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

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels,  15.07.1997 
COM(97) 2010 final 

Commission Opinion 

on Slovenia's Application 

for Membership of the European Union 

Contents 

A.  INTRODUCTION 

Page 

a)  Preface 

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

b)  Relations Between the European Union and Slovenia 

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

B.  CRITERIA FOR MEMBERSHIP 

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 

Economie 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 Mediumenterprises 
3.5  Economic and Social  Cohesion 
Employment  and Social  Affairs 
Regional Policy and Cohesion 

3.6  Quality of Life and the 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 

m 

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 

Slovenia presented  its application  for membership  of the European Union  on  10 June 
1996,  and  the  Council  of  Ministers  decided  on  15  July  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  Slovenian  application  for  membership  is  being  examined  at  the  same  time  as 
applications  from  nine other  associated  countries.  Slovenia'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 application countries, particularly through: 

- 

the development of the market economy, 

- 

the adjustment  of their administrative structure, 

- 

the creation of a stable economic and monetary  environment". 

In  its  Opinion,  the  Commission  analyses the  Slovenian  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. 

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 Slovenia 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  Slovenia'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  Slovenia'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  Slovenia's  situation  and  prospects  in 
respect  of  the conditions  for  membership  of the Union,  and  a  recommendation 
concerning accession negotiations. 

In assessing Slovenia 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 Slovenia 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 Opimon, the Commission has obtained a wealth of 
information  on  Slovenia's  situation  from  the  Slovenian  authorities,  and  has 
utilised  many  other  sources  of  information,  including  the  member  states  and 
numerous international organisations. 

b)  Relations Between the European Union and Slovenia 

Historical and Geopolitical  Context 

Slovenia  lies on the Adriatic  Sea in the triangle between  Central,  Southern  and 
Southeast  Europe,  bordering  four  countries  (Italy,  Austria,  Hungary  and 
Croatia).  Its area is 20250 km  and its population 2 million. 

The territory  of  Slovenia has been largely  settled by  Slav populations  since the 
6th  century.  In  the  13th century  power  passed  into  the  hands  of  the  Habsburg 
dynasty.  Following  the  First  World  War  and  the  collapse  of  the  Austro-
Hungarian  Empire,  Slovenia  opted  to  become  part  of  the  Kingdom  of  Serbs, 
Croatians  and  Slovenes  (later  Yugoslavs).  During  the  Second  World  War, 
Slovenia was occupied by both Germany and Italy. 

In  1945  Slovenia  became part  of the  Socialist  Federal  Republic  of  Yugoslavia, 
though  the  coast  and  hinterland  remained  under  international  administration 
until  1954. After  a period  of orthodox  communist  policies  of expropriation  and 
collectivisation,  the  Constitutional  Law  of  1953  established  the  foundations  of 
Yugoslav  self-management  socialism.  The  1963  Constitution  fostered  the 
notion  of  a  self-managed  society  at  all  levels  of  economic,  social  and  cultural 
life, which remained however largely controlled by the Communist Party. 

A weakening  of  federal  authority  and the devolution  of powers  to the  republics 
began  in  the  late  sixties,  but  authoritarian  centralism  returned  after  political 
disturbances  in  1972.  Following  the  death  of  Tito  in  May  1980 political  and 
economic  disintegration  gained  momentum.  Accelerating  inflation,  growing 
balance  of payment  deficits  and rapid  increases  in borrowing  added  impetus  to 
requests 
introduction  of  parliamentary 
democracy. 
In  1989,  fearing  Serbian  domination,  the  Slovene  Assembly 
amended the constitution to pave the way for a sovereign Slovenian state. 

for  regional  autonomy  and 

the 

The first free elections  in  Slovenia were carried  in April  1990. In a  referendum 
on  23  December  1990,  88%  of  the  votes  favoured  independence.  The  "Basic 
Constitutional  Charter  on  Independence  and  Sovereignty  of  Slovenia"  was 
adopted on 25 June  1991 and independence proclaimed the day after.  Victory in 
the  10-day war against the Yugoslav National Army following  the independence 
proclamation confirmed  Slovenia's  status as an independent state.  Slovenia was 
recognised  on  15 January  1992 by the European  Community.  Presidential  and 
legislative elections  in December  1992 led to the formation  of a broad  coalition 
government.  New  legislative  elections  in  1996  were  followed  by  several 
months in which no group of parties could establish a working  majority. 

Slovenia's Position  Concerning  the European  Union 

Since  independence  the  Slovene  government  has  consistently  underlined  its 
foreign  policy  priority  of  integration  with  the  European  Union.  As  early  as 

February  1992  it  sought  a Europe  Agreement  and  support  for  the  restructuring 
and consolidation of the Slovene economy. 

As soon as the Cooperation Agreement with the EU entered  into  force  in  1993, 
the  Slovenian  Government  sought  the  opening  of  negotiations  for  a  Europe 
Agreement.  On  10 June  1996, the day  the Europe  Agreement  was  signed,  the 
government  formally  requested  EU  membership.  Two  months  earlier  the 
Assembly  adopted  a  declaration  restating  this  as  its  objective  and  noting  its 
willingness  to  liberalise the real estate market  on the basis  of the principles  set 
out at the Madrid  European Council.  In May  1997 Slovenia issued  a document 
on its EU accession strategy, reconfirming  its ambition to become a full  member 
of  the  EU  and  that  she  is "not  only  able  and willing  to  assume  the  obligations 
deriving from full membership but also ready to accept certain limitations which 
the  realisation  of  these  obligations  would  bring  for  the  sovereignty  of  the 
Slovene state." 

Contractual  Relations 

the  first  of 

The  Socialist  Federal  Republic  of  Yugoslavia  reached  a  series  of  trade 
agreements  with  the  EC,  the  first  dating  from  1970. 
In  1980  a  Trade  and 
its  kind,  was  signed, 
Economic  Cooperation  Agreement, 
accompanied by the establishment of a Cooperation Council. Even then, 96% of 
Yugoslav industrial products exported to the EU were tax exempt, while 28% of 
agricultural  products  benefited  from  preferential  treatment.  Following  the 
outbreak  of  civil  war  in  Yugoslavia,  the  EC  suspended  this  Agreement  in 
November  1991.  Since  then,  annually  renewed  autonomous  preferential  trade 
regimes have provided  for continuity in trade relations, until the entry into  force 
of an Interim Agreement in January  1997 (see below). 

Diplomatic relations between the EU and Slovenia were established on  13 April 
1992.  On  1 September  1993 a Cooperation Agreement, essentially modelled on 
the  one  signed  in  1980  with  Yugoslavia,  accompanied  by  supplementary 
arrangements  in  particular  on  transport,  textile  and  financial  cooperation, 
entered into  force. 

After  one  meeting  in  1993,  the  political  dialogue  envisaged  under  this 
Agreement was never pursued, because of the expectation that it would  soon be 
overtaken  by  a Europe  Agreement.  Conclusion  of  this  was, however,  delayed 
by differences  over the need for amendments to Slovene real estate legislation to 
permit  EU  nationals  to  own  property.  An  exchange  of  letters  annexed  to  the 
Europe  Agreement  finally  paved  the  way  for  its  signature  on  10  June  1996. 
According  to  these  the  Slovene  real  estate  market  would  be  opened  to  all  EU 
citizens four  years after  entry into force of the Europe Agreement, but would be 
already  liberalised  on  entry  into  force  for  those  EU citizens  who  have  lived  for 
at least 3 years on the territory of Slovenia. 

Pending  ratification  of  the  Europe  Agreement,  an  Interim  Agreement  entered 
into  force  on  1  January  1997  which  covers  all  trade  and  trade-related  fields 
under  the  Europe  Agreement  and  in  these  fields  replaces  the  Cooperation 
Agreement  and the  annual  autonomous  trade measures.  Economic  cooperation 
under the Cooperation Agreement will continue. 

Once  it  enters  into  force,  the  Europe  Agreement  will  be  the  legal  basis  for 
relations between Slovenia 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  Slovenia's  gradual 
integration  into  the  Union.  The  institutional  framework  of  the  Europe 
Agreement  provides  a  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 discussion of matters and often finds solutions to problems arising under the 
Europe Agreement.  The Association Council examines the overall status of and 
perspectives  for  relations  and  provides  the  opportunity  to  review  Slovenia's 
progress on preparation for accession. 

As regards ratification  of the Europe Agreement, the Constitutional  Court ruled 
on 5 June 1997 that a prior amendment of the Constitution was necessary before 
this  could  take  place.  The  government  of  Slovenia  has  committed  itself  to 
obtaining  the  necessary  modification  of  the  Constitution  in  order to  ratify  the 
agreement as soon as possible.. 

Recognising  the  need  for  effective  management  of  the  European  integration 
process,  the  Slovene  Government  decided  on 25  October  1996  to  delegate  the 
task  of  pre-accession  policy  coordination  and  monitoring  to  the  Office  for 
European  Affairs  under  the  Ministry  of  Foreign  Affairs.  Management  of  the 
Phare Programme has also been transferred to the Office. 

The Pre-Accession  Strategy 

Implementation of the Interim and Cooperation Agreement and the White Paper 

to 

schedule.  The 

The  trade  provisions  of  the  Interim  Agreement  have  been  implemented 
the 
according 
Joint/Cooperation  Committee  were  held  on  20/21  March  1997.  Nine  sub 
committees  were  established  and  cooperation  at  this  level  has  advanced  well 
since then. 

consultations  under 

formal 

first 

Currently,  the  main  issues  discussed  are:  further  strengthening  the  Slovene 
accession  strategy,  approximation  of  legislation;  public  administration  reform; 
macroeconomic  stability  and  structural  reforms;  financial  services  and  the 
liberalisation  of  capital  movements;  the  wine  and  spirits  agreement;  plant 
health/veterinary  equivalency  protocol;  a  European  Conformity  Assessment 

Agreement;  certification  and  standardisation  issues; a number  of  specific  trade 
issues; opening of  and preparation  for participating  in community  programmes; 
third-pillar cooperation. 

Most  of  the  trade  issues  which  have  arisen  so  far  are  of  minor  importance. 
Given the delayed  entry into  affect  of the Europe Agreement,  there is scope  for 
accelerating  introduction  of  policies  and  mechanisms  even  ahead  of  the 
benchmarks  set  by  the  agreements,  as  for  instance  in  the  cases  of  standards, 
competition  and  state aids.  Policies, e.g. on aspects of public procurement  and 
movement  of capital, have not  always been  developed  in  line with the  spirit  of 
the  Europe  Agreement,  but  in  these  cases  the  government  is  reviewing  its 
approach in the context of the accession strategy. 

The  Commission's  White  Paper  of  1995  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. 
Slovenia  has  attached  considerable  importance  to  this  work.  The  Office  for 
European  Affairs  is  supervising  the  implementation  of  the  White  Paper.  In 
addition,  the  Office  for  Legislation  is  responsible  for  the  coordination  and 
monitoring  of  the  working  groups  in  the  ministries  concerned  working  on  the 
White  Paper  implementation.  Considering  the  implementation  of  the  White 
Paper  as  a medium-term  strategic  objective,  the  Government  submitted  a  three 
year  plan  for  the  approximation  of  primary  legislation  in  May  1996.  It  is 
intended  to  elaborate  this  document  further,  mainly  by  integrating  into  it 
technical  standards  and  secondary  legislation,  to  become  a  White  Paper 
Implementation  Strategy.  The  strategy  is  scheduled  to  be  approved  before  the 
end of 1997. 

Particular  progress  in  legislative  alignment  has  been  achieved  in  the  area  of 
banking,  intellectual  and  industrial  property,  money  laundering,  consumer 
protection,  personal  data,  and  customs.  Areas  requiring  specific  attention  are 
free  movement  of  capital,  indirect  taxation,  insurance,  standards,  competition 
and state aids, energy and telecommunication. 

Overall,  the  EC/Slovene  Interim  Agreement  is  functioning  well.  There  are  no 
major  problems  concerning  its current  implementation.  Initial experience  of the 
bilateral consultation mechanism suggests that Slovenia is committed to using it 
effectively. 

Structured  Dialogue 

Slovenia has participated  since June  1996 in the Structured Dialogue. It attaches 
importance to the dialogue and has made a particular contribution on  economic 
and  financial  affairs,  internal  market  and  energy.  The  Slovene  authorities  have 
expressed  satisfaction  about  the  recently  introduced  long-term  planning  of 
meetings  and  the  improved  quality  of  contributions  which  follows  from  the 
longer preparation. 

Phare 

Under  the  Phare  Programme,  between  1992  and  1996  Slovenia  received 
ECU 94 million  in  support  of  its  transformation  and  pre-accession  efforts.  The 
allocation  for  1997  was  ECU  22  million.  There  are  also  cross-border 
cooperation  programmes  with  Italy  (ECU  10  million)  and  Austria  (ECU  6 
million)  focusing  in  particular  on  economic,  environment  and  infrastructure 
cooperation. 

In  the  first  years  Phare  was  used  mainly  for  supporting  privatisation  and 
enterprise  restructuring,  reforms  in  the  banking  sector  and  strengthening  the 
Slovene  research  and  development  capacity.  Later,  other  targets  were  added: 
approximation  of  legislation,  the public  administration  reform  and  other  fields 
related to adoption of the acquis and fostering of a competitive enterprise sector. 

Slovenia  has  made  effective  use  of Phare  funds.  In particular,  the  Government 
has targeted  a high proportion of technical assistance support at solving  specific 
technical  problems  related  to  policy  reform,  transition,  the  adoption  of  the 
acquis  and  the  generation  of  know-how  not  accessible  in  the  country. 
Disbursement rates have been high. 

Participation  in Community programmes 

Pending  ratification  of the Europe  Agreement,  Slovenia  is not  yet  in  a position 
to participate in those Community programmes that need to await  establishment 
of an Association Council. 

Trade  Relations 

Between  1992  and  1996,  trade  between  the  EU  and  Slovenia  increased 
substantially.  EU  imports  from  Slovenia jumped  from  1.6  to  4.2  billion  ECU, 
while  EU  exports  to  Slovenia  increased  from  1.4  to  5.3  billion.  The  trade 
balance  developed  from  a  slight  surplus  in  1992  to  a deficit  for  Slovenia.  The 
deficit  increased  in  1995  mainly  due  to  the  accession  to  the  EU  of  Austria, 
Finland  and  Sweden,  and to the need  to re-equip  the  Slovene  economy.  While 
Slovene  exports  represent  about  60% of  GDP,  approximately  66% of  external 
trade was with the European Union in 1996. The most important goods traded in 
both directions were electrical and transport equipment and textiles. 

Germany  is  Slovenia's  most  important  trading  partner.  In  1996,  Germany 
secured 25.9% of total Slovene foreign  trade, followed  by Italy, France, Croatia 
and  Austria.  Since 
in  regional 
organisations  aiming at political stability and economic cooperation.  Slovenia is 
a member of both the Central European Initiative (CEI), and the Central  Europe 
Free Trade Agreement (CEFTA). 

independence  Slovenia  has  participated 

General  Evaluation 

The bilateral  relationship  has  overall  been  constructive  and  smooth.  But  the 
legislative and constitutional issues which have delayed Slovene ratification  of 
the  Europe  Agreement  have  constrained  the  development  of  the relationship, 
despite  Slovene  willingness  in  many fields to  pursue  the  enhanced  levels  of 
cooperation envisaged in the Europe Agreement even before its entry into force. 

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 ancl 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  Slovenian 
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 

When  Slovenia  declared  independence  in  June  1991  its  Parliament  adopted  a new 
Constitution  which  established  parliamentary  democracy.  The  Constitution  took 
effect  in  December  of  that  year  once  it  had  been  approved  by  the  country's 
institutions.  Those  institutions  are working  smoothly  and normally.  The  different 
authorities  are mindful  of the limits to their powers and of the need cooperate with 
each other. 

Parliament and Legislative Power: Structure 

Parliament  is  made  up  of  a  single  chamber,  the National  Assembly,  which  has 90 
members who  are elected  for  a four-year  term under  an electoral  system which is a 
blend  of proportional  representation  and simple majority.  The Italian  and Hungarian 
minorities  each  have  one  seat  reserved  for  them.  Slovenia  also  has  a  National 
Council, which represents the interests of socio-economic and professional circles and 

10 

those of the  local  authorities.  It has 40 members  elected  for  a  five-year  term.  They 
may  give their  opinion  on draft  legislation  examined  by the National  Assembly,  call 
on the latter to have a fresh debate on a draft  law before  it is promulgated  (a  majority 
of  the  Assembly's  members  must  then  vote  in  favour  of  the  law)  and  ask  for  a 
parliamentary commission of inquiry to be set up. 

The  President  of  the  Republic  has  to  dissolve  the  National  Assembly  if  it  fails  to 
designate a Prime Minister. 

MPs  enjoy 
the  usual  parliamentary  immunities.  The  Opposition's  role  and 
involvement  in  the  working  of  the  country's  institutions  is  recognised,  notably 
through  commissions  of  inquiry  which  are  set  up  by  decision  of  one-third  of  the 
National  Assembly's  members  and  have  the  same  powers  of  investigation  as  the 
courts.  There are currently six such committees but their effectiveness  is questionable 
in  the  light  of  the  reports  they  have  produced.  The National  Assembly  also  has  39 
standing committees but moves are afoot to cut their number to 15. 

Slovenia  has  a multiparty  system.  Thirty  political parties  are registered,  all  of  which 
fielded candidates  at the last general  elections  in  1996.  There are no obstacles  to the 
creation  of parties, which  receive  state  funding  in proportion  to  the  number  of  votes 
they obtained at the last elections. 

Parliament  exercises  legislative  power  and  shares  the  right  of  initiative  with  the 
Government,  at least 5 000 electors and the National Council.  The legislative process 
in  Slovenia is quite  lengthy: once a law has been scrutinised  by the relevant  standing 
committee and by the National Council, it must undergo three readings in the National 
Assembly before the latter can give it final approval. 

The  Government  has  autonomous  regulatory  power  which  enables  it  to  issue 
regulations even if the law does not give it prior authorisation. It cannot however  issue 
regulations  regarding  the  rights  of  individuals  or  legal  persons  unless  the  power  to 
legislate has been  delegated  to it.  The Constitutional  Court exercises  strict  control  to 
ensure  that  any  delegation  of  powers  accorded  by  Parliament  is  an  express  one  and 
that  acts  issued  by  the  regulatory  authority  actually  correspond  to  the  legislator's 
intention.  The President  may pass  acts with the force  of law in the event  of war or a 
state of emergency or if Parliament cannot assemble (Article  108 of the Constitution), 
provided such acts are transmitted to Parliament as soon as possible. 

The National  Assembly may decide to hold a referendum  on any matter which  seems 
to merit this, at the request of one-third  of its members, or of the National  Council  or 
of  40 000  electors.  Slovenia held  a referendum  in November  1996  on  the  reform  of 
the  electoral  system  for  general  elections  but  none  of  the  three  changes  proposed 
obtained the required  majority. 

Functioning  of  Parliament 

11 

The  1992  and  1996  elections  were  free  and  fair,  each  resulting  in  the  formation  of 
coalition governments (see Annex for  1996 results). 

Parliament functions  satisfactorily:  its powers are respected and the Opposition  fulfils 
its  proper  role.  The  rules  of  legislative  procedure  need  to  be  speeded  up,  however, 
and  more  generally  the  National  Assembly's  technical  means  and  staff  need  to  be 
increased  to  enable  it  to  fulfil  its  legislative  functions,  notably  in  the  context  of 
European integration. 

The Executive; Structure 

The President  of the Republic  is elected  by direct  universal  suffrage  for  a  renewable 
five-year term of  office.  He has the usual powers  accorded  to  a head  of  state.  If he 
acts contrary to the Constitution  or to the country's  laws the National  Assembly  may 
call on the  Constitutional  Court  to  strip him  of his mandate  by  a two-thirds  majority 
decision of its judges. 

The Prime Mimster  is  elected by the Parliament  upon  a proposal by  the President  of 
the Republic.  Ministers  are  also  elected by  the National  Assembly,  upon  a proposal 
by the Prime Minister.  The Government is answerable to the National Assembly, as is 
each minister individually. 

Local  government  is  run  by  58  local  government  authorities  whose  leaders  are 
appointed  by  the  Government  upon  a proposal  by  the  Minister  for  the  Interior.  The 
local  government  authorities  carry  out  decisions  taken  by  central  government  and 
oversee  the  activity  of  the  local  authorities.  Their  heads  are  answerable  to  the 
Minister of the Interior. 

There is only one category of local authority in Slovenia, the municipality, the number 
of  which  was  increased  in  1994  from  62  to  147  (20  new  ones  are  planned).  The 
municipalities  administer  the  bulk  of  local  public  services  and  are  run  by  a  mayor, 
who is elected by direct universal suffrage,  and by a municipal council also elected  for 
a  four-year  term  of office.  Government  subsidies  continue  to  form  a substantial  part 
of  the  municipalities'  budget  resources  and  several  draft  laws  are  in  the  pipeline  to 
afford  them a greater measure of financial autonomy. 

Public administration  in Slovenia is governed by two laws:  one affecting  government 
and  parliamentary  officials  and  another  governing  the  employees  of  government 
agencies  which  lays  down  rules  akin  to  those  contained  in  the  Labour  Code. 
Although  the  Constitution  provides  for  it,  there  is  no  law  at  present  guaranteeing 
openness in measures taken by the administration. 

The army, the secret services and the police are under civilian control.  In  1996 a start 
was  made  on reorganising  the police  at  local  level  to  enhance  its  effectiveness.  The 
army  is  under  the  control  of  Parliament  and  the  executive.  The  Prime  Minister  is 
directly responsible for the activities of the secret services. 

12 

Functioning of the Executive 

Central government works normally and smoothly. 

As Slovenia became independent only recently, the development of local  government 
is  still  under  way.  The  government  reform  programme  provides  for  the  transfer  of 
new powers  to  the municipalities.  A  law  on the reform  of  local  authorities  is  being 
examined by Parliament. 

the  administration  more  effective 

is  planning  a 
To  make 
comprehensive  programme  to  modernise  the  legal,  administrative,  financial  and 
organisational  aspects  of public  administration  and  to boost  the  training  of  officials. 
The fight against corruption is another prime objective. 

the  Government 

The  parliamentary  committee  responsible  for  controlling  the  activities  of  the  police 
has run up against a number of obstacles in carrying out its tasks, notably owing to the 
sometimes fraught relations with the Ministry for the Interior.  Nonetheless, control of 
the police's activities and the scope for calling it to account are  satisfactory. 

The Judiciary:  Structure 

Judges  are 
The  judiciary  is  independent  of  the  other  branches  of  government. 
appointed  for  life  by  the  National  Assembly  upon  a  proposal  by  the  "Judicial 
Council",  the  body  responsible  for  administering  the  Bench.  It  is  made  up  of  11 
members, five of whom are elected by Parliament upon a proposal from the President 
of  the  Republic  while  the  six  others  are  selected  from  among  sitting  judges.  The 
judges  may  only  be  relieved  of  their  functions  by  the  National  Assembly  upon  a 
proposal by the Judicial Council, if they have committed  a crime in carrying out their 
functions,  or if they have been sentenced  to a term of imprisonment  lasting more than 
six  months.  They  enjoy  immunity  and  may  not  be  detained  unless  Parliament  has 
given prior authorisation.  In common with the prosecutors, the judges  enjoy  freedom 
of expression and freedom of association. 

The  department  of  public  prosecutions  is  independent  of  the  legislature  and  the 
executive.  The  Prosecutor  General  is  appointed  for  six  years  by  Parliament  upon  a 
proposal  from  the  Government.  The  National  Assembly  may  also  dismiss  the 
Prosecutor General by a simple majority  vote. 

Article  25  of  the  Constitution  enshrines  the  right  to  contest  the  actions  taken  by  the 
administration.  However,  in  practice,  the  only  appellate  body  is  the  specialised 
chamber of the Supreme Court which is currently very congested owing to the number 
of  cases  brought  before  it,  notably  since  the  development  of  local  autonomy. 
Moreover,  the procedure before  the Court  is entirely written  and cases  are not judged 
during public  audience.  As  a result,  the Government  has decided  to. create  a genuine 
administrative jurisdiction  comprising  four  courts whose decisions,  taken  following  a 

13 

public  audience,  can be  contested  before  the  Supreme  Court.  This  Bill  is  still  being 
examined by Parliament. 

In September  1994 Slovenia created the office  of ombudsman elected by the National 
Assembly. The ombudsman's task is to examine complaints sent to him.  So far he has 
mainly been called on to intervene by persons in prison or in detention centres. 

The  Constitutional  Court  is  composed  of nine judges  appointed  by  Parliament  for  a 
non-renewable  nine-year  term  of  office  upon  a  proposal  from  the  President  of  the 
Republic.  The  Court  ensures  that  laws,  decrees  and  regulatory  acts  issued  by  local 
authorities  are consistent  with  the  Constitution,  international  treaties  and  the  general 
principles of international  law.  It also rules on requests from appellants who feel  that 
their fundamental  rights  enshrined in the Constitution have been violated.  Pursuant to 
Article  162 of the  Constitution  any person  who can  demonstrate  that he  or  she has  a 
case  to  bring  may  bring  it  before  the  court.  The  President  of  the  Republic,  the 
Government  or one-third of the members of the National Assembly may ask the court 
to  rule  on  whether  an  international  treaty  to  be  ratified  is  consistent  with  the 
Constitution. 

Functioning  of the  Judiciary 

The main problems  facing  the Slovenian judiciary  are inefficiency  and the amount  of 
time  it  takes  to  hand  down judgments:  it  can  take  five  years  before  a  civil  case  is 
brought  before  the  courts.  Slovenia  lacks judges  notably  as  a result  of the  relatively 
low  level  of pay  and the  statutory  requirement  that  they  must  be  at  least  30 years  of 
age.  This  situation  should be  improved  as a result  of the programme  to  equip  courts 
with computers and the planned procedural  reforms. 

The Constitutional  Court plays an important role in the functioning  of the  institutions 
and  democracy  in  Slovenia.  Its case  law has helped bolster  the  establishment  of  the 
rule  of  law  by  giving  certain  guidelines  to  other  courts  in  applying  the  many  new 
laws.  Since  it was  created  the  Court  has  examined  some  1 500  cases,  80% of  which 
have been brought by private individuals.  Around 5% have been upheld. 

1.2  Human Rights and the Protection of Minorities 

Slovenia  has put  in place  a number  of regulations  to  guarantee  the respect  of  human 
rights  and  the  rights  of  minorities.  These  rights  can  also  be  underpinned  by  certain 
international  conventions,  foremost  of  which  is  the  European  Convention  for  the 
Protection of Human Rights and its main additional protocols.  Taken as a whole, this 
constitutes - pursuant to Article F of the Treaty on European Union - part of the acquis 
any state wishing to join the European Union must first have ratified  these texts. 

Slovenia, which has been a member of the Council of Europe since May  1993, ratified 
the  European  Convention  for  the  Protection  of  Human  Rights  and  the  additional 

14 

protocols  in June  1994. Individuals may take their case to the European  Court if they 
consider that their rights under this Convention* have been violated. 

Among  the  other  international  conventions  protecting  human  rights  and  minorities, 
Slovenia has ratified  the European  Convention  on the Prevention  of  Torture, but  has 
yet  to  ratify  the  Framework  Convention  on  Minorities  or  sign  the  European  Social 
Charter.  It has ratified the key UN conventions in the field of human rights. 

V 

Pursuant  to  Article  8  of  the  Constitution,  Slovenian  laws  should  be  consistent  with 
international treaties which have a direct effect  on domestic law. 

Civil and Political Rights 

Access to justice  is largely guaranteed  in Slovenia.  A legal  aid system  applies to  the 
criminal courts.  The legal security of citizens is hampered only by the length of  time 
taken to deliver judgments. 

The  death  penalty  has  been  abolished  and  Slovenia  ratified  Protocol  No  6  of  the 
European Human Rights Convention in June 1994. 

The  right  not  to  be  arbitrarily  arrested  is  guaranteed:  under  Article 20  of  the 
Constitution  any arrest needs a prior decision of a court.  Any person arrested must be 
notified  of  the  reason  within  24  hours.  The  maximum  period  of  detention  is  three 
months.  Article  30 of the Constitution  affords  any person  arrested  unjustly  the  right 
to compensation. 

All citizens aged  18 and over have the right to vote. 

Freedom of association and assembly are guaranteed.  The dynamism of the voluntary 
sector, which was allowed to operate even before  1991, is reflected  in the existence of 
around 2 000 NGOs in Slovenia. 

Freedom of expression is guaranteed.  The press has been privatised  and journalists no 
longer encounter obstacles in exercising their profession.  In the audio-visual field, the 
public channels (three radio and two television) have private-sector competitors  (three 
national  television  channels  and  myriad  national  and  local  radio  stations).  Most 
N households  can receive  foreign  radio and TV stations.  During election  campaigns  all 
the political  parties  are entitled to equal air time on radio  and television  to put  across 
their programme. 

The  right  of  ownership  is  recognised  by  the  Constitution.  However,  foreigners  are 
still subject  to certain limitations, notably as regards ownership of land, which is only 
permitted  through  inheritance  and  only  where  there  is  reciprocity  for  Slovenian 
citizens  in the country  of origin of the foreign  national  in question  (Article  68 of  the 
Constitution). 

15 

In its opinion  of  5 June  1997, the  Constitutional  Court  confirmed  that  ratification  of 
the Europe Agreement required prior amendment of Article 68 of the Constitution  and 
the  legal  arrangements  currently  in  force.  The  Government  undertook  to  carry  out 
these amendments as soon as possible. 

The process  of returning property  to persons  dispossessed  by the Communist  regime 
is  painfully  slow,  with  only  50%  of  disputes  having  been  settled  and  10%  of  real 
estate  restored  to  the  rightful  owner.  The  Constitutional  Court  cancelled  the 
moratorium  decided  in  December  1995  on  the return  of properties  in  excess  of  200 
hectares.  In  order  to  avoid  fresh  difficulties  occurring  in the implementation  of  this 
legislation  and  to  reduce  any  uncertainty  in  the  situation  as  regards  property  rights, 
Parliament must adopt the necessary rules,  and the procedures under way will have to 
be  speeded  up.  This  operation  will  be  facilitated  by  the  implementation  and 
computerisation of the land registry which is to be carried out in 1998. 

The  dispute with  Italy on the return  of certain property  confiscated  at  the  end  of  the 
Second  World  War  will  be  settled  by  the  provisions  of  Annex  XIII  to  the  Europe 
Agreement, which also covers the issue of acquisition of real estate in Slovenia by EU 
citizens. 

Respect for privacy is safeguarded  by the need for a judge's warrant to be issued prior 
to  a  house  search  or  telephone  tapping.  Article  36.4  of  the  Constitution  allows  the 
authorities  to  derogate  from  this  rule  in  cases  of  absolute  necessity.  This  procedure 
has not thus far given rise to abuse on the part of the police. 

