of  the  market,  although  some  private 
companies  have  emerged.  Foreign  insurers  have  not  yet  entered  the  insurance  market. 
The market for  short-term  instruments is limited to the interbank money market.  Activity 
has declined as a result of the current problems of the banking system. 

Economic and Social  Development 

Social Indicators 

In  recent  years,  the  population  has 
The  population  of  Bulgaria  is  about  8.3  million. 
declined  a little. The birth rate  is below  9 per thousand,  and  falling,  while the death  rate 
has  risen  to  over  13 per  thousand.  About  one-fifth  of  the  population  is  aged  under  15, 
while  about  15% are  aged  65  or  over.  In  broad  terms,  this  is  similar  to  the  population 
structure of the EU. 

Approximately  half  of  the  population  has  completed  secondary  education;  the  average 
adult  has  spent  9-10  years  in  formal  education.  As  a result  of  the  economic  crisis,  the 
health system is facing  severe financial problems, leading to a shortage of medicines  and 
medical  instruments. 

24 

The economic crisis of  1996 and  1997 has had a drastic impact on the population.  Public 
sector wages and pensions fell  steeply, with serious effects  on living standards. The share 
of income spent on  food  increased,  and  accounted  for  over half of household  purchases. 
While  households  spent  relatively  more  on food,  consumption  declined:  compared  with 
the  same  period  of  1995, in the  third  quarter  of  1996  per  capita  consumption  of  meat, 
eggs,  fruit  and  vegetables  was  some  15% lower;  only  milk  and  potatoes  were  eaten  in 
quantities little changed compared with  1995. 

In late  1996, it was estimated that 40% of the population lived below the official  poverty 
line.  With  the  initial  economic  stabilisation  since  March  1997,  the  situation  has 
improved  to  some  extent.  However,  the  income  position  of  large  sections  of  the 
population will remain difficult  for a considerable period. 

Regional and Sectoral  Differences 

Approximately  two-thirds  of the population  live  in  urban  areas.  Standards  of  living  are 
significantly  higher  in cities and towns, at least up to mid-1996: hyperinflation  may have 
had less severe effects  on rural  dwellers, who may at least be able to grow food  for  their 
own  consumption.  Labour  force  participation  rates  are higher,  and  unemployment  rates 
lower,  in  urban  than  in  rural  areas,  so  that  a  much  larger  proportion  of  the  urban 
population is employed. 

Standards  of  education  are  also  substantially  higher  in  towns  and  cities:  almost  three-
quarters  of  the  rural  adult  population  have  no  education  beyond  primary  level.  The 
equivalent  figure  for  urban  dwellers  is  about  35%.  Women  tend  to  have  less  formal 
education,  and  have  lower  rates  of  labour  force  participation  than  men,  but  the 
differences  are not substantial. 

By  mid-1996,  significant  regional  variations  in  unemployment  had  emerged,  with  rates 
varying  from  well  under  10% in  larger  urban  areas to  20% and  more  in  some  rural  and 
mountainous  regions. The large-scale  industrial  restructuring  which  is now  under  way  is 
likely  to  cause  sharp  jumps  in  regional  unemployment  rates,  since  much  industrial 
employment  is  concentrated  in  single  plants  in  one  location.  Such  unemployment  will 
also be sectorally  concentrated, raising the prospect of regional concentrations of workers 
with outdated skills. 

2.2  The  E c o n o my  in  the  Perspective  of  Membership 

Introduction 

The European  Council  in Copenhagen  in  1993 defined  the conditions that the  associated 
countries  in  central  and  eastern  Europe  need  to  satisfy  for  accession.  The  economic 
criteria are: 

• 

• 

the existence of a functioning  market economy; 

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

These  criteria  are  linked.  Firstly,  a  functioning  market  economy  will  be  better  able  to 
cope with competitive pressure.  Secondly, in the context of membership of the Union, the 

25 

functioning  market is the internal market. Without integration into the internal market, EU 
membership would lose its economic meaning, both for Bulgaria and for its partners. 

The  adoption  of  the  acquis,  and  in  particular  the  internal  market  acquis,  is  therefore 
essential for a candidate country, which must commit itself permanently to the economic 
obligations  of  membership.  This  irreversible  commitment  is  needed  to  provide  the 
certainty  that  every  part  of the  enlarged  EU market  will  continue  to  operate  by  common 
rules. 

The  capacity  to  take  on  the  acquis  has  several  dimensions.  On  the  one  hand,  Bulgaria 
needs to be capable of taking on the economic obligations of membership, in such a way 
that  the  single  market  functions  smoothly  and  fairly.  On  the  other  hand,  Bulgaria's 
capacity  to  benefit  fully  from  the  competitive  pressures  of  the  internal  market  requires 
that  the  underlying  economic  environment  be  favourable,  and  that  the  Bulgarian 
economy  have flexibility  and  a sufficient  level of human and physical  capital,  especially 
infrastructure.  In  their  absence,  competitive  pressures  are  likely  to  be  considered  too 
intense  by  some  sections  of  society,  and  there  will  be  a  call  for  protective  measures, 
which, if implemented, would undermine the single market. 

The capacity and determination of a candidate country to adopt and implement the  acquis 
will  be  crucial,  since  the  costs  and  benefits  of  doing  so  may  be  unevenly  spread  across 
time,  industries  and  social  groups.  The  existence  of  a broad  based  consensus  about  the 
nature of the changes to economic policy which membership of the Union requires, and a 
sustained  record  of  implementation  of  economic  reforms  in  the  face  of  interest  group 
pressure  reduce the  risk  that a country  will be unable to maintain  its commitment  to  the 
economic obligations of membership. 

At  the  level  of  the  public  authorities,  membership  of  the  Union  requires  the 
administrative  and  legal capacity to transpose and implement the wide range of technical 
legislation needed to remove obstacles to freedom  of movement within the Union and  so 
ensure the working  of the single market. These aspects are examined  in later chapters. At 
the  level  of individual  firms,  the  impact  on their competitiveness  of adopting  the  acquis 
depends on their capacity to adapt to the new economic  environment. 

The Existence of a Functioning  Market  Economy 

The  existence  of  a  market  economy  requires  that  equilibrium  between  supply  and 
demand  is  established  by  the  free  interplay  of  market  forces.  A  market  economy  is 
functioning  when the legal  system,  including the regulation of property rights, is in place 
and  can be enforced.  The performance  of a market  economy  is facilitated  and  improved 
by  macroeconomic  stability  and  a degree  of consensus  about  the  essentials  of  economic 
policy. A well-developed  financial  sector and an absence of significant  barriers to market 
entry and exit help to improve the efficiency  with which an economy works. 

Failure to build  on the promising  initial  start to market reforms  means that in many  areas 
Bulgaria is little advanced  compared  with its situation at the outset of transition six years 
ago. It is hard to imagine a more telling symbol of the distance Bulgaria still has to travel 
to a market economy than the reappearance of bread queues in the recent past. 

26 

As far as price liberalisation  is concerned, early reforms  were partially  reversed  in  1995. 
It is only very recently that prices have been liberalised again. 

Hyperinflation  in the early months of  1997 resulted  in a massive redistribution  of wealth 
from savers to borrowers. One side-effect  has been to improve the health of the  banking 
and  enterprise  sectors,  though  they  remain  quite  weak.  To  a  large  extent,  the  financial 
system is dysfunctional.  It has not fulfilled  its essential market economy role of  financial 
intermediation  between  savers  and  investors.  Rather,  much  of  the  activity  of  banks  has 
appeared to entail extending  new loans to keep afloat  enterprises which are in arrears  on 
outstanding debt. 

Part  of  the  reason  for  this  behaviour  on  the  part  of  banks  and  enterprises  lies  in  the 
absence  of  strong  legal  institutions.  In  a  market  economy  most  contentious  issues  in 
relations  between  economic  agents  can  be  settled  without  involving  courts.  This  is 
possible because there  is a widely  shared understanding  of what the rules  are, as well  as 
certainty that they will be implemented if necessary. In Bulgaria, this element of a market 
economy has been largely  lacking. In particular, repeated  state-initiated  write-offs  of bad 
debts  created  an  expectation  on  the  part  of  both  borrowers  and  lenders  that  the  state 
would continue to come to the rescue. This may explain why the bankruptcy  law adopted 
in  1994 remained  inoperative  until the state moved  against the most insolvent  banks and 
enterprises in 1996. 

Inadequately  defined  property  rights  resulting  from  delays  in  land  restitution  hampered 
the development  of  Bulgarian  agriculture,  and  effectively  prevented  the  emergence  of  a 
land  market.  Experience  following  energy  price  increases  in  1996  shows  that  people's 
behaviour may respond  to price changes in unexpected  ways when there are no  effective 
mechanisms to enforce  payment. 

Institutional  and  political  instability,  in particular  the absence  of a general  consensus  on 
the elementary  legal  basis  underlying  economic  activity  and  on the  general  direction  of 
economic policy, has created a climate of uncertainty. 

Even in the absence  of formal  obstacles  to  private  enterprise,  such  an economic  climate 
will  discourage  new  ventures.  The  inadequacy  of  the  banking  sector  has  further  limited 
opportunities for domestic entrepreneurs. 

When  institutional  instability  is compounded  with  acute economic  instability  as was  the 
case  in  Bulgaria  during  much  of  1996  and  early  1997,  much  activity  essential  for  the 
functioning  and development of a market economy stops. The uncertainty created by very 
high and variable  inflation  provides poor  incentives  for  saving  and  investment,  and  thus 
weakens the future  prospects of the country. 

Because  of  the  weakened  state  of  the  public  finances,  public  administration  lacks 
resources.  Tax  collection  is  poor.  The  slow  pace  of  land  restitution  is  in  part  due  to 
administrative weaknesses. Line ministries seem unable to exercise adequate control over 
state enterprise managers. 

27 

The Capacity to Cope with Competitive Pressure and Market Forces 

It  is  difficult,  some  years  ahead  of  prospective  membership,  and  before  Bulgaria  has 
adopted  and  implemented  the  larger  part  of  Community  law,  to  form  a  definitive 
judgement  of  the  country's  ability  to  fulfil  this  criterion.  Nevertheless,  it  is  possible  to 
identify  a number  of  features  of Bulgaria's  development  which provide  some  indication 
of its potential to cope with competitive pressure and market forces within the Union. 

The  capacity  to  cope  with  competitive  pressure  and  market  forces  within  the  Union 
requires  a  stable  macroeconomic  framework  within  which  individual  economic  agents 
can make decisions  in a climate of a reasonable degree of predictability.  There must be a 
sufficient  amount  of  human  and  physical  capital  including  infrastructure  to  provide  the 
background  so  that  individual  firms  have  the  ability  to  adapt  to  face  increased 
competitive  pressures  in  the  single  market.  Firms  need  to  invest  to  improve  their 
efficiency,  so  that  they  can  both  compete  at  home  and  take  advantage  of  economies  of 
scale which flow from  access to the single market. This capacity to adapt will be  greater, 
the  more  firms  have  access  to  investment  finance,  the  better  the  quality  of  their 
workforce,  and the more successful  they are at innovation. 

Moreover,  an economy  will  be  better  able to take  on the obligations  of  membership  the 
higher the degree of economic integration  it achieves with the Union  ahead  of  accession. 
The more integrated a country already is with the Union, the less the further  restructuring 
implied  by  membership.  The  level  of  economic  integration  is  related  to  both  the  range 
and volume of goods traded with member states. Direct benefits  from  access to the single 
market  may  also  be  greater  in  sectors  where  there  are  a  sizeable  proportion  of  small 
firms, since these are relatively more affected  by impediments to trade. 

Delays  in  Bulgaria's  transition  to  a  market  economy  have  left  it  badly  placed  to  cope 
with  competitive  pressure.  The  transformation  of  Bulgaria's  centrally  planned  economy 
into  a  market  economy  able  to  prosper  within  the  Union  will  require  substantial 
investment  over many  years  in modernising  the country's productive  capacity,  as well  as 
major  improvements  in  physical  infrastructure.  Although  Bulgaria  is  developing  its 
telecommunications  network,  much  of 
remains  obsolete  and 
telecommunications  services  need  to  be  developed.  Similarly,  the  rail  and  road  systems 
have  suffered  from  a  lack  of  investment,  notwithstanding  major  investment  projects  set 
up  since  1991.  Changing  skill  requirements,  and  adapting  public  administration  to  the 
requirements of the single market, will necessitate  large investments  in people.  Although 
Bulgaria has a tradition of high standards in education, the sector today is acutely  short of 
the resources necessary to develop a system capable of responding to society's needs. 

the  equipment 

Low  levels  of  investment,  both  private  and  public,  have  been  a  marked  feature  of 
Bulgaria's  transition.  Poor  economic  performance  in  general,  linked  to  inadequate 
progress  in restructuring,  has reduced  tax receipts.  Combined  with  lax  fiscal  policy,  this 
created  a  large  domestic  government  debt.  Resources  used  in  servicing  this  debt  could 
not  be  used  for  public  investment.  The  reasons  for  low  levels  of  private  investment  are 
more  widespread  and  fundamental  and  are  grounded  in  the  general  weaknesses  in  key 
institutional  features which a market economy requires. 

Potential  investors  in  Bulgaria  have  faced  an  unfavourable  economic  and  institutional 
climate.  With  the  exception  of much  of  1995 and  the  early  months  of  1996, inflation  in 
Bulgaria has been high and frequently  quite variable from  month to month. Legislation in 
28 

some  areas  has  been  subject  to  frequent  revision,  implementation  of  legislation 
incomplete.  Delays 
in  land  restitution  and  in  first  the  adoption  and  then  the 
implementation  of  the  bankruptcy  law  have  already  been  mentioned.  The  law  on 
ownership and use of farmland  has been amended over  10 times. Tax treatment of  foreign 
investment has been  modified. 

The  frequent  changes  have  left  economic  agents  uncertain  and  unable  to  plan  their 
activity.  Uncertainty  about  whether  property  rights  can  be  enforced  has  discouraged 
investment.  Failure  to  impose  "hard  budget  constraints" on firms, due to  weaknesses  in 
both  the  banking  system  and  in  public  administration  (tax  collection),  added  to  state 
interference  in  the  determination  of  prices,  provided  managers  of  state  enterprises  with 
distorted  incentives.  Consequently,  restructuring  has  been too  slow,  so that  single  firms 
dominate large segments of industry. 

The  overall  atmosphere  of  uncertainty  which  has  been  created  by  persistent  political 
instability  and an ambiguous  attitude to market reforms  has helped to create a climate  in 
which  corruption  can  thrive.  Civil  servants'  involvement  in  the  management  of  state 
enterprises  creates  a potential  conflict  of interest with their responsibilities  to  implement 
government policy. 

Developments  in  Bulgaria's  economy  during  1996  revealed  serious  weaknesses  in  the 
competitiveness  of its industrial  base. The sectors which contributed  most to the  positive 
export  performance  in  1995  were  shown  to  depend  for  their  cornpetitive  advantage  on 
artificial,  unsustainable conditions. 

The first of these was cheap energy: the prices paid by Bulgarian enterprises  for  fuel  and 
power  were  heavily  subsidised  until  mid-1996.  The  second  advantage  arose  from  the 
sharp  depreciation  of  the  lev  which  occurred  in  Spring  1994.  However,  the  real 
appreciation  of the currency  during  1995 eroded this temporary competitive boost.  Other 
things  being  equal,  the  precipitous  fall  of  the  lev  in  1996  might  have  been  expected  to 
give a renewed  impetus to exports. That this did not happen was due to some extent to a 
relative  slowing of economic activity  in the Union. However, this should not obscure the 
key  issue,  which  is  that  the  development  of  sustainable  international  competitiveness 
cannot be based on a continuously  and rapidly  depreciating  currency. This is particularly 
relevant in the context of potential membership of the Union. 

Bulgaria's relatively  weak competitive position  is also linked to a narrow industrial base: 
exports have been unduly  concentrated  in a small number  of basic industrial  goods. This 
situation  is  related  to  the  gaps  already  identified  in  the  country's  transition  to  a  market 
economy. 

Improvements  in  competitiveness  have  also  been  slowed  by  very  low  levels  of  foreign 
direct  investment  (FDI).  In  those  countries  which  have  progressed  furthest  in  transition, 
FDI  has  played  a  substantial  role  in modernising  productive  capacity,  thereby  improving 
efficiency  and  competitiveness.  In  addition  to  the  factors  already  identified  which  have 
discouraged  investment  in general, the  slow pace of privatisation  has reduced the  supply 
of investment opportunities for foreign  capital. 

FDI can be* a significant  source of technology  transfer  and innovation.  This is  particularly 
important in transition economies, as domestic funds  for Research & Development  (R&D) 
will  be  limited  both  by  cutbacks  in  public  spending  and  by  economic  restructuring  in 

29 

general.  Bulgaria  has  attracted  a  small  amount  of  FDI, and  reported  R&D spending  has 
fallen  by  a  factor  of  almost  3  since  the  late  1980s.  R&D activities  also  appear  to  have 
suffered  from  an  uncoordinated  approach  to  policv.  including  a  lack  of  incentives  for 
private research. There has been a significant  "brain drain" from the sector. 

As a consequence  of the uneven progress which Bulgaria has made with market  reforms, 
the country is now in an economically weak position. Developments in  1996 showed that 
even  with the benefit  of a dramatic  improvement  in price competitiveness  following  the 
largely  uncompetitive  on 
steep  currency  depreciation,  Bulgarian  products  were 
international markets. 

Prospects and Priorities 

Faced  with the prospect  of national  bankruptcy  for  the second  time  within  a decade, the 
authorities  have  recently  stated  their  firm  commitment  to  serious  and  far-reaching 
structural  reform.  The  fact  that  the  temporary  measures  during  the  past  six  years  have 
failed  demonstrates the fundamental  need for a sustained and consistent reform  effort. 

Bulgaria's  future  membership  of  the  European  Union  will  require  that  short-term 
forceful 
stabilisation  measures  currently  being  undertaken  are  followed  up  by 
implementation  of  a  comprehensive  strategy  for  the  medium-term  development  of  the 
country.  The  Commission  has initiated  discussions  with the Bulgarian  authorities  which 
should  lead to the  elaboration  of such  an approach.  Good progress  in implementation  of 
the  Europe  Agreement  should  also  help  smooth  the  transition  to  membership  of  the 
Union. 

Lack  of  progress  in  implementing  market-oriented  economic  reform  means  Bulgaria 
faces challenges in a broad range of policy areas. 

A first and  immediate priority  is to achieve solid macroeconomic  stability.  Once this has 
been realised,  the  Government  needs to  set about consistent  implementation  of  stability-
oriented economic policies, both at macroeconomic and structural level. 

In agriculture, priority  should  be assigned to completing the  land  restitution  process  and 
removing  any  bureaucratic  obstacles  to the  functioning  of  the  land  market.  Agricultural 
wholesale  markets  and  agro-food  enterprises  need  to  be  privatised  and  opened  to 
competition. Price and trade policies should be such as to promote investment by  farmers 
in future  production. 

Previous inability to impose discipline on state enterprises and banks through  non-market 
means  suggests very strongly that rapid privatisation  should be a priority. This will  need 
to be accompanied  by the completion  and strengthening  of market  economy  institutions. 
The  current  procedures  for  winding  up  banks  and  enterprises  are  lengthy.  The  legal 
framework  should  be examined  to  ensure that  it provides  creditors  with  adequate  means 
of enforcing  their claims; it will also be necessary to strengthen the capacity of the courts. 

Investment  is  at  very  low  levels.  Correcting  the  circumstances  which  have  led  to  this 
situation  - essentially,  an unstable  political,  legal  and  economic  environment  -  is  a pre 
requisite  if  Bulgaria  is to be able to  make progress  in improving  its productive  capacity 

30 

and  bringing  its industry  to a  level  where  it could  hope to  withstand  competition  within 
the Single Market. 

Investments  in transport  infrastructure  need  to be directed  at enabling  Bulgaria  to  profit 
from its potentially  significant  role as a transit country. 

Attracting  greater flows of foreign  direct investment will be facilitated  by consistent  and 
transparent  implementation  and  application  of  legislation.  In  this  regard,  removing  the 
constitutional  bar on foreign  land ownership would provide a positive signal. FDI will  be 
crucial  to  the  substantial  restructuring  required  in  most  sectors  of  industry.  FDI,  apart 
from its usual benefits,  brings particular advantages to Bulgaria,  since investors may  use 
the  bonds  issued  by  Bulgaria  as  part  of  the  DDSR  as  part  payment  in  privatisation 
transactions;  this  diminishes  the  stock  of  outstanding  debt,  and  so  reduces  future  debt 
service. 

Large  budget  deficits  over  the  past  years  have represented  a  sizeable  drain  on  domestic 
savings,  thereby  absorbing  resources  which  could  be  used  to  finance  productive 
investment.  Successful  implementation  of the currency  board arrangement  will  constrain 
the authorities' room for manoeuvre in the area of fiscal policy. Improved  taxation of the 
private  sector  would  help  the  health  of  the  public  finances.  This  implies  increasing 
resources  allocated  to tax collection.  In the  short-term, rapid  and  successful  stabilisation 
will lower interest rates, creating substantial savings on debt service. 

If enterprises  are to compete  effectively  they need  a well-trained  labour  force.  The  large 
scale restructuring that the Bulgarian economy  needs implies considerable  changes in the 
nature  of  employment,  and  in the  type  of  skills  which  will  be  demanded  by  employers. 
This poses  a substantial  challenge  to the educational  system, whose  capacity  to  respond 
to the economy's needs is constrained at present. 

Competitiveness  would  also  be  improved  by  the  development  of  an R&D policy  which 
encourages  technical  innovation  and  development,  in particular  by  providing  incentives 
in the private sector. 

Active  labour  market  policies  will  also  have  an  important  contribution  to  make  in 
facilitating  the  sectoral  restructuring  of  employment.  Developing  and  implementing 
policies  aimed  at  ensuring  that  the  long-term  unemployed  do  not  become  in  effect 
detached from the labour force, and  limiting any further  increase in their numbers  should 
be  a priority  area  of  labour  market  policy.  This  is all  the  more  important  in view  of  the 
likelihood  that  the  relaunch  of  structural  reform  will  initially  result  in  increased 
unemployment. 

Full  implementation  of  the  Government's  economic  and  structural  reform  programme 
will substantially  address these challenges. 

2.3  General  Evaluation 

Bulgaria's progress in the creation of a market economy has been limited  by the  absence 
of a commitment  to market-oriented  economic policies.  Early  liberalisation  of trade  and 
prices  was partially  reversed,  and  price  controls  were  not  removed  until  this  year.  It  is 

31 

only  since the crisis at the end of last year, and the recent  change of government, that 
consensus about the desirability of economic reforms has begun to develop. 

Bulgaria would not be able to cope with competitive pressure and market forces  within 
the Union in the medium term.  If the authorities can translate their renewed commitment 
to  economic  transition  into  successful  and  sustained  action,  a  rapid  turnaround  in 
Bulgaria's prospects is possible.  However, the country has been set back by six largely 
wasted years.  Incomplete reform  has hampered the emergence of a modern agricultural 
sector.  Slow privatisation  and economic instability  has weakened  state enterprises and 
delayed the development of a dynamic private sector. 

32 

3. 

Ability to Assume the Obligations of Membership 

The  European  Council  in  Copenhagen  included  among  the  criteria  for  accession  "the 
ability  to  take  on  the  obligations  of  membership,  including  adherence  to  the  aims  of 
political, economic and monetary union". 

In  applying  for  membership  on  the  basis  of  the  Treaty,  Bulgaria  has  accepted  without 
reserve  the basic  aims  of the Union,  including  its policies and  instruments. This  chapter 
examines Bulgaria's capacity to assume the obligations of membership - that is, the legal 
and institutional framework, known as the acquis, by means of which the Union puts into 
effect  its objectives. 

With the development  of the Union, the acquis has become progressively  more onerous, 
and presents  a greater  challenge  for  future  accessions than was the case  in the  past.  The 
ability  of  Bulgaria  to  implement  the  acquis  will  be  central  to  its  capacity  to  function 
successfully  within the Union. 

The  following  sections  examine, for  each main field of the Union's  activity,  the  current 
and prospective situation of Bulgaria. The starting-point of the description and analysis is 
a brief summary of the acquis, with a mention of the provisions of the Europe  Agreement 
and the White Paper,  where they are relevant. Finally, for  each field of activity there is a 
brief  assessment  of  Bulgaria's  ability  to  assume  the  obligations  of  membership  on  a 
medium-term horizon. 

3.1 

Internal Market Without Frontiers 

. 

Article 7a  of  the  Treaty  defines  the  Union's  internal  market  as  an  area  without  internal 
frontiers  in which  the  free  movement  of  goods, persons, services  and  capital  is  ensured. 
This  internal  market,  central  to  the  integration  process,  is  based  on  an  open-market 
economy in which competition and economic and social cohesion must play a full  part. 

Effective  implementation  of  the  liberties  enshrined  in  the  Treaty  requires  not  only 
compliance with such important principles as, for example, non-discrimination  or mutual 
recognition  of  national  regulations  -  as  clarified  by  Court  of  Justice  rulings  -  but  also 
concomitant,  effective  application  of a series of common  specific  provisions.  These  are 
designed,  in  particular,  to  provide 
,  notably  in  terms  of  safety,  public  health, 
environmental  and  consumer  protection,  public  confidence  in  the  services  sector, 
appropriately  qualified  persons  to  practise  certain  specialist  occupations  and,  where 
necessary,  introduction  or  coordination  of  regulatory  and  monitoring  mechanisms;  all 
systematic checks and inspections necessary to ensure correct application of the rules are 
carried out on the market, not at frontier crossings. 

It is important  to  incorporate  Community  legislation into national  legislation  effectively, 
but  even  more  important  to  implement  it  properly  in  the  field,  via  the  appropriate 
administrative  and  judicial  structures  set  up  in  the  Member  States  and  respected  by 
companies.  This  is an  essential  precondition  for  creating  the mutual  trust  indispensable 
for smooth operation of the internal market. 

This  chapter  must  be  read  in  conjunction  with,  inter  alia,  the  chapters  on  social  policy, 
the environment, consumer protection and sectoral policies. 

33 

Thf  F»"r Freedoms 

A  step-by-step  approach  is  being  taken  to  absorption  of  the  acquis  by  the  candidate 
countries: 

The  Association  Agreement  between  the  Community,  its  Member  States  and 
Bulgaria  entered  into  force  on  1 February  1995.  With  regard  to  the  four  freedoms  and 
approximation  of  legislation,  the  Agreement  provides,  in  particular,  for  immediate  or 
gradual  application  of  a  number  of  obligations,  some  of  them  reciprocal,  covering,  in 
particular,  freedom  of  establishment,  national  treatment,  free  trade,  intellectual  property 
and public procurement. 

The  Commission's  1995  White  Paper  (COM  (95)  163 final) guidelines  intended 
to  help  the  candidate  countries  prepare  for  integration  into  the  internal  market  gives  a 
closer  definition  of  the  legislation  concerned.  It  identifies  the  "key  measures"  with  a 
direct  effect  on  the  free  movement  of  goods,  services,  capital  and  persons  and  outlines 
the  conditions  necessary  in  order  to  operate  the  legislation,  including  the  legal  and 
organisational  structures.  Twenty-three  areas  of  Community  activity  are  examined, 
dividing the measures into two stages, in order of priority, to provide a work  programme 
for the pre-accession  phase. The Technical  Assistance  and Information  Exchange  Office 
(TAIEX)  was  set  up  with  the  objective  of  providing  complementary  and  focused 
technical  assistance  in the areas  of legislation  covered  in the  White  Paper.  A  legislative 
database has recently been established by the  Office. 

The candidate countries will have to implement all the acquis.The Action plan  for 
the  single  market  submitted  to  the  Amsterdam  European  Council  gives  details  of  the 
priority measures necessary to make the single market work better between the Fifteen  in 
preparation for  introduction of the single currency.  This will inevitably entail changes to 
the acquis. 

-  General  Framework 

Whatever  their  field  of  activity,  undertakings  must  be  able  to  operate  on  the  basis  of 
common  rules.  These  are  important  since  they  shape  the  general  framework  within 
which  economies  operate  and,  hence,  the  general  conditions  of  competition.  They 
include  the  rules  on  competition  (on  undertakings  and  State  aid)  and  tax  measures 
discussed  elsewhere  in this opinion, the opening-up  of public works, supply  and  service 
contracts,  harmonisation  of  the  rules  on  intellectual  property  (including  the  European 
patent),  harmonisation  of  the  rules  on  company  law  and  accountancy,  protection  of 
personal  data,  transfer  of  proceedings  and  recognition  of  judgments  (Article 220 
Conventions) 

Descriptive  Summary 

Public procurement  in Bulgaria is at present governed by a newly adopted Law on public 
and  municipal  procurement  contracts.  Concessions  are  regulated  by  a  law  of  1996.  The 
enforcement  is entrusted to the Council of Ministers, while supervision and monitoring is 
carried out by the National Audit Office.  Following its accession to WTO on  1 December 
1996,  Bulgaria  has  started  negotiations  on  accession  to  the  WTO  Agreement  on 
government  procurement. 

34 

Bulgaria  has  adopted  legislation  on the protection  of  intellectual  and  industrial  property 
especially  in  patent  (1993)  and  copyright  (1993)  and  has  acceded  to  nearly  all  relevant 
international  conventions  in  this  respect.  Bulgaria  undertook  to  implement  the  TRIPS 
(trade related  aspects of intellectual  property rights) agreement  with  immediate  effect  by 
its WTO accession in December  1996. 

Company  law  is  primarily  governed  by  the  Commercial  Code,  introduced  in  1991  and 
subsequently  amended.  Bulgarian  law recognises  a range  of  enterprises  falling  into  two 
broad  categories:  associations  of  persons  and  associations  of  capital.  In  June  1996, 
around  45,000  limited  liability  companies  were registered.  Companies  may  issue  shares 
to  raise  finance;  shareholders  are  protected  by  law.  Minimum  capital  requirements  are 
laid  down  by  law.  Creditors  are  adequately  protected.  District  courts  keep  company 
registers containing the key material facts concerning  each company; these  data are open 
to the public. Annual reports are published in the Official  Gazette. 

With regard  to accounting, rules  on annual  and consolidated  accounts are to be found  in 
the Accountancy  Act  (1991, last changed in  1996), the national  schedule of accounts and 
31  National  accounting  standards.  All  regulatory  acts  have  been  based  on  the  EC 
Directives and  international  accounting  standards. There are rules concerning  auditors  in 
the  Accountancy  Act  as  well  as  in  a  regulation.  Since  the  last  amendment  of  the 
Accountancy  Act,  the  Institute  of  Certified  Public  Accountants  represents  the  Bulgarian 
auditors. A Disciplinary  Commission appointed by the Minister of Finance is responsible 
for  supervision. 

With regard  to  the  protection  of  data. Article  32  of the  Bulgarian  Constitution  provides 
that the privacy of citizens  shall be inviolable and that they  shall be entitled  to protection 
against any illegal interference  in their private or family  affairs. 

Current  and  Prospective  Assessment 

Further efforts  will be needed to adopt all the relevant acquis in public procurement. 

In general the new  law does not provide a sufficient  basis to assess whether the  scope of 
the different  directives  has been  respected,  particularly  as  regards  services  and  utilities. 
Furthermore, as regards technical requirements and technical/financial  capacity the law is 
not  very  detailed.  At  present,  Bulgarian  firms  (or  EU  firms  with  subsidiaries  located 
inside Bulgaria)  obtain preferential  treatment as regards the award of public  procurement 
contracts.  Firms  located  in  the  EU  will  get  equal  access  only  after  the  expiry  of  the 
transition  period  set  out  in  the  Europe  Agreement  (31  January  2005,  at  the  latest).  In 
addition, remedies and review procedures do not seem to be fully  compatible with the EC 
requirements. 

Whereas  further  amendments  to  the  Law  on  public  procurement  are  envisaged  to  be 
completed  in  1997, the actual application  is still hampered  by the lack of  implementation 
procedures  and  the  generally  low  public  awareness  in  the  area  of  public  procurement. 
Complete harmonisation is expected to be achieved in the medium term. 

Special  efforts  are  necessary  to  improve  the  protection  of  intellectual  and  industrial 
property. On patent laws some progress has been achieved; for trademarks, copyright and 
neighbouring  right,  important  progress  has  to  be  made.  With  regard  to  enforcement, 
certain  efforts,  especially  border  enforcement  for  copyright,  have  been  undertaken. 

35 

However,  also  in  this  area, important  progress  is required,  notably  because  of  weakness 
of  internal  control  and  border  enforcement  for  industrial  property.  Under  the  Europe 
Agreement  (Art.  67) Bulgaria  has to align  its legislation  by the end  of  1997. Piracy  still 
remains an important concern. 

In relation  to  company  law. Bulgaria's  legislation  appears to  be to  a large  extent,  if  not 
entirely, in conformity  with the First,  Second  and  Third  Directives. The legislation  does 
not  appear  to  be  fully  in  line  yet  with  the  Eleventh  and  Twelfth  Directives.  Problems 
exist  on  the  implementation  of  company  law,  due  to  insufficient  knowledge  and 
experience  in  the  judiciary  on  company  and  commercial  law  issues.  This  holds 
particularly  for  company  insolvency  proceedings  under  the  commercial  code,  which 
include new procedures in which the courts select and appoint trustees. Law  enforcement 
is also hampered by deficiencies in laws relating to privatisation and concessions. 

As regards accounting, a high degree of conformity  with the Directives has already  been 
achieved  but  the  profession's  compliance  with  the  legislation  needs  to  improve.  In 
auditing, changes are planned in particular to raise qualification  requirements. 

Certain transitional problems are in evidence relating to the implementation in practice of 
the new rules, including  a shortage  of qualified  accountants  and auditors, an issue  which 
requires major  efforts  for it to be solved in the medium term. 

On  the  Protection  of  Personal  Data,  a  draft  law  and  a  new  law  concerning  the 
telecommunication  sector  aim  to  achieve  compliance  with  Directive  95/46/EEC.  An 
independent  monitoring  authority  is  foreseen.  Accession  to  Convention  No  108  of  the 
Council of Europe can only be achieved after the adoption of these legislative measures. 

