Regular report from the Commission on Slovakia's progress towards accession
Date: 1998-12-17
Institutions: European Commission
Subjects: EU relations, Slovakia, accession to the European Union, economic situation, report

COMMISSION OF THE EUROPEAN  COMMUNITIES 
COMMISSION  OF THE  EUROPEAN  COMMUNITIES 

Brussels,  17.12.1998 
Brussels,  17.12.1998 
COM(1998) 703 final 
COM(1998) 703 final 

REGULAR  REPORT 
REGULAR  REPORT 

FROM  THE  COMMISSION 
FROM  THE  COMMISSION 

ON 
ON 

SLOVAKIA'S 
SLOVAKIA'S 

PROGRESS  TOWARDS  ACCESSION 
PROGRESS  TOWARDS  ACCESSION 

Table of contents 

A. 

Introduction 

a) 

b) 

Preface 
The Context of the Progress Report 
Relations between the European Union and Slovakia 
The enhanced Pre-Accession Strategy 
Recent developments in bilateral relations 

B.  Criteria for Membership 

1. 
1.1 

Political criteria 
Democracy and the Rule of Law 
Parliament 
The Executive 
The judicial  system 
Anti-Corruption  measures 

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. 
2.1 
2.2 

2.3 

2.4 

3. 
3.1 

3.2 

Economic criteria 
Introduction 
Economic developments since the Commission published its Opinion 
Macroeconomic  developments 
Structural  reforms 
Assessment in terms of the Copenhagen  criteria 
The existence of a functioning  market economy 
The capacity to cope with competitive pressure and market  forces 
General  evaluation 

Ability to assume the obligations of Membership 
Internal Market without  frontiers 
General  framework 
The Four Freedoms 
Competition 
Innovation 
Information  Society 
Education, Training and Youth 
Research and Technological  Development 
Telecommunications 
Audio-visual 

3.3 

3.4 

3.5 

3.6 

3.7 
3.8 

3.9 

Economie and Fiscal  Affairs 
Economie and Monetary Union 
Taxation 
Statistics 
Sectoral Policies 
Industry 
Agriculture 
Fisheries 
Energy 
Transport 
Small and Medium-Sized  Enterprises 
Economic and Social Cohesion 
Employment  and Social  Affairs 
Regional Policy and Cohesion 
Quality of Life and Environment 
Environment 
Consumer Protection 
Justice and Home  Affairs 
External  Policies 
Trade and International Economic Relations 
Development 
Customs 
Common Foreign and Security Policy 
Financial  Questions 
Financial  Control 

3.10  General  evaluation 

4. 

Administrative capacity to apply the Acquis 

C.  Conclusion 

D.  Accession  Partnership  and  National  Programme  for  the 
:  Global  Assessment  of 

the  Acquis 

Adoption  of 
Implementation 
1. 
2. 

Accession  Partnership 
National programme for the adoption of the Acquis 

Annex 
Statistical Data 

A. 

Introduction 

a) 

Preface 

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

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

A dynamic approach should be maintained  in assessing the progress made by  applicant  States 
in the regular reports which the Commission will submit to the Council." 

The  European  Council  in  Cardiff  supported  those  conclusions,  stating  that  "The  Union's 
priority  is to  maintain  the  enlargement  process  for  the  countries  covered  in  the  Luxembourg 
European  Council  conclusions,  within  which  they  can  actively  pursue  their  candidatures  and 
make  progress  towards  taking  on  the  obligations  of  membership,  including  the  Copenhagen 
criteria.  Each of these candidate countries will be judged  on the basis of the same criteria and 
will proceed in its candidature at its own rate, depending on its degree of preparedness.  Much 
will  depend  on  the  efforts  made  by  the  candidate  countries  themselves  to  meet  the  criteria. 
All will benefit  from  strengthened  relations with the EU including  through  political  dialogue 
and tailored strategies to help them prepared  for  accession." 

In  accordance  with  the  guidance provided  by these  Council  Conclusions,  the progress  report 
on Slovakia follows  the same structure as the Opinion.  It 

-  describes the relations between Slovakia and the Union, particularly  in the framework  of the 

Europe Agreement; 

-  analyses  the  situation  in  respect  of  the  political  conditions  set  by  the  European  Council 

(democracy, rule of law, human rights, protection of minorities) 

-  assesses Slovakia's  situation and prospects in respect of the economic conditions  mentioned 
by  the  European  Council  (functioning  market  economy,  capacity  to  cope  with  competitive 
pressures and market forces within the Union) 

-  addresses  the  question  of  Slovakia'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 

It  also  covers  judicial  and  administrative  capacity  as  requested  by  the  Madrid  European 
Council  which  underlined 
their 
administrative  structures  so  as  to  guarantee  the  harmonious  implementation  of  Community 
policies after  membership. 

the  necessity  for  the  candidate  countries  to  adapt 

This  approach  ensures  equal  treatment  for  all  the  candidate  countries.  The  report  takes  into 
consideration  progress  since the Opinion.  It looks at whether  intended  reforms  referred  to  in 
the  Opinion  have  been  carried  out  and  examines  new  initiatives,  including  those  directly 
related  to  addressing  Accession  Partnership priorities.  The report  contains  a separate  section 
which examines the extent to which Slovakia has addressed  the short term priorities  set out in 
the Accession Partnerships. 

While  the  assessment  of progress  in meeting  the political  and  acquis  criteria  focuses  on  that 
which  has  been  accomplished  since  the  Opinion,  the  economic  assessment  is  based  on  a 
longer  term  evaluation  of  Slovakia's  economic  performance.  The  assessment  of  progress 
made  in  adopting  the  acquis  has  been  made  on  the  basis  of  adopted  legislation  rather  than 
legislation which is in various stages of either preparation or Parliamentary  approval.  Only in 
this  manner  was  it  possible  to  objectively  measure  and  compare  concrete  progress  in 
preparation for accession. 

The report  draws on numerous  sources  of information.  The candidate  countries  were  invited 
to provide information  on progress made in preparations for membership since the publication 
of  the  Opinion.  Their  presentations  at  the  meetings  held  under  the  auspices  of  the  Europe 
Agreement,  their  National  Programmes  for  the  Adoption  of  the Acquis  and  the  information 
provided  in the  context  of the  analytical  examination  of the acquis provided  were  additional 
sources of information.  Council deliberations  on the Opinion  and the reports  and  resolutions 
of the European  Parliament  on the Commission  Opinions1 and  in particular  the report  on  the 
application  of  Slovakia  for  accession  to  the  EU  prepared  by  Mr.  Wiersma  were  taken  into 
account in the preparation of the reports.  The Commission also used assessments made by the 
Member States, particularly with respect to the political criteria for membership  and the work 
of  various  international  organisations,  and  in  particular  the  contributions  of  the  Council  of 
Europe,  the  OSCE  and  the  IFIs  as  well  as  that  of  non-governmental  organisations  in 
preparation of the regular reports. 

European  Parliament  Doc. 224.339  'Report  on  the  Communication  from  the  Commission 
Agenda  2000'  (Rapporteurs  :  A.  Oostlander  and  E.  Baron  Crespo;  Co-rapporteurs:  M. 
Aelvoet, J. Dormer, O. Von Habsburg, E. Caccavale, F. Kristoffersen,  M. Hoff,  C. Carnero 
Gonzales, P. Bernard-Raymond, R. Spéciale, J. Wiersma, J.W. Bertens) 

b)  Relations between the European Union and Slovakia 

The enhanced Pre-Accession Strategy 

On 30 March 1998 the accession process was formally launched by a meeting of the Ministers 
for  Foreign  Affairs  of  the fifteen EU  Member  States,  the  ten  Central  and  East  European 
applicant  states  and  Cyprus. 
In  advance  of  this  meeting  country  specific  Accession 
Partnerships  were  adopted  to  support  the  applicant  countries  in  their  preparations  for 
membership.  These  documents  set  out  the  priorities  for  further  work  and  the  supporting 
financial  assistance available from the EU.  In March Slovakia presented the first version of a 
National Programme for the Adoption of the Acquis (NPAA) which describes in more detail 
the actions needed to reach the objectives set out in the Accession Partnership. An analytical 
examination  of  the  acquis  ("screening")  started  on  3  April.  Pre-accession  aid  will  be 
increased  substantially.  Alongside  the  Phare  programme,  it  will,  as  from  the  year  2000, 
comprise aid for agriculture and a structural instrument which will give priority to measures 
similar to those of the Cohesion Fund in environment  and transport.  The Phare programme 
will concentrate on institution building and investment in other areas. 

Recent developments in bilateral relations 

Slovakia has made progress in the implementation of the Europe Agreement which  is being 
implemented  on schedule.  While the number of trade issues with Slovakia is limited, their 
management  has not  demonstrated  a clear understanding  of  and respect  for  the  obligations 
under the Europe Agreement  on the part of the Slovak authorities.  Safeguard  measures and 
export  restrictions  have  been  introduced  in  breach  of  the  obligations  and  procedural 
requirements of the Europe Agreement. 

The Association  Council  met  in April  1998  following  the  Association  Committee  meeting 
held in September  1997.  The system of subcommittees continues to function  as a forum  for 
technical discussions. 

Since  the  issuing  of  the  Opinion  the  Joint  Parliamentary  Committee  comprising 
representatives  of  the  Slovak  and  European  Parliaments  met  twice  in  November  1997 and 
May 1998. 

Slovak trade with the EU has continued to grow and to increase its share of total trade. 
During the first five months of 1998 Slovak experts to the EU accounted for 53.8% of 
Slovak's total exports (Germany 27.3%, Austria 7.5%, Italy 7.3%). 

Imports from the EU amounted to 48% of Slovakia's total imports (Germany 23.4%, Italy 
6.2% and Austria 4.7%).  Slovakia's trade deficit with the EU in 1997 amounted to 828 
MECU, while in the first four months of 1998 it amounted to 121 MECU. 

Under the Europe Agreement  an adaptation protocol, covering  in particular agricultural  and 
processed  agricultural  products,  has  been  signed  to  take  into  account  the  results  of  the 
Uruguay Round and the accession of Austria, Finland and Sweden to the EU. 

Several  trade  issues  have been  resolved.  For  example, the  Slovak  Government  reintroduced 
in July  1997 an import surcharge of 7% covering 80% of imported  goods.  This was  gradually 
reduced  and  phased  out  ahead  of  schedule  on  1 October  1998. Compulsory  certification  has 
developed into a non-tariff barrier to trade but since July  1998 the number of products  covered 
by mandatory certification  requirements has been decreased. 

The  1998  Phare  programme  consists  of  a  national  allocation  (45.9  MECU),  based  on  the 
Accession  Partnership  priorities,  to  support  in  particular  Justice  and  Home  Affairs,  the 
strengthening  of  democracy,  economic  reforms  and  regional  policy,  as  well  as  the 
participation  in  Community  programmes  and  Tempus.  An  additional  5  MECU  have  been 
allocated  for a cross-border co-operation programme. 

In addition,  funding  will be provided  under the Catch-up Facility2,  for  projects  in the  amount 
of 7.5 MECU. 

Under  a  new  facility  for  large  scale  infrastructure  projects,  cofinanced  by  the  European 
Investment Bank and the International Financial Institutions,  15 MECU will be provided. 

Slovakia  also  participates  in  and  benefits  from  Phare  funded  multi-country  and  horizontal 
programmes  such  as  customs,  nuclear  safety,  environment,  small  and  medium  sized 
enterprises, statistics, public administration reform  and TAIEX. 

B.  Criteria for  membership 

1. 

Political criteria 

Introduction 

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

"Slovakia  does  not  fulfil  in  a  satisfying  manner  the  political  conditions  set  out  by  the 
European  Council  in  Copenhagen,  because  of  the  instability  of  Slovakia's  institutions,  their 
lack of rootedness in political life and the shortcomings in the functioning  of its democracy". 

In  the  Accession  Partnership  on  Slovakia  "free  and  fair  Presidential,  national  and  local 
elections,  effective  opposition  participation  in  parliamentary  oversight  committees  and 
supervisory  boards,  and the  adoption  of  legislative  provisions  on minority  language  use  and 
related implementing measures", were mentioned as short-term political priorities. 

Special EU financial assistance given to Latvia, Lithuania, Slovakia, Bulgaria and Romania 
for projects  aimed at accelerating EU accession preparations in certain areas. 

Recent 

developments 

Parliamentary  elections took place in  September  1998.  Despite  concerns  about  the possible 
implications  of  amendments  to  the  election  law  adopted  in  May  1998,  the  elections  were 
conducted  in a free and  fair  manner.  The high  level of participation (84.2%)  in the  elections 
showed a clear commitment of the Slovak electorate to the democratic process. 

The  new  parliament  met  on  29  October  and  appointed  the  Speaker  and  parliamentary 
committees.  On 30 October a new four-party  coalition government was formed.  The  leaders 
of the  four  coalition parties  have  undertaken  in  a joint  letter  to  the  Commission  to  speed-up 
integration  to  the  EU,  fulfil  the  Copenhagen  criteria  as  soon  as  possible  and  focus  on  the 
short-term political priorities as defined  in the Accession Partnership. 

In a declaration by the Presidency  on 30 September  1998 the Union reacted favourably  to the 
electoral  process, recalled  its  long-standing  commitment  to  the process  of  integration  of  the 
Slovak  Republic  into  European  structures,  indicated  that  the  manner  in  which  the  elections 
were  conducted  constitutes  a  positive  step  in  that  direction  and  encouraged  the  future 
government  and parliament  to rapidly  address  those  shortcomings  that  have  so  far  hampered 
the Slovak Republic's accession process. 

1.1.  Democracy and the Rule of Law 

The Parliament 

Concerning  the  September  1998  elections,  the  preliminary  assessment  of  the  OSCE 
observation  mission  was that,  although  an atmosphere  of political  polarisation  led  to  lack  of 
confidence  in the overall process by many Slovak citizens, the elections as such took place in 
correct  and  acceptable  manner.  However,  the  OSCE  mentioned  that  the  State  Television 
failed  to  fulfil  its obligation  to give  a balanced  picture of the campaign  and  largely  favoured 
the incumbent  government. 