Slovenia  has  ratified  the  Geneva  Convention  on  Refugees  and  is  working  on  an 
amendment  to  its  domestic  legislation  to bring  it  into  line with  EU rules.  There  are 
currently  around  8 700  refugees  from  the  former  Yugoslavia  taking  advantage  of 
temporary protection measures. 

No cases of inhuman and degrading treatment have been reported. 

The  Slovenian  authorities  have  not  yet  settled  nationality  issues  arising  from  the 
break-up  of  the  former  Yugoslavia.  Persons  residing  permanently  on  Slovenian 
territory  and  wishing  to  obtain  Slovenian  nationality  had  until  25 December  1991  to 
do so.  More than 98% of applicants obtained it.  Since then,  16 000 new  applications 
have been lodged;  6 000 were accepted and 900 rejected.  An issue still to be resolved 
concerns  a  group  of  around  5  000  stateless  people  who  for  various  reasons  have 
neither  asked  for  Slovenian  nationality  nor  claimed  refugee  status.  The  Government 
will be taking appropriate steps to resolve this problem. 

Economic. Social and  Cultural  rights 

The  right  to  social  security  is recognised  by  the  Constitution  (Article  50  and  Article 
52 for those with no income). 

16 

Freedom  to  belong  to  a  trade  union  is  guaranteed  by  Article  76.  Four  federations 
embrace  the  vast  majority  of  Slovenians  belonging  to  a  trade  union.  Membership 
stands  at around  50%.  The  right  to  strike  is recognised  in Article  77.  The  law  can, 
however,  curtail  this  right  if  this  is  in  the  public  interest,  taking  into  account  the 
activity of the sector concerned. 

The  Constitution  also  guarantees  freedom  of  education  and  religion.  A  dispute  has 
arisen  between  the  Government  and  the  Roman  Catholic  church  on  the  issue  of  the 
return  of  property  confiscated  by  the  Communist  regime.  The  above-mentioned 
decision of the Constitutional Court should resolve the matter. 

Minority Rights and the Protection of Minorities 

Minorities  in  Slovenia  account  for  around  8% of  the population  (2.8% Croats,  2.4% 
Serbs,  1.4%  Bosnians,  0.43% Hungarians  and  0.16%  Italians).  Only  the  Hungarians 
and  Italians  are  recognised  as  minorities  because  the  other  groups  are  not  settled 
permanently in Slovenia. 

The  Constitution  recognises  the  rights  of minorities.  Each group  is represented  by  a 
deputy  in  the  National  Assembly  who  has  the  power  to  block  the  adoption  of  laws 
which concern the exercise of the specific  rights  of those communities  or their  status. 
The minorities have the right to  form  their own autonomous institutions  at local  level 
for  putting  into  practice  the  rights  which  have  been  accorded  to  them  in  the 
educational,  cultural  and information  fields.  The Italian  and Hungarian  communities 
also  have  the  right  to  promote  their  ties  with  Italy  and  Hungary.  Article  62  of  the 
Constitution  recognises the right of individuals to use their own language  in  dealings 
with the  administration. 

Article  65 of the  Constitution  also recognises the special nature of the Roma  (gypsy) 
community,  which  numbers  around  7  000  -  10  000  people.  A  special  law  on  the 
protection  of  gypsies  is  currently  under  scrutiny  by  the  National  Assembly  and  in 
1995  the  Slovenian  government  implemented  a  programme  to  strengthen  the 
application  of their social  and political  rights.  They  are represented  in the  municipal 
councils of the towns in which they live. 

1.3  General Evaluation 

The Slovenian institutions work smoothly, the various authorities being mindful  of the 
limits of their powers and of the need for cooperation.  The  1992 and  1996 elections 
were free and fair.  The opposition fulfills  a normal role in the operation of the 
institutions. 

There are no major problems regarding observance of fundamental  rights  in the 
country.  The rights of minorities are guaranteed and protected. Certain improvements 
still need to be made in terms of the working of the judicial system and the restoration 

17 

to the original owners of property expropriated by the Communist regime. Efforts to 
combat corruption need to be more effective. 

Slovenia is a democracy with stable institutions which guarantee the rule of law, 
human rights and respect for, and the protection of, minorities. 

18 

2.  Economie Criteria 

the  economic  situation  and  prospects  of  Slovenia, 

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

2.1  The Economic Situation 

Slovenia, with a population  of 2 million, has a gross domestic product  (GDP)  of 
ECU  20 billion  (expressed  in  purchasing  power  parity);  its  population  is  about 
0.5 percent  of  that  of  the  Union,  while  its  economy  is  only  about  0.3 percent. 
GDP per head is about 59 percent of the Union average. The average net monthly 
wage is around ECU 475. 

Slovenia  was  a  founding  member  of  the  WTO  in  1995, and joined  CEFTA  in 
1996. 

Progress in Economic Transformation 

Slovenia  already  started  to  develop  as  an  industrialised  economy  while  it  was 
part  of  the  Habsburg  empire,  until  1918.  It  then  became  part  of  Yugoslavia, 
which  turned  communist  in  1945.  The  country  adopted  a  socialist  system  with 
self-management  and  social  ownership  complimentary  to  central  planning  and 
state  ownership.  During  the  1980s  the  imbalances  produced  by  the  system 
became apparent: income began to fall  and inflation  to rise. There was a build-up 
of  debt  which  Slovenia  could  not  easily  manage  due  to  lack  of  access  to  new 
loans from abroad,  and  significant  transfers  to other republics.  Some attempts  at 
reform were made before independence in  1991, but progress was limited. 

Slovenia had  always been the wealthiest  and most  open of the  former  Yugoslav 
republics,  benefiting  from  an  advantageous  geographical 
location  and  a 
prosperous past. By  1990, while it only accounted  for  9 percent  of the  Yugoslav 
population,  it produced  about  16 percent  of output  and  accounted  for  27 percent 
of foreign trade. In  1991 Slovenia achieved independence and began to  transform 

19 

the  economy.  As  Slovenia  had  never  been  subject  to  the  typical  command 
planning,  the  degree  of  centralisation  was  lower  than  elsewhere  in  central 
Europe.  It  was  also  less  dependent  on  the  Soviet  Union.  However,  as  in  other 
transition  economies  there were  a number  of  distortions:  there  were  restrictions 
on property rights ard the use of capital; there was excessive emphasis on heavy 
industry; large companies played a dominant role; and a substantial share of trade 
was directed towards communist countries. 

At  the  beginning  of  transition,  emphasis  was  put  on  stabilisation,  rather  than 
reform.  Although  trade and  some prices were  liberalised  early  on,  fiscal  reform, 
privatisation and restructuring came later and still have some way to go. 

Small-scale  private  activity  was  permitted  under  Yugoslav  law,  and  state 
ownership  was  relatively  limited.  The  main  form  of  ownership  was  "social" 
ownership  where  management  was  relatively  independent,  rather  than  being 
controlled from the centre, and worker involvement  in the running of  enterprises 
was  strong. Nevertheless, certain distortions  associated  with  command  planning 
were  evident:  a  lack  of  financial  discipline  leading  to  lower  quality  and  less 
efficient  production  and  over-employment.  Indeed,  jobs  were  guaranteed  and 
labour shedding was banned. 

Privatisation and the birth of new enterprises have led to an increase in the role of 
the private  sector. Privatisation has focused  on socially-owned  enterprises, while 
the privatisation of state-owned enterprises still has to be dealt with. 

Foreign Direct Investment 

Foreign  direct  investment  in Slovenia has remained  low compared  to the size of 
the economy:  annual  inflows  have never  surpassed  one percent  of  GDP  (source: 
EBRD).  The  main  reasons  for  this  are  the  small  size  of  the  market,  the 
preferential  treatment  of domestic investors during the privatisation process, and 
an  incomplete  legal  framework.  In  recent  years,  few  completely  new  inward 
investments  were  made,  and  foreign  direct  investment  flows  went  mainly  to 
enterprises which already had existing foreign partnerships. 

Economic  Structure 

The role of agriculture,  in terms of contributions  to output, is very much  like in 
the EU; it accounts for about 4 percent of value added. However, it accounts for a 
larger share of employment:  around  7 percent. Apart from competitive  estates in 
the  north-east  of  the  country,  efficiency  is  low  and  structures  are  fragmented. 
Most  agricultural  land  had  remained  in  private  hands  during  communism,  so 
transition  problems  were  not  so pronounced.  Slovenia  is  a net  importer  of  food 
and  agricultural  products.  Subsidies  are  important,  mainly  for  mountainous 
regions. 

The  structure  of the  economy  changed  as  a result  of  the break  up  of  the  former 
Yugoslavia  and  CMEA,  and  the  stabilisation  programme:  industry's  share  in 
employment  and  output  dropped  to  35 percent  and  33 percent  respectively  by 
1993. Industrial production growth has not been consistently  strong since then; in 

20 

1996  it  virtually  stagnated.  Industry  accounted  for  32 percent  of  GDP  in  1995 -
with  manufacturing  accounting  for  28 percent.  The  main  production  area  is 
manufacture  of  metal  products.  However,  the  industrial  structure  is  relatively 
flat-  there  is  less  specialisation  than  might  be  expected  of  a  small,  open 
economy.  The  most  dynamic  areas  in  1995 where  the  manufacture  of  transport 
and electrical equipment, while in  1996 the most dynamic were textiles and  food 
processing. 

The  relative  importance  of  services  as  a  whole  has  increased,  partly  because 
industry  contracted  but  also  because  tourism  has  expanded.  This  has  been  a 
major  growth area. 

There is evidence on the existence of a significant  shadow economy in Slovenia. 
The most visual indication of this is the extent of undeclared  employment:  while 
recorded  unemployment  is  over  14 percent,  according  to  the  labour  market 
survey (using ILO methodology)  actual unemployment  is only around  7 percent. 
The notable  growth of undeclared  employment  in temporary  or contract work  or 
as family workers is mainly due to high non-wage labour costs. 

Main indicators of economic  structure 

(all data for  1996 unless otherwise indicated) 

Population 

million 

GDP per head 

as % of EU-15  average 

PPS-ECU (1995) 
per cent (1995) 

Share of agriculture in: 
gross value added 
employment 

per cent (1995) 
per cent (1995) 

Gross foreign  debt/GDP 

per cent 

Exports of goods & services/GDP 

per cent (1995) 

Stock of foreign  direct investment 

billion ECU 
ECU per head 

Source:  Commission services, national sources, EBRD 
'' FDI stock  converted  at end-1996 exchange rate of 1 ECU  = $1.25299 

2.0 

10100 
59 

4.3 
7.1 

22 

55 

0.6 
290 

Liberalisation 

Price  Regime 

The  vast  majority  of  prices  have  been  liberalised,  but  prices  of  certain  key 
commodities,  such  as  energy,  telecommunications  and  transport,  are  still 
administered. They form  a significant  part in household consumption,  accounting 

21 

for some 26 percent of the goods and services in the price index basket.  Because 
at their current levels administered prices do not necessarily cover the production 
costs, their adjustment  over the coming years will contribute to  inflation. 

Direct budget subsidies are quite limited, and exist only on certain foodstuffs  and 
public services: in total they amount to about 3 percent of the budget. In addition, 
some  of  the  larger  enterprises  receive  support  from  the  Development  Fund, 
which was originally set up to provide emergency funding  to stabilize enterprises 
that  were  salvageable  or  initiate  winding-up  procedures  for  those  that  had  no 
realistic prospects of survival. 

Trade Regime 

Trade  was  liberalised  at  the  outset.  Most  quantitative  restrictions  have  been 
removed.  Some  non-tariff  barriers  remain  but  the  government  is  committed  to 
removing  them  in sectors  such  as telecommunications  and electrical  equipment. 
The  weighted  average  tariff  rate  applied  to  most-favoured  nations  stood  at 
10.7 percent  in  1996.  Most  of  the  international  trade  is  still  invoiced  in  either 
DM or $, rather than in the domestic currency. 

Foreign Exchange Regime 

The  currency,  the  tolar,  was  introduced  in  1991. The  government  accepted  the 
obligations  of the  IMF  Article VIII  in  1995, although  the  currency  had  been  de 
facto  convertible  for  current  account  purposes  from  early  1992.  At  first  the 
currency  was  allowed  to  float  freely,  during  which  time  it  depreciated  heavily. 
As  the  currency  began  to  stabilize  and  inflation  dropped  sharply,  the  Bank  of 
Slovenia  adopted  a managed  float.  The  aim  was  to  keep  the  real  exchange  rate 
stable  and  bring  down  inflation  in  order  to  protect  competitiveness  and  help 
boost output. The system was also chosen because Slovenia has a small monetary 
base  so it is very susceptible to swings in capital inflows.  From  mid-1992,  these 
increased  as a result  of current  account  surpluses. These inflows  were  sterilised, 
at-a  considerable  cost,  to  contain  money  supply  growth  and  hence  inflationary 
pressure.  The  policy  seems  to have been  relatively  successful.  However,  due  to 
the  costs  of  sterilisation,  the  Bank  of  Slovenia  had  to  gradually  restrict  capital 
inflows to be able to maintain the chosen policy objectives. 

Liberalisation  of  capital  flows  has  made  slow  progress:  capital  outflows  are 
generally  subject  to  authorisation  while  the  capital  inflow  regime  has  recently 
become more restrictive. A particular grey area is that of operations in securities. 

Stabilisation  of the  Economy 

Domestic 

As in other transition  economies, there was a fall  in output due to the collapse of 
CMEA  (Yugoslavia  was  not  a  full  member,  but  CMEA  still  accounted  for  a 
substantial  amount  of trade), the break-up  of Yugoslavia,  and the  transformation 
process.  In  addition,  price  liberalisation  and  the  release  of  forced  savings 
inflation,  and 
accumulated  under 

the  old  system 

led  to  rapid 

initially 

22 

unemployment  soared  as  industry  shed  workers.  However,  the  impact  of  the 
decline was less dramatic than elsewhere because Slovenia had  long-established 
access  to  western  markets,  so  trade  re-orientation  was  less  dramatic,  and  the 
starting level of output was somewhat higher. 

The recovery began in 1993 and was stimulated largely by favourable economic 
developments  in  the  European  export  markets.  However,  rapid  GDP  growth 
concealed  some domestic weaknesses, such as high wage growth and delays in 
structural  reforms.  Consequently,  when  economic  growth  in  Europe  slowed 
down  in  1995, this  was  immediately  reflected  in  lower  economic  growth  and 
higher  unemployment  in  Slovenia.  This  process  was  further  reinforced  by  a 
simultaneous  appreciation  of the tolar.  Since the middle of  1996, the  situation 
has  begun  to  improve  again.  Higher  growth  in  domestic  demand,  improved 
competitiveness, and the first signs of economic recovery in the EU, resulted in 
an improving growth performance  in the second half of the year. Nevertheless, 
GDP  growth  in  1996  (3.1 percent) remained  slightly  lower  than  in  1995. The 
above  mentioned  positive  growth  factors  should  remain  present  in  the  near 
future, and an acceleration of growth to 4-5 percent can be expected. 

On the fiscal side, Slovenia benefited from the break-up of Yugoslavia because it 
had  been  a  net  contributor  to  the  federal  budget.  While  tax  revenues  were 
maintained, the transfers to the other republics decreased, so the budget has, until 
now, remained  approximately  in  equilibrium.  However,  deficits  in the pension 
system,  higher  social  security  expenditure,  reduced  customs  revenues  as  a 
consequence of European integration, and a rising public wage bill, could result 
in  a  deterioration  of  the fiscal balance  in  the  near  future  if  reforms  are  not 
implemented.  Given  the  tight  monetary  policy  framework,  a  significant 
government deficit would crowd out private investment. 

23 

Main  economic  trends 

1994 

1995 

1996 

Real GDP growth rate 

per cent 

5.3 

3.9 

3.1 

Inflation  rate 

annual average 
December on December 

per  cent 
percent 

Unemployment rate, end-year 

General government budget 
balance 

per cent 
ILO definition 

per  cent of GDP 

Current account balance 

per  cent of GDP 

19.8 
19.5 

12.6 
8.9 

9 

7.4 

-0.2 

3.7 

0.0 

-0.2 

9.7 
9.1 

7.3 

0.1 

0.3 

Debt/export ratio 

per cent 

26.5 

29.0 

38.2 

Foreign direct investment inflow 

per  cent of GDP 

0.9 

0.9 

0.8 

Source:  Commission services,  national sources,  EBRD 

External 

In  June  1995,  the  question  of  the  unresolved  allocation  of  ex-Yugoslavia's 
foreign  debt,  was  settled  as  Slovenia  took  on  a share  of  ex-Yugoslav  liabilities. 
Even with this additional  debt, the overall debt level remains modest:  gross  debt 
at  then  end  of  1996  was  ECU  3.2  billion,  which  is  fully  covered  by  gross 
reserves of ECU 3.3 billion. 

The economic fortunes  of Slovenia are very tied in with its external  performance, 
which in turn is dependent  on its ability to remain competitive. Exports of  goods 
and  services  account  for  some  55 percent  of  GDP, and  although  there  is  a  trade 
deficit,  the  receipts  from  tourism  kept  the  current  account  in  surplus,  with  the 
exception  of  1995 when  a  small  deficit  was  recorded.  As  a result,  the  country's 
foreign  exchange  reserves  have  increased  steadily,  having  been  non-existent  at 
the beginning of transition. 

Structural  Change 

Foreign Trade 

Trade with the EU has always been relatively significant,  but has increased  since 
independence:  almost  65 percent  of  all  trade went  to the  EU  in  1996. The  most 
important trading partners are Germany, Italy and France. After  a sharp fall  in the 
first  years  of  transition,  the  share  of  trade  with  the  other  countries  of  former 
Yugoslavia  is now  increasing  again, as a result  of the stabilisation  in the region. 
The importance of CEFTA countries in Slovenia's trade has also been  increasing 

24 

after  Slovenia  became  a  member,  while  the  shares  of  Russia  and  the  rest  of 
former  Soviet Union have been falling. Trade re-orientation has therefore  largely 
taken place. 

The  commodity  composition  of  exports  and 
imports  has  not  changed 
significantly  as  a result  of  transition.  Consumer  goods  are  the  most  significant 
export  category,  while  investment  and  intermediate  goods  dominate  imports. 
Merchandise  trade  is  highly  concentrated:  83 percent  of  exports  and  67 percent 
of  imports  are  manufactured  goods  or  machinery.  Within  this,  machinery  and 
transport equipment alone account for one third of total exports! 

Slovenia has the competitive  advantages of low wages compared to the EU,  and 
highly  skilled  workers.  To  remain  competitive,  given  the  rising  wages,  quality 
and  productivity  improvements  are  increasingly  important.  More  foreign  direct 
investment will be needed to provide the necessary capital and know-how. 

Labour  Market 

In  Slovenia,  labour  costs  are  relatively  high  for  a  transition  economy  and  the 
labour market  is quite inflexible.  The main reasons  are that  (i) the payroll  is the 
main  source  of  tax  revenue,  so  labour,  as  opposed  to  profits  and  consumption, 
bears  a  disproportionate  share  of  the  tax  burden;  (ii)  there  is  a  rigid  system  of 
collective and social agreements; (iii) the levels of redundancy payments are very 
high;  (iv)  strong  links between  workers  and management  exist  - both  under  the 
old  regime  and  since the management/employee buy-outs  during  privatisation  -
which  have  hampered  labour market  adjustment  by allowing  rapid  wage  growth 
and the persistence of over-staffing  in certain areas. 

Under the previous regime lay-offs  were actually banned.  In  1988-89  legislation 
was  passed  to  make  lay-offs  possible.  However,  the  cost  of  the  obligatory 
compensation  that  had  to  be  paid  to  redundant  workers  was  prohibitive.  The 
government  has  sought  to  reduce  these, but there is  some way to  go yet.  Social 
security contributions have also been reduced but total labour costs remain  50-60 
percent higher than the average gross wage. 

Statistics  show  that  employment  in  socially-owned  enterprises  fell  dramatically 
in the early  1990s. However, this includes a large number of workers  transferred 
to  private  subsidiaries,  suggesting  that working  practices  may  not  have  changed 
that significantly.  Despite the decline of industry and the increased importance of 
smaller firms, employment is still dominated by large-scale heavy industry. 

The wage distribution in Slovenia is quite flat. This is partly due to an egalitarian 
tradition  reinforced  by  a  long  history  of  worker  management.  This  has  led  to 
relatively high wages - which are indexed anyway - at the expense of profits,  and 
to high employment. Real wages actually increased in  1992 and  1993, despite the 
decline  in  GDP; this put  extreme pressure on competitiveness,  and  forced  some 
wage  capping.  The  first  Social  Agreement  between  employers,  the  government 
and  the  unions,  intended  to  contain  wage  growth,  was  signed  in  1994.  As  the 
pressure  on  wages  remained  strong  subsequently,  follow-up  agreements  were 
signed  in  1995  and  1996.  The  Social  Agreements  have  had  only  limited 

25 

restraining  effects:  real  wage  growth  in  1996 was  still  at  5 percent,  well  above 
the intended 1.5 percent under the Agreement. 

The minimum  wage is  fairly  generous, and under current rules it will remain  so 
as  it  is  indexed  to  inflation  every  quarter:  in June  1996 it  stood  at  53,500  tolar 
(42 percent of the average commercial sector wage). 

Public  Finances 

As Slovenia was paying significant  transfers to the other republics in Yugoslavia, 
the  budgetary  position  improved  with  independence  in  1991.  Nevertheless  a 
substantial  amount  of  reform  was  necessary  to  support  the  new  role  of 
government - in a market economy and following independence. Most of this has 
already taken place. 

On the revenue  side, in  1993, personal  income  and  corporate profits  taxes  were 
introduced.  However,  value-added  tax has not yet been  introduced  - and  is  now 
expected  to  be  in  place  only  in  1999. Recently,  the  tax  pressure  on  labour  has 
been  lowered  by  a  reduction  of  social  security  contributions  by  employers. 
However,  this reduction has not yet been  fully  compensated  by  other  measures, 
so that the budget is expected to record a significant  deficit  in 1997. 

On the expenditure  side, the share of transfers  to enterprises  and households  has 
fallen.  Meanwhile  the  social  security  system  has  been  reformed  to  provide  a 
social  safety  net.  However,  the  pension  and  unemployment  funds  are  running 
ever  higher  deficits,  which  are  being  covered  by  the  state  budget.  They  will 
therefore need further  reform  to make them financially sustainable. 

In  addition  to  central  and  local  government  spending,  there  are  a  number  of 
extra-budgetary  funds.  The  most  important  of  these  are  the  health  and  pension 
funds,  but  there  is  a  growing  number  of  smaller  funds.  At  present  they  do  not 
operate under  a unified  legal framework, which  reduces  fiscal  transparency  and 
could put the overall budget position at risk. 

EnterpriseSector: Privatisation and Enterprise Restructuring 

The existence of private enterprises has been possible  since  1988. Entry  into  the 
market  was  not  exclusively  dictated  by  the  state  and  market  prices  prevailed  in 
many  areas.  However,  a  significant  amount  of  privatisation  and  measures  to 
boost  the  development  of  small  and  medium-sized  firms  were  needed.  The 
private  sector  currently  accounts  for  only  50-55 percent  of  output  and 
employment. 

Under the previous regime, the system of socially-owned  enterprises  and  worker 
management  meant  that  the  distinction  between  owners,  managers  and  workers 
was not clear: in most enterprises managers were appointed by the employees. In 
larger  enterprises, the  authorities  nominated  them.  The problems  of  self-interest 
led  to  wage  escalation,  over-employment  and  under-investment.  Loss-making 
enterprises  survived  not  so  much  because  of  government  subsidies  but  because 

26 

they  accumulated  arrears  to  other  enterprises,  and  they  had  easy  access  to  bank 
loans - which in turn undermined the health of the banking sector. 

Since mid-1993  the  authorities  have  given priority  to  the  financial  restructuring 
of  socially-owned  enterprises.  This  was  mainly  done  through  the  Development 
Fund.  The task of the development  fund  is to restructure,  sell or close  industrial 
enterprises  that  could  not  be  privatised.  More  recently,  the  fund  is  supporting 
some of the larger enterprises that are still loss-making. The main problem  faced 
by the fund  is the limited financial resources available for its operations. Another 
primary  objective  of  the  government  has  been  to  encourage  private  sector 
development  through  legal  reforms  and  the  introduction  of  a  regulatory 
framework adapted to the market economy. 

Privatisation of the socially-owned  enterprises progressed rather slowly until  late 
in  1994,  but  is  expected  to  be  completed  by  the  end  of  1997.  All  citizens  of 
Slovenia  were  given  free  non-transferable  certificates  in  1994  (equivalent  to 
40 percent  of the total social capital of all the enterprises), which they can use to 
buy shares in companies or in investment trusts. The government,  eager to  speed 
up  privatisation,  granted  the  Privatisation  Agency  control  over  the  privatisation 
of  every  company  which  has  not  yet  started  work  on  privatisation  plans.  One 
remaining  problem  will  be  the  "privatisation  gap", which  is  caused  by  the  fact 
that  the  value  of  the  issued  vouchers  exceeds  the  value* of  the  assets  to  be 
privatised  by  about  one  third.  There  is" currently  no  decision  on  which  of  the 
remaining state assets will be privatised against vouchers to bridge the gap. 

State-owned  enterprises  (utilities  and other monopolies)  continue to represent  an 
important  part  of the  enterprise  sector.  In  1995, they  still represented  more  than 
30%  of the  assets  of  all  larger  enterprises  (having more  than ten  employees  and 
surpassing certain thresholds on assets and revenues). Their statutory  regulations 
remain unclear, and there is a lack of effective  monitoring and control structures. 

The current  enterprise  structure has not developed much since independence: the 
system  is  still  dominated  by  some  large  firms.  In  1995, small  enterprises  (0-50 
employees)  accounted  for  8 percent  of  manufacturing  output  while  the  larger 
enterprises  (251+  employees)  accounted  for  69 percent.  Large  firms  also 
understandably  dominate 
for  76 percent  of 
manufacturing  exports in  1995. 

they  accounted 

in  exports: 

Foreign investment has been slow to develop in Slovenia, compared to the size of 
the economy.  This  is largely  due to two  factors.  Firstly, privatisation  progressed 
slowly.  Secondly,  management  and  employee  buy-outs  were  common,  which 
made  it  harder  for  outsiders  to  gain  access  to  shares  -  in  fact,  by  end-1995,  in 
78 percent  of the companies that had completed privatisation,  its employees  held 
60 percent  or  more  of  the  shares.  These  are  the  smaller  companies.  Employees 
could not afford  to buy up the larger firms, so there is more  foreign  participation 
in these. Where there is foreign  investment, profitability  has generally  improved. 

Further  restructuring  of  firms  is needed  to reduce  the  drain  on public  resources, 
including  on  the  Development  Fund,  and  to  prevent  crowding-out  of  profitable 

27 

firms.  Changes  have  been  slow  in  coming  because  of  the  links  between  banks 
and the possibility of running up inter-enterprise  arrears. In addition, the amount 
of new  investment has been  limited by high interest  rates, which  makes that  the 
returns on capital are low. 

Financial  Sector 

The  Bank  of  Slovenia  is responsible  for  monetary  and  exchange  rate policy.  It 
was  created  in  1991  as  an  independent  authority  to  maintain  national  currency 
stability.  It targets  the money  supply, and  controls  it through  the use of  indirect 
instruments,  such  as  open  market  operations,  required  reserves  and  refinancing 
credits. It has been relatively  successful  in achieving price stability. However,  its 
task  is  made  difficult  by  the  extent  of  indexation  in  the  economy,  most 
importantly of interest rates and wages. 

The banking  sector was quite decentralised  under the previous regime  and  there 
was a substantial bad  loans problem. Initially, in the early  1990s, loan  portfolios 
deteriorated  due to poor  enterprise performance  leading  to  a loss of bank  assets. 
Although  the  bank  rehabilitation  programme  is  now  coming  to  an  end, 
competition is still lacking and banks still have high operational cost levels. Most 
banks  in  Slovenia  are  small  and  maintain  high  reserves  in  conformity  with  the 
central bank's  requirements. The two  largest banks  are state-owned.  In  addition, 
there is an interest rate arrangement between the banks which sets the  maximum 
rates on deposits. This cartel has been approved by the Bank of Slovenia and the 
anti-monopoly  office.  It  is  not  compatible  with  a  market-oriented  financial 
system. Abolishing the interest rate cartel, combined with the privatisation of the 
remaining  state  banks  and  a  higher  foreign  involvement  in  the  sector,  would 
force the banks to restructure and increase their competitiveness. 

the  international  capital  adequacy  requirement  and 

All  banks  meet 
the 
performance  of  the  banking  sector  has  been  improving  in  the  recent  period. 
Overall, the profitability  of the sector has improved  as a result of increased  bank 
earnings and control of costs. Nevertheless, because of the too small scale of the 
banks, costs remain high by international  comparison. 

The development of the financial  sector, e.g., the money and capital markets, also 
suffers  from  the  anachronistic  payments  system  inherited  from  the  former 
Yugoslavia.  Although  the  appropriate  legislation  has  been  adopted,  the  markets 
are  dominated  by  the  main  banks  and  only  a  limited  number  of  financial 
instruments  are available,  so the sector has not deepened.  The stock  exchange  is 
technologically  advanced,  but  it  is  small  and  does  not  contribute  much  to  the 
financial  markets.  The  slow  start  to  privatisation  has  had  a part  to  play  in  this. 
inflows  has 
introduction  of  restrictions  on  portfolio  capital 
The  recent 
significantly  reduced the trading volumes on the stock exchange. 

The  interbank  market  is  the  only  organised  part  of  the  money  market. 
Commercial  banks,  enterprises,  some  state-owned  funds,  insurance  companies 
and the government  all participate. 

28 

Economic and Social Development 

Social  Indicators 

Slovenia is a small country with a population of two million. The population  has 
remained very stable over the past decade. 

The  workforce  is  skilled  and  fairly  well  educated  -  in  particular  the  younger 
generations.  The  share  of  employed  who  have  received  secondary  education  is 
relatively  high  at 60 percent  (1995). In addition, there is a significant  amoimt  of 
training,  both  on-the-job  and  otherwise:  the  authorities  estimate  that  some 
30 percent of those employed receive training. 

Life  expectancy,  which  was  reduced  as  a  result  of  transition,  is  currently  only 
slightly  below  the  EU  average  and  rising  again:  women's  life  expectancy  was 
77.4 years and men's was 69.6 in 1994. 

Regional  and Sectoral Differences 

In  recent  years  the  level  of  urbanisation  has  increased  with  industrialisation, 
however,  it remains relatively low: in  1995, 50 percent of the population  lived in 
cities. 

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

essential  for  a  candidate  country,  which  must  commit 

The  adoption  of  the  acquis,  and  in  particular  the  internal  market  acquis,  is 
therefore 
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. 

29 

The  capacity  to  take  on  the  acquis  has  several  dimensions.  On  the  one  hand, 
Slovenia  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,  Slovenia's  capacity  to  benefit  fully  from  the  competitive 
pressures  of  the  internal  market  requires  that  the  underlying  economic 
environment be favourable,  and that the Slovenian  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. 