Conclusion 

In the sectors indicated above, Bulgaria has taken on several important directives and has 
drafted  laws  for  several  others.  Important  efforts  on  the  implementation  of  the  White 
Paper  recommendations  are  still  needed.  Bulgaria  will  need  to  make  a  strong  effort  to 
align  its  legislation  and  practice  to  the  EU  requirements  in  the  field  of  public 
procurement as well as intellectual and industrial property. 

As  far  as  company  law  is  concerned,  there  would  not  appear  to  be  any  major  problem 
with  Bulgaria's  implementing  the  acquis.  As  regards  accounting  and  auditing,  an 
important  effort 
is  needed  for  ensuring  the  practical  application  of  the  existing 
legislation. 

Considerable  efforts  are  still  needed  to  adopt  and  implement  measures  to  meet 
Community requirements on data protection. 

-  Free Movement  of Goods 

Free movement of goods can be achieved only by removing measures which restrict trade 
-  not  only  customs  duties  and  quantitative  restrictions  but  all  measures  with  equivalent, 
i.e.  protectionist,  effect,  irrespective  of  whether  or  not  they  are  specifically  aimed  at 
domestic  or  imported  products.  Where  technical  standards  are  not  harmonised,  the  free 
movement  of  goods  must  be  ensured  by applying  the principle  of  mutual  recognition  of 
national  rules  and  accepting  the  rule  that  national  specifications  should  be  no  more 

36 

stringent than is required to achieve their legitimate objectives. This rule was  established 
in the Cassis de Dijon judgment. 

For  the  purpose  of  harmonisation,  the  European  Community  has  developed  the  "New 
Approach"  which  introduces  an  approach  carefully  balanced  between  government  and 
private autonomous bodies and in which European  Community  legislation and  European 
standards  play  a  distinct  complementary  role.  Thus,  instead  of  imposing  technical 
solutions,  European  Community  legislation  is  limited  to  establishing  the  essential 
requirements which products must meet. 

Products  manufactured  in  accordance  with  European  standards  are  presumed  to  meet 
such essential  requirements, but European  stuidards are not the only way  to prove  such 
conformity.  The  "New Approach" works in conjunction  with the "Global  Approach"  on 
product  certification  which governs the apposition of the "CE Mark" on the product.  For 
other  products  such  as  pharmaceuticals,  chemicals,  motor  vehicles,  and  food  products, 
European  Community  directives  follow  the  traditional  regulatory  pattern  of  providing 
fully  detailed rules. 

The  free  movement  of  goods  also  dictates  that  a  number  of  Community  harmonisation 
measures  be  transposed  into  national  law.  Implementation  of  health  and  safety 
harmonisation  rules  is  particularly 
important  and  requires  the  establishment  of 
appropriate mechanisms and organisations, both for businesses and the authorities. 

Two  of  the  "horizontal"  directives  essential  to  smooth  running  of  the  single  market  are 
the  Directive  on  general  product  safety  and  the  Directive  on  liability  for  defective 
products. The regulations concerning general product safety  are covered in the section on 
consumer protection. 

The  rules  on  agricultural  products  (compliance  with  veterinary  and  plant-health 
standards) are explained in detail in the section on agriculture. 

Descriptive  Summary 

Since  1990  Bulgaria  has  followed  a  general  policy  of  trade  liberalisation  and  recently 
started  to  fully  liberalise  prices.  The  conditions  for  a  secure  and  transparent  legislative 
environment for private economic operators are being achieved gradually. There are very 
few discriminatory  measures in place at the moment. 

No  significant  problems  exist  concerning  the  implementation  of  the  conditions  for  the 
free  movement  of  goods  relating  to  Article  8 to  37  of  the  Europe  Agreement.  Several 
quantitative restrictions and measures having an equivalent effect  have been abolished  by 
Bulgaria  ahead  of  schedule.  The  customs  clearance  fee  will  be  abolished  as  from  1 
January  1998. 

Concerns  remain  over  the  effectiveness  of  government  institutions  involved  in  the 
implementation  of  laws and regulations  compatible  with  the  Europe  Agreement  and  the 
acquis. 

The  area  of  standardisation  and  conformity  assessment  is  the  responsibility  of  the 
Committee  for  Standardisation  and  Metrology,  a  state  body  under  the  Council  of 
Ministers  with  a mix  of policy  and  executive  functions  for  standardisation,  certification, 

37 

accreditation  and  metrology;  the  Committee  is  an  affiliate  member  of  the  European 
Committee  for  Standardisation  (CEN)  and the European  Committee  for  Electrotechnical 
Standardisation (CENELEC). 

Current and Prospective  Assessment 

Despite  Bulgaria's  generally  good  record  on trade  issues, efforts  remain  needed  for  the 
full  adoption  and  implementation  of  the  acquis  related  to  the  free  movement  of  goods 
within  the  internal  market.  The  approximation  of  technical  legislation  has  witnessed  a 
slow start although, according to the Strategy paper submitted in May  1996, alignment of 
major  measures  is  planned  for  1998.  While  progress  on  the New  Approach  directives 
and  the  chemical  sector  is  limited,  some  progress  has  been  achieved  in  the  fields  of 
foodstuffs  and  automobiles;  for  the  latter  sector  complete  alignment  is  expected  by  the 
year  2000.  Technical  legislation  on  pharmaceuticals  has  attained  a  good  degree  of 
approximation.  Secondary  legislation  remains  necessary  to  implement  the  general 
legislative  framework.  Further  efforts  are  also  required  for  the  full  alignment  of  trade 
mark law, marking, labelling and the safety of products. 

Current legislation on standardisation is not in line with the EU system. 

Draft  legislation  exists  in the  fields  of  standardisation  and  conformity  assessment.  Once 
adopted,  this  legislation  will  substantially  improve  conformity  with  the  EU  system  and 
clarify  the voluntary nature of standards in Bulgaria. 

The  administrative  structures  for  standardisation  and  conformity  assessment  need 
reinforcement  in order to implement the future  legislation. Clarifications  are needed  as to 
the future  svatus of  the  Committee  for  Standardisation  and Metrology,  notably  in  regard 
to  its  independence  in  executing  standardisation  measures.  Difficulties  arising  from 
lengthy  administrative  procedures  have  been  resolved  in  the  context  of  the  Europe 
Agreement. 

At  the  moment  the  concept  of  civil  liability  for  damage  caused  by  defective  products 
does not exist  in the  Bulgarian  civil  code, which, therefore  cannot  meet  the  Community 
requirements in this field. 

In the areas subject to national rules and not covered by Community harmonisation,  there 
is  too  little  information  available  to  assess  whether  Community  legal  principles  on  the 
free movement of goods are properly applied in Bulgaria. 

The  situation  is explained,  in particular,  by the  fact  that  the  reporting  procedures  which 
form  part of the internal-market  machinery  are not yet operational  and so cannot  be used 
in  the  pre-accession  period.  The  most  important  instruments  in  this  connection  are: 
Directive  83/189, requiring  governments  to  report  draft  national  technical  standards  and 
regulations;  Decision  3052/95  on  measures  derogating  from  the  principle  of  the  free 
movement  of  goods;  procedures  by  which  complaints  can  be  submitted  to  the 
Commission;  and  Article  177  of  the  Treaty,  enabling  Member  States  to  ask  for 
preliminary  rulings  from  the  Court  of Justice. It  is  also  hard  to  assess  whether  Bulgaria 
complies  with  the  principle  of  mutual  recognition;  more  information  is  required  on  its 
national rules, and on administrative practices, which can have an effect  on product sales. 

38 

Conclusion 

Bulgaria's record  on the implementation  of its commitments on free  movement  of goods 
under  the  Europe  Agreement  is  generally  good.  However,  the  Bulgarian  authorities 
should  also  ensure  that,  in  areas  not  covered  by  Community  harmonisation,  their  own 
national  laws  do  not  hamper  trade.  In  particular,  they  should  check  that  measures  are 
proportionate  to their  objectives.  Although  there  are positive  indications,  a  considerable 
effort  remains  needed  before  the  acquis  will  be  fully  and  effectively  implemented  by 
Bulgaria. 

Free Movement of Capital 

The Europe Agreement establishes the principle of the free movement of capital between 
Bulgaria  and  the  EU.  This, as  far  as the  obligations  of Bulgaria  are  concerned,  applies 
from the entry into force of the Europe Agreement as regards direct investments  made by 
companies  already  established  in  Bulgaria;  and  as  regards  branches  and  agencies  of 
community  companies  (as  well  as  the  self  employed),  gradually  during  the  transitional 
period..  According  to  the  Agreement  the parties  shall  consult  each  other  with  a view  to 
facilitating  the  movement  of  capital  between  the  Community  and  Bulgaria  in  order  to 
promote the objectives of the Agreement. 

The  White  Paper  highlights  the  link  between  the  free  movement  of  capital  and  the  free 
movement  of  financial  services.  It  suggests  a  sequence  of  capital  liberalisation,  starting 
from  long-term  capital  movements  and  those  linked  to  commercial  operations  and 
subsequently  focusing  on short-term capital. 

Descriptive  Summary 

The Bulgarian  Constitution provides that foreign  capital enjoys  the same legal  protection 
as  capital  of  nationals.  International  capital  flows  between  Bulgaria  and  the  Union  are 
still  relatively  modest.  Foreign  investment  flows  to  Bulgaria  were  low  up  to  the  end  of 
1996  but  have  since  picked  up.  Cumulative  FDI  inflows  during  1989-96  are  estimated 
at400  MECU.  To  attract  foreign  investment  important  legislation  has  been  put  in  place 
and a Foreign Investment Agency has been set up. 

The  Lev  is  convertible  for  current  account  transactions.  Regarding  capital  movements, 
foreign  direct  investment  is  free  in  general.  An  authorisation  is  required  if  investments 
are undertaken in sectors that are considered  sensitive. Profits  and invested capital can be 
repatriated in convertible  currency. 

Restrictions  exist  on the acquisition  by foreign  physical  persons or foreign  legal  persons 
of real  estate  in Bulgaria,  except through  legal  inheritance.  Possibility  for  non  residents 
to  acquire  land  (except  agricultural  land)  exists through the establishment  of a  company 
in the country. 

Non-residents  may  maintain  accounts  in  Leva  and  foreign  currency.  The  crediting  and 
debiting  of  foreign  currency  accounts,  as  well  as  transfers  abroad  from  these  accounts, 

39 

are  free  from  restrictions.  Licensed  banks may  borrow  abroad  without  the  authorisation 
of the National Bank and residents may keep foreign currency deposits in Bulgaria. 

Outward capital movements require prior permission by the Bulgarian National Bank. 

The  establishment  of  branches  of  EU  investment  firms  as  well  as  access  to  official 
listings  for  EU  issuers  has not  oeen regulated  so far.  The incorporation  of  non-domestic 
subsidiaries  of EU  investment  firms  is made subject  to the general provisions  laid  down 
by the Securities, Stock Exchanges and Investment Companies Act. 

Current and Prospective  Assessment 

The intention of the Government is that the removal of restrictions on capital  movements 
will follow the approach adopted and commitments undertaken in the Europe Agreement. 
The  latter  provides  for  the  possibility  to  maintain  restrictions  on  outward  direct 
investment  during the first five years from  its entry  into  force,  and  gradual  liberalisation 
of the rest of capital transactions. 

Restrictions  exist  regarding  the acquisition  of real estate by foreigners,  notably  resulting 
from  the  Constitutional  prohibition  of  foreign  ownership  of  land.  While  being 
compatible  with  the  Europe  Agreement,  these  restrictions  hamper  the  free  flow  of 
capital.  There  are  also  administrative  and  procedural  difficulties  in  relation  to  the 
registration  of companies. 

Conclusion 

Bulgaria has introduced  currency convertibility  for most current account transactions  but 
limited  liberalisation  of  capital  movements.  The  liberalised  capital  transactions  concern 
exclusively  inward  capital  movements.  A relaxation  of  restrictions,  notably  on  outward 
capital  movements,  can be envisaged  only  once durable  improvement  is  achieved  in the 
financial  situation  and performance  of the banking  sector  and  in  function  of the  process 
of economic stabilisation and structural  reform. 

Free Movement of Services 

The  basis  of  the  free  movement  of  services 
is  the  prohibition  of  discrimination,  in 
particular  on  grounds  of  nationality,  and  rules  on  the  alignment  of  divergent  national 
legislation. These rules often  concern both the right of establishment,  which comes under 
the heading  of the free movement  of persons, and the freedom  to provide  services. Their 
implementation  implies  the  establishment  of  administrative  structures  (banking  control 
boards,  audio-visual  control  authorities,  regulatory  bodies)  and  greater  cooperation 
between Member  States in the area of enforcement  (mutual recognition arrangements). 

A  substantial  amount  of  the  legislation  applicable  to  the  free  movement  of  services 
relates to  financial  services.  It also  concerns  the problems  relating  to the  opening-up  of 
national  markets 
traditionally  dominated  by  monopolies,  e.g. 
telecommunications  and, to a certain extent, energy and transport.  These  subjects  will  be 
dealt with in the sections of the Opinion specifically  referring to them. 

the  sectors 

in 

40 

Descriptive  Summary 

The Bulgarian banking  sector is relatively fragmented. Seven state banks represent  more 
than two thirds of total assets;  16 banks are under special  supervision  or are  undergoing 
bankruptcy procedures demanded by the National Bank. 

Most  legislation  for  Phase  I measures  is considered  consistent  with  the  requirements  of 
the relevant EC directives. The main regulatory framework consists of the Law on Banks 
and Credit Activity and the National Bank Regulations No 2 on bank licensing, No  8 on 
the  Capital  Adequacy  of  Banks  and  the  Law  on  State  Protection  of  Deposits  and 
Accounts  combined  with  the  National  Bank's  Regulation  No  1  on  Bank  Deposit 
Insurance.  Phase  II  measures  have  been  enacted  only  partially.  À  Law  on  measures 
against money laundering was adopted in 1996 but is not fully  compatible. 

Supervision  of  banks  is  the  responsibility  of  the  Bank  Supervision  Department  of  the 
National Bank. 

Bulgaria's  most  important  legislation  concerning  trade  in  securities  comprises  the 
Securities,  Stock  Exchanges  and  Investment  Company  Act  (SSEICA)  as  well  as  the 
foreign  persons  economic  activity  and  foreign  investment  companies  act, which  entered 
into force in  1996. A draft  law is ready on commodity exchanges and market places. 

The  provision  of  professional  investment  services  is  subject  to  a  licensing  procedure. 
Investment brokers must comply with specific requirements in support of market stability 
and  investors'  interest.  Credit  institutions  may  also  act  as  investment  intermediaries  on 
the basis of their  "universal  license".  In fact the banks play a major  role in the market as 
the profession  of  brokers/dealer is only emerging. 

The  establishment  of  branches  of  EU  investment  firms  as  well  as the  access  to  official 
listings  of EU issuers has not been regulated  so far.  The incorporation  of  subsidiaries  of 
EU  investment  firms  is  made  subject  to  the  general  provisions  laid  down  by  the 
Securities, Stock Exchanges and Investment Companies Act. 

The  Commission  on  Securities  and  Stock  Exchanges,  established  under  the  1996 
Securities,  Stock  Exchanges  and  Investment  Companies  Act,  exercises  control  over 
transactions on the security market. 

Legislative  changes  from  1989  enabled  the  establishment  of  private  sector  insurance 
companies.  An  Insurance  Act  and  a  Regulation  on  Mandatory  Insurance  entered  into 
force  in  1997. Together with the protection of Foreign Investment Act, the Insurance Act 
regulates  Bulgarian  and  foreign  insurance  companies.  The  insurance  act  states  that  "a 
foreign  insurer  may  carry  on  insurance  only through  a branch  whose  registered  office  is 
in Bulgaria", if he is registered pursuant to the Commerce Act and has a licence from  the 
Insurance  Supervision  Department,  the  supervisory  body  with  the  Ministry  of  Finance. 
Foreign  persons  may  also  participate  in  companies  and  acquire  shares  after  obtaining 
permission  from  the  Supervision  Department.  A  majority  of  participation  by  foreign 
insurers is possible  after  a period  of seven years. These measures are part of a policy  for 
gradual  liberalisation  of  the  insurance  market.  The  level  of  activity  by  foreign  insurers 
has so far been limited. 

41 

Current and Prospective Assessment 

During  1991-1993,  a  number  of  banking  laws  and  prudential  regulations  were  passed 
setting  strict  standards  for  the sector. While to a certain extent  in accord  with the  Union 
system, the requirements  for  solvency  and bad  loan provision  set out  in these  laws have 
not  been  achieved,  largely  due  to  the  economic  and  banking  crisis.  In  relation  to  the 
White  Paper  measures,  for  two  out  of  four  Stage  I  measures  for  credit  institutions 
legislation needs to be amended, whilst all Stage II measures require new legislation. 

The Government is undertaking a complete restructuring of the financial sector, including 
the  setting  up  of  a  currency  board  arrangement,  a  rationalisation  of  bank  licensing,  a 
strengthening  of  accounting  and  external  auditing  provisions,  a  new  law  on  bank 
insolvency,  provisions  for  the  strengthening  of  the  National  Bank's  Bank  Supervision 
Department  and  a  review  of  the  National  Bank's  regulations  on  capital  adequacy,  loan 
classification  and 
legislative 
this  connection, 
approximation  can  be  expected  during  1997  in  such  areas  as  bankruptcy  procedures, 
deposit  insurance  and  banking  supervision.  The  enforcement  of  the  banking  laws  and 
prudential  regulations  by  the  Bulgarian  National  Bank  requires  substantial  efforts, 
including with regard to staff training. 

rapid  progress  on 

liquidity. 

In 

The implementation of the White Paper directives as regards the securities markets is still 
incomplete,  notably  as  regards  most  of  the  Stage  II  measures.  However  the  Bulgarian 
authorities  have prepared  some draft  regulations  which should fill the gaps  significantly, 
if  not  totally.  The  Bulgarian  securities  market  is  still  at  an  early  phase  of  development, 
and affected  by deficiencies  concerning organisation and regulation of the market as well 
as by a lack of transparency  in the financial  market.  The existing privatisation  funds  are 
to  be  transformed  into  investment  companies  or  in  collective  investment  undertakings, 
which  still  have  to  be  established.  An  official  Bulgarian  stock  exchange  will  be  set  up 
before  the end  of the year.  In the  last year about  15 private  unregulated  exchanges  were 
operating which have been closed by the Commission on Securities and Stock Exchange. 

While  the  legal  monopoly  of  the  state  insurance  companies  has  been  dismantled,  a 
private  insurance  market  characterised  by  fair  competition  still  needs  to  develop. 
Government  policies  will  need  to  include measures  for  guaranteeing  the transparency  of 
the private insurance market. To this end, in June  1997 the Government  approved  a  draft 
amendment to the  Insurance  Act which will establish  a National  Insurance  Council  with 
the aim to introduce a stable and transparent insurance system and to provide security  for 
clients  and  citizens.  The  Insurance  Supervision  Department  in  the  Ministry  of  Finance 
will need to be given the corresponding  powers; where needed adequate follow-up  needs 
to be provided by the judiciary and law enforcement  bodies. 

Conclusion 

While there is some progress in the financial services area and a clear commitment  exists 
on the part of the  authorities  to undertake  further  steps, the full  adoption  of the acquis  is 
dependent  on  the  implementation  of  the  economic  and  structural  reform  programme, 
including  the  strengthening  of  the  supervisory  structure,  for  which  several  steps  have 
recently  been  undertaken.  The  process  will  require  a  sustained  effort  over  several  years 

42 

before  Bulgaria's  financial  system will be able to sustain the impact of  integration  in the 
internal market. 

Free Movement of Persons 

The  free  movement  of  persons  encompasses  two  concepts  with  different 
logical 
implications  in  the  Treaty.  On  the  one  hand,  Article 7a  in  Part  One  of  the  Treaty  on 
'Principles'  mentions  the  concept  in  connection  with  the  establishment  of  the  internal 
market  and  implies  that  persons  are  not  to  be  subject  to  controls  when  crossing  the 
internal  frontiers  between the Member  States. On the other hand, Article 8a in Part  Two 
of  the  Treaty  on  'Citizenship  of  the  Union'  gives  every  citizen  of  the  Union  the 
individual  right  to  move  and  reside  freely  within  the  territory  of  the  Member  States, 
subject  to  certain  conditions.  The abolition  of frontier  checks must  apply  to  all persons, 
whatever  their  nationality,  if  Article 7a  is  not  to  be  meaningless.  While  the  rights 
deriving  from  Article 8a  apply  in  all  Member  States,  those  stemming  from  Article 7a 
have never been fully  applied throughout the Union. 

Free  Movement  of  Union  Citizens.  Freedom  of  Establishment  and  Mutual 

a) 
Recognition of Diplomas  and Qualifications 

The Europe Agreement provides for the non-discriminatory  treatment of workers that are 
legally  employed  (as  well  as  their  families).  It  covers  the  possibility  of  cumulating  or 
transferring  social  security  rights,  and  encourages  member  states  to  conclude  bilateral 
agreements  with  Bulgaria  on  access  to  labour  markets.  During  the  second  phase  of  the 
transitional  period,  the Association  Council  will  examine  further  ways  of  improving  the 
movement of workers. 

The White Paper  considers the legislative requirements  in order to achieve a harmonious 
development  of  the  labour  market,  whilst  simultaneously  preventing  distortions  of 
competition. 

The  free  movement  of  workers  is  one  of  the  fundamental  freedoms  enshrined  in  the 
Treaty;  freedom  to  practise  certain  professions  (e.g.  in the  legal  and  health  fields)  may, 
however,  be subject  to certain  conditions, such as qualifications.  Depending  on the case, 
these  may  be  dealt  with  through  coordination  or  by  applying  the  principle  of  mutual 
recognition. 

Freedom  of  establishment  is  also  guaranteed  under  the  Treaty  and  covers  the  economic 
activity of self-employed  natural persons and companies. 

The  free  choice  of  place  of  residence  may  thus  be  subject  to  minimum  conditions  as to 
resources  and  health  insurance  where  the  person  does  not  exercise  a  profession  in  the 
country  concerned. 

Descriptive  Summary 

The Constitution  grants all foreigners residing in Bulgaria the same rights and  obligations 
as  those  of  Bulgarian  citizens,  with  the  exception  of  a  few  specific  areas  for  which 
Bulgarian  nationality 
the 
Constitution,  in  practice  Bulgaria  deploys  a relatively  restrictive  immigration  policy.  In 

is  required.  While  equal 

is  guaranteed  by 

treatment 

43 

general, work  permits  are  granted  for  a period  of  one year,  extendible  for  a  further  two 
years, and on the basis of full-time  employment. 

The  Ministry  of  Education  is the competent  body  for  diplomas  of  higher  education  and 
for  academic  recognition.  As  regards  the  acquis  concerning  mutual  recognition  of 
diplomas Bulgaria has made alignment efforts  in respect of the relevant directives. 

Current and Prospective Assessment 

There  are  no  specific  legal  provisions  determining  the  rights  of  entry  and  residence 
enjoyed  by  a  worker's  family,  securing  rights  of  residence  in  the  case  of  voluntary  or 
involuntary cessation of work and for the taking up of alternative employment  in the case 
of unemployment  (voluntary  or otherwise).  The  grounds  cited  for  the  refusal  of  a  work 
permit  do  not  yet  meet  EU  provisions  governing  mobility  of  the  work  force  stemming 
from Article 48. Family employment rights appear unduly restrictive; any right of appeal 
needs to be dealt with at the administrative level and not in a court of law. There are only 
few measures seeking to encourage the occupational  and social integration of the  worker 
or his/her family;  this is reflected  in the restrictive conditions applying to participation  in 
the country's educational  system. 

Little  experience  exists  as  to  co-operation  between  Bulgaria  and  EU  Member  States  as 
regards  mutual  recognition  of  diplomas  and  professional  qualifications.  For  higher 
education qualifications,  a National Accreditation and Assessment Agency was set up on 
1995,  preparing  the  ground  for  mutual  academic  recognition.  A  similar  body  for 
vocational qualifications  does not exist. A systematic analysis of the equivalence between 
Bulgarian  and Member  State professional  curricula still needs to be carried out, once the 
relevant  information  to be provided  by Bulgaria has been examined.  A major  effort  will 
be  required  to  take  up  the  acquis  in  the  medium  term  and  ensure  its  effective 
enforcement. 

Conclusion 

The  transposition  and  implementation  of  the  acquis  are  very  limited.  Notwithstanding 
progress  in  several  areas,  a major  legislative,  policy  and  administrative  reform  effort  is 
required  in  order  that  Bulgaria  can  accomplish  the  full  acquis  on the  free  movement  of 
persons within the medium term. 

(b) Abolition  of Checks on Persons at Internal Frontiers 

The free  movement of persons within the meaning of Article 7a of the EC Treaty, i.e. the 
abolition  of checks on all persons, whatever their nationality, at the internal  frontiers  has 
not  yet  been  fully  implemented  in  the  Union.  Doing  away  with  checks  on  persons  is 
conditional  on  the  introduction  of  a  large  number  of  accompanying  measures,  some  of 
which  have  yet  to  be  approved  and  implemented  by  the  Member  States  (see  separate 
section  on  Justice  and  Home  Affairs).  However,  that  objective  has  been  achieved  by  a 
limited  number  of  Member  States  in  accordance  with  the  Schengen  Convention  (seven 
Member States already apply it and another six are working towards implementation). 

44 

The  draft  Treaty  aims  to  make  that  objective  easier  to  achieve  within  the  Union  by 
including a new chapter on "an area of Freedom, Security and Justice" and  incorporating 
the Schengen acquis  into the EU. 

Bulgaria  has  stated  its  desire  and  readiness  to  fulfil  the  provisions  of  the  Schengen 
acquis.  It has begun preparations to this end and has sought assistance in this  connection 
from Member States, notably in regard to the strengthening of border controls. 

Ceneral  Evaluation 

1. Bulgaria's progress  in the implementation  of legislation relating to the  White Paper  is 
summarised  in  a  table  annexed.  According  to  the  table,  Bulgaria  considers  that  by 
30 June  1997  it  will  have  adopted  national  implementing  legislation  for  126  of  the  899 
directives  and  regulations  in  the  White  Paper.  That  figure  covers  provisions  for  which 
Bulgaria  considers  it  will  have  adopted  implementing  legislation  or  which  it  will  have 
checked  for  compatibility  with  Community  rules  and  does  not  prejudge  actual 
compatibility  as  such,  on  which  the  Commission  is  not  able  at  this  stage  to  state  an 
opinion. 

2.  In  all  areas  of  the  internal  market  Bulgaria's  legislation  is  only  very  partially  in  line 
with the acquis.  The scale of the progress still required will call for extremely  strenuous, 
sustained  efforts,  both  on  approximation  of  legislation  and  on  the  establishment  of 
structures to implement it. 

. 

Complete  restructuring  of  the  financial  sector  to  restore  the  indispensable  public  and 
investor confidence  is the top priority and is recognised as such by the  Government. 

» 

• 

* 

. 

3.  Generally,  the  weakness  of the  Bulgarian  authorities  is  a  major  problem,  calling  into 
question  both the  pace  and  quality  of the moves on approximation  of  legislation.  At  the 
moment the structures essential for  implementation of the internal market legislation lack 
the  capacity  to  do  their job.  The  same  reservations  apply  to  the  capacity  of  businesses, 
particularly  small firms, to implement the acquis. 

4.  Leaving  aside  certain  specific  aspects  relating  to  agriculture,  checks  at  the  internal 
frontiers  of the Union can only be abolished once sufficient  legislative harmonisation  has 
been  achieved.  This  calls  for  mutual  confidence,  based  in  particular  on  sound 
administration  (e.g.  the  importance  of  safety  checks  on  some  products  at  the  place  of 
departure).  As  far  as  goods  are  concerned,  the  completion  of  the  internal  market  on 
1 January  1993  was  only  achieved  by  doing  away  with  all  the  formalities  and  checks 
performed  by the Member  States at the internal  borders  of the Union.  In particular  these 
checks  covered  technical  points  (in particular,  product  safety),  veterinary,  animal-health 
and  plant-health  matters,  economic  and  commercial  matters  (e.g.  prevention  of 
counterfeiting  of goods), security (weapons, etc.) and environmental  aspects (waste, etc.). 
In  most  cases,  the  abolition  of  checks  was  only  made  possible  by  the  adoption  and 
application  of  Community  measures harmonising  the rules  on movement  and  placement 
on the  market  (particularly  as regards  product  safety)  and,  where  applicable," by  shifting 
the place where controls and formalities  within the Member States or on their markets are 
conducted  (in  particular  as  regards  VAT  and  excise  duties,  veterinary  and  plant-health 
checks,  and  the  collection  of  statistics).  A  section  of  Bulgaria's  present  borders  will 

45 

become  the  Union's  external  frontier  and  this  means  border  checks  will  need  to  be 
stepped up (see separate section on customs). 

In view of the overall  assessment  that can be made of progress  achieved  to date and  the 
rate at which work is advancing in the various areas concerned, it is difficult  at present to 
put  a  time-scale  on  Bulgaria's  ability  to  take  over  and  implement  all  the  instruments 
required  to  abolish  internal  border  checks  and  to  transfer  those  checks  to  the  Union's 
external  frontier. 

5.  Bulgaria  has  yet  to  adopt  fundamental  elements  of  the  acquis  relating  to  the  single 
market.  Considerable  efforts  will  be  necessary  to  enable  it  to  adopt  and  implement  the 
internal market legislation and to set up the mechanisms needed to apply it. 

At  the  moment,  it  is  not  possible  to  envisage  that  Bulgaria  could  be  capable  of 
participating  fully  in the internal market in the medium term. 

Competition 

European Community  competition policy derives from Art. 3 (g) of the Treaty providing 
that the Community  shall have a system  ensuring that competition in the internal  market 
is not distorted.  The main areas of application are anti-trust and state aid. 

The Europe Agreement provides for a competition regime to be applied  in trade relations 
between  the  Community  and  Bulgaria  based  on  the  criteria  of  articles  85  and  86  of  the 
EC Treaty (agreements  between undertakings/abuses  of dominant position)  and in article 
92 (state aid) and  for  implementing  rules in these  fields  to be adopted  within  three  years 
of the entry into force of the Agreement.  Furthermore it provides that Bulgaria will make 
its legislation compatible with that of the Community in the field of competition. 

The  White  Paper  refers  to the progressive  application  of the above  provisions  and  those 
of  the  Merger  Regulation  (4064/89)  and  of  Art.  37  and  90  (Monopolies  and  Special 
Rights). 

Descriptive  Summary 

The current  legislative  basis for competition  legislation  is the Law for  the Protection  of 
Competition  (May  1991) which  contains the basic clauses on restrictive practices,  abuse 
of  dominance,  merger  control  and  rudimentary  provisions  on  procedural  rules.  A  new 
draft  Protection  of  Competition  Act  (PCA)  aims  to  create  with  more  precision  the 
conditions  for  free  enterprise  in  all  sectors, free pricing  and  the protection  of  consumer 
interests.  It will also provide protection against the abuse of a dominant market  position, 
as well  as against  unfair  competition  and other  actions that may have a restrictive  effect 
on domestic markets. 

The  1991  Law  established  the  Committee for  the  Protection  of  Competition  (CPC), 
which is charged with the enforcement  of Bulgaria's competition policy. 

On  25  October  1996,  the  monitoring  body  on  state  aids  was  established  under  the 
Ministry of Finance.  But no rules have been laid down as to its  functioning. 

The  existing  state  aid  inventory  represents  a  step  towards  transparency.  Nevertheless, 
more  information  is  needed  as  regards  global  amount  granted,  breakdown  by  sectors, 
46 

objectives,  form  of  aid  given  and  more  particularly  the  financial  relations  between  the 
State and state-owned companies. 

Current and Prospective Assessment 

The  conditions  for  economic  competition  do  not  fully  exist  for  the  moment.  The 
establishment  of  the  Committee  on  the  Protection  of  Competition  has  been  slow;  its 
enforcement  mandate and budgetary resources need to be strengthened. 

As  regards public  undertakings  and  undertakings  with special  and  exclusive  rights, 
some  sectors are advancing  faster  than others.  The liberalisation  of  telecommunications 
is underway, while other sectors, such as transport, postal services, energy policies in this 
direction  have been formulated.  The power sector, alcohol, oil, salt and coal mining  are 
still State monopolies of a commercial character. 

In  the  field  of  state  aid,  Bulgaria  does  not,  at  this  stage,  meet  the  requirements  of  a 
credible  state aid  control.  No  rules  for  the monitoring  of  state aid exist  for  the  moment 
and the transparency  required in the granting of state aid has not yet been achieved.  It is 
therefore  not  possible  to  examine  whether  the  state  aid  granted  is  compatible  with  the 
Community  state  aid  rules.  Since  1996  progress  has  been  made.  State  aid  to  the  135 
main  loss-making  state-owned  enterprises  and public  undertakings  (representing  around 
78%  of total  losses by  state-owned  companies  in  1995) have been  substantially  reduced 
and  rendered  transparent  where  still  granted.  Prices  of  services  delivered  by  the  public 
utilities  for  electricity,  gas, liquid  fuels,  water and telecommunications  have  been  raised 
to cost-recovery  levels; state subsidies  still exist for  district  heating and public  transport. 
It  will  be  necessary  to  set  up  a  monitoring  authority  whose  role  and  powers  will  be 
clearly  defined;  a substantial  effort  needs to be made to establish  a state aid inventory  in 
accordance with Community practice. 

In  addition  to  the  adoption  of  legislation  sufficiently  approximate  to  that  of  the  EC, 
credible  enforcement  of competition  law requires  the  establishment  of  well  functioning 
anti-trust  and  state  aid  monitoring  authorities. 
It  requires  moreover  that  the  judicial 
system,  the  public  administration  and  the  relevant  economic  operators  have  a  sufficient 
understanding of competition law and policy. 

Conclusion 

In  the  field  of  anti-trust,  Bulgaria  has  made  some  progress  with  the  institutional  and 
legislative  requirements.  Nevertheless,  the  implementation  enforcement  and  control  of 
the legislation will require sustained structural  reforms. 