The  situation  regarding  the  upcoming  municipal  elections  is  less  clear.  On  1 July  1998  the 
Parliament  approved  an  Amendment  to  the  Municipal  Election  Law  and  Municipal 
Establishment  Act  which  institutionalises  ethnic  differentiation  in the  electoral  system  under 
the  supposed  aim  of  protecting  minorities.  The  advantage  of  this  somewhat  unique  and 
cumbersome  approach  via-à-vis  other  well  tested  systems  for  minority  representation  is 
unclear.  The  OSCE  High  Commissioner  on National  Minorities  had  indicated  that  the  draft 
law  violated  a  number  of  international  principles  and  standards  on  free  elections  and 
individual  human  rights.  He  subsequently  regretted  that,  contrary  to  the  usual  practice,  his 
objections  were  not  taken  into  account  and  that  the  Law  had  been  adopted  without  the 
amendments  required  to  ensure  that  it  would  conform  to  the  international  standards.  On  7 
August  1998  number  of  opposition  deputies  challenged  the  law  at  the  Constitutional  Court 
which, on  15 October, declared unconstitutional the most important contested provisions.  The 
impact of this verdict on the conduct of the municipal elections is unclear. 

Concerning  other  aspects  of  the  functioning  of  parliament,  the  weaknesses  identified  in  the 
Opinion have not been fully  addressed.  The  committees of inquiry mentioned in the Opinion 
were abolished following  a judgement of the Constitutional Court and progress could be noted 
in  the  establishment  of  the  new  parliamentary  committees  responsible  for  monitoring  the 
secret  services  (SIS)  and  the  military  intelligence  services  (VS).  However,  opposition 
representation  on  the  SIS  was  not  completed  due  to  the  absence  of  agreement  by  the 
parliamentary  majority.  A representative  of the opposition  was nominated  to the  Supervisory 
Board  of  the  National  Property  Fund  (NPF),  but  resigned  on  14  September  1998.  The 
functioning  of these  committees  and boards was not  fully  satisfactory.  For  instance, the  SIS 
did  not  present  its  1997 report  to  the  Committee  and  the NPF  restricted  the  activities  of  the 
opposition  representative  and  disregarded  board  resolutions  taken  at  his  initiative.  This 
situation  is  reflected  in  the  conclusions  of  the  Joint  EU  -  Slovak  Republic  Parliamentary 
Committees:  while  the  5th  Committee  in  November  1997  had  expressed  satisfaction  at 
progress reached, the 6th Committee, held in May  1998, expresse  disappointment  at the lack 
of further  progress. 

Finally,  the  Slovak  Parliament  chose not  to  follow  the  ruling  of  the  Constitutional  Court  on 
the re-instatement  of the mandate  of two  members  of parliament.  This  weakens  the  respect 
for  parliamentary  mandates  normally  guaranteed  in  a  fully  functioning  parliamentary 
democracy. 

The  Executive 

A tendency towards further  concentration of power in the hands of the incumbent  Government 
continued. 

As  a  consequence  of  the  completion  of  the  previous  President's  term  of  office  on  2  March 
1998,  repeated rounds of votes took place in Parliament without reaching the necessary  three 
fifths majority  to elect a new President. In accordance with the provisions of the  Constitution, 
while  the  post  has  been  kept  vacant,  most  presidential  powers  have  been  transferred  to  the 
Government,  which  immediately  passed  them  on  to  the  ex-Prime  Minister.  He  used  them 
controversially. 

On  March  3, the  day  in which  the  ex-Prime  Minister  was  entrusted  with  such  powers,  three 
rather radical  decisions were taken: i) the referendum  on NATO  entry  and  direct  presidential 
elections, which had been re-launched  by the President  on 20 February, was cancelled,  ii) 28 
Slovak  Ambassadors  (out  of  a total  of  42  in post  abroad)  were recalled,  and  iii)  an  amnesty 
was granted to all those who could possibly have responsibilities derived from the failed  1997 
referendum  as well  as the unresolved  case of the kidnapping  of the former  President's  son in 
1996. The EU Presidency  reacted with a statement  on behalf  of the Union:  "The decision  by 
the Prime Minister to exercise the presidential powers to grant amnesties in these cases brings 
into  question  his  commitment  to  commonly  accepted  principles  of  good  governance  and  the 
rule of law. These actions do not make a positive contribution to Slovakia's  efforts  to prepare 
for EU membership". The statement was rejected by the Government. 

The  Slovak  Constitution  did  not  allow  for  the  resignation  or  appointment  of  a  new 
Government  in  the  absence  of  a President.  The  risk  of  an  institutional  impasse  was  averted 

with  the  unanimous  adoption  of  an  amendment  to  the  Constitution  on  14  July  1998.  This 
allows, in the case of vacancy  in the Presidency,  for  the transfer  of  a number of  presidential 
powers,  previously  untransferable,  to  the  Speaker  of  the  Parliament,  including  that  of 
appointing  a  Government  after  the  elections. 
It  should  be  noted  that  the  Speaker  of  the 
Parliament made as well controversial use of these powers  when, on August 20,  he appointed 
13 generals. 

Although the office  of President remains vacant, it is expected that once a new  government  is 
formed  and the Slovak parliament resumes its sessions, a new President will be elected. 

No progress has been made beyond the preparation of a draft  Civil Service Law. The  absence 
of such a law leaves the civil service insufficiently  protected from political  interference. 

The Judiciary 

There  have  been  no  major  changes  in  this  area  since  the  opinion3.  The  number  of  judges 
decreased  from 1198 to  1136. 

The  Constitutional  Court  continued  to  play  the  important  role  of  balancing  and  preserving 
the powers of the different  organs  as defined  in the Constitution. However the rulings  of the 
court have not been  followed  in a number of important  cases, and in particular  in the  follow 
up  to  the  case,  reported  in  the  Opinion,  of  a  Member  of  Parliament  whose  mandate  was 
removed in December  1996 and of another, belonging to the SNS party, who was deprived of 
the seat to which he was  entitled  following  the death  of  a Member  of Parliament  and in  the 
case on  the decision  of the Ministry  of the Interior  not  to  include the  question  on the  direct 
election of the President of the Republic on the ballot paper in the May  1997 referendum. 

Anti-corruption measures 

In its Opinion on Slovakia the Commission  stated that the fight against  corruption needed  to 
be  made  more  effective.  In  spite  of  some  efforts  undertaken  there  has  been  no  major 
improvement. The following measures were taken: 

•  In  August  1997  the  Ministry  of  the  Interior  adopted,  in  agreement  with  the  Ministry  of 

Finance, a decree to prevent money laundering and suspicious banking operations. 

•  On  16  December  1997  Parliament  adopted  legislation  amending  the  Criminal  Code  and 

defining bank and tax secrecy more precisely. 

•  The Ministry  of Justice  is  currently  preparing  the  ratification  and  implementation  of  the 
OECD Agreement on fighting corruption of foreign public officials  in international business 

The  bill  establishing  the  organisation  of  the  prosecutor's  office  and  the  status  of  its 
members was passed in October  1996, contrary to what was indicated in the Opinion. 

10 

transactions.  In  addition,  the  Phare  catch-up  facility4  includes  approximately  1 MECU  to 
fight corruption through the strengthening of the Supreme Audit  Office. 

However, these measures can only be considered partial and do not provide a sufficient  solution 
to the problem. 

1.2.  Human Rights and the Protection of Minorities 

Slovakia  has  already  acceded  to  most  of  the  international  human  rights  instruments.  On  22 
June  1998  Slovakia  ratified  the European Social Charter. 

Civil  and  Political  Rights 

Basic  civil  and  political  rights  continue  to  be  respected  in  Slovakia.  The  Slovak  authorities 
made  efforts  in  the  area  of  treatment  of  persons  held  in  police  custody,  in  line  with  the 
recommendations  of the European  Committee  for  the Prevention  of Torture  as well  as in  the 
treatment of refugees. 

The NGO sector has continued to thrive in Slovakia, in spite of tensions with Government  and 
the Phare Programme has featured  amongst the main sources of support in this area. The Law 
on  Non-profit  Organisations  (that  was  being  examined  at  the  time  of  the  Opinion)  and  the 
Law on Non-investment Funds were adopted in  1997. 

The  Government  exercised  a  high  degree  of  control  over  the  public  radio  and  television 
networks  as has been confirmed  during the recent election campaign.  Some disturbing  cases 
of intimidation of journalists and media have been reported. 

Economic, Social and Cultural Rights 

There have been  tensions  in the  social  dialogue:  The  Wage Regulation  Act  on 2  September 
1997 led to the interruption  of the social dialogue and the Wage Agreement  for  1998 was not 
signed.  The situation worsened when the Government approved on January  1998 the creation 
of  the  Economic-Social  Board,  which  unites  Labour  Unions  not  members  of 
the 
Confederation  of the Trade Unions,  Government  employers  and  several civic  alliances.  This 
has been considered by the main Confederation  as a parallel  Government-supported  structure 
designed to challenge the  Confederation. 

Special EU financial assistance given to Latvia, Lithuania, Slovakia, Bulgaria and Romania 
for projects aimed at accelerating EU accession preparation in certain areas. 

11 

Minority Rights and the Protection of Minorities 

There  has  been  no  progress  on  the  adoption  of  minority  language  legislation  and  no 
significant  change in the protection of minorities. 

In spite of the commitments made to the EU and the OSCE High Commissioner  for  National 
Minorities  and  in  spite  of the  Constitutional  Court  ruling  of  August  19975, which  states  that 
the non-existence  of  a law  regulating  the use  of minorities  languages  is  at  variance  with  the 
Slovak Constitution, no significant  progress has been made on this matter. 

The  Slovak  Government  issued  in November  1997  a Memorandum  on  the  issue  and  invited 
the  OSCE,  the  Council  of  Europe  and  the  European  Commission  to  participate  in  expert 
discussions.  These  took  place  in  March  and  May  1998.  No  tangible  results  have  emerged 
from these discussions. 

The legal vacuum on the use of minority languages, combined with the implementation  of the 
State Language  Law, has given rise to the following  problems:  In June  1997, the  traditional 
bilingual  graduation certificates  were replaced by Slovak only certificates.  In connection  with 
the  issue  several  teachers  were  harassed  and  two  headmasters  of  grammar  schools  with 
Hungarian language instruction were dismissed on  15 March  1998. The Ministry of Education 
stated on 20 January  1998 that bilingual certificates  will be issued when requested from parents 
of national minority children but such certificates will not have official  validity and will have to 
be paid for. 

It  should  be  positively  noted  however  that  on  2  July  1998  the  Parliament  rejected  the 
controversial  Educational  Act  Amendment,  which  could  have  discriminated  against  ethnic 
minorities by prohibiting the teaching of subjects  such as geography and  history in  languages 
other than  Slovak. 

Concerning the Hungarian minority, no progress has been made in the implementation  of the 
Basic Treaty with Hungary because the two parties could not agree on the composition  of the 
committee  dealing  with  minority  rights.  The  inclusion  of  representatives  of  the  Hungarian 
minority  in  the  new  Slovak  Government  would  give  a  positive  signal  to  the  Hungarian 
minority regarding their status in Slovakia. 

The Roma minority continued to suffer  discrimination  and lack of protection by the police  as 
mentioned  in the Opinion. The Bureau of Legal Protection  for  Ethnic Minorities  in  Slovakia, 
reported  continuing  abuse  of  the  Roma  by  the  police  and  discrimination  by  officials  in  the 
areas of Moldava nad Bodvou.  Harassment  and lack of protection were the reasons  given by 
the UK authorities for granting political asylum  to some Slovak Roma. 

On  the positive  side,  several  initiatives  were  taken  by  the  Slovak  Government  in  support  of 
less  favoured  families  (elimination  of  nursery  school  fees,  special  courses,  etc.)  which 
In  November  1997,  the  Government  approved  a  Plan  for  Solving 
benefited  the  Roma. 

The  Constitutional  Court  ruled  in  August  1997  that  article  3  section  5  of  the  Language 
Law,  stating  that written  communications  intended  for  public-legal  administration  matters 
must be in the State Language, is contrary to the Slovak Constitution. 

12 

Romany Problems. The programme  outlines tasks  for  the state administration  in the  fields  of 
education,  employment,  and housing with  SKK  1,7  bn  (ECU  42.1 mn) to  be  spent  by  2002. 
The programme  needs  further  development.  It has met with mixed  reactions  from  the  Roma 
and minority rights groups who  point out that funds  are not committed on the budget  and that 
most of the main initiatives are postponed until after  1999. 

1.3.  General evaluation 

During the period July  1997 to end September  1998 there has been is a lack of stability in the 
institutions  guaranteeing  democracy,  the  rule  of  law  and  protection  of  human  rights,  as 
reflected  by  the  inability  to  elect  a  President,  the  controversial  use  of  the  transferred 
presidential  powers,  the  unsatisfactory  functioning  of  the  parliamentary  committees  and  the 
disregard  for  the Constitutional  Court rulings.  There have been problems  in the treatment  of 
minorities  and  a  lack  of  progress  concerning  the  adoption  of  legislation  on  minority 
languages. 

Against  this background,  parliamentary  elections  took place in  Slovakia  in  September  1998, 
which,  in  spite  of  concerns  about  the  newly  adopted  electoral  law  and  the  behaviour  of  the 
state  television,  were  evaluated  by  the  OSCE  as  free,  fair  and  efficiently  conducted. 
Moreover,  the  high  level  of  participation  of  the  electorate  reflected  a  high  degree  of 
democratic maturity amongst the population. 

The  acceptance  of  the  results  by  all  parties  and  the  constructive  attitude  of  the  former 
opposition  parties  in  preparing  to  form  a  new  government  indicate  that  a  different  political 
climate is emerging and that a window of opportunity exists for a new government majority  to 
address the above mentioned  shortcomings.-

A new government is in place.  As soon as it has had sufficient  time to put its programme into 
practice  the  Commission  will  be  able  to  assess  its  ability  to  overcome  the  weaknesses 
identified  in  the  Opinion.  The  new  Government  now  has  an  opportunity  to  demonstrate 
Slovakia's commitment to democratic principles, respect for human rights and the rule of law. 

2.  Economic criteria 

2.1.  Introduction 

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

"Slovakia  has  introduced  most  of  the  reforms  necessary  to  establish  a  market  economy";  it 
"should be able to cope with competitive pressure  and market  forces  within  the Union  in  the 
medium term, but this would require more transparent and market-based policies". 

In  examining  the  economic  developments  in  Slovakia  since  the  Opinion,  the  Commission's 
approach was guided by the conclusions of the European Council in Copenhagen in June 1993 

13 

which stated that membership of the Union requires: 

• 

• 

the existence of a functioning  market economy; 

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

In the analysis below, the Commission has followed the methodology applied in the Opinion. 