Slovenia  began  the  transition  process  from  a  favourable  starting  point:  it  was  a 
relatively  wealthy  country  with  some  good 
infrastructure,  a  history  of 
decentralised  decision-making  and  established  links  with  the  West.  It  had 
industrialised  before  becoming  communist  and  it  never  adopted  command 
planning; private ownership began to develop before  independence. 

The  framework  for  a  market  economy  is  largely  in  place.  Macroeconomic 
stabilisation  has  been  largely  achieved:  inflation  is  in  single  digits,  the  budget 
and the current  account  are approximately  in equilibrium,  the currency  is  stable, 
and  economic  growth  resumed  in  1993.  Trade,  most  prices  and  the  foreign 

30 

exchange  regime  have  been  liberalised,  private  ownership  has  been  extended, 
legislation  appropriate  to  a market  economy  is being passed  and property  rights 
are  enforced.  Good  progress  in  the  implementation  of  the  Europe  Agreement 
should help to consolidate the functioning  of the market economy. 

However,  the  extent  of  competition  and  the  degree  to  which  the  market 
licensing 
mechanisms  work  still  need  some  improvement:  for  example, 
procedures  are  still  very  formal,  bankruptcy  procedures  are  slow,  and  a  cartel 
operates  in  the  banking  sector.  The  high  degree  of  indexation  in  the  economy 
also introduces a significant  amount of inertia into the system.  ' 

Reform  of  public  finances  is  also  still  necessary.  In  particular,  VAT  has  to  be 
introduced  and  the  tax  burden  on  labour  reduced.  Social  transfers  and  public 
wages  represent  an  increasing  burden  on  government  expenditure  which  should 
be reduced.  The most  important  and the most  difficult  issue  is pensions.  Public 
expenditure  on pensions  is taking an increasing  share of GDP  and  an  increasing 
amount  comes  from  the  central  budget.  Measures  to  assure  the  short-term 
sustainability  of  the  system  will  have  to  be  accompanied  by  more  structural 
reforms. 

A  strong  and  stable  financial  sector  is  an  essential  element  of  a  functioning 
market  economy.  Although  the  banking  system  has  a  long  tradition  of 
decentralisation,  and 
is  still 
regulation  appears  effective, 
underdeveloped  and  needs  to  mature.  Interest  rate  spreads,  i.e.  the  difference 
between  rates on loans and on deposits, are high because many of the banks  are 
too  small,  and  because  operating  costs  are  high.  In  general,  the  sector  lacks 
competitive pressures to enforce higher competitiveness. As a result, the banking 
sector  is not  able to perform  its role  as a financial  intermediary:  savings  are not 
being efficiently  channelled to productive investment. Nevertheless, the financial 
sector  is certainly  sufficiently  developed  not to hinder the normal  functioning  of 
the economy. 

the  system 

The Capacity to Cope with  Competitive Pressure  and Market  Forces 

It is difficult,  some years ahead of prospective membership, and before  Slovenia 
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  Slovenia's  development  which 
provide  some  indication  of  its  probable  capacity  to  cope  with  competitive 
pressure and market forces within the Union. 

This  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 

31 

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 is a sizeable proportion  of small  firms,  since these 
are relatively more affected  by impediments to trade. 

Slovenia  is potentially quite capable of coping with the competitive pressure  and 
market  forces  within  the  Union.  The  stabilisation  of  the  macroeconomic 
environment  is  well  advanced,  infrastructure  is well  developed,  and  significant 
progress has been made in reorienting the education and training system in order 
to  support  competitiveness.  Although  it  has  traditionally  had  relatively  high 
labour  costs,  the  economy  was  able  to  export  successfully  because  production 
was of relatively  good quality, and unit labour costs were still low relative to the 
EU.  However,  the  level  of  competitiveness  has  been  reduced  by  rapid  wage 
growth  and  the  real  appreciation  of  the  currency.  Competition  from  other 
transition  economies',  where  labour  costs  are  even  lower,  has  been  increasing. 
Although  productivity gains have taken place, the  slow pace  of  improvement  in 
competitiveness is hampering the expansion of economic activity. 

The high  degree of integration  with the Union  - about two  thirds  of  total  export 
and  import  flows  are with the EU - suggests  that  competitiveness  remains  quite 
high.  In  addition,  a  more  detailed  breakdown  of  exports  of  goods  shows  that 
although  transport  and  electrical  equipment  account  for  25 percent  of  exports, 
Slovenia  successfully  exports  a  relatively  wide  range  of  products,  which 
indicates  the  general  ability  of the  Slovenian  economy  to  compete  in  the  single 
market.  Moreover,  the  current  widespread  involvement  in  trade  with  the  EU 
reduces  the  vulnerability  of  the  economy  to  the  full  integration  in  the  single 
market  and  the  adoption  of  the  acquis  even  if  some  sector  would  prove  to  be 
unable to withstand the competition within the single market  after  accession,  the 
diversification  of exports would leave the economy relatively  unharmed. 

Other  evidence  on  the  ability  of  the  economy  to  adjust  to  greater  competition 
relates  to  the  structure  of  ownership  and  production:  the  evidence  is  mixed.  At 
present  the  industrial  structure  is  not  very  concentrated  and  Slovenia  produces 
some  high  tech  goods,  which  together  suggest  that  adjustment  could  be  quite 
smooth.  In  addition,  the  number  of  private  and  smaller  firms  has  increased. 
However,  production  and  employment  are  still  dominated  by  enterprises  where 
management  practices  have  not  changed.  A  large  proportion  of  medium-sized 
firms  are  owned  by  the  management  and  workers,  whose  incentives  to 
restructure,  in  particular  through  changes  in  working  practices,  are  weak.  In 
addition,  in  such  enterprises,  access to new  capital  and technology,  which  could 
facilitate  restructuring,  is  relatively  limited  compared  to  foreign-owned  firms. 
State-owned  enterprises  still represent  an important part  of production.  The  lack 

32 

of  effective  monitoring  and  control  structures  on  these  enterprises  is  not 
beneficial  for their restructuring. 

Investment  is relatively low as a percentage of GDP and to date has largely been 
in infrastructure  (telecommunications  and transport  links)  and the energy  sector. 
A  significant  proportion  has  gone  to  "non-productive"  assets  (e.g.,  land, 
buildings).  This  has  understandably  not  produced  immediate  improvements  in 
productivity  performance,  however  it  lays  the  basis  for  future  gains.  Although 
basic  scientific  research  is  at  a  high  level,  there  is  not  enough  investment  in 
enterprise-based  and  applied research. At present  the private  sector  accounts  for 
only around  25 per cent of  investment.  The  amount  of  foreign  direct  investment 
in  Slovenia  is also  generally  low,  compared  to  the  size of  the  economy.  This  is 
likely to be acting as a brake on restructuring, especially given that the firms with 
foreign  investment  are the most successful  in terms of exports, returns on equity, 
and  labour  costs. The links between  enterprises  and  their banks  are often  strong 
so that the latter find it hard to exert sufficient financial discipline on the  former. 

Agriculture  is  dominated  by  small  dispersed  individual  farms.  Technology, 
productivity  and  efficiency  are  all  low,  so  there  is  still  a  significant  need  for 
adjustment,  which could lead to lower employment in the sector. 

The  authorities  are aware that  the  legal  system  still needs to  be  adapted  further, 
and  EU  standards  need  to  be  adopted  if  Slovenia  is  to  cope  with  competition 
within  the  Union.  This  will  require  a  substantial  input  from  the  public 
administration,  which  needs  to  be  strengthened  in  terms  of  coordination  and 
implementation.  In  addition,  the  authorities  have  identified  the  need  to  clearly 
separate  the  legislative  and  executive  branches  of  power  to  give  government  a 
clearer role and facilitate policy  implementation. 

Although  the  banking  sector  is  relatively  well-developed,  it  is  not  competitive: 
operating costs are high, and there is a lack of competition in setting interest rates 
because  of  a cartel  agreement.  Because the number  of banks  is too  high  for  the 
size and the economic needs of the country, the sector will need to consolidate. 

The  Slovenian  authorities  are  devoting  considerable  resources  to  developing  a 
consistent  medium-term  macro-  and  microeconomic  framework,  within  which 
the necessary  economic reforms  to prepare for EU membership  can be  identified 
more easily and executed more smoothly. 

Prospects  and  Priorities 

The  Slovenian  authorities  have  adopted  two  medium  term  strategies:  one  for 
economic  policy  as  a  whole,  and  one  for  international  policy  specifically.  The 
problems  facing  the  economy  have  been  clearly  identified  in  the  government's 
medium-term  strategy, but  this has yet  to be  implemented.  The  focus  for  policy 
has  shifted  from  macroeconomic  stabilisation  to  micro-economic  and  structural 
adjustment.  The aim is to boost competitiveness  and revitalize the economy.  The 
details of policy - e.g., financing, timing are being worked out. 

33 

Slovenia's  strengths and weaknesses stem largely from the fact  it is a small open 
economy which is relatively wealthy, and which has a strong consensual culture. 

Slovenia  has  made  substantial  progress  in  achieving  macroeconomic  stability: 
inflation  is  in  single  digits, the budget  deficit  is  low,  the currency  is  stable  and 
growth  resumed  in  1993. Progress  on  structural  reform,  on  the  other  hand,  has 
been much  less rapid. The system lacks some dynamism,  and has a weak  record 
on  restructuring  and  investment.  As  a  result  of  this,  growth  remains  relatively 
low, while  inflationary  pressures  persist.  Expansion  is  likely  to be  hampered  to 
some  extent  in the  short  term by the need to reform  public  finances  further.  For 
growth  to  begin  accelerating  again,  competitiveness  and  export  performance 
need to improve. 

Progress in structural change has been relatively slow because the call for  reform 
was less strong than elsewhere. Firstly, the economy was relatively wealthy,  and 
still  is. Secondly,  the  industrial  decline  after  independence  was  less severe  than 
elsewhere.  Restructuring  has  been  limited  in  part  because  of  the  method  and 
speed  of privatisation,  which  did  not  bring  in new  capital  or  new  management. 
This helps  explain why investment  in technology  and research  and  development 
at the enterprise  level have been limited. Another  factor  is the high interest  rates 
which discourage investment. 

Inflationary  pressure  is  strong. The necessary  further  liberalisation  of prices  for 
some  key  commodities  will  continue to put  upward  pressure  on  the price  level. 
Additionally, inflation  is fuelled  by the indexation of wages and interest rates. To 
control inflation  the degree of indexation needs to be reduced. 

Competitiveness  has  been  affected  by  the  lack  of  investment  in  modern 
technology,  the  lack  of  restructuring  and  rising  unit  labour  costs.  The  chosen 
method  of  privatisation,  which  favours  incumbent  managers  and  workers,  does 
not  encourage  foreign  investor  participation  or  bring  in  much  new  capital.  In 
many  cases,  it  has  not  even  resulted  in  substantially  new  work  practices  or 
restructuring. Domestic investment has been stronger in the  social  sector than  in 
private  sector,  where  it  has  been  relatively  limited  because  of  high  real  interest 
rates  and  poor  access  to  loans.  As  regards  wages,  the  Social  Agreements  of 
1994-96  did  go  some way  to  steadying rises but  only  had  limited  success  - real 
wage  growth  continued  above productivity  growth  and  above  the  targets  set  by 
the agreements. The need to contain wage growth is increasing but there has been 
no concerted  attempt to deal with the main problem  of indexation  in the  system. 
The  government  has  reduced  non-wage  labour  costs, but  they  remain  very  high 
and budgetary constraints may make further reductions more  difficult. 

Slovenia  still  has  to reform  part  of  its public  finances.  At  present  the burden  of 
social  security  contributions  on  labour is disproportionate  and  there  is no  VAT. 
Both of these issues will need to be addressed. VAT is now due to be introduced 
in  1999,  which  is  considerably  later  than  originally  scheduled.  The  other 
challenge is to reform  the pension and unemployment  funds.  Until recently these 
were  self-financing.  However,  because  of  lower  social  contribution  rates  and 
demographic changes, which are going to worsen rather than improve, they have 

34 

gone into deficit.  To date the state budget has financed the deficit but there is a 
limit to how long this can go on. 

Public  administration  has  been  reformed  to  a  significant  extent;  however,  the 
authorities  still  rightly  feel 
improve  policy-making  and 
implementation.  At  present  there  is  a  lack  of  co-ordination  in  those  areas  of 
policy where more than one ministry is involved. 

the  need 

to 

2.3  General Evaluation 

Slovenia  can  be  regarded  as  a  functioning  market  economy.  It  has  advanced 
considerably in liberalisation and privatisation, and achieved a successful  stabilisation 
of the economy. However, there is a lack of competition in some sectors, in particular 
the  financial  sector,  the  working  of  the  market  mechanisms  still  needs  some 
improvement, and the necessary reforms of the fiscal  and social security systems are 
not yet completed. 

Slovenia should be able to cope with competitive pressure and market  forces  within 
the Union in the medium term, provided that rigidities in the economy are reduced. It 
has  a  diverse  export  base,  the  workforce  is  skilled  and  highly  trained,  and 
infrastructure  is relatively good. However, enterprise restructuring has been slow due 
to  the  consensual  character  of  economic  decision-making,  and  the  incentives  of 
workers  and managers  to preserve the status quo. Improvements  in  competitiveness 
have been hampered by rapid wage growth combined with  low productivity  growth. 
The  low  level  of  foreign  direct  investment  reflects  these  structural problems, which 
need to be tackled. 

35 

3.  Ability to Assume the Obligation 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, Slovenia has accepted  without 
reserve  the  basic  aims  of  the  Umon,  including  its  policies  and  instruments.  This 
chapter  examines  Slovenia'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 Slovenia 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 Slovenia. 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  Slovenia'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 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 io  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 

36 

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. 

The Four 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 
Slovenia was  signed  in  1996 and  is being ratified.  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. 

-  preceding  the  entry  into  effect  of  the  Europe  Agreement,  the  Interim  Agreement 
provides  for  the  implementation  of  the  trade  and  trade-related  aspects  as  stipulated 
under the Europe Agreement with effect  from  1 January  1997. 

-  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 transpose  and 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 

37 

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  is  regulated  by  a  1997  framework  law,  which  is  intended  to 
implement part of the EC requirements as a first step. Implementing decrees are in the 
process  of  being  adopted  by  the  Government.  A  Public  Procurement  Unit  under  the 
Ministry  of  Finance  is  in  charge  of  monitoring  the  public  procurement  system, 
preparing  new  legislation  and  issuing  instructions.  According  to  this  law  an 
independent  Audit  Committee will be appointed  by Parliament  to rule on  all  requests 
for audit of decisions. 

Based  on  the  Law  on  Industrial  Property  (1992-93)  and  on  the  Law  on  Intellectual 
Property  (1992-93), intellectual  and industrial property  legislation  in  Slovenia  is well 
developed.  The  Intellectual  Property  Office  is  in  charge  of  monitoring  legislation  in 
the  intellectual  and  industrial  property  field  and  coordinating  enforcement 
in 
cooperation with customs, police and the Trade Inspectorate. The TRIPS Agreement is 
applicable to Slovenia. 

Company  law  is  governed  by  the  1993  Law  on  Commercial  Companies.  Currently, 
48,000 companies of various types are registered.  Companies can issue shares to raise 
finance,  and  shareholders  are protected  in  this  event.  Minimum  capital  requirements 
are  laid  down  by  law.  There  are  safeguard  clauses' for  the  protection  of  authorised 
capital. Different  obligations exist for the protection of creditors depending on the type 
of  company.  Companies  are  required  to  publicise  information  about  major  decisions 
affecting  them. There is a register of companies  in which all the essential  information 
regarding  each  company  is  kept.  Articles  246(5)  and  449(6)  of  the  Law  on 
Commercial  Companies  stipulate  that  the  majority  of  directors  of  joint  stock  and 
limited  liability  companies  have to be  citizens  of  Slovenia.  There  are  also  provisions 
restricting  the  operation  of  foreign  firms  in  Slovenia  through  branches,  thereby 
limiting the freedom of establishment (Arts. 561 to 568). 

The accounting field is regulated by Chapter 7 of the Law on Commercial  Companies 
(1993).  There  is  a  Law  on  Audit  (1993).  The  Slovenian  Institute  of  Auditors  is 
authorised to adopt accounting standards and to issue certificates  to auditors. 

Article  38  of  the  Slovenian  Constitution  provides  for  the protection  of personal  data. 
Based  on that  article, the law of 7 March  1990 establishes the institutional  framework 
for  the protection  of data, including a supervisory  authority. Slovenia acceded  in May 
1994 to the Council of Europe Convention No  108 on data protection. 

Current  and Prospective  Assessment 

The new Slovene legislation on public procurement only incorporates part of the scope 
of  the  EC  directives.  Rules  on  selection  and  award  criteria  will  need  to  be  clarified. 

38 

The  system  of  legal  remedies  is  not  fully  compatible  with  the  EC  requirements. 
Furthermore, utilities sectors do not seem to be covered. 

At  present,  Slovene  firms  including  Slovene  subsidiaries  of  EU  firms),  obtain 
preferential  treatment  as  regards  the  award  of  public  procurement  contracts.  This 
system  of preferences  could be maintained  only up to the end of the transition  period 
allowed  by  the  Europe  Agreement  (i.e.  6  years  after  entry  into  force).  Complete 
harmonisation in the field of public procurement is expected to be achieved by the end 
of  1999.  Slovenia's  authorities  recognise  that  changes  to  the  draft  law  will  most 
certainly be needed to meej: EC requirements. 

Intellectual  and  industrial  property  legislation  is  with  minor  exceptions  compatible 
with  the  acquis  communautaire.  Aspects  remaining  to  be  harmonised  include  the 
duration  of  the  protection  of  audiovisual  productions  and  the  introduction  of 
Supplementary  Protection  Certificates.  As  regards  the  implementation  of  legislation, 
in particular  in the pharmaceutical sector, the exhaustion  of trade marks  still needs  to 
be addressed. 

It is further  intended to address provisional measures and the preservation of evidence 
in  infringement  procedures  and  border  measures  by  amending  existing  legislation  in 
1999.  In  practice,  the  administrative  structures  are  not  fully  equipped,  especially  as 
regards their staffing  levels and training, to enforce legislation adequately. 

According to the  information  on company law provided by  Slovenia,  its legislation  is 
already  in  line  with  the  First,  Third,  Eleventh  and  Twelfth  Directives,  and  it  is 
understood  that the one remaining  derogation from the  Second Directive  and also  the 
restrictions  against  foreign  directors  and  foreign  firms  are  likely  to  be  abolished  in 
1997. 

With  regard  to  accounting, nearly  all requirements  in  the  4th,  7th  and  8th  Directives 
appear  to  have  been  implemented.  One  change  in  the  Law  on  Audit  is  planned,  to 
allow  an  audit  to  be  conducted  by  a  self-employed  auditor,  not  only  by  an  auditing 
firm.  Certain  transitional  problems  are  in  evidence  relating  to  the  implementation  in 
practice  of the new  rules,  including  a shortage  of  qualified  accountants  and  auditors, 
but these can be solved in the medium term. 

The  accession  of  Slovenia  to  Council  of  Europe  Convention  No  108  indicates  that 
Slovenian  legislation  on  data  protection  is  in  line  with  European  standards  as  laid 
down  in  that  Convention.  Moreover,  an  authority  competent  to  supervise  the 
implementation  of  the  legislation  has  already been  established,  the powers  of  which 
are clearly  laid  down  in the Law. Nevertheless,  Slovene  legislation  is not  yet  fully  in 
line  with  the  EC  framework  Directive.  A new  law  is  expected.  Implementation  and 
enforcement  also need to be strengthened. 

In  the  field  of  civil  law  it  should  be  noted  that  the  Convention  of  Lugano  on 
jurisdiction  and  the  enforcement  of  decisions  in  civil  and  commercial  matters  is  not, 
for  the  time  being,  open  to  Slovenia,  which  needs  to  make  progress  in  the  area  of 

39 

protection of civil interests, subject to the assessment of the states already party to the 
Convention. 

Conclusion 

Slovenia  has  already  largely  taken  on  the  most  important  directives  in  the  sectors 
indicated  above.  Implementation  of  the provisions  of  the  Europe  Agreement  and  the 
White  Paper's  recommendations  covering  the  sectors  reviewed  has  generally  been 
good. 

there  is  scope  for  further  strengthening 

However,  further  work  is required  in the area of public procurement,  where  Slovenia 
will need to make comprehensive  amendments to its recently introduced  legislation  in 
order  to  reach  full  alignment  with  the  corresponding  EC  directives.  Regarding 
intellectual  property, 
implementation 
procedures  and  enforcement  of  legislation.  In  the  fields  of  company  law  and 
accounting,  no problems  are  foreseen,  assuming  the  legislative  timetable  proceeds  as 
planned, including the repeal of the discriminatory provisions in company law  referred 
to above. In the field of data protection, further  efforts  are required to bring  legislation 
fully  into  line  with  the  EC  framework  Directive.  Implementation  and  enforcement 
capacities need to be strengthened. This should be possible in the medium term. 

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 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 standards 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. 

40 

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 

Slovenia started on its path towards establishing the conditions  for the free movement 
of goods with the entry into force of the Interim Agreement on  1  January 1997. 

All  prices  have  been  liberalised,  with  the  exceptions  of  those  for  public  utilities, 
foodstuffs  and agricultural prices. 

With regard to technical barriers to trade, the process of alignment is proceeding rather 
slowly.  In  some  areas  federal  regulations  of  the  former  SFRY  are  still being  used  as 
national regulations in Slovenia. 

Concerning  legislative  alignment,  Slovenia  has  made  some  progress,  following  a 
period of standstill  in the second half of  1996. However, the legislative  approximation 
programme  presented  in  May  1997  is  rather  weak  both  in  scope  and  substance  of 
legislative  alignment. 

The Slovene  Standards  and Metrology Institute (SMIS), a government-linked body, is 
entrusted  with  both  the  standardisation  and  accreditation  functions,  this  latter 
traditionally belonging to the public sphere. 

Overall, the standardisation activity is progressing well. By June  1997, SMIS, which is 
an  affiliate  member  of  Comité  Européen  de  Normalisation  (CEN)  and  Comité 
Européen  de  Normalisation  Electro  Technique  (CENELEC),  had  issued  more  than 
1200 standards, the great majority  of which transpose  either  European  or  nternational 
Organisation  for  Standards  /International  Electrotechnical  Commission  (ISO/CEI) 
standards.  However, there is still a considerable stock of former  Yugoslav  regulations 
in  force  of  mandatory  application,  many  of  which  require  different  forms  of 
mandatory third-party  certification. 

Current  and  Prospective  Assessment 

Slovenia  has  been  liberalising  progressively  its  trade  regime.  Nonetheless,  further 
efforts  are required  for the full  adoption and implementation of the acquis. 

41 

There remain  a number of restrictive measures relating to foreign  trade, including  the 
regime  of  import  licensing.  About  three  per  cent  of  imports  require  special 
government  licenses  or  are  subject  to  quantitative  restrictions.  The  new  set  of  pan-
European rules of origin, applied by Slovenia from 1 January  1997, will further  favour 
trade and free circulation. 

In  some  cases  Slovene  mandatory  standards  and  certification  requirements  create 
technical  barriers  to  trade.  Additional  removal  of  technical  barriers  to  trade  will  be 
achieved  once  Slovenia  has  adopted  EU  technical  legislation  and  taken  over  EU 
concepts. 

Legislative  alignment  has just  started  in  early  1997,  after  some  period  of  standstill. 
The legislative approximation programme presented  in May  1997 covers  considerable 
ground  but  is rather  weak both in  scope and  substance  of  legislative  alignment.  New 
Approach  directives  are not mentioned  and approximation  is unclear  in the  chemicals 
and  foodstuffs  sector.  In  some  areas,  however,  legislative  alignment  seems  to  be 
progressing  satisfactorily,  such as on pharmaceuticals  and the automotive  sector.  The 
late adoption  of the Law on Standards, being envisaged  for  1999, will  affect  progress 
in negotiations on the European Conformity Assessment Agreement. 

According to the Slovene.authorities major legislative measures should be transposed by 
the  year  2000.  It  needs  to  be  borne  in  mind,  in  any  case, that  secondary  legislation  is 
often  necessary  to  implement  the  general  legislative  framework.  However,  the  limited 
endowment  of  human  resources  and  technical  expertise  of  Slovenia  may  hinder  a 
smooth  approximation process and the setting up of relevant  implementation  structures, 
thereby making the reform process  difficult. 

In  addition,  adequate  structures  and  staffing  for  market  surveillance  should  be 
established  and  developed  in the competent public authorities  for  the ex-post  control  of 
product  safety.  With regard to the necessary structures to apply the acquis, Slovenia has 
yet  to  achieve  the  required  separation  between  the  regulatory,  standardisation  and 
product  certification  functions,  for the latter two of which more emphasis  should be put 
on the involvement  of the private sector. 

The  current  Slovene  legislation  concerning  civil  liability  for  defective  products  does 
not  yet  conform  fully  to the EC requirements  in that  area. However,  amendments  are 
already planned in this respect. 

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

42 

also  hard  to  assess  whether  Slovenia  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. 

Conclusion 

While limited progress has been made towards adopting the acquis  related to the free 
movement  of  goods,  considerable  further  work  is  needed.  In  this  respect,  the 
implementation of the provisions of the Interim and Europe Agreement will  contribute 
to progress over the next years. 

Efforts  will  have  to  be  strengthened  to  align  technical  legislation,  including  New 
Approach  Directives.  The  standardisation  and  conformity  assessment  system  also 
needs to be strengthened. A speedy adoption of the new Law on Standards would help 
in  this  respect.  Human  resources,  skill  and  institution  building  should  be  equally 
upgraded.  Provided  current  efforts  are  increased,  free  circulation  of  goods  could  be 
completed in the medium term. The Slovenian authorities should also see to it - in the 
fields not covered by Community  harmonisation  - that their national  law  is not  likely 
to hinder trade, notably by  ensuring that the measures in force  are proportional  to  the 
objectives  pursued. 

Free Movement of Capital 

The  Europe  Agreement  establishes  the  principle  of  the  free  movement  of  capital 
between  Slovenia  and  the  EU.  This  applies  from  the  entry  into  force  of  the  Europe 
Agreement  as  regards  direct  investments  made  by  companies  already  established  in 
Slovenia  and  as regards branches  and  agencies  of  Community  companies  (as well  as 
the self-employed), gradually during the transitional period. 

It also prohibits the introduction of any new foreign  exchange restriction from its entry 
into  force. 

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  transactions  to 
short-term capital. 

43 

Descriptive  Summary 

Between  1990-96  foreign  direct  investment  (FDI) reached  ECU  600 millions  By  the 
end of  1996, the share of FDI in GDP was  10.8%. Taking into consideration the level 
of GDP in Slovenia, FDI is moderate. The small size of the market explains part of it. 
However,  there  are  also  restrictions  to  FDI.  These  refer  mainly  to  the  way  the 
privatisation  of  socially-owned  enterprises  has  been  implemented  (mainly  through 
for  portfolio 
management  buy  outs  accompanied  by  restrictive  stipulations 
investments by foreigners), to overall tightened controls on foreign  capital inflows  and 
to various sector specific  restrictions. 

Both  the  government  and  the private  sector  have  access  to  the  international  financial 
markets. However, interest-free  deposits in Tolar for non-Government  borrowers have 
been  increased  to  40%  for  loans  with  a  maturity  up  to  seven  years  (and  10%  for 
longer-term  loans).  Other  measures  taken  by  the  Bank  of  Slovenia  comprise  the 
introduction  of  custody  accounts  for  foreign  investors,  increases  in  obligatory  bank 
reserves for foreign  loans and ceilings for remittances from residents'  accounts. 

In  September  1995  Slovenia  officially  accepted  the obligations  of Article  VIII  of  the 
IMF  and  thus  formally  established  full  current  account  convertibility  of  the  Tolar. 
Current account transactions had been, in practice, freed a few years before. 

Capital  outflow  is, in general,  subject  to  authorisation  while the  regime  applicable  to 
capital  has been  recently restricted  as well. Among the  liberalised  capital  movements 
are  foreign  direct  investment  in  the  country  (with  exceptions)  and  abroad  (under 
certain  conditions),  commercial  credits,  personal  capital  movements  (except  loan 
operations) and financial  credits and loans (with exceptions/limitations). 

Current  and Prospective  Assessment 

A notable  characteristic  of the legal framework concerning  capital  movements  is that 
no  provisions  exist  for  the  implementation  of  operations  in  securities.  This  implies 
that,  concerning  the  purchase,  sale  or  other  operations  in  securities,  the  provisions 
governing direct investment, or borrowing and lending, apply by analogy. 

In order to establish the legal basis for the further  liberalisation  of capital  transactions 
and  to  cover  grey  areas  of  existing  legislation,  notably  for  operations  in  securities,  a 
new Law on Foreign Exchange is scheduled to be adopted early  1998. 

The  prohibition  against  establishment  of  branches  and  cross  border  provision  of 
services  by  EU  investment  is  intended  to  be  removed  with  the  introduction  of  the 
Foreign Exchange Act early  1998. Effective  legislation needs to be put in place for the 
management  of pension  funds. 

The approximation of legislation  as regards the capital market corresponds, in general, 
to  the  obligations  undertaken  in  the  Europe  Agreement.  However,  some  decrees 
adopted  by  the  Bank  of  Slovenia  are  not  in  line  with  the  Agreement.  The  following 
specific  issues deserve further  attention: 

44 

a) the issue of the acquisition of real estate by non-residents in Slovenia. 
b) according to provisions in Slovema's company legislation, the majority  of members 
of  companies'  boards  of  directors  must  be  Slovenian  nationals.  This  provision  is 
restrictive  and  provides  a  disincentive  for  the  acquisition  by  non-residents  of 
controlling  stakes  in  Slovene  companies.  The  government  is  aware  of  the  problem 
and  intends  to  remove  the  provisions  as  far  as  banks  and  insurance  companies  are 
concerned  through  the  new  banking  and  insurance  laws.  At  present,  however,  no 
change in these provisions is foreseen  for the other sectors. 
c)  high  interest-free  deposits  in  Tolar  for  non-Government  borrowers  constitute  an 
important restriction on the free movement of capital; 
d)  tight  registration  procedures,  based  on  the  compulsory  establishment  of  custody 
accounts, and high transaction  costs, due to high foreign  currency reserves to be built 
up by the banks have a negative effect  on foreign investment and loans. 

The  scope  and the justification  of the measures  adopted by the Bank  of  Slovenia  will 
have  to be  examined  in  further  detail.  Overall,  the restrictions  introduced  early  1997 
tighten  further  the  control  over  foreign  exchange  transactions,  have  a negative  effect 
on foreign  investments and loans, and should be phased out. 

Conclusion 

Overall,  liberalisation  of  capital  movements  is  slow.  Despite  substantial  progress  in 
the  approximation  of  legislation,  reflecting  the  stipulations  of  both  the  White  Paper 
and the Europe Agreement, recent measures adopted by the Bank of Slovenia caused a 
set back to the liberalisation  efforts. 