In  the  field  of state  aid  progress  has  been  limited  in  all  aspects,  despite  improvements 
since  mid-1996.  Considerable  efforts  are  necessary  to  meet  the  requirements  of  a 
credible  control  of state aid, in particular  as regards transparency  in the granting  of state 
aid  and  the  establishment  of  a  well-functioning  monitoring  authority  on  state  aid  with 
sufficient  powers to monitor state aid and a sufficiently  qualified  staff. 

47 

It  appears,  moreover,  that  in  certain sectors  exclusive  or special  rights  exist  which  are 
not compatible with the Community  acquis.  These problems should  be addressed  in the 
near  future. 

Close cooperation with the Commission will be necessary. 

3.2 

Innovation 

Information Society 

Present Situation 

The  economic  and  social  effects  made  possible  by  the  combination  of  information 
technology  and  telecommunications  are  great.  Although  Bulgaria  played  â  prominent 
role in the  Comecon's  information  technology  production, these possibilities proved  not 
effective  due to lacking technological and manufacturing  innovation.  Nonetheless  before 
1989 general education was a priority.  The result seems to be that demand for  computers 
has spurted beyond normal expectations given the level of GDP per capita.  The existence 
of  host  computers  on  the  Internet  (25,000  equivalent  to  0.4  per  1000  inhabitants)  as  a 
relative  measure  of  development  towards  the  IS,  suggests  that  Bulgaria  has  not  yet 
reached  the  positions  which  the  average  EU  country  has  reached  two  years  ago. 
If 
Internet  connections  follow  the  same  pattern  of  growth,  the  telecommunications 
infrastructure,  which  is at present abput  seven years behind the EU average, may  remain 
a brake on IS developments. 

Conclusion 

As  the  approach  to  early  liberalisation  is hesitant  and  the  GDP  per  capita  is  one  of  the 
lowest in the region, it can be expected that the Information  Society potentialities will be 
realised later than the average CEECs. 

Education. Training and Youth 

Articles  126 and  127 of the EC Treaty provide that the Community shall contribute to the 
development  of  quality  education  and  implement  a  vocational  training  policy  aimed  at 
promoting  the  European  dimension  in  education  and  at  enhancing  industrial  adaptation 
and the responsiveness of the labour market through vocational training policies. 

The  Europe  Agreement  provides  for  co-operation  in  raising  the  level  of  education  and 
professional  qualifications.  The White Paper includes no measures in this field. 

Descriptive  Summary 

Bulgaria's  spending  on education  amounts to 4.0 % of GDP.  It takes  1.6  % of the  state 
budget. 

There are  1,190,000 pupils, 240,000 students and  105,000 teachers in Bulgaria. 

A  main  problem  facing  the  education  and  training  system  relate  to  Bulgaria's  severe 
economic  problems,  which  have  meant  dwindling  budgetary  allocations  (from  6.1% of 

48 

GDP in  1992 to 4.5% in  1995) and have on occasion even led to acute cash shortages  for 
the  operation  of  schools» the  provision  of  school  books  and  the  payment  of  teachers' 
salaries. 

The budget problem has not prevented steps being taken to reform  the educational  system 
at all levels. Key  statutory  instruments  have been the  State Educational  Requirements  of 
1991  (objectives  and  entitlements  in  the  educational  sphere),  the  Academic  Autonomy 
Act  of  1990 and the Higher  Education  Act  of  1995. The  latter  formed  the basis  for  The 
National Agency  for Assessment  and Accreditation  for  higher education,  set up in  1996, 
and  for  the  transformation  of  semi-higher  education  institution  to  higher  education 
establishments  and  their  rationalisation.  Curricular  change  within  secondary  and  post-
secondary education focuses  on introducing a stronger vocational emphasis monitored by 
the Regional Educational  Inspectorates. 

A serious challenge  exists  in continuing  vocational  training, as a result  of the  closure  of 
training centres within  state-owned  enterprises  and in view of the rise in  unemployment. 
Programmes have been established to integrate young persons into the job market  and to 
combat the phenomenon of school drop-outs and social exclusion. 

The  Tempus  programme  has  contributed  to  the  achievement  of  the  goals  of  higher 
education  reform  and  created  the  basis  for  cooperation  with  the  EU  higher  education 
institutions. 

About  14 % of the  total  population  of Bulgaria  is  aged  between  15 and  25.  Bulgarian 
youth  organisations  have  been  involved  in European  youth  activities  since  1990.  From 
1995,  youth  cooperation  with  Central  Europe  was  included  in  the  Youth  for  Europe 
programme. 

Current  and  Prospective  Assessment 

The  main  challenges  for  the  education  and  training  system  are  to  continue  the  positive 
structural,  financial  and  curricular  reform  initiatives  developed  over  the  past  years, 
despite the very  adverse  budgetary  and  economic  environment.  Specific  areas  requiring 
attention  are  the  further  reform  of  the  financing  of  education  and  training,  efforts  for 
upgrading  the  knowledge  and  skil  among teachers  as well  as investments  in  education 
infrastructure. 

The  efficiency  of  the  vocational  training  system  will  depend  on  the  identification  of 
economic  and  labour  market  trends  and  active  labour  market  policies  based  on  the 
principles  of  life-long  learning.  A  special  effort  remains  needed  to  combat  through 
training  the  social  exclusion  of  young  persons  and  of  the  newly  unemployed.  Social 
dialogue on education and training requires strengthening. 

Bulgaria's  ability  to fully  benefit  from  the relevant Community programmes  will  depend 
on  the  Bulgaria's  economic  development  situation  and  the  consequent  improvement  of 
the financial  position of the education and training sector. 

Conclusion 

In the perspective of accession, no major problems should be expected in these fields. 

49 

Research  and  Technological  Development 

Research and Technological  Development  activities at Community  level, as provided  for 
by the Treaty and in the Framework Programme, aim at improving the competitiveness of 
European  industry,  the  quality  of  life,  as  well  as  supporting  sustainable  development, 
environmental protection, and other common policies. 

The  Europe  Agreement  and  its  additional  Protocol  provide  for  co-operation  in  these 
areas,  notably  through  participation  in  the  Framework  Programme.  The  White  Paper 
includes no direct measures in this field. 

Descriptive  Summary 

Government  support  is  channelled  to  the  institutes  of  the  Academy  of  Sciences  and 
higher education establishments and to funding  schemes under the Ministry of Education, 
Science and Technology and the Ministry of Industry. 

Total  expenditure  in this field was 0.62  % of GDP in  1995 (down from  1.13  % in  1993) 
and the  number  of personnel  witnessed  a decrease  of about  18 % over the period  1990-
95.  A  major  decline  occurred  in  the  number  of  researchers  employed  in  industrial 
research units. 

Private  sector  initiative  is  limited  and  basic  and  applied  research  is  to  a  predominant 
extent  conducted  in  the  country's  Academies  of  Sciences,  public  research  institutes  or 
research units or state-owned enterprises. 

started  in  1992  with  the  3rd 
Regular  cooperation  with  the  European  Community 
Research  and  Technology  Development  Framework  Programme.  So  far,  cooperation 
was mainly  concentrated  on COPERNICUS  (Specific  Programme  for  Cooperation  with 
CECs and NIS) and remains low for participation in the 4th Framework Programme. 

The statistics in this field are not yet compatible with OECD standards. 

Current  and  Prospective  Assessment 

There  has  been  so  far  a  lack  of  strategic  direction  of policy.  The  existing  infrastructure 
and  research  institutions  have  suffered  greatly  from  the  lack  of  economic  reforms. 
Policies  are  needed  to  stimulate  innovation  and  the  creation  of  small  and  medium 
enterprises,  and to provide the fiscal environment  to encourage technological  innovation 
and development. 

Bulgaria  will  need  to  reflect  on  the  organisation  of  the  sector,  which  at  present  is  very 
centralised,  and take the necessary  administrative  and financial measures to promote  and 
further  encourage participation in EU programmes. 

Consideration  should  also  be  given  to  the  criteria  governing  the  distribution  of  grant 
funding  from  central  government,  proper evaluation  and co-ordination  of projects  within 
both public and private sectors, and the production of relevant statistics. 

The  biggest  challenge  for  Bulgaria  is  to  diminish  to  the  wide-ranging  presence  of  the 
state in the economy. Unless drastic economic reforms  are undertaken, the structures will 
support.  The 
continue 

to  depend  on  governmental  decisions  and 

financial 

50 

competitiveness  of  the whole system remains weak and does not allow full  participation 
of Bulgarian scientists in international cooperation activities. 

Conclusion 

Making  Bulgarian  research  and  technological  development  efficient  and  competitive  at 
European level will need greater efforts.  Nevertheless, in the perspective of accession, no 
major problems should be expected in this field. 

Telecommunications 

The  objectives  of  EC  telecommunications  policy  are  the  elimination  of  obstacles  to  the 
effective  operation  of the  Single  Market  in telecommunications  equipment,  services  and 
networks,  the  opening  of  foreign  markets  to  EU  companies  and  the  achievement  of 
universally  available  modern  services  for  EU  residents  and  businesses.  These  are 
achieved through harmonisation  of the standards and conditions for  service offerings  the 
liberalisation  of  the  markets  for  terminals,  services  and  networks  and  the  adoption  of 
necessary regulatory instruments. The Directives and policies needed to achieve this have 
now  been  established,  but  the  liberalisation  of  public  voice  telephony  and  operation  of 
related  infrastructure  will  be  deferred  for  a  year  or  two  after  1998  in  certain  member 
states. 

The  Europe  Agreement  provides  for  co-operation  aimed  at  enhancing  standards  and 
practices  towards  EC  levels  in  telecommunication  and  postal  policies,  standardisation, 
regulatory  approaches  and the modernisation  of infrastructure.  The White  Paper  focuses 
on  the  approximation  of  regulation,  networks  and  services,  followed  by  further  steps 
ensuring gradual sector  liberalisation. 

Descriptive  Summary 

Two  state-owned  companies  exist,  the  Bulgarian  Telecommunications  company  (BTC) 
and  the  Bulgarian  Postal  Company  (BPC).  These  companies  are  supervised  by  the 
Committee  on  Posts  and  Telecommunications  (CPT)  which  is  a  government  body 
equivalent to a Ministry, but without representation in the Council of Ministers. 

BTC  has  exclusive  rights  until  1 January  2005  over  access  to  the  telecommunications 
network, and until  1 January  2003 over provision of voice telephony  services.  There are 
two licensed operators for  mobile telephony  services  (an analogue and a digital  network 
with around 40,000 subscribers), which have to use the infrastructure  owned by BTC; the 
bidding  procedure  for  a second  GSM network  is under preparation.  Three  national  and 
five  regional  paging  operators  as  well  as  three  data  transmission  operators  have  been 
licensed after  a  tender process. 

Bulgaria  has  a relatively  well  developed  telecommunications  network,  with  a  telephony 
penetration rate of 37.5% as of January  1997 (about 40% planned for the year 2000).  The 
average waiting time for a telephone connection is  18 months.  Much of the equipment  is 
of  an  obsolete  electro-mechanical  design  which  now  needs  to  be  comprehensively 
replaced.  Investment  in  digitalisation  has  begun  (2.8  % digitalisation  was  achieved  by 
March  1997)  but  tariff  revenue  is  not  sufficiently  high  to  permit  quick  progress.  The 
government  plans  to  reach  current  EU  levels  of  penetration  and  digitalisation  within 
fifteen  years.  This  can  only  be  achieved  with  economic  rebalanced  tariff  rates,  further 

51 

liberalisation,  competition  and  investment.  The  government  has  decided  to  privatise  a 
majority  share of BTC, probably over 50% starting in early  1998. 

BPC  is  obliged  by  law  to  deliver  letters,  parcels,  money  orders  and  to  distribute 
newspapers  and  magazines.  Several  national  and  international  operators  are  offering 
profitable  international  courier  services  and  the  delivery  of  periodicals  in  big  towns 
without  any  obligations.  This  situation  causes  financial  losses to  the  national  operator. 
Competition  needs to be better regulated.  BPC  will  need  increased  revenues  in order  to 
maintain a universal service and compete  effectively. 

Current and Prospective Assessment 

Degree of Liberalisation 

According  to  the  commitments  at  the  WTO  negotiations  in  1997,  the  Government  will 
abolish  the exclusive  rights of the Bulgarian  Telecommunications  Company "(BTC) over 
access  to  the  telecommunications  network  by  1 January  2005  and  for  the  provision  of 
voice  telephony  by  1  January  2003.  There  are  two  licensed  operators  for  mobile 
telephony,  one  for  an  analogue  and  one  for  a  digital  network  (GSM).  The  award  of  a 
license  for  a  second  GSM  network  is  planned  but  no  time  schedule  has  been  indicated 
yet. Three national  and five regional  paging  operators  as well  as three  data  transmission 
operators  have  been  licensed.  Furthermore,  three  companies  are  providing  public  pay 
phones  and  six  operators  are providing  VSAT  services. The  Government  has decided  to 
partially privatise BTC for a majority  share. 

Approximation  to EC Law 

A  new  draft  telecommunications  law  will  be  submitted  to  the  new  Parliament  in  July 
1997  and  is  expected  to  be  adopted  later  this  year.  The  draft  law  provides  for  a  new 
regulatory  authority  which will  be under the  supervision  of the  Committee  on Posts  and 
Telecommunications  (CPT). The  future  law introduces  a licensing  regime  and  universal 
service and interconnection principles. These provisions will have to be checked  for  their 
compatibility with EU regulation after the final version of the draft  has been submitted to 
Parliament.  For  the  time  being  licenses  are  granted  on the  basis  of two  decisions  of  the 
previous  caretaker  Government  giving  a licensing  authority  to the  CPT  for  a  temporary 
period.  Under  the  present  conditions,  simple  resale  of  leased  line  capacity  and  the 
provision of voice telephony to closed user groups are not allowed. 

The  current  administrative  capacity  necessary  for  issuing  new regulation  to  adapt  to  the 
acquis  and  to  implement  this  regulation  in  practice,  in  particular  to  monitor  fair 
competition,  seems  insufficient.  However,  it  is  possible  that  the  creation  of  a  new 
regulatory  authority  after  adoption  of  the  law  will  improve  the  efficiency  of  the 
regulatory  function. 

Infrastructure 

From  1991  to  1996,  telephone  service  penetration  increased  from  25  lines  for  100 
inhabitants  to  37 per  100. It  is planned  to reach  40  lines  per  100 by  the  end  of  the  year 
2000. Investment  in digitisation is progressing slowly and only 2.27% of the network was 

52 

digitised by the end of  1996. Much of the equipment is of an obsolete  electro-mechanical 
design which now needs to be comprehensively  replaced. The number  of  subscribers  for 
mobile  telephony  service  at  the  end  of  1995  was  about  20,500  equivalent  to  0.23% 
penetration  rate.  There  are  75,000  cable  TV  subscribers  served  by  87  licensed  regional 
operators, equivalent to  1.28  CATV lines per  100 inhabitants. 

Foreign investment  in the sector is rather limited, concentrating on the following  medium 
sized  companies:  BETKOM  Company  (50.9%  BTC  and  49.1% a  UK  company)  and 
BULFON  Company  (34%  BTC  and  66%  a  Greek  company)  operating  public  pay 
phones;  Sprint  Business  Telecommunications  Company  for  data  transmission  services 
owned  40% by  BTC  and  60% by  a USA company  Radio Telecommunication  Company 
owned  51% by Bulgarian companies and 49% by a UK company. 

Competitiveness  of the Sector 

In  1995 there were 9.4 employees per  1000 lines (average in Ireland, Portugal and Greece 
is about 6.2). In  1996 the unsatisfied  applications  for a telephone line stood  at high  level 
and  the  average  waiting  time  is  18  months.  The  price  of  a  standard  line  for  business 
communications  (252  ecu)  is  at  a  low  level  compared  to  the  prices  in  the  region.  The 
revenue per line at the end of  1995 (70 ecu) was among the lowest in the region and was 
an obstacle to network modernisation and expansion.  Since early  1997, tariffs  have been 
set and  are adjusted  monthly  - to  achieve  full  cost recovery  and to maintain  an  adequate 
level of investment and an inadequate operating ratio. Nevertheless it is doubtful  whether 
BTC s targets  for  increase  of telephone penetration  and network  digitisation  rates can be 
achieved.  This  will  also  make  the  operator  very  vulnerable  to  a  future  introduction  of 
competition in infrastructure  and voice telephony. 

Conclusion 

Bulgaria  would  have  difficulties  in  adopting  the  EU  model  of  telecommunications 
liberalisation  because  of  the  slow  development  of  its telecommunications  sector  and  of 
delays  in  the  field  of  regulatory  reform.  The  competitiveness  of  the  public  network 
operator  will  crucially  depend  on a substantial  increase  in foreign  investment  and  an in-
depth  internal  restructuring,  aiming  in particular  at  improving  the commercial  flexibility 
of the company. 

Audio-visual 

The audio-visual  acquis  aims, in the context of the Internal Market, for the provision and 
free  movement  of  audio-visual  services  within  the  EU  as  well  as  the  promotion  of  the 
European  programme  industry.  The  Television  Without  Frontiers  Directive,  which  is 
applicable  to  all  broadcasters  regardless  of  the  modes  of  transmission  (terrestrial, 
satellite, cable)  or their  private  or public nature, contains this acquis,  setting  down  basic 
rules  concerning  transfrontier  broadcasting.  The  main  points  are:  to  ensure  the  free 
movement  of television  broadcasts throughout  member states; to promote the  production 
and distribution  of European  audio-visual  works (by laying down a minimum  proportion 
of  broadcasting  time  for  European  works  and  those  by  independent  producers);  to  set 
basic  standards  in  the  field  of  television  advertising;  to  provide  for  the  protection  of 
minors and to allow for the right of reply. 

53 

The Europe Agreement  provides for  co-operation  in the promotion  and modernisation  of 
the  audio-visual  industry,  and  the  harmonisation  of  regulatory  aspects  of  audio-visual 
policy. 

The Television Without Frontiers Directives is a Stage I measure in the White Paper. 

Descriptive  Summary 

The  legal  framework  for  the  audio-visual  sector  is  determined  by  the  1975  Law  on 
Telecommunications,  the  1995  Law  on  Concessions,  and  the  1996  Law  on  Radio  and 
Television.  The  first  two  laws establish  the  conditions  and procedures  for  the  allocation 
of  frequencies  and  radio  distribution,  whilst  the  latter  determines  the  establishment  and 
operation  of  the  electronic  media.  A  new  law  on  telecommunications,  including  radio 
distribution,  is  under  preparation.  The  Radio  and  Television  Law  was  passed  by  the 
National  Assembly  in 
September  1996,  but  several  of  its  provisions  were  ruled 
unconstitutional  by  the  Constitutional  Court.  Consequently  the  law  is  currently  being 
revised  and  will  either  be  completely  redrafted  or  significantly  changed.  Until  this 
happens  the electronic  media  are  governed  by the incomplete  version  of the  law passed 
in September  1996. 

The  main  television  broadcaster  is  Bulgarian  National  Television,  the  only  domestic 
nation-wide  broadcaster.  However,  there  is  an  increasing  number  of  local  private 
channels. 

The state monopoly  over film production  was lifted  in the late  1980s. The National  Film 
Centre  (NFC)  is now charged  with promoting  Bulgarian  cinematography,  including  film 
production  and  distribution.  In  1996 the NFC  received  547,000  ECU  in  state  subsidies. 
The  film  distribution  sector  is dominated  by a number  of  small  independent  companies; 
American and European film distributors have not yet opened local offices  in Bulgaria. 

Current and Prospective  Assessment 

The  audio-visual  sector  in  Bulgaria  is  attempting  to  re-establish  itself  after  major 
upheavals  in recent  years, and is characterised  by rapid  growth and constant  change.  Its 
ability  properly  to  adhere  to the  acquis  presupposes  an upgrading  of the  capacity  of  the 
programme-making  industry  to  meet  the  important  challenges  of  an  adapted  regulatory 
framework. 

Bulgarian  audio-visual  legislation  is  not  fully  compatible  with  EU  requirements; 
deficiencies  remain  over  jurisdiction,  the  promotion  of  European  works,  and  aspects 
concerning  advertising. 

Conclusion 

Provided  that the necessary  legislative measures are pursued  with sufficient  urgency  and 
are accompanied  by the necessary  structural adaptation of the industry, it is reasonable to 
expect that Bulgaria should be able to meet EU requirements  in the audio-visual  sector in 
the medium term. 

54 

3.3.  Economie and Fiscal Affairs 

Frnnomic  and  Monetary  Union 

By the time of Bulgaria's accession, the third stage of EMU will have commenced.  This 
will mark important changes for all Member states, including those that do not participate 
in the euro area. All  Member  states, including the new ones, will participate  fully  in the 
economic  and  monetary  union.  Their  economic  policies  will  be  a  matter  of  common 
concern  and  they  will  be  involved  in  the  coordination  of  economic  policies  (national 
convergence  programmes,  broad  economic  guidelines,  multilateral 
surveillance, 
excessive  deficit  procedure).,  They  will  be  required  to  respect  the  stability  and  growth 
pact,  to  renounce  any  direct  central  bank  financing  of  the  public  sector  deficit  and 
privileged access of public authorities to financial  institutions, and to have completed  the 
liberalisation of capital movements. 

Accession  means  closer  monetary  and  exchange  rate  co-operation  with  the  European 
Union.  This  will  require  strengthening  structural  reforms  in  the  area  of  monetary  and 
exchange  rate policies.  Member  states not participating  in the euro area shall  be  able to 
conduct  an  autonomous  monetary  policy  and  participate  in  the  European  System  of 
Central  Banks  (ESCB)  on a restricted  basis.  Their central banks have to be  independent 
and have price stability  as their primary  objective.  Monetary policy has to be  conducted 
with market-based  instruments and has to be "efficient"  in transmitting its impulses to the 
real  economy.  Therefore,  reforms  need  to  be  pursued  to  tackle  factors  that  hinder  the 
efficiency  of monetary  policy,  such as the lack of competition  in the banking  sector,  the 
lack of development  of financial  markets and' the problem  of "bad  loans" in the  banking 
sector.  Finally  all  Member  states  shall  treat  their  exchange  rate  policy  as  a  matter  of 
common interest and be in a position to stabilise their exchange rates in a mechanism  yet 
to be decided. 

As  membership  of  the  European  Union  implies  acceptance  of  the  goal  of  EMU,  the 
convergence  criteria  will  have  to  be  fulfilled  by  Bulgaria,  although  not  necessarily  on 
accession.  While  the  fulfilment  of the  convergence  criteria  is not  a precondition  for  EU 
membership,  they  remain  key  points  of  reference  for  stability  oriented  macroeconomic 
policies,  and  must  in  time  be  fulfilled  by  new  member  states  on  a  permanent  basis. 
Hence  the  successful  conclusion  of  systemic  transformation  and  market  oriented 
structural  reforms  is  essential.  Bulgaria's  economic  situation  and  progress  has  already 
been analysed in preceding chapters of this Opinion. 

Current  and  Prospective  Assessment 

The  National  Bank  is  formally  independent  from  the  government  in  terms  of  the 
appointment procedure of the Governor and the conduct of monetary policy. However, in 
the  past  the  Bulgarian  National  Bank  was  influenced  by  the  government  in  its 
commercial  bank  refinancing  and  budget  deficit  financing  policies.  The  country  has 
introduced  a  currency  board  arrangement.  The  currency  board  arrangement  fixes  the 
volume  of Leva  in circulation to the national bank's  foreign  exchange  and  gold  reserves 
and thus sets the parameters  for  Bulgaria's  monetary  policy. The  formal  objective  of the 
National  Bank  has  been  the  stability  of  the  Bulgarian  national  currency,  but  with  the 
introduction  of  the  currency  board  arrangement  there  is  no  discretionary  scope  for  the 
central bank monetary policy. Finally, the National Bank has been deeply involved  in the 

55 

past  in  financing  the  budget  deficit,  but  the  currency  board  arrangement  will  set  a  very 
strict limit on this activity.  In June  1997, the Law on the National Bank was amended  to 
strengthen the Bank's independence and supervisory role and to adjust  its functions  to the 
currency board arrangements. 

Past  monetary  policy  performance  has  been  quite  discouraging.  Since  the  outset  of 
transition  the  National  Bank  has  found  it  difficult  to  maintain  price  stability  largely 
because the policy mix was never directed towards achieving a sustainable  disinflationary 
process. However,  since  the government  approval  in March  1997 of a structural  reform 
programme  agreed  with the  IMF, inflation  has  stabilised.  The programme  envisages  the 
tightening of monetary and fiscal policy as well as  the privatisation of the 6 state  owned 
banks  within  two  years.  The  programme  paved  the  way  for  the  introduction  of  the 
currency  board  arrangement  in  July  1997.  Bankruptcy  laws  were  not  effectively 
implemented  although  Court action  has  increased  in recent  months  with the  closure  of  a 
major  bank.  In  June  the  Law  on  Banks  was  amended  to 
rationalise  bank  licensing, 
improve  accounting  and  audit  provisions  and  strengthen  measures  on  bank  insolvency. 
The National  Bank  also  issued  a new  Regulation  providing  for  internationally  accepted 
standards  for  the  minimum  total  capital  adequacy  of  banks.  Financial  markets  are  still 
quite underdeveloped  and  segmented.  Bad loans are still a problem  of the weak  banking 
sector,  though  hyperinflation  has  reduced  their  significance.  The  currency  board  will 
resolve  this  problem,  because  the  banks  will  no  longer  be  able  to  benefit  from  an 
extensive refinancing  by the National Bank. 

The  exchange  rate  regime  has  been  a  free  float  since  1991.  Due  to  the  lack  of  foreign 
reserves, the National  Bank  has  often  had  limited  scope  for  intervention  on  the  foreign 
exchange market. Hence, the various currency crisis episodes have often  been tackled by 
rising domestic interest rates and reserve requirements. The unsound expansionary  policy 
mix  has  led  Bulgaria  on  a  depreciating  exchange  rate  path  often  interrupted  by  severe 
crises. The adoption of the currency board will stabilise the exchange rate. 

Conclusion 

It  is  premature  to  judge  whether  Bulgaria  will  be  in  a  position,  by  the  time  of  its 
accession, to participate  in the euro area; that will depend  on the success of its  structural 
transformation  permitting to attain and to adhere permanently to the convergence  criteria, 
which are not however a condition of accession. 

Bulgaria's  participation  in  the  third  stage  of  EMU  as  a non-participant  in the  euro  area 
could pose serious problems, even in the medium term. The country  has made only  very 
limited progress in the transition to a market economy. The Government's  economic  and 
structural  reform  programme, however,  is expected  to make a substantial  contribution  to 
this  objective.  Therefore,  it  is  hard  to  evaluate  at  this  stage  when  Bulgaria  after  the 
eventual  cessation  of  the  currency  board  arrangement,  will  be  able  to  have  an 
independent  Central Bank, able to target price stability by means of an efficient  monetary 
policy based on market instruments. 

56 

l â i â l i o ji 

The  acquis  in  the  area  of  direct  taxation  mainly  concerns  some  aspects  of  corporation 
taxes  and  capital  duty.  The  four  freedoms  of  the  EC  Treaty  have  a  wider  impact  on 
national tax systems. 

The  indirect  taxation  acquis  consists  primarily  of  harmonised  legislation  in the  field  of 
Value Added  Tax  and  excise  duties.  This  includes the application  of  a  non-cumulative 
general  tax  on  consumption  (VAT)  which  is  levied  on  all  stages  of  production  and 
distribution  of  goods and services.  This implies an equal tax treatment of domestic  and 
non-domestic  (import)  transactions.  The  VAT  acquis  also  contains  transitional 
arrangements for the taxation of transactions within the European Union between taxable 
persons.  In the  field  of  excise  duties the acquis  contains  harmonised  tax  structures  and 
minimum  rates  of  duty  together  with  common  rules  on  the  holding  and  movement  of 
harmonised  excisable  goods  (including  the use of  fiscal  warehouses).  As a result  of the 
introduction of the Single Market, all fiscal controls at the Community's internal  frontiers 
were abolished in January  1993. 

The  mutual  assistance  between  Member  State  tax  authorities  is  an  important  feature  of 
administrative  cooperation  in  the  Internal  Market;  the  respective  Directive  covers  both 
direct and indirect taxation. 

The Europe Agreement contains provisions on approximation of legislation in the area of 
indirect taxation. 

The  White  Paper  contains  as  Stage  I  measures  those  which  make  up  the  main 
requirements  of  the  indirect  taxation  acquis  (essentially,  those  measures  applied  in  the 
Community  up to  1993), and as  Stage II measures those which are in addition  necessary 
to implement the full  indirect taxation acquis. 

Descriptive  Summary 

Direct  Taxation 

The  two  company  taxation  Directives  and  the  Arbitration  Convention  provide  for  a 
mechanism  which  applies  on  the  basis  of  reciprocity.  Respective  provisions  can 
therefore  by definition  not be expected to exist before  accession. 

Indirect  Taxation 

The  overall  contribution  of  VAT  and  excise  duty  revenue  to  the  Bulgarian  state  budget 
was  about  23%  and  9%  respectively  in  1995.  Before  presenting  the  1998  budget,  the 
Government  intends  to  submit  a major  fiscal  reform  plan,  the  implementation  of  which 
could significantly  change these figures. 

Value Added  Tax 

The  current  Bulgarian  VAT  system  was  introduced  on  1 January  1994  replacing  the 
previous  turnover  tax.  Bulgaria  only  applies  a  single  VAT  rate  of  22%  which  is 
applicable to all taxable transactions including imports.  The supply of certain goods and 
services is exempt from VAT without the right to claim the input credit on such supplies. 

57 

Some  specific  supplies  are, however,  only  exempt  from  VAT  for  a period  of  five  years 
from the date of the introduction of VAT, thus till the end of 1998. 

Taxable persons  are  in principle  entitled  to deduct  VAT  incurred  on their  purchases  for 
business  purposes  of  goods  and  services  on  the  condition  that  the  taxpayer  can 
substantiate  the  claim  by  means  of  a  proper  VAT  invoice  or  the  like.  However,  the 
Bulgarian  VAT  Act  does  not  contain  any  provisions  enabling  tax  to  be  refunded  to 
taxable persons not established within the country. 

Excise 

The current system  of excise duties in Bulgaria was introduced on  1 April  1994.  Excise 
duties are levied  on a wide range of products including products other than those  subject 
to  common  excise  duties  within  the  Community  (mineral  oils,  alcohol  and  alcoholic 
beverages  and  manufactured  tobacco).  Ad  valorem  rates  on  most  products  were 
introduced  from  1 July  1996  in  order  to  protect  the  tax  yield  during  periods  of  high 
inflation. 

Mutual Assistance 

The tax administration  has not yet had to develop its capacity  for mutual  assistance  with 
the  tax  authorities  of  Member  States,  since  mutual  assistance  is  a  feature  which  would 
only become applicable on accession. 

Current  and Prospective  Assessment 

Value Added Tax 

The current  VAT  system  in Bulgaria has been based  on the main principles  of the  VAT 
legislation  of  the  Community.  However,  it  is  relatively  general  and  inconsistent  in  its 
application. 

It is not possible for foreign  traders to register for the purpose of VAT in Bulgaria.  Since 
Bulgaria  does  not  operate  any  arrangements  for  the  refund  of  VAT  to  non-registered 
foreign taxable persons, VAT represents an increased cost to such traders.  As for  exempt 
transactions, the Bulgarian approach differs  to a large extent from  that of the  Community 
which is based upon the principle of exempting certain transactions in the public  interest. 

Bulgaria's  membership  of  the  European  Union  would  require  substantial  adjustment  to 
bring the VAT legislation  into line with the requirements of the Community  acquis,  both 
in respect to the general provisions of the Community VAT legislation and as regards the 
system of taxation necessary in a Community with no internal frontier  controls. 

In  1997 the present  government  announced  important revisions to the Bulgarian  national 
strategy plan, aimed  at early  implementation  of the recommendations  of the White  Paper 
regarding VAT. 

Excise 

There  are  significant  discrepancies  between  the  Bulgarian  excise  regime  and  EU 
requirements. 

58 

Firstly,  there  exists  no  excise  suspension  system  where  goods  can  move  between 
authorised tax warehouses without payment of duty. 

Secondly,  the  ad  valorem  rate,  such  as  currently  applied  on  most  excisable  products  in 
Bulgaria,  tends  to  exaggerate  price  differentials  between  products  and  is  open  to 
challenge as being discriminatory against more expensive imports. 

In the event of accession, excise duties on products not belonging to the  above-mentioned 
categories  could  continue  to  apply  provided,  however,  that  they  would  not  give  rise  to 
border-crossing  formalities  in trade between member  states and that they  complied  with 
the principles  of  non-discrimination  between  national  products  and  products  originating 
in other member states. 

In order to ensure a correct application of the Community excise legislation it is essential 
that  Bulgaria  sets up  a warehousing  system  based  on the  Community  model  as  soon  as 
possible,  strengthens  control  procedures  and  adapts  the  structure  and  level  of  its  excise 
rates in such a way that they comply with the Community principle of  non-discrimination 
between national products and those originating in other member states. 

The Bulgarian national  strategy plan for  implementing the provisions of the White  Paper 
does not provide a clear and detailed timetable for future  adjustments  of Bulgarian  excise 
legislation.  It is planned to return to specific  rates when there is improved price  stability. 
Existing customs warehouses could be converted into tax warehouses when required, but 
provisions  for  this  and  the  creation  of  registered  traders  have  not  yet  been  put  into  the 
draft 
full 
law.  Nonetheless,  the  present  Bulgarian  Government  does  envisage 
harmonisation of  legislation in this area in due course. 

Mutual Assistance 

There would also be a need, on accession, to implement the appropriate arrangements  for 
administrative  cooperation  and  mutual  assistance  between  Member  States.  These 
requirements are essential for the functioning  of the Internal Market. 

Conclusion 

The acquis in respect of direct taxation should present no significant  difficulties. 

As  regards  indirect  taxation,  although  a  start  has  been  made,  a  sustained  effort  will  be 
required  if Bulgaria  is to comply  with the VAT and  excise  duties  acquis  in the  medium 
term. 

It  should  be possible  to  start participating  in mutual  assistance  as the tax  administration 
develops its expertise in this respect. 