2.2.  Economic developments since the Commission published its Opinion 

Although  economic  growth  remained  among the highest  in  the region  and  the  external  trade 
deficit  was  lowered  from  its  very  high  1996  level,  the  overall  macroeconomic  situation 
worsened  in  19976.  The  government  deficit  deteriorated  significantly,  external  deficits 
remained unsustainable high, and both inflation  and unemployment  increased, reversing  some 
of the progress that was made in previous years. The country continues to be confronted  with 
very  similar  economic  difficulties  in  1998...  The  core  economic  policy  problems  are  that 
monetary and fiscal policies are not sufficiently  co-ordinated,  and that economic  restructuring 
is proceeding too slowly. 

Macroeconomic developments 

In  1997,  Slovakia  recorded  its  fourth  consecutive  year  of  strong  economic  growth.  After 
having been close to 7% for two years, real GDP growth slowed down only marginally in  1997 
to  6.5%.  It  continued  to  expand  by  6.1%  in  the  first  half  of  1998.  Overall  economic 
developments  are still driven by domestic demand,  although  its growth rate declined  notably. 
This decline was mainly the result of a deceleration of the growth of government  consumption 
and  investment.  Nevertheless,  investment  was  still  growing  fast,  further  raising  its  already 
high  share  in  GDP.  Starting  in  the  fourth  quarter  of  1997,  private  consumption  growth 
weakened  as a result  of lower wage increases, after  the introduction  of new wage  regulations 
for  enterprises.  The  direct  effects  of the Russian  crisis  are expected  to  remain  limited,  given 
the  small  proportion  of  exports  that  goes  to  Russia  (2.4%)  and  the  confined  exposure  of 
Slovak banks. 

While domestic demand  growth  slowed down, the contribution  of external trade to  economic 
growth improved  as a result  of the economic recovery in the European Union. The  growth  of 
real  exports  of  goods  and  services  accelerated  to  16% in  the  first  half  of  1998, compared  to 

In  1998, the  Slovak  Statistical  Office  has changed  its methodology  for  recording  external 
trade  to  apply  international  standards.  However,  as  the revised  figures  for  1997 have  not 
yet  been  published,  a  full  comparison  of  trade  figures  between  different  years  is  not 
possible.  The  present  report  has  used  the  currently  available  data.  It  is  expected  that  the 
revised  1997  data  will  most  probably  contain  a  significant  upward  revision  of  the  trade 
deficit.  This revision might also lower GDP growth in  1997. Therefore,  it seems likely that 
the  revision  will  support  the  view  that  macroeconomic  developments  in  1997  were  less 
favourable  than in 1996. 

14 

6% in  1997 and to a negative real growth rate in  1996. Demand for imports has been restricted 
by  the  introduction  of  a  new  7%  import  surcharge  in  July  1997  and  of  checks  at  border 
crossings of the certification  of imported goods in September  1997. Nevertheless, real imports 
grew  rapidly  in  the  first  half  of  1998. Consequently,  the  current  account  deficit  increased  to 
almost  11%  of GDP in the first half of  1998. In compliance with the announced  schedule, the 
import  surcharge  was  lowered  to  5%  on  1  January  1998,  to  3%  on  1  April  1998,  and 
eliminated on  1 October  1998. 

Although  inflation  remains  relatively  low  compared  to  other  countries  in  the  region,  its 
gradual decline has been arrested since the end of  1996. This can mainly be explained by high 
domestic  demand,  some  adjustment  of  administered  prices,  indirect  tax  increases  and  the 
introduction  of  the  import  surcharge.  The  average  inflation  rate  in  the  first  eight  months  of 
1998 was 7.1%, compared to 6.2% in the same period of the previous year. 

S l o v a k i a:  M a in  e c o n o m ic 

t r e n ds 

1 9 94 

'  1 9 95 

1 9 96 

1 9 97 

1 9 98 

l a t e st 

R e a l G DP  g r o w th 

r a te 

I n f l a t i on 

r a te 

a n n u al  a v e r a ge 
D  e c em  b e r - o n -D  e c em  b er 

U  n em  p l o ym  e nt  r a t e,  e n d - y e ar 

I LO  d e f i n i t i on 
r e g i s t e r e d1 

percent 

percent 
percent 

percent 
percent 

G e n e r al  g o v e r n m e nt  b u d g et  b a l a n ce 

percent 

of  G  DP 

C u r r e nt  a c c o u nt  b a l a n ce 

F o r e i gn  d e bt 

d e b t / e x p o rt  r a t i o2 
g r o ss 

f o r e i gn  d e bt 

F o r e i gn  d i r e ct  i n v e s t m e nt 

per  cent  of  G  DP 

billion 

ECU 

per 
billion 

cent 

ECU 

n et  i n f l ow  a c c o r d i ng 
b a l a n c e o f p a y m e n t s d a ta 

per  cent  of  G D P 

m  /Won  ECU 

1 .7 
1 98 

i n f l ow 
to  E B RD 

Source: 
1  From  Decern  ber  19  97  the  National 

Com  m ission  services, 

national 

sources, 

EBRD 

Labour 

0  ffice  has  c 

The  unemploym 

ent  rate  based 

on  the  old  definition 

iva 

2  G ross  hard  currency 
3  EBRD 

Projection 

for  199  8 

debt  as  a  precentage 

of  exports 

hanged 
s  13,4% 
if  goods 

c 

4 .9 

1 3 .4 
1 1  .6 

1 3 .7 
1 4 .6 

NA 

4 .8 
0 .6 

48 
3.6 

6 .9 

9 .9 
7 .2 

1 3 .2 
1 3 .1 

N  A 

2 .3 
0 .3 

53 
4 -4 

1 .1 
1 48 

6 .6 

5 .8 
5.4 

1 1  .1 
1 2 .8 

N  A 

-1  1  .2 
-1  .7 

72 
6 .1 

1 .1 
1 57 

6 .5 

6 .1 
6 .4 

1 1  .6 
1  2 .5 

N  A 

- 6 .9 
-1  .2 

90 
8 .7 

0 .3 
45 

6 .1 

6 .9 
5 .9 

J a n - J un 

Ja  n -S  ep 
S e p - o n - -S  ep 

1 2 .1 
1 3 .8 

J a n - M ar 
A ug 

J a n - J un 
J a n - J un 

Ju  n 
Ju  n 

- 1 0 .9 
-1  .0 

96 
1 0 .3 

2 02  3 

its 
in  L 
an 

unem 
December 
d 

services 

ploym 
1 

definitio 

n. 

ent 
997. 

In  1997 and  1998 the number of registered unemployed has been constantly higher than in the 
corresponding period  of the previous year. In August  1998, the number  of unemployed  stood 
at  a  four-years  high.  This  reversed  the  earlier  trend  by  which  fast  economic  growth  had  a 
beneficial  impact  on unemployment  and the unemployment  rate had  declined  from  a peak  of 
15.2% in January  1995 to  12.0% in October  1996. The official  registered  unemployment  rate 
probably  overestimates  actual  unemployment: 
ILO 
internationally  comparable 
unemployment rate was  11.6% in  1997 and  12.1% at the end of the first quarter of 1998. 

the 

As  a  result  of  disappointing  corporate  profit  tax  revenues,  and  of  higher  expenditures  for 
highway construction, public sector wages, interest payments, and social security benefits,  the 
general government deficit  is estimated to have surged from 1.3% of GDP in  1996 to about 5% 
in  19977.  Members  of  the  opposition  at  the  time  questions  the  accuracy  of  the  statistics 

7  The general government deficit  includes the deficits  of the central government, the social security system and local 

governments, and extra-budgetary  investment in infrastructure  and housing. 

15 

claiming  that  the  deficit  was  higher  than  reported;  The  1998  budget  foresees  a  central 
government  deficit  of only 0.7% of GDP, compared  to  1.8%  in  1997. Because the Ministry  of 
Finance  changed  the  way  it  reports  the  state  budget  execution  -  principal  payments  on  the 
state debt  are now  excluded  in line with international practices -  comparisons  between  1997 
and  1998  are  not  possible. Nevertheless,  the  results  for  the  central  government  budget  from 
the first eight months* of  1998 indicate that the  1998 budget deficit  will be significantly  higher 
than targeted. Moreover, a large deficit  has been emerging in health care. 

The  government  is  facing  increasing  difficulties  in  financing  its  deficit.  Interest  rates  on 
domestic financial markets are very high because market liquidity is squeezed by the  ongoing 
restrictive  monetary  policy,  which  was  itself  necessary  to  counter  excess  domestic  demand. 
The  government's  high  financing  needs  crowd  out  credit  to  the  private  sector.  Moreover, 
international  financial  markets  became  more  reluctant  to  finance  transition  economies  with 
weak banking sectors after the financial crisis in south-east Asia and Russia. The worsening of 
Slovakia's credit ratings reduced its access to international  financial  markets. Nevertheless,, in 
the  first  half  of  1998, the  government  issued  eurobonds  in  dollar,  yen  and  mark  for  a  total 
amount  of  nearly  ECU  900  million.  The  issue  had  been  postponed  several  times  and  its 
coupon rate was finally significantly  higher than for previous Slovak issues. The ratio of gross 
external  debt  to  exports, which  used  to  be  low  in  Slovakia,  has  almost  doubled  since  1995, 
and  is  now  close  to  100%.  The  structure  of  foreign  debt  is  increasingly  short  term,  which 
could  cause  problems  if  the  observed  reluctance  to  invest  in  emerging  markets  after  the 
Russian crisis continues. 

Until  1 October  1998, Slovakia had  a fixed exchange rate against  a basket  of 60% DEM  and 
40%  USD,  with  a  fluctuation  margin  of  plus/minus  7%.  On  that  day,  the  National  Bank  of 
Slovakia decided to let the koruna float, because it was no longer able to defend  the  currency 
against mounting domestic devaluation pressures. 

Structural 

reforms 

Privatisation has continued through direct sales, often  at preferential  rates, with the possibility 
of spreading  the payments  to the National Property Fund  over a period  of up to  10 years. A 
large majority  of  enterprises  is now  in private  hands,  and  the  share  of  GDP generated  by  the 
private  sector  has  increased  to  more  than  80%. An  important  number  of  privatisations  have 
lacked  transparency  and  fairness.  Additional  examples  of  unannounced  sales  of  shares  of 
listed  enterprises  at  sharply  reduced  prices,  often  to  unknown  buyers,  have  been  recorded 
since the publication of the Opinion. 

Despite the advanced  state of privatisation, the government  still exerts considerable  influence 
over  the  economy.  A  group  of  "essential"  enterprises  has  been  excluded  from  privatisation. 
Besides  the  usual  state  owned  enterprises,  such  as  public  utilities,  post  and  railways,  this 
group also comprises enterprises in the armaments and machinery sectors, the financial  sector, 
telecommunications, pharmaceuticals, and agro-industry.  The majority  of these would  benefit 
from  privatisation  and  independent  management  for  their  further  development.  The 
controversial  Enterprise  Revitalisation  Act,  which  was  approved  after  the  publication  of  the 
Opinion,  is  another  illustration  of  the  outgoing  government's  practice  to  intervene  in  the 
enterprise  restructuring  process.  Under  this  Act,  debts  to  the  budget  and  banks  can  be 

16 

rescheduled  or  cancelled  through  a  secretive  and  untransparent  procedure,  with  important 
political involvement. 

Two thirds of Slovakia's biggest enterprises posted lower profits in 1997 than in 1996. At the 
same time, most foreign enterprises were able to increase their profits. Enterprises do not face 
sufficient  financial  discipline  in  the  form  of  "hard  budget  constraints"  -  there  is  still  an 
expectation by enterprise managers that the government or the banks will bail them out when 
they incur losses. The other reasons for the lack of restructuring  in domestic enterprises  are 
the continued involvement of the state, a weak banking sector, and insufficient  foreign direct 
investment. 

Slovakia  had  no  effective  bankruptcy  legislation  before  1998.  The  1993  law  included 
conciliation  procedures  and  exemptions  that  obstructed  a  quick  and  just  procedure.  In 
February 1998, the Bankruptcy Law was amended to make it mr  e effective. 

So far,  Slovakia has not been able to attract significant  amounts of foreign  direct investment 
(FDI).  The  few  important  enterprises  with  foreign  ownership  tend  to  do  better  than 
domestically  owned  enterprises.  In  order  to  increase  FDI  inflows  the  Government  has 
introduced  new  tax  reductions  for  foreign  investors  and  a  contact  point  for  multinational 
firms. 

S l o v a k i a:  M a in 

I n d i c a t o rs  of  e c o n o m ic  s t r u c t u re 

(all  data 

for  1997  unless  otherw 

ise 

indicated) 

P o p u l a t i on 

G DP  p er  h e ad 

as  %  of  E U - 15  a v e r a ge 

S h a re  of  a g r i c u l t u re 

in: 

g r o ss  v a l ue  a d d ed 
e m p l o y m e nt 

In v e s tm  en t-to-G  D P  ratio 

G r o ss  fo re ig n  d eb  t/G  DP 

E x p o r ts  o f g o o ds  &  s e r v i c e s / G DP 

S tock  of  fore  ign  d i r e c t i n v e s t m e n t1 

million 

PPS-ECU 
percent 

p e r  ce  nt  (1  99  5) 
percent 

percent 

percent 

percent 

billion  ECU 
ECU  per  head 

5.4 

8 9 00 
47 

6.0 
1 8 .6 

39 

5 1 

56 

0.9 
1 68 

s  ource  :  c  om  m ission  se  rvices,  nation  a I  sou  rce  s,  t  B R D 
'  F D I  stock  converted 

at  end-1  997  exchange 

rate  of  1 EC  U =$1.10 

\ 

421 

The high and volatile real interest rates, which resulted from the restrictive monetary policy 
and  pressures  on  the  exchange  rate,  created  additional  difficulties  for  the  weaker  banks, 
especially  for those institutions that depend on the interbank market for their financing. IRB, 
the third largest bank, encountered serious liquidity problems, and had to be put under forced 
administration by the National Bank of Slovakia in December 1997. Because the main private 
shareholder  (vsz  Steel  group) refused  to  increase the capital, the bank  was recapitalised  in 
June  1998  by  the  state-owned  Slovak  Insurance  Company,  which  became  the  majority 
shareholder. 