The  government  is  aware  of  these  problems  and  has  the  intention  to  introduce  some 
capital  liberalisation  measures,  including  the  possibility  of  foreign  banks  to  open 
branches  in  Slovenia,  through  a  new  Foreign  Exchange  Act.  However,  under  the 
current  framework  of  monetary  and  exchange  policies,  there  is  little  prospect  of  an 
important  move  towards  further  capital  liberalisation.  Therefore  macroeconomic 
foreign  direct  investment  policies  should be  reviewed  in  order  to be  compatible  with 
more liberal movements and to promote higher foreign direct  investment. 

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 

45 

of national markets in the sectors 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. 

Descriptive Summary 

With three important  exceptions all banks are currently privately owned. There are no 
branches of foreign banks allowed. The balance sheet total has been growing  steadily, 
both  in  absolute  terms  and  as  a  percentage  of  GDP.  The  three  biggest  banks  cover 
more than half of the market. 

The  1991 Law on Banks and Saving Institutions regulates the establishment,  operation 
and  supervision  of  banks  and  savings  institutions.  Because  of  the  underdeveloped 
financial  system  the  law  also  includes  some  provisions  which  enabled  the  domestic 
banking system to adjust to the international financial environment. 

Supervision  of  banks  and  savings  banks  is  performed  by  the  Bank  Supervision 
Department  of  the  Central  Bank.  A  comprehensive  system  of  banking  laws  and 
regulations is in place and the Central Bank monitors closely its implementation. 

The  problem  of  poor  asset  quality  has  been  addressed  after  the  promulgation  by  the 
Bank of decrees setting out rules and regulations  on calculating provisions  as security 
against  potential  losses. Foreign  banks  may  establish  subsidiaries  in  Slovenia,  which 
benefit  from  national  treatment,  or  a  representative  office.  They  cannot  open  a 
branches,  but  the  abolition  of  these  restrictions  is  foreseen  under  the  new  banking 
legislation discussed in Parliament. 

All banks meet the 8% international capital adequacy requirement and in fact exceed it 
considerably. To operate with a full-license  a bank must have at a minimum SIT 4.080 
million  or  about  ECU  25  million  at  the  end-1996  exchange  rate  and  must  also  be 
active in retail banking in Slovenia. 

A  new  Banking  Law  is  scheduled  to  be  adopted  by  end  1997.  Besides  the  Basel 
Standards,  all  relevant  EU  Directives  are  taken  into  account.  This  law  targets 
particularly  at  adjusting  the  Slovene  banking  sector  to  international  criteria  and 
standards. 

There  is  only  one  regulated  market,  namely  the  Ljubljana  stock  exchange,  access  to 
which  is  also  allowed  to  credit  institutions.  The  Exchange  is  a  self-regulatory 
organisation  whose  responsibilities  include  the  adoption  of  provisions  concerning 
access to  the market,  listing requirements, real-time  disclosure  of market  information 
via  radio  broadcasting  and  data  reporting  to  the  authority.  The  Ljubljana  Stock 
Exchange  is  member  of  the  International  Organisation  of  Securities  Commissions 
(IOSCO)  and  the  emerging  markets  committee.  Foreign  ownership  of  brokerage  is 
limited to 24% of their capital. 

The  securities market  is regulated by the  1994 Law on the  Securities  Market  and,  for 
the  establishment  and  the  operation  of  investment  companies  and  mutual  funds,  the 

46 

1994  Law  on  Investment  Funds  and  Managing  Companies.  The  regulation  of  the 
market  was  modelled  after  the  US  Securities  and  Exchange  Commission.  The 
regulation  and  supervision  of  the  securities  market  is  performed  by  the  independent 
Securities and Exchange Agency. There is a centralised securities register, the  "central 
register of dematerialised securities". 

Five  insurance  companies  have  a  social  ownership  (public  but  not  State),  in  two  of 
them the social  ownership  exceeds  50%. The biggest  insurance company  covers 56% 
of  the  market  and  has  80% of  total  own  funds.  There  is  one  state-controlled  export 
credit insurer. 

The  legal  framework  for  insurance  companies  is  the  Insurance  Companies  Act, 
published in  1994 and  1995. The regulation and supervision of the market  is currently 
being  implemented  while  further  measures  are  envisaged.  The  1994  Insurance 
Companies  Act  authorises,  upon  approval  of  the  Insurance  Supervisory  Authority, 
foreign  establishments  only  through  participations  of  up  to  15%  of  the  capital. 
Foreign investors can buy additional shares in Slovene insurance companies subject  to 
approval  by  the  Supervisory  Authority.  The  legal  basis  for  the  establishment  of  the 
Insurance supervision authority is set by the above Insurance Companies Act. 

Since  1995,  the  activities  of  the  supervisory  authority  have  been  carried  out  by  the 
Insurance Supervisory Authority, a body part of the Ministry of Finance. 

Recapitalisation  of  the  insurance  sector  is  expected  to  take  until  1999.  Investment 
abroad  is not  allowed. In the case of re-insurance, there  is  limited  access  to the  local 
market. 

Current and Prospective  Assessment 

In the banking  sector, laws and regulations  adopted  after  Slovenia's  independence  are 
similar  to  those  of  the  EU,  namely  to  the  Stage  I  measures,  and  are  being  further 
harmonised  with  European  directives  under  the  new  legislation  to  be  adopted  by  the 
end of  1997. This wiU contribute  further  to  the  increase  in  efficiency  of  the  banking 
system as it becomes part of the European and global banking sector. 

The recent  introduction  of  custody  accounts  for  foreign  investors  in  Slovenia,  linked 
with  a restrictive  licensing  and  foreign  currency  reserve policy,  limits  the  number  of 
banks  entitled  to  carry  out  foreign  capital  transactions,  excluding  also  the  foreign 
banks which  do  not provide  retail  services  in Slovenia, because these  are not  eligible 
to a full  license.  Only  a full  licence  grants  a bank  the  right  to  open  custody  accounts 
and thus perform  the above transactions. 

Approximation  to White Paper  Stage I measures was achieved by the  adoption  of the 
Securities Market Law,  1994. The Agency for the Securities Market lacks the power to 
perform  its supervision duties efficiently.  The transposition of the principles laid down 
by  the  Investment  Services  and  Capital  Adequacy  Directives  is  currently  under 
scrutiny by the  Government. 

47 

Credit  institutions,  which  may  be  authorised  by  the  Bank  of  Slovenia  (with  prior 
opinion of the securities supervisor) to provide investment services, cannot have more 
than  one  stockbroking  firm  as  a  subsidiary.  Establishment  of  branches  and  cross-
border  provision  of  services from third  countries  is  not  allowed.  A  24% ceiling  is 
imposed on non-residents' stake in stockbroking firms. However, EU investment firms 
may  hold  majority  interests  in  local  credit  institutions  authorised  by  the  Bank  of 
Slovenia to provide investment services. 

The  prohibition  against  establishment  of  branches  and  cross-border  provision  of 
services by EU investment firms is intended to be removed with the introduction of 
the Foreign Exchange Act early 1998. 

In the field of insurance Slovene legislation still has to undergo some adjustments  to 
EU legislation  as regards the supervisory  system, provisions for  foreign  investments 
and the lack of transparency in the application of regulations. Problems remain to be 
solved concerning privatisation.  Restrictions on setting up branches in Slovenia need 
to be removed. 

Supervision of the sector is still in the early stages of its development. The Insurance 
Supervisory Authority was installed in March 1996 within the Ministry of Finance but 
needs further strengthening. 

48 

Conclusion 

Substantial progress has been achieved. The acquis in this sector has already been to a 
considerable  extent  transposed,  but  important  provisions  still  remain  to  be  adopted. 
Full  free  establishment  in the areas of banking, securities  and  insurance,  in  particular 
with regard to branches of foreign  institutions, still has to be adequately introduced in 
the sectors' legislative frameworks and duly implemented. 

Foreign  banks  are currently  excluded  in practice  from  foreign  capital  transactions,  as 
these are reserved  to banks benefiting  from  a full  licence, whose grant  is subject  to  a 
very  high  capital  flow  and  to  the  provision  of  a  full  range  of  services  in  Slovenia 
(including retail services). 

As  regards  insurance,  privatisation  should  be  speeded  up  and  the  insurance  and 
reinsurance  sector  opened  up  to  EU  operators  and  to  foreign  investment.  The 
supervisory  functions  in  the  sector  are  expected  to  be  strengthened  by  the  new 
legislation under preparation. 

However,  provided  harmonisation  proceeds  as  planned,  no  major  difficulties  are 
foreseen  in  achieving  full  approximation  in  relation  to  free  movement  of  financial 
services in the medium term. 

Freedom of 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 not yet been fully  applied throughout the Union. 

a)  Free  Movement  of  Union  Citizens.  Freedom  of  Establishment  and  Mutual 
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  Slovenia  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. 

49 

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 

According  to  current  legislation,  foreigners  are basically  entitled  with  equal  rights  as 
regards  working  conditions  as  well  as  in  the  field  of  social  security  with  certain 
exceptions linked to the status of permanent residence. 

The  issue  of  a  work  permit  is  conditioned  upon  the  non-availability  in  the  area  of 
prospective employment  of a suitable local worker. Work permits are normally  issued 
for only one year and only for work with a single employer. In case, the worker  loses 
the employment he must leave the country. Family members of foreign workers do not 
acquire  the  right  to  work.  There  is  scope  for  the  state  to  develop  further  initiatives 
aimed at economic and social integration of foreigners. However, Slovenia is currently 
preparing  new  immigration  legislation  following  European  standards  and  principles 
which will address these issues. 

Concerning training, major  efforts  have been undertaken by the Slovene  Government 
to  conform  with  EU Directives.  Slovenia has  largely  taken  up  the acquis.  Structures 
(ministries  and-public bodies)  are in place for many professions,  but these need  to be 
reinforced. 

Current and Prospective  Assessment 

Slovenia  has  made  significant  efforts  to  adapt  its  social  legislation  to  EU  standards. 
With  minor  exceptions,  Slovene  legislation  already  recognises  the  principle  of 
non-discrimination  between  nationals  and  foreigners  legally  residing  in  the  country. 
Therefore,  the  application  of  the  principle  of  equal  treatment  to  those  EU  workers 
already legally residing in Slovenia should not be a problem. 

Current  restrictions  on the employment  of non-national  employees  in top  managerial 
positions  are  to  be  abolished  with  the  new  Company  legislation  scheduled  to  be 
adopted by the end of 1997. 

50 

Most  of the acquis  concerning  the mutual  recognition  of  diplomas  and  qualifications 
have  already  been  taken  on  board.  However,  there  are  still  important  areas  where 
continued  efforts  are  required.  Full  approximation  is  to  be  achieved  in  the  medium 
term. 

Training, where coordinated by directives for seven professions, is broadly in line with 
the acquis  although some adaptation is still necessary. Professional  structures (such as 
professional  chambers or associations) are in place for many professions  but these will 
probably  need  to  be  reinforced  in  the  future.  Integration  with  EU  professional 
associations  is  developing  well  (for  example,  engineering  diplomas  already  meet  the 
minimum European standards). 

Conclusion 

Policies  on  immigration  and  work  permits  are  handled  restrictively,  but  legal 
amendments  are  under  preparation.  On  mutual  recognition  of  diplomas,  some  areas 
remain to be  adjusted. 

Slovenia is aware of the outstanding issues that need to be resolved with regard to the 
free movement  of persons. From  a technical point  of view, adaptations  of  regulations 
will be necessary in the medium term. 

(b) Abolition  ofChecks 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). 

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

Slovenia  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  borders 
controls.  Amendments  necessary  to  the  Border  Control  Act  and  the  Law  on 
Foreigners  are  already  part  of  the  three-year 
the 
Government. 

legislative  programme  of 

General  Evaluation 

51 

Slovenia's progress in the implementation  of legislation relating to the White Paper is 
summarised  in the  annex. According  to the table,  Slovenia  considers  that by  30  June 
1997  it  will  have  adopted  national  implementing  legislation  for  415  of  the  899 
directives and regulations  in the White Paper. That figure covers provisions  for  which 
Slovenia 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. 

As regards  all the  fields  relating  to the internal  market,  and  in particular  the  fields  of 
accountancy,  mutual  recognition  of  professional  qualifications  and 
intellectual 
property, the Community  legislative basisls practically  in place. Legislation has been 
adopted  in  full  or  in  part  to  implement  most  of  the  measures,  according  to  the 
Slovenian authorities' assessment, though the Commission cannot at this stage express 
a position on its total compatibility  with Community  law. Slovenia still has to make a 
considerable  legislative  effort  to  achieve  full  conformity  with  the  acquis.  It  is  also 
necessary  to  strengthen  the  coordination  and  implementation  of  the  national  strategy 
for approximation of legislation. 

Despite  the  progress  already  achieved,  the  genuine  progress  already  achieved  in  the 
transposition  of  the  texts  adopted  in the very  recent  past  must  go  hand  in  hand  with 
concrete  implementing  measures  and  the  creation  of  an  effective  administrative 
infrastructure.  Substantial  work  is  still  however  required  in  the  areas  of  public 
procurement,  insurance,  freedom  of  capital  movements,  product  conformity  and 
standardisation, 
taxation.  Implementation  and  enforcement  should  be 
considered  an  integral  part  of  the  Slovene  pre-accession  strategy,  which  should  go 
beyond primary legislation and also include technical standards. 

indirect 

As  things  currently  stand,  the  Commission  cannot  yet  express  an  opinion  on  the 
capacity  of companies, particularly  small and medium-sized  businesses, to  implement 
the  acquis. 

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  particularly  technical  points  (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  anc 
application  of  Community  measures  harmonising  the  rules  on  movement  and 
placement on the market (particularly as regards product safety)  and, where applicable, 

52 

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 Slovenia's present borders will 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  Slovenia'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. 

Slovenia has already  adopted  significant  elements  of the acquis relating to the  Single 
Market. However, the Commission is not yet able to take a position on every measure 
whose  transposition  has  been  reported  by  Slovenia.  In  any  case,  progress  has  been 
limited  in  some  important  sectors,  notably  the  liberalisation  of  capital  movements, 
indirect  taxation  and  technical  regulations  and  standards.  In most  areas,  enforcement 
needs to be strengthened. Provided current efforts  continue, or are stepped up in areas 
where progress  is  lagging,  it  can  be  expected  that  in the medium  term  Slovenia  will 
have  adopted  and implemented  the Single Market  legislation  and made the  necessary 
progress on the mechanisms of enforcement  in the medium term, in order to be able to 
participate fully  in the internal market. 

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 the application of the measures set out in Art.  85 
and 86 of the Treaty (agreements between undertakings/abuses of dominant position). 

The  Europe  Agreement  provides  for  a  competition  regime  to  be  applied  in  trade 
relations  between  the  Community  and  Slovenia  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 Slovenia 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). 

53 

Descriptive  Summary 

Competition  is  currently  regulated  by  the  "Law on  the Protection  of  Competition " 
(Official  Gazette RS No.18/1993 dated April 9,  1993).  The Bureau for  the  Protection 
of Competition is the single authority responsible for the implementation of the Act.  It 
was  officially  established  in  October  1994  and  is  responsible  to  the  Ministry  of 
Economic Relations and Development. 

In  order  to  be  in  line  with  the current  and  foreseeable  situation  in  the  EU  as  regards 
sectors  subject  to  monopolies  or  dominant positions  such  as  telecommunications, 
transport,  postal  services  and  energy,  necessary  measures  have  either  already  been 
taken  or  are  under  preparation.  On  the "basis  of  information  available,  no  state 
monopoly of commercial character exists in Slovenia. 

As regards state  aid there is as yet no authority responsible for the monitoring  of state 
aid,  but  the  necessary  legislation  for  the  appointment  of  this  authority  and  the 
monitoring  of  state  aid  in  Slovenia  is  under  preparation.  No  reliable  aid  inventory 
exists at present. 

Current and Prospective Assessment 

like  transport,  storage,  servicing  are  excluded  from 

In  order  to  be  compatible  with EC  competition  rules,  a series  of  amendments  to  the 
Law on the Protection  of Competition  is required.  This applies mainly to its scope of 
application  (sectors 
the 
application),  the  introduction  of  prohibition  on  restrictive  agreements  and  the 
definition  of  dominant  position  and  the  abuse  of  dominance.  Further  clarification  is 
required  on  joint  venture  and  merger  control  procedures.  Provisions  dealing  with 
investigation,  business  secrets  and  rights  of  defence  are  still  to  be  developed. 
If 
adopted  the  new  draft  competition  law  will  go  a  long  way  towards  satisfying  these 
concerns. 

Apparently,  Slovenia  has  started  its  policy  of  liberalising  and  opening  up  to 
competition 
as 
telecommunications  and postal services.  More information  should be provided to give 
a viable evaluation of the situation in the other sectors. 

to  monopolies 

traditional 

subject 

sectors 

certain 

such 

State  aid  are  not  monitored  and  hence  reliable  information  is  not  available  yet. 
Establishing  an  inventory  and  setting  up  a monitoring  authority  should  be  a matter  of 
priority.  The aid inventory  should cover all measures granted by the State, regional  or 
local  authorities  or  through  State  resources.  The  provision  of  sufficient  staff  and 
technical facilities to carry out a credible State aid control is equally crucial.  While the 
abolition  of  the  export  aid  measures  is  welcomed,  certain  measures  constitute 
operating aids which are only allowed under very strict conditions.  Due to the lack of 
transparency, it is unclear whether these conditions are complied with. 

Considerable  effort  has been  made within  a rather  short  period  of  time  to  prepare  an 
inventory  on  the  existing  aid.  The  Government  has  also  started  the  drafting  and 

54 

adoption of the rules necessary to introduce state aid control and is in the process of 
appointing the monitoring authority. 

In addition to the adoption of legislation sufficiently  approximate to that of the EU, 
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  respect  of  anti-trust  the  current  level  of  approximation  of  legislation  is  not 
satisfactory.  However, if the new draft  law on competition is adopted the process of 
approximation  will  be  close  to  completed.  The  Bureau  for  the  Protection  of 
Competition needs to be strengthened in order to ensure a credible enforcement  of the 
law. 

In the field of state aid the requirements  as regards transparency  and monitoring of 
state aid have not yet been fulfilled.  It will require a substantial effort from Slovenia 
in order to meet these requirements in the medium term.  Due to the present  lack of 
experience in the field close cooperation with the Commission will be necessary in a 
foreseeable  future. 

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

3.2  Innovation 

Information Society 

Present Situation 

The  economic  and  social  effects  made possible by  the  combination  of  information 
technology  and telecommunications  are  great.  In Slovenia  these possibilities  were 
neglected before  1989 although education generally was not.  The result seems to be 
that  demand  for  computers  has  spurted  beyond  normal  expectation  deduced  from 
GDP per  capita.  The existence  of  host  computers  on  the Internet  (7.4 per  1000 
inhabitants) as a relative measure of development towards the information  society IS 
suggests  that Slovenia  has reached  today  the  EC average.  If Internet  connections 
follow the same pattern of growth, the telecommunications  infrastructure  (at present 
about nine years behind the  EC average) may. remain a brake on IS developments. 

The  state-owned  academic  Internet  provider  ARNES  has  expanded  to  become  a 
business-oriented  service  provider,  connecting  universities,  schools,  research 
institutions  and  libraries.  Since  1996  several  other  Internet  providers  have 
emerged,  including services by Telekom Slovenije. 

55 

Conclusion 

In  view  of  the highly  advanced  infrastructure  combined  with  the excellence  of the 
national  education  system,  we  can  expect  Slovenia  to  realise  potentialities  of  the 
Information  society earlier than the average CEEC. 

56 

Education. Training anH ynqth 

Articles  126 and  127 of the EC Treaty provide that the Community shajl  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  cooperation  in raising the level of education  and 
professional  qualifications.  The White Paper includes no measures in'this field. 

Descriptive  Summary 

Slovenia's  spending  on  education  amounts  to  5.8%  of  GDP.  It  takes  12.6%  of  the 
state budget. 

There  are  820  schools,  305  000  pupils,  40  000  students  and  23  000  teachers  in 
Slovenia. 

Since  1990 policy priorities have been gradually refocused  to cope with the needs of a 
free  market  economy  aiming  mainly  at  strengthening  links  between  education  and 
training on the one hand, and the labour market on the other. 

The  1996  White  Paper  on  Education  in the Republic  of  Slovenia  sets  the  framework 
for comprehensive  legal reform  of the national education and training system.  On this 
basis,  six  acts  have been  adopted  which  regulate  (1)  the  organisation  and  funding  of 
education,  (2) pre-school education,  (3) primary  schools, (4) gymnasia,  (5)  vocational 
education  and training  and (6) adult  education.  A Higher Education  Act was  adopted 
in  1993  which  focused  on  the  restructuring  of  universities  and  the  development  of 
non-university institutions for higher professional  and vocational  education. 

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  15%  of  the  total  population  of  Slovenia  is  between  15  and  25  (age  group 
eligible  for the Youth for Europe programme).  Several measures in the field of youth 
have been taken in the past years to strengthen the role of youth associations in society 
and  to  provide  premises  for  youth  activities.  A  national  youth  information  and 
counselling  centre,  and  its  network  at  local  level,  have  been  established  and  youth 
mobility  and  volunteer  services  are  supported.  Slovenia  should  start  participating  in 
the youth for Europe programme in 1998. 

Current  and Prospective  Assessment 

The  Slovene  Government  made  significant  progress  in re-orienting  the  education  and 
training  system towards a human resources development  policy which  is suitable for  a 

57 

small  open market economy aiming at intemational  competitiveness.  Further  efforts 
remain to be undertaken in the field of policy implementation. 

As regards education, budgetary resources should now be re-oriented in line with the 
new priorities identified.  In addition, there is scope for intensifying  links with research 
and development and strengthening orientations towards market developments. 

Slovenia  should  start  participation  in  the  Youth  for  Europe  programme  in  1998, 
subject to the ratification  of the Europe Agreement.  The Youth for Europe National 
Agency has not yet been designated. 

Conclusion 

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

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 will  provide  for cooperation in these  areas, notably  through 
participation  in  the  Framework  Programme.  The  White  Paper  includes  no  direct 
measures in this field. 

Descriptive  Summary 

The  national  policy  for  research  and  technological  development  is  defined  in  the 
National  Research  programme  adopted  in  January  1995.  Basic  legislation  in  this 
sector is the Law on Research Activities  established in  1991 which is to be replaced 
by a new Law on Financing and Organisations in the Field of Science and technology 
currently under preparation by the Ministry of Science and Technology. 

The current science expenditure amounted to  1.77% of GDP in  1995  (up from 1.46% 
in  1993), of which 0.75% by private enterprises. The Slovenian Government's aim to 
increase  this  rate  to  2.5% by  2000  will  require  substantial  investments  by  both  the 
public and the private sector. 

Two  universities  and more than 40 research institutes compete for limited  funds.  At 
the  same  time,  there  is  an overall  tendency  to  decrease public financial support.  In 
addition,  there  are  about  20  private  foundations  providing  general  support  and 
fellowships  for the development  of the sector. The Academy of Science  and Art and 
the  National  Council  for  Research  and  Development  have  advisory  functions  on 
policy. 

58 

in  science  and 

technology  policy  and 
A  programme  with  priority  setting 
encouragement  measures  to  link  with  industry  has  been  set  up.  Core  priorities  are 
targeting  of  financial  support,  increased  private  funding,  enhanced 
improved 
research  programmes,  refocusing  of  budgetary 
participation 
allocations  towards  enterprise  targeted  applied  research  and  improved  know  how-
transfer. 

international 

in 

Regular  cooperation  with  the  European  Community  started  in  1992  with  the  3rd 
Research  and Technology  Development  Framework Programme.  So  far,  cooperation 
was  mainly  concentrated  on  COPERNICUS  (Specific  Programme  for  Cooperation 
with  CECs  and  NIS)  and  remains  rather  low  for  participation  in  the  4th  Framework 
Programme.  Slovenia  is  a  member  of  COST  (European  cooperation  in  the  field  of 
scientific  and  technical  research)  and  EUREKA  (European  Research  Coordination 
Agency). 

Since 1993, the statistics in this field are compatible with OECD standards. 

Current and Prospective  assessment 

The  overall  re-organisation  of  the  complex  research  and  technological  development 
structures  has  advanced  and  aims  at  intensifying  links  with  economic  and  industrial 
development.  However,  considerable  efforts  remain  to  be  undertaken  to  revitalize 
technological  development  in  the  industrial  sector  and  to  exploit  the  potential  of 
national  research  for  economic  development.  Privatisation  of  research  institutes  is 
supported.  Additional  financial  resources  are provided  for  research  and  networking 
infrastructure,  guarantees  and  capital  investments  as  seed  or  venture  capital.  So  far, 
this  had  not  led  to  the  results  expected,  but  there  are  reasonable  prospects  for  an 
upturn. 

Slovenia  has  declared  its  interest  in  full  association  with  the  5th  Framework 
Programme. 

Conclusion 

In  the  perspective  of  accession,  no  major  problems  are  expected  in  this  field. 
Accession would be of mutual  benefit. 

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.  Tiiese  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 

59 

liberalisation  of  public  voice  telephony  and  operation  of  related  infrastructure  will 
be deferred  for  a year or two after  1998 in certain member  states. 

towards  EC 

The  Europe  Agreement  provides  for  cooperation  aimed  at  enhancing  standards  and 
and  postal  policies, 
practices 
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. 

telecommunication 

levels 

in 

Descriptive  Summary 

Slovenia emerged from independence with its telecommunications  system  intact.  The 
telephone  line  penetration  rate  increased  from  24.1% in  1991  to  33.3%  at  present. 
The  digitalisation  rate  of  the  network  is  well  advanced  and  reached  66%  of  the 
transmission and 46% of the switching capacity by mid 1995. 

The  current  legislation  and  regulatory  instruments  are  the previous  Yugoslav  law  on 
Telecommunications  Systems of  1988; a new law on telecommunications  of May  1997 
and  the  decree  of  1995  on  Type  Approval,  Certification  and  Testing  of  Terminal 
Equipment.  The  public  operator  Telekom  Slovenije  has  a  monopoly  of  voice 
telephony  until  the  year  2000.  It  also  has  a  subsidiary  which  runs  the  two  mobile 
telephony networks with analogue and digital standards.  Other services are liberalised. 
The state ownership of Telekom Slovenije  amounts to 76% and will be further  reduced 
by about one third to make the organisation more flexible  and commercial. 

Current  and  Prospective  Assessment 

Degree  of  Liberalisation 

in 

there  has  been 

little  progression 

While 
liberalisation,  recent  Government 
declarations  indicate  that  market  opening  is  accelerating  which  will  create  a  major 
challenge for Telekom Slovenije. The public operator has exclusive rights for the fixed 
network  and  voice  telephony  until  1  January  2001.  A  subsidiary  of  the  operator  is 
running  the two mobile telephony  networks with analogue  and digital  standards.  The 
markets  for  value  added  services  are liberalised. The Government  intends to publish a 
tender for a second GSM mobile telephony network at the end of 1997. 

60 

Approximation to EC law 

A  new  telecommunications  law  was  adopted  by  Parliament  on  28  May  1997.  The 
conformity  of  the  final  legislation  as  voted  by  Parliament  with  EU-law  is  being 
checked.  A  Decree  on  Type  Approval,  Certification  and  Testing  of  Terminal 
Equipment  was issued  in  1995. After  the adoption of the Decrees  for  the  application 
of  the  Telecommunications  Law  and  the  adoption  of  the  draft  frequency  allocation 
Decree,  it can be  expected  that the  country  will harmonise  the remaining  part  of  its 
regulation  with  the  acquis  by  2000.  The  administrative  capacity  to  handle  these 
approximation  requirements  needs further  strengthening. 

In  June  1997  the  Government  started  to  adjust  the  distorted  tariffs  structure  by 
increasing  the tariffs  for  local communications  (plus 9%)  and by reducing  the  tariffs 
for  other  phone  calls  (minus  18%).  The  local  call price  is  among  the  lowest  of  the 
region  but 
there  is  a  very  high  connection  charge  for  new  customers.  Universal 
service  remains  to  be  achieved  and,  as  competition  develops  and  the  network 
expands  into  less  advanced  areas,  the  existence  of  obligations  on  operators  to 
provide universal  service will undoubtedly become a focus  of regulatory  activity. 

Infrastructure 

The  penetration  rate  in  the  telephone  service  increased  from  £4.1  in  1991  to  33.3  per 
100  inhabitants  in  1997  (the  average  in Ireland, Portugal  and  Greece  is  about  43.9  per 
100)  and  the  digitisation  rate  in  1997  is  66%  (the  average  in  Ireland,  Portugal  and 
Greece  is  about  62.4).  ISDN  services  have  been  introduced  in  two  major  cities  since 
1995. By the end of the year 2000, the penetration rate for telephony is planned to reach 
40 per cent. The full  digitisation  of the transit network is not  expected  to be  completed 
until  the year  2010. There  are  about  220,000  CATV  subscribers  corresponding  to  90% 
of the households connected (100 network operators). 

There  is  little  direct  foreign  investment  so  far  in the telecommunications  sector.  The 
only  operator  of  mobile  telephony,  Mobitel,  is  a  100%  subsidiary  of  Telekom 
Slovenije  and the paging  operator,  Teleray,  is a private  Slovenian  company.  In  1996 
Telekom  Slovenije  received  an  ECU  35  million  loan  from  a  consortium  of  foreign 
banks. 

Competitiveness of the Sector 

In  1995 there were  5 employees per  1000 lines  (the average  in Ireland,  Portugal  and 
Greece  is  about  6.2)  and  the  average  waiting  time  for  a  telephone  line  was  1.8 
years.  The price  of  a standard  telephone  line  for  business  communications  (283 ecu) 
is  at  a  medium  level  compared  to  the  prices  in  the  region.  The  revenue  per  line 
(about  344  ecu  in  1995)  is  the  highest  in  the  region.  This  should  be  sufficient  to 
ensure  that  Telekom  Slovenije  can  be  run  as  a business  profitable  enough  to  allow 
for  further 
the  sector  will  only  be  able  to  face  full 
competition  if substantial  efforts  are made towards more cost-oriented  tariffs. 

investment.  However, 

61 

Conclusion 

Telecommunications  in Slovenia, with a modern infrastructure  and advanced  service, in 
the  mid  term  will  reach  a  level  comparable  to  some  of  the  EU  Member  States. 
Implementing  the  acquis  will  be  possible  in  the  medium  term  but  will  require  early 
introduction of competition in all  fields.  The public network operator  should be able to 
face  full competition if tariff rebalancing is implemented before 2000. 

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. 

The Europe Agreement  provides  for  cooperation  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  Law  on  Public 
Media, and the  1994 Law on Radio and Television Slovenia. 

The  main  television  broadcaster  is  the  public  service  RTV  Slovenia,  although  a 
number of other television organisations also operate in the market. 