Statistics 

The  main  principles  of  the  Community  acquis  relate  to  the  impartiality,  reliability, 
transparency,  confidentiality  (of  individual  information)  and  dissemination  of  official 
statistics. 
In  addition  there  exists  an  important  body  of  principles  and  practices 
concerning  the  use  of  European  and  international  classifications,  systems  of  national 
accounts, business registers, and various categories of statistics. 

59 

The  Europe  Agreement  provides  for  co-operation  to  develop  effective  and  reliable 
statistics, in harmony with international standards and  classifications. 

The White Paper includes no provisions in this field. 

Descriptive  Summary 

The  National  Statistics  Institute  (NSI)  is  the  body  charged  with  producing  and 
disseminating  official  statistics  in  Bulgaria.  It  consults  the  Supreme  Statistical  Council 
(SSC) for guidance on methods and operations. 

The legal basis for Bulgarian official  statistics consists of the  1991 Statistics Act. 

Current and Prospective  Assessment 

Bulgarian  legislation  is  generally  compatible  with  the  current  standards  applied  within 
the European Union. 

Some issues of impartiality, transparency and confidentiality  need clarification,  and there 
are  deficiencies  in  sectors  such  as  external  trade,  transport  and  regional  statistics, 
financial accounts, coverage of the business register and related business surveys, and the 
need to fully  implement internationally comparable  classifications. 

Conclusion 

Bulgaria  will  require  a  sustained  effort  if  it  is  to  comply  with  EU  requirements  for 
official  statistics in the medium term. 

3.4  Sectoral  Policies 

Industry 

EC  industrial  policy  seeks  to  enhance  competitiveness,  thus  achieving  rising  living 
standards and high  rates of employment.  It aims at speeding  up adjustment  to  structural 
change,  encouraging  an  environment  favourable  to  initiative,  to  the  development  of 
undertakings  throughout  the  Community,  and  to  industrial  co-operation,  and  fostering 
better  exploitation  of  the  industrial  potential  of  policies  of  innovation,  research  and 
technological  development.  EC  industrial  policy  is  horizontal  by  nature.  Sectoral 
communications  aim  at  transposing  horizontal  concepts  into  specific  sectors.  EU 
industrial policy results from an articulation of instruments from a number of Community 
policies;  it  includes  both  instruments  related  to  the  operation  of  markets  (product 
specification  and  market  access,  trade  policy,  state  aids  and  competitions  policy)  and 
measures  related  to  industry's  capacity  to  adapt  to  change  (stable  macro-economic 
environment, technology, training etc.). 

In  order  to  cope  with  competitive  pressure  and  market  forces  within  the  Union,  the 
industry  of applicant  countries needs to have achieved  a certain  level  of  competitiveness 
by  the  time  of  accession.  The  applicant  countries  need  to  be  seen  as  pursuing  policies 
aimed at open and competitive markets along the lines set out in Article  130  ("Industry") 
of the Treaty.  Co-operation  between the EC and the candidate  countries  in the  fields  of 
industrial  co-operation,  investment, industrial  standardisation and conformity  assessment 

60 

as provided for in the Europe Agreement is  also an important indicator of development 
in the right direction. 

Descriptive Summary 

With  the  economic  transition  accompanied  by  a  highly  unstable  macroeconomic 
environment,  the  loss  of  traditional  markets  and  increased  competition,  industrial 
production dropped and its share in GDP decreased  from  33% in 1991 to 28% in 1995, 
at the  level  of  3.3  bn  Ecu or  about  equal to the  industrial  production  of  Luxembourg. 
Total industrial employment stands at about one million or 33% of the total workforce  . 
Small and medium  sized firms account for three-quarters of all industrial firms and  for 
16% of industrial employment while large (and still mostly state-owned) firms have the 
largest  share  in  employment.  The  situation  in  Bulgarian  industry  is  characterised  by 
significant  state  ownership,  under-utilisation  of  capacities,  large  losses-and  debts, 
declining investment and production, and overall lack of international competitiveness. 

61 

Bulgaria, main industrial sectors in 1995 

Sector 

% Share in industrial value added 

Chemicals and oil  refinery 

Food  industry 

Mechanical engineering and metalworking 

Ferrous and non-ferrous  metallurgy 

Textiles and clothing 

Electrical and electronic engineering 

Wood, pulp and paper 

Building materials 

Glass, porcelain 

Leather,  footwear 

Total  above 

Other (incl. construction) 

17.0 

16.5 

13.6 

9.8 

6.1 

5.2 

5.0 

2.6 

1.8 

1.2 

78.8 

21.2 

% share  industry(excl. construction) 

28 

in total GDP 

The  chemical  and  oil  refinery  industry  did  not  suffer  so much  from  the  decline  due to 
increase  exports  of  basic  chemicals  products  on  traditional  international  markets,  and 
certain  subsectors  (e.g. pharmaceuticals)  remained  profitable  independently  of the crisis. 
Main  markets  are  Russia  and  other  CIS  countries. Exports  of  soda  ash  go  mainly  to  the 
EU. New markets  are developed  in Asia (South  Korea).  Strong exporters, including  two 
world-class  producers  in  their  respective  products  (calcinated  soda  and  carbamide)  are 
currently  privatised. 

Bulgaria has a strong agricultural  tradition  (notably  in fruit  and vegetables)  and the  food 
industry  has  been  a  logical  branch  for  the  country  to  develop.  It  attracted  some  foreign 
investors keen to develop export potential and low-cost local production possibilities. 

The  mechanical  engineering  and  machine  industry  was  geared  toward  production  for 
the  CMEA.  Overall  recovery  will  be very  difficult.  The  sector  stabilised  as a whole  at a 
very  low  level  but  many  enterprises  suffered  badly  from  the crisis. They  are  among  the 

62 

heaviest  loss-makers.  On  the  other  hand,  there  are  strengths  such  as  a  highly  skilled 
labour force  and, in certain  subsectors, good  quality  capital  stocks, which  attracted  some 
FDI. 

In ferrous  metallurgy  a relative  stabilisation of steel output can be observed.  Compared 
to other CEECs, the steel industry is of medium size. Weak domestic  and export demand 
and quality  problems  are among the reasons for  decline, along with the urgently  needed 
modernisation, privatisation, and restructuring. 

This is also the case  for  the  non-ferrous  sector, where most  exports  are destined  for  the 
EU as well as other  CEECs and the Middle East. Growth  will not return  soon: a  stricter 
government  approach  to  energy  pricing  is  removing  one  of  the  key  advantages  of  the 
sector. 

The position  of the  textiles  and  clothing  industry  is unstable  and  was  among  the  worst 
hit  by  the  transition.  The  industry  is  experiencing  strong  competition  from  Asian 
producers. However,  the combination  of low labour  costs,  a skilled  workforce  and  high 
quality standards can be attractive to foreign  investors. 

The situation in electrical and electronic engineering is critical and urgent  restructuring 
measures are needed. Almost all output was destined for the former  USSR and apart from 
a few enterprises which already in the past had developed a position on Western markets, 
the companies in this sector did not manage to restructure and adapt to new conditions. 

Due to delays in  large-enterprise  privatisation, privatisation  in industry  has been  slow so 
far,  and the private  sector accounts  for  only about  14% of industrial  production.  By mid 
1996  privatisation  procedures  had  been  opened  for  some  1400  state-owned  enterprises 
representing  20% of  state-assets, of which around  370 enterprises had been privatised  by 
more  than  two  thirds.  The  share  of  foreign  investment  is  estimated  at  one  quarter  of 
privatisation revenues. 

Current and Prospective  Assessment 

Bulgaria  was  until  recently  in  an  extremely  difficult  macroeconomic  situation.  The 
introduction of  the  currency  board  should  lead rapidly to  certain financial  stability, but 
the solution to the underlying  causes of the crisis will require  fundamental  and  sustained 
reforms.  Previous  attempts  to  stabilise  have  been  derailed  by  a  combination  of  large 
losses  in  state-owned  enterprises  and  a weak  banking  sector.  It  will  take  time  to  solve 
these problems. 

industry  is  difficult  given  that  it  is  very  energy  intensive. 
Privatisation  of  some 
Privatisation might  at first lead to a contraction of heavy industry. The steel sector has to 
continue  structural  changes,  and  the  largest  producer  has  to  undergo  major  financial 
restructuring. Energy pricing remains a problem. At the same time, the bad debt  situation 
restricts the banking  system's capacity to provide capital. Given this environment  it is not 
surprising that investment  is low (11% GDP) and that FDI has been modest. In turn, lack 
of investment  capital  is a major  potential  impediment to restructuring  and  diversification 
efforts. 

Bulgaria's  relatively  weak  competitive  position  is  linked  to  the  narrow  industrial  base 
with  exports  concentrated  in  a  small  number  of basic  industries.  A  number  of  the  main 

63 

export  branches  may  lack  long-run  viability  and  sustainable  competitiveness.  Many 
industrial  sectors  face  significant  problems  in  restructuring  and  adapting  to  market 
conditions,  including  textiles,  machinery  and  metal  processing,  mining,  electrical 
engineering, electronics and shipbuilding. 

Industrial  sector weakness  and the  slow restructuring  process  is underlined  by the heavy 
losses  generated  by  public  sector  enterprises.  Total  losses  of  industry  amounted  to  an 
estimated  4% of  total  sales  in  1995, down  from  15% in  1993.  Direct  budget  subsidies 
have been drastically reduced, "to large loss making enterprises and uncollateralised  bank 
lending  - which  contributed  to  the  banking  crisis  - and  escalating  arrears  to  the  budget 
have greatly ceased. 

With  the  squeeze  on  domestic  resources  -  investments  in  industry  in  relation  to  GDP 
declined from  11% in  1990-93 to 6% by  1994 - attraction of foreign investment will be of 
paramount  importance.  This  will  require  a  significant  improvement  in  the  overall 
investment climate. 

The  government's  1997  structural  reform  programme  foresees  substantial  privatisation 
and  restructuring  in  most  industrial  sectors,  in accordance  with  a strict  timetable  agreed 
with international financial institutions.  This implies privatisation within two years of all 
state-owned  enterprises  operating  in  a  commercial  environment  as  well  as  a  substantial 
part  of  the  utilities. 
Implementation  of  the  programme  will  be  prerequisite  for 
establishing a sustainable and competitive industrial structure in the medium-run. 

Conclusions on Industrial  Competitiveness 

the  integration  into  the  European  market 
In  spite  of  positive  recent  policy  changes, 
would  pose  serious  difficulties  for  Bulgarian  industry  during  the  medium  term.  Many 
sectors  still  face  important  restructuring  and  privatisation  needs.  A  major  potential 
impediment  to  restructuring  and  diversification  efforts  is  the  lack  of  investment  capital 
due to the low levels of foreign  investment  and the bad debt situation which restricts  the 
banking system's capacity to provide capital. 

An  evaluation  of  the  acquis  specific  to  the  free  circulation  of  industrial  goods  is  to  be 
found  in the separate section on the internal market. 

Agriculture 

The  Common  Agricultural  Policy  aims  to  maintain  and  develop  a  modern  agricultural 
system ensuring a fair  standard of living for the agricultural community and the supply of 
food  at  a  reasonable  price  for  consumers,  and  ensuring  the  free  movement  of  goods 
within  the  EC.  Special  attention  is  given  to  the  environment  and  rural  development. 
Common market organisations exist to administer the CAP.  These are complemented  by 
regulations  on  veterinary  health,  plant  health  and  animal  nutrition  and  by  regulations 
concerning  food  hygiene.  Legislation  also  exists  in  the  area  of  structural  policy, 
originally  developed  primarily  to  modernise  and  enlarge  agriculture,  but  more  recently 
with  an  increasing  emphasis  on  the  environment  and  the  regional  differentiation  of  the 

64 

policy.  Since reforms  in  1992, increasing contributions to farm  support have come  from 
direct aid payments increasingly compensating for reduced market support prices. 

The Europe Agreement provides the basis for agricultural trade between Bulgaria and the 
Community  and  aims  to  promote  co-operation  on  the  modernisation,  restructuring  and 
privatisation  of  Bulgaria's  agriculture  sector  as  well  as  the  agro-industrial  sector  and 
phyto-sanitary  standards.  The  White  Paper  covers  the  fields  of  veterinary,  plant  health 
and  animal  nutrition  controls,  as  well  as  marketing  requirements  for 
individual 
commodities.  The purpose  of such legislation is to protect consumers, public health and 
the health of animals and plants. 

Descriptive  Summary 

Agricultural  Situation 

The value of the agricultural  production  in  1995 was approximately  1.29%  of that of the 
Union. 

In  1995  agricultural  production  accounted  for  12.6%  of  GDP,  and  about  22%  of 
employment.  Total  agricultural  area  consists  of  éS  6.2  million  ha,  of  which  4r7  4.0 
million  ha  are  arable  land,  mainly  cereals  (49  55  %)  and  pasture  (18%).  However  a 
significant  share  of  the  land  has remained  uncultivated  last  years  because  of  restitution 
process and low farmgate prices. 

Around  5.1  million  ha  (S4  82  %  of  Bulgaria's  total  agricultural  land  area)  has  been 
claimed  for  restored  private ownership  by the heirs of the former  private  owners  (nearly 
1.7  million  in  number)  under  the  heavily  amended  Farm  Land  Act  of  1991.  By  April 
1997, land claim  ownership  certificates  had been issued  for  50% of the restitutable  land 
total  (2.4  million  ha)  and  the  Government  announced  measures  to  accelerate  and 
complete certificate  issues by  30 June  1998.  These certificates  allow buying  and  selling 
of land although  only  8% of owners have been issued  with formal  title by notaries.  The 
lack  of  legal  title  is  a  major  block  to  investment  and  development  of  an  active  land 
market.  In  September  1996  the  Land  Tenure  Law  was  passed,  describing  the  general 
conditions for land leasing and improving prospects for  long term leases. 

The  majority  of  private  farms  have  an  area  of  less  than  2  ha,  often  split  into  separate 
plots,  which  is  generally  too  small  for  economic  viability  through  direct  farming  but 
represents  an  important  social  buffer  during  the  transition  period.  1,600,000  household 
plots have less than  1 ha and represent  15% of the total area, 400,000  family  farms  have 
between  1 and  10 ha and only a very  limited  number of family  farms  have more than  10 
ha.  Most  of  the  privatised  land  is  leased  to  groups  of  farmers.  (3,000  private  co 
operatives, averaging  700-800 ha) of other collective  structure, often  on an annual  basis; 
2,000  state  farms  and  state  registered  companies  are  still  in  operation.  In  broad  lines 
about  33  %  of  the  land  is  under  co-operatives,  12 %  under  individual  farms  and  10% 
under state farms. 

Both  arable  and  livestock  production  have  declined  heavily  (±50%)  since  1990,  with 
further  sharp falls  in wheat and feedgrains  production (barley, maize)  from  1995 to  1996. 
(53  %  wheat  reduction  from  3.4  million  in  1995  to  1.8  million  t  in  1996)  and  in 
sunflower  production  (30% reduction  from  760 000 tonnes  in  1995 to  530,000 tonnes  in 
1996) as  a  result  of  reduced  areas  planted  combined  with  very  low  yields.  The  cereal 

65 

shortages have  led to  accelerated  destocking,  the need  for  imports,  further  reductions  in 
beef cattle and pigs and substantial price increases. 

The  decline  in  the  production  of  perennial  crops  (orchards,  vineyards)  has  also  been 
significant,  due to market  difficulties  during the first years of transition  and then to  lack 
of care during the land restitution process. 

In  1995, Bulgaria produced 78,000t beefmeat, 257,000 pigmeat, 74,000t chickenmeat and 
l,128,000t  cow milk  (1985  : 2,135,000t).  Livestock  production  in  1996 did  not  fall  by 
the  same  percentage  as  arable  production;  dairy  cows  and  poultry  actually  showed  a 
slight  increase  over  1995.  Pig  and  sheep  populations  fell  by  11.5%,  with  state  farm 
reductions  offsetting  the  13%  increase  in  privately  owned  pigs.  Milk  production 
increased  by  6%  over  January  to  September  1996  compared  with  1995  and  meat 
production by nearly 70% (largely as a result of fodder shortage slaughtering). 

The pace  of  the  privatisation  process  in the upstream  and  downstream  sectors  has  been 
extremely  low.  Less than  10% of the total number of enterprises  for the agricultural  and 
food  industry  have  been  privatised  by  the  end  of  1995.  Most  of  the  state-owned 
enterprises  are  in  a  critical  financial  situation.  The  government  has  agreed  large-scale 
privatisation  targets  with  the  international  financial  institutions:  of  the  45  state  agro-
enterprise  to  be  privatised  by  end  May,  50  %  had  been  privatised  or  liquidised  by  this 
date  and  tenders  have  been  launched  for  a  further  13  enterprises.  A  further  60  agro-
enterprises are scheduled for privatisation by end  1997. 

Bulgaria has for many years been a food exporting country and agricultural products used 
to account for a significant  share of total exports destined mainly to the COMECON  and 
the Middle  East.  The  volume  of  agricultural  trade was  sharply  reduced  mainly  because 
of  the  collapse  of  the  Soviet  Union  and  the  consequences  of  the  war  in  the  former 
Yugoslavia.  Meanwhile, trade with the EC has developed a particular  significance. 

In  1995, exports of agricultural products accounted for 21 % of total exports; and reached 
ECU 779 Million  (ECU 218 million to EU).  Imports of agricultural  products  accounted 
for 7.5 % of total imports and reached ECU 291 million (ECU 226 million from EU). 

The  main  exported  products  (65%)  are  tobacco,  wine,  processed  vegetables,  fruit,  and 
live  animals.  Data  for  1996  are  likely  to  be  significantly  reduced  compared  with  1995 
due to lower production of these commodities. 

Agricultural Policy 

Agricultural  policy  since  the  beginning  of  the  transition  period  has  mainly  been 
characterised by short-term measures like subsidised short-term seasonal credits, aimed at 
ensuring production in the turmoil of land reform,  and ad-hoc temporary border measures 
aimed at stabilising the internal market.  Price liberalisation  started in February  1990, but 
prices  of  13 essential  food  products  were  monitored  by  a  mechanism  called  "projected 
prices" which were replaced in  1993 by "ceiling prices".  These policies and other related 
measures  have  had  a  depressing  effect  on  producers'  output  prices,  which  remained 
below  world  prices,  but  not  on  their  input  prices  or  on  retail  prices,  and  as  a  result 
farmers  have  switched  production  into  non-price  controlled  crops.  Since  March  1997, 

66 

prices  for  all  commodities  except  wheat, wheat flour, bread  and  cooking  oil, have  been 
liberalised. 

For  1996, total budgetary expenditure  on agriculture amounted  to  17.3 billion Leva  (100 
Mecus) of which  13% were to support minimum purchase prices (wheat, tobacco, maize, 
sugarbeet);  23% for  interest  rate  subsidies  for  the  Agriculture  Fund;  and  the  remainder 
divided  between 
'standard'  government  functions  such  as  agricultural  education, 
veterinary  and  other  state  services,  breeding  and  improvement,  irrigation,  research  and 
development, etc. 

In  1996  the  government  adopted  a  strategy  document  for  the  agriculture  and  food 
industry.  The  implementation  was  very  slow  and  there  were  substantial  changes  in 
foreign  trade  policy,  as  the  state  monopolies  were  removed  and  foreign  trade  has  been 
liberalised.  The  general  licensing  regime  for  products  was  abolished,  and  exports  and 
imports  are  executed  on  the  basis  of  customs  declarations.  Agricultural  and  food 
products  are  still  subject  to  different  regulations  including  temporary  export  bans, 
quantitative  restrictions  on  exports  and  imports,  export  and  import  taxes,  exemptions 
from  import  duties  and,  in  some  cases,  minimum  export  prices,  all  of  which  have 
contributed  to  depressed  farm  output  prices  and  further  isolate  the  Bulgarian  economy 
from  international prices and competition. 

Further  changes  in  agricultural  support  have  been  introduced  in  1997 to  avert  a  further 
decline  in production.  The  Government  has stated that minimum  wheat  purchase  prices 
will  not  fall  below  80%  of  world  prices  for  producers  who  take  working  capital  loans 
from  the Agriculture Fund with a 50% subsidy on interest rates and who agree to  forward 
contract  deliveries  from  their  1997  production.  Similar  support  will  be  given  for 
sunflower  production.  The  number  of  commodities  subject  to  profit  margin  controls 
have  been  reduced.  Export  restrictions  will  be  liberalised  and  import  tariffs  will  be 
reduced. 

The  farm  gate  prices  are  generally  lower  than  world  prices.  The  difference  between 
Bulgarian  and  EC  prices  is  significant.  Bulgarian  prices  in  1995  were  about  50  %  of 
ruling  EC  prices.  However,  there  were  substantial  variations  within  this  average,  e.g. 
tomato prices at  11 %,  wheat (price control) at 44 % , maize (not controlled) at 57% and 
pork/poultry meat(imported  items) at 80 %. 

Most  preferential  quotas  under  the  Europe  Agreement,  which  were  based  on  historic 
trade patterns, have not been fully  utilised.  Negotiations  are in progress to complete  the 
adaptations of the agreements for primary and processed agricultural  products and to add 
economically  significant  traded  commodities,  such  as  wine  and  fish  products  to  the 
formal  agreements. 

Bulgaria's accession to the WTO was followed  by introduction of a new customs tariff  at 
the  beginning  of  1997.  Changes  were  made  to  23% of  the  food  and  agriculture  tariff 
headings: the net effect  on tariff  levels appears to be neutral.  Most  of the duties  remain 
significantly  below  the  level  of  the  bindings:  exceptions  are  butter,  sugar  and  fresh 
grapes.  The  WTO-registered  trade  regime  accordingly  provides  possibilities  for 
Bulgarian  tariff  protection  at  levels  considerably  above  the  EC's  level  of  protection. 
Negotiations to join CEFTA are in process. 

67 

The process of introducing the legislation identified  in Stage I of the White Paper has just 
begun. 

Current and Prospective  Assessment 

Potential  exists  for  increasing  agricultural  production,  but  it is very  difficult  at this  time 
to forecast  the rate of recovery  over the next few years.  The process of land reform  and 
privatisation  far  from  complete; an active land market has not yet been established;  rural 
financial  and banking facilities-must  be developed. 

The  Bulgarian  food  industry  sector  need  a  major  restructuring  and  huge  investment  to 
allow  it to  compete  not  only  on the  EC market,  but first and  foremost,  on the  domestic 
market.  Without  this  privatisation,  upstream  and  downstream  sectors  will  continue  to 
operate under non-competitive conditions, which distort price  formation. 

The  liberalisation  of  agricultural  prices  at  all  levels  is the  most  important  challenge  the 
government  faces  in  the  short  term  as  well  as  speeding  up  the  reform  process,  e.g. 
privatisation  of  land  and  of  the  agro-food  sector.  The  speed  with  which  this  may  be 
achieved depends on the implication for consumers. 

The main market policy  instruments  applied  in the EC are not applied  in Bulgaria.  This 
includes  key  instruments  such  as  dairy  quotas, key  features  of  the  arable  crop  schemes 
(base  area,  set-aside,  compensatory  payments  and  premiums  in  the  livestock  sector),  as 
well as certain rural and structural development programmes. 

Management  and  control  of  these  measures  would  require  relatively  sophisticated 
administrative  systems,  including  an  appropriate  land  register  and  cattle  identification 
and  registration  system.  As  a  general  observation,  it  is  clear  that  the  administrative 
capacity  would  need  to be considerably  developed  in these  areas  if these  measures  were 
to be applied in Bulgaria. 

It is difficult  to foresee  at this stage what will be the development  of agricultural  support 
prices in Bulgaria  in the period before  accession; this will depend on a number of  factors 
including  the  domestic  economy,  the  situation  on exports  markets,  and  the  development 
of price support levels in the Union. 

A  number  of  price  supports  and  associated  measures  operated  in  1996  and  previously 
appear  incompatible  with  EC  policies.  Other  important  EC  measures,  such  as  rural 
development  policies  and  measures  remain  to  be  legislated  and  supported  adequately 
from the national  budget. 

Bulgaria  is correctly  applying  the  provisions  of the  Europe  Agreement  concerning  trade 
with the Union in agricultural products. 

Harmonisation  of legislation with Stage I of the acquis according to the White Paper is at 
an  initial  stage.  Negotiations  on  a  veterinary  and  phytosanitary  agreement  have 
commenced.  With a few exceptions, legislation  in the veterinary field does not meet  EC 
requirements, but Bulgaria has presented an ambitious timetable which should align most 
of the legislation to EC requirements by the end of  1998. 

68 

Bulgaria  has  an  infrastructure  for  veterinary  control  and  inspection.  The  structural 
changes  in  the  veterinary  services,  together  with  the  increased  fragmentation  of  the 
livestock  units,  make  inspection  and  overall  disease  control  difficult.  Because  of  its 
geographical  situation  and  weak  border  controls,  Bulgaria  runs  a  high  risk  that  animal 
disease enters from outside.  Also Bulgaria vaccinates against classical  swine fever  and a 
change to a non-vaccination policy is necessary but will be  difficult. 

The  facilities  at  border  inspection  posts  are  still  inadequate  for  veterinary  control  at 
Community  standards.  Complete facilities  for  the inspection  of live animals and  animal 
products  at the border  inspection  posts  are not yet  available  and  most  border  checks  are 
limited  to  controls  on  certificates  and  other  documents  with  the  majority  of  physical 
checks being undertaken at destination. 

As  regards  internal  measures  there  is  a  need  for  the  Bulgarian  authorities  to  ensure 
Bulgaria's  animal  health  status  in  respect  of  certain  requirements.  The  system  of 
registration  of holdings  and  identification  of  animals  will  need to  be adjusted  to  the  EC 
systems.  Testing  and  diagnostic  facilities  are  not  adequately  equipped  to  perform  tests 
required by EC law, and welfare  legislation needs to be further  developed.  There will be 
a  need  to  upgrade  certain  food  processing  establishments  in  particular  for  the  national 
market, to develop  acceptable veterinary  audit and certification  procedures, also for  both 
imports  and  exports,  and  to  maintain  an  adequately  structured,  resourced,  staffed  and 
trained veterinary  sector. 

The  recent  legislation  concerning  seeds  and  propagation  material  is  likely  to  need 
subordinate  legislation  and inspection  and enforcement  measures.  Since Bulgaria  enjoys 
Community  equivalence  for  several major  species it can be assumed  that the  standard  of 
at least some of its production is equivalent to that in the EU. 

In the  field  of  plant  health  Bulgaria  has  prepared  draft  legislation  for  approximation  of 
EC  legislation.  There  is  no  timetable  established  for  its  adoption.  Administrative 
structures and control and inspection arrangements appears to be inadequate to ensure the 
appropriate  level  of protection.  Legislation  in the field of animal  nutrition  is limited  in 
scope  and  not  consistent  with  EC  legislation.  The  Bulgarian  authorities  have  not  given 
any timetable for the completion of this work. 

As  regards  legislation  on  plant  protection  products,  it  appears  that  little,  if  any, 
approximation to Community  law has been made at this stage. 

Conclusion 

Very  limited  progress  has  been  made  in  adapting  to  the  Community  acquis  and 
considerable  sustained  effort  will  be  needed  with  regard  to  restructuring  the  agriculture 
and  the  agro-food  sector  and  reform  of  agricultural  policy  to  prepare  Bulgaria  to  apply 
the acquis. 

Particular efforts  are needed in relation to : 

adoption,  implementation  and  enforcement  of  veterinary  and  phytosanitary 
requirements  and  upgrading  of  establishments  to  meet  EC  standards; this  is  particularly 

69 

important  with  regard  to  the  inspection  and  control  arrangements  for  protecting  the  EU 
external borders; 

strengthening  of the administrative  structures  to ensure  the necessary  capacity  to 

implement? and enforce the policy instruments of the CAP; 

restructuring  of  the  agricultural  and  agro-food  sector  to  improve  its  competitive 

capacity. 

Fundamental  reforms  are necessary  before  Bulgaria  will  be  able to meet  the  obligations 
of membership. 

Fisheries 

The Common  Fisheries  Policy  includes common market  organisations,  structural  policy, 
agreements  with  third  countries,  management  and  conservation  of  fish  resources,  and 
scientific  research in support of these activities. 

The  Europe  Agreement  includes  provisions  concerning  trade  in  fisheries  products  with 
the Community  .  The White Paper includes no measures in this field. 

Descriptive  Summary 

In  1995 the total catch was 2,500t, all from  the Black  Sea. The high sea fleet consisted  of 
6  distant  water  freezer  trawlers  and  16 Black  Sea vessels,  of which  five  were  in  private 
ownership. No catches were registered from  distant waters in  1995 compared with a catch 
of  5,000t  in  1994. Only two  distant  water vessels  operated  on a full-time  basis  in  1995, 
on a cost-sharing basis with foreign  operators catching non-Bulgarian quotas. 

Production  of  inland  fisheries  was  4,000t  in  1994  (mainly  carp  and  trout)  valued  at  4 
million  ECU  from  20  state  farms  employing  500 people plus unspecified  output  from  6 
privately-owned  aquaculture  enterprises.  The  Bulgarian  authorities  did  not  provide 
statistics  on  ownership,  production  and  employment  for  1995,  but  consider  that 
production  has  declined  due  to  state  enterprises  financial  problems  and  lack  of 
investment by the newly-emerging private enterprises. 

As a trading  partner  of the  Community,  Bulgaria  represents  0.08  % of total  EC  imports 
(independent  of  origin)  of  fishery  products  and  3.2  % of EC imports  of  fishery  products 
from  the  candidate  countries  alone  (in term  of value).  As regards  EC  exports,  Bulgaria 
receives 0.34 % of our total exports of fishery  products and 4.1 % of our exports of these 
products to the candidate countries(in terms of value). 

Bulgaria  has  concluded  fisheries  agreements  with  Mauritania  (1971),  Canada  (1978), 
Mozambique  (1971)  and  Ukraine  (1993).  Fisheries  agreements  with  the  former  Soviet 
Union  for  the  Black  Sea  (1959  -  general;  and  1978  -  anchovy  and  shrimps)  and  the 
Barents  Sea  (1978)  are  reported  to  be  still  in  force.  A  co-operation  agreement  with  the 
Russian Federation has been  suspended. 

70 

Current and Prospective  Assessment 

Bulgaria's production and foreign trade are low when compared to the corresponding  EC 
figures and are therefore  unlikely to have any significant  impact upon the Community  as 
a  whole.  According  to  the  information  given  as regards  fisheries  agreements  concluded 
and  Bulgaria's  membership  of  international  or regional  fisheries,  no  major  problems  of 
compatibility  with  EC  membership  is  envisaged.  Recent  Bulgarian  information  on  the 
reduction in Bulgarian capabilities to enforce  quotas and undertake research could lead to 
difficulties  in compliance with EC and international obligations. 

The adaptation of the deep sea fleet capacity to available resources and the  modernisation 
of the sector will become thé main issue. 

National  economic  difficulties  are  likely  to  lead  to  complete  disposal  of  distant  water 
vessels and effective  privatisation of the majority  of state aquaculture, marine fishing and 
fish  processing  enterprises  over  1997/1998.  Future  development  is  likely  to  be 
concentrated  on  development  of  freshwater  aquaculture  and,  possibly,  marine  fish 
farming  in  the  Black  Sea.  Development  of  these  opportunities  and  establishment  of 
efficient  privately-owned  fish  processing  capacity  will  depend  heavily  on  export 
earnings. 

The  industry  is outdated  and will require modernising.  It will be necessary  for  Bulgaria 
to  establish  a  fisheries  administration  which  is  capable  of  implementing  the  Common 
Fisheries  Policy  -  in  particular,  the  management  of  resources,  the  keeping  of  a  fishing 
fleet  register,  the  application  of  structural  policy  for  the  sector,  the  management  of  the 
market  scheme  and  the  collection  of  all  statistical  data-  as well  as the  EC's  policies  on 
health, hygiene and environmental matters. 

Conclusion 

The process  of modernisation  and acquis  implementation  will require significant  efforts. 
In the medium term the fishery sector does not appear to present a major  problem. 

Energy 

Main  EU  energy  policy  objectives,  as  reflected  in  the  Commission  White  Paper  "An 
energy  policy  for  the  EU"  include  enhancement  of  competitiveness,  security  of  energy 
supplies and protection of the environment.  Key elements of the energy acquis  comprise 
of  Treaty  provisions  and  secondary  legislation  particularly  concerning  competition  and 
state aids, internal  energy market (including directives on electricity  , price  transparency, 
gas and electricity transit, hydrocarbons licensing, emergency response including security 
stock  obligations,  etc.), nuclear  energy,  as  well  as  energy  efficiency  and  environmental 
rules.  Development  of  Trans-European  Energy  Networks  and  support  for  energy  R&D 
include 
are  other  important  elements  of  energy  policy.  Ongoing  developments 
liberalisation  of the gas sector, energy efficiency  acquis and the Auto-oil programme. 

In the field of nuclear  energy, the  Community  acquis has evolved  substantially  from  the 
original  EAEC  Treaty  to  a  framework  of  legal  and  political  instruments,  including 
international  agreements.  At  present,  it  addresses  issues of  health  and  safety,  including 
radiation  protection,  safety  of  nuclear  installations,  management  of  radioactive  waste, 

71 

investment  including  EURATOM  financial  instruments,  promotion  of  research,  nuclear 
common market, supplies, safeguards, and international relations. 

The  Europe Agreement  provides  for  co-operation  to develop the progressive  integration 
of the energy markets  in Europe and includes provisions on assistance within the  related 
policy  areas.  The  White  Paper  preparing  CEECs  for  the  internal  energy  market 
underlines the need  for  full  application  of key  internal  market  directives  in  combination 
with  EC  competition  law.  As  to  the  nuclear  sector,  the  White  Paper  refers  to  nuclear 
supply  safeguard  and shipments of-radioactive waste. 

Descriptive  Summary 

Bulgaria  is  more  than  70%  dependent  on  external  energy  sources.  Oil,  gas  (26%  and 
17% of the  energy  balance)  and  nuclear  fuels  are all  imported  mainly  from  Russia,  and 
so are most of  the limited coal imports. 