After  a significant  reduction in  1996, the proportion of bad loans in the three biggest banks, 
which are fully or partly state-owned, increased again in 1997 and the first quarter of 1998, to 
reach 39% of total loans. At the end of the first quarter of  1998, five banks did not fulfil  the 
capital adequacy requirements. 

< 

17 

Capital  markets  remain  fragmented  and  illiquid,  and  the  legislative  framework  needs  to  be 
developed  further.  The unequal treatment  of minority  shareholders  in listed  companies  in the 
privatisation  process  also  reduced  the  attractiveness  of  the  stock  exchange,  especially  for 
foreign  investors. As a result, the official  share index (SAX) has declined from an all time high 
of  405  in  February  1994  to  less  than  100  in  October  1998. Because  of  the  lack  of  foreign 
involvement, the stock exchange was largely unaffected  by the Russian crisis. 

2.3.  Assessment in terms of the Copenhagen criteria 

The existence of a functioning market economy 

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

The price  system  and  trade  and  foreign  exchange  regimes  have  been  mostly  liberalised,  and 
allocation  decisions  are  largely  decentralised  since  the  privatisation  process  is  almost 
completed. An independent judicial system is in place, which has proved on several  occasions 
that  it  is  able  to  protect  property  rights.  In  general,  there  are no  significant  legal  barriers  to 
market entry. 

However, on various occasions, the Slovak authorities have been favouring  non-market-based 
mechanisms  for  price  formation  and  resource  allocation.  Examples  of  this  are  the  continued 
use  of  non-competitive  and  secretive  sales  in  the  privatisation  process,  the  refusal  to  sell  a 
number  of  state-owned  enterprises  that  would  benefit  from  privatisation  for  their  further 
development,  and  political  involvement  in  the  enterprise  restructuring  process  through  the 
Enterprise  Revitalisation  Act.  The  authorities  also  made  repeated  use  of  protective 
administrative  measures  to reduce  imports,  instead  of making  the  necessary  macroeconomic 
adjustments. 

About  one  fifth  of  prices  -  mainly  energy,  some  public  services  and  rents  -  are  still 
administered  and  kept  below  market  prices,  which  distorts  relative  prices.  The  continued 
subsidies  on household  energy  consumption  have negative  effects  on  energy  efficiency,  and 
lead  to  higher  demand  and  to  unnecessarily  high  imports  of  energy.  The  curbs  on  rents,  in 
their  turn,  increase  the  concentration  of  economic  activity  in  certain  regions,  and  reduce 
private  investment  in residential  construction.  Moreover,  the more  restrictive  Price  Law  that 
was introduced in  1996 can be used to apply controls on normal or seasonal price  fluctuations, 
thus distorting the role of market price signals. 

The  continued  lack  of  transparency  and  fairness  in  the  privatisation  process  remains 
problematic.  The  treatment  of  various  economic  agents  is  unequal  and  distorts  the  level 
playing field on domestic and foreign markets. The possibility  for new owners to reduce their 
payments  to  the  National  Property  Fund  through  investment  has  distorted  investment 
decisions and has led to excessive and inefficient  capital expenditures in these enterprises. 

18 

Although the inflation rate is still among the lowest in the region and economic growth among 
the  strongest,  the  underlying  macroeconomic  situation  worsened  since  July  1997.  The 
continuation  of  high  external  deficits,  in  combination  with  a  rapid  deterioration  of  public 
finances,  has significantly  reduced the degree of macroeconomic stability^ High and volatile 
interest rates, which were needed to counter the expansionary fiscal policy, have  significantly 
reduced and distorted the planning horizon of economic agents. 

Before  1998, there was no effective bankruptcy legislation. In February  1998, the Bankruptcy 
Law was amended to address this. Although the changes are appropriate, it is still too early to 
judge if the relevant institutions will be able  to implement the law effectively. 

The  Slovak financial sector  still  has  considerable  restructuring  problems  to  resolve.  Banks 
have  a high  proportion  of  non-performing  loans  and  the  sector  is  dominated  by  a  limited 
number of state-owned banks. Consequently, banks are not able to play their mediation role to 
the full extent. Because of the precarious situation of the government budget, the state will not 
be able to cure the solvency problems of the state-owned banks. Therefore, there is a need to 
prepare  a rapid  sale  of  the  banks to  strategic,  most  probably  foreign,  investors.  Selling  to 
domestic  industrial  groups,  as  happened  with  the  initial  privatisation  of  IRB,  does  not 
fundamentally  improve the financial sector's capacity to restructure. Capital markets remain 
illiquid and fragmented, and progress is still needed in their regulation. 

Overall, a sufficiently  convincing track record of consistent economic reform  is missing. No 
significant  progress has been made on the establishment  of a medium-term  economic policy 
framework. 

Although  Slovakia  has  implemented  most  of  the  reforms  necessary  to  establish  a  market 
economy,  the  outgoing  government  continued  to  intervene  in price  formation  and  resource 
allocation,  using  intransparent  or  non-market-based  mechanisms.  Macroeconomic  stability 
has deteriorated  while  the problems  in the financial sector  are damaging  overall  economic 
efficiency.  The introduction  of bankruptcy  legislation  was  a positive  development,  but  will 
need to be confirmed  by sustained  implementation. Therefore  the functioning  of the Slovak 
market economy still needs to be improved. 

The Capacity to Cope with Competitive Pressure and Market Forces within 
the Union 

Slovakia's ability to fulfil  this criterion depends on the existence of a market economy and a 
stable macroeconomic framework, allowing economic agents to make decisions in a climate 
of predictability. It also requires a sufficient  amount of human and physical capital, including 
infrastructure.  State enterprises need to be restructured  and  all enterprises  need to  invest  to 
improve their efficiency.  In addition, the more access enterprises have to outside finance and 
the more successful  they are at restructuring and innovating, the greater will be their capacity 
to adapt. Overall, 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 prior to accession.  Both 
the volume and the range of products traded with EU Member States provide evidence of this. 

19 

The  existence  of  important  fiscal  and  external  deficits  has  diminished  macroeconomic 
stability  in  Slovakia.  High  and  volatile  interest  rates  have  reduced  the  stability  and 
predictability  of  the  macroeconomic  environment  in  which  economic  agents  have  to  make 
their production,  consumption  and investment decisions. Uncertainty  is further  increased by 
the  lack  of  a  medium-term framework to  assure  the  consistency  of  macroeconomic  and 
structural policies. The lack of consistency of economic policies is one of the most important 
causes of continued and worsening macroeconomic and structural problems in Slovakia. 

Nevertheless,  the  Slovak  economy  has  a  number  of  important  assets  to  be  able  to  face 
competitive pressure and market forces in the single market. Despite rapid increases in wages 
in  past  years,  wage  costs  remain  relatively  low  and  the  labour  force  is  highly  qualified. 
Slovakia is upgrading its infrastructure  to exploit its  location at the crossroads of important 
North-South and West-East trans-European network (TEN) corridors. Investment in the energy 
sector is also high. The high investment  in infrastructure  is contributing  to the high overall 
investment ratio, which was almost 39% of GDP in  1997, the highest in the region. Although 
these investments in infrastructure  are necessary, the timing of their implementation needs to 
be adjusted to avoid excessive government budget deficits. 

Progress on enterprise restructuring has been limited. There are indications that profits  have 
been declining  in  1997. The speed of enterprise restructuring is hampered  by the continued 
involvement  of the state, a weak banking  sector,  and insufficient  foreign  direct  investment. 
Although measures have been introduced  to promote FDI, it will  only increase  significantly 
when the authorities refrain from untransparent or inequitable intervention in the economy. 

In  a  number  of  important  industrial  sectors  (steel,  petrochemicals)  there  is  little  domestic 
competition,  with  the  bulk  of  production  often  concentrated  in  one  enterprise.  The 
concentration  of  production  and  exports  in  a  few  enterprises  makes  the  Slovak  economy 
vulnerable to conditions in these enterprises and to the difficulties  they may face in competing 
in the single market. In some cases this risk is mitigated  as these enterprises are technically 
advanced  and  are  capable  of  supplying  quality  basic  products,  at  competitive  prices. 
Nevertheless, efforts will have to be made to diversify towards lighter assembly industries and 
services, which are more in line with Slovakia's natural  endowments. However, the present 
capacity of Slovakia to innovate and diversify production is hampered by limited expenditure 
on research  and development.  Imports of skills and technology from abroad  remain  limited 
because of insufficient  foreign direct investment. 

The diversification  and restructuring  effort  is hampered by a lack of investment  capital. So 
far,  Slovakia  has  not  been  able  to  attract  significant  amounts  of  foreign  direct  investment, 
while the financing capacity of the domestic financial sector remains limited by the bad-debt 
problem and high interest rates. Most new owners of privatised enterprises typically lack the 
financial  means that are needed for restructuring, since they already had to invest to acquire 
the  control  of  the  company.  Consequently,  investment  for  restructuring  has  to be  financed 
exclusively from retained earnings of the enterprises, which is only possible for firms that are 
already profitable.  Only the biggest  of these profitable  enterprises might be able to  finance 
their  restructuring  efforts  on  the  international  capital  markets.  However,  as  a  result  of  the 
decreased  credit  ratings  that  Slovakia  received  in  1998, the  cost  of  foreign financing has 
increased. 

Slovakia  has  re-oriented  its  exports  towards  west  European  markets,  after  the  loss  of  its 

20 

traditional  export  markets  resulting  from  the  break-up  of  the  Soviet  trade  bloc  and  the 
dissolution  of  the  federation  with  the  Czech  Republic.  In  1998,  Germany  became  its  most 
important trade partner, replacing the Czech Republic. The high growth rates of trade with the 
Union  in recent  years  are not  only  an indication  that  at  least  a number  of  Slovak  enterprises 
are  sufficiently  competitive  to  export  to the  EU, but  also  that  they  are  able  to produce  goods 
that comply with the rules and regulations of the single market. 

Progress  in  improving  Slovakia's  competitiveness  has  been  mixed.  The  reduced  degree  of 
macroeconomic  stability  and  the  lack  of  a  consistent  medium-term  economic  policy 
framework  are  distorting  the  planning  horizon  of  economic  agents.  The  pace  of  structural 
reforms  remained  slow  and  the  situation  in  the  banking  sector  worsened.  Sustained 
implementation  of  two  recent  initiatives  -  the  amendment  of  the  inefficient  bankruptcy 
legislation  and  opening  to  foreign  direct  investment  -  are  needed  to  accelerate  enterprise 
restructuring.  Provided  that  the  macroeconomic  difficulties  and  the  remaining  structural 
problems  are tackled  swiftly  and  in  a transparent  and market-based  way,  Slovakia  should  be 
able  to  cope  with  competitive  pressure  and  market  forces  within  the  Union  in  the  medium 
term 

2.4.  General Evaluation 

Slovakia  has  implemented  most  of  the  reforms  necessary  to  establish  a  functioning  market 
economy,  but  that  there  is  still  a  lack  of  transparency  due  to  government  interference. 
Nevertheless,  Slovakia  should  be  able  to  cope  with  competitive  pressure  and  market  forces 
within  the  Union  in  the  medium  term,  provided  that  the  market  economy  is  allowed  to 
function. 

Between  publication  of  the  Opinion  and  the  recent  elections,  Slovakia  made  very  little 
progress  on  the  problems  identified  in  the  Opinion.  Internal  and  external  macroeconomic 
imbalances  were  not  sufficiently  tackled  to  sustain  macroeconomic  stability.  The  pace  of 
structural  reforms  continues  to be  slow  and  the  situation  in  the banking  sector  deteriorated. 
The continued  lack of transparency  in the privatisation process  and the  lack  of  foreign  direct 
investment  have  negatively  affected  enterprise  restructuring.  Two  recent  initiatives  -  the 
amendment  of  the  inefficient  bankruptcy  legislation  and  a  more  positive  attitude  towards 
foreign direct investment -  could accelerate enterprise restructuring in the future. However, no 
progress was made on the establishment of a medium-term economic policy  framework. 

Slovakia  should  decisively  commit  itself  to  take  on  the  remaining  macroeconomic  and 
structural problems in ways compatible with the transparent functioning  of a market  economy. 
In particular,  priority  should  be  given  to  tackling  imbalances  in  the  government  budget  and 
the  current  account,  solving  the  problems  in  the  banking  sector,  and  creating  the  necessary 
environment 
the 
consistency of macroeconomic and structural policies, Slovakia needs to establish its medium-
term economic policy priorities. 

to  generate  market-induced  enterprise  restructuring.  To  guarantee 

21 

3.  Ability to assume the obligations of membership 

This  section  aims  at  up-dating  the  Commission's  Opinion  of  1997  as  concerns  Slovakia's 
ability  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. 

In  the  1997  Commission's  Opinion  on  Slovakia's  application  for  EU-membership,  the 
Commission concluded that 

"Slovakia  is firmly committed  to  take  on  the  acquis, particularly  concerning  the  internal 
market,  even  if  further  progress  is  still  required  to  ensure  the  effective  application  of  the 
acquis" 

The presentation below of the different  subject matters follows the same structure as the 1997 
Opinion, but  the  general  descriptions  of  each  sector  have been  omitted.  Instead,  the report 
focuses  on the progress made since July  1997. Under each heading legislative decisions and 
the progress in implementing and enforcing the legislation  are reported. 

3.1.  Internal Market without frontiers 

As explained in the Opinion, the Union's internal market is defined in Article 7a of the Treaty 
as an area without internal frontiers in which the free movements 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  and  enforcement  of  these  four  freedoms  requires  not  only 
compliance  with  such  important  principles  as,  for  example,  non-discrimination  or  mutual 
recognition of national legislations but also the effective  application of common rules, such as 
those  designed  for  safety,  environmental  or  consumer  protection,  and  effective  means  of 
redress. The same principles apply to certain common rules, for example in the areas of public 
procurement,  intellectual  property  and  data protection,  which  are  important  in  shaping  the 
general framework within which the economies operate. 

General  Framework 

The  current  Slovak  law  on  public  procurement  does  not  contain  all  of  the  fundamental 
principles  of the EC public procurement  system. It is not being correctly implemented  as is 
reflected by the excessive recourse to direct purchasing. 