Financial  assistance  is  provided  to  productions  made  under  a  special  system  of 
cofinancing.  Budgetary  finance  is provided  to  encourage  investment  in  independent 
productions,  European  works  and  national  productions  in the  area  of  film  and  video. 
Detailed information  on film distribution is not available. 

Current  and Prospective  Assessment 

The  audio-visual  sector  in  Slovenia  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 

62 

the  programme-making  industry  to  meet  the  important  challenges  of  an  adapted 
regulatory  framework. 

Slovenian  audio-visual  legislation  is  partially  compatible  with  EU  requirements; 
deficiencies  remain  in  a  number  of  areas,  including  freedom  of  reception,  the 
promotion  of  European  works,  independent  producers  and  recent  works,  isolated 
advertising  spots,  the  protection  of  minors,  and  advertising  rules.  The  Slovenian 
Government  has  stated  its  intention  that  laws  bringing  Slovenia  into  line  with  EU 
requirements should be passed in 1998. 

Conclusion 

Provided that the necessary legislative measures are pursued in the timescale  foreseen 
and  are  accompanied  by  necessary  structural  adaptation  of  the  industry,  Slovenia 
should  be  able  to  meet  EC  requirements  in  the  audio-visual  sector  in  the  medium 
term. 

63 

3.3  Economie and Fiscal Affairs 

Economic and  Monetary  Union 

By  the  time  of  Slovema'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  cooperation  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 will  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 Slovenia, 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  systematic  transformation  and 
market  oriented  structural  reforms  is  essential.  Slovenia's  economic  situation  and 
progress has already been analysed in preceding chapters of this Opinion. 

Current  and  Prospective  Assessment 

The Slovenian  Central Bank enjoys  a relatively high degree of independence from the 
government.  The  Governor  is  appointed  by  the Parliament  and  the  Bank  is  the  only 
institution  responsible  for  monetary  policy  actions.  The  formal  objective  of  the 
Central  Bank  is  the  stability  of  the  domestic  currency  and  implicitly  price  stability. 
The  Law  on  the  Central  Bank  is  not  fully  compatible  with  the  Treaty  prohibition  of 
budget deficit  financing,  but the sound fiscal record to date has eliminated the need  for 
central bank deficit  financing. 

64 

Monetary  policy  in  Slovenia has been quite effective  in reducing inflation.  The  1996 
inflation  rate was at the single digit level. However, the efficiency  of monetary  policy 
is hindered by several different  factors. The privatisation of state-owned banks and the 
restructuring  of  the  whole banking  sector  has  proceeded  well  after  a relatively  slow 
start.  The  bad  loans,  although  reduced,  remain  a  problem.  The  lack  of  government 
bonds papers, due to the sound fiscal record, makes it difficult  for the central bank  to 
use  indirect  instruments  for. the  purpose  of  money  supply  control.  In  addition,  the 
policy  of  preserving  the  high  degree  of  indexation  of  the  economy  keeps  lending 
interest  rates  high,  thus  discouraging  financial  intermediation  and  the  ability  of 
monetary  policy  to  affect  fthe  real  economy.  The  high  degree  of  indexation  is  also 
responsible  for  the  occurrence  of  massive  speculative  capital  inflows.  These  capital 
inflows  endanger the ability of the central bank to control monetary aggregates. They 
also  slow  down  the  disinflationary  process. Moreover,  if  they  are  sterilised  they  are 
the  source  of  additional  budgetary  expenditures.  Finally,  they  are  always  subject  to 
possible  reversal  and  put  the  country's  currency  under  severe  strains.  In  early  1996, 
the  Slovenian  authorities  have introduced  capital controls to  limit this  phenomenon. 
These  measures  which  are  in  contradiction  to  the  Europe  agreement  are  still 
operational. 

The  Slovenian  exchange  rate  regime  has  been  a  managed  float  since  mid-1992.  In 
practice  the  Slovenian  Tolar  has  shadowed  the  Deutsche  Mark.  The  exchange  rate 
policy  combined  with  a positive  inflation  differential  and  a highly  indexed  economy, 
led  to  a  massive  speculative  capital  inflow  in  the  period  1992-1994.  In  1995,  the 
initial 
Slovenian  authorities  relaxed  their  exchange  rate  stance  and  after  an 
appreciation,  the  exchange  rate has been  depreciating  slowly.  The  current  account  is 
virtually balanced. 

Conclusion 

It  is  premature  to  judge  whether  Slovenia  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. 

Slovenia's participation  in the third stage of EMU as a non-participant in the euro area 
should pose no problems in the medium term. However, it is important that central 
bank legislation is made fully  compatible with  EC rules and that the banking sector 
is restructured. Finally, monetary policies able to curb speculative capital  inflows 
without resorting systematically to capital controls should be adopted. 

Taxation 

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-

65 

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 

Nearly  70%» of the fiscal  revenue over the past  four  years has been generated  through 
indirect  taxes,  (i.e.  the  sales  tax  and  customs  duties),  and  this  has  continued  on  an 
upward trend. 

Value Added  Tax 

At present Slovenia does not operate a Value Added Tax system.  Instead it operates a 
system  of  single-stage  sales tax  on final consumption  which  bears  little  resemblance 
to the value added system applied within the Community. 

Excise 

Slovenia does not yet have a system of excise duty.  Instead, ad valorem rates of duty 
apply on mineral oils, alcoholic beverages and tobacco products except cigarettes. 

66 

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 

Slovenia's  membership  of  the  European  Union  would  require  the  introduction  of  a 
Community based VAT system.  The current Slovenian draft  VAT law has been based 
upon  the  main  principles  of  the  Community  VAT  system  but  will  require  some 
additional  adjustments  to bring the VAT legislation into line with the requirements  of 
the Community  acquis. 

The  Slovenian  national  strategy  plan  for  implementing  the  recommendations  of  the 
White Paper regarding VAT envisages the introduction  of a VAT system. A proposal 
for  the  introduction  of  a  VAT  system  has  been  submitted  to  the  Slovenian  National 
Assembly  for  adoption.  The  VAT  Act  is  planned  to  enter  into  force  on  1 January 
1999. 

Excise 

The current excise duty system does not comply with Community requirements, and it 
discriminates  against  certain  imported  commodities  in  favour  of  domestically 
produced products. 

A  draft  law  on  excise  duty  has  been  prepared  and  is  going  through  the  Slovenian 
National  Assembly  with  an  anticipated  implementation  date  of  1 January  1999.  The 
section dealing with  scope, coverage and exemptions  is comprehensive  and  in accord 
with  the  terms  of  the  EC  Directives  relating  to  harmomsation  of  the  structures  of 
excise duties.  The section dealing with procedures is less well developed.  It provides 
for  the  introduction  of  intra-warehouse movement  under  suspension  of  duty,  and  an 
accompanying  document  system  on  the  lines  of  the  document  required  by  the 
Community excise legislation. 

It will be important to ensure that the excise tax reform will be fully  implemented  and 
effectively  operated  in  a  way  which  is  consistent  with  the  EC  provisions  on  the 
holding and movement of goods. 

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. 

67 

Conclusion 

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

Although  legislation  is in preparation,  in the  absence  at present  of  a VAT  or  excise 
system  it must remain  open to doubt whether  Slovenia could comply with the  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 
In  addition  there  exists  an  important  body  of  principles  and  practices 
statistics. 
concerning  the  use  of European  and  international  classifications,  systems  of  national 
accounts, business registers, and various categories of statistics. 

The  Europe  Agreement  provides  for  cooperation  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 Statistical Office  of Slovenia (SO) is the central body charged with producing  and 
disseminating official  statistics in Slovenia. 

The  legal  basis  for  Slovene  official  statistics  consists  of  the  1995  Law  on  National 
Statistics. 

Current and Prospective  Assessment 

Slovene  legislation  is,  with  very  few  exceptions,  compatible  with  the  current 
standards applied within the European Union. 

Some issues  of confidentiality  need  clarification,  and there are deficiencies  in  sectors 
such as financial  accounts, agricultural statistics, and foreign trade statistics. 

Conclusion 

Slovenia  should  be  able to comply  with  EU requirements  for  official  statistics  within 
the next few years. 

68 

3.4  Sectoral Policies 

Industry 

throughout 

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 
industrial 
development  of  undertakings 
cooperation,  and  fostering  better  exploitation  of the industrial potential  of policies  of 
innovation,  research  and  technological  development.  EU  industrial  policy  is 
horizontal by nature.  Sectoral communications aim at transposing horizontal concepts 
into specific  sectors.  EC 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.). 

the  Community,  and 

to 

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.  Cooperation  between  the  EC  and  the 
candidate  countries  in  the  fields  of  industrial  cooperation,  investment,  industrial 
standardisation  and conformity  assessment as provided for in the Europe Agreement is 
an important indicator of development in the right direction. 

Descriptive  Summary 

Slovenia has a small industrial sector, commensurate with the size of the country.  The 
total production of Slovene industry is at present in the order of 5.3 billion Ecu or less 
than  twice  the  industrial  production  of  Luxembourg,  and  its  share  in  GDP  has 
decreased  from  37% in  1990 to  32% in  1995.  The manufacturing  sector  consists  of 
slightly  more  than  8,000  enterprises  of  which  more  than  90%  are  private  owned; 
several hundreds of enterprises are still "socially-owned".  As yet there is no  statutory 
legislation  established  for  state-owned  enterprises  which  cover  about  30%  of  the 
Slovene  economy.  The degree  of concentration  is high as 570 companies  account  for 
80%  of  industrial  employment,  turnout  and  exports.  The most  important  sectors  are 
chemicals,  electrical  and  mechanical  engineering,  automotive  products,  textiles  and 
clothing, and paper and wood products. 

Slovenia  has  managed  to  build  on  its  past  position  as  the  most  sophisticated 
manufacturing  centre  of  former  Yugoslavia  where  its  industries  specialised  in, 
processing  raw  materials  and  semi-manufactured  goods  from  the  southern  republics. 
Its post-independence  recovery has so far largely been a success story recovering well 
from the loss of most of its former  Yugoslav markets.  The industry has become more 
export  oriented  and  the  import  regime  is  liberal.  The  government  is  committed  to 
further  liberalisation  and  elimination  of  non-tariff  barriers.  Horizontal  support 
policies, in particular  as regards  small and medium  enterprises, regional  development 

69 

and  enterprise  targeted  research  and  development,  are  still  at  an  early  stage  of 
development. 

However, industrial production slowed down in 1995 and 1996, due inter alia to weak 
demand  in  some  key  export  markets,  the  high  level  of  the  Tolar  and  reduced 
competitiveness  in terms of labour costs.  Other factors  which have contributed  are 
high interest rates, foreign  capital restrictions, and slow legislative adaptation.  As a 
result,  investment  levels  and  modernisation  of  industry  have  suffered.  Sectors 
particularly affected  are paper, textiles and clothing, leather, food  products, iron and 
steel,  printing;  however,  other  sectors  such  as  electrical  engineering,  non-ferrous 
metal processing, chemicals and wood products operate relatively well. 

Privatisation  of  Slovene  industry  has  run  into  some  difficulty,  although  many 
companies  are  well  managed  and  relatively  well  equipped,  mainly  due  to  the 
complexity of the mix of a voucher system, management buy-out options, and other 
methods.  Public utilities have not been privatised so far.  Foreign direct investment is 
relatively low (1% of GDP), despite very little perceived political  risk. 

Slovene industry, main production sectors in 1995 

processing 

Raw  material 
(steel, 
metallurgy,  cement  ,  glass,  ceramic, 
paper, wood) 
Mechanical & electronic  engineering 
Textiles, clothing,  leather/shoes 
Foodstuffs 
Automotive 
Chemicals 
Pharmaceuticals 
Information  technologies 

Total 

% share 
industrial 
GVA 
11 

15.5 
9 
7 
5 
6 
5.5 
2.5 

100 

Industrial production  as % of GDP 

32 

number 
companies 

of 

924 

1027 
624 
280 
1 
468 
12 
332 

% share 
industrial 
employment 
17.5 

20 
14 
6 
5 
5 
2 
2.5 

100 

In comparison with other CEECs the productivity of basic sectors (metallurgy, steel, 
glass,  ceramics,  wood-paper  cement)  is  relatively  high.  The  industrial  structure  in 
these  sectors  is  characterised  by  a predominance  of  SMEs. There  are no  important 
capacity surpluses. Privatisation is  advanced in most of these sectors. 

The steel industry is very small and privatisation is slow. Slovenia shows a relatively 
high degree  of  specialisation  and  strong  export  capacity  in the  non-ferrous  metals 
sectors (in particular aluminium), but also in tires and paper. 

70 

Slovenia  has  an  advantage in having  a more  modern  forest-based  industries  sector 
than  neighbouring  CEECs  and  a correspondingly  higher  level  of  inward  investment, 
especially from EU companies. The sector is small but quality is often  on EU level (in 
particular  for  pulps,  paper  and  printing  applications).  Hence,  Slovenia  can  be 
considered  as an  emerging  competitor  to EU producers  in some niche markets  in  the 
paper  sector,  as witnessed  by  significant  exports. The high  level  of privatisation  has 
been an important factor behind this positive performance. 

Textile  and  clothing:  The  majority  of  the  companies  in  this  industry  are  SMEs  but 
production  is  concentrated, in  a  few  major  companies.  Net  investments  in  clothing 
correspond  to disinvestment  in the textile subsector, indicating a specialisation  down 
stream  of  the  production  chain.  Wage  costs  are  among  the  highest  in  the  CEECs 
(although  still  lower  than  in  the  EU).  FDI  is  focusing  on  new  technologies  and 
equipment  modernisation.  The  textile/clothing  industry  is  already  integrated  into  the 
European  "filière"  especially because of widespread  outward processing  trade (OPT), 
which underlies three quarters of total exports of clothing. 

Foodstuffs  industry: This sector is small in relation to the size of the market, highly 
fragmented, and weak. 

The only automotive producer of importance is a subsidiary of a French car producer. 
Chemicals: this  sector is small  and  Slovenia does not have  any major  petrochemical 
activities.  However,  there  is  a  major  tire  production  facility  established  as  a  joint 
venture  with  a  German/Austrian  producer  which  is  the  state  of  the  art  and  a  major 
exporter.  The  pharmaceutical  industry  is  one  of  the  largest  in  Central  Europe. 
Production  is  highly  concentrated  in  three  companies.  About  75% of  production  is 
exported,  mainly  to  the  CEECs.  Slovenian  firms  have  also  begun  to  market  some 
generic drugs in EU markets. The sector fully harmonised with relevant EC legislation 
and  product  patent  protection  has  been  introduced.  Enforcement  remains  a  problem, 
however. 

The information  technology (IT) industry is small but in good shape. It has emerged 
from ex-Yugoslavia's long-term technological development programme which  placed 
electronics as a priority of national economic development.  Slovenia has a remarkable 
tradition  in  electrical  and  electronic  consumer  products  (both  brown  and  white 
products), with  substantial  exports  to the EU. Production  is mainly based  on  licences 
from major  multinationals 

Demand  forecasts  for  the IT  sector  in  Slovenia  are  optimistic.  The  leading  company 
for  production  of  telecom  equipment  can  probably  participate  further  in  the  world 
wide  growth  as  it 
supplies  major  global  corporations  with  components  and 
assemblies. 

Current and Prospective  Assessment 

Slovenian  industry  started  from  a productivity  level that was much higher than  in the 
other  applicant  countries  and  which  is  probably  already  now  comparable  to  that  of 
some Member States. However, progress has been slow over the last few years, due to 

71 

an  only  moderate  investment  rate  and  slow  privatisation.  FDI  has  been  limited  by 
restriction  on  land  ownership,  capital  controls  and  slow  privatisation  and  has  so  far 
financed  only  about  5  per  cent  of  all  investment,  one  of  the  lowest  rate  in  all 
applicant countries. 

While  transformation  of  ownership  has  advanced  in  the  majority  of  socially-owned 
companies,  their  restructuring  is  in most  cases  still  to  be  undertaken.  Obstacles  are 
the  under-capitalisation  of  enterprises  due  to  the  prevailing  pattern  of  management 
buy-outs  and  the  high  real  interest  rates  which  are  aimed  at  avoiding  large  current 
account  deficits  and  keeping  inflation  under  control,  but  which  curb  enterprise 
investment.  The national  authorities will also need to define  a proper  strategy  for  the 
future  management  or  privatisation  of  state-owned  enterprises  and  public  utilities. 
Effective  regulatory systems are to be set up.  There is scope for improving the quality 
and  efficiency  of  the  services  to  the  public  and  private  sector.  Continued  price 
liberalisation  would  further  support  the  efficient  allocation  of  resources.  Foreign 
investments could play an important role to improve competition and  efficiency. 

In early  1997 the Slovenian  government  presented  its new  strategy  for  increasing  the 
competitiveness  of  Slovenian  industry  which  sets  out  a  wide  range  of  measures 
compatible with the orientations given by Art.  130 of the Treaty.  Implementation  has 
started  recently,  though  partly by way  of measures  incompatible  with  EC  disciplines 
such  as  on  state  aid  control.  Further  progress  on  industrial  competitiveness  depends 
on  implementation  of  the  strategy,  by  both  industry  itself  and  the  Slovene 
government. 

Conclusion  on Industrial  Competitiveness 

The current  level and perspective  for competitiveness  of most of the Slovene  industry 
enables  a  positive  expectation  on  its  capacity  to  cope  with  the  competitive  pressure 
and  market  forces  within  the  Union  in  the  medium  term.  There  may  however  be 
problems  linked  to  certain  labour  market  rigidities  and  for  those  sectors  and 
companies which have not yet undergone restructuring. 

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 goods  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 

72 

differentiation  of the policy.  Since reforms  in  1992, increasing contributions  to  farm 
support have come from direct aid payments compensating cuts in support prices. 

The Europe Agreement provides the basis for agricultural  trade between Slovenia  and 
the Community  and  aims to promote cooperation  on the modernisation,  restructuring 
of  Slovenia's  agriculture  sector  as well  as the  agro-industrial  sector  and plant  health 
standards.  Prior to ratification  of this Agreement, the Interim Agreement  is regulating 
a preferential  trade  in the  field  of  agriculture.  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  1995 was approximately  0.56% of that  of 
the Union. 

Agriculture  has  a  modest  place  in  Slovenia  in  terms  of  GDP,  employment  and 
export  earnings.  However,  it  plays  an important  role  as  an  economic  and  social 
stabiliser.  Agriculture  accounts  for  4.3%  of  the  GDP  and  around  7%  of 
employment. 

About  92%o of the agricultural  land is privately  owned while the remaining  8% is 
owned  by the state.  There  are  156,000 holdings  in  Slovenia,  of which  82% have 
less  than  10  ha.  About  46,000  of  these  holdings  are  household  plots.  The 
Slovenian  farm  sector  therefore  faces  a  substantial  challenge  of  structural 
adjustment,  particularly  in sectors without price  support measures  in the  EC  (pig, 
poultry and egg production). 

Out  of  a total  area  of  two  million  ha  about  50% is  covered  by  forest  and  about 
39%  is  agricultural  land.  About  70% of the  agricultural  land  is  in  less-favoured 
hilly and mountainous  regions, mainly used  for permanent pasture.  Only  30% of 
the agricultural area, or 250,000 ha, is arable land. 

The  most  important  arable  crops  are cereals  (45% of  arable  land),  fodder  (30%) 
and  potatoes  (10%).  Agricultural  production  is  equally  shared  between  crop 
(52%) and livestock production (48%). 

Slovenia  is  a  net  importer  of  food  and  agricultural  products  (self-sufficiency: 
84%).  In  1995  it  produced  535,000t  cereals,  449,000t  potatoes,  65,000t  sugar 
(included  imported  raw  sugar  for  processing),  700,000hl  wine,  590,000t  milk, 
36,000t  beef,  58,000t  pigmeat  and  56.000t  poultry  meat.  The  most  important 
sectors producing surplus for exports are wine, hops, poultry and dairy.  However 
the  external  trade  in  agricultural  products  represents  a limited  role  in  the  overall 
trade  balance  (4%  of  exports,  8.2%  of  imports).  The  total  agricultural  imports 
amount  to  ECU  612  Mio  and  the  export  to  ECU  262  Mio.  While  the  EC  is  an 

73 

increasingly  important  trading  partner  in  agricultural  products  (EU-15:  55%  of 
imports,  30%  of  exports)  the  former  Yugoslavia  remains  Slovenia's  most 
important export market (53%» of export in 1996). 

Although  the  agro-food  industry  is relatively  well  structured  and benefits  for  the 
most part from the same technological  methods as used in the EC, the industry  is 
suffering  from  low utilisation  of capacity  and would need  to adapt  to  EU-quality 
standards. 

However  the  privatisation  process  has  not  been  completed.  About  10%  of  the 
sector has not yet been privatised, amongst which the most important companies. 

Agricultural Policy 

Slovenia  started  to  implement  its  own  agricultural  policy  in  1991.  This  policy 
was consolidated with the adoption of the "Strategy for Agricultural  Development 
of Slovenia" in  1993 putting special emphasis on sustainable rural and  agricultural 
development  with  recognition  of  ecological  and  social  aspects.  The  support 
policies  include  the  following  main  elements  (i)  price  control  for  milk,  sugar, 
wheat  and  flour;  (ii)  input  subsidies,  credit  and  investment  support;  (iii)  external 
border protection an export aid. 

Agricultural  prices  in  Slovenia  are  generally  higher  than  in  other  CECs,  and  in 
most cases higher than the lowest price registered in the EU markets. Wheat prices 
are  substantially  higher  than  EC  prices  due  to  higher  support  prices  for  bread 
making wheat in Slovenia. 

The  main  policy  measures  in  sectors  with  market  organisations  are  similar,  or 
close  to,  EC  policies.  However,  a  number  of  sectors  have  very  few  market 
intervention  mechanisms  other than external trade protection.  Rural  development 
is  an  essential  element  of  Slovenian  agricultural  policy,  and  a  number  of  the 
policy  measures  are aimed  at  attenuating  unfavourable  production  conditions  for 
farmers  in  hilly  and  mountainous  regions  and  promoting  extra-agricultural 
economic  activity  such  as  production  of  higher  value-added  speciality  products, 
tourism, etc. 

Slovenia is in the process of reviewing its agricultural policy with the objective  of 
bringing  it  closer  to the  CAP.  Direct  payments,  such  as  income  aid  for  farmers, 
together  with  regional  and  rural  development  policies,  are  envisaged  to  be 
gradually  introduced.  Changes  in  the  price  support  measures  for  milk  were 
adopted  in  1996.  With  envisaged  implementation  in  1997,  direct  payments 
replace price policy supporting milk production in mountainous and hilly areas. 

The share of the government's budget  spent on agriculture is about 2%.  Increased 
spending  is  envisaged  by  the  new  government  in  conjunction  with  the  planned 
implementation  of  policy  measures  similar  to  the  CAP  (direct  payment,  rural 
development policies). 

74 

Foreign  trade  policy  represents  an  important  element  in  Slovenian  food  and 
agricultural policy.  In  1993 Slovenia introduced a system of threshold  prices and 
variable  import  levies.  When  Slovenia  became  a  member  of  the  WTO  these 
measures  were  changed  in  accordance  with  the  conditions  of  the  GATT 
Agreement.  Slovenia has undertaken  the commitments  of the  GATT  Agreement 
on  domestic  support,  market  access  and  export  subsidies.  Slovenia  has  made  its 
commitments  in ECUs.  The limited export subsidies used so far  are envisaged  to 
be  used  for  export  promotion  activities.  The  Europe  Agreement  with  Slovenia 
was signed in 1996. 

Slovenia  is  also  a  member  of  CEFTA  (Central  Europe  Free  Trade  Agreement). 
Agricultural  market 
implemented 
progressively with the intention of achieving in  1999 complete market  integration 
between the contracting parties. 

liberalisation  within  CEFTA  will  be 

Slovenian trade policy is also aimed at maintaining and restoring its markets in the 
former  Yugoslavian  Republics.  In  this  framework,  a  free  trade  agreement  has 
been signed with the Former Yugoslavian Republic of Macedonia (FYROM). 

Slovenia is introducing the legislation identified  in the White Paper. 

Current and Prospective Assessment 

A  major  concern  of  the  Slovenian  Government  is  the  pressure  for  structural 
adjustment  in the farming  sector, in particular in the mountainous regions and less 
favoured  areas.  To  the  extent  to  which  Slovenia  achieves  its  objectives  of 
bringing its policies closer to the CAP in major  sectors, there should not be  major 
difficulties  for  Slovenia  adapting  to EC policies.  However,  domestic budget  and 
human resources constraints could delay the process of approximation. 

Adjustments  of certain market organisations are necessary, (i) State monopolies in 
the cereals, oilseed  and sugar sector will have to be dismantled; (ii) the  Slovenian 
sugar  policy  would  need  to  be  adapted  to  EC  policies;  (iii)  the  policies  in  the 
pigmeat,  poultry  and  egg  sectors  are  similar  to  EC policies  and  these  sectors  do 
legislation 
not  represent  any  major  obstacle  for  accession  if  a  new  draft 
introducing  intervention  prices  and  public  intervention  purchases  in  the  pigmeat 
sector is not approved by Parliament; (iv) the policies applied to the dairy and beef 
sectors  are  different  from  EC  policies  on  essential  points  (dairy  quotas,  market 
price quotation systems, etc.). 

The main market policy instruments applied in the EC are not applied in Slovenia. 
This includes key instruments such as dairy quotas, key features  of the arable crop 
scheme  (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, 
land  register  and  cattle 
including  an  appropriate 
identification  and registration systems. 

75 

It is difficult  to  foresee  at this  stage what will be the development  of  agricultural 
support  prices  in  Slovenia  in  the  period  before  accession;  this  will  depend  on  a 
number  of  factors  including  the  domestic  economy,  the  situation  on  export 
markets, and the development  of price support  levels in the Union.  However  the 
Slovenian Government has announced its intention to decrease support prices and 
move towards more targeted direct income support. 

An important element in Slovenian agricultural policy is support to reducing costs 
of  production  and  income  support  in  disadvantageous  areas.  Some  of  these 
policies,  in particular  direct  input  subsidies» are in conflict  with the acquis  while 
other policies  (credit and investment policies) are within the scope of EC policies 
for structural  development. 

The  food  processing  sector  could  be  the  most  affected  by  membership. 
It  is 
essential that appropriate policies on increasing quality standards and productivity 
will be pursued during the pre accession period.  The increased trade  liberalisation 
resulting  from  regional  trade  agreements  will  likely  accelerate  the  adjustment 
process through increased  competition. 

Slovenia  has  made  progress  in  implementing  the  key  measures  identified  in  the 
White Paper.  With  a continuation  of current  progress the most  essential  parts  of 
internal market measures should be in place by the end of the decade.  However, it 
is difficult  at this stage to assess the degree of approximation  to the acquis  and to 
what  extent  the  necessary  inspection  and  control  infrastructure  is,  or  will  be,  in 
place to ensure adequate enforcement  of the legislation. 

In the veterinary  field  approximation  to, and an implementation  of the acquis  has 
been  partly  achieved. 
the  approval  and 
implementation  of  secondary  legislation  in the different  sections  vary  from  1997 
until  the  year  2000.  It  is  questionable  whether  the  legal  structure  is  sufficiently 
adequate to amend/implement EC legislation  effectively. 

timetables  for 

indicated 

The 

import 

In the approximation process, further  adoption would be needed with regard to the 
concept  of  HACCP  (Hazard  Analysis  Critical  Control  Point)  and  auto-control, 
monitoring and surveillance programs, disease eradication, internal market  control 
measures (safeguard,  the license system, veterinary checks, additional  guarantees, 
régionalisation), 
approved 
establishments)  and 
the  identification  and  registration  system  of  animals 
(particularly  back  yard  holdings).  The  facilities  and  professional  experience  at 
border  inspection  posts  and  veterinary  laboratories  need  upgrading. 
The 
computerised  information  system,  the  identification  and  registration  system  of 
animals,  and  the  rendering  infrastructure  need  to  be  improved.  Vaccination 
against  classical  swine  fever  is  still  being  carried  out  and  a  change  to  a  non 
vaccination policy is necessary but will be technically  difficult. 

(approved 

countries, 

regime 

third 

As regards seeds and propagation material, plant health, plant protection products, 
pesticide  residues  and  animal  nutrition,  the  approximation  of  legislation  is 

76 

underway.  However it will be necessary for the Commission to verify  whether the 
legislation is correctly  implemented. 

EC  marketing  standards  for  fruit  and  vegetables  would  need  to  be  introduced. 
Legislation  is  currently  being  prepared  to  harmonize  marketing  requirements  in 
the  wine  sector.  Slovenia  is  a  member  of  the  OIV  (Office  International  de  la 
vigne et du Vin) and its legislation is harmonised with OIV resolutions. 

The  adrninistration has  limited  management  experience,  and  at  the  present  stage 
the  administrative  structure  appears  to  be  inadequate  to  ensure  appropriate 
implementation and enforcement  of the acquis. 

Conclusion 

Further  alignment  to  the  acquis  is  still  necessary  although  significant  progress  has 
been made in adopting the measures mentioned in the White Paper. 

Particular efforts  are needed in relation to: 

-  strengthening of structural and rural development policy; 

- 

implementation  and  enforcement  of  veterinary  and  plant  health  requirements  and 
upgrading  of  establishments  to  meet  EC Standards;  this  is  particularly  important 
with  regard  to  the  inspection  and  control  arrangements  for  protecting  the  EU 
external border; 

-  strengthening  of  the  administrative  structures  to  ensure  the  necessary  capacity  to 

implement and enforce the policy instruments of the CAP; 

- 

further  restructuring of the agro-food  sector to improve its competitive capacity. 

If  such  progress  is  accomplished,  accession  in  the  medium  term  should  not  be 
accompanied  by  significant  problems  in  applying  the common  agricultural  policy  in 
an appropriate manner. 

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 

77 

The  fishing  sector does not play an important  role in the national  economy.  Along  the 
Adriatic  coast  it  has  local  significance  but  the  limited  fishing  opportunities  offered  by 
the  Adriatic  mean  that  it  will  remain  small-scale.  In  1995,  105  vessels  caught  1,91 It 
(mostly pilchard, anchovy, sprat).  Only  183 fishermen were employed. 

As a trading partner of the Community,  Slovenia represents 0.05%  of EU total  imports 
(independently  of  origin)  of  fisheries  products  and  2.0%»  of  EU  imports  of  fisheries 
products from the candidate countries alone (in terms of value). As regards EU exports, 
Slovenia  receives  0.52%  of  our  total  exports  of  fisheries  products  and  6.2%  of  our 
exports of these products to the candidate countries (in terms of value). 

In the processing industry (with an employment of 300 people) the output was 2,285t  in 
1995. The main product is canned anchovy. 

Current and Prospective Assessment 

Slovenia's production  and  foreign  trade data, when compared  to the corresponding  EC 
figures,  are quite  low  and therefore  they  should not have  a significant  impact  upon  the 
Community as a whole. 

It will be necessary  for  Slovenia 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 sector will most likely not represent a problem for accession. 