Indigenous solid fuels, particularly low quality lignite, is extracted uneconomically  and is 
a chief source of environmental pollution.  Hydropower plays a limited role in the energy 
sector; uranium mining ceased in 1990. 

Bulgaria's  energy  sector accounts for  15% of  GDP.  The sector is two to four times  less 
efficient  than  the  EU  average,  contributing  to  pollution.  This  situation  is  due  to  the 
heritage of low prices, a lack of energy efficiency  policies and  obsolete technologies. 

Bulgaria  is  an  important  transit  country  for  particularly  gas  supplies  in  the  region 
including  Greece.  Its'  regional  role may  increase in the  longer term through  oil  imports 
via the  Black  Sea port  of  Burgas  and through  future  gas  imports  from  Central  Asia  and 
Iran.  Bulgaria's  link to the Western  European UCPTE interconnected  electricity  system 
is  technically  feasible,  but  will  require  substantial  investments  and  is  therefore  not 
expected  in  the  short  term.  The  recent  synchronous  connection,  as  a  test,  of  the 
Romanian,  Bulgarian,  Greek,  Serb  and  Albanian  electricity  networks  is  a  preliminary 
step towards future  connection to the UCPTE. 

Bulgaria  operates  a  nuclear  power  plant  at  Kozloduy,  producing  around  40%  of 
Bulgaria's  electricity.  It consists of six reactors of Soviet design: units  1 to 4 are VVER 
440-230  reactors  and  units  5  to  6  are  VVER  1000-320.  The  design  and  construction 
standards of the VVER 440-230 reactors are considered  not to meet the safety  objectives 
generally  accepted  in  the  EU.  The  VVER  1000  -  320  are  of  more  recent  upgradable 
type.  Considerable  investment  in these reactors has been undertaken  since  1990 to  help 
improve their safety  for the remainder of their operation. 

Under  the  1993  Nuclear  Safety  Account  Agreement,  managed  by  the  EBRD  Bulgaria 
undertook  to  cease  operating  the  reactors  1-4  as  soon  as  alternatives  for  energy  supply 
would  become  available.  In  1993,  it  was  expected  that  these  four  reactors  could  be 
closed by that time.  The Bulgarian government has yet to adopt its position on a revised 
timetable  for  the decommissioning.  At present there are no known plans  for  the  closure 
of the Units  1-4 before the end of the design lifetime (2004, 2011). 

72 

The  design  and  construction  standards  of  the  two  VVER  1000-320  reactors  are 
considered  to  be  closer  to  meeting  safety  objectives  generally  accepted  in  the  EU. 
Investment in modernising these reactors is expected to start in 1998. 

The  construction  of  two  other  VVER  1000  reactors  at  Belene  was  suspended  in  1990 
owing to  lack of funds.  The  Government  has stated that it has permanently  shelved  the 
completion of the Belene plant.  One research reactor is also in operation in the country. 

The  nuclear power  sector  is monitored  by the Committee  on the  Use  of  Atomic  Energy 
for  Peaceful  Purposes  (CUAEPP),  whose tasks  are  laid  down  in the  Law  on the  Use  of 
Atomic  Energy  for  Peaceful  Purposes.  Over  the  past  years, the  CUAEPP  has  received 
substantial technical assistance, among others from the Union, for the strengthening of its 
working methods and for human resources development. 

Nuclear  fuel  is supplied  by Russia.  In the past, it was partly  fabricated  from  indigenous 
uranium  and  shipped  to  the  then  Soviet  Union  for  processing.  There  is  no  uranium 
enrichment or fuel  fabrication  facility  in the country.  Spent fuel  is not currently  shipped 
back  to  Russia,  but  is  stored  on  site  in  a  pool.  The  construction  of  a  facility  for 
intermediate  dry  storage  is planned.  A policy  on final storage  of  spent  fuel  needs  to  be 
developed.  The cost of  spent  fuel  treatment  and plant decommissioning  is presently  not 
reflected  in  the  electricity  tariffs.  A  fund  has  been  created  for  that  purpose,  but  no 
payments had been made to it by early  1997.  There is a need for  a new national  disposal 
facility  for the radioactive wastes from Kozloduy and other producers. 

Current  and Prospective  Assessment 

A  coherent  overall  energy  policy  has  yet  to  be  elaborated.  The  Government's  1995 
"Strategy for the development of the energy sector", covering the period  1995-2010/2020 
concentrated  on increasing  capacity  for  electricity production, paid  little  attention to  the 
the  likely  sources  of 
development  of  other  energy  sub-sectors  and  did  not  identify 
financing  for the needed investments. 

In  its work programme,  the  current  Government  defines  the  energy  sector  as  a  national 
The  programme  announces  that  the  Government  will  concentrate  on 
priority. 
strengthening the legal framework  for the energy sector, improving energy efficiency,  the 
restructuring  and  gradual  privatisation  of  the  power  utilities  and  the  diversification  of 
energy supply and energy usage. 

The competition  framework  in the  energy  sector  does not  yet  fulfil  the  directives  of  the 
internal  energy  market  in  combination  with  the  application  of  EC  competition  law. 
Despite the applicability,  in principle, of the  1991 "Law on Protection  of  Competition", 
to  the  energy  sector,  there  is  currently  no  legislation  which  addresses  energy  matter 
specifically.  Adoption  and  implementation  of the  Energy  Law  is therefore  crucial.  The 
Concession  Act  foresees  non-discriminatory  access  to  hydrocarbon  resources  and 
is  a 
good step towards matching EU rules in this respect. 

The  major  companies  which  are  responsible  for  energy  production,  transmission  and 
distribution  are  state-owned,  vertically  integrated  monopolies;  the  Government  has 
announced privatisation.  Liberalisation of oil trade should also be noted. 

73 

Energy  prices  have  been  increased  significantly  in the  recent  period.  Since  April  1997, 
gas prices appear  to  cover costs and  electricity prices to cover  operational  costs but  not 
yet  investment  and  environmental  costs, including those related to the  decommissioning 
of nuclear power reactors and the management  of  nuclear waste.  District heating prices 
are still  subsidised,  for  social  reasons.  The  lack of  adequate prices  in the past  and, to  a 
lesser extent, at the present moment have hampered the restructuring of the power sector. 

There  are  no  detailed  plans  known  on  future  compliance  with  ECrequirements  on 
emergency  preparedness,  including  the  obligation  to  hold  90  days  of  oil  stocks.  The 
country's difficult  financial  situation will most likely hamper the building up these stocks 
in the short to medium term. 

In  the  solid  fuels  sector  a restructuring  policy  was  envisaged  in  1996 and  will  have  to 
address  the  social  and  regional  consequences.  State  interventions  will  need 
to  be 
assessed against EC rules. 

Bulgaria  should  make  considerable  efforts  to  adapt  to  EC  energy  efficiency  (labelling 
appliances,  minimum  efficiency  norms)  and  environmental  norms  (e.g. fuel  quality).  It 
may  be  difficult  to  adapt  the  country's  refineries,  which  will  have  to  compete  in  a 
saturated European market. 

Bulgaria's accession could increase the EU's overall dependence on Russian uranium and 
enrichment.  The  nuclear  materials  supply  policy  of  security  through  diversification  of 
sources would however apply to supply contracts concluded after  accession. 

Upon  accession,  Bulgaria  would  need  to  comply  with  the  provisions  of  the  Euratom 
Treaty,  in  particular  those  related  to  supply  of  nuclear  material,  the  nuclear  common 
market, safeguards, health and safety  and international  agreements.  Although Bulgaria is 
party to all of the international nuclear regimes in these fields, it has not yet  implemented 
all  of them  in its national  legal order.  Some legislative  adjustments  would  be  necessary 
to  permit  Bulgaria  to  conform  with  the  Euratom  Treaty  provisions  on  supply  and 
property  ownership.  Since  Bulgaria  has  a  full-scope  safeguards  agreement  with  the 
IAEA, no major  difficulties  in applying Community  legislation  in this area are  expected. 
The problem of nuclear  safety  needs to be dealt with and realistic programmes,  including 
closure  where  necessary  need  to  be  agreed  upon  and  implemented  in  due  course. 
Continuous  support  to  the  safety  authority,  which  has  a  considerable  task  to  perform, 
should be foreseen  in the coming years. 

Conclusion 

Bulgaria  needs to  step up considerably  its efforts  in the energy  sector  in order to  prepare 
for  integration.  Particularly the following  matters need close attention: the adjustment  of 
monopolies including  import and export;  access to networks; energy pricing; emergency 
preparedness  including  the  building  up  of  mandatory  oil  stocks;  restructuring  and  state 
interventions  in  the  solid  fuel  sector,  the  development  of  energy  efficiency  and  fuel 
quality  standards.  Bulgaria  has  to  implement  certain  international  nuclear  regimes  and 
make some legislative adjustments  in order to comply with the Euratom Treaty. 

74 

Nuclear  safety  requires  continued  particular  attention,  with  rapid  implementation  of 
agreed  realistic  programmes  including  closure  where  necessary.  Longer  term  solutions 
for waste need to be  found. 

Transport 

Community  transport  policy  consists  of  policies  and  initiatives  in  three  fundamental 
areas: 

•  Improving  quality  by  developing  integrated  and  competitive  transport  systems  based 
on  advanced  technologies  which  also  contribute  to  environmental  and  safety 
objectives. 

•  Improving the functioning  of the single market in order to promote efficiency,  choice 
and user-friendly  provision of transport services while safeguarding  social standards; 

•  Broadening  the  external  dimension  by  improving  transport  links  with  third  countries 
and  fostering  the  access  of  EU  operators  to  other  transport  markets(  The  Common 
Transport Policy Action programme,  1995-2000). 

The  Europe  Agreement  provides  for  approximation  of  legislation  with  Community  law 
and  co-operation  aiming  to  restructure  and  modernise  transport,  the  improvement  of 
access to the transport market, the facilitation  of transit and the achievement of  operating 
standards comparable to those in the Community.  The White Paper focuses  on measures 
for  the  accomplishment  of  Internal  Market  conditions  in  the  transport- sector,  including 
such aspects as competition, legislative harmonisation and standards. 

Descriptive  Summary 

Bulgaria has a long  border with Greece and is on the traditional route from the Middle East 
to  Central  and  Western  Europe. Three Pan-European  Transport  Corridors  as  identified  at 
the Pan-European  Conference  in Crete cross Bulgarian territory, the  fourth  is the  Danube, 
which forms most of Bulgaria's border with Romania.  The war in former Yugoslavia led to 
a rise in transit traffic  to and from Greece and to a diversion of transit traffic  to and from the 
Middle  East,  this  development  caused  congestion  on  Bulgaria's  main  roads,  at  border 
crossings and on the Danube river crossings. 

Bulgaria's  economic  problems  caused  a  sharp  reduction  in  the  demand  for  cargo  and 
passenger  transport  for  all  modes.  Exceptions  were  maritime  cargo  transport,  resulting 
from a redirection  of  the  Bulgarian  fleet's  operations  out  of  the  Black  Sea basin,  and  air 
passenger transport.  Overall  transport  demand has not yet recovered  to its previous  level, 
although  it  is  now  beginning  to  rise  again.  The  substantial  change  in  the  modal  split 
occurred  in  freight  transport,  with  a  significant  increase  in  the  share  of  road  transport 
compared to other modes. 

Bulgaria  has  been  faced  with  the  need  to  invest  in  significant  improvements-to  its  road 
network  and  there  is  a  need  to  develop  previously  very  limited  border-crossing 
infrastructure.  The lack of investment  in infrastructure  and equipment  for  transport  during 
the last decade poses major  problems, especially  in a situation where most public transport 
equipment  will have to be  imported.  Much of the existing  equipment  originated  from  the 

75 

former  Soviet Union, so that substantial investments are needed to replace non-standard  or 
out of date equipment. 

Current and Prospective Assessment 

As  regards  completion  of  the  internal  market,  Bulgaria  has  made  great  efforts  to 
implement  the  existing  Community  legislation.  The  international  transport  sector  in 
Bulgaria  already  applies  rules  similar  in  part  to  the  EC  rules,  particularly  on  inland 
waterways  and  combined  transport.  Regarding  air  transport,  the  draft  Aviation  Act  is 
investments  and 
to  comply  fully  with  EC  rules.  Yet  major 
being  amended 
implementation  efforts  are needed, notably  in the  safety  field.  Safety  legislation  and  its 
implementation  has  to  be  strengthened.  The  need  for  fleet  renewal  could  also  pose 
considerable  funding  problems.  In the maritime  sector,  the principal  cause  of  delays  in 
implementing  the  existing  Community  legislation  is  safety,  on  which  Bulgaria  is  still 
some way from Union standards. 

Bulgarian  road  freight  transport  is  not  in  full  conformity  with  the  current  Community 
legislation.  Points to be monitored  during the pre-accession period  include measures  on 
road safety, weights and dimensions and user charges.  Full compliance with  Community 
rules on weights and dimensions needs to be ensured in order not to restrict the ability  of 
the Bulgarian network to accept EU vehicles. 

Rail  and passenger  transport by road pose fewer  problems than other  sectors with regard 
to  implementation  of  the  existing  Community  legislation,  although  clarifications  are 
needed and further  efforts  must be made in the rail sector.  By contrast, greater caution  is 
called  for  on  the  actual  operation  of  these  two  markets,  since  the  structural  changes 
(private management, opening-up to competition, etc.) are only just starting. 

The Bulgarian  authorities have taken account of the objective of developing  an integrated 
and competitive transport  system.  The two principal  constraints  in this area are likely  to 
be  achieve  acceptable  safety  standards  and  optimum  use  of  the  transport  system. 
Bulgaria  has  made  encouraging  progress  on  safety,  but  is  still  far  from  Community 
standards, particularly  for  air, sea and road.  As regards the objective  of cohesion  within 
the transport system, Bulgaria will probably have to face a steady increase in road's  share 
and to concentrate  its efforts  on use  of rail  and  inland  waterway,  given  the  weakness  of 
its road network compared with the railways and inland waterways. 

The transition from a controlled economy, giving precedence to the use of rail and  inland 
waterway, to a market economy giving users a free choice of mode of transport, will lead 
to a shift  of traffic  onto roads.  This has not yet been fully  completed  in Bulgaria.  In this 
context,  the  Government  programme  prioritises  the  maximum  establishment  of  private 
market  principles  in the transport  sector,  including  the  restructuring  and  privatisation  of 
Bulgarian  State Railways (BDZ) and Balkan Air and as part of the general withdrawal  of 
the state from  the ownership and management of transport companies. 

To  improve  links  with  the  Member  States  and  its  neighbours,  between  1995  and  1999 
Bulgaria  plans  to  invest  ECU 0.6 billion  from  its  own  budget  in transport  infrastructure 
used  by  international  traffic,  principally  the  pan-European  corridors.  This  is  equivalent 
to  around  1.2% of  GDP, but  will  probably  not  be  enough  to  meet  the  needs,  given  the 
the  technical 
current  state  of  the  road  network,  particularly  the  deviation  from 

76 

characteristics  for  heavy  goods vehicles from the Community.  Any  cuts  in this  amount, 
as a result of budgetary constraints, could further  aggravate this weakness. 

Conclusion 

Bulgaria  has  made  progress  with  implementing  the  existing  Community  legislation  on 
transport.  Rapid  alignment  is necessary;  in this  respect,  maritime,  air  and  road  freight 
are  the  sectors  posing  the  most  potential  problems, particularly  on  safety.  In  the  other 
sectors,  particularly  rail,  implementation  of  the  existing  Community  legislation  in 
practice must still be monitored. 

It will  also  be necessary  to make  sure that the resources  necessary  to  lay the  foundation 
for extension of the future  trans-European transport network to the acceding countries are 
provided, and rapidly to compensate for the current shortcomings in the road network and 
the  consequences  of  implementation  of  the  existing  Community  legislation  on  fleet 
renewal.  It  would  also  be  necessary  rapidly  and  systematically  to  reinforce  Bulgaria's 
administrative  structures, including the supervisory bodies, for example for  safety. 

Small and Medium  Enterprises 

EU enterprise  policy  aims at encouraging  a favourable  environment  for  the  development 
of  SMEs  throughout  the  EU,  at  improving  their  competitiveness  and  encouraging  their 
It  is  characterised  by  a  high  degree  of 
Europeanisation  and  intemationalisation. 
subsidiarity.  The  complementary  role  of  the»Community  is  defined  and  implemented 
through  a  Multiannual  Programme  for  SMEs  in  the  EU.  This  programme  provides  the 
legal  and budgetary  basis for the Community's  specific  SME policy  actions.  The  acquis 
has  so  far  been  limited  to  recommendations  on  specific  areas,  although  legislation  in 
other sectors also affects  SMEs (e.g. competition, environment, company law). 

The  Europe  Agreement  provides  for  co-operation  to  develop  and  strengthen  SMEs,  in 
particular  in the private  sector, inter alia through provision  of information  and  assistance 
on  legal,  administrative  and  tax  conditions.  The  White  Paper  contains  no  specific 
measures. 

Descriptive  Summary 

From  a  virtual  non-existence  in  the  late  1980s, private  sector  has  grown  to  account  for 
38% of value added  in  1995 and approximately  41%  of total employment.  By the end of 
1996,  321,000  private  companies  were  registered  (a  significant  increase  over  the 
proceeding  three  years)  compared  to  20,000  public  owned  companies.  Data  on the  size 
of  private  companies  are  not  collected,  but  all  available  sources  suggest  that  the  vast 
majority  are micro-enterprises  with less than five employees.  The majority  of the private 
entities  are  engaged  in  trading  and  the  provision  of  services  to  individuals  and 
companies. 

Private  companies  have  to  face  an  unstable  economic  environment,  high  interest  rates, 
high  and  unstable  taxation  and  legislative  uncertainty  as  the  principal  constraint  to  the 
expansion  of their  activities.  There  is no special  legal  framework  in place  for  SMEs  in 
Bulgaria.  An  SME  Fund  was  established  in  1991  under  the  auspices  of  Ministry  of 
Industry  to assist the setting up of small private enterprise through the provision  of  loans 
at favourable  interest rates.  Regional development agencies, business support centres and 

77 

an  SME  credit  line  have  been  set  up  with  Phare  assistance.  A  certain  SME  support  is 
also  available  through  non-governmental  organisations,  such  as  the  Chamber  of 
Commerce  and  Industry.  Successive  Governments  repeatedly  pledged  their  support  for 
the set-up of a national  SME Agency; a Government decree is reportedly to be adopted in 
the near  future. 

The  on-going  efforts  to  strengthen  the  SMEs  during  the  pre-accession  period  will 
therefore need to be continued. 

Current and Prospective  Assessment 

to  stabilise 

Overcoming  the  barriers  for  private  sector  growth  in Bulgaria will  require  a  determined 
effort 
legislation  and 
administrative  routines,  strengthening  of the  support  infrastructure,  improvement  of  the 
tax  environment,  and  development  of  SME  access  to  financing.  This  task  will  take 
several years. 

the  macro  economic  environment,  simplify 

The previous economic policies and the legislative, fiscal and administrative  environment 
have  not  been conducive  to  SME development.  Given the restructuring  efforts  required 
for  Bulgaria's 
larger  state-owned  enterprises,  appropriate  incentives  and  support 
structures  for  SMEs  are needed.  Recent  Government  initiatives  are encouraging  in that 
respect. 

Conclusion 

There are no specific  problems regarding Bulgaria's integration in this field. 

3.5  Economic and Social  Cohesion 

Employment  and  Social  Affairs 

Community  social  policy  has  been  developed  through  a  variety  of  instruments  such  as 
legal  provisions,  the  European  Social  Fund  and  actions  focused  on  specific  issues, 
including  public  health,  poverty  and  the  disabled.  The  legal  acquis  covers  health  and 
safety  at  work,  labour  law  and  working  conditions,  equal  opportunities  for  men  and 
women,  social  security  co-ordination  for  migrant  workers  and  tobacco  products.  Social 
legislation  in the Union  has been characterised  by laying down minimum  standards. 
In 
addition, the  social  dialogue  at European  level  is enshrined  in the Treaty  (Article  118B), 
and  the  Protocol  on  social  policy  refers  to  consultation  of  the  social  partners  and 
measures to facilitate  the social dialogue. 

The  Europe  Agreement  provides  for  approximation  of  legislation  with  EC  law  and  co 
operation  on  improving  standards  of  health  and  safety  at  work,  labour  market  policies 
and  the  modernisation  of  the  social  security  system.  It  also  provides  for  Community 
workers  legally employed  in Bulgaria to be treated without discrimination  on grounds of 
nationality  as regards  their  working  conditions. The  White  Paper  provides  for  measures 
of approximation in all the areas of the acquis. 

78 

Descriptive  Summary 

In Bulgaria the  framework  for  dealing with socip-economic  problems  in a dialogue  with 
the  social  partners  is  still  embryonic.  The  social  dialogue  is  mainly  a  tripartite 
consultation  procedure  involving  the  trade  unions,  the  employers  and  the  State,  which 
leaves the final decision  with the competent  government  body.  It takes place within the 
framework of the "National Council for Tripartite Co-operation". Until recently the trade 
unions were reluctant to participate in the tripartite co-operation structures because of the 
dominant role of the government.  There are two major  trade unions which are members 
of  the  European  Trade  Union  Confederation  (ETUC)  and  four  other  recognised  trade 
unions,  while  the  employers'  side  is  made  up  of  a  number  of  bodies,  representing  the 
public  and  private  sector's  interests.  Further  progress  in  the  privatisation  process  may 
help to create a more balanced social dialogue. 

Since the transition,  the  decline  of the  state  sector  has been  dramatic, the  growth  of  the 
private  sector  has  been  moderate  and  unemployment  has  risen  sharply.  In  1996,  it  was 
down to  13.7% from 20.5% in  1994, according to ILO methodology. 

Bulgaria  has  started  to  develop  modern  labour  market  policies,  regulations  and 
institutions.  This  process  will  have  to  be  pursued  within  the  framework  of  the 
government's policy for structural  reforms. 

Although the social security system covers the majority  of social risks including sickness, 
accident  and  health  care  and  social  assistance  schemes,  the  actual  level  of  benefits 
provides  inadequate  protection  against  poverty:  in  late  1996,  more  than  40%  of  the 
population  lived  below  the  official  poverty  line.  The number  of people  insured  against 
social risks has gone down from  more than four million in  1990 to less than three million 
in  1994,  but  the  figures  have  started  rising  again.  The  share  of  GDP  spent  on  social 
security  is relatively  low, at about  10% in  1995 (reduced  from  12% in  1990). Continued 
efforts  are required to ensure that measures of social protection are developed. 

The  overall  health  situation  in Bulgaria  is grave. The health  system  is  faced  with  major 
difficulties,  including on occasion a shortage of medicine and basic medical instruments. 

Current  and  Prospective  Assessment 

While  Bulgaria  has  started  to  adapt  its  legislation  relating  to  specific  EU  practices  for 
health  and  safety  at  the  workplace,  the  requirements  and  principles  of  the  1989 
framework  Directive  have  not  been  met.  It  remains  uncertain  to  what  extent  an 
independent  inspection  structure  is in place to ensure  an equal  and  proper  application  of 
the  health  and  safety  standards.  The  existing  structure  has  neither  the  mandate  nor  the 
resources to ensure the proper enforcement  of occupational health and safety  standards. 

Major  adjustments  are  needed  in the  area  of  labour  law, both  at  the  level  of  legislation 
and  the  structures  for  enforcement.  Legislation  to  ensure  proper  consultative  roles  for 
employees  and  their  representatives  in  situations  such  as  collective  redundancies  or 
transfer  of  undertakings  is  incomplete.  Similarly,  there  are  no  specific  provisions 
regarding the protection  of employees  in the event of the insolvency  of the employer and 
collective  dismissals.  Laws  and  regulations  relating  to  the  conditions  of  employment, 

79 

such  as  employment  contracts,  protection  of  young  people  at  work  and  working  time 
need to be completed  and properly  enforced. 

Concerning  equal  opportunity,  the  basic  provisions  of  EC  non  discrimination  law 
between women and men are covered by Bulgarian legislation. But the laws in favour  of 
women  are not  always  applied  in  practice,  and  the  situation  of  women  appears  to  have 
deteriorated.  Industrial  tribunals  do not exist, and  it is not  clear whether  discrimination 
cases can be taken to the normal court. 

Concerning  the  right  to  the  free  movement  of  workers,  there  would  appear  to  be  no 
obstacles to prevent  Bulgaria from being able to implement the provisions  of the  acquis 
in this area. The introduction of the right to free movement will however require  changes 
in  the  national  law,  particularly  as  regards  access  to  employment  and  a  treatment  free 
from discrimination on grounds of nationality. 

In the field of  social  security  for  migrant  workers, accession  does not,  in principle,  pose 
major  problems  but  certain  technical  adaptations  will  be  necessary.  More  important  is 
the administrative  capacity to apply the detailed  co-ordination  rules  in co-operation  with 
the other countries.  Bulgaria will have to develop the necessary administrative  structures 
to work within the co-ordination  system. 

Bulgarian  legislation  covering  the  EC  directives  on  the  warning  labelling  of  cigarettes 
packages and the maximum tar-content has been adopted. 

Conclusion 

Compatibility  with  EC standards is low, and existing measures are not always  applied  in 
accordance  with  ECU  practice.  The  social  system  is  in  need  of  reform,  and  the  social 
dialogue  needs  to  be  improved.  Very  considerable  efforts  will  be  needed  to  ensure 
effective  implementation.  Substantive  progress  is required  on  legislation  alignment  and 
the  application  of  the  acquis  before  Bulgaria  will  be  able  to  take  on  the  obligations  of 
membership. 

Regional Policy  and  Cohesion 

In accordance with Title XIV of the Treaty, the Community  supports the strengthening  of 
cohesion,  mainly  through  the  Structural  Funds.  Bulgaria  will  have  to  implement  these 
instruments  effectively  whilst respecting the principles, objectives  and  procedures  which 
will be in place at the time of its accession. 

The  Europe  Agreement  provides  for  co-operation  on  regional  development  and  spatial 
planning,  notably  through  the  exchange  of  information  between  local,  regional  and 
national  authorities  and  the  exchange  of  civil  servants  and  experts.  The  White  Paper 
contains no specific  provisions. 

Descriptive  Summary 

In  1995,  Bulgarian  GDP  per  capita  was  around  24  %  of  the  EC  average  and  real 
unemployment  was  14  %.  The  worst  hit  region  Montana  (19.6%)  has  a  registered 
unemployment rate close to  15 percentage points higher than that of Sofia (4.5%). 

80 

The current  process  of  structural  adjustment  at regional  level  is  influenced  by two  main 
factors  : 

-  regionally  differentiated  decline  of 
industrial  and  agricultural  activities.  Most 
significant  is the decline in manufacturing  industry in the regions of Haskovo, Russe and 
Varna.  For agriculture, the most affected  regions are Bourgas, Varna and Plovdiv. 

-  regional  disparities  as regards pre-conditions  to economic  development  due to  varying 
endowments of among others infrastructure  and human resources. 

There  is  also  some  concern  about  the  border  areas,  because  of  their  depopulation  and 
isolation. 

Bulgaria is divided  into nine regions which are administrative units for  state governance. 
255  self-governing  municipalities  form  the  basic  administrative  and  territorial  units  for 
is  currently  elaborating  an 
the 
administrative  reform  envisaging  to  replace  the  nine  regions  with  12 to  21  districts  to 
which right of self-government  might be granted. 

implementation  of  self  government.  Bulgaria 

Following  the  "National  directives  for  Regional  development"  adopted  in  1994,  the 
structural  adjustment  policy  is developed  at national  level on a sectoral  basis, which  can 
include specific  consideration to regional problems.  Draft  legislation on regional policies 
based  on  EC  practices  and  plans  to  establish  a  Regional  Development  Fund  is  under 
preparation. 

The  Ministry  of  Regional  Development  arid  Construction  is  the  leading  government 
institution.  Its role has traditionally  focused  on infrastructure  development,  in particular 
water resources and utilities, construction, energy connections and spatial planning. 

A  consultative  council  for  cross-border  policies,  infrastructure  and  local  authorities  has 
been  established  to  co-ordinate  regional  development  initiatives  implemented  through 
sectoral policies. 

The  financial  assistance  to  municipalities  in  crisis  constitutes  Bulgaria's  main  regional 
development measure. However, tr  share of Bulgaria's development related expenditure 
constituting  potential  counterpart  funds  to  the  EC  structural  policy  cannot  yet  be 
determined.  Therefore,  Bulgaria's  co-financement  capacity cannot presently be evaluated 
with sufficient  reliability. 

Current  and  Prospective  Assessment 

Bulgaria's  regional  development  initiatives  are  implemented  within  the  framework  of 
sectoral  polices.  Nevertheless,  it  is  a  growing  awareness  of  rising  regional  disparities 
and the need for an active regional policy involving all government levels. 

At present, however, there is no coherent  set of strategies, administrative  framework  and 
budgetary  instruments  for  a regional  development  policy  and the Regional  Development 
Fund due to operate in January  1997 has not yet been set up. 

Conclusion 

81 

Bulgarian  authorities  manifest  increased  awareness  of  the  need  to  counteract  rising 
regional  disparities  through  an  efficient  regional  policy.  However,  its  administrative 
capacity to manage integrated  regional  development programmes  needs to be  improved. 
In  particular,  administrative  and  budgetary  procedures  need  to  be  strengthened. 
Significant  reforms  are  still  necessary  including  the  establishment  of  efficient  inter-
ministerial  co-ordination  and  the  introduction  of  appropriate  counterpart  funds  before 
Bulgaria is able to apply  Community  rules and to channel effectively  the funds  from  the 
EC structural policies. 

3.6  Quality of Life and Environment 

Environment 

The Union's  environmental  policy, derived from the Treaty, aims towards  sustainability 
based on the integration of environmental protection into EU sectoral policies, preventive 
action,  the  polluter  pays  principle,  fighting  environmental  damage  at  the  source,  and 
shared  responsibility.  The  acquis  comprises  approximately  200  legal  acts  covering  a 
wide  range  of  matters,  including  water  and  air  pollution,  management  of  waste  and 
chemicals, biotechnology, radiation protection, and nature protection.  Member states are 
required  to  ensure  that  an  environmental  impact  assessment  is  carried  out  before 
development consent is granted for certain public and private projects. 

The Europe Agreement  stipulates that Bulgarian development policies shall be guided by 
the  principle  of  sustainable  development  and  should  fully  incorporate  environmental 
considerations.  It  also  identifies  environment  as a priority  for  bilateral  co-operation,  as 
well as an area for approximation of legislation to that of the Community. 

The White Paper  covers only  a small part of the environmental  acquis,  namely  product-
related legislation, which is directly related to the free circulation of goods. 

Descriptive  Summary 

Bulgaria's  environmental  problems  are  very  serious,  and  have  not  been  effectively 
addressed. Bulgaria has high emissions of air pollutants, in particular sulphur dioxide and 
particulates originating from thermal power plants, heavy industry, domestic heating and 
motor  vehicles.  Local  air  quality  poses  significant  risks  to  human  health.  Waste  is  an 
area  of  major  concern:  waste  management  practices  are  elementary,  especially  for 
disposal  activities,  and  incineration  is not regulated.  Soil pollution  and  erosion  are also 
serious.  Groundwater  quality  is  generally  good  for  drinking  water  supply.  However,  in 
localised  areas  there  are  problems  of  contamination  by  metals,  as  well  as  by  sulphates 
and  nitrates  from  fertilisers.  Bulgaria  enjoys  an  impressive  bio-diversity  and  the 
protection of the country's natural heritage has traditionally been a priority. 

After  1990,  a  Ministry  of  Environment  was  created,  and  an  environmental  framework 
law was passed  (1990, amended  subsequently), introducing  inter alia the "polluter pays" 
principle  and  environmental  impact  assessment.  An  environmental  strategy  was 
formulated  in  1992 and updated in  1994..  The strategy lays down further  development of 
the institutional,  legal  and regulatory  framework  and identifies  areas that require  priority 
actions,  namely  -  among  others  -  air  emissions  of  lead  and  other  heavy  metals  and 

82 

possible contamination  of drinking water and food  supplies. The National  Environmental 
Protection  Fund,  set  up  in  1995  and  financed  principally  from  fines  and  taxes  for 
industrial  pollution  and  fuel,  provides  grants and  loans to  municipalities  and  enterprises 
for  environmental  measures.  Up  to  now,  environmental  spending  in  Bulgaria  has  been 
low. 

Legislation, 
including  regulations  on  Environmental  Impact  Assessment  remains 
inadequate.  Air  emission  standards  are  inadequate  for  some  substances,  and  existing 
standards  are  not  uniformly  enforced.  However,  an  air  pollution  law  has  been  drafted 
which proposes the introduction of a system of permits.  Standards for emissions to water 
are  inadequate,  although  a  new  water  act  has  been  drafted.  Apart  from  the  area  of 
hazardous waste for which some regulations exist, there is no coherent national policy  or 
legislation  for  waste  management.  There  is  no  official  control  of  waste  management 
practices and no specific  legislation  on incineration  of waste.  Not all types of waste  are 
listed  in  a  recently  drafted  waste  law.  Regulations  on  chemical  substances  and 
agricultural  pollution  are  lacking  or  need  updating.  The  same  is  true  for  radiation 
protection,  where  there  is moreover  a lack  of  safety  culture.  The  Rovi  Han  radioactive 
waste repository does not meet the safety objectives generally accepted in the EU. 

In  its  programme,  the  Government  announces  a  new  environmental  strategy,  new 
legislation, including laws on water and nature protection, as well as fiscal incentives  for 
environmental  investments. 

Current  and  Prospective  Assessment 

Though  the  whole  of  Bulgarian  environmental  legislation  is  undergoing  revision,  and 
new legislation tends to adopt or approach EC standards (for instance the draft  water act), 
the  level  of  approximation  is  still  low  in  most  areas,  including  air  and  water  quality, 
waste  management,  chemical  substances,  radiation  protection  and  nature  protection. 
Regulations on Environmental Impact Assessment need to be further  developed, as recent 
amendments  have  substantially  weakened  its  impact.  Particular  attention  should  be 
given  to  the  quick  transposition  of  framework  directives  dealing  with  air,  waste,  water 
and  the  Integrated  Pollution  Prevention  Control  directive  (IPPC),  as  well  as  the 
establishment  of  financing  strategies  for  legislation  in  the  water,  air  and  waste  sectors 
requiring major  investments. 