Slovakia  has  made  substantial  effort  to  adopt  and  comply  with  the  acquis in  the  area  of 
intellectual property rights: in November  and December  1997, Slovakia adopted the Act on 
Collective administration of the Rights, and the Copyright Act, both effective  1  January 1998, 
which are in line with the acquis. 

22 

In the field of industrial property rights, the existing Patent law needs to be amended  in order 
to  implement  certain  aspects  of  the  Munich  convention  to  which  Slovakia  iAas  applied  for 
membership.  On  13.9.97  Slovakia  acceded  to  the  Protocol  of  the  Madrid  Convention. 
Although  the  Industrial  Property  Office  has  achieved  good  results  in  its  administrative 
procedures, enforcement  remains a concern. 

In the area of Company Law there has been no further progress since  1997. 

A new Act on the Protection of Personal Data in Information  Systems entered  into  force  on 1 
March  1998.  This  law  corresponds  broadly  to  the  acquis.  However,  further  alignment  is 
necessary. 

The four 

freedoms 

Free Movement of Goods 

The current practices in the area of standards and certification  are unsatisfactory  and remain 
a  major  obstacle  to  the  free  flow  of  goods.  Standards  are  still  binding  and  used  as  a 
regulatory  instrument.  Adoption  of  harmonised  standards  has  already  started  in  limited 
areas. 

Despite  important  preparatory  work,  the  draft  law  on  technical  requirements  and  on 
conformity  assessment  which  implements  the  basic  principles  of  the  Community  'New 
Approach'  legislation,  has  not  been  adopted.  There  is  a  lack  of  a  functional  separation 
between  legislation,  standardisation,  certification  and  accreditation  functions  is  one  of  the 
main obstacles for the correct implementation of the principles of the New Approach. 

The  slow  progress  on  the  adoption  of  the  appropriate  framework  legislation  prevents  the 
effective  implementation  of  specific  sectoral  directives  in  the  areas  covered  by  the  New 
Approach. Nonetheless  some progress  has been made  in  some of these  sectors.  Since  1997 
the construction products directive and the directives on medical devices have been partially 
transposed  into  Slovak law by two separate framework laws. There has been no progress  in 
the  sectors  relating  to  legal  metrology,  gas  appliances,  pressure  equipment  and  the  ATEX 
directives. 

Since  1997 steady progress has been made in the transposition  of a number  of directives  in 
the motor vehicle area. A  detailed framework law on chemicals has equally been adopted. 

There  has been  no progress  in  aligning  the  1996 basic  framework  law  on  foodstuffs,  with 
the acquis. A new law on medicines and medical devices has been approved and entered into 
force  on  1 June  1998.  This  law  covers  most  of  the  Community  directives  on  marketing, 
manufacturing  and  distribution  authorisations  and  on 
labelling  and  advertising  of 
pharmaceuticals.  Legislation  partially  implementing  the  acquis  on  cosmetics  entered  into 
force in 1998. 

23 

Free Movement of Capital 

Since the Opinion  an amendment to the Foreign Exchange Act of 5 February  1998  (effective 
from  April  1998)  introduced  further  relaxation  of the rules  for  the  admission  of  securities  to 
the  Slovak  capital  markets,  for  investment  by  residents  in  foreign  securities  and  for  foreign 
currency operations.' 

The amendment  also abolished  the foreign  currency  surrender requirement  for residents. The 
elimination  of  barriers  in  trading  foreign  securities  on  the  domestic  market,  including  their 
purchase  and  sale by  local  entities,  only  applies  to  securities  issued  in Member  States  of  the 
OECD. The relaxation  allowing  foreign  banks  to own their buildings  does not  extend  to  the 
land on which they stand. 

Free Movement of Services 

On the  broader  reform  of the  financial  sector  several  measures  have  been  adopted  including 
the  introduction  of  annual  and  consolidated  accounts  for  banks,  measures  to  combat  money 
laundering  and,  increased  capital  requirements  for  insurance  companies.  In  addition, 
supervision is being progressively  strengthened. 

In the banking  sector  an amendment  to the banking  act which  entered  into  force  in  February 
1998  aims  at  removing  the  two-level  licensing  procedure  and  the  discrimination  of  non 
residents in the area of acquisition of bank equity capital. 

In  the  field  of payment  systems,  efforts  have been made but  should  be  continued  in view  of 
the implementation of the real-time gross settlement system. 

Since mid-1997 no progress has been made in approximating  Slovak legislation to that of the 
securities market and insurance  acquis. 

Free Movement of Persons 

a) 

Free  movement of  persons, freedom  of establishment  and mutual recognition  of 
diplomas and qualifications 

Since  mid-1997  there  were  no  major  developments  in  the  field  of  mutual  recognition  of 
professional  qualifications. 

b) Abolition  of checks on persons  at internal frontiers 

No progress can be reported in this area. On visas, see 3.7 

Competition 

As  regards  anti-trust,  the  current  legislation  is  largely  aligned  with  the  acquis.  However, 
improvements  and  fine-tuning  are  still  needed  for  block  exemptions  and  certain  procedural 
issues. 

24 

Concerning  state  aid,  despite  some  minor  developments,  state  aid  policy  remains  an 
outstanding problem. Several draft  laws have been prepared, but not adopted. 

The  Enterprise  Revitalisation  Act, which  the  Commission  regards  as potentially  distorting 
and non-transparent, is still in force and proceedings have been  initiated for 34 projects. 

A major  flaw  in the state aid  system  of the Slovak  Republic  is the lack of transparency.  This 
could be resolved by improving the inventory and annual reporting. The Slovak Republic  has 
made progress in the collection of complete regional statistical data. 

Conclusion 

Progress  has  been  made  towards  meeting  the  relevant  short-term  priorities  of  the  Accession 
Partnership  in  the  field  of  intellectual  property  rights.  On  the  other  hand,  no  significant 
progress took place in the areas of public procurement and financial  services. 

Correct  implementation  of  the  new  data  protection  provisions  will  have  to  be  ensured. 
Implementation  and  enforcement 
in  all  internal  market  areas  needs  to  be  improved. 
Enforcement  (including  Border  Enforcement)  in  the  field  of  intellectual  and  industrial 
property rights remains a major  concern. 

In  the  sectors  covered  by  the  acquis  on  industrial  goods,  the  short-term  Accession 
Partnership  priorities  have  not  been  fulfilled.  More  specifically  regarding  the 
'New 
Approach'  legislation, although there has been progress in a number of specific  sectors since 
last year,  overall progress  has been hampered  by the  failure  to  adopt  framework  legislation 
and to establish the corresponding  institutional  infrastructure. 

In the  field  of  financial  services,  some  legislative progress  has been  achieved  in the banking 
sector.  There  is  a  continued  need  to  establish  a  supervisory  authority  in  the  securities  field 
and to strengthen existing supervisory authorities in the banking and insurance sectors, as well 
as to ensure their independence. 

Slovakia  has  made  little  progress  in  meeting  the  short-term  priority  of  the  Accession 
Partnership  in  the  state  aids  field.  Considerable  effort  needs  to  be  made  to  adopt  state  aid 
legislation and further progress is needed in the antitrust field. 

3.2.  Innovation 

Information Society 

The  Strategy  for  the Implementation  of the Information  Society  Policy,  as well  as  a Report 
on the Implementation  Global Information  Networks were considered  by the government in 
April  1998.  The  general  accessibility  of  computer  and  Internet  information  services  in 
Slovakia  continued  to  increase.  By  31  December  1997 the  number  of  Internet  host  servers 
increased to  14520 compared with 7938 in 1996. 

25 

Slovakia participates  in the joint  high-level  committee  on  information  society  and  supports 
the development of the information  society. 

Education,  Training  and  Youth 

Some developments concerning the use of minority languages in the educational  system  over 
the period of observation have been problematic (1.2). 

The  Community  Programmes  Socrates,  Leonardo  and  Youth  for  Europe  III  have  been 
opened  for  Slovakia's  participation  in  March  1998.  In  the  field  of  mutual  recognition  of 
diplomas no major progress can be reported. 

Research  and  Technological 

Development 

Slovakia  has  officially  requested  the  start  of  negotiations  for  full  association  to  the  5th 
Framework Programme in June  1998.  Two rounds of exploratory talks aimed at preparing the 
negotiations were held. 

Research is mentioned as a priority in the Slovak National Programme for the Adoption  of the 
Acquis. 

Telecommunications 

regulations  with 

Since  1 January  1998  all  telecommunications  services  with  the  exception  of  voice  services 
have been liberalised.  Similarly, the use of alternative infrastructure  for the provision  of non-
reserved  services  has  been  liberalised.  These  steps  represent  a  significant  alignment  with 
community 
liberalisation  of 
telecommunications  services also requires enforcement  of a full  set of conditions to  safeguard 
competition,  such as regulatory independence, tariff rebalancing  and the prevention  of market 
distortion by dominant suppliers. The exclusive rights of Slovak Telecom  for providing public 
telecommunications  infrastructure  and supplying public voice service expire on December  31, 
2002. 

liberalisation.  However, 

regard 

to 

Mobile  telephony  has  been  competitively  provided  since  January  1997  by  two  GSM 
operators.  The  subject  of  interconnection  is not  addressed  in the  current  law  and  should  be 
the subject of future  legislation. 

One  of  the  important  outstanding  issues  which  is  delaying  the  process  of  adopting  the  new 
the  organisation  and  scope  of  the  National  Regulatory 
telecommunications  laws  relates  to 
Authority. 

There  have  been  no  decisions  on  the  privatisation  of  Slovak  Telecom.  Slovakia  has  taken 
steps  to  align  with  the  acquis  concerning  liberalisation.  The  conditions  to  safeguard 
competition, however, are not ensured. 

26 

Audio-Visual 

An amendment  to the Act on Audio-visuals  entered into force  in May  1998. It recommends  a 
minimum,  percentage  of  European  Union  and  Slovak  audio-visual  works  in  broadcasting 
programmes. 

Conclusion 

The  Slovak  Government  has  given  attention  to  policy  development  in  the  areas  of  the 
information  society and research  and technological  development.  Progress had been made in 
aligning  telecommunications  legislation  as  far  as  liberalisation  aspects  are  concerned  but 
further  efforts  are needed  in regard  to  ensuring  competition  in the  sector.  Further  efforts  are 
required in the alignment of audio-visual  legislation. 

3.3.  Economic and Financial  Affairs 

Economic  and Monetary  Union 

Slovakia  has  made  little  additional  progress  in  its  preparation  for  participation  in  the 
Economic and Monetary Union. 

Restructuring  of the banking sector has been limited, partially as a result of political  reticence 
to  proceed  with  it  in  a  transparent  manner.  Unrecoverable  loans  stand  at  the  high  level  of 
about a third of total loans. 

Central  bank  legislation,  is  still  not  fully  compatible  with  Community  rules.  The  former 
government tried unsuccessfully  to reduce the independence of the Central Bank. 

In October  1998, the National  Bank  of  Slovakia dropped  the fixed exchange rate  system  and 
decided  to  let  the  koruna  float.  Mounting  devaluation  pressures  had  generated  losses  of 
international reserves. 

Taxation 

Since  1997  the  Slovak  Republic  has  continued  the  process  of  aligning  its  value  added  tax 
(VAT) legislation to that of the Community acquis specifically  in response to the scope of the 
reduced rate for VAT. 

The  Opinion  noted  significant  discrepancies  between  the  Slovak  excise  system  and 
Community  requirements,  particularly  concerning  the  lack  of  a  warehousing  system.  Apart 
from  a  change  in  the  rates  as  regards  hydrocarbon  fuel  and  lubricators  rates,  no  further 
alignment has taken place. 

27 

Conclusion 

Substantial  efforts  are  still  required  to  align  Slovakia's  VAT  legislation  to  that  of  the 
Community.  The  Slovak  excise  scheme  differs  in  a  number  of  important  respects  from 
Community requirements.  Further efforts  are needed in legislative alignment  and a timetable 
for future  compliance should be established. 

Statistics 

Since  1997  progress  has  been  made  in  harmonising  the  Slovak  statistical  system  with  EU 
requirements: 

In  March  1998,  the  Law  on  Personal  Data  Protection  in  Information  Systems,  which 
guarantees  the  protection  of  data  collected  on  individuals,  came  into  effect  in  the  Slovak 
Republic. 

The  administrative  structures  to  implement  and  enforce  the acquis  in this  area  are  largely  in 
place.  Co-operation  between  the  Statistical  Office  of  the  Slovak  Republic  and  other 
institutions needs to be strengthened. 

Special attention needs to be paid to the upgrading of the quality and coverage of the business 
register, the harmonisation of economic accounts and the compilation of Government  Finance 
statistics, the improvement of agricultural statistics and the harmonisation of external trade. 

3.4.  Sectoral  Policies 

Industry 

For the period  1998 -  2003 the main objectives of Slovakia's industrial policy are speeding up 
industry's  adjustment  to  structural  change,  support  for  a  favourable  business  environment, 
improvement  of  the  use  of  new  technologies  and  equitable  regional  development.  Agencies 
have been  created  to  implement  the country's  industrial policy,  such  as the National  Agency 
for  the  Promotion  of  the  Development  of  SMEs,  the  Post-Privatisation  Fund,  the  Slovak 
National Agency for Foreign Investment and the Export-Import Bank. 

The Slovak Republic bases its industrial policy on the strategy paper  'The Industrial Policy of 
the Slovak Republic', which was updated for the period  1998 -  2003. 

The main  objectives  of  Slovakia's  industrial policy  as set out  in the policy  documents  are  in 
line  with  the  EU's  approach  to  industrial  policy.  However,  a  number  of  issues  have  arisen 
since the Opinion, which raise questions concerning the implementation of these policies. 

Slovakia  has  introduced  an  act  on  the  revitalisation  of  national  industry  which  foresees 
government  support  for  companies  in difficulty.  The criteria  for  awarding  this  support  could 
be  in breach  of  the  EU's  competition  rules  and  opens  options  for  discretionary  government 
intervention in individual cases. 

28 

Privatisation  has  been  conducted  in  a  way  that  has  left  many  of  the  newly  privatised 
companies  badly  undercapitalised  and  without  the  necessary  know-how  to  develop  new 
products  and markets. These problems have become more acute in the course of the last year. 
There has also been a problem with the lack of transparency in some of the privatisation deals. 