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 are other important elements of energy policy. 
Ongoing  developments  include  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 

78 

international  agreements.  At  present,  it  addresses  issues  of  health  and  safety, 
including  radiation  protection,  safety  of  nuclear  installations,  management  of 
radioactive waste, investment including EURATOM financial instruments, promotion 
of research, nuclear common market, supplies, safeguards, and international relations. 

The  Europe  Agreement  provides  for  cooperation  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 safeguards  and shipments of nuclear waste. 

Descriptive  Summary 

Slovenia  imports  more than  70% of  its  energy requirements, particularly  oil  and  gas 
(30  and  10%  of  the  energy  balance  respectively),  but  also  solids  and  nuclear  fuels. 
Indigenous resources  are essentially  lignite (causing  serious  environmental  pollution) 
and  low  quality  sub-bituminous  coal  represent  20% of  the  energy  balance,  but  also 
some  hydropower,  biomass  and  uranium 
in  1990  and 
decommissioning is ongoing). 

(mining 

stopped 

Mining  of solid  fuels  will continue  in future  for  strategic reasons, but production  has 
already decreased  sharply over the last years (lignite from 5.1  to 3.9 Mt  in the period 
1985-1995 and brown coal from 2.6 Mt to 1  Mt in the period  1989-1995). 

External dependency can be managed well thanks to a diversified  geographical  origin 
of  imports  and  good  network  connections.  The  electricity  grid  is  since  1974 
interconnected with the Western European UCPTE network.  Oil and gas are imported 
from Russia  but  also  from  other  sources.  Energy  efficiency  is  only  half  of  the  EU 
average  due  to  its  heritage  of  the  past:  low  prices,  obsolete  and 
inefficient 
technologies and inadequate energy efficiency  policies. 

One US  Pressurised  Water  Reactor  at Krsko  supplies  20% of the  electricity  needs  in 
Slovenia and exports 50% of its electricity to Croatia.  This jointly  Slovenia-Croatian 
owned  nuclear  plant  is  supervised  by  the  Slovenian  Nuclear  Safety  Administration 
within  the Ministry  of Environment  and Physical  Planning.  Though  not  required  by 
the acquis, an independent  supervisory structure would be desirable.  Slovenia  should 
implement  this principle  included  in the Nuclear  Safety  Convention  recently  ratified. 
Investments  have  been  made  to  ensure  that  nuclear  safety  is  maintained  at  a  high 
level.  The  fact  that  this  power  plant  is  built  on  a  fault  line  has  led  to  further 
seismological in its surroundings.  One research reactor is in operation in  Ljubljana. 

Current and Prospective Assessment 

The  1996  "Strategy  for  efficient  energy  use  and  supply  in  Slovenia"  is  in  line  with 
EC-energy  policy  and  includes:  market  orientation,  security  of  energy  supplies, 
protection of the environment and improvement of energy  efficiency. 

79 

The competition  framework  in the energy sector is progressively  approximating  with 
the directives of the internal energy market in combination with the application of EU 
competition law.  Adoption of specific energy laws should be stepped up. 

Energy  prices  have been  considerably  increased,  but  certain  prices  are,  for  social  or 
other reasons, still (cross)-subsidised  and do not recover costs.  Government policy  is 
to  increase prices by  7% per  annum  (in real terms)  and to be  on +/-  80% of  average 
EU prices in the year 2000. 

Energy companies are generally state dominated monopolies but there are some small 
independent  power  producers.  For  the  management  of  public  utilities  in  the  sector, 
statutory  legislation  should  be  established  to  ensure  efficient  management  of  state 
future 
owned  enterprises  and 
competitiveness  of  the  companies,  real  price  increases  should  be  in  line  with 
Government targets. 

to  avoid  distortive  competition. 

To  ensure 

Current oil stocks (thirty days of consumption) do not comply with Cornmunityac^w/s 
on  emergency  preparedness  foreseeing  among  others,  ninety  days  of  mandatory 
stocks.  In the event of rapid adoption of legislation, the EC target could be reached in 
the medium term. 

Restructuring  of  the  solid  fuels  sector  continues  and  its  social  and  regional 
consequences  will  have  to  be  addressed  whereas  the  state  interventions  should  be 
assessed against EC state aid rules. 

Slovenia  has  started  the  development  of  Community  conform  efficiency  legislation 
(e.g. labelling appliances, minimum efficiency  norms) as well as environmental  norms 
(e.g. fuel  quality standards) but more remains to be done.  In this context, it should be 
noted that investments in the Lendava refinery  are needed in order to have a chance to 
compete on the already saturated European market. 

Nuclear  fuel,  on  the  basis  of  Slovenian  uranium,  was  fabricated  in  the  USA,  where 
also the enrichment  services were largely purchased.  Spent  fuel  from  reactors will be 
shipped back to the USA. 

The  common  nuclear  materials  supply  policy  of  security  through  diversification  of 
sources will apply to Slovenia for supply contracts concluded  after  accession.  From a 
long term  supply perspective  in  an enlarged  EU it would be desirable  for  Slovenia  to 
procure at least part of its uranium needs on the basis of long term contracts. 

Spent  fuel  from  Krsko  is  stored  in  the plant  pool  and  its  capacity  may  be  increased. 
Interim storage in dry casks could also be envisaged.  Some of them could be stored in 
Croatia  which  benefits  from  the  electricity  produced  at  Krsko.  However,  the  long 
term  final  disposal  of  spent  fuel  is  not  yet  defined  and  should  therefore  be  further 
analysed.  The  Government  has  started  to  collect  funds  for  the  decommissioning  of 
the Krsko plant at the end of its operation. 

80 

Upon  accession,  Slovenia 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.  The  country  has 
not yet adhered  to or fully  implemented  all the relevant international  regimes in these 
fields inter alia Nuclear Suppliers Guidelines, IAEA extended reporting  and  accession 
to  the  Nuclear  Energy  Agency  of  the  OECD)  but  has  a  full-scope  safeguards 
agreement  in  force  with  the  IAEA.  No  major  difficulties  in  applying  Community 
legislation in these areas are however expected.  Specific  attention should be given to 
the  operation  safety  of  the  Nuclear  Power  Plant.  The  independence  of  the  safety 
authority should be  supported. 

Conclusion 

Provided  that  current  efforts  are  maintained  energetically,  Slovenia  should  be  in  a 
position  to  comply  with  most  of  the  EC  energy  legislation  in  the  next  few  years. 
However,  matters  such as the adjustment  of monopolies  including  import  and  export, 
access  to  networks,  energy  pricing,  state  interventions  in  the  solid  fuels,  emergency 
preparedness  including  the building  up of mandatory  oil  stocks  and the  development 
of energy efficiency  and fuel quality standards need to closely  followed. 

No  major  difficulties  are  foreseen  for  compliance  with  Euratom  provisions  but 
Slovenia  should  adhere  to,  or  implement  fully,  certain  international  nuclear 
agreements.  Nuclear  safety  standards  should  be  handled  appropriately  and  longer 
term solutions  for nuclear waste will have to be  found. 

Transport 

Community  transport  policy  consist  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  the  approximation  of  the  legislation  with 
Community  law  and  cooperation  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 
harmomsation  and standards. 

Descriptive  Summary 

Slovenia has traditionally been a transit route for traffic with Greece and Asia Minor; the 
infrastructure  was  developed  accordingly.  The political  changes  at the end of the 80s, 
together with the war in ex-Yugoslavia, led to a major reorientation of traffic  flows, with 
a sharp fall in Northwest-Southeast traffic  and a gradual rise in traffic  on the Southwest-
Northeast axis, with much of the latter using road infrastructure  not built for such  traffic 
volumes.  The advent of peace should restore Slovenia's role as a transit route between 
Greece  and  the  rest  of  the  Union,  and  there  may  be  some  new  constraints  on 
infrastructure.  Slovenia  is  in  the  middle  of  a  major  programme  of  investment 
in 
improvements to its road network, mainly at this stage on the Southwest-Northeast  axis; 
it  will  also  need  to  improve  border  crossing  infrastructures  to  cope  with  growing 
demand  for traffic  to and from Croatia.  As a transit country, the fact that  land and  sea 
borders with Croatia are not yet fully demarcated could eventually cause problems. 

Current and Prospective Assessment 

As regards completion  of the internal market,  Slovenia has made substantial  progress 
towards adopting the acquis  despite being the last country to conclude an  association 
agreement  with  the  EC.  Slovenia's  international  transport  sector  already  largely 
applies, or is well on the way to applying rules similar to the Union's, in particular  in 
the  air,  maritime,  combined  transport,  road  passenger  transport  and  road  haulage 
fields.  The  absence  of  statutory  legislation  for  state-owned  companies  hinders  the 
establishment  of  a transparent  market  organisation.  In the rail  sector,  care  should  be 
taken to ensure, in the coming years, effective  application  of the acquis in the  public 
service  aspects  and  standardisation  of  accounts.  Slovenia  should  be  able  swiftly  to 
integrate  into  the  internal  market  for  transport  subject  to  alignment  of  its  road  tax 
system on the acquis in this field and an opening-up of the road haulage market. 

The development  of an integrated  and competitive transport  system is an objective  of 
which the Slovenian authorities are aware; achieving an acceptable level of safety  and 
optimal  use  of  the  transport  system  are  likely  to  be  the  two  main  difficulties. 
Slovenia's progress on safety  is satisfactory  on the whole. In contrast, the objective  of 
coherence in the transport  system appears harder to attain. Slovenia is likely to  face  a 
steady rise in the share of road transport and will have to focus its efforts  on the use of 
railways. 

In  order  to  improve  links  with  the  Member  States  and  its  neighbours,  Slovenia  is 
planning to invest about ECU 2.2 billion of its own budget over the period  1995-99 in 
transport  infrastructure  used  by  international  traffic,  primarily  on  trans-European 
corridors. This sum amounts to about 2.9% of GNP, a respectable  figure. 

Conclusion 

in  the 
Slovenia  has  made  notable  and  rapid  progress  in  the  adoption  of  the  acquis 
transport  sector. Provided  that it makes additional  efforts  on the operation  of its road 
haulage  market  (in  particular  on  market  access  and  tax)  and  clarifies  the  financial 
procedures  in the rail sector - measures which  are perfectly  achievable  - the  transport 

82 

sector  is unlikely  to pose  major  problems  as regards  adoption  of  the  internal  market 
acquis. 

It will  be  necessary  to  make  sure, however,  that  the resources  are  available  which  are 
needed to lay the  foundations  for the future  trans-European  transport  network  extended 
to the applicant countries. 

Small and Medium  Enterprises 

the 
EU  enterprise  policy  aims  at  encouraging  a  favourable  environment  for 
development  of  SMEs  throughout  the  EU,  at  improving  their  competitiveness  and 
encouraging  their  Europeanisation  and  internationalisation.  It  is  characterised  by  a 
high  degree  of  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  cooperation  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 

Small  and  medium-sized  enterprises  constitute  the  large  majority  of  the  Slovene 
enterprise  sector.  Since  1988,  individuals  are  allowed  to  set  up  their  own  private 
company  (Law on Enterprises  and Law on Crafts).  The privatisation  process, which  is 
now in its final phase, has led to the break up of a number of larger industrial  companies 
into medium-sized  enterprises. 

The Ministry of Economic Affairs  has presented a strategy which, inter alia, foresees  the 
decentralisation  of  SME  development  towards  the  local  level.  The  Chamber  of 
Economy  and the Chamber  of Crafts,  with compulsory  membership,  are also present  at 
local level. 

The main policy measures include profit tax discounts for start-ups and small  enterprises 
for the first four  years and rebates  for the import of foreign  machines  and raw  materials 
(especially  for  export-oriented  companies).  Credit  guarantees  are  arranged  through  a 
fund  for  SMEs  and  locally  by  municipal  funds.  Further,  there  are  training  and 
international  promotion  supports,  and  links  with  small  business  associations  of 
neighbouring  countries.  These  measures  concern  the  companies  with  less  than  50 
employees since those are the companies classified  as "SMEs" in Slovenia. 

Current  and Prospective  Assessment 

83 

The  government  recognises  some  weaknesses  in  its  SME  development  policy, 
especially  regarding  the  coherency  and  the  coordination  of  the  various  action 
programmes.  This  situation  should  be  improved  in  the  years  to  come.  Small  and 
medium  enterprises  form  an  important  innovation  and  export  potential  in  Slovenia. 
With  a view  to  supporting  the development  of a competitive  enterprise  sector  enabling 
Slovenia to catch up with economic development in the EU these assets merit  support. 

The  ongoing  efforts  to  strengthen  the  SMEs  during  the  pre-acçession  period  will 
therefore need to be continued. 

Conclusion 

There are no specific  problems foreseen  regarding Slovenia's  future  participation  in this 
sector. 

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 the consultation of the social 
partners and measures to facilitate the social dialogue. 

The Europe Agreement provides for approximation of legislation with Community  law 
and  cooperation  on  improving  standards  of  health  and  safety  at  work,  labour  market 
policies  and  the  modernisation  of  the  social  security  system.  The  White  Paper 
mentions measures for approximation in all the areas of the acquis. 

Descriptive  Summary 

In  Slovenia  there  are  a  number  of  trade  unions,  including  four  major  ones.  The 
employers are mainly represented by four organisations.  At national level the tripartite 
social  dialogue  functions  well.  Further  development  of  the  social  dialogue  will  be 
supported by the planned adoption of a new framework law on Labour Relations. 

According  to  ILO  methodology,  the  unemployment  rate  was  7.3%  in  1996.  The 
Slovenian registered unemployment  figures  are higher but have an in-built tendency to 
overstate  unemployment. 

Slovenia  has  developed  a regionalised  employment  service  structure  to  handle  active 
labour market policy. 

84 

Slovenia has the same type of financing problems in the area of social security that are 
encountered  in  most  European  countries.  In  1994,  the  part  of  GDP  spent  on  social 
security was similar, at 25% of GDP, to that of many member states. Unless the social 
insurance  system  is reformed,  a widening  deficit  will  strain the national budget  in  the 
near  future.  Some  of  the  changes  in  the  system,  however,  may  increase  the  risk  for 
some groups to fall through the net of social protection.  Social assistance schemes as a 
means  of  last  resort  are  rather  poor.  Continued  efforts  are  required  to  ensure  that 
measures of social protection are developed. 

The overall situation of public health in Slovenia is comparable to EU levels. 

Current and Prospective  Assessment 

In  Slovenia,  work  on  the  approximation  of  health  and  safety  legislation  is  still  in  an 
initial  phase.  Although  no 
the 
timetable  has  been 
approximation  process  to  the  EU  acquis  is  underway.  Appropriate  independence  of 
the  existing  labour  inspection  structures  in  compliance  with  ILO  Convention  No.  81 
has to be guaranteed. 

indicated  by  Slovenia, 

The  main  principles  of  European  labour  law  have  already  been  introduced  into 
Some  adaptations  are  still  necessary  concerning  the 
Slovenia's  legal  system. 
protection of employees in case of a transfer  of the undertaking and the setting-up of a 
guarantee institution to protect employees in the event of insolvency of their employer. 
Smaller  amendments  are  needed  conceming  collective  dismissals,  the  information  of 
employees  on  the  working  conditions  applicable  to  their  work  contract  as  well  as 
concerning  the  existing  working  time  regime.  Even  if  there  is  already  a  system  of 
works  councils  in  force,  the social  dialogue on company  level needs  to be  developed. 
A  new  labour  code  is  being  prepared  to  secure  full  compliance  with  the  acquis. 
Generally,  the  continuation  of  policies  to  modernise  the  labour  market  should  be 
encouraged. 

The  main  provisions  of  EC  legislation  concerning  the  equal  treatment  of  men  and 
women  are  covered  by  the  Slovene  national  legislation.  Adaptation  of  the  rules  for 
parental leave is needed. 

Concerning  the  right  to  the  free  movement  of workers,  there  would  appear  to  be  no 
obstacles  to  prevent  Slovenia  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 
cooperation with other countries.  Slovenia appears to have many of the  administrative 
structures  necessary  to  carry  out  these  tasks, but  further  preparation  and  training  will 
be necessary prior to accession. 

85 

The  Directives  on  the  warning  labelling  of  cigarette  packages  and  the  maximum  tar 
content have not yet been transposed into Slovene legislation. 

Conclusion 

In  the  social  policy  field,  Slovenia  has  already  taken  a  number  of  significant  steps  in 
preparation  for  its future  EU-membership.  Social reforms  should be  continued  and  the 
social dialogue  should be developed.  If  Slovenia persuades her efforts,  she is  likely  to 
be able to take on the obligations of EU membership in the medium term. 

Regional Policy and Cohesion 

the 
In  accordance  with  Title  XIV  of  the  Treaty,  the  Community  supports 
strengthening of cohesion, mainly through the Structural Funds.  Slovenia 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  cooperation  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 
mentions no specific measures. 

Descriptive  Summary 

Slovenia's  aggregate  GDP has registered positive growth rates since  1993  and was  at 
some 59% of the EU average in  1995.  After having grown with an annual average of 
nearly  6%  from  1990  to  1995,  figures  suggest  a  declining  trend  of  unemployment 
amounting to approximately 7%. 

The present  legal  basis  for  Slovenia's  regional  development  initiatives  is  the  law  on 
"Stimulation  of  Development  in demographically Endangered  Areas"  adopted  at  the 
very  end  of  1990  which  covers  61% of  the  territory  and  24.6%  of  the  population. 
According  to  this  law,  the  State  provides  cofinancing  of  infrastructure  development 
projects  at local  level  including public  services  and soft  loans  for  economic  activities 
(SMEs). 

Recently,  a  law  on  Regional  Development  Promotion  has  been  submitted  to  the 
national  Parliament  defining  three  types  of  problem  areas  in  line  with  current  EU 
practices  (1.2  and  5b)  and  a  border  zone  within  the  10  km  area  distance  from  the 
border  (to  participate  in  Interreg-Phare  programmes).  This  law  also  suggests  the 
establishment  of  Regional  Development  Councils  and  the  establishment  of  a 
comprehensive  information  system.  Spatial  planning  is defined  in  the  long  and  mid 
term plans under the responsibility of the local self government. 

The  Ministry  of  Economic  Relations  and  Development  is  in  charge  of  regional 
development,  the  Ministry  of  Environment  and  Physical  Planning  deals  with  spatial 

86 

planning.  Twelve  functional  planning  regions  were  created  but  without  elected 
representations  or  established  administration.  Since  1995  local  administration  is 
organised  on the  basis of  147 local  authorities.  The Law on Public  Administration 
defines the competencies of these local bodies. 

Slovenia's financial instruments at the disposal of regional development initiatives are 
limited.  However,  the  share  of  development  related  expenditures  which  could 
constitute  potential  counterpart  funds  to  EC  structural  policy  cannot  yet  be 
determined.  Therefore,  Slovenia's  cofinancement  capacity  cannot  presently  be 
evaluated with sufficient  reliability. 

Current and Prospective Assessment 

A new law on regional development is under preparation and the Government decided 
in November  1996 to establish an inter-ministerial Task Force for the development of 
a national policy in this  field. 

However,  ministerial  responsibility  for  regional  development  policy  and  spatial 
planning  is  in  need  of  strengthening.  In  addition,  the  institutional  structure  seems 
embryonic with low interministerial co-ordination. 

Nevertheless, a clear political awareness seems to prevail in Slovenia as to the need 
for a regional policy and the establishment of administrative and budgetary procedures 
able to channel the EU structural actions.  " 

Conclusion 
Slovenia is currently establishing a regional development policy adapted to its 
regional disparities. Given the small size of the country, Slovenia's regional policy 
should be formulated within the framework of its national development strategy. 
Although some provisions are still to be implemented, Slovenia's administrative 
capacity seems sufficient  to implement integrated regional development programmes 
efficiently.  Subject to these necessary modifications, Slovenia should, in the medium-
term, be ready to apply the Community rules and channel the funds from the  EC 
structural policies. 

3.6  Quality of Life and Environment 

Environment 

The  Community'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 

87 

assessment  is carried out before  development consent is granted for certain public and 
private projects. 

the  principle  of  sustainable  development  and  should 

The Europe Agreement  stipulates that Slovenian development policies shall be guided 
by 
incorporate 
environmental  considerations.  It  also  identifies  environment  as  an  area  for  bilateral 
cooperation, as well as for approximation of legislation  to that of the Community. 

fully 

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 

There  are  no  particular  environmental  hot  spots  in  Slovenia.  However,  there  are 
important,  and  in  some  cases  growing,  problems, mainly  in  water  quality  and  waste 
management, but also in air and soil pollution. 

Surface  and  ground  water  quality  has  deteriorated  in  recent  years, because  of  waste 
water  originating  from  agricultural  run-off,  discharge  of  untreated  municipal  and 
industrial waste water, and leakage from industrial and municipal waste disposal sites. 
The quality of drinking water is low and there is little treatment of waste water though 
Slovenia  is  considering  the  launching  of  action  to  improve  the  situation.  Waste 
management  is  an  area  of  growing  concern;  here  problems  derive  from  rapidly 
growing untreated industrial and municipal waste and leakage from unregulated  waste 
dumps.  Power  plants  and,  increasingly,  urban  traffic  are  the  main  sources  of  air 
pollution,  which  is especially  important  in the Ljubljana  area.  Acid rain has  recently 
become  a  major  problem.  Extensive  use  of  fertilisers  and  pesticides  in  agriculture 
contributes to soil pollution.  Slovenia has an extraordinarily rich bio-diversity, but its 
erosion causes concern. 

Slovenia has a framework environmental  legislation (Environmental Protection Act of 
1993), whose objectives  and principles  aim at sustainable development.  A  legislative 
system is also in place for  air and water pollution, but there is no legislation  for waste 
management,  although the Government has recently  adopted  an extensive  strategy  for 
this area.  On the whole, secondary  legislation on implementation  and  enforcement  is 
lagging behind. 

Financial  resources  allocated to the environmental  sector are very  limited, well below 
the EU average,  and below  the investment requirements  as assessed by the  Slovenian 
authorities  for  implementing  their  National  Environmental  Action  Programme. 
Economic instruments include the ecological development  fund  and a system for fines 
and permits. 

Current and Prospective  Assessment 

Slovenia's  environmental  legislation has begun moving  into  line with that  of the EU, 
but  gaps  in  sectoral  and  enforcement  legislation  remain  and  there  is  insufficient 
information  on  the  degree  of  compliance  of recent  legislation.  In  addition,  Slovenia 

88 

does  not  seem  to  have  structures  ensuring  the  compatibility  of  environmental 
legislation  and  policies  with  those  of  the  Union.  Critical  for  progress  in  achieving 
formal  compliance with the acquis will be the adoption in all environrnental sectors of 
subsidiary  legislation  for  implementation,  fully  compatible  with  existing  framework 
legislation. 

In  terms  of  White  Paper  measures  for  environment  (both  Stage  I  and  Stage  II), 
Slovenian  legislation  is  partially  compatible  in  most  areas,  but  gaps  exist  in  waste 
management, chemical substances and noise emission legislation. 

Current  levels  of  substantive  compliance  are  still  below  EC  norms  in  key  areas  -
industry  and  energy  sector,  municipal  waste  and  hazardous  waste.  Slovenia's  focus 
on  water  quality  has  led  to  a  relative  neglect  of  compliance  with  other  parts  of  the 
Community  acquis,  including  product  related  directives  and  waste  directives. 
Environmental  concerns  in  the  agricultural  sector  have  to  be  addressed.  Particular 
attention  should  be  given  to  the  quick  transposition  of  framework  directives  dealing 
with  air,  waste,  water  and  the  Integrated  Pollution  Prevention  and  Control  (IPPC) 
directive,  as  well  as  the  establishment  of  financing  strategies  for  legislation  in  the 
water, air and waste sectors requiring major  investments. 

Key measures  for  significantly  raising  substantive  compliance  levels would  include  a 
major  focus  on  raising  enforcement  levels,  increasing  the  national  budget  for 
environmental  investment,  easing  administrative  and  parliamentary  bottle-necks  in 
developing  new  legislation,  and  further  developing  economic  instruments.  The 
country's  environmental  accession  strategy should  include  implementation  timetables 
for meeting the  EC environmental  acquis, starting among others with  implementation 
of the framework and IPPC directives mentioned above. 

Conclusion 

Full  transposition  of  the  environmental  acquis  in  Slovenia  can  be  expected  in  the 
medium-term,  if  current  plans  for  new  framework  and  secondary  implementation 
legislation  are  realised  and  if  the  National  Environmental  Action  Programme  and 
environmental  accession strategy are quickly adopted.  However, effective  compliance 
with  a  number  of  pieces  of  legislation  (e.g.  urban  waste  water  treatment,  drinking 
water,  aspects  of waste  management  and  air pollution  legislation)  could  be  achieved 
only 
in  the  long  term,  and  will  require  a  significant  increase  in  environmental 
investment, as well as a major effort  to reinforce administrative capacity. 

Consumer  Protection 

The  Community  acquis  covers  protection  of  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. 

89 

The Europe Agreement provides  for  approximation  of legislation with  Community  law 
and  cooperation  with  a  view  to  achieving  full  compatibility  between  the  systems  of 
consumer  protection  in  Slovenia  and  the  Community.  Stage  I measures  of  the  White 
Paper  focus  on  improving product  safety,  including  cosmetics, textile names  and toys, 
and  on  the  protection  of  the  economic  interests  of  consumers,  notably  measures  on 
misleading  advertising, consumer credit, unfair  contract  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 

Although  Slovenia does not yet have a Consumer Protection Act,  a draft  law has been 
discussed for several years by Parliament. In September  1996, the government  set up on 
an  agency  for  Consumer  Protection  which  up  to  now,  however,  seems  to  lack  the 
necessary resources. The Ministry  for Economic  Relations  and Development  is  overall 
responsible  for  the  coordination  of  consumer  policy.  Together  with  the  Slovene 
Consumers  Association,  the  Ministry  draws  up  the  annual  program  of  consumer 
protection  to  be  adopted  by  the  Slovene  Government.  Consumers  are  represented  by 
the  Slovene  Consumers'  Association  which  was  founded  in  June  1990  as  an 
independent  non-government,  non-profit  organisation.  Due  to  its  strong  role,  other 
consumer movements have difficulties  developing. 

Current and Prospective  Assessment 

The  draft  Consumer  Protection  Act  appears  to  be  on  good  track  to  be  agreed.  But 
further  amendments  or  new  provisions  would  still  be  required  to  make  Slovene 
legislation fully  compatible with EC standards on consumer policy. 

On the protection  of  economic  interests  of consumers,  it  appears  that  the  indication  of 
the  price  of  products  and  misleading  advertising  will  only  partly  be  regulated  by  the 
Slovene draft  Consumer Protection Act.  While the provisions on "special types of sale" 
are more protective  for  consumers  than under  the  EC  directive, regulations  on  unfair 
contract  terms  need to be clarified.  There are important  gaps in the areas of  consumer 
credit, package  travel  and  timeshare property where there appears  to be  few  legislative 
initiatives or no legislation at all. 

The  Slovene  law  on product  safety  appears to  have  limited  coverage  compared  to  EC 
rules,  and  the  draft  Consumer  Protection  Act  is  unlikely  to  include  any  new  or  wider 
provisions  to protect  consumers  in this area.  On cosmetics, the main problem  with the 
expected  new  regulation  for  cosmetic  products  concern  the  definition  of  the  product. 
New  regulations  in  line  with  EC  Directives  are  expected  for  textiles  names  and  the 
safety of toys. 

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

90 

Conclusion 

In  spite  of  the  inadequate  legal  situation,  the prospect  for  legislative  developments  in 
alignment  with  the  EC  acquis  appears  positive  in  the  medium-term  provided  work 
continues.  But  efforts  need  to  be  made  to  realign  national  law  with  the  EC  acquis. 
Slovenia needs to agree urgently the draft  Consumer Protection Act as well as a number 
of  other  amendments  intended  to  strengthen  consumer  protection,  notably  on  general 
product  safety. 

3.7  Justice and Home Affairs 

The Present Provisions 

The  Justice  and  Home  Affairs  (JHA)  acquis principally  derives  from  the  framework 
for  cooperation  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  EU  JHA  framework  primarily  covers:  asylum;  control  of  external  borders  and 
immigration;  customs  cooperation  and  police  cooperation  against  serious  crime, 
including drug trafficking;  and judicial cooperation on criminal and civil matters.  The 
TEU  stipulates  key  principles  upon  which  such  cooperation  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.  The  JHA  acquis  involves  a  high  degree  of  practical 
cooperation, 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. 

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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  cooperation  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 

Slovenia joined  the  Council  of  Europe  in  1993  and  has  ratified  the  most  important 
instruments  concerning  human  rights.  The  Constitution  provides  for  an  independent 
judiciary according to the rule of law. 

Institutional  reform  of  JHA  institutions  is  well  under  way,  although  there  is  some 
concern  about  the  efficiency  and  effectiveness  of  the  judiciary.  The  Constitution 
guarantees data protection, in line with EU requirements, and Slovenia has ratified  the 
1990 data protection  convention.  A new law is in preparation,  designed to modernise 
the data protection system.  (See also separate section on single market). 

Asylum 

Slovenia is party to the Geneva Convention and  1967 Protocol.  Currently asylum  law 
is regulated by the general Law on Foreigners, but a new asylum law, in line with  EU 
requirements  and  covering  social  support  as  well  as  application  procedures,  is  in 
preparation.  Very  few  applications  for  asylum have been  made.  However,  there  are 
some  8,000  temporary  refugees  from  former  Yugoslavia,  who  have  been  granted 
temporary  protection.  A  law  on  temporary  refuge  was  adopted  by  the  Slovenian 
parliament in April  1997. 

Immigration/Border  Control 

Some  190  million  border  crossings  were  made  in  1995;  of  these  some  4,200  were 
revealed  to  be  illegal.  Migrants  are  coming  from  Romania,  Sri  Lanka,  Turkey  and 
China.  Slovenia follows  the EU list of third countries for which visas are required and 
uses the EU standard visa format.  Residence and immigration issues relating to  aliens 

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are covered by the 1991 law on Foreigners.  Readmission agreements are in place with 
Austria, Benelux, France, Greece Hungary, Croatia, Switzerland,  Slovakia, Romania 
and Canada.  Border management is thorough and effective. 

Police Cooperation 

Organised  crime  exists  in  Slovenia  in  the fields of  arms  trafficking,  trafficking  in 
women,  prostitution,  money  laundering,  vehicle  theft,  and  smuggling  of  drugs. 
Legislation  has  been  strengthened  to  help  tackle  organised  crime  more  effectively, 
with  specialist  units being  established;  their  level of experience  is  limited  but  their 
is  growing.  Slovenia  has  signed  the  1990  Money  Laundering 
effectiveness 
Convention. 
(See  also  separate  section  on  single  market).  Slovenia  experienced 
isolated incidents of political terrorism at the end of the independence war, but there 
have  been  no  recent  incidents.  Slovenia  is  concerned  about  the  use  of  its  soil  by 
international  terrorists.  It is not party to the key international  terrorist  conventions, 
but domestic criminal law covers terrorist activity. 