With respect to effective  compliance with  EC environmental  standards, Bulgaria still has 
to make even greater progress.  The national environmental  monitoring network has been 
strengthened  in  recent  years,  but  effective  enforcement  of  regulations  also  requires 
appropriate  political  will  and  adequate  staffing  in  national  and  municipal  institutions. 
Very  important  investment  will  be needed  for  effective  implementation  of EC  standards 
fn  most  areas,  particularly  in  water  quality,  urban  waste  and  in  the  modernisation  of 
industry.  Considerable efforts  will also be necessary to build the administrative  capacity 
that  will  allow  the  country  to  fully  adopt,  implement  and  enforce  EC  legislation.  The 
country's'  environmental  accession  strategy  should  include  implementation  timetables 
for  meeting  the  EC  environmental  acquis,  starting  amongst  others  with  implementation 
of the framework  and IPPC directives mentioned above. 

83 

Conclusion 

Compliance with the EC acquis presupposes a positive turn in the economic situation and 
will  necessitate  greater  and  consistent  emphasis  on  environmental  issues,  large-scale 
investment,  as  well  as  development  of  a  comprehensive,  cost-effective  and  focused 
environmental  strategy  and  of  adequate  implementation  and  enforcement  structures.  If 
such  a  strategy  is  followed,  full  transposition  of  the  acquis  could  be  achieved  in  the 
medium  to  long  term.  However,  effective  compliance  with  a  number  of  pieces  of 
legislation requiring a sustained high level of investment and considerable  administrative 
effort  (e.g.  urban  waste  water  treatment,  drinking  water,  aspects  of  waste  management 
and air pollution legislation) could be achieved only in the very long term. 

Consumer Protection 

The  Community  acquis  covers  protection  of  the  economic  interests  of  consumers 
(including control  of misleading advertising, indication of prices, consumer credit,  unfair 
contract  terms,  distance  selling, package  travel,  sales  away  from  business  premises  and 
timeshare  property)  as  well  as  the  general  safety  of  goods  and  the  specific  sectors  of 
cosmetics, textile names and toys. 

The  Europe  Agreement  provides  for  approximation  of  legislation  with  EC  law  and  co 
operation  with  a view  to  achieving  full  compatibility  between  the  systems  of  consumer 
protection in Bulgaria and the Community.  Stage I measures of the White Paper focus  on 
improving product  safety,  including cosmetics, textiles and toys, and on the protection of 
economic  interests, notably  measures  on misleading  advertising,  consumer  credit,  unfair 
terms  and  indication  of  prices.  Stage  II  measures  relate  to  package  travel,  sales  away 
from  business  premises  and  time  share  property.  New  EC  legislation  which  has  been 
adopted  recently  (distance  selling)  or  will  be  adopted  soon  (comparative  advertising, 
price indication) will also need to be taken into account. 

Descriptive  Summary 

The  Constitution  refers  to  consumer  protection  and  freedom  of  competition  as 
fundamental  economic  principles.  A draft  law  on  Consumer  Protection  has  been  under 
discussion for some time.  Meanwhile, the area is regulated by a number of specific  laws. 

There  is  no  particular  institution  in  charge  of  creating  consumer  policy  and  enforcing 
consumer  protection  legislation.  Various  ministries  are  involved  in the  preparation  and 
monitoring  of consumer  legislation  but there is no single co-ordinating  body.  Created  in 
1990,  the  Federation  of  Consumers  is  the  only  organisation  in  Bulgaria  dealing 
specifically  with  the  interests  of  consumers.  It is an  independent  federation  made  up  of 
consumer  unions  and  clubs  and  responsible  for  providing  consumer  advice  and 
information  as well as campaigning and lobbying the  government. 

Current  and Prospective  Assessment 

There  is a need  to  establish  an independent  body  overseeing  consumer  affairs.  Although 
the  adoption  of  the  planned 
law  on  Consumer  Protection  could  remedy  many 
shortcomings,  there  are  still  a  number  of  gaps.  On  the  economic  protection  of 

84 

consumers,  substantial  amendments  will  need  to  be  made  to  existing  legislation 
concerning  the  indication  of  prices,  misleading  advertising,  unfair  contract  terms  and 
consumer credit.  New  legislation will have to be introduced  in areas such as sales  away 
from business premises, distance selling and package travel. 

Since the  Bulgarian  legislation  does not  include  any general provisions  on  standards  for 
product  safety,  the  adoption  of  a  new  law  on  Consumer  Protection  would  be  a  step 
further  in  the  approximation  of  legislation  with  European  law.  There  is  no  known 
legislation  imposing  labelling  requirements  for  clothes  and  textile  products  while 
adjustments  will  be required  to existing  legislation  on the safety  of toys.  Legislation  on 
cosmetics  is, in  general,  close  to  European  law, but  some  changes  are needed  to  ensure 
full  compatibility. 

In their national  strategy paper for the implementation  of the White Paper,  the  Bulgarian 
authorities announce that the transposition of consumer protection directives into national 
law should be completed by late 1998. 

The  development  of  a strong  and  independent  consumer  movement,  sustained  by  public 
authorities,  will need to accompany the introduction of the acquis. 

Conclusion 

If Bulgaria  is to  comply  with  EC  standards  on the protection  of consumer  interests,  she 
will  need  to  accelerate  her  preparation  of  consumer  policy  legislation  considerably. 
Although  she  has  started  the  approximation  process  under  the  Europe  Agreements,  the 
main principles of the acquis have not yet been transposed  into Bulgarian law. Achieving 
full  compatibility  in the medium term will require commitment and substantial  efforts. 

3.7  Justice  and  H o me  Affairs 

The Present  Provisions 

The  Justice  and  Home  Affairs  (JHA)  acquis principally  derives  from  the  framework  for 
co-operation  set out in Title VI (Article K) of the Treaty on European Union (TEU), "the 
third  pillar",  although  certain  "first  pillar"  (EC  Treaty)  provisions  and  legislative 
measures are also closely  linked. 

The  EC  JHA  framework  primarily  covers:  asylum;  control  of  external  borders  and 
immigration;  customs  co-operation  and  police  co-operation  against  serious  crime, 
including  drug  trafficking;  and judicial  co-operation  on  criminal  and  civil  matters.  The 
TEU  stipulates  key  principles  upon  which  such  co-operation  is  based,  notably  the 
European  Convention  on Human  Rights  and the  1951 Geneva Convention  on  the  Status 
of  Refugees. 
It  is  also  based  implicitly  on  a  range  of  international  conventions 
concerning  its  fields  of  interest,  notably  those  of  the  Council  of  Europe,  the  United 
Nations  and  the  Hague  Conference.  The  legislative  content  of  third  pillar  acquis  is 
different  from  the first pillar;  it consists of conventions, joint  actions, joint  positions  and 
resolutions, (including the agreed elements of draft  instruments which are in negotiation). 
A  number  of  EU  conventions  (including  the  1990  Dublin  Convention,  and  conventions 
relating  to  extradition,  fraud  and  EUROPOL)  have  been  agreed  by  the  Council  and  are 
now  in  the  process  of  ratification  by  national  Parliaments;  several  other  conventions, 
including  one  on  external  frontiers  are  in  various  stages  of  negotiation  in  the  Council. 

85 

The  JHA  acquis  involves  a high  degree  of  practical  co-operation,  as  well  as  legislation 
and its effective  implementation. 

The New  Treaty 

For  many  of  the  above  matters,  the  entry  into  force  of  the  Treaty  resulting  from  the 
Amsterdam  Inter-Governmental  Conference  will mark the end of the current  cooperation 
framework. 

Reiterating the objective  of developing the Union into an "area of  freedom,  security and 
justice",  the  new  Treaty  brings  these  matters,  including  the  free  movement  of  persons, 
asylum and immigration, into the Community's sphere of competence. 

On  the  free  movement  of  persons  in  particular,  the  new  Treaty  provides  for  the 
incorporation  of  the  Schengen  acquis  into  the  framework  of  the  European  Union  and 
binds any candidate for EU membership to accept that acquis in full. 

With  regard  to  matters  remaining  within  the  cooperation  framework,  i.e.  policing  and 
criminal justice, the new Treaty provides for the reinforcement  of the cooperation  system. 

The Europe Agreement  and the White Paper 

The  Europe  Agreement  includes  provision  for  co-operation  in  the  fight  against  drug 
abuse and money laundering. 

The White Paper does not deal directly with third pillar subjects, but reference  is made to 
first pillar matters such as money laundering and freedom  of movement of persons which 
are closely related to Justice and Home Affairs  considerations.  Reference  is also made to 
the Brussels and Rome conventions. 

Descriptive  Summary 

General Preconditions  for JHA Cooperation 

Bulgaria joined  the  Council  of  Europe  in  1992  and  ratified  in  October  1996  the  most 
important instruments concerning human rights, except that concerning minorities.  There 
is provision for an independent judiciary according to the rule of law. 

Some progress has been made on reform  of JHA institutions but there is still much to do 
in tackling problems  such as the need to embed respect for the rule of law. structural  and 
staffing  deficiencies,  and  institutional  corruption.  Bulgarian  legislation  only  gives 
minimum  guarantees  for  data  protection  and  with  the  advice  of  the  Council  of  Europe 
Bulgaria  is  beginning  the  preparation  of  a  comprehensive  data  protection  system.  (See 
also  separate section on Single Market). 

Asylum 

Bulgaria  acceded  in  1992 to the Geneva Convention  of  1951 and the  1967 Protocol.  At 
present  the  convention  has  direct  effect  and  is  implemented  by  decree  through  an 
ordinance regulating  refugee  status and asylum procedures, administered  by the National 
Bureau  on  Territorial  Asylum  and  Refugees  (NBTAR).  Some  850  applications  for 
refugee  status  were  made  in  1995.  Current  procedures  do  not  match  international 

86 

standards  in  a number  of  respects,  especially  in relation to  interviewing  and  expulsion 
procedures.  Responsible  officials  and  NGO  staff  have  little  knowledge  of  foreign 
circumstances and legislation and there is a major shortage of resources.  A new draft law 
designed to regulate asylum procedures more effectively  is currently in preparation. 

Immigration/Border Contrôlâmes  1989  many  Bulgarians  have  sought  work  in  EU 
countries, notably Germany and Greece.  Bulgaria is now becoming a transit country for 
third country migrants, from Asia and Africa as well as the NIS,  seeking to cross to the 
EU. Because of concerns about emigration trends, abuses of the immigration system and 
other relevant factors such as drug trafficking  through the Balkan route, the EU decided 
to  include  Bulgaria  and  Romania  on  the  list  of  third  countries  for  which  visas  are 
required.  The  Bulgarian  authorities  are  now  seeking  to  put  in  place  measures  which 
effectively  tighten  the  visa  regime.  The  admission  system  is  also  being  strengthened, 
with rules on residence  and work permits and naturalisation being  tightened,  especially 
for risk countries.  In March  1997 the Bulgarian Government decided to introduce a visa 
free  regime for citizens of EU/EEA countries.  Bulgaria is also tightening up enforcement 
procedures, deportation procedures and penalties for illegal  immigration and have put in 
pjace  sanctions  against  carriers.  Bulgaria  has  readmission  agreements  with  Germany, 
Greece,  France,  Spain,  Poland,  Slovakia,  Slovenia  and  Lithuania  and  is  preparing 
agreements  with  Portugal,  the  Benelux  countries,  Denmark,  the  Czech  Republic  and 
Romania.  It  does  not  have  such  an  agreement  with  Turkey.  The  Bulgarian  border 
management  system  is  currently  being  reformed,  introducing  common  information 
systems,  document  control  and  improved  surveillance.  Responsibility  is  split  between 
the military (Turkish border, reflecting  arrangements during the Warsaw Pact period) and 
the  border  guard,  but  plans  are  now  being  implemented  to  create  a  single,  civilian 
national border guard. 

Police  Cooperation 

Since  1990 there has been a significant  increase in organised crime in Bulgaria, covering 
many  areas  including  trafficking  in  women,  protection  and  other  rackets,  extortion, 
economic crime and smuggling of many items, including drugs.  Most groups are of local 
origin but there are close connections to foreign groups.  The Government is developing a 
national  coordinated  programme  to  counter organised  crime  and is  aiming to revise the 
criminal code to tackle such crimes more effectively.  The lead agency is the Ministry of 
the Interior's Central Agency for Combating Organised Crime.  Co-ordination with other 
relevant  services  (Customs,  Finance,  Justice)  has  been  poor  but  the  Government  is 
seeking to improve it.  Bulgaria is party to the  1990 Money Laundering Convention and 
adopted in May  1996 a Money Laundering Act.  Considerable work remains to be done, 
however, to enable the system to work effectively  in practice.  (See also  separate section 
on  Single  Market).  Bulgaria  has  ratified  the  main  terrorism  conventions.  It  does  not 
consider there to  be  terrorist  activity  within the  country,  but there  is  some  evidence  of 
terrorists using the country for transit. 

Drugs 

Bulgaria  is  a  major  transit  country  for  drugs  trafficking  and  domestic  demand  is 
increasing.  The main drug transiting Bulgaria is heroin, but seizures indicate an increase 
in cannabis transit. There is some domestic drugs production of opium poppies.  Bulgaria 
is  party  to  the  main  international  drugs  conventions.  The  Government  is  setting  up a 

87 

national  council to pursue a global  strategy to counter drug abuse and trafficking.  It has 
prepared  draft  laws  to  strengthen  the  control  of  narcotic  and  synthetic  drugs  and 
precursors and has set up special anti-drugs units in the police and customs. 

Judk™1 Cooperation 

Bulgaria  has  ratified  the  key  criminal  conventions  and  the  criminal  procedure  code 
allows  for judicial  cooperation,  but  the  implementation  regulations  for  the  conventions 
are  not  in  place. 
In  the  civil  field  the  procedure  code  allows  for  certain  judicial 
cooperation  procedures  and  Bulgaria  has  ratified  the  commercial  arbitration  convention 
but  has  still  to  tackle  the  Hague  Conventions.  Overall  the  Bulgarian  judicial  system 
suffers  from  severe  resource  shortages,  has  little  experience  of judicial  cooperation  and 
has  only  limited  expertise  in  foreign  legal  systems.  The  process  of  institution  building 
and  setting  out  the  rules  for  the  functioning  of  judicial  structures  is  underway.  A 
programme  for  the  reform  of  the  Bulgarian judicial  system  was  approved  in  December 
1996. 

Current and Prospective  Assessment 

Bulgaria  has  begun  to  take  the  steps  in  all  key  areas  of  JHA  to  work  towards  EU 
requirements.  In the  legislative  field  most  (but not  all) key measures  are either  in place 
or  in  preparation.  The  difficulties  Bulgaria  is  facing  over  its  relations  in  the  visa  field 
with  the  EU  are  leading  to  considerable  efforts  on  the  part  of  the  Government  to 
strengthen the visa and admission systems to bring them more into line with EU systems, 
but  there  is  still  some  way  to  go  to  achieve  alignment  with  the  acquis.  Bulgaria  is 
heavily  affected  by  organised  crime  and  drug  trafficking.  The  Government  response  is 
significant  and  having  some  effect  but  the  scale  of  the  task  is  large.  For  the  most  part 
Bulgarian  officials  have  little  if  any  practical  experience  of  working  with  EU 
counterparts  and institutions.  Given the transnational  nature of the JHA problems  facing 
Bulgaria  (immigration  policy,  drugs,  organised  crime)  as well  as  its  Balkan  neighbours 
there  is also  a need  to develop  more  effective  regional  cooperation  mechanisms  in  these 
fields. 

Conclusion 

Given  the  scale  of  the  problems  facing  Bulgaria  in the  JHA  field,  it  will  be  difficult  to 
meet the acquis (present and future)  requirements in the medium term.  To achieve this a 
major,  sustained  effort  will  be  needed,  with  particular  emphasis  on  improving  the 
efficiency  and effectiveness  of JHA institutions. 

3.8  External  Policies 

Trade and International Economic  Relations 

The  acquis  in  this  field  is  made  up  principally  of  the  Community's  multilateral  and 
bilateral  commercial  policy  commitments,  and  its  autonomous  commercial  defence 
instruments. 

The  Europe  Agreement  includes  provisions  in  several  areas  requiring  parties  to  act  in 
accordance with  WTO/ GATT principles, or other relevant international  obligations. 

88 

The White Paper includes no provisions in this field. 

Descriptive  Summary 

Bulgaria is a member of the World Trade Organisation (WTO), and has dbserver status in 
the  Government  Procurement  Agreement.  Upon  accession  Bulgaria  would  have  to 
comply  with  the  obligations  of  the  plurilateral  WTO  agreements  to  which  the 
Community is a party. 

At present  Bulgaria  does not maintain quantitative restrictions  on any textile or  clothing 
products.  On  accession  the  Community  textiles  policy  would  be  extended  to  Bulgaria; 
any  Community  restrictions  still  maintained  at  the  date  of  accession  would  require 
adjustment  by an appropriate amount to take account of Bulgarian accession. 

Bulgaria  maintains  balance  of  payments  restrictions  which  will  have  to  be  phased  out 
prior to accession.  The Bulgarian authorities have agreed to begin phasing out as soon as 
the balance of payments situation improves. 

Current and Prospective Assessment 

On  accession  Bulgaria  would  have to  apply the  Community's  Common  Customs  Tariff, 
and the external trade provisions of the Common Agricultural  Policy.  The post Uruguay 
Round weighted  average level of most favoured  nation duties for  industrial products will 
be  16.4% for Bulgaria and 3.6% for the Community.  The progressive  implementation  of 
free  trade  between  Bulgaria  and the  Community  by the time of accession  will,  however, 
reduce  the  impact  on the domestic  industry  of applying  the  lower  Community  Common 
Customs  Tariff. 

In its relations with international organisations Bulgaria should ensure that its actions and 
commitments  respect  the  Europe  Agreement  and  ensure  a  harmonious  adoption  of  its 
future  obligations as a member of the Community. 

On  accession  Bulgaria  would  become  party  to  the  Community's  various  preferential 
agreements.  Preferential  agreements  between  Bulgaria  and  third  countries  would,  in 
general, have to be terminated on accession. 

Bulgaria's  export  restrictions  on  ferrous  scrap  are  due  to  be  eliminated  by  the  end  of 
1997. 

In the area of trade in services and establishment, Bulgaria is engaged in a process which 
should enable it to bring its multilateral commitments more closely into line with those of 
the Community, wherever necessary. 

On  accession  Bulgaria  would  have  to  repeal  national  legislation  in  the  field  of 
commercial defence  instruments, and EC legislation would become applicable there. 

Experience  from  previous  accessions  has shown that the automatic  extension  of existing 
anti-dumping  measures  to new member  states prompts  third  countries  to raise  problems 
in terms of the compatibility  of this approach with relevant  WTO provisions.  It has also 
shown  that  accession  creates  a  potential  for  circumventing  measures  adopted  by  the 
Community  under  the  commercial  defence  instruments.  This  happens  when,  prior  to 
accession,  substantial  quantities  of  the  products  subject  to  measures  are  exported  to  the 
89 

territory of the future member state and, on accession, are automatically released for free 
circulation  in  the  enlarged  customs  territory.  These  two  problems  would  have  to  be 
addressed during Bulgaria's pre-accession phase. 

Bulgaria  is  a member  of  two  out  of  four  existing  regimes  for  the  non-proliferation  of 
weapons of mass destruction, is a candidate for admission to a third, and has expressed 
interest in joining the fourth one.  Bulgaria is expected to shortly approve the EU control 
list of dual-use items.  Arms export is also controlled.  It is difficult to assess the extent to 
which  export  controls  are  effectively  enforced,  and  whether  certain  reservations  are 
justified, but Bulgaria appears to have no major problems applying EC legislation in this 
field. 

Conclusion 

Bulgaria  should  be  able  to  meet  Community  requirements  in  this  field  in  the  medium 
term. 

Development 

The acquis  in  the  development  sector  is made  up  principally  of  the  Lomé  Convention, 
which runs until early 2000. 

Neither the Europe Agreement or the White Paper include provisions in this field. 

Descriptive  Summary 

Bulgaria has a number of trade agreements with ACP countries, based  on Most  Favoured 
Nation  treatment.  Under  its  GSP  scheme  Bulgaria  grants  a  degree  of  preferential 
treatment  in  the  form  of  reduced  duties  to  a number  of  ACP  countries,  and  grants  duty 
free access to those ACP countries considered as Least Developed Countries. 

Bulgaria  has  no  budget  for  development  aid,  although  it  has  participated  in  actions  to 
support internationally developing countries, including the granting of humanitarian aid. 

Current and Prospective  Assessment 

On accession,  Bulgaria  should  apply  its preferential  trade regime to  the  ACP  States  and 
the  European 
participate,  together  with  the  other  member  states,  in  financing 
Development Fund (EDF), which provides financial  aid under the Lomé Convention. 

Applying  the  Lomé  trade  regime  should  not  generally  be  a  source  of  difficulties  for 
Bulgaria. 

Normally, new member states accede to the Lomé Convention by means of a protocol  on 
the date of their accession to the EU. 

Conclusion 

Bulgaria  is well  placed  to  be  able to  meet  EU requirements  in this  field  in the  next  few 
years. 

90 

Customs 

The  acquis  in  this  sector  is  the  Community  Customs  Code  and  its  implementing 
provisions;  the  EC's  Combined  Nomenclature;  the  Common  Customs  Tariff  including 
trade  preferences,  tariff  quotas  and  tariff  suspensions;  and  other  customs-related 
legislation outside the scope of the customs code. 

The Europe Agreement covers the establishment of a free trade area with the  Community 
and the progressive removal of customs duties on a wide range of products, according  to 
clear timetables starting from the date of entry into force of the agreement. 

The  White  Paper  includes  in  Stage  I,  measures  to  consolidate  and  streamline  the  free 
trade established  under the Europe Agreement,  including  legislation  compatible with  the 
Customs  Code, Combined Nomenclature, etc.  Stage II concerns the adoption of the  full 
Community legislation, with a view to joining the customs union upon accession. 

Descriptive  Summary 

On  accession  the  Bulgarian  customs  authorities  would  be  required  to  assume  all  the 
responsibilities  necessary  for the protection  and control of their part of the EU's  external 
border.  Besides  the  provisions  on  indirect  taxation,  they  would  be  responsible  for  the 
implementation  and  enforcement  at  the  external  border  of  the  Community's  common 
commercial policy, the common agricultural policy, the common fisheries policy etc. 

Bulgaria's  capacity  fully  to  apply  the  acquis  presupposes  the  possibility  to  adopt  and 
implement  the  Community  legislation;  and  the  existence  of  an  adequate  level  of 
infrastructure  and  equipment,  in particular  in terms  of computerisation  and  investigation 
means  and  the  establishment  of  an  efficient  customs  organisation  with  a  sufficient 
number of qualified  and motivated staff showing a high degree of integrity. 

Bulgarian  legislation  in  the  customs  field  dates  from  1960.  With  the  support  of  the 
technical  assistance  provided  by  customs  programmes,  Bulgaria  is  gradually  drafting 
legislation harmonised with the Community's customs code. 

Bulgaria  aligned  its  national  goods  nomenclatures  to  the  Community's  Combined 
Nomenclature  in  1996.  The  Bulgarian  administration  does  not  yet  have  an  Integrated 
Tariff.  This  will  make  the  comparison  of  the  Bulgarian  tariff  rates  with  the  Common 
Customs Tariff rates difficult.  Bulgaria is not yet familiar with the Community's  Binding 
Tariff Information  system. 

Bulgaria  adopted  on  1 January  1997  the  new  system  of  cumulation  of  origin  between 
European countries. 

Bulgaria  has  applied  to  become  a  contracting  party  to  the  EC/EFTA  Common  Transit 
Convention  and  the  Single  Administrative  Document  Convention.  A  Community  task 
force  is assisting  Bulgaria  in this field, but development  is hindered by difficulties  in the 
area  of  guarantees.  Accession  to  the  Transit  Convention  will  require  a  period  of 
considerable further  preparation. 

91 

Current and Prospective  Assessment 

Bulgaria  would  need  to  adapt  its  national  procedures  to  the  Community's  legislation 
regarding  suspensive  arrangements  and  customs  procedures  with  economic  impact.  At 
the  moment  of  accession,  some  transitional  arrangements  would  be  needed,  notably  for 
operations beginning before the date of accession but which are concluded after that date. 

In its trading relations with the European Community, Bulgaria will have to fully  abolish 
the  remaining  charges  having'equivalent  effect  to  customs  duties  such  as  the  customs 
clearance fee still applied in spite of its being in contravention of the Europe Agreement. 

It will be important that the Bulgarian customs authorities can participate appropriately in 
the  various  computerised  systems  necessary  for  the  management,  in  the  customs 
union/internal  market,  of  the  customs  and  indirect  tax  provisions,  as  well  as  the 
computerised  systems  for  mutual  administrative  assistance  in  customs,  agricultural  and 
indirect tax matters. 

Bulgaria  would  need  on  accession  to  dismantle  customs  controls  at the  border  with  EU 
member  states  and  with  other  acceding  countries.  The  resources  needed  for  the 
reinforcement  of  the border posts  along  its  frontiers  with  non-EU  member  states  should 
be taken into account in its strategic planning. 

Difficulties  have  arisen  over  possible  non-compliance  with  the  Europe  Agreement, 
concerning re-export of sensitive products outside the EU. 

Conclusion 

The  Bulgarian  Customs  Administration  is  in  the  process  of  reorganisation. 
It  will  be 
necessary  to align  the organisation  to the  duties that  have to be carried  out  by  a modern 
customs organisation.  Low salaries make it difficult  to recruit staff. 

It  seems  unlikely  that  Bulgaria  will  be  ready  to  fulfil  the  responsibilities  of  an  EC 
customs administration within the next few years. 

Common  Foreign  and  Security  Policy 

Since  1989,  Bulgaria  has  re-oriented  its  foreign  and  security  policy  towards  European 
and Euro-Atlantic integration.  Improvement of relations with neighbouring countries has 
also  been  a priority  for  successive  Bulgarian  governments.  Bulgaria  has  been  an  active 
participant  in  the  dialogue  arrangements  provided  for  under  the  Union's  Common 
Foreign  and  Security  Policy  and  when  invited  has  supported  EU  actions  within  that 
framework.  Bulgaria is a member of the UN, OSCE, Council of Europe and many  other 
international organisations.  It is an associate partner of WEU, a participant in NACC and 
PfP;  and  has made  clear  its desire to become  a member  of  WEU  and NATO  as  soon  as 
possible.  It  has  participated  in  the  reconstruction  efforts  in  Bosnia  and  sent  50  police 
observers  to  the  UN  multinational  force  in  Bosnia.  It  also  participates  in  a  number  of 
regional  organisations  including  the  Black  Sea  Economic  Co-operation,  the  trilateral 
arrangements  with  Romania  and  Greece,  and  the  CEI.  In  1996  it  took  the  initiative  in 
hosting  a  ministerial  meeting  in  Sofia  which  adopted  a  declaration  on  regional  co 
operation. 

92 

There are no territorial  disputes between Bulgaria and any member state of the Union, or 
with Romania. 

Relations  with  Turkey  have  improved  considerably  in recent  years  with  the  democratic 
changes  in Bulgaria and the reduction  in ethnic tensions.  But there remain  a number of 
open  issues  including  the demarcation  of the borders and the continental  shelf,  defining 
the regions for flight  information, the navigation regime through the Bosporus straits and 
cultural matters.  All these issues are currently under negotiation and are unlikely to pose 
a serious problem to bilateral relations. 

Bulgaria was the first country  to recognise the independence  of FYROM  on  15 January 
1992.  Since then relations  have intensified  and FYROM is an important  trading  partner 
of Bulgaria.  Although no basic treaty has been signed because of the so called  "language 
dispute"  (Bulgaria  does  not  recognise  Macedonian  as  a  separate  language),  the 
government recently stated its intention to resolve this matter. 

Relations with the Federal  Republic of Yugoslavia (FRY) stagnated during the period of 
armed  conflict  in the former  Yugoslavia  when  Bulgaria adhered to the sanctions  regime 
imposed  by the UN Security  Council.  Since the agreement  on trade  and economic  co 
operation  of  1995, relations  between  Bulgaria  and FRY have  gradually  intensified,  but 
the  demarcation  of  the  border  remains  to  be  settled  and Bulgaria  is  concerned  by the 
treatment of the Bulgarian minority in FRY. 

Bulgaria  has a  sizeable  diplomatic  service  which  would  permit  it  as  a  member  of the 
Union to play an effective  role.  It maintains 87 representations  abroad  and employs 588 
diplomatic  staff. 

Bulgaria supports non-proliferation  of nuclear, biological and chemical  weapons and is a 
signatory to all relevant  international  arms control agreements.  It exercises  strict  control 
concerning  the dual  use of technology,  being  a member  or candidate  member  of all the 
major  existing  export  control  regimes.  The Bulgarian  armed  forces,  which  are  being 
brought  under  democratic  control,  are being  reorganised  to meet  NATO  requirements. 
The defence  industrial  base has declined sharply in recent years and is also in the process 
of re-organisation in an attempt to meet NATO standards. 

In  the  memorandum  accompanying  its  application  for  membership  of  the  Union,  the 
Bulgarian  government  confirmed  that  it  was  ready  and  able  to  participate  fully  and 
actively in the Common Foreign and Security Policy. 

The assessment  of Bulgarian  foreign  and security  policy to date leads to the expectation 
that as a member it could effectively  fulfil  its obligations in this field. 

3.9  Financial  Questions 

Financial  Control 

The implementation  of Community  policies, especially  for agriculture  and the Structural 
Funds,  requires  efficient  management  and control  systems  for  public  expenditure,  with 
provisions  to fight fraud.  Approximation  of legislation is moreover  needed  to allow the 
system of "own resources" to be introduced, with satisfactory  provision for accounting. 

93 

The Europe Agreement provides for  cooperation  in audit and financial control,  including 
technical  assistance  from  the  Community  as  appropriate.  The  White  Paper  includes  no 
measures in this field. 

Descriptive Summary 

The  National  Audit  Office  (NAO)  is  the  highest  external  control  body;  originally 
established in  1880 but suspended in  1947, it was reinstated by a law in  1995; it is a legal 
entity  funded  by  the  budget,  independent  of  the  executive  and  accountable  directly  to 
Parliament.  The general directorate of the NAO is established  in Sofia.  Its nine regional 
territorial offices,  comprising 28 sectors, are based in the other main municipalities.  The 
State  and  municipal  budgets  and  all  budget-supported  organisations,  foundations  and 
funds  established  with  budget  resources  or  guaranteed  by the  government  are  subject  to 
control by the NAO.  Findings from inspections are legally binding on their subjects. 

Within  the  government  structures,  the  State  Financial  Control  is  a  legal  entity  with  its 
own  budget  within  the  Ministry  of  Finance,  performing  preventive  and  a  posteriori 
controls.  It  consists  of  a  general  directorate  and  28  regional  offices.  It  effects  control 
over the  overall  activities  and  oversees  the  internal  control  units  in ministries  and  other 
public institutions. 

Internal and external financial control bodies exercise documentary  controls and  controls 
of substance, including on-site  inspection. 

The tax  administration  and  customs  administration  are both  established  as  legal  entities 
with  their  own  budget  within  the  Ministry  of  Finance.  The  tax  administration  effects 
preventive,  current  and  a  posteriori  controls  and  it  consists  of  a  general  directorate, 
regional  and  local  tax  offices.  The  customs  administration  exercises  preventive  control 
over imports, exports and foreign  exchange valuables going through the state border. It is 
responsible for the establishment and the collection of import duties. 

The judiciary system comprising courts, prosecutor's office  and police are responsible  for 
fighting  fraud.  The  State  Financial  Control  also  investigates  such  cases.  The  Central 
Office  for Control of Organised Crime  operates under the Ministry of the Interior. 

Current and Prospective  Assessment 

The  legislative  basis  of  the  NAO  guarantees  the  institution's  independence  and 
establishes a proper basis for the autonomous development and execution of its activities, 
but its implementation has been slow due to budgetary and logistical constraints. 

The  Government's  internal  financial  control  faces  the  same  problems  as  the  public 
administration  at  large. 
It  needs  a  thorough  examination  and  reorganisation.  The 
establishment  of  methodological  guidelines  for  financial  control  would  be  needed  as 
well.  There is no central authority responsible for fighting  fraud. 

Further cooperation with the Commission will be needed to establish whether  accounting 
procedures  entirely  fulfil  the requirements  of Regulation  1552/89.  The tax  and  custom 
services need restructuring  in order to ensure the effectiveness  of tax collection. 

94 

The funding  of agricultural policies only began fairly recently.  The payment mechanism 
is already in place but the necessary  steps in relation to controls over the payments are 
not in accordance with EC regulations. 

Given the absence  of a regional  policy  comparable to that of EU Member  States, it is 
difficult  to provide any assessment of the financial control tools in the field of regional 
development and regional development funding.  Efficient  monitoring, control and audit 
structures would need to be set up in this area. 

Conclusion 

Provided the current commitment continues, the National Audit Office  could function  in 
accordance to EC standards within the medium term. 

Major efforts are essential to strengthen internal financial control functions. 

Budgetary Implications 

The  communication  entitled  "Agenda2000"  sets  out  the  overall  financial framework 
which should accommodate the budget impact of any future enlargements in the medium 
term.  This  is to  ensure  that  any  enlargement  is compatible  with proposed  Community 
policy guidelines within reasonable budget limits. 

As things stand, it would be difficult,  not to say premature, to attempt precise country-by-
country  evaluations  of the budgetary  implications  of each of the applicants joining the 
Union. Exactly what the impact would be may vary considerably depending on a whole 
series of factors: 

the date on which the applicant country joins; 

developments  in  Community  policies  between  how and  then,  in  particular  the 
decisions  to  be  taken  on  further  reform  of  the  common  agricultural  policy  and  new 
guidelines for structural measures; 

the progress made by the applicant countries in terms of growth, increasing their 

competitiveness and productivity and their ability to absorb the acquis; 

the transitional measures that will come out of the negotiations. 