The  low  level  of  foreign  direct  investment  has  deprived  Slovak  industry  of  new  capital  and 
know-how.  Over  the  last  year  Slovakia  has  made  some  efforts  to  improve  the  country's 
attractiveness  for  foreign  direct  investors,  for  example  by  introducing  tax  incentives. 
However, these measures are probably not sufficient  to increase foreign direct  investment. 

The  domestic  banking  system  is  not  able  to  play  its  role  in  the  provision  of  finance  for 
industry.  Banks,  as  already  mentioned,  are  burdened  with  bad  debt  and  have  neither  the 
capital nor the expertise to effectively  play their role as a source of finance for  industry. 

Conclusion 

Overall,  progress  has  been  made  in  defining  an  industrial  policy  but  implementation  will 
require  close monitoring.  Significant  efforts  are need  to better  integrate  competition  aspects 
into  industrial  and  enterprise  restructuring  policies,  to  conduct  remaining  privatisation  in  a 
transparent manner and to promote foreign direct investment. 

Agriculture 

Agricultural  situation 

The share of agriculture in GDP (4,4% in  1997) as well  as that of employment  in  agriculture 
(5,8% in  1997) have been on a downward trend since the Opinion. 

Agricultural  policy 

The  structural  transformation  process  continued  in  1997  although  co-operative  farms 
remained dominant.  The privatisation of the food  industry was  almost complete  at the end of 
1997. 

Slovakia has  introduced  some non tariff  barriers  in response  to  an increasing  agri-food  trade 
deficit. 

As  in  previous  years,  1997  budget  subsidies  were  allocated  mostly  in  the  form  of  direct 
payments. In  1997, market interventions, guarantee prices and export refunds  increased. 

In the area of veterinary  and phytosanitary  legislation, several implementing  regulations  were 
adopted.  Certain  changes  in  the  subsidy  policy,  such  as  support  for  investment  in 
technological  renovation  and  modernisation,  aimed  at  improving  the  competitiveness  of 
Slovak  agriculture  were  introduced.  The  agricultural  act  was  adopted,  as  well  as  the  act  on 
storage deposit certificates  and the act on goods deposit  certificates. 

29 

Conclusion 

There  was  progress  in  meeting  the  short-term  priorities  of  the  Accession  Partnership 
concerning the alignment of legislation in the veterinary and phytosanitary  area. The structural 
transformation  process  continued,  albeit  at  a  slow  pace.  The  government  has  a  tendency  to 
resort to trade restrictions  in the face  of sectoral  difficulties.  Further  steps should be taken  in 
order  to  create  the  administrative  structure  needed  to  implement  the  future  agricultural  pre-
accession instrument  and to ensure the necessary capacity to implement CAP. 

Fisheries 

There were no significant  changes in fisheries. 

Energy 

Slovakia  has  continued  to  adapt  its  energy  sector  to  EU  competition  rules  and  to  the 
requirements  of  the  internal  energy  market.  In  Autumn  1997  the  Government  updated  the 
energy  policy  to  2005.  However,  this  strategy  does  not  include  a  clear  policy  on  energy 
pricing,  nor  reference  to  adjustment  of  the  currently  non-cost  based  and  cross-subsidised 
energy prices (particularly for households).  The Energy Law, which entered into force in July 
1998  was  an  important  step  towards  approximation  with  the  electricity  directive.  However, 
important  decisions  on  matters  such  as  market  opening  have  been  postponed.  Slovakia 
continues  to  prepare  its  networks  for  the  internal  energy  market.  Concerning  gas,  a  fifth 
transit line for imports from Russia as well as a link to Austria is being built. 

Concerning  nuclear power, the National Programme  for  the Adoption  of the Acquis  does  not 
fully  cover  the  nuclear  energy  sector  and  is  not  coherent  with  the  Accession  Partnership's 
medium  term  priority  stipulating  that  the  Slovak  government  should  focus  on  the 
implementation  of a realistic programme  for the closure of the Bohunice plant. The Bohunice 
Nuclear Power Plant units  1 and 2 are expected to be licensed  for long term operation in  1999 
after  a  major  upgrading  programme.  This  plan  is  neither  in  line  with  the  Accession 
Partnership  nor  with  a  Slovak  Government  Decree  from  1994,  which  provides  for  the 
shutdown  of  the  units  1 and  2  as  soon  as  Mochovce  comes  into  commercial  operation.  An 
extensive  upgrading  programme  of  the  units  3  and  4  is  expected  to  be  launched  and 
implemented  between  2000  and  2006.  The  Mochovce  power  plant  unit  1  has  entered  its 
critical phase in June  1998 according to  schedule. Mochovce-unit  2 is expected  to be  on-line 
in March  1999. 

1.0%  of  the  price  of  electricity  goes  to  the  State  Decommissioning  and  Radioactive  Waste 
Fund. There is enough storage capacity on the Bohunice site to temporarily  store all the  spent 
fuel  generated  during  the  operation  and  up  to  the  end  of  the  design  lifetime  of  the  reactors. 
However,  longer term  solutions have to be found.  Only the Al  reactor  fuel  is expected  to be 
shipped  back  to  Russia.  A  radioactive  waste  treatment  plant  is  under  construction  at  the 
Bohunice site. A new Law on peaceful  use of nuclear energy has entered into force. 

30 

Conclusion 

Slovakia  needs  to  work  further  on  preparing  for  the  internal  energy  market,  including  the 
adjustment  of  monopolies,  access  to  networks  and  energy  pricing;  emergency  preparedness 
including the building up of mandatory oil stocks; state interventions in the solid fuels  sector; 
and the development of energy efficiency  and fuel quality standards. 

Nuclear  safety  continues  to  require  particular  attention.  In  this  respect  the  upgrading 
programme  of  the  units  3  and  4  of  Bohunice  needs  to  be  actively  pursued  and  a  realistic 
programme  for  a  rapid  closure  of  units  1  and  2  implemented.  Slovakia  has  to  ensure  the 
proper  operation  of  the  Safety  Authority,  focusing  particularly  on  its  independence.  Longer 
term solutions for nuclear waste need attention. 

Transport 

In May  1997 the Ministry of Transport  adopted regulations  on vehicle traffic.  Further  efforts 
are needed with regard to  access to the market  in domestic road haulage, particularly  in  light 
of  the  financial  capacity  of  national  carriers.  In  the  future,  work  will  also  be  needed  to 
achieve satisfactory  levels of road  safety. 

The  new  law  on  Civil  Aviation,  which  integrates  the  basic  Community  rules,  entered  into 
force in July  1998. Additional implementing  legislation is required with regard to air transport 
safety  and slot allocation. 

At  the  beginning  of  October  1997  the  Government  approved  a  long-term  programme  of 
railway development. In consideration of the critical financial  situation of the state-run  Slovak 
Railways  (SR), planned  investments will be reduced  and  carried  out  over  a longer period  up 
until  2010  instead  of  2005.  This  will  affect  in  particular  the  upgrading  of  the  Bratislava  -
Cadca and Kuty - Sturovo international corridors.  No plans have been made for  restructuring 
(SR) or for the preparation of legislation which will implement Council Directive 91/440. 

As regards transport infrastructure,  one of the main priorities of Slovakia is the development  of 
the  4  Pan-European  corridors  which  cross  its  territory.  Budgetary  constraints  led  the  Slovak 
Government  in August  1997 to approve a new way of financing highway  construction  through 
bank  loans  with  Government  guarantee.  Slovakia  is  actively  participating  in  the  Transport 
Infrastructure  Needs Assessment (TINA). 

Conclusion 

Further legislative harmonisation is necessary on rail, air, road  transport, land transport  safety 
and combined  transport. 

Small  and  Medium-Sized 

Enterprises 

Only  limited  progress  has been made  in this  area. A medium-term  policy  for  the  support  to 
the  SME  sector,  which  was  approved  by  the  Government  at  the  end  of  March  1998.  It 

31 

highlighted  the  scarcity  of  capital  including  an  oversubscription  of  the  government 
programmes of soft  loans and the complexity of the current support system.. 

An Act on the establishment  of the Slovak Chamber of Crafts  is a positive development.  The 
Slovak Republic  aims  at participation  in the Third  Multiannual  Programme  for  SMEs  of the 
European Union  as of  1998. 

3.5.  Economic and Social Cohesion 

Employment and Social Affairs 

Unemployment  has increased  over the period  from  11.2% at the end of the  second quarter  of 
1997 to  12.1% at the end of the first quarter of 1998 (ILO definition). 

An Act on Work Safety  and Health was adopted in  1997. The enforcement  of the legislation is 
inadequate. 

Regarding  equal opportunities,  an amendment  to the Labour  Code relating to equal  access  to 
work entered  into  force  in July  1998. Equal pay  is regulated by  an amendment  to the  Labour 
Code which entered  into  force  in April  1998. The Government  adopted  a national  action plan 
for  women  in  1997  and  a  gender  centre  was  set  up  to  undertake  research  and  disseminate 
information. 

The  former  government  did  not  show  sufficient  respect  for  the  autonomous  character  of  the 
social partners, hampering social dialogue (1.2).. 

Whilst the Slovak Republic is well advanced in some areas of labour law, substantive progress 
remains to be made to ensure alignment with EU standards. Efforts  to implement the legislation, 
already underway in the context of the draft Labour Inspection Act, need to be continued. 

Neither  current  labour  law  provisions  nor  draft  amendments  to  the  Labour  Code  are  in  line 
with the parental leave directive. 

Conclusion 

Since  1997 there has been some progress in the alignment  of the Labour Law  (particularly  in 
the  field  of  equal  opportunities)  and  in  the  area  of  Safety  and  Health  at  the  workplace.  No 
progress  can  be  observed,  however,  in  respect  to  the  enforcement  of  this  legislation.  Social 
Dialogue has been hampered. 

Regional  Policy  and  Cohesion 

The  Opinion  concluded  that  the  Slovak  Republic  did  not  have  the  capacity  to  participate  in 
EU  structural  policy  and  that  significant  reforms  were  still  necessary  in  this  field.  These 

32 

notably  concerned  the  strengthening  of  the  institutional  structure,  budgetary  procedures  The 
Slovak Republic has made little progress in addressing these issues. 

The  "Plan  on  State  Regional  Policy"  was  approved  in  November  1997.  This  plan  sets  out 
several  general principles  for the Slovak Republic's regional policy  and foresees  the  adoption 
of a strategy, a regional development law, a national regional development agency and a  fund. 
In April  1998 the Slovak government approved the establishment of the National Agency  for 
Regional Development, as well as a net of regional development agencies. These are however 
not operational yet. 

Conclusion 

While  the  government  recognised  the  need  to  adopt  legislation  in  the  regional  development 
field,  concrete  progress  in  adopting  the  legislation  and  setting  up  appropriate  structures  has 
been  limited,  despite  the  fact  that  this  constituted  one of  the  short  term  objectives  under  the 
Accession Partnership. 

3.6.  Quality of Life and Environment 

Environment 

The  following  pieces  of  legislation  have  been  adopted:  the  act  on  the  state  fund  for  the 
environment,  the  act  on  the  earth's  ozone  layer,  the  act  on  access *to information  about  the 
environment  and  nuclear  safety  act  covering  emergency  planning.  Substantial  additional 
efforts  will  have  to  be  made  for  approximation  with  other  EU  radiation  protection 
requirements. 

The Slovak authorities state that all environment  legislation under preparation will be adopted 
by the year 2000. On the basis of progress so far this would  appear unrealistic. Moreover  the 
legislative programme  lacks essential parts of the acquis. Unclear competencies,  overlapping 
responsibilities  between  different  bodies  and the absence of a co-ordinated  approach  towards 
approximation within the administration are  reasons for the slow progress. 

Slovakia has not undertaken major  investments to reduce  S02  emissions  in the last  five  years 
and the country's basic water infrastructure  falls short of what is required by the  acquis. 

In the  field  of nuclear  safety,  there is  a need  to reinforce  technical  capabilities  of  the  Safety 
Authority, with a view to ensuring its continued functioning  as an independent body. 

Substantial  investments  are needed  in the  environment  field.  Slovakia  should  work  in  close 
cooperation with the International Financial Institutions in that regard. 

Conclusion 

Only  modest  progress  in  legislative  alignment  has  been  achieved.  All  sectors  require 
considerable reinforcement  of activities both on the level of transposition  and  implementation. 

33 

The implementing bodies have not been considerably strengthened  since the Opinion,  and the 
Accession Partnership short-term priority has not been adequately  addressed.. 

Taking into account past progress, full  transposition and compliance with the acquis may take 
longer  than  foreseen  in  the  Opinion,  A  coordinated  approach  towards  environmental 
approximation and the necessary investments is lacking. 

Consumer 

Protection 

Slovakia amended the Act on Consumer Protection on 1  April  1998. The amendment  specifies 
the  rights  of  the  consumer  when  making  complaints  and  extends  the  obligation  to  provide 
information  from  retailers to producers, suppliers and importers. The legal basis of  consumer 
complaints  has  been  extended.  One  further  amendment  to  the  Act  on  Consumer  Protection 
creates  the  basic  prerequisites  for  the  transposition  of  thé  Directive  concerning  Price 
indication.  There  is  no  legislation  regulating  Comparative  Advertising.  Legislation  on 
to  be 
Doorstep  Sales,  Timeshare,  Distance  Selling  and  Consumer  Credit  still  has 
implemented. 

Slovak  legislation  concerning  general  Product  Safety  is not  in  compliance  with  Community 
legislation and there is no legislation, which directly regulates Dangerous Imitations. 

In  view  of  the  fact  that  consumer  protection  is  a  medium  term  priority  in  the  Accession 
Partnership  and  that  there has been  only  limited  transposition.  Slovakia  will  need  to  make  a 
substantial  effort  to  align  legislation  and  reinforce  the  institutional  structures  strengthen 
consumer organisations. 

3.7.  Justice and Home Affairs 

In  its  July  1997  Opinion,  the  Commission  had  stressed  that  Slovakia  had  to  prove  its 
commitment to carrying out the reforms needed, particularly with regard to visa arrangements, 
border  controls,  controlling  immigration  and  combating  organised  crime  and  corruption.  In 
addition,  some  laws  (like  those  on  asylum)  would  have  to  be  more  elaborated  in  order  to 
conform  to the  acquis. 

Immigration / Border control 

Though there has been no general revision of the laws regarding  foreign  nationals, there have 
been isolated  examples of progress, such as the new passport  law, which entered into force  on 
1  January  1998  and  gives  every  citizen  the  right  to  a passport.  With  regard  to  visa  policy, 
progress  remains  very  limited.  A  working  party  has  been  set  up  to  prepare  the  necessary 
changes, but these have not materialised, despite the urgency of the matter. 