Drugs 

Slovenia  is  a  major  transit  country  for  drug  trafficking.  Significant  quantities  of 
heroin have been seized  in recent years.  Domestic  demand  is increasing.  Slovenia 
has acceded to the main international drugs conventions.  Domestic legal measures to 
tackle  drugs  investigations  are  in  place  and  there  are  special  drugs  units  in  the 
enforcement agencies. 

93 

Judicial  Cooperation 

Slovenia  has  ratified  the  main  criminal  conventions  and  has  in  place  domestic  legal 
procedures  relating  to  cooperation  on  criminal  matters.  It  is  party  to  a  number  of 
Hague conventions and is developing its implementation capacities on the civil side as 
well.  Generally  the  Slovene judiciary  and  wider  legal  system  is  inexperienced  and 
inefficient  and needs reform, and human resource development  to  enable it to  operate 
effectively. 

Current and Prospective Assessment 

There are still some gaps to be filled in Slovenia's legislation but for the most part the 
legislation  is  either  in preparation  or  in place.  Priorities  for  the  near  future  will  be 
filling the remaining gaps with regards to intemational conventions, particularly in the 
criminal  field  and  to  develop  the  judicial  system  and  institutions  dealing  with 
organised crime.  In the migration field it will be important to develop and  implement 
the new asylum law in a manner which respects the EU acquis in  full. 

Conclusion 

For  the  most  part  Slovenia  has  demonstrated  its  capacity  to  make  progress  on  key 
JHA  issues, notably  immigration  and border  control.  Assuming  progress  is made  on 
other issues, especially with regard to the judiciary and the full  adoption of the asylum 
acquis,  and  systems to tackle organised  crime are developed  further,  Slovenia  should 
be able to meet the justice and home affairs  acquis (present and future)  within the next 
few years. 

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. 

The White Paper includes no provisions in this field. 

Descriptive  Summary 

Slovenia  has  developed  an  open,  trading  economy  and  is  a  member  of  the  World 
Trade Organisation  (WTO). Upon  accession  Slovenia would have to comply with the 
obligations of the multilateral WTO agreements to which the Community is a party. 

At  present  Slovenia  maintains  quantitative  restrictions  on  the  import  of  textile  and 
clothing products.  On accession  Slovenia would have to apply Community quotas on 

94 

quantitative restrictions.  The Slovenian authorities are committed to phasing out these 
restrictions, with their elimination planned by 2005.  On accession the  Community 
textiles  policy  of  the  Community  would be  extended  to  Slovenia;  any  Community 
restrictions  still maintained  at the date of accession would require adjustment  by an 
appropriate amount to take account of Slovenian accession. 

Current and Prospective Assessment 

On  accession  Slovenia  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 levels of most favoured nation duties for Industrial 
products will be 10.9% for Slovenia and 3.6% for the  Community. 

In its relations with international organisations Slovenia 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 Slovenia would become party to the  Community's various  preferential 
agreements.  Preferential  agreements between Slovenia and third countries would, in 
general, have to be terminated on accession. 

In the area of trade in services and establishment Slovenia has sought to ensure that its 
multilateral commitments under the GATS are as consistent as possible with those of 
the  Community;  Slovenia  has  indicated  its  willingness  to  resolve  any  significant 
inconsistencies which may nonetheless come to light. 

On  accession  Slovenia  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 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 Slovenia's pre-accession phase. 

Slovenia  is  party  to  one  of  the  four  existing  regimes  for  the  non-proliferation  of 
weapons  of  mass  destruction,  and  is  ratifying  a  second.  Dual-use  items  are  not 
currently  subject  to  export  control  under  Slovenian  legislation.  Arms  export  is 
It  is  questionable  whether  Slovenia  would  be  able  to  abide  by  EC 
controlled. 
legislation  upon  accession  since  effective  controls  need  time  to  be  implemented. 
Slovenia should address this issue as a matter of urgency. 

Conclusion 

95 

Slovenia  is  well  placed  to  be  able  to  meet  Community  requirements  in  this  field 
within  the  next  few  years  provided,  in  particular,  that  the  question  of  the  need  for 
export controls on dual-use goods,  is dealt with rapidly. 

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 

Slovenia  has  no  preferential  trade  agreements  with  ACP  countries,  and  no  GSP 
schemes apply.  No duty free access is granted by Slovenia. 

Slovenia has no budget for development  aid, although it has contributed  financially  to 
the reconstruction of Bosnia and Herzegovina. 

Current and Prospective  Assessment 

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

Slovenia  could  confront  some  difficulties  in applying the present  Lomé trade  regime 
integrally from the date of accession. 

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

Conclusion 

Slovenia will need to make significant  progress if it is to meet EU requirements in this 
field within the next few years. 

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. 

96 

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  Slovenian  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. 

Slovenia'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  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. 

in  particular 

With  the  support  of  the  technical  assistance  provided  by  customs  programmes, 
Slovenia  has  achieved  the  adoption  and  entry  into  force  on  1  January  1996  of  a 
Customs  code  compatible  with the  Community's  customs  code  and  its  implementing 
provisions.  The legislation on customs reliefs is in great measure compatible with the 
Community legislation, but important delays exist for counterfeit  and pirated goods. 

Slovenia  is  undertaking  a  continuous  process  of  aligning  its  national  goods 
nomenclature  to  the  Community's  Combined  Nomenclature.  A  Slovenian  Integrated 
Tariff already exists.  This will greatly facilitate the comparison of the Slovenian  tariff 
rates with those of the Commission Customs Tariff. 

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

Slovenia has applied to become a contracting party to the EC/EFT A Common  Transit 
Convention  and  the  Single Administrative  Document  Convention.  Slovenia  has  also 
applied to participate in one of the customs databases (TARIC). 

Current  and Prospective  Assessment 

Tax-Free  shops  at  land  borders  are  allowed  by  Slovenia  under  national  legislation 
although  the  Slovenian  authorities  intend  to  comply  with  the  Customs  Cooperation 
Council  Recommendation  of  16 June  1960 by  1 July  1998  at  the  latest.  These  Tax-
free  shops  are  not  allowed  at  land  borders  by  the  Recommendation  nor  are  they 
permitted  inside the EC territory, therefore  the abolition of this kind of facility  will be 
a  condition  for  accession.  However,  the  Slovenian  authorities  should  accelerate  the 
dismantling of these shops as soon as possible. 

97 

that 

important 

It  will  be 
the  Slovenian  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.  Computerisation  is  at  a  preliminary  stage  of 
development in Slovenia and will need to be upgraded. 

Slovenia would  need  on  accession  to dismantle  customs  controls  at the borders  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. 

Conclusion 

If Slovenia continues major  efforts  to align its organisation  and staff to the duties that 
have to be carried  out by a modern customs  administration,  it should be  able to  meet 
EC requirements in the next few years. 

Common  Foreign  and  Security  Policy 

Following  the  declaration  of independence  on 25 June  1991, Slovenia  has  orientated 
its  foreign  and  security  policy  towards  the  EU  and  NATO.  Since  it  began 
participating  in  the  political  dialogue  between  the  EU  and  the  associated  countries, 
Slovenia  has  been  actively  involved  in  the  arrangements  provided  for  under  the 
Union's  Common  Foreign  and  Security  Policy  and  whenever  invited  has  supported 
EU actions within that  framework.  Slovenia is a member  of the UN, OSCE,  Council 
of  Europe  and  many  other  international  organisations.  It  is  an  associate  partner  of 
WEU,  participates  in the NACC,  the PfP  and  has  made  clear  its  desire  to  become  a 
member of the WEU and NATO  as soon as possible.  It has provided transit  facilities 
for  international  forces  en  route  to  peacekeeping  operations  in  former  Yugoslavia; 
although it did not send troops to participate in IFOR, it has provided  helicopters  and 
medical  equipment.  Slovenia  also  participates  in  a number  of regional  organisations 
including CEFTA and the CEI. 

There are no territorial disputes between Slovenia and any member or associated  State 
of the Union.  There remain  some problems, however, between  Slovenia  and  Croatia, 
the  most  difficult  of  which  is  the  dispute  over  the  maritime  border  in  Piran  Bay. 
Other  disputes  concern  the  less  contentious  demarcation  of  land  frontiers;  property 
law; management  of  the Krsko  Nuclear  Plant;  and banking  claims.  There  are  also  a 
number  of  outstanding  economic  cooperation  issues  to  be  resolved  with  Croatia. 
Slovenia  is  concerned  to  ensure  protection  for  the  Slovene  minorities  in  Italy  and 
Austria. 

Slovenia has a new  and  small  diplomatic  staff  with limited  experience  and  resources. 
In  due  course,  it  should  nevertheless  be  able  to  play  a  full  role  as  a  member  of  the 
Union. It maintains 36 representations abroad and employs  108 diplomatic  staff. 

98 

Slovenia does not formally participate in the control regimes concerning weapons of 
mass destruction but has established contacts with the relevant organisations and has 
stated its intention of participating in all relevant international  arms control treaties. 
The  small  Slovenian  armed  forces,  which  are  under  democratic  control,  are  being 
reorganised to meet NATO requirements.  There is little defence  industrial  capacity. 
Slovenia is currently studying EU regulations with regard to export controls of dual 
use technology with a view to introducing the necessary legislation. 

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

The  assessment  of  Slovenian  foreign  and  security  policy  to  date  leads  to  the 
expectation that as a member it could 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. 

The Europe Agreement contains no specific provisions on financial control. However 
it  provides  for  cooperation  in  audit,  including  technical  assistance  from  the 
Community as appropriate.  The White Paper includes no measures in this  field. 

Descriptive Summary 

At the time of independence the audit and  control of the economic sector was carried out 
by the self-managed  institution, the Agency  for  Payments  and Control  (SDK), deriving 
from the  Yugoslav  system.  The  SDK  carried  out  its  function  effectively  within  the 
Yugoslav  economic  system.  Since  independence  Slovenia  has  had  to  progressively 
remove the powers of the SDK, and to transfer them to free market oriented institutions. 

In  terms  of  external  control,  the  National  Court  of  Audit,  created  in  July  1994  and 
operating from January  1995, is the supreme control body of the State exercising control 
over government accounts, the State budget and resources extended  for public purposes. 
The Court of Audit is empowered to supervise the collection of public duties and taxes, 
and  to  control  the  business  operations  of  public  and  also  private  law  entities  and 
enterprises as far as they receive public funds from the state budget, and of other entities 
in which the state holds an interest. Its independence is guaranteed by the Constitution. 
Reporting  generally  follows  international  audit  standards.  Annual  reports  comprise 

99 

summary information  on findings, infringements  and the balance of the use of funds,  and 
may include recommendations  for penal proceedings or investigations. 

A special parliamentary Committee on control of finances and budget exercises a political 
control on the financial management of the Government. 

In terms of internal control, the Department  for Budget Inspection located in the Ministry 
of  Finance  verifies  the  various  budget  users'  financial,  material  and  accounting 
management  according  to  an  annual  audit  programme  enforced  by  the  Government.  It 
covers  regularity,  legality  and  purpose  of  use.  A  preventive  budgetary  control  is  also 
secured  by the  Department  of Public Accounting  within  the Ministry  of  Finance,  and  to 
some extent within each ministry. 

Three  bodies  are  responsible  for  cooperating  with  other  countries  in  the  fight  against 
fraud, depending on the nature of a case: for criminal offences,  the Criminal  Investigation 
Service  of  the  Ministry  of  the  Interior  within  Interpol,  for  violations  of  customs 
regulations,  the  Customs  Directorate  of  the  Ministry  of  Finance,  and  for  financial 
operations,  the  Office  for  Money  Laundering  Prevention.  State  revenues  tax  control  is 
carried out by the Tax Services which perform tax monitoring. 

Current and Prospective Assessment 

Following  independence,  international  standards  of  financial  management  and  control 
were  introduced  in  line with practice  in EU Member  States.  Several  EU Regulations  are 
applicable  from  the  date  of  ratification  of  the  Europe  Agreement,  targeting  at  good 
governance  and  the  protection  of  the  Community  interests  in  sound  management  of 
Community  funds.  While  legislation  generally  reflecting  the  acquis  in  the  field  of 
financial  control  has  been  adopted  or  is  in the process  of  auoption,  implementation  and 
enforcement  structures need to be developed and strengthened. 

There  is  no  central  authority  responsible  for  fighting  against  fraud,  nor  is  such  a  body 
envisaged.  Internal  and  external  control  bodies  have  not  yet  reached  the  level  of 
efficiency  to be compatible with EU practice and standards. 

The  customs  internal  control  is  not  a  specific  audit  platform  for  "own  resources"  and 
further  cooperation with the Commission will be required to establish whether  accounting 
procedures entirely fulfil  the requirements of Regulation  1552/89. 

The  actual  reporting  and  follow-up  procedures  suffer  from  an  unsatisfactory  conceptual 
definition  of  the  Courts  Role  on  the  one  hand  and  excessive  formalisation  on  the  other. 
The actual situation is due to a great extent to the lack of clearly established  audit  concept 
as well as the lack of well trained  staff. 

The National  Court  of Audit  needs  to be  strengthened  in order  to carry  out  performance 
and  project  audits  including  a revision  of the reporting  system.  The Ministry  of  Finance 
also requires additional resources to carry out tasks  effectively. 

100 

In  the  agricultural  sphere,  a  distinction  should  be  made  between  ex-ante  and  ex-post 
control.  Accounting  procedures,  control  criteria  and  the  framework  of  administrative 
sanctions in the event of irregularity should be  clarified. 

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  as well  as  in  other  areas  covered  by  the 
structural  funds. 

Conclusion 

Continued efforts  are necessary to strengthen financial control and audit  functions. 

Budgetary  Implications 

The communication entitled "Agenda 2000" 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 now 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, Slovenia's accession would give rise to only marginal 
additional expenditure in relation to likely expenditure on the present fifteen  Member 
States. 

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 

101 

also depend on the target population, the geographical area covered or the number of 
Member States involved in the coordination and harmomsation measures. The GNP of 
Slovenia is currently 0.3% of total Union GNP. 

By contrast, Slovenia'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 
Slovenia's accession should fall within the range of, annually, ECU 1.0 to 1.3 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  Slovenia's case is 0.3%. 
Slovenia'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, Slovenia 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 
Slovenia's VAT system fully into line with the Community directives. 

102 

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 Slovenia, 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  Slovene  constitutional  structures,  their  powers  and  responsibilities, 
including those of local government, is given in Chapter 1. 

At the central  level there are  15 ministries, in addition  to the Prime Minister's  Office 
and  a number  of  additional  ministers  without  portfolio.  For  the  handling  of  specific 
issues inter-ministerial  committees can be established, at the level of ministers or state 
secretaries. 

As yet, there is no  full  statutory basis for a Civil Service, nor any clearly stated set of 
principles  governing  the role  of the  Civil  Service.  Instead,  administrative  procedures 
legislation governs the work which the Civil Service undertakes.  A Civil Service Act 
is under preparation. 

The  civil  service  is  politically  independent.  Non-career  civil  servants  may  be 
appointed  into  State  Secretary  posts.  Senior  members  of  a  political  party  are  not 
permitted to fill civil service posts. 

There  are  about  25  000  civil  servants  in  the  Slovene  public  administration.  Overall, 
apart  from  specialised  professions,  pay  levels  in  the public  sector,  while  lower,  are 
reasonably competitive with the private sector. 

As  a  result  of  the  Act  on  Ministries,  the  Ministry  of  the  Interior  has  been  made 
responsible in  1995 for public administration  and its reform.  A reform programme has 
been  submitted  to the  Slovene Government  in June  1997, foreseen  to be approved  by 
the  Government  as  part  of  the  national  pre-accession  strategy  before  end  1997.  The 
reform  is  based  on  an  in-depth  analysis  of  the  Slovene  situation  and  comprises  the 
adoption  of  a new  Civil  Service  Law  in  1998. It  is intended  to be  completed  by  end 
1999. A  state-secretary  for  administration  has been nominated  inside  the Ministry  of 
Interior to strengthen coordination, monitoring and implementation of the reform. 

The  Office  of European  Affairs  supervises  implementation  of the White Paper.  (See 
also the section of the Introduction  concerning  relations between the European  Union 
and Slovenia). 

103 

4.2  Administrative and Judicial Capacity 

An important  legacy of the past for the public administration  of Slovenia has been the 
need,  following  independence  in  1991, to  transform  the  regional  administration  of 
Slovenia  into  one  responsible  for  central  government  functions.  While  there  was  a 
continuity  in  personnel  and  administrative  practice,  the  administration  was  largely 
under-equipped to perform  all the additional  functions. 

The structures of the public administration are reasonably well adapted to the  effective 
execution  of  its  necessary  responsibilities. 
In  order  to  ensure  that  the  positive 
development  of  the  civil  service  over  the  last  years  is  consolidated  and  reinforced  it 
will  be  important  to  address  the  need  for  greater  communication  and  cooperation 
within  and  between  ministries;  implementation  and  enforcement  structures  are  at  an 
early  stage  of  development  and will require  significant  additional  efforts.  There  is a 
shortage  of  staff  in the  Slovene public  administration,  in particular  in the  area  of  the 
implementation and enforcement  of legislation. This includes the judiciary. 

In order to ensure a sound basis for the future positive development of the civil service 
in  its proper  role  it will be  important  that  a firm legal basis  is  established  as  soon  as 
possible.  The current arrangements go part of the way to meeting this requirement but 
are insufficient  on their own. 

The civil  service  is understaffed  in a number of key departments.  Although  the civil 
service  has  expanded  and  continues  to  do  so  the  intake  of  graduates  is  limited  to  a 
small  base;  there  are  serious  shortages  at  middle  and  senior  management  levels. 
These problems will have important negative consequences  for  the ability  of the civil 
service  to  function  effectively,  unless  they  are  successfully  addressed  in  the  near 
future. 

Public  confidence  in the civil  service  is variable.  There  is no  evidence  of  significant 
corruption. 

While  there  remains  scope  for  improving  efficiency  and  effectiveness  of  the 
administration,  the  administrative  practice  of  coordination  and  cooperation  is, 
nevertheless, developing,  in particular  against the background  of the Slovene  strategy 
to  adoption  EU  policies  and  legislation.  Professional  levels  are  often  good,  but  in 
order to provide a sound basis for continued European integration  further  development 
of  administrative  skills  will  be  an  important  objective.  There  is  still  scope  for 
improvement  in  skills  at  the  level  of  general  and  financial  management,  and  in  the 
areas  of policy  analysis, monitoring  and evaluation.  Progress  has been  made  in  civil 
service  training  and  plans  are  being  developed  for  a  civil  service  college.  The 
Masterplan  for  the  Implementation  of  Public  Administration  Reform  in  Slovenia 
(1997-99) provides  a comprehensive reform  programme  for which  the Government  is 
committed  to  make  the  necessary  financial  resources  available.  It  will  be  important 
that  decentralisation  initiatives  are  carried  through.  Given  the  complexity  of  the 
reforms  envisaged,  its  success  will  also  depend  on  the  strength  of  the  policy 
implementation  and coordination mechanism to be set up. 

104 

There is a need to extend coverage of the reform to the judicial system in Slovenia and 
to  focus  specifically  on  the  EU  internal»  market  and  its  implementation  and 
enforcement  requirements.  The success  of the reforms,  in particular  in the EU area, 
will  largely  determine  whether  Slovema  will  be  able  effectively  to  administer  the 
acquis. 

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. 

There is a particular need to train judges in Community  commercial  law.  In addition, 
significant  human resource  constraints  exist.  However,  if appropriate  action  is taken 
to develop the capacity of the judicial  system, including  in these respects, the system 
could be in a position, in the medium term, effectively  to apply the acquis. 

Single  market:  The  ability  of  Slovenia  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"). 

Concerning  the  administrative  capacity  in  respect  of  free  movement  of  goods,  the 
situation in Slovenia is largely  satisfactory,  although public procurement  is an area of 
some concern.  The Standards  and Metrology  Institute, a government  linked body, is 
entrusted  with  both  the standardisation  and accreditation  functions;  Slovenia  has yet 
to achieve the required  separation between the regulatory, standardisation  and product 
certification  functions.  Adequate  structures  and staffing  for market  surveillance  will 
need  to be established  and developed  in the competent  public  authorities  for the ex-
post control of product safety.  Concerning the free movement of services the situation 
is  much  less  satisfactory  than  for  goods.  The Financial  Systems  Department  of the 
Ministry  of Finance  is concemed  with  all legislation  and supervision  in the  field of 
private  financial  institutions.  It  is  suffering  from  a shortage  of  experienced  staff  to 
deal  with  new  legislation.  The  Bank  Supervision  Department,  part  of  the  Central 
Bank,  has  36  staff  The Agency  for  the  Securities  Market  lacks  the  legal  base  for 
enforcement;  it has  15 staff.  Supervision  of the insurance  sector  is  still  in the  early 
stages of development. The Insurance Supervisory Authority has 7 staff. 

In order to meet  EC requirements  in this  area staff  shortages, in particular,  must be 
addressed. 

105 

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. 

In  Slovenia  the  central  authority  is  the  Bureau  for  the  Protection  of  Competition 
which has  3 staff;  this is inadequate.  The level  of expertise is not  high.  The  ability 
effectively  to  implement  EC  requirements  in  this  field  will  require  considerable 
investment  in  human  resources  and  the definition  of  the  competences  of  the  Bureau 
for  the  Protection  of  Competition.  There  is  no  state-aid  authority,  and  the 
administrative  arrangements  in  relation  to  state-owned  enterprises  (where  there  is  a 
lack  of  suitable  legislation)  require  attention;  effective  regulatory  systems  will  need 
to be set up in order to ensure competition standards. 

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. 

the  Department 

In 
for  Post  and  Telecommunications  8  staff  work  on 
telecommunications.  Further  staff  work  elsewhere.  The administrative  capacity  will 
need to be strengthened  . ' 

Indirect  taxation:  The  effective  administration  of  the  indirect  taxation  acquis 
presupposes  structures  capable  of  implementing  the  EC  legislation  concerning  the 
harmomsation  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  Slovenia  the  relevant  authority  is  the  Ministry  of  Finance  (a  central  Ministry,  14 
regional  offices  and  50  branch  offices)  with  3,200  staff.  Due  to  a  large  turnover  of 
staff,  resulting  partly  from  trained  staff  being  recruited  by  the  private  sector,  it  is 
difficult  to assess the capacities of existing staff.  Some useful  expertise is available. It 
will be necessary nonetheless to consolidate professional  standards, including  training 
measures and improvements in pay. 

Agriculture:  The  administrative  requirements  in  the  agricultural  area  primarily 
concern  veterinary  and  plant  health  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  plant  health 
controls in Slovenia, various improvements will be required, including to the facilities 
and  professional  experience  at  border  posts  and  veterinary  laboratories.  The  overall 

106 

staff  of 93 at the Ministry  of Agriculture (6 in the food  sector)  is very  modest.  The 
inspectorate  for  Agriculture,  Forestry  and Hunting  has  124  staff  and the  Veterinary 
Inspectorate  116.  Concerning the administration of CAP requirements,  strengthening 
of the current administrative structures will be necessary. 

In  order to meet  EC requirements  in this  area  important  improvements  remain  to be 
made. 

Transport:  The application  of the EU 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  Slovenia  is  the Ministry  of  Transport  (96 
staff).  There  is  a shortage  of qualified  staff.  The absence  of statutory  legislation  for 
public enterprises involved in transportation could pose a problem for the acquis. 

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  Slovenia  the Labour  Inspectorate  has 74 inspectors.  It requires  reinforcement  of 
staff resources and expertise. 

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  Slovenia  the  Ministry  of  Economic  Relations  and  Development  is  in  charge  of 
regional development (59 staff,  of which 2 are resposible for regional development; 5 
work  in  the  Regional  Development  Fund).  The administrative  arrangements  in  this 
area are at an early stage of development. 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  significant  efforts  to  create  an 
appropriate institutional, administrative and budgetary framework. 

Environment:  Because  EU  environmental  policy,  involves  the  integration  of 
environmental  protection  into  EU 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. 

In  Slovenia the Environment  Ministry  employs  1,200 staff.  Monitoring  is carried out 
by the Ministry  and the sectoral  authorities, enforcement  by the National  Inspectorate 
(28  inspectors).  These  arrangements  are not yet  adequate  since  only  40 per  cent  of 
inspectorate positions are filled. The effective  administration of the acquis  in this  area 
will  require  training  in  inspection  and  enforcement  procedures,  and  the  areas  of 
competence of the various actors needs to be clarified. 

107 

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 
formulation,  implementation  and  enforcement  of  consumer  policy  and  consumer 
protection legislation can be undertaken. 

In  Slovenia  the  governmental  Ministry  of  Economic  Relations  and  Development 
shares  responsibility  for  consumer  affairs  with  the  semi-independent  Office  for 
Consumer Protection.  There are 3 staff-working  on consumer protection.  As regards 
non-governmental  consumer  bodies  an  already  strong  and  independent  consumer 
movement  has  developed.  There  remains  confusion  about  the  exact  scope  and 
objectives  of  consumer  policy.  This  in  part  explains  difficulties  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. 

In  Slovenia the justice  and interior  ministries  are adequately  staffed.  The capacity to 
handle asylum and migration questions is not yet assured, since a new asylum-law - in 
line  with  EU  requirements  -  is  still  being  prepared,  and  currently  very  few 
applications for asylum have been made. Border management is adequate.  Specialised 
police units have been  established  to combat  organised  crime, and they are generally 
effective.  The judiciary  is inexperienced  and the judicial  system  inefficient;  judicial 
cooperation  is  currently  limited,  but  improving.  The effective  administration  of the 
acquis  in  this  area  will  require  greater  investment  in  the judiciary  (in  particular  in 
human resource development, and training in  EC law). 

Customs:  Applying tho 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 Slovenia the customs service employs 2,200 staff. Due to a high turnover of staff, it 
is  difficult  to estimate  their  efficiency,  and therefore  the adequacy  of staffing  levels. 
However, there are some positive developments to record. 

Financial  control:  The protection  of the Community's  financial  interests requires the 
development  of  anti-fraud  services,  training  of  specialised  staff  (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 

108 

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  Slovenia there  is no  central  authority  responsible  for fighting against fraud. The 
National Court of Audit is not yet in a position fully to perform its audit function. The 
Ministry  of Finance has  only  5 staff  at the Department  for  Budget  Inspection.  The 
effective  administration  of  the  acquis  in  this  area  will  require  major  efforts  to 
strengthen the institutional structures. 

4.3  General Evaluation 

With  comprehensive  reform  efforts  it  could  be  envisaged  that  the  necessary 
administrative  structures  would  be  in  place  in  Slovenia,  in  the  medium  term, 
effectively  to administer the acquis. 

If  the  necessary  measures  are  taken,  the  Slovenian  judicial  system  could  be  in  a 
position, in the medium term, effectively  to apply Community law. 

109 

C.  SUMMARY AND CONCLUSION 

Slovenia  submitted  its application for membership of the European Union on  10 June 
1996.  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  Slovenia's  request  for 
membership. 

Slovenia has not yet ratified  the Europe Agreement signed on  10 June  1996.  It must 
first modify  its constitution to remove the restrictions on ownership of property  which 
still  affect  nationals  of EU member  states.  Slovenia's preparation  for  membership  is 
therefore  going ahead on the basis of the Interim Agreement  which entered  into  force 
on  1 January  1997.  The  government  has  put  in  place  the  necessary  mechanisms  to 
coordinate its policies for European integration. 

The  government  has  given  particular  attention  to  creating  the  institutional  structures 
necessary to implement the White Paper of  1995 on the single market, a key  element 
of  the  pre-accession  strategy.  The  government  agreed  in  May  1996  a  three  year 
programme  of transposition  of these measures and plans to define  an overall  strategy 
on these issues before the end of 1997. 

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. 

110 

h  Political Criteria 

The  Slovene  institutions  function  properly,  with  the  different  powefs  respecting  the 
limits on their competencies  and cooperating  with each other.  Elections  in  1992 and 
1996 were free and  fair.  The opposition  plays a normal part  in the  operation  of the 
institutions. 

There  are  no  major  problems  over  respect  for  fundamental 
rights.  Some 
improvements are still needed  in the operation of the judicial  systern, and in restoring 
The 
property  to  former  owners  dispossessed  under  the  communist  reginie. 
effectiveness  of the fight against corruption needs further  strengthening. 

Slovenia therefore  presents the characteristics  of a democracy  with  stable  institutions 
guaranteeing  the  rule  of  law,  human  rights  and  respect  for  and  protection  of 
minorities. 

2.  Economic  Criteria 

After  a period  of  falling  GDP, Slovenia has had positive growth  since  1993 (5.3% in 
1994, 3.9% in  1995, 3.1% in  1996).  This has been achieved  in conditions  of balance 
in  public  finances  and  external  accounts,  and  falling  inflation  (9.1%  in  1996). 
Slovenia has 2 million inhabitants and GDP per capita is 59% of the EU average.  The 
agricultural  sector employs nearly  7% of the working  population  and contributes  5% 
of  gross  value  added.  Trade  relations  with  the  EU  have  grown  considerably  since 
1991 and now represent 65% of Slovenia's external trade. 

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

Slovenia  can  be  regarded  as  a  functioning  market  economy. 
It  has  advanced 
considerably  in liberalisation and privatisation, and achieved a successful  stabilisation 
of the economy.  However, there is a lack of competition in some sectors, in particular 
the  financial  sector,  the  working  of  the  market  mechanisms  still  needs  some 
improvement,  and the necessary  reforms  of the  fiscal  and  social  security  systems  are 
not yet completed. 

Slovenia  should  be  able  to  cope  with  competitive  pressure  and  market  forces 
within  the  Union  in  the  medium  term,  provided  that  rigidities  in  the  economy  are 
reduced.  It has a diverse export base, the workforce  is skilled  and highly trained, and 
infrastructure  is relatively good.  However, enterprise restructuring has been slow due 
to  the  consensual  character  of  economic  decision-making,  and  the  incentives  of 
workers  and  managers  to  preserve  the  status  quo.  Improvements  in  competitiveness 
have  been  hampered  by  rapid  wage  growth  combined  with  low productivity  growth. 
The  low  level  of  foreign  direct  investment  reflects  these  structural  problems,  which 
need to be tackled. 

3.  Capacity to take on the Obligations of Membership 

111 

Slovenia'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; 

- 

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. 

Slovenia,  which  has  not  yet ratified  the  Europe  Agreement,  has  made  some  progress 
in  applying  the  corresponding  dispositions  of  the  Interim  Agreement,  and  has 
achieved  a  satisfactory  rate  of  transposition  of  the  rules  and  directives  set  out  in  the 
White Paper. 

For most  of the sectors related to the single  market,  and  in particular  on  accounting, 
mutual  recognition  of  professional  qualifications  and  intellectual  property,  the 
legislative  foundation  is virtually  in place.  According to the Slovene authorities'  own 
estimation,  most  of  the  necessary  measures  have  been  either  partly  or  completely 
transposed.  But  further  legislative'effort  will be needed  to achieve  full  absorption  of 
the  acquis. 