Only a few orders of magnitude for certain budget categories and an overall estimate can 
be given purely as a guide. 

Expenditure 

If the common agricultural policy were to be reformed  along the lines suggested by the 
Commission,  once the reforms  were fully  up and running  and  in terms of just  market 
intervention measures, Bulgaria's accession would give rise to additional expenditure in 
the order of 1% in relation to likely expenditure on the present fifteen Member States. 

After  a phasing-in period, the allocations for structural measures in Bulgaria should total 
not more than around 4% of Bulgaria's GNP. 

95 

Application of the other internal Community policies in the new member countries would 
be likely to involve additional expenditure probably  in excess of their relative  proportion 
of Union  GNP,  since  for  certain policies  the  additional  implementing  costs  also  depend 
on the target population, the geographical  area covered  or the number of Member  States 
involved  in  the  coordination  and  harmonisation  measures.  The  GNP  of  Bulgaria  is 
currently 0.2% of total Union GNP. 

By contrast, Bulgaria's accession should not involve significant  additional expenditure as 
far as Union external action is concerned. 

It  should  not  be  forgotten  that when  an applicant  country joins, the  Community  budget 
will  no  longer  have  to  bear  the  costs  of  grants  the  country  was  eligible  for  under  the 
various pre-accession programmes, such as PHARE. 

In  light  of  the  above,  the  estimated  costs  in  the  three  areas  mentioned  arising  from 
Bulgaria's  accession  should  fall  within the range of,  annually,  ECU  1.0  to  1.2  billion  in 
2005-06 (at constant  1997 prices). 

Revenue 

Assuming  full  application  of the own resources system, the new members'  contributions 
to  the  Community  budget  should,  in  terms  of  total  GNP  and  VAT  resources  (taking 
account of the capping rules applying to VAT),  be close to the proportion of the  Union's 
GNP  they  account  for,  which  in  Bulgaria's  case  is  in  the  order  of  0.2%.  Bulgaria's 
portion of traditional  own resources will depend on the structure of its trade flows  at the 
time of accession. 

To  ensure  that  the  own  resources  are  established,  monitored  and  made  available  in  line 
with  Community  regulations, Bulgaria will have to overhaul  its current  customs  system. 
In  addition,  for  the  purposes  of  accurately  calculating  the  GNP  resource  considerable 
improvements  will  have  to  be  made  to  the  national  accounts  to  ensure  that  they  are 
reliable,  homogeneous  and  complete.  Improving  the  statistics  will  also  be  essential  for 
drawing  up  the  VAT  own  resources  base,  which- will  mean  bringing  Bulgaria's  VAT 
system fully  into line with the Community directives. 

96 

4  Administrative Capacity to Apply the Acquis 

The  European  Council  in  Madrid  in  December  1995  concluded  that  the  harmonious 
integration  into  the  EU  of  the  central  and  eastern  European  applicant  states  would,  in 
particular,  require  the  adjustment  of  their  administrative  structures.  This  chapter 
examines  the  current  state  of  the  public  administration  in  Bulgaria,  including  relevant 
aspects of the judicial system, and assesses the current and prospective ability to carry out 
the functions  required  of it in a modern, democratic  state, with a particular  focus  on the 
need to administer matters related to the acquis. 

4.1  Administrative Structures 

A  description  of  Bulgarian  constitutional  structures,  their  powers  and  responsibilities, 
including those of regional and local government, is given in Chapter 1. 

At  the  central  level  there  are  16 ministries,  a  coordinating  Council  of  Ministers  and  a 
variety  of  specialised  agencies  charged  with  policy  formulation  and  implementation  in 
specific  fields.  The European Integration  Department  in the Ministry  of Foreign  Affairs 
coordinates EU accession related matters. 

The  main  legal  bases  for  the  civil  service  are  the  Constitution  and  the  Labour  Code 
regarding the civil service. A law on the civil service was foreseen  in the Constitution but 
has not yet been brought before the National Assembly. 

Although  the  civil  service  is  in  principle  .politically  independent,  in  practice  many 
appointments  down  to  middle-ranking  levels  in  ministries  and  local  government  are 
changed when a new government or a new minister takes  office. 

In  1996, the central  administration  employed  about  128,000 staff;  major  staff  reductions 
have  since  taken  place  and  are planned  to  continue  over  1997, in the  framework  of  the 
Government's  structural  reform  programme.  Salaries  in  the  private  sector  are  much 
higher than in the civil  service.  Officials  are frequently  dependent  on secondary  sources 
of income. 

The present Government has made public administration  reform  a priority. In addition  to 
the  introduction  of  a  civil  service  law,  it  aims  to  reform  the  state  administration  and 
create  an  open  information  culture  towards  the  citizens.  Backed  by  a  unanimous 
declaration  of  the  National  Assembly  adopted  in  May  1997,  the  Government  has  also 
undertaken a comprehensive fight against corruption. As regards the local  administration, 
the Government  intends to complete, by the end of  1997, a new legislative basis for  local 
self-governance  establishing  a  greater  economic  and  financial  independence  for  the 
municipalities. 

For  the  improved  coordination  of  European  integration  policy,  the  Government  is 
considering  setting  up  a  special  body,  beyond  existing  arrangements. 
(See  also  the 
section  of  the  Introduction  concerning  relations  between  the  European  Union  and 
Bulgaria). 

97 

4.2  Administrative and Judicial Capacity 

Bulgaria  was  administered  under  central  planning  during  the  communist  period.  The 
communist system rejected the primacy of the rule of law and subjugated the law and the 
adniinistration to the implementation of Party policy. Against this background, both the 
administration  and the rule of  law  itself  increasingly  came  to  be  seen  by the  public  as 
instruments of political control. 

The  administrative  framework  currently  in  place  is  generally  adequate.  However,  its 
functioning in practice raises substantial problems. There is a need for reorganisation and 
the  introduction  of  effective  management  and  training  methods.  Decision  making  is 
centralised and coordination and information exchange within and between ministries  is 
limited. 

Many of the key  ministries will require a major reform and reorganisation in the course 
of Bulgaria's progress toward EU membership. The audit and financial  control organs, in 
particular, will  require further development.  A review of the division of  responsibilities 
among Government institutions, as well as internal reforms in individual institutions, will 
be  necessary  in  order  to  carry  out  policies  effectively.  These  problems  underline  the 
importance of the Government's commitment to the reform of the administration. 

The lack of a clear legal basis for the civil service is a serious defect.  The introduction of 
a civil  service  law has the potential to stabilise the position of the public  administration 
and help to promote its political independence. 

The  civil  service  is  not  understaffed  overall.  But  the  gap  between  public  and private 
sector  salaries,  the  absence  of  career  perspectives  and  the  low  popular  esteem  and 
confidence  in  the  public  administration  has  made  a civil  service  career  unattractive  to 
potential  young  entrants,  and  to  many  of  the  more  talented  of  the  established  staff. 
Innovative  recruitment  and career  planning  policies  will  be  required.  Similar  policies 
will  be needed to broaden the currently limited base of highly qualified  staff capable  of 
dealing  with complex  European integration  issues  and generally  to counter the problem 
of "brain drain" to the private sector. 

Public  confidence  in  the  civil  service  is  affected  by  the  legacy  of  the  past  and  by 
widespread  abuses.  The  National  Assembly  and  the  Government  recognise  the 
seriousness of the problem of corruption.  A comprehensive programme will be needed to 
tackle  this,  including  the  simplification  of  legislation  and  administrative  procedures, 
accelerated  privatisation  of  state  property  and  other  measures  reducing  the  managerial 
role  which  the  state  still  plays  in  the  economy  and  which  renders  the  public 
administration prone to opaque and improper practices. 

The Government's reform plans for the public administration point in the right direction. 
It  will  be  a major  challenge  for  these  policies  to  achieve  the  radical  improvements  in 
management,  training  and  overall  professionalism  required  throughout  the  Bulgarian 
public  administration.  Nonetheless,  if  a  sustained  and  concerted  effort  is  made, 
significant  progress  should  be  possible.  All  this  will  need  to  take  place  against  the 
backdrop  of  the  Government's  economic  and  structural  reform  programme,  which 
foresees a major reduction in administrative expenditure. 

98 

The capacity of the Bulgarian administration to implement and monitor legislation that is 
compatible with the acquis is constrained by the difficulties  already described.  Bulgaria's 
policy  for  European  integration  requires  a  stronger  institutional  structure.  The  current 
structure  for  the  coordination  is fragmented. It also  lacks resources, notably  in terms  of 
staffing,  and  has  at  present  no  permanent  representation  at the  level  of the  government. 
Several  institutions  have  been  established  or  prepared  to  enable  the  enforcement  of  the 
acquis. At the same time, in various sectors specific  bodies for the implementation  of the 
acquis need to be strengthened or created. 

Key Areas for the Implementation of the Acquis 

The uniform  application of EC law:  The effective  application  of the acquis  presupposes 
that  the  judicial  authorities  of  member  states  are  able  to  apply  the  provisions  of  the 
Treaty  dealing  with  ensuring  the  unity  and  application  of  the  acquis,  and  are  able  to 
ensure  the  proper  functioning  of the  Single Market  and  Community  policies  in  general. 
A high  quality  and  well  trained  and  resourced judiciary  is  necessary  for  the  application 
by  the  courts  of  EC  law,  including  cases  of  direct  effect,  and  cases  of  referral  to  the 
European Court of Justice under the terms of Article  177 EC. 

The  judicial  system  in  Bulgaria  has  important  weaknesses,  particularly  concerning 
resources,  and  relevant  expertise.  Given  this  situation,  the  Commission  has  significant 
doubts about the ability of the system to assure the effective  application of the  acquis. 

Single  market:  The  ability  of  Bulgaria  to  ensure  the  correct  application  of  Community 
requirements  in the  Single  Market,  particularly  concerning  the  free  movement  of  goods 
and  services  presupposes  the  existence  of  highly  developed  and  effective 
regulatory, 
standardisation,  certification  and  supervisory  authorities,  able to  act  fully  in  accordance 
with  EC  rules.  An  analysis  of  these  points  is  made  in  Chapter  3.1  (under  "The  Four 
Freedoms"). 

to 

in  order 

implement 

the  future 

Concerning  the  administrative  capacity  in  respect  of  free  movement  of  goods  the 
situation  in Bulgaria  is not  yet  satisfactory  in a number  of respects,  despite  some  recent 
progress.  The  administrative  structures  for  standardisation  and  conformity  assessment 
this  area. 
need  reinforcement 
Clarifications  are required  on the future  status of the Committee  for  Standardisation  and 
Metrology  (1,350 staff  overall), particularly  with regard to its independence  in  executing 
standardisation  measures.  Further  staff  training  is required.  Concerning  free  movement 
of  services,  the  situation  is  improving  but  still  has  some  way  to  go.  The  Banking 
Supervision Department has an adequate (and increasing) number of staff  (90); there is a 
Securities  Stock  Exchange  Commission  (with  180  staff),  and  in  the  insurance  sector  a 
regulatory  body  is  planned  to  be  created  soon.  Some  enforcement  bodies  need 
considerable strengthening, such as those dealing with intellectual property rights, despite 
recent improvements. 

legislation 

in 

In order to meet EU requirements in this area important improvements remain necessary. 

Competition:  As  explained  in  Chapter  3.1  (under  "Competition")  enforcement  of 
competition  law  requires  the  establishment  of  anti-trust  and  state  aid  monitoring 
authorities,  and  that  the  judicial  system,  the  public  administration  and  the  relevant 
economic operators have a sufficient  understanding of competition  law and policy. 

99 

In  Bulgaria  the  central  authority  is  the  Committee  for  the  Protection  of  Competition, 
which  has 50 staff;  the  level  of expertise  needs  improvement,  particularly  with  such  a 
relatively modest number of staff.  The ability effectively  to implement EC requirements 
in this  field  will  require  strengthening  of the  enforcement  mandate  (which  in itself  will 
require institutional reinforcement)  and improvements in financial  and human resources. 

Telecommunications: 
In  order  to  formulate  and  implement  the  many  liberalisation 
regulations  contained  in the acquis  in this  field it is necessary  to have  a regulatory and 
policy making body that is effectively  separated from any operating company. 

In  Bulgaria  this  body  is the Committee  for Post  and Telecommunications  (CPT) which 
has  120 staff.  This is an adequate number.  In order to ensure the effective  administration 
of  the telecommunications  acquis  the  CPT's  regulatory  functions  need  to  be  rendered 
fully  independent  from  the  operating  companies  and  the  fairness  of  the  licensing 
procedures needs to be ensured. 

The  effective  administration  of  the  indirect 

Indirect  taxation: 
taxation  acquis 
presupposes  structures  capable  of  implementing  the  EC  legislation  concerning  the 
harmonisation of Valued Added Tax and excise duties in an environment  in which  fiscal 
controls at internal  EU frontiers  have been  abolished;  and the excise  system  is based on 
the tax warehouses,  duty  being payable  at the local  rate  in the member  state at the time 
the  goods  are  consumed.  This  requires  a  highly  developed  and  well  trained  and 
resourced service, with a high degree of integrity. 

In  Bulgaria  the  relevant  authority  is  the  Ministry  of  Finance.  The  number  of  staff  is 
approximately  11,000  (including  the general  tax/  excise  administration).  Due to a  large 
turnover  of staff,  resulting partly  from  trained  staff  being  recruited  by the private  sector, 
it  is difficult  to estimate  the capacities  of existing  staff.  In order  to ensure  the  effective 
administration  of the acquis  in this  area it will be necessary  to consolidate  and improve 
including  training  measures  and 
the  overall  professional  standards  of  the  staff, 
improvements in pay. 

Agriculture:  The administrative  requirements  in the agricultural  area  primarily  concern 
veterinary  and  phytosanitary  control,  to  protect  public  health  and  ensure  the  free 
movement  of  agricultural  goods;  and  the  ability  to  administer  the  mechanisms  and 
requirements  of  the  CAP,  including  high  standards  of  financial  control  and  official 
statistics.  These  points  are  dealt  with  in  Chapter  3.4  (under  "Agriculture");  general 
standards in the statistical field are examined in Chapter 3.3 (under  "Statistics"). 

Concerning  the  administrative  capacity  in  respect  of  veterinary  and  phytosanitary 
controls the situation in Bulgaria is unsatisfactory.  Although Bulgaria has an established 
infrastructure  in  this  area,  structural  changes  in  the  veterinary  services,  together  with 
increased  fragmentation  of livestock  units, make inspection and disease  control  difficult. 
Also,  because  of  weak  border  controls  there  have  been  several  instances  of  disease 
entering  from  outside,  indicating  important  risks  in this  area.  The State  Veterinary and 
Sanitary  Service  and  the  Border  Veterinary  Control  Department  of  the  Ministry  of 
Agriculture  employ  4,900  staff,  which  is  adequate.  Concerning  the  administration  of 
general CAP requirements the appropriate administrative structures are not in place. 

100 

In order to meet EC requirements in this area major  improvements will be required  across 
the board. 

Transport:  The application  of the  EC Internal  Market  and competition  requirements  to 
the  transport  sector,  the  development  of  relevant  infrastructure  products,  and  other 
aspects  of  the  transport  acquis  will  present  administrative  challenges  to  new  member 
states. 

The  responsible  government  authority  in  Bulgaria  is the  Ministry  of  Transport  with  a 
total  of  1,380  staff.  This  raises  particular  concerns  with  regard  to  the  enforcement  of 
safety  controls, in a context where safety  issues are already a concern. 

Employment  and  social  policy:  A  central  administrative  requirement  in  respect  of the 
acquis  in  this  area  is  adequate  inspection  capacity,  particularly  concerning  health  and 
safety at work. 

In  Bulgaria  the  Labour  Inspectorate  employs  about  530  staff. 
reinforcement  of staff resources, expertise and its independence. 

It  will  require 

Regional  policy  and cohesion: The main administrative  requirements  in this  area are the 
existence  of  appropriate  and  effective  administrative  bodies  ,  and  in  particular  a  high 
degree of competence and integrity in the administration of Community  funds. 

In  Bulgaria  the principal  administrative  body  is the Ministry  of Regional  Development 
and Construction  (around  150 staff).  Ministry  does not have a strong record, for example 
on  the administration  of EU assistance  programmes.  The situation  concerning  financial 
control  is not satisfactory  (see the section,  below, on "Financial  control").  The  effective 
administration  of the acquis  in this  area  will  require  substantial  improvements,  notably 
concerning coordination between ministries, and the different  levels of government. 

Because  EC  environmental  policy, 

integration  of 
Environment: 
environmental  protection  into  EC  sectoral  policies  the  administrative  requirement  is 
potentially very wide, affecting  many bodies not normally associated  with  environmental 
protection.  However,  the  main  responsibility  lies  with  environment  ministries  and 
various subsidiary bodies. 

involves 

the 

In Bulgaria the Environment Ministry employs  140 staff. Monitoring is carried out by the 
National  Centre  for  Environment  and sustainable  development,  and enforcement  by the 
Ministry  and  16 regional  inspectorates,  with  a total  of 2,800  staff.  These  arrangements 
provide a basis for the implementation  of the acquis, but require a substantially  stronger 
enforcement  mandate. 

Consumer protection:  In this area, the effective  administration  of the acquis  requires the 
allocation  of  overall  responsibility  to  a  specific  State  body  through  which  the 
implementation  and  enforcement  of  consumer  policy  and  consumer 
formulation, 
protection legislation can be undertaken. 

In Bulgaria, the Commission  for the Protection of Competition,  a competition  authority, 
has a horizontal,  but not exclusive,  responsibility  for  consumer  issues.  As regards  non 
governmental  consumer  bodies  these  remain  far  too  weak.  There  remains  confusion 
about the exact scope and objectives of consumer policy. This in part explains  difficulties 

101 

in the effective  enforcement  of consumer  laws; however,  other  factors  which need  to be 
addressed  include  a lack  of expert  staff,  organisational  deficits,  and a lack of sensitivity 
to consumer questions among the judiciary. 

Justice  and  home  affairs:  Oversight  of justice  and home  affairs  questions  falls  to the 
justice  and  interior  ministries.  The  administrative  structures  need  to  be  able  to  deal 
effectively  with asylum and migration questions, border management, police  cooperation 
and judicial  cooperation.  There is an overriding  need for sufficient  and properly  trained 
staff with a high degree of integrity. 

The  National  Bureau  on  Territorial  Asylum  and  Refugees  does  not currently  have  the 
administrative  capacity  to  meet  EU  standards,  for  example  regarding  expulsion 
procedures.  Responsibility  for  border  management  is  currently  shared  between  the 
military and the border guard, which can lead to problems regarding coordination.  Police 
cooperation  with  other  law  enforcement  agencies  (both  inside  and  outside  Bulgaria) 
needs to be improved. The effective  administration  of the acquis in this area will  require 
reinforcement  and  refinement  of  existing  administrative  structures,  a  framework  to 
improve  coordination,  a  comprehensive  training  programme,  and  concerted  efforts  to 
eliminate  corruption. 

Customs:  Applying  the acquis  in this  area  requires  an adequate  level  of  infrastructure 
and  equipment, 
including  computerisation  and  investigation  resources,  and  the 
establishment  of an efficient  customs  organisation  with a sufficient  number  of  qualified 
and motivated  staff  showing a high degree of integrity. 

In Bulgaria the customs service employs 4,100 staff. Due to a high turnover of staff,  it is 
difficult  to  estimate  their  efficiency,  and therefore  the adequacy  of staffing  levels. The 
effective  administration of the acquis in this area will require fundamental  organisational 
and financial  reform. The problem of corruption needs to be urgently addressed. 

services, 

training  of  specialised  staff 

Financial  control:  The  protection  of  the  Community's  financial  interests  requires  the 
development  of  anti-fraud 
(investigators, 
magistrates)  and 
the  reinforcement  of  systems  of  specific  cooperation.  The 
implementation  of  Community  policies,  especially  for  agriculture  and  the  Structural 
Funds,  requires  efficient  management  and control  systems  for  public  expenditure,  with 
provisions  to  fight  fraud.  Administratively  it  is  essential  to  have  a  clear  separation 
between  external  and  internal  control.  Police  and judicial  authorities  need  to  be  able 
effectively  to handle  complex  transnational  financial  crime  (including  fraud,  corruption 
and money  laundering) which could affect  the Community's financial interests. 

In Bulgaria the main external control body is the National Audit Office.  The staff  is being 
built  up to 440.  This  is adequate,  but the effective  administration  of the acquis  in  this 
area  will  require  a through  examination  and reorganisation  of the  institutions,  including 
the establishment of methodological  guidelines. 

102 

4.3  General Evaluation 

Bulgaria's administrative structures will require a major, concerted and sustained effort of 
reform if there it is to be adequate capacity in the medium term effectively  to administer 
the acquis. 

Concerning  the  judicial  capacity  effectively  to  apply  the  Community  law,  a  definite 
evaluation at this stage is difficult. 

103 

C.  SUMMARY AND CONCLUSIONS 

Bulgaria  submitted  its  application  for  membership  of  the  European  Union  on  14 
December  1995.  Its  request  is  part  of  the  historic  process  of  ending  the  division  of 
Europe and consolidating the establishment of democracy across the continent. 

In accordance with the provisions of Article O of the Treaty, the Commission  has, at the 
request of the Council, prepared an Opinion on Bulgaria's request for membership. 

Bulgaria's  preparation  for  membership  is  going  forward  notably  on  the  basis  of  the 
Europe  Agreement  which  entered  into  force  in  February  1995.  The  Bulgarian 
government has attached importance to implementation of the White Paper of May  1995 
on the Internal  Market,  another  essential  element of the pre-accession  strategy  putting  in 
place in May  1996 an implementation programme. 

In  preparing  its  Opinion,  the  Commission  has  applied  the  criteria  established  at  the 
Copenhagen  European  Council  of June  1993.  The Conclusions  of this  Council  stated 
that  those  candidate  countries  of  Central  and  Eastern  Europe  who  wish  to  do  so  shall 
become members of the Union if they meet the following  conditions: 

-  stability  of  institutions  guaranteeing  democracy,  the  rule  of  law,  human  rights  and 

respect for and protection of minorities; 

- 

- 

the  existence  of  a  functioning  market  economy,  as  well  as  the  ability  to  cope  with 
competitive pressures and market forces within the Union; 

the ability to take  on the obligations  of membership,  including  adherence  to the  aims 
of political, economic and monetary union. 

A judgement  on these three groups of criteria - political, economic, and the ability to take 
on  the  acquis  -  depends  also  on  the  capacity  of  a  country's  administrative  and  legal 
systems  to  put  into  effect  the  principles  of  democracy  and  the  market  economy  and  to 
apply and enforce the acquis in practice. 

The  method  followed  in  preparing  these  Opinions  has  been  to  analyse  the  situation  in 
each  candidate  country,  looking  forward  to the  medium  term  prospects,  and  taking  into 
account progress accomplished  and reforms  already under way.  For the political  criteria, 
the Commission has analysed the current situation, going beyond a formal  account of the 
institutions to examine how democracy and the rule of law operate in practice. 

1.  Political  Criteria 

Bulgaria has democratic  institutions whose stability  seems now secure.  They need to be 
reinforced  by  fuller  respect  in  practice  for  the  rule  of  law,  at  all  levels  of  public 
administration.  Elections  are  free  and  fair  and  led  to  alternation  of  power  in  1994  and 
1997. 

Some gaps remain  in respect for  fundamental  rights, though the new government  elected 
in  April  1997  has  announced  a  series  of  positive  reforms.  Considerable  efforts  are 
needed  to  pursue  the  fight  against  corruption,  to  improve  the  operation  of  the  judicial 

104 

system  and to protect  individual  liberties in the face  of too frequent  abuses by the  police 
and secret services. 

The Turkish minority seems well integrated, but this is not so for the Roma. 

V 

The current improvement following  the arrival in power of a new government permits the 
conclusion  that  Bulgaria  is  on  the  way  to  satisfying  the  political  criteria  set  by  the 
Copenhagen European Council. 

2.  Economic  Criteria 

Despite  some first steps taken in  1991, Bulgaria is still only at the start of the process  of 
structural  transformation.  The  new  government  has  clearly  undertaken  to  the  IMF,  the 
World Bank, and the European Commission, that it will set in train rapid reforms  in order 
to  free  prices  and  start  privatisation.  This  policy  should  permit  recovery  from  the 
situation  created  by the crisis of recent months which  saw a negative growth" (-10.9%  of 
GDP 
(311%  in  1996)  and 
depreciation of the currency. 

in  1996),  worsening  public  deficits,  hyper-inflation 

Bulgaria  has  a  population  of  8.3  million  and  its  GDP  per  capita  is  24%  of  the  EU 
average.  The agricultural  sector employs more than 20% of the working population  and 
provides  13%> of the  Gross Value Added.  It still has severe structural difficulties  despite 
recent privatisation.  Trade with the EU has grown significantly  and now represents  35% 
of Bulgaria's external trade. 

On  the  basis  of  its  analysis,  the  Commission's  judgement  as  to  Bulgaria's  ability  to 
meet the economic criteria established at Copenhagen is as follows: 

Bulgaria's progress in the creation of a market economy has been limited by the absence 
of a commitment  to market-oriented  economic policies. v Early liberalisation of trade and 
prices  was  partially  reversed,  and  price  controls  were  not  removed  until  this  year.  It  is 
only  since  the  crisis  at  the  end  of  last  year,  and  the  recent  change  of  government  that 
consensus about the desirability of economic reforms has begun to develop. 

Bulgaria  will not  be  able to cope with competitive  pressure  and  market forces  within 
the  Union  in  the  medium  term. 
If  the  authorities  can  translate  their  renewed 
commitment  to economic  transition  into  successful  and sustained  action, a turnaround  in 
Bulgaria's  prospects  is possible.  However,  the country  has been  set back  by  six  largely 
wasted  years. 
Incomplete  land  reform  has  hampered  the  emergence  of  a  modern 
agricultural  sector;  slow  privatisation  and  economic  instability  have  weakened  state 
enterprises and delayed the development of a dynamic private sector. 

3.  Capacity to take on the obligations of membership 

Bulgaria's  ability  to  take  on  the  acquis  has  been  evaluated  according  to  a  number  of 
indicators: 

- 

the obligations set out in the Europe Agreement, particularly those relating to the right 
of  establishment,  national  treatment,  free  circulation  of  goods,  intellectual  property 
and public procurement; 

105 

- 

implementation of the measures set out in the White Paper as essential for  establishing 
the single market; 

-  progressive transposition of the other parts of the  acquis. 

Bulgaria  has  made  considerable  efforts  to  meet  its  obligations  under  the  Europe 
Agreement.  The  Agreement  has  been  implemented  without  major  problems  and 
according to the timetable for  implementation set out in it.  Most of the problems related 
to  implementation  have  been  resolved.  But  the  weakness  of  the  national  coordination 
mechanisms  have  prevented  full  exploitation  of  its  potential.  The new  government  has 
decided  to  reinforce  these  structures.  Bulgaria  has  an  unsatisfactorily  low  rate  of 
transposition of the rules and the directives set out in the White Paper. 

Bulgarian  legislation  only  incorporates  a  small  part  of  the  acquis  for  the  fundamental 
elements  of  the  single  market,  except  for  certain  aspects  of  free  circulation  of  goods. 
The scale of progress to be achieved  requires very  substantial  and  sustained  efforts  both 
in  approximation  of  legislation  and  in  creation  of  structures  enabling  it  to  be 
implemented.  Complete  restructuring  of  the  financial  sector,  in  order  to  re-establish 
public and  investor  confidence  in it, is among the highest  priorities, and the  government 
recognises this. 

The weakness  of  public  administration  is a major  problem,  putting  in question  both  the 
rate  and  the  quality  of  approximation  of  legislation.  The  various  structures  needed  to 
apply the legislation on the single market are not currently capable of playing their roles. 

As  for  the  other  parts  of  the  acquis  Bulgaria  should  not  have  particular  difficulty  in 
applying  the  acquis  in  the  medium  term, provided  it  maintains  its  current  transposition 
and  modernisation  efforts,  in  the  following  sectors:  education,  training  and  youth; 
research  and  technological  development;  fisheries;  small  and  medium  enterprises; 
international trade relations; and development. 

By contrast Bulgaria will need to make substantial  efforts  in order to apply the acquis in 
the  fields  of  telecommunications  (particularly  price  structures),  audio-visual,  taxation, 
statistics, consumer protection and customs. 

Integration  into  the  European  market  could  pose  serious  difficulties  for  Bulgarian 
industry  in  the  medium  term.  Many  sectors  still  face  important  re-structuring  and 
privatisation needs. 

For  the  environment,  very  important  efforts  will  be  needed  including  massive 
investment  and  strengthening  of  administrative  capacity  to  enforce  legislation.  Full 
compliance  with  the  acquis  could  be  expected  only  in  the  very  long  term  and  would 
require increased  levels of public expenditure. 

Bulgaria  has  made  some  progress  in  meeting  the  transport  acquis,  but  serious  recent 
difficulties  have  held  this process back.  It must  accelerate  its efforts  in particular  in the 
maritime,  air  and  road  freight  sectors.  Bulgaria  must  also  provide  the  investment 

106 

necessary for extending the European transport network, which is an essential element  for 
the effective  operation of the single market. 

Bulgaria  still  needs  to  make  substantial  efforts  to  align  its  procedures  in  employment 
and social affairs  with EU standards.  Progress is needed in particular on labour law and 
the structure of the labour inspectorate, since these have neither formal  autonomy nor the 
necessary means to fulfil  their role properly. 

For  regional  policy,  Bulgaria  will  have  to  achieve  significant  preparatory  steps,  in 
particular  on  financial  control  and  the  coordination  of  the  different  actors  involved  in 
policy in this field, before  it can effectively  use structural  funds. 

Bulgaria  must  put  in  place  fundamental  reforms  of  its  agricultural  sector  before  it  can 
meet  the  obligations  of  accession.  Considerable  progress  is needed  on  restructuring  of 
the  sector;  on  the  agrifood  industry;  on  agricultural  policies  and  on  health  and  quality 
controls.  A particular  effort  will  be needed  on the  administrative  structures  responsible 
for administering the CAP. 

For energy,  increased  efforts  must be achieved to prepare  for  accession,  in particular  on 
monopoly operations, price fixing  and state intervention in the solid fuel  sector.  Bulgaria 
has  a nuclear  power  station  at  Kozloduy,  which  produces  around  40%  of  the  country's 
electricity.  It must  in the medium term modernise the units for which this is possible, so 
that they meet  internationally  accepted  standards; and keep its undertaking tô close those 
which  cannot  be  modernised  according  to  the  conditions  set  in  the  1993  Agreement. 
Bulgaria  must  make  a  number  of  modifications  to  its  legislation"  to  comply  with 
Community rules in the nuclear sector and to respect international regimes. 

On the basis of the analysis of its capacity to apply the acquis, it is not yet possible to be 
sure when Bulgaria  could  become able to take and  implement the measures  necessary  to 
remove the controls at borders  between Bulgaria and member states of the Union. 

Bulgarian  participation  in  the  third  stage  of  economic  and  monetary  union,  which 
implies  coordination  of  economic  policy  and  complete 
liberalisation  of  capital 
movements,  poses  serious  problems  in  current  circumstances,  given  the  substantial 
structural  reforms  which  still  need  to  be  achieved. 
It  is  premature  to  judge  whether 
Bulgaria will be in a position, by the time of its accession, to participate in the Euro area. 
That  will  depend  on  how  far  the  success  of  its  structural  transformation  enables  it  to 
achieve  and  sustain  permanently  the  convergence  criteria.  These  are,  however,  not  a 
condition for  membership. 

Bulgaria  faces  a  particular  challenge  in  justice  and  home  affairs,  given  the  serious 
difficulties  which  it  faces  in  these  sectors.  Only  by  considerably  improving  the 
efficiency  of  the  institutions  responsible  for  action  in  these  fields  will  Bulgaria  become 
able to apply the  acquis. 

Bulgaria  should  be  able to fulfil  its obligations under the common  foreign  and  security 
policy. 

It  has  considerably  improved  its  relations  with  its  neighbours  and  settled  almost  all  its 
disputes with them. 

107 

4.  Administrative  and legal capacity 

Bulgaria's  administrative  structures will need a major  and  sustained  effort  of reform  if it 
is to become able to apply the acquis  effectively. 

The capacity of the judicial  system to ensure uniform  application of Community  law is of 
importance  for  achieving  the  single  market.  It  is  difficult  in  current  circumstances  to 
judge Bulgaria's prospects in this sector. 

CONCLUSION 

In the light of these considerations, the Commission concludes that : 

-  the  current  improvement  in  Bulgaria,  following  the  arrival  in  power  of  a  new 

government,  indicates  that Bulgaria is on its way to satisfy  the political  criteria; 

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

-  despite  the  progress  that  has  been  made,  Bulgaria  has  neither  transposed  nor 
taken on  the essential  elements of the acquis, particularly  as regards the internal  market. 
It  is therefore  uncertain  whether  Bulgaria  will be  in a position  to assume  the  obligations 
of  membership  in  the  medium  term.  In  addition,  considerable  efforts  will  be  needed  in 
the  areas  of  environment,  transport,  energy,  justice  and  home  affairs  as  well  as 
agriculture.  More  generally,  substantial  administrative  reform  will  be  indispensable  if 
Bulgaria is to have the structures to apply and enforce the acquis  effectively. 

In  the  light  of  these  considerations,  the  Commission  considers  that  negotiations  for 
accession to the European  Union  should be opened  with Bulgaria  as soon  as it has  made 
sufficient  progress  in  satisfying  the  conditions  of  membership  defined  by  the  European 
Council in  Copenhagen. 

The  reinforced  pre-accession  strategy  will  help  Bulgaria  to  prepare  itself  better  to  meet 
the obligations  of membership, and to take action to improve the shortcomings  identified 
in  the  Opinions.  The  Commission  will present  a report  no  later than  the  end  of  1998  on 
the progress Bulgaria has achieved. 