The  effectiveness  of  border  controls,  considered  one  of  the  medium-term  priorities  of  the 
Accession Partnerships, does seem to be improving in quantity terms: arrests  for  illegal  entry 
rose from 2182 in  1997 to 3408 for the first half of 1998 alone. 

34 

Asylum 

Asylum  legislation  needs  to  be  more  detailed,  particularly  with  regard  to  access  to  the 
procedure, because Slovakia has moved from being mostly a transit country to being a country 
of  destination  as  well.  Between  1993  and  the  end  of  1997, 406  of  the  1742  asylum  seekers 
with a request pending were granted refugee  status. 

Police 

The  decree  applying  the money-laundering  law voted  through  in  1995 was published  almost 
two years late, on  1 July  1997. In addition, the government's May  1998 decision to request no 
identity or origin details for  funds  used to purchase treasury bills goes against  every  effective 
policy to combat money-laundering. 

The  government  itself  recognises  the  alarming  rise  in  organised  crime  evident  in  the  120% 
increase  in  offences  of  this  kind  being  investigated.  Although  some  decisions  to  set  up  new 
legal facilities  (such as witness protection) have been made, there does not seem to be  enough 
political will to wage a determined battle against organised crime. In this connection,  Slovakia 
must acquire enough (and suitably trained)  staff. 

Drugs 

On  1  June  1998,  legislation  on  narcotics  and  psychotropic  substances  was  adopted.  It 
constituted  the  framework  for  the  legal  growing  and  selling  of  these  products.  On  the 
operational front, a joint police/customs anti-drug unit has been set up. 

Judicial  cooperation 

With regard to the civil  law, in June  1998 the minister of justice put  forward  a bill  regarding 
accession  to  the  Convention  on  the  Civil  Aspects  of  International  Child  Abduction  (the 
Hague, 25 October  1980). 

With regard to the criminal  law, the government  approved  the draft  ratification  of the  OECD 
Convention  on  Combating  Bribery  of  Foreign  Public  Officials  in  International  Business 
Transactions (17 December 1997). 

Conclusion 

Despite  the progress made with  legislation,  a number  of  adjustments  are  still  needed.  Actual 
implementation  of  legislation  has  moreover  seen  very  limited  progress.  Although  no  short-
term  priorities  were  set  out  in  the  Accession  Partnerships,  an  effort  in  combating  organised 
crime would  have been  timely.  It matters  all  the more  that  a genuine  effort  should  be  made 
with  the  medium-term  priorities,  particularly  border  controls  and  the  implementation  of 
asylum  and  migration  legislation  (including  bringing  visa  policy  closer  to  that  of  the 
Community).  The  battle  against  organised  crime,  particularly  money  laundering,  and  the 
improvement of police services need to be  intensified. 

Slovakia  now  has  to  demonstrate  clear  political  will  to  carry 

through  a  genuine 

35 

implementation  of  the  acquis  in  justice  and  home  affairs  because  any  delay  would  be 
damaging in a domain which is so vital to the implementation of the rule of law. 

3.8.  External Policies 

Trade and International Economic Relations 

In order to align its foreign  trade relations with the external relations of the EU, Slovakia 
signed  a Free Trade Agreement with Turkey which  entered  into force  in  September  1998. 
The Slovak Turkish inter-governmental mixed commission, which aims at promoting trade 
and  economic  relations  between  the  two  countries,  had  its  first  meeting  in  June  1998. 
Together  with  the  Czech  Republic,  Slovakia  conducted  the  initial  round  of  consultations 
about a free trade agreement with Morocco. 

While not pursuing an FTA with Russia, Slovakia has maintained close relations with this 
country. In particular,  Russia  and  Slovakia have signed bilateral  agreements  on  economic 
co-operation, tourism, a space exchange programme, scientific-technological  co-operation in 
the field of agriculture and educational co-operation and exchange. 

Slovakia has supported  the expansion of the Central European Free Trade Area (CEFTA), 
has been enlarged by an accession agreement with Bulgaria signed in July  1998, which will 
enter into force on 1  January 1999. 

Development 

In 1998 Slovakia extended preferential customs rates to the least developed countries within 
its generalised  scheme of preferences. 

Customs 

Since  1997  the  Slovak  Republic  has  concentrated  its  efforts  in  the  area  of  customs  on 
legislative alignment. The Slovak customs administration is currently working, with the help 
of  experts from the member  states, on improving the  accessibility  and  compatibility  of the 
customs code. So far  seven of the implementing provisions of the  1996 customs code have 
entered into force. A law on the exemption of goods designed for educational, scientific  and 
cultural purposes from import duties entered into force on the 1  January 1998. Slovak customs 
now applies its own integrated tariff. 

With a view to strengthening the administrative capacities an Act on State Service of Customs 
Officers  entered into force on 1 July 1998. 

Conclusion 

Sloyakia has made  generally  satisfactory  progress  in customs  legislation.  Although  the  full 
legislation  framework  is  not  yet  in  place,  positive  developments  include  the  efforts  to 

36 

modernise the  operational  approach,  such  as the use of risk analysis  and  on-site  control  of 
companies. 

Further  attention  has  to  be  paid  to  the  compatibility  functioning  of  the  customs  regimes 
economic  impact,  including  customs  warehouses,  inward  and  outward  processing  and  the 
setting up of simplified procedures and of an integrated customs information system. 

Common Foreign and Security Policy 

The Slovak Republic continues to align itself with the CFSP acquis Slovakia has continued 
to  participate  actively  in  the  multilateral  dialogue  between  the  EU  and  the  associated 
countries.  It  participates  in the regular  meetings  of  the political  directors,  European  and 
associate  European  correspondents  in the  CFSP working  group.  . Slovakia joined  several 
declarations and joint positions of the EU. 

Slovakia is continuing its preparation for membership of NATO. Within the Partnership for 
Peace Programme the Slovak Republic and NATO planned 226 activities in 1997-1998. The 
Slovak Republic is an Associated Partner of the WEU and support of the strengthening of 
the organisation. It provides financial support for the WEU operation in Albania. The Slovak 
Republic participates in a number of UN peace operations. The joint army unit of Slovakia 
and Austria is planned to fulfil  a peace mission on the Golan Heights. 

There  continues  to  be  some  outstanding  bilateral  issues  with  Hungary  concerning  the 
implementation of the Basic Treaty and the Gabcikovo dam. 

3.9.  Financial Questions 

Financial Control 

With regard to external financial control, the Parliament approved, in May 1998, a report of 
the  Supreme Audit  Office,  which revealed  many violations  of  laws related  to the use of 
Government expenditure and in doing so  the need to improve public financial control. 

With regard to internal financial control, there is no central authority to ensure harmonisation 
of  procedures  and  to  check  quality  of  internal financial control  carried  out  by  the  various 
budget spending ministries and other agencies. A new state treasury system is needed and the 
control systems need to be improved. A plan has been adopted for the gradual improvement of 
the audit system in the state administration. 

Conclusion 

The  Slovak  Republic  will  have  to  undertake  a  major  reform  of  the  control  system,  in 
particular with a view to the management of pre-accession funds  and Structural Funds in the 
future. 

37 

3.10.  General Evaluation 

The  overall  pace  of  Slovak  approximation  has  slowed,  progress  in  strengthening 
implementation  and  enforcement  structures  is  limited  and  there  is  a  noticeable  lack  of 
momentum in certain sectors where a concerted effort needs to be maintained (e.g. the internal 
market, environment). 

Apart  from  the  adoption  of  intellectual  and  industrial  property  legislation,  the  short  term 
priorities  of  the  Accession  Partnership  in  the  internal  market,  administrative  capacity  and 
environment areas did not receive sufficient  attention. 

Attention needs to be paid to putting the legislative framework and administrative capacities 
in place in the area of justice and home affairs. 

4. 

Administrative capacity to apply the acquis 

This chapter updates the information given in the Opinion.  The European Council in Madrid 
in December  1995 referred  to the need to create the conditions  for the gradual, harmonious 
integration  of  the  candidates,  particularly  through  the  adjustment  of  their  administrative 
structures.  Taking up this theme  Agenda 2000  underlined the importance of incorporating 
Community legislation into national legislation effectively,  but the even greater importance of 
implementing  it  properly  in  the  field,  via  the  appropriate  administrative  and  judicial 
structures.  This is an essential pre-condition  for  creating the mutual trust indispensable  for 
future membership. 

In this year's report the Commission has worked with the candidate countries to identify  an 
illustrative  list  of  enforcement  bodies 
in  key  areas  of  the  acquis.  Wherever  possible 
information  is provided  on whether these bodies have sufficient  legal powers to  implement 
the acquis, on staffing  levels and on staff qualifications  and on budget availability.  In some 
cases it is already possible to give information  on the quality of decisions being taken.  The 
Commission intends to further develop this aspect in future reports. 

In its Opinion the Commission concluded that further  progress is still required to ensure the 
effective  application of the acquis. 

4.1.  Administrative structures 

The  situation  of  the  Slovak  public  service  has  not  improved  since  the  Opinion.  The  long 
awaited  civil  service  law  has  not  been  adopted.  Low  civil  service  remuneration  has 
contributed  to  a  high  turnover  of  staff.  In  addition  instead  of  a  sound  human  resources 
development  policy,  there  has  been  substantial  political  interference  in  nominations  and 
promotions. In  1998 the total number of staff  in the public  state administration  amounts to 
31.396 of which 11.396 at the central level, 2.790 at regional level and 17.210 at district level. 
In addition 15.349 persons were employed at local administrations. 

38 

The  number  of EU integration  and accession  related  structures  in the Slovak  administration 
has multiplied  since the Opinion. There are 23 working  groups  for the implementation  of the 
internal  market  legislation,  29 sectoral  negotiation  working  groups,  15 European  Integration 
Departments  and legal  departments  in the ministries  as well  as ministerial  Phare-units.  Some 
rationalisation  is  necessary.  The  European  Integration  Department  at  the  Office  of  the 
Government  employs  11  staff,  whereas  200  persons  are  working  at  European  Integration 
Departments  at the line ministries  and other  state bodies. The Institute  for Approximation  of 
Law has 21 staff  members. These  figures  show  an increase  in the number  of public  officials 
involved  in approximation  issues. Furthermore  the National  Phare Co-ordinator's  Office  has 
11 employees  and another  155 persons are working in Phare units in ministries  and agencies, 
supported by 73 local and 29 foreign  experts. 

Administrative  weaknesses  and  lack  of  co-ordination  can  be  noticed  on  all  three  levels 
involved with the approximation process: 

At  the  first  level  of  legislative  departments  and  European  Integration  Units  within  the 
Ministries  and  other  Central  Governmental  bodies  there  is  a  lack  of  interministerial  co 
ordination.  Furthermore  some  line  ministries  have  not  been  able  to  prepare  and  develop  a 
policy base for their sector in the field of legal approximation. 

The  Institute  for  Approximation  of  Law,  the  second  level  in  the  approximation  process,  is 
responsible  for  screening  legislation  for  compatibility  with  the  acquis  and  subsequently 
submitting  it to the Legislative  Council  of the Government.  Management  and  co-ordination 
within  the  Institute  are  weak.  The  Institute  is  not  able  to  provide  clear  and  transparent 
information  on  progress  made  in  the  different  fields  of  the  approximation  of  legislation. 
Furthermore  it does not seem to have  sufficient  expertise  and know-how  to make  full  use of 
the different  assistance projects  (approximation  and training) and other tools (TAIEX etc.) at 
its  disposal.  It  is  questionable  whether  the  Institute  has  sufficient  resources  in  terms  of 
numbers and qualifications  of staff. 

The National Council (Parliament) is the third level in the approximation process. Officials  of 
the  division  of  approximation  of  law  at  the  Chancellery  check  the  contents  of  the  EU 
compatibility  clause  provided  by the Institute  for Approximation  of Laws.  Each  bill  is  then 
discussed  at the Committee on Constitutional  and Legal Matters of the National  Council, and 
is  also  assessed  for  compliance  with  EU  legislation.  The  Parliament  and  its  supporting 
services do not appear to have the capacity to discharge this function  effectively. 

4.2.  Administrative  and  judicial  capacity 
implementation of the acquis 

:  key  areas 

for  the 

Uniform application of EC Law : The number of judges has slightly decreased  from  1198 to 
1136. Progress has been made regarding the training of judges by the Ministry of Justice and 
the  Slovak  Association  of Judges  in European  Community  Law since the Opinion.  In  June 
1998  the  first  two  year  training  course  in  Community  Law  for  50 judges  in  office  was 
completed. A second course started in September.  It will take time for the judges to be trained 
given  scarce  training  resources. Community Law is included  in the initial  training  for  future 
judges  on  an  ad  hoc  basis.  It  needs  to  be  integrated  as  a  compulsory  component  in  the 

39 

curriculum. In addition the Judiciary needs modernisation and to expand its use of  information 
technologies  and  related  training.  Awareness  of these needs  has  risen  substantially  since  the 
Opinion and has resulted  in efforts  to systematically  improve and extend training activities  in 
general.  Special attention has been paid in recent months to training in bankruptcy  legislation 
following  the  adoption  of  substantial  changes  in this  field.  Modernisation  of  the  Courts  and 
improvements  in  training  of judges  are  subjects  addressed  in  the  twinning  projects  with  the 
Ministry of Justice. 

Single Market: Despite substantial progress in legislative alignment in the area of intellectual 
and  industrial  property  rights,  the  administrative  capacity  to  enforce  the  legislation  has  not 
improved.  The various  aspects of public procurement  policy  in Slovakia are still managed  by 
the  Ministry  of  Construction  and.  Public  Works  together  with  other  ministries  and 
governmental  agencies. There is a tendency for these bodies to use direct purchase rather than 
open tendering.  No independent authority has been created. 