Notwithstanding  the efforts  which have been made, the progress  made  in  transposing 
legislation  still  needs to be accompanied  by concrete measures  of  implementation,  as 
well  as by the establishment  of an effective  administrative  underpinning.  Substantial 
work  is  still  needed  in  the  fields  of  public  procurement,  competition,  insurance, 
freedom  of capital movements, product comformity  and standardisation.  Introduction 
of VAT is a top priority.  Implementation and application of legislation  should be seen 
as  essential  elements  of  Slovenia's  pre-accession  strategy.  Slovenia  needs  to  go 
beyond primary legislation and cover also technical standards. 

As  for  the  other  parts  of  the  acquis,  if  it  continues  its  efforts,  Slovenia  should  not 
have  particular  difficulties  in  applying  it  in the  medium  term  in the  following  fields: 
development; 
education 
telecommunications;  audio-visual;  small  and  medium  enterprises;  consumer 
protection; international trade relations; development; and customs. 

technical 

research 

training 

youth; 

and 

and 

The current level and perspective for competitiveness of most of the Slovene  industry 
enables  a  positive  expectation  on  its  capacity  to  cope  with  the  competitive  pressure 
and  market  forces  within  the  Union 
in  the  medium  term.  There  may  however,  be 
problems  linked  to  certain  labour  market  rigidities  and  for  those  sectors  and 
companies, which have not yet undergone restructuring. 

12 

For  the  environment,  very  important  efforts  will  be  needed,  including  massive 
investment  and  strengthening  of  administrative  capacity  for  enforcement  of 
legislation.  Full  compliance with the acquis could  only be expected  in the long  term 
and would necessitate increased levels of public expenditure. 

Slovenia has already made satisfactory  progress in the transport  field.  If it continues 
its  efforts  in  road  freight  transport  and  the  railway  sector,  transport  should  not  pose 
difficulties  for accession.  Slovenia has undertaken to make the investments  necessary 
to establish TENs in order to ensure effective  functioning  of the single market. 

Slovenia should also be able to apply the acquis on employment and social affairs  in 
the  medium  term.  Efforts  are  still  needed,  however,  on  labour  law  and  health  and 
safety  at  work.  Slovenia  also  needs  to  establish  the  autonomy  of  the  labour 
inspectorate. 

As  for  regional  policy  and  cohesion  Slovenia  has  adopted  a  development  policy 
which  should  permit  it  in  the  medium  term  to  implement  Community  rules  and 
effectively  use  structural  funds.  But  it  will  need  to  strengthen  considerably  its 
financial control mechanisms. 

In  agriculture,  if  progress  is  achieved  on  veterinary  and  phytosanitary  controls,  on 
strengthening  the  structures  needed  to  apply  the  CAP,  and. on  re-structuring  the 
agrifood  sector  as well  as on  strengthening  its rural  development  policy,  membership 
should  not  create  significant  problems  for  Slovenia  in  the  medium  term  in  applying 
the CAP in an appropriate manner. 

In  energy  efforts  are  still  needed  on  monopoly  operations,  price  fixing,  access  to 
networks  and  state intervention  in the solid fuel  sector.  Slovenia has a nuclear  power 
station  at  Krsko,  which  it  shares  with  Croatia,  and  which  produces  20%  of  its 
electricity.  It  was  built  according 
to  western  technology.  A  solution  needs  to  be 
found  for its nuclear waste. 

On the basis of the analysis of its capacity to apply the acquis, Slovenia could be in a 
position  in  the  medium  term  to  take  and  implement  the  measures  necessary  for 
removal of controls at its borders with member states of the Union. 

Slovenia's  participation  in the  third  stage  of  economic  and  monetary  union,  which 
implies  coordination  of  economic  policy  and  the  complete  liberalisation  of  capital 
movements,  could  present  some  difficulties  given  the  incompatibility  of  the  rules 
governing  the  central  bank  with those  of the EU, and also the need to restructure  the 
banking sector.  It is premature to judge whether  Slovenia 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. 

Slovenia  should  be  able to  apply  the acquis on justice  and  home  affairs  in the  next 
few  years, even  if particular  attention  needs to be paid to the operation  of the judicial 
system, treatment of asylum seekers and the fight against organised crime. 

113 

Slovenia should be able to fulfil  its obligations in respect of the common foreign  and 
security policy. 

Since  1991  Slovenia  has  strengthened  its  relations  with  its  neighbours  and  signed 
Friendship  and  Good Neighbourliness  Treaties  with  them.  There  is, however,  still  a 
dispute with Croatia over maritime boundaries. 

4.  Administrative and Legal Capacity 

If  Slovenia  undertakes  substantial  efforts  to  reform  its  administration,  the  necessary 
structures could be in place in the medium term to apply the acquis  effectively. 

The  capacity  of  the  judicial  system  to  ensure  correct  and  uniform  application  of 
Community  law  is  important,  particularly  for  achievement  of  the  single  market.  In 
current circumstances it is difficult  to judge Slovenia's progress in this field. 

CONCLUSION 

In the light of these considerations, the Commission concludes that : 

- Slovenia  presents the characteristics  of a democracy, with stable  institutions 
guaranteeing  the  rule  of  law,  human  rights  and  respect  for  and  protection  of 
minorities; 

-  Slovenia  can  be  regarded  as  a  functioning  market  economy  and  should  be 
able  to  cope  with  competitive  pressure  and  market  forces  within  the  Union  in  the 
medium term; 

-  Slovenia has to make considerable  efforts  to take on the acquis,  particularly 
as  regards  the  effective  application  in  the  area  of  the  internal  market.  In  addition, 
important  progress  will  be  necessary  in  the  sector  of  environment,  employment  and 
social  affairs  and  energy.  More  generally,  further  administrative  reform  will  be 
indispensable  if  Slovenia  is  to  have  the  structures  to  apply  and  enforce  the  acquis 
effectively. 

In the light of these considerations, the Commission recommends that negotiations  for 
accession should be opened with Slovenia. 

The reinforced  pre-accession strategy will help Slovenia 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 Slovenia has achieved. 

114 

identified in the Opinions. The Commission will present a report no later than the end 
of 1998 on the progress Slovenia has achieved. 

115 

ANNEX 

COMPOSITION  OF PARLIAMENT 

RESULTS OF LAST GENERAL ELECTIONS (November 1996) 

Party 

Liberal Democrats 

People's Party 

Social Democrats 

Christian Democrats 

Single list Social Democrats 

Pensioners 

Nationalist 

Other 

+ 2 MPs  elected by the Italian and Hungarian  communities 

Abbreviation 

Seats 

LDS 

SLS 

SDS 

SKD 

ZLSD 

DeSUS 

SNS 

25 

19 

16 

10 

9 

5 

4 

•1AQ> 

SINGLE MARKET:  WHITE PAPER MEASURES 

This table is based on information provided by the Slovenian 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 Slovenian authorities have notified the existence of adopted legislation having some degree of 
compatibility with the corresponding White Paper measures. 

White Paper  chapters 

1 .Free Movement  of Capital 

slovcnia 

2.FM  and  Safety  of Industrial  Products 

3.Competition 

Number of White Paper  measures 
sloven,a 

Number of White Paper  measures 
slovenia 

Number of White Paper measures 

4.Social  policy  a nd  a c t i on 

Slovenia 

5.Agriculture 

6.Transport 

7.Audiovisual 

8.Environment 

^Telecommunication 

lO.Direct Taxation 

1 1 . F r ee  m o v e m e nt  of  g o o ds 

12.Public Procurement 

B.Financial  services 

14.Protection  of personal  data 

15.Company  Law 

16.Accountancy 

17.Civil  law 

18.Mutual  rec. of prof. Quai. 

19.1ntellectual property 

20.Energy 

H.Customs  law 

22.1ndirect Taxation 

23.Consumer  Protection 

T o t al 

Number  of White Paper  measures 
SIovenia 

Number of White  Paper  measures 
s,ovenia 

Number  of White  Paper  measures 
s,ovenia 

Number  of White  Paper  measures 
s,ovenia 

Number  of White  Paper  measures 
slovenia 

Number  of White Paper  measures 

_  slovenia 

Number  of White  Paper  measures 
siovenia 

Number  of White  Paper  measures 
slovenia 

Number  of White  Paper  measures 
s,ovenia 

Number  of White  Paper  measures 
s,ovenia 

Number of White  Paper  measures 
slovenia 

Number  of White  Paper  measures 
slovenia 

Number  of White  Paper  measures 
s,ovenia 

Number  of White  Paper  measures 
slovenia 

Number of White  Paper  measures 
SIovenia 

Number of White  Paper  measures 
slovenia 

Number  of White  Paper  measures 
slovenia 

Number of White  Paper  measures 
slovenia 

Number  of White  Paper  measures 
Sl0venia 

Number  of White  Paper  measures 
Slovenia 
Number  of White  Paper  measures 

Direc 

tives 

Regul 

ations 

Total 

Stage 
I 

2 
3 
18 
56 
0 
3 
9 
12 
67 
93 
17 
19 
1 
1 
21 
31 
3 
9 
2 
2 
0 
0 
0 
5 
7 
13 
0 
0 
1 
2 
3 
3 
0 
1 
2 
2 
5 
5 
5 
10 
0 
2 
0 
15 
2 
8 
165 
295 

Stage 
II/III 
1 
l 
40 
104 
0 
0 
2 
15 
22 
46 
11 
15 
0 
0 
0 
7 
0 
7 
1 
2 
0 
0 
0 
1 
0 
8 
1 
2 
3 
3 
2 
2 
0 
1 
16 
16 
3 
3 
0 
2 
0 
1 
0 
54 
0 
3 
102 
293 

Stage 
I 

0 
0 
0 
4 
0 
1 
0 
0 
15 
62 
7 
8 
0 
0 
3 
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 
5 
14 
0 
0 
0 
0 
30 
99 

Stage 
II/III 
0 
0 
0 
I 
0 
0 
2 
2 
0 
2 
8 
13 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
1 
l 
0 
0 
0 
0 
0 
0 
2 
3 
0 
0 
105 
184 
0 
6 
0 
0 
118 
212 

3 
4 
58 
165 
0 
4 
13 
29 
104 
203 
43 
55 
1 
1 
24 
45 
3 
16 
3 
4 
0 
0 
0 
6 
7 
21 
1 
2 
5 
6 
5 
5 
0 
2 
18 
18 
10 
11 
5 
15 
110 
201 
0 
75 
2 
n 
415 
899 

s  M 

STATISTICAL  DATA 

If not explicitly stated otherwise, data contained in this annex are collected from Statistical Office  of 
the  Republic of Slovenia  (STATISTICNI URAD REPUBLIKE SLOVENIJE)" 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 

Structure of production: share of branch GVA 

-agriculture 
-industry 
-construction 
-services 

1990 

1992 

1993 

1994 

1995 

1000 hectare* 

2025 

2025 

2025 

2025 

in 1000 

per  1  km2 

in % of total population 

1989 

1990 
1022.9 
967.1 

98 

50.1 

50.1 

per 1000 of population 

9.7 
10.0 

10.0 
9.9 

European Currency Unit 

9.7 
9.8 

in */• of Total Gross Vtlue Added 

9.5 
9.5 

731 
7236 

5 
32.1 
5 
57.9 

709 
6844 

5.5 
36.9 
4.8 
52.8 

share of branch GVA in 1990 

share of branch GVA in 1995 

•  0.0 

•  0.0 

« 

,52.8 

36.9 

a| 

-agriculture 

Q 

-industry 

rj 

-construction 

gj 

-services 

• 

- Others 

.57.9 

32.1 

a| 

rj 

Q 

-agriculture 

-industry 

-construction 

[U 

-services 

• 

- Others 

/?< 

NATIONAL  ACCOUNTS 

Gross  Domestic Product  (Current Priées) 

196762 

349408 

1017965 

1435095 

1845831 

2202021 

in Billions of ECU 

Gross Domestic Product  (Current  Prices) 

10.2 

9.6 

10.8 

12.0 

14.2 

1990 

1991 

1992 

1993 

1994 

1995 

in Millions of National Currency 

Gross Domestic  Product 

Gross Domestic  Product 

Final  consumption  expenditure 

-of households and NP1SH 

-of general  government 

Gross fixed  capital  formation 

Exports  of goods and  services 

Imports  of goods and  services 

Final  consumption  expenditure 

-of households  andNPISH 

-of general  government 

Gross  fixed  capital  formation 

Exports  of goods and  services 

Imports  of goods and  services 

in Purchasing Power Standard per capita 

8557.4 

9354.2 

10111.8 

% change over the previous year 

-8.9 

-8.4 

-11.0 

-1.7 

-11.5 

-20.1 

-22.4 

73.8 

54.8 

19.0 

20.6 

83.5 

74.2 

-5.5 

-3.1 

-3.6 

5.3 

-13.9 

-23.5 

-22.9 

2.8 

11.4 

13.6 

5.3 

11.9 

0.6 

17.6 

in */• of Gross Domestic Product 

75.5 

55.1 

20.3 

18.4 

63.1 

56.2 

79.6 

58.5 

21.1 

18.7 

58.8 

57.7 

5.3 

4.0 

4.6 

2.1 

12.6 

10.5 

10.7 

77.3 

57.0 

20.1 

19.6 

59.1 

56.5 

3.9 

5.9 

7.0 

2.5 

20.8 

0.7 

11.6 

78.1 

57.7 

20.4 

21.2 

54.7 

55.9 

70.6 

53.2 

17.4 

18.8 

90.8 

78.5 

GDP (% Change over the previous  year) 

, 

' *• 

** 

*! 

• "* 

4* 

MAIN ECONOMIC  INDICATORS 

1990 

1991 

1992 

1993 

1994 

1995 

1996 

percentage change over the previous year 

Inflation  rate  RPI 

549.7 

117.7 

201.3 

32.3 

19.8 

12.6 

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 

96.5 

in % labour force 

in Billions of USD 

106.4 

106.4 

9 

22.2 

7.1 

102 

103.6 

7.4 

18.8 

5.6 

9.7 

101 

7.3 

18.8 

5.6 

0.028 

0.164 

0.902 

1.603 

2.97 

4.01 

in millions of USD 

6683. 

-5892 

791 

180 

-91 

926 

-13 

-633 

6083 

-6237 

-154 

375 

-51 

192 

-91 

-111 

6830 

-7168 

-338 

723 

108 

540 

97 

-642 

8345 

-9298 

-953 

725 

147 

-36 

376 

-220 

8365 

-9218 

-853 

786 

89 

46 

552 

-587 

Inflation  rate:  Percentage  change  of yearly  average  over  the  previous  year  - all  items  index.  Data  refer  to  retail  price  index 

(official  indicator of inflation  rate  in Slovenia). 

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  covers  enterprises 
with ten or more employees, except those engaged  in the following activities: publishing, gas, steam and water supply. 

Gross  agricultural  production  volume indices:  Sliding average values of purchase prices in the last three years. 

Unemployment  rate  (by  ILO  methodology):  -Percentage  of the  unemployed  in  labour  force.  This  rate  is derived  from  LFSS 

(Labor Force Survey) observing the following  ILO definitions  and recommendations where: 
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. 
In Slovenia, LFSS excludes persons  in compulsory military service and persons living  in non-private households.  Workers 
on lay-off and persons on maternity leave are classified  among persons in employment. 

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. 

Alo 

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 

-  9 goods not elsewhere  classified 

- (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 

-  9 goods not elsewhere  classified 

External  trade  price  indices 

- Imports 

-  Exports 

1992 

1993 

1994 

1995 

1996 

in millions of USD 

7304 

6828 

-476 

9492 

8316 

-1175 

93 

83 

-10 

previous year -  100 

in % of total Import 

8.2 

6.5 

7.1 

0.4 

12.2 

19.4 

31.8 

11 

4.8 

1.9 

1.1 

0.1 

10.3 

27.3 

30.3 

24 

7.4 

6.5 

6.6 

0.4 

12.1 

19.8 

33.8 

10.6 

3.8 

2.1 

1.2 

0.1 

10.5 

28.5 

31.4 

22.2 

previous year=  100 

102.1 

106.7 

116.3 

121.4 

Structure  of export  by SITC (current  prices) 

in % of total Export 

Imports  and  exports  (current  prices)  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.  Trade Classifications: Slovenia  introduced  the  Combined  Nomenclature  in  1996. 
Before  that  a national  classification  based on the Harmonised  System was used.  Imports are recorded on CIF basis and 
are captured  with the date the commodities  are released  into circulation  in the country.  Exports  are recorded on  FOB 
basis  and  are  captured  with  the  date  on  which  the  commodities  cross  the  customs  border.  The  customs  statistics  is 
utilized  for  monitoring  of  foreign  trade  data.  Eurostat  has converted  National  Currencies  to the  US dollar  by  applying 
the Intemational  Monetary Fund annual average exchange rates. 

External  trade  price  indices:  The  indices  are  calculated  from  data  for  normal  imports  and  exports  without  processing  and 

without data regarding the countries of the former  Yugoslavia. 

Ill 

FOREIGN TRADE 

Structure of imports by main countries (current prices) 

in % of total imports 

1992 

1993 

1994 

1995 

1996 

1st partner 
2nd partner 
3rd partner 
4th partner 
5 th partner 
others 

Structure of exports by main countries (current prices) 

1st partner 
2nd partner 
3rd partner 
4th partner 
5th partner 
others 

DE 
IT 
HR 
AT 
FR 

DE 
IT 
HR 
FR 
AT 

25 
16.2 
9.1 
8.5 
8 
33.2 

DE 
IT 
AT 
FR 
HR 

23.7 
17.2 
10.3 
8.4 
6.8 
33.6 
in % of total exports 

DE 
IT 
HR 
FR 
AT 

29.5 
12.4 
12.1 
8.7 
5 
32.3 

30.3 
13.5 
10.8 
8.6 
5.5 
31.3 

DE 
IT 
AT 
FR 
HR 

DE 
IT 
HR 
FR 
AT 

DE 
IT 
FR 
AT 
HR 

DE 
IT 
HR 
FR 
AT 

23.2 
17 
9.7 
8.4 
6.1 
35.6 

30.2 
14.6 
10.7 
8.2 
6.4 
29.9 

21.7 
16.9 
9.8 
8.8 
6.2 
36.5 

30.6 
13.3 
10.3 
7.2 
6.6 
31.9 

Structure of export by main partners 
in 1996 

31.9% 

6.6% 

Structure of import by main partners 
in 1996 

DE 

21.7% 

36.5% 

AT 

DE 

FR 

Austria 

Germany 

France 

HR 

IT 

Croatia 

Italy 

/IZ 

SOCIAL INDICATORS 

Population on  1 January 

1991 

1992 

1993 
thousand 

1994 

1995 

1999.95 

1998.9 

1994.2 

1989.41 

J989 

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 
Net  migration 
Total  population  growth 
Total  fertility  rate 
Infant  mortality  rate 
Late foetal  mortality  rate 
Life  expectancy 

- Males 
-  Females 
Life  expectancy 

-  Males 
-  Females 

18.5 
14.7 
32.3 
23.4 
12.1 

18980 
18968 

4.2 

0.8 

5.5 

total number 

21583 
19324 

19982 
19333 

19793 
20012 

178 
106 
8173 
1828 

4.08 
0.91 
1,13 
-1.55 
-0.42 
1.46 
8.25 
4.89 

177 
110 
9119 
1966 

134 
93 
9022 
1962 

per  1000 of population 

4.57 
0.98 
0.33 
-0.2 
0.12 
1.34 
8.86 
5.47 

4.59 
1 
-0.1 
0.71 
0.61 
1.31 
6.77 
4.68 

69.54 
77.38 

,69.45 
77.25 

at birth 

'69.4 
77.29 

at 65 years 

19463 
19359 

126 
105 
8313 
1923 

4.18 
0.97 
0.05 
0.45 
0.5 
1.32 
6.47 
5.37 

69.6 
77.4 

13.3 
16.8 

IÎ 

LABOUR MARKET 

Economic  Activity  Rate (ILO  methodology) 

Average  employment 

Unemployment  rate  by age (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  nominal  wages  and  salaries 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 
-  nominal 
- real 

1993 

1994 

1995 

1996 

in percent of population age +1S 

57.6 

in thousand 

851 

58.7 

882 

in % of labour force 

9 
22.2 
7.1 

7.4 
18.8 
5.6 
in */• ot economically active population 

14.2 

14.5 

57.6 

878 

7.3 
18.8 
5.6 

14.4 

1993 

1994 

1995 

1996 

Previous year =  100 

83.3 
118.3 
95 
79.7 
101.7 
92.2 

90.1 
95.2 
106.5 
144.9 
94.3 
97.2 

100.1 
115.1 
95.2 
95 
103.7 
98.2 

125.4 
103.6 

118.4 
104.3 

115.3 
104.9 

Economic  activity  rate  (ILO  Methodology):  - Percentage of labor force  in the total population  aged  15+.  This rate is derivated 

of LFSS (Labor Force Survey) observing the following  ILO definitions  and recommendations where: 
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. 
In  Slovenia,  LFSS  excludes  persons  on  compulsory  military  service  and  persons  living  in  non-private  households  (so-
called  institutional  population). 

Unemployment  rate  (by  ILO  methodology):  -Percentage  of the  unemployed  in  labour  force.  This  rate  is derived  from  LFSS 
(Labor Force Survey) observing the following  ILO definitions  and recommendations (see ILO definitions  above). 
In Slovenia, LFSS excludes  persons in compulsory  military service and persons living in non-private households. Workers 
on lay-off and persons on maternity leave are classified  among persons in employment. 

Average  employment,  Average  paid  employment  indices  by  NACE  classes:  The  data  for  entrepreneurial  sphere  cover 
enterprises  and  other  organisations  (private  enterprises  are  included  on|y  if  they  have  3  or  more  persons  in  paid 
employment).  Data  come  from  the  Labour  Force  Surveys.  LFS  data  are  therefore  considered  as  annual  data.  The  data 
cover also all budgetary, subsidised organisations and persons with secondary job are included. Armed  forces,  apprentices, 
employees on child-care and additional child-care leaves are excluded. 

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).  Registered  unemployment  data are based 
on the monthly administrative unemployment register. 

Monthly  wages and  salaries  indices: Monthly real wages and salaries indices are derived from gross nominal  wages and  salaries 
indices divided  by consumer  price  indices.  The data for entrepreneurial  sphere cover enterprises  and other  organisations 
(private  enterprises  are  included  only  if  they  have  3  or  more  persons  in  paid  employment).  The  earnings  of  external 
associates  and  consultants  are not covered.  The data cover also all  budgetary,  subsidised  organisations  and  persons  with 
secondary  job  are  included.  Armed  forces,  apprentices,  employees  on  child-care  and  additional  child-care  leaves  are 
excluded. 

11*, 

PUBLIC  FINANCE 

Government  budget 

-Consolidated central 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 

in Billions of national currency 

606.06 

773.54 

933.36 

5.28 

-5.04 

-6.46 

Government  budget 

in % of Gross Domestic Product 

-Consolidated central government expenditure 
-Consolidated general government expenditure 
-Consolidated central government  deficit/surplus 
-General government  deficit/surplus 

42.2 

41.9 

42.5 

0.4 

-0.3 

-0.3 

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 GFSY  the 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). 

M 

FINANCIAL  SECTOR 

Monetary  aggregates 

- Monetary  aggregate  Ml 
- Quasi  money 

1990 

1991 

1992 

1993 
Billions (10*9) of US Dollars 

1994 

1995 

1996 

1.35 
4.45 

1.62 
5.84 

Total  reserves  ( gold  excluded, end  of  period) 

Millions (10*6) of US Dollars 

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 

787.8 

1498.98 

1820.79 

2297. 

V* per annum 

49.61 
32.65 

1 USD-...SIT 

81.29 

98.7 

113.24 

131.84 

1 ECU -  ...SIT 

39.42 
27.89 
16 

24.84 
15.32 
10 

128.81 

126.46 

118.52 

125.99 

1 

— 

13 

14 

• 

27.57 

56.69 

34.164 

76.017 

105.523 

119.516 

132.604 

147.090 

153.222 

155.551 

155.025 

165.581 

179. 

177. 

Monetary  aggregates  (end  of  period):  Money  (Ml) 

Includes  demand  deposits  and currency  outside  banks.  Quasi  money 
(QM)  Include time, savings and foreign currency deposits.  Eurostat has converted National Currencies to the US dollar 
by applying the International Monetary Fund annual end of period exchange rates. 

Total  reserves  (gold  excluded, end  of  period):  The statistics on official  foreign  reserves are extracted from the IMF's monthly 
International  Financial  Statistics  (IFS). Total  reserves (gold excluded) are defined  as the sum of central  bank  holdings  of 
foreign  currencies  and other (gross) claims on  non-residents; this definition  excludes  claims on residents denominated  in 
foreign currency. According to the definition; official  foreign reserves are calculated at market exchange rates and prices in 
force  at the end of  the  period  under consideration.  Total  reserves  (gold  excluded)  published  in  IFS may differ from the 
figures  published  by  the  national  authorities.  Some  factors  contributing  to  possible  differences  are the  valuation  of  the 
reserve position in the Fund, and a different treatment of claims in non-convertible currencies. 

Average  short  term  interest  rates:  Data are extracted from the IMF's monthly International  Financial  Statistics (IFS). Average 
short-term lending and deposit rates relate to period averages. Lending rates generally  consist of the average  interest rate 
charged on loans granted by reporting banks. Deposit rates relate to average demand and time deposit rates or average time 
deposit  rates.  These  rates  may  not  be  strictly  comparable  across  countries  to  the  extent  the representative value  of the 
reporting banks and the weighting schemes vary. 

USD  exchange  rates:  International  Monetary  Fund  exchange  rates  as  present  in  the  publication:  "Statistiques  Financières 

Internationales". 

/1\G 

INFLATION (12 months changes) 
Percentage change of the CPIs with the current month compared with the corresponding month of the previous year (t/t-12) 

Jan 

Feb  Mar 

Apr  May 

Jun 

Jul 

Aug 

Sep 

Oct 

Nov 

Dec 

1993 
1994 
1995 
1996 

20.6 
19.7 
8.3 

19.9 
19.5 
8.5 

19.7 
18.2 
9.6 

21.7 
15.2 
11.5 

20.6 
15.2 
11.0 

21.6 
14.0 
10.6 

22.3 
12.6 
10.8 

22.5 
11.4 
10.5 

22.0 
10.8 
9.7 

20.9 

10.4 

20.4 
8.9 
9.3 

19.5 
8.9 
9.1 

Inflation (%  change of CPF) 

•*•?(.r 

affair*  C*W -?? 

-J 

1  A 

1 

l_L-(_ 

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  HICPs  (different  methods, 
concepts, practices in the calculation of CPIs).  Inflation rates (12 months changes) is based on ILO data. 

nl-

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 

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 % of Gross Domestic Product 

1.2 
29.5 
2.7 

1.3 
29.7 
2.8 

previous year-  100 

106.4 
94.9 
106.7 
107.8 

1.2 
28.1 
2.8 

102 
100.9 
102.6 
99.7 

101.0 
100.4 
101.1 
100.8 

1993Q1  1993Q2  1993Q3  1993Q4  1994Q1  1994Q2  1994Q3  1994Q4 
corresponding period of the previous year ~  100 

1995Q1  1995Q2  1995Q3  1995Q4  1996Q1  1996Q2  1996Q3  1996Q4 
corresponding period of the previous year =  100 

109.6 
104.5 
110.5 
107.7 

101.6 
97.7 
103.3 
84.1 

98.8 
109.8 
100.6 
115.1 

98.3 
93.4 
96.6 
95.5 

94.9 
86 
96.2 
99.3 

99.2 
103.5 
98.9 
99 

103.4 
119.5 
103 
91.5 

107.1 
94.6 
106.5 
112 

Structure  of GDP  by  economic  activities  (NACE, current  prices): 

The structure of GDP by economic activities  (NACE)  is 

calculated at market  prices. 

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 
covers enterprises with ten or more employees, except those engaged  in the following  activities: publishing, gas, steam and 
water supply. 

INFRASTRUCTURE 

Railway  network 

Railway  transport 

- freight  transport 

- passengers  transport 

Number  of telephone  subscribers 

Number  of inhabitants  per  passenger  car 

1993 

1994 

1995 

in  Km  per  1000 Km2 

in million ton or passenger -km 

59 

566 

590 

595 

in  1000 of  population 

inhabitants 

310 

2.8 

nVi 

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 

2025 
777 
1071 
245 
560 

in  1000 Hectares 

2025 
773 
1071 
245 
558 

2025 
751 
1094 
234 
501 

in % of agricultural land 

2025 
783 
1098 
230 

2025 

230 
417 

1992 

1993 

1994 

1995 

1996 

in % of Gross Domestic Product 

4.3 

4.3 

Previous year = 100 

96.5 

106.4 

103.6 

in  1000 Hectares 

119.6 
43.7 
29 
3 
6 

110.5 
42 
23 
5 
6 

in  100 kg/Hectares 

38 
38.4 
127 
379 
190.5 

51 
43.3 
174 
452 
319.3 

107 
42 
24 
6 
6 

50.3 
42.3 
190 
432 
313.1 

117.5 
42.6 
30 
3 
6 

36.2 
41.9 
122 
306 
171.8 

107 
40.8 
22 
6 
4 

39.4 
204 
485 

Sales  or  procurement  of animal  for  slaughter 

in  1000 tons of live weight 

1992 

1993 

1994 

1995 

1996 

-  pigs 
-  cattle 
-  poultry 

39.2 
30.8 
58.5 

41.6 
35.2 
64.5 

43.8 
37.8 
63.8 

Livestock  breeding  intensity  (end  of  period) 

Heads per  1000 Ha of agricultural land 

-  cattle 
-  of which: cows 
-  sheep 

-  P'gs 
-  of which: sows 

603 
262 
23 

627 
268 
35 

Heads per  I0O0 Ha of arable land 

2440 

2530 

Share  of GDP:  The  structure of GDP by economic activities (NACE)  is calculated  at market  prices. 

Gross  agricultural  production  volume  indices:  Sliding average values of purchase prices in the last three years. 

./; ni 

Slovenia 
1995 

Legend: 

A/  Country boundary 

A/  Region boundary 

COUNTRY  NAME 
REGION NAME 
CITY NAME 

Selected major settlements: 
(1 000 inhabitants) 
200 -  250 

O 

• 

• 
• 

250-  500 

5 0 0 -1  000 
>1000 

General information about the country: 
Age groups (in years): 

<15 

15-  65 

>65 

Living standard (in 1993): ECU 5 455 
(OOP par capita) 

Area: 20 256 km2 
Administrative regions: 12 

Population: 1  987 500 

Source: Stattatfca) Offlca of Tho RapubHo of Slovenia 
Cartography and geographic Information management: QISCO 

15 

45 km 

eurostat 

ISSN 0254-1475 

COM(97) 2010  final 

DOCUMENTS 

EN 

11  01  06 

Catalogue number  :  CB-CO-97-378-EN-C 

ISBN  92-78-22906-7 

Office  for  Official  Publications of the European  Communities 

L-2985  Luxembourg