108 

ANNEX 

Composition Of Parliament 

38th National Assembly  (following  the general elections of  19 April  1997) 
Party 
United Democratic Forces 
Democratic 
Bulgarian  Socialist Party) 
Alliance for National  Salvation 
Euroleft 
Bulgarian Business Block 

%  of votes 
57.1 

Seats 
137 

party: 

(main 

Left 

24.2 
7.9 
~5.8 
5.0 
J 100.0 

58 
19 
14 
12 
1  240 

" 

m 

SINGLE MARKET:  WHITE PAPER MEASURES 

This table is based on information provided by the Bulgarian authorities and confirmed by them as correct as at the end of June 1997. It does not 
indicate the Commission's agreement with their analysis.  The table includes directives and regulations cited in the White Paper which total 899. 
These have been listed  in accordance with the categorization  used in the White Paper and in relation to the policy  areas covered.  The table 
shows the number of measures for which the Bulgarian authorities have notified  the existence of adopted  legislation  having some degree of 
compatibility with the corresponding White Paper measures. 

White paper chapters 

Direct 

lives 

Regul, 

ïtions 

Total 

l . F r ee  Movement  of Capital 

BuIgana 

2.FM  and  Safety  of Industrial  Products 

3.Competition 

4.Social policy and  action 

5.Agriculture 

6.Transport 

7.Audiovisual 

8.Environment 

9.TeIecommunication 

lO.Direct Taxation 

l l . F r ee  movement  of goods 

12-Public Procurement 

13.FinanciaI  services 

14.Protection  of personal  data 

15.Company  Law 

16.Accountancy 

17.CiviI law 

18.Mutual  rec. of prof. Quai. 

19.1ntellectual property 

20.Energy 

21.Customs  law 

22.1ndirect Taxation 

23.Consumer  Protection 

Total 

Number of White Paper  measures 
Bu,gar,a 

Number of White Paper  measures 
Bulgar,a 

Number of White Paper  measures 
Bulgar,a 

Number  of White Paper  measures 
Bulgar,a 

Number  of White Paper  measures 
Bulgar,a 

Number of White Paper  measures 
Bulgaria 

Number  of White Paper  measures 
Bulgar,a 

Number of White  Paper  measures 
Bulgaria 

Number  of White Paper  measures 
Bulgaria 

Number  of White  Paper  measures 
Bulgaria 
Number  of White Paper  measures 
BuIgaria 

Number  of White  Paper  measures 
BuIgaria 

Number  of White Paper  measures 
Bulgaria 

Number  of White  Paper  measures 
Bu,garia 

Number of White Paper  measures 
BuIgaria 

Number  of White  Paper  measures 
BuIgaria 

Number of White Paper  measures 
BuIgaria 

Number  of White  Paper  measures 
Bulgaria 

Number  of White  Paper  measures 
Bulgaria 

Number  of White Paper  measures 
BuIgaria 

Number  of White Paper  measures 
Bulgaria 

Number  of White Paper  measures 
Bulgaria 

Number  of White Paper  measures 
Bulgaria 
Number  of White Paper  measures 

Stage I 

3 
3 
17 
56 
0 
3 
3 
12 
18 
93 
1 
19 
1 
1 
1 
31 
1 
9 
2 
2 
0 
0 
4 
5 
6 
13 
0 
0 
2 
2 
3 
3 
0 
1 
2 
2 
3 
5 
2 
10 
0 
2 
8 
15 
1 
8 
78 
295 

Stage 
II/III 
1 
l 
1 
104 
0 
0 
6 
15 
7 
46 
0 
15 
0 
0 
0 
7 
0 
7 
0 
2 
0 
0 
0 
1 
3 
s 
0 
2 
2 
3 
2 
2 
1 
1 
0 
16 
2 
3 
0 
2 
0 
1 
2 
54 
0 
3 
27 
293 

Stage I 

0 
0 
0 
4 
0 
1 
.2 
0 
16 
62 
0 
8 
0 
0 
1 
7 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
3 
0 
14 
0 
0 
0 
0 
19 
99 

Stage 
II/III 
0 
0 
1 
i 
0 
0 
0 
2 
0 
2 
0 
13 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
1 
0 
0 
0 
0 
0 
0 
1 
3 
0 
0 
0 
184 
0 
6 
0 
0 
2 
212 

4 
4 
19 
165 
0 
4 
11 
29 
41 
203 
1 
55 
1 
1 
2 
45 
1 
16 
2 
4 
0 
0 
4 
6 
9 
21 
0 
2 
4 
6 
5 
5 
1 
2 
2 
18 
6 
n 
2 
15 
0 
201 
10 
75 
1 
11 
126 
899 

[Cb 

STATISTICAL DATA 

If not explicitly stated otherwise, data contained in this annex are collected from „ National Statistical Institute" 
with  whom  Eurostat  and  Member  States'  statistical  offices  are  co-operating  since  several  years  in  the 
framework  of the Phare programme. Regular  data collection  and dissemination  are part of this  co-operation 
process with the aim to enable the application of EU laws and practices in statistics.  The data presented below 
have been compiled  as  far  as possible using  EU definitions  and  standards which  in some cases differ from 
national practices.  This may occasionally give rise to differences  between the data presented here and those 
shown  elsewhere  in  the  opinion,  which  are  generally  based  on  the  individual  applicant  countries'  updated 
replies to the questionnaire sent to them in April 1996.  The exact compatibility with EU standards on statistics 
and thus the comparability with EU figures can still not be guaranteed, particularly those statistics that have not 
been  supplied  through  Eurostat,  but  have  been  delivered  directly  by  the  countries  concerned.  Wherever 
available, methodological notes are given describing content and particularities of statistical data presented in 
this annex.  Data correspond to the information available as of May 1997. 

BASIC DATA 

Total  Area 

Population  ( end  of the  period) 

- Total 

-  Females 

- Males 

Population  density 

Urban  Population 

Deaths  rate 

Births  rate 

Income and  GDP  per  capita 

-Average monthly wage and salary per employee 

-GDP per capita 

1990 

1993 

1994 

1995 

1996 

1000 hectares 

11099.0 

11099.0 

11099.0 

11099.0 

8460.0 

4308.0 

4152.0 

in  1000 

8427.0 

4297.0 

4130.0 

per  1  Icm2 

in % of total population 

per 1000 of  population 

12.9 

10.0 

13.2 

9.4 

European Currency Unit 

78.1 

67.1 

8340.0 

8385.0 

4281.0 

4104.0 

75.5 

75.1 

14.0 

8.7 

67.8 

13.6 

8.6 

76 

13.9 

28.4 

5.2 

52.5 

Structure  of production:  share  of branch  GVA 

in % of Total Gross Value Added 

-agriculture 

-industry 

-construction 

-services 

14.4 

32.9 

4.5 

48.2 

share  of branch  GVA in  1990 

share of branch GVA in  1995 

10.0 

,48.2 

14.4 

32.9 

g 

g 

Q 

-agriculture 

-industry 

-construction 

g] 

-services 

• 

-  Others 

,0.0 

13.9 

r*52.5 

28.4 

g 

-agriculture 

gg 

-industry 

Q 

-construction 

U 

-services 

H 

-  Others 

Structure  of  production:  share  of  branch  of  GVA:  Data  for  1990  refers  to  1991. 

Lit 

NATIONAL ACCOUNTS 

Gross Domestic  Product  (Current  Prices) 

Gross Domestic Product  (Current  Prices) 

Gross Domestic  Product 

Gross  Domestic  Product 

Final consumption  expenditure 

-of households  and NPISH 

-of general  government 

Gross  Fixed capital  formation 

Exports  of goods  and  services 

Imports  of goods  and  services 

Final  consumption  expenditure 

-of households  and  NPISH 

-of general  government 

Gross  fixed  capital  formation 

Exports of goods  and  services 

Imports  of goods and  services 

1991 

1992 

1993 

1994 

1995 

in Millions of National currency 

135711 

200832 

298934 

548015 

867691 

in Billions of ECU 

5.8 

6.6 

9.2 

8.5 

9.9 

in Purchasing Power Standard per capita 

3886.8 

4129.5 

4209.8 

%  change over the previous year 

-7.3 

-3.1 

1.0 

-14.9 

-7.3 

-1.5 

-3.6 

-0.8 

-12.5 

-17.5 

in % of Gross Domestic Product 

73.1 

54.1 

19.0 

18.2 

43.5 

39.2 

85.9 

65.6 

20.3 

16.2 

47.1 

52.9 

92.3 

73.5 

18.9 

13.0 

38.2 

45.8 

1.8 

-4.5 

-2.6 

-11.9 

1.1 

91.2 

74.0 

17.2 

13.8 

45.1 

45.7 

2.1 

-2.9 

-1.6 

-8.2 

8.8 

85.8 

70.3 

15.5 

14.2 

44.7 

44.9 

GDP (% Change over the previous  year) 

1991 

v ;«;V 

î.  %' . \  \  V  }9$$ 

4.0 

2.0 

0.0 

-2.0 

-4.0 

-6.0 

-8.0 

Id 

MAIN ECONOMIC INDICATORS 

1990 

1991 

1992 

1993 

1994 

1995 

1996 

percentage change over the previous year 

Inflation  rate 

23.8 

338.5 

79.4 

56.1 

87.1 

62.1 

Industrial  production  volume  indices 

Gross  agricultural  production  volume  indices 

Unemployment  rate (ILO  methodology) 

- Total 

- less then  25 years 

- 25 years  and more 

, 

Gross  Foreign  debt 

Balance of  payments 

-Exports of goods 

-Imports of goods 

-Trade  balance 

-Services, net 

—Income, net* 

-Current  account  balance 

-Capital  and  fin. acc.(excl.  reserves) 

-Reserve  assets 

previous year"  100 

89.1 

80.6 

108.5 

107.1 

in */•  labour force 

21.4 

47 

17.3 

20.5 

44.9 

16.8 

in Billions of USD 

in millions of USD 

6113 

-7427 

-1314 

237 

-758 

-1710 

762 

878 

3737 

-3769 

-32 

-86 

-28 

-77 

157 

-311 

3956 

-4169 

-212 

-95 

-96 

-360 

981 

-591 

3727 

-4612 

-885 

-57 

-192 

-1098 

834 

247 

3935 

-3952 

-17 

11 

-193 

-32 

303 

-344 

105 

116 

14.7 

37.7 

11.6 

5345 

-5224 

121 

153 

-432 

-26 

120 

-234 

123 

99.0 

86.7 

13.7 

33.5 

11.3 

Inflation  rate:  Percentage  change  of yearly  average over  the previous  year - all  items  index  (data  are  based  on  national  CPIs  which  are 

not strictly  comparable). 

Industrial  production  volume  indices:  Industrial  production  covers  mining  and  quarrying,  manufacturing  and  electricity,  gas  and  water 
supply (according to the NACE Classification  Sections C,D,E). Index of industrial production annually  is based on exhaustive survey 
of enterprises (public and private) assigned to industrial sector.. 

Gross  agricultural  production  volume  indices:  Data are based on the System of National Accounts (SNA) methodology. Data are revised 

data and for  1996 are provisional data. 

Unemployment  rate  (by  ILO  methodology):  -  Percentage of the unemployed  labour force  This rate  is derived  from  LFSS  (Labor  Force 

Survey) observing the following  ILO definitions  and  recommendations 
Labor force  employed  and unemployed persons in the sense of the ILO definitions stated below. 
The  employed 
all  persons  aged  15+,  who  during  the  reference  period  worked  at  least  one  hour  for  wage  or  salary  or  other 
remuneration  as employees, entrepreneurs,  members of cooperatives  or contributing  family  workers. Members  of  armed  forces  and 
women on child-care leave are included. 
The unemployed  all  persons aged  15+, who concurrently meet all three conditions of the ILO definition  for being classified  as the 
unemployed: (i) have no work, (ii) are actively seeking a job and (iii) are ready to take up a job within a fortnight. 
The data relate to employees under labour contract in the public sector (comprehensive survey). 

Gross  foreign  debt  : Debt is extracted  form the OECD's External Debt Statistics. 

Balance  of  payments:  Data  is  derived  from  IMF  database,  their  comparability  with  respective  EU statistics  can  not  be  guaranteed,  but 
balance of payments  is compiled  mainly  in accordance to IMF standards. Balance  in trade of goods  in accordance  with  balance 
of payments  principles. Exports  and  imports  are both  in f.o.b.  values. Net  income  includes direct, portfolio  and  other  investment 
income,  compensation  of employees.  Current  account  balance  by  definition  of  IMF  5th  Manual,  capital  transfers  are  excluded. 
Reserve assets: it means changes  in reserve assets during the year; (+) signifies  an increase, (-) a decrease  in reserve assets. 

US 

FOREIGN TRADE 

Imports and exports (current prices) 

• Imports 
-Exports 

- Balance of trade 

External trade volume indices 

- Imports 
-Exports 

Structure of Import by SITC (current prices) 

- (0+1) food and live animals, beverage and tobacco 
-  2 crude materials, inedible 
-  3 mineral fuels and lubricants 
•  4 animal and vegetable oils etc. 
-  5 chemicals and related products 
-  6 manufactured  goods classified chiefly by material 
-  7 machinery and transport equipment 
-  8 miscellaneous manufactured articles 

Structure of export by SITC (current prices) 

- (0+1) food and live animals, beverage and tobacco 
-  2 crude materials, inedible 
-  3 mineral fuels and lubricants 
-  4 animal and vegetable oils etc. 
-  5 chemicals and related products 
-  6 manufactured  goods classified  chiefly by material 
-  7 machinery and transport equipment 
-  8 miscellaneous manufactured  articles 

External trade price indices 

- Imports 
- Exports 

1993 

1994 

1995 

1996 

in millions of National Currency 

131523.1 

227010.3 

102877.4 

216194.4 

-28645.7 

-10815.9 

380012.1 

359663.6 

-20348.5 

previous year »  100 

114.3 

94.6 

160.9 

181.9 

152.6 

148 

in % of total Import 

8.8 

4.4 

37.4 

0.3 

10.1 

13.2 

19.6 

5.9 

18.1 

5.7 

8.7 

0.8 

14.8 

25.1 

17.2 

9.5 

96.5 

105 

9.8 
5.6 
28.3 
0.3 
10.4 
16.9 
20.3 
5.4 

in % of total Export 

19.5 
5.6 
7.1 
0.5 
14.7 
27.2 

12.2 
9.4 

7.3 
6.2 
27 
0.2 
12.8 
18.1 
19.3 
5.8 

19.8 
5 
6.1 
0.9 
16.9 
28 
11.3 
9.3 

previous year»  100 

164.4 
165.7 

149.1 
145.5 

Imports  and  exports  (current  prices), External  trade  volume indices and  Structure  of external  trade  by SITC (current  prices): 

Trade data exclude direct re-exports, trade in services and trade with customs free zones as well as licenses, know-how and patents. 
The data are based upon the special trade system and are regularly updated.  Trade Classifications:  Merchandise trade flows are 
recorded  according to Combined Nomenclature (CN) and the Single Administrative  Document (SAD). Imports are reported  on a 
CIF-  basis.  Exports are reported on a FOB-basis.  The customs statistics is utilized for monitoring of foreign trade data..  Eurostat 
has converted National Currencies to the US  dollar by  applying the International Monetary Fund annual average exchange rates. 

External  trade price indices:  The price indices have been calculated by "unit value" method on Laspeyrc formula - since  1995.  Up to 1994 
- by Paasche formula indices arc calculated from the sample of commodities consisting of all export and import for final  use only, 
excluding special consignment, processing,  re-exports. 

IM 

FOREIGN TRADE PARTNERS 

Structure of imports by main countries (current prices) 

1st partner 

2nd partner 

3rd partner 

4th partner 

5th partner 

others 

Structure of exports by main countries (current prices) 

1st partner 

2nd partner 

3rd partner 

4th partner 

5th partner 

others 

1993 

1994 

1995 

1996 

RU 

DE 

UA 

IT 

US 

RU 

DE 

GR 

MK 

IT 

in % of total imports 

29.3 

RU 

26.4 

RU 

11.6 

DE 

12.8 

DE 

5.3 

IT 

4.6 

GR 

3.9 

UA 

45.3 

IT 

GR 

UA 

5.4 

4.8 

4.2 

46.4 

in % of total exports 

13.6 

RU 

13.5 

RU 

6.6 

MK 

10.3 

DE 

6.2 

DE 

8.9 

IT 

6.1 

GR 

7.8 

MK 

5.9 

IT 

7.6 

GR 

61.6 

51.9 

28.1 

12.4 

5.8 

4.4 

3.3 

46 

10 

8.6 

8.1 

8.1 

6.9 

58.3 

-

Structure of export by main partners 

in 1995  RU 

10.0% 

Structure of import by main partners 
in 1995 

58.3% 

46.0% 

UAGR 
3.39*4% 

5.8% 

DE 

IT 

GR 

MK 

Germany 

Italy 

Greece 

RU 

UA 

US 

Russian Federation 

Ukraine 

United States 

The Former Yugoslav  Republic of Macedonia 

S 

lh 

SOCIAL INDICATORS 

Population on  1 January 

1991 

1992 

1993 

1994 

1995 

8669.3 

8595.5 

8484.9 

8459.7 

8427 

Proportion  of population  by age  1 January  1995 

in % of total population 

y0_14 
yl5_24 
y25_44 
y45_64 
y65_max 

Live births 
Deaths 
Infant deaths 

- Less than  1 year 
- Still birth 

Marriages 
Divorces 

Crude  marriage  rate 

Crude divorce  rate 

Natural growth  rate 
Net migration  rate 
Total  population growth  rate 
Total  fertility  rate 
Infant  mortality  rate 
Late foetal  mortality  rate 
Life  expectancy 

- Males 
- Females 
Life  expectancy 

- Males 
- Females 

total number 

95910 
110423 

89134 
107998 

84400 
109540 

1624 
612 
48820 
11044 

5.44 

1.23 

-1.68 
-6.87 
-8.55 
1.57 
16.93 
6.34 

1420 
654 
44806 
9465 

1310 
587 
40022 
7104 

per  1000  of population 

5.26 

1.11 

-2.21 

•10.74 
-12.95 
1.53 
15.93 
7.28 

4.7 

0.8 

-2.96 
-0.01 
-2.97 
1.46 
15.52 
6.91 

at 65 years 

18.6 
14.6 
27.2 
25.0 
14.6 

4.5 

0.9 

4.4 

1.3 

16.3 

14.8 

67.1 
74.9 

12.6 
15.5 

Population on  1 January:  Figures for  1989-1992 have been  recalculated  according to the  1992 Census results. 

Proportion  of population  by age on  1 January  1995:  Data only available  for  1994. 

Net  Migration  rate:  No  comprehensive  migration  survey  carried  out:  residual  category  including  statistical  discrepancies.  Figures  for 

1989-1992 have been  recalculated  according to the  1992 census results. 

Total  population  growth  rate:  Net  migration  and  population  figures  for  1989-1992  have  been  recalculated  according  to  the  1992 

Census  results 

I to 

LABOUR MARKET 

Economic Activity  Rate  (ILO  methodology) 

» 

Average  employment 

Unemployment  rate  (ILO  methodology) 

- Total 
- less then 25 years 
- 25 years and  more 

Registered  unemployment  (end  of  period) 

Average  paid  employment  indices  by NACE  classes 

- Agriculture, hunting, forestry  and  fishing 
- Mining and  quarrying 
-  Manufacturing 
- Production  and  distribution  of electricity,  gas and water 
-  Construction 
- Transport,  storage and  communication 

Monthly  wages and  salaries  indices 

- real 
- nominal 

1993 

1994 
1995 
in % of population age +15 

1996 

55.4 

3221.8 

52.4 
in thousand 

v 

51.5 

51.8 

3241.6 
in % of  labour force 

3282.2 

3279.5 

21.4 
47 
17.3 

20.5 
44.9 
16.8 

14.7 
37.7 
11.6 
m % o( economically  active population 

16.4 

i 

* 

12.8 

11.1 

13.7 
33.5 
11.3 

12.5 

1993 

1994 

1995 

1996 

previous year =  100 

60.8 
96.6 
86.8 
104.6 
75.8 
92.4 

68.1 
93.9 
90.7 
101.3 
81.4 
93.3 

76.1 
95.6 
94 
101 
85.2 
93.3 

94.2 
100.2 
87.7 
102 
94.7 
100.3 

157.8 

153.5 

153.2 

174.7 

Economic  activity  rate  (ILO  Methodology):  - Percentage  of  labor  force  in the  total  population  aged  15+. This  rate  is  derived  of  LFSS 

employed and unemployed  persons in the sense of the ILO definitions  stated below. 

(Labor Force Survey) observing the following  ILO definitions  and recommendations: 
Labor force 
The  employed 
all  persons  aged  15+,  who  during  the  reference  period  worked  at  least  one  hour  for  wage  or  salary  or  other 
remuneration  as employees, entrepreneurs,  members  of cooperatives  or contributing  family  workers.  Members  of  armed  forces  and 
women on child-care leave are included. 
The unemployed  all  persons aged  15+, who concurrently  meet all three conditions of the ILO definition  for  being  classified  as the 
unemployed: (i) have no work, (ii) are actively seeking a job and (iii) are ready to take up a job within a fortnight. 
The data by ILO methodology  are for September  1993, October  1994, October  1995 and November  1996. 

Unemployment  rate  (by  ILO  methodology):  - Percentage of the unemployed  labour  force.  This  rate  is derived  from  LFSS  (Labor  Force 

Survey) observing the ILO definitions  and recommendations (see ILO definitions  above) 
The data relate to employees under labour contract  in the public sector (comprehensive survey). 

Average  employment:  Annual  data only (comprehensive survey, covers all employees  in public and private sector). 

Average  paid  employment  indices  by  NACE  classes:  The  data  relate  to  employees  under  labour  contract  in  the  public  sector 
(comprehensive  survey).  The  national  branches  classification  is  different  from  NACE  classification,  that  is  why  the  figures  are 
estimated data. 

Registered  unemployment  (end  of  period):  Registered  unemployment  in  per  cent 

percentage  of  unemployed  registered  in  civil 

economically  active population, based on Labour force sample survey (LFSS). 

m 

PUBLIC FINANCE 

Government  budget 

-Government  revenue 

-Grants 
-Consolidated  central  government  expenditure 
-Consolidated  general  government  expenditure 
-Consolidated  central  government  deficit/surplus 
-General  government  deficit/surplus 

1990 

1991 

1992 

1993 

1994 

1995 

22265 
471 
25028 
29228 
-2292 
-2040 

in millions of national currency 

71554 
209 
81591 
98315 
-9828 
-11454 

99875 
92 
133877 
152181 
-33910 
-33652 

49497 
450 
54497 
65052 
-4550 
-4156 

Government  budget 

-Consolidated  central  government  expenditure 
-Consolidated  general  government  expenditure 
-Consolidated  central  government  deficit/surplus 
-General  government  deficit/surplus 

x 

in % of Gross Domestic Product 

40.2 
47.9 
-3.4 
-3.1 

40.6 
49.0 
-4.9 
-5.7 

44.8 
50.9 
-11.3 
-11.3 

' 

209321 
117 
235905 
261775 
-26467 
-27066 

43.0 
47.8 
-4.8 
-4.9 

314624 
920 
360607 
398725 
-45063 
-44951 

41.4 
45.8 
-5.2 
-5.2 

Government  budget:  These  data  relate  to  central  and  general  government  as  published  in the  IMF's  Government  Finance  Statistics 

Yearbook (1996)  (GFSY);  included  also is the country's  presentation  in the GFSY. 

Because  the GFSY  does  not present  statistics  for general  government,  but for  individual  levels of government  separately, the 
consolidated  series  presented  here  were  obtained  from  central  and local  government  data  and adjusted  in  consolidation  for the 
identified  intergovernmental  transfers. 

Even  though  the  statistics  cover  the central  and local  government  published  in GFSY, the coverage  may  not be exhaustive  if 
some  central  or local  government  units  are not included  in that coverage.  A measure of the exhaustiveness of the  coverage can 
be obtained  by comparing  in the GF-SYthe note on the coverage of data  for individual  countries with  the list of central  and local 
government units  provided. 

It  should  be  noted  that  the  deficit/surplus  used  here  is  equal  to  revenue  and  grants  minus  expenditure,  and  does  not  take 

lending minus repayments  into account (see further  below). 

The  netting  of  inter-government  transfers  carried-out  in  the  attached  tables  is  limited  to  the  current  and  capital  transfers 
consisting  of  the  identified  grants  and  current  and  capital  subsidies  between  the  levels  of  government.  Other  types  of 
transactions  occurring  between  government  levels, such  as the payments  of taxes  and employers'  social  security  contributions, 
and  the  reciprocal  purchases  of  goods  and  services  are not  normally  classified  as  inter-governmental  transfers  have  not  been 
eliminated  in  the  consolidation  process.  Finally,  whether  the  absence  of  data  for  current  and  capital  transfers  should  be 
attributed  to  the  absence  of  transfer  or  to  lack  of  data  is  unclear;  in  all  cases  absence  of  information  on  transfers  have  been 
deemed  to represent  zero-transfers. 

a.  Government  expenditure  consists  of general  government  cash  expenditures  on  current  and  capital  goods  and 

services, interest  payments  and current  and capital  transfers  but excludes non-cash  transactions. 

b.  Deficit/surplus  equals cash  revenue and cash grants minus cash expenditure.  This measure of the  deficit/surplus 
differs  from  that  used  in  GFS  which  equals  cash  revenue  and  cash  grants,  minus  cash  expenditure,  minus  net  lending.  This 
exclusion  of  net  lending(consisting,  in  the  GFS  methodology,  of  operations  in  financial  assets  and  liabilities  carried  out  for 
specific  policy  purposes,  rather  than  for liquidity  purposes)  brings  the measure of the deficit/surplus  presented  here  closer  to the 
national  accounts  concept  of net  borrowing/net lending.  Also, as a result of this exclusion,  receipts  from  privatisation  (classified 
as  repayments  in the GFS methodology)  do not enter  in the determination  of the deficit/surplus  presented  in the attached  tables 
(and  therefore  do not reduce the deficit). 

In 

1990 

1991 

• 

FINANCIAL SECTOR 

Monetary  aggregates 

- Monetary aggregate  Ml 
- Quasi  money 

Total  reserves ( gold  excluded, end  of  period) 

Average  short  term  interest  rates 

- lending rate 
- deposit rate 

Official  discount  rate  (end  of  period) 
USD exchange  rates 

Average of period 

End of period 

ECU  exchange  rates 

Average of period 

End of period 

1992 

1993 
Billions (10*9) of National Currency 

1994 

1995 

1996 

48.30 
181V62 

75.13 
333.98 

107.89 
463.42 

Millions (10*6) of US Dollars 

177.28 
787.33 
" 

% per annum 

52 
1 USD -  «BGL 

72 

34 

180 

1 ECU -  ...BGL 

— 

-

Monetary  aggregates  (end  of  period):  Money  (MI): 

Includes demand deposits  and currency outside  banks.  Quasi money: 

Include 

time, savings and foreign currency deposits. Data for 1996 refer to November 1996. 

Official  disccunt  rate (end  of  period):  Data for  1996 refer to November  1996.  From december  1996  Bulgarian National  Bank  denotes 

monthly  interest rate. 

USD  exchange  rates: 
Internationales". 

International  Monetary  Fund  exchange  rates  as  present  in  the  publication:  "Statistiques  Financières 

/# 

INFLATION 
changes) 
Percentage  change of the CPIs with the current month compared with the corresponding  month of the previous year (t/t-12) 

(12  months 

Jan 

Feb 

Mar 

Apr 

May 

Jun 

Jul 

Aug 

Sep 

Oct 

Nov 

Dec 

1993 

1994 

1995 

1996 

83.1 

59.1 

81.3 

58.8 

84.1 

61.6 

122.1 

120.4 

112.1 

30.9 

28.5 

26.4 

85.3 

89.3 

76.1 

28.8 

74.4 

93.9 

66.2 

42.2 

71.6 

94.0 

60.5 

70.2 

68.5 

93.3 

61.9 

70.8 

98.4 

54.7 

71.6 

68.3 

64.9 

63.9 

112.1 

117.6 

119.7 

122.0 

46.0 

40.0 

36.0 

32.9 

106.7 

140.7 

172.9 

210.5 

232.0 

310.8 

Inflation  (%  change  of CP1) 

350.0 
300.0  .; 
250.0 
200.0  I 
150.0 
| 
100.0 
50.0 
0.0 

H 

1—I 

1— <— H - f-

H — I — I — I —I 

1 

Î —H 

1 

I' 

• < — I —H 

- 1 — I — ' — I — t — f-

*$XâÊ 

& 

Inflation  (12  months  changes):  Inflation  rates (12 months changes) are percentage changes of the CPIs with  the current  month  compared 
with  the  corresponding  month  of the  previous  year.  Inflation  rates  are  based  on  national  CPIs which  are  not strictly  comparable 
between  candidate  countries  or  with  those  based  on  EU  HlCPs  (different  methods,  concepts,  practices  in  the  calculation  of 
CPIs). 

10 

I Lu 

INDUSTRY 

Structure  of GDP  by economic  activities  (NACE, current  prices) 

- Mining  and  quarrying 
-  Manufacturing 
- Production  and  distribution  of electricity,  gas and water 

Industrial  production  volume  indices  by NACE  classes 

- Total 
- Mining  and  quarrying 
-  Manufacturing 
- Production  and  distribution  of electricity,  gas and water 

1993 

1994 

1995 

1996 

in */o of Gross Domestic  Product 

89.1 
104.5 
86.8 
100.8 

previous  year = 100 

108.5 
101.6 
111 
92.9 

105 
103 
105.1 
105.4 

99 

Industrial  production  volume  indices  by  NACE  classes: 

Industrial  production  covers  mining  and  quarrying,  manufacturing  and 
electricity,  gas  and  water  supply  (according  to the NACE Classification  Sections  C,D,E).  Index  of  industrial  production  annually  is 
based on exhaustive survey of enterprises (public and private) assigned to industrial sector. Data for  1996 are provisional  data. 

INFRASTRUCTURE 

1985 

1990 

1995 

1996 

in  Km  per  1000  Km2 

Railway  network 

38.7 

38.7 

38.7 

38.7 

Kilometre 

Length  of  motorways 

221 

273 

314 

314 

inhabitants 

Number  of inhabitants  per  1 passenger  car 

8.4 

6.6 

5.1 

11 

III 

AGRICULTURE 

Land  area  by  land-use  categories 

- total 
- agricultural  land 
-  forest 
- arable  land 
- permanent meadows  and  pastures 

Agricultural  land  by legal  status 

- state  enterprise 
-  Cooperatives 
- others 

Share  of  GDP 

- Agriculture, hunting,  forestry  and  fishing  (Nace A+B) 

Gross  agricultural  production  volume  indices 

Main  crops  by  area 

- Cereals 

- of which: wheat 
-  Potatoes 
- Sugar beet 
- Fodder beet 

Main  crops  by yield 
- Cereals 
- of which: wheat 
-  Potatoes 
- Sugar  beet 
- Fodder  beet 

1992 

1993 

1994 

1995 

1996 

11099 
6159 
3873 
4047 
1833 

in  1000 Hectares 

11099 
6159 
3877 
4063 
1852 

11099 
6159 
3876 
4001 
1942 

11099 
6164 
3876 
3998 
1962 

in % of agricultural land 

69 
8 
23 

45 
21 
34 

28 
33 
39 

11099 
6164 

4203 
1761 

21 

79 

1992 

1993 

1994 

1995 

1996 

in % of Gross Domestic Product 

Previous year = 100 

80.6 

107.1 

116 

86.7 

in  1000 Hectares 

2315 
1266 
39 
11 

2341.3 
1319.8 
47 
8 

2185.8 
1181.1 
56 
9 

1841.2 
957.7 
40 
8 

in  100 kg/Hectares 

24.7 
28.6 
91.5 
86.4 

27.6 
28.5 
105.6 
140.0 

30.2 
29.1 
115.9 
174.4 

18.8 
18.7 
80.7 
108.9 

2182 
1108 
48 
18 
5 

29.8 
31.1 
117.9 
168.9 
342.0 

Sales  or  procurement  of animal  for  slaughter 

in  1000 tons of live weight 

1992 

1993 

1994 

1995 

1996 

-  pigs 
-  cattle 
- poultry 

Livestock  breeding  intensity  (end  of  period) 

heads per  1000 Ha of agricultural land 

-  cattle 
-  of which: cows 
-  sheep 

-  P'gs 

158.1 
79.4 
781.7 

121.8 
68 
611 

103.5 
56.9 
551.2 

102.5 
60.2 
548.8 

heads per  1000 Ha of arable land 

659.6 

517.7 

496.8] 

509.2 

Gross  agricultural  production  volume  indices:  Data are based on a System of National  Accounts (SNA) methodology. 

12 

Bulgaria 
1994 

Legend: 

/V  Country boundary 

A/  Region boundary 

COUNTRY  NAME 
REGION NAME 
OTYNAME 

Selected major settlements: 
(1 000 inhabitants) 
200 -  250 
250 -  500 
500-1000 
> 1  000 

o 
• 
• 
• 

General information about the country: 

Age groups (in years): c = <15 

15-  65 
>65 

Living standard (in 1993): ECU 1  024 
(QDPparoapfta) 

Area: 110 994 km8 
Administrative regions: 9 districts 

Population: 8 427 400 

8ouroa: National Stattatloal Inattuta 
Cartography and gaographlo Information managamant:  Q I 8 0O 

eui 

Bulgaria 
1994 

A/  Country boundary 

A/  Main railway line 

Ferry connection 

A/  Motorway 

A/  National road, Double lane 

- V 

National road 

Principal road 

A/  Main navigable waterway 

Selected major settlements: 
(1 000 inhabitants) 

ô 

• 

• 

• 

200-250 

250 -  500 

5 0 0 -1 000 

> 1  000 

General information about the country: 

Age groups (in years): 6  <15 

Living standard (in 1993): ECU 1  024 
(QDP par capita) 

>65 

15-  65 

Area: 110 994 km2 
Administrative regions: 9 districts 

Population: 8 427 400 

Sourco: National Statistical InatNuta 
Cartography and geographic Information managamant:  QI8CO 

eurostat 

ISSN 0254-1475 

COM(97) 2008  final 

DOCUMENTS 

EN 

11  oi  06 

Catalogue  number  :  CB-CO-97-376-EN-C 

ISBN  92-78-22884-2 

Office  for  Official  Publications  of the European  Communities 

L-2985  Luxembourg 

Jl