In  the  field  of  free  movement  of  goods, the  implementing  authority  is  the  Slovak  Office  of 
Standards, Metrology and Testing which employs 56 staff. As pointed out above, the lack of a 
functional  separation  between  legislation,  standardisation,  certification  and  accreditation 
functions  hamper  the  correct  implementation  of  the  principles  of  the  New  Approach.  No 
substantial progress to adapt the administrative capacity to Community principles in this field 
has  been  made.  Concerning  banking  supervision  the  Supervisory  Department  in  the  Slovak 
National  Bank needs  to be  strengthened  in  fields  such  as the methodology  for  the  evaluation 
and  validation  of  the  bank's  internal  control  systems,  the  use  of  the  reporting  systems  on 
credits (cross-validation  of non-performing  loans situations, registry for defaulting borrowers, 
rating systems in combination with the obligation to file financial reports)  and the creation of 
refinancing  facilities  for  specific  credits.  An independent  securities commission has not been 
created.  The  ability  of the  Insurance  Supervisory  Authority  has  not  improved.  The  issues  of 
supervision of the banking and insurance sector as well as the stock exchange are addressed in 
a Institution Building/Twinning project due to start at the beginning of  1999. 

Recent  legislation  foresees  that  State  supervision  over  the  protection  of  personal  data  in 
information  systems shall be performed  by a Commissioner  appointed by the Government  on 
a proposal by the President of the Statistical Office.  No progress has been made in regard to 
this  office. 

Competition  /  State  Aids:  The  Antimonopoly  Office  of  the  Slovak  Republic  has  the 
competence  to investigate  and prosecute competition-related  violations, to issue decisions, to 
in  the 
demand  corrective  measures  and  to  impose  sanctions.  The  regular  number  of  staff 
Antimonopoly Office  is 72, but currently only 65 persons are employed. There is a shortage of 
qualified  lawyers.  In  1997  the  office  dealt  with  18  cases  related  to  agreements  restricting 
competition, 27 cases related to the abuse of a dominant position  and 68 concentration  cases. 
In  less  than  half  of  the  cases  a  decision  was  issued  in  1997.  Some  were  solved  outside  the 
administrative proceedings. 

State Aids  (Art. 92  and 93 of the Treaty) are not dealt with by the Antimonopoly  Office,  but 
fall under the competence of the Ministry of Finance. The Ministry has not yet  established  an 
independent body responsible for ex ante control and ex post monitoring of state aid. 

40 

Agriculture: With a view to eventual adoption of CAP, a market information  centre (ATIS) is 
being  established,  as is a network  to collect  and process  agricultural  information  compatible 
with FADN (Farm Accountancy Data,Network). 

The  control  of  the  application  of  legislation  in  the  veterinary  and  phytosanitary  sectors  is 
carried  out by  several  institutions. Veterinary  and phytosanitary  inspection,  including  border 
inspection, needs to be strengthened. 

In  the  field  of  rural  development  policy,  only  very  initial  steps  for  the  establishment  of  an 
institutional  base  for  programming,  planning  and  implementing  the  structural  programmes, 
within  the  framework  of  pre-accession  assistance,  have  been 
taken.  Much  more  effort  is 
needed in order for Slovakia to be ready to fully benefit from EU assistance in this field. 

Environment:  Progress  in  implementation  and  enforcement  is  moderate.  A  broad  approach 
towards  approximation  including  implementation  issues  and  financial  planning  is  still 
missing,  mainly  because  so  far  no  staff  has been  allocated  to  the  European  Integration  Unit 
within the Slovak Ministry of Environment. On the other hand, the technical infrastructure  for 
implementing  environmental  legislation  as  far  as  data  collection  and  monitoring  are 
concerned,  is quite well developed.  The number of  staff  at the Ministry  remained  unchanged 
since the Opinion (291). 

The recently  adopted  Act  on the revolving  state fund  for  the environment  could  be  seen  as a 
first  step  in  integrating  the  legal,  institutional  and  financial  aspects  of  the  approximation 
exercise. As the  act  only  entered  into  force  in April  1998, it  is too  early  to  assess  it  impact. 
Slovakia should also work towards the strengthening of environmental  authorities on regional 
and  local  level.  In the field of nuclear  safety,  there is need  to reinforce  the  capacities  of  the 
Safety  Authority. 

Employment  and  social  policy:  The  enforcement  mechanisms  for  the acquis  m  the  field  of 
safety  and  health  at  the  work  place  are  weak.  In  some  cases  the  labour  inspectors  are 
inadequately  trained  to  identify  breaches  of  legal  requirements  or  irregularities,  to  combat 
non-compliance by employers and to enforce  sanctions. They also lack, particularly  in SMEs, 
the  help  of  workers'  representatives  in  identifying  problems,  since  in  many  cases  relevant 
structures  do  not  exist  within  the  enterprise.  In total  514  staff  are  employed  at  the  Office  of 
Labour  Protection  dealing  with  occupational  safety,  of  which  179 are labour  inspectors  in  8 
regional  inspectorates,  70  technical  inspectors  in  3  regional  workplaces  and  45  inspectors 
working in the area of science and research. 

Telecommunications: The Slovak Telecommunications Office  regulates those components of 
the  system  of telecommunications  which  are not  under the  direct  control  of the  Ministry.  Its 
functions  include granting approvals for telecommunications  equipment and determining their 
conditions  of  operation.  In  1997  in  accordance  with  a  new  organisation  of  the  territorial 
administration  of  the  Slovak  Republic,  a  Regional  Telecommunications  Office  was 
established in every regional capital. 

Indirect taxation: The trend described in the Opinion of staff leaving to the private sector has 
increased  and  has  resulted  in  the  weakening  of  the  administrative  capacity  of  the  tax 

41 

administration.  This  can  be  illustrated  by  the  fact  that  only  about  70%  of  VAT  is  actually 
collected by the tax authorities. There are 60 employees  at the tax department  of the Ministry 
of Finance and 5.400 staff at the Central Tax Directorate and various tax  offices. 

Transport:  301 
the  ministry  of  Transport,  Post  and 
in 
Telecommunications.  The  lack  of  language  skills  and  the  high  turnover  of  staff  limit  the 
administrative capacity with respect to the acquis. 

staff  are  employed 

Regional  policy  cohesion:  Little  progress  was  made  to  create  an  appropriate  institutional, 
administrative  and budgetary  framework  to  carry  out regional policy  activities.  Although  an 
important  decision to create a National Agency for Regional Development  was taken in April 
1998, this new structure is far from being operational. 

Consumer protection: The institutional  structures to ensure the application  of legislation are 
still not effective  enough. The consumer organisations need further  strengthening. 

Justice  and  Home  Affairs:  While  training  of judges  has  improved  in  quantity  and  quality, 
the police  are  still  incapable  of  effectively  combating  organised  crime  due to  deficiencies  in 
guidance,  training  and  equipment.  The  infrastructure  at  the border  points, particularly  at  the 
eastern  border,  is  far  from  being  in  compliance  with  standards  in  EU  Member  States.  The 
staff  figures  for  the Border Protection  Services  (Border Police:  1.100; Border  Guards:  1.600) 
seem  sufficient,  but  more training  and modern  equipment  are needed.  Migration  services  are 
only  beginning  to  improve  their  capacity  to  deal  with  refugees  and  asylum  seekers. Most  of 
the  related  Institution  Building  needs  are  addressed  by  six  twinning  projects  with  Member 
States  under  preparation.  The  Ministry  of  Interior  and  the  connected  services  employ  3.293 
persons,  whereas  the  Ministry  of  Justice  has  297  staff  members.  There  are  1136 judges  in 
office. 

Customs: Progress  in computerisation  of the customs  authorities  has been  very  limited.  The 
upgrading  of  infrastructure  at  the  border  points  is  progressing  slowly.  The  available 
assistance programmes have not been fully  utilised. 

Financial  control:  There  are  69  employees  working  in  the  financial  control  area  at  the 
Ministry  of  Finance.  The  Supreme  Audit  office  has  146  staff  and  another  150  persons  are 
employed  at  the  Financial  Police.  The  relevant  administrative  structures  for  an  effective 
financial  control are not yet in place. Detailed plans for the creation of proper control  systems 
and  upgrading  staff  quality  have  not  been  prepared.  The  1998 National  Programme  for  the 
Adoption of the Acquis  does not address these issues. 

4.3.  Twinning 

In  order  to  help  candidate  countries  meet  the  challenge  of  strengthening  their  administrative 
capacity  and  adapting their administrations  to implement  the acquis the Commission  and  the 
Member  States are developing  a process of twinning under the Phare programme.  In the  EU 
the  acquis  is  implemented  in  the  Member  States  by  national  administrations  (at  central, 
regional and local level) and by agencies, professional bodies and the private sector.  This vast 
body  of  administrative  and  technical  expertise  is now  being  made  available  to  the  candidate 

42 

countries.  Initially twinning will cover four  sectors -  agriculture, environment, finance and 
justice and home affairs but will gradually be extended to the whole of the acquis. 

Slovakia is participating actively in twinning. 

4.4.  General Evaluation 

Slovakia  has  made  little  progress  in  developing  the  necessary  administrative  and  judicial 
capacity  to  effectively  implement  the  acquis.  Civil  service  legislation  has  been  delayed, 
progress in judicial reform  has been limited and recommendations  in the Opinion to reform, 
strengthen  and establish new institutions  in the internal market  area have not been  followed 
up. 

43 

C.  Conclusion 

The  recent  elections  offer  an  important  opportunity  for  Slovakia  to  address  the  political 
weaknesses  outlined  in the Opinion  and to take  steps to  ensure  that  it will  in  future  meet  the 
Copenhagen political criteria. 

Slovakia  has  implemented  most  of  the  reforms  necessary  to  establish  a  functioning  market 
economy,  but  there  has  been  a  lack  of  transparency  due  to  government  interference. 
Nevertheless,  Slovakia  should  be  able  to  cope with  competitive  pressure  and  market  forces 
within  the  Union  in  the  medium  term,  provided  that  the  market  economy  is  allowed  to 
function. 

Slovakia  needs  to  accelerate  the  pace  of  approximation  particularly  in  the  area  of  internal 
market, environment  and justice and home affairs.  A concerted  effort  is needed to  set up  and 
strengthen the corresponding institutional and administrative capacity. 

D.  Accession  Partnership  and  National  Programme  for  the 
Adoption of the Acquis - global assessment of implementation 

The purpose of the Accession Partnership is to set out in a single framework the priority  areas 
for  further  work  identified  in  the  Commission's  Opinions;  the  financial  means  available  to 
help the candidate countries implement these priorities and the conditions which will apply to 
that  assistance.  Each  candidate  country  was  invited  to  adopt  a National  Programme  for  the 
Adoption  of  the  Acquis  setting  out  how  it  would  deal  with  the  Accession  partnership,  the 
timetable  for  implementing  its  priorities  and  outlining  human  and  financial  resources 
implications.  Both the Accession Partnerships and the National Programme  for the Adoption 
of the Acquis  will be revised regularly to take account of progress made and to allow  for  new 
priorities to be set. 

1. 

Accession Partnership Assessment 

The short term priorities for  1998 included in the Accession Partnership8 (AP) are: 

Political  criteria  :  free  and  fair  Presidential,  national  and  local  elections  in  1998;  ensuring 
effective  opposition  participation  in  parliamentary  oversight  committees  and  supervisory 
boards;  the  adoption  of  legislative  provisions  on  minority  language  use  and 
related 
implementing measures. 

Economic  reform  :  establishment  of  medium-term  economic  policy  priorities  and  joint 
assessment within the framework of the Europe agreement;  implementation  of policies  aimed 
at tackling internal and external imbalances and sustaining macroeconomic  stability;  progress 

Council Regulation 622/98, OJ L85 of 20 March  1998 

44 

on structural reforms, and on market-driven  enterprise, finance  and banking restructuring,  and 
to continue the process of conversion of energy intensive heavy industries. 

Reinforcement  of institutional  and  administrative  capacity  : including  the  adoption  of a 
civil service law  and development  of public  administration  reform  strategy with  emphasis  on 
the  strengthening  of  administration  dealing  with  EU  accession,  institutional  strengthening  in 
the area of environment,  veterinary  and phytosanitary  administrations, particularly  as regards 
facilities  at the  external  borders, begin  to  set up  structures  needed  for  regional  and  structural 
policy. 

Internal  Market  :  including  continued  legislative  alignment  in  the  fields  of  standards  and 
certification,  state aids  (progress towards  adoption of a law), intellectual  property  (alignment 
of  legislation),  public  procurement  and  agriculture  (veterinary  and  phytosanitary  fields), 
establishment of standardisation and conformity  assessment structures. 

Environment  :  continue  transposition  of  framework  legislation,  establishment  of  detailed 
approximation programmes and implementation strategies related to individual acts.  Planning 
and commencement  of implementation of these programmes and strategies. 

Progress on the short  term accession partnership priorities can be summarised as follows: 

•  Political  criteria  :  Free  and  fair  national  elections  took  place  in  September  1998. 
However,  the  Office  of  the  President  remains  vacant.  There  are  concerns  about  the 
recently  adopted  municipal  election  law  and  its  implications  for  free  and  fair  local 
elections.  The  participation  of  the  opposition  in  the  parliamentary  oversight  and 
supervisory committees was not fully  satisfactory.  No progress was made on the adoption 
of minority language legislation. 

•  Economic  Reform  :  While  some  effort  was  made  to  implement  policies  aimed  at 
tackling  external  and  internal  imbalances,  a  medium  term  economic  policy  and  joint 
assessment framework was not established.  Little progress was made in structural  reform, 
in  financial  sector  and bank  restructuring  and  in  continuing  the process  of  conversion  of 
energy intensive industries. 

•  Reinforcement  of  institution  and  administrative  capacity  : No  progress  was  made  in 
adopting  civil  service  legislation,  in  institutional  strengthening  in  the  environment  area 
and in setting up  structures  for  regional  and structural policy.  Only  limited progress  was 
made  in  the  development  of  a  public  administration  strategy  and  in  strengthening 
veterinary and phytosanitary structures. 

• 

Internal  market  :  While progress  was  made  in  alignment  of  intellectual  and  industrial 
property  legislation,  no  progress  was  made  in  alignment  in  the  areas  of  standards  and 
certification,  state aids, public procurement and agriculture. 

•  Environment  :  Only  limited  progress  was  made  in  transposition  of  legislation  and 
detailed  approximation  programmes  and  implementation  strategies  have  not  yet  been 
worked out. 

45 

Slovakia has not  adequately  addressed  any of the short term Accession Partnership  priorities. 
In regard to the political priorities, while free and fair  elections were held, a President has not 
been elected, the parliamentary oversight committees cannot be considered to have  functioned 
optimally  and  there  was  no  progress  in  the  adoption  of  legislative  provisions  on  minority 
languages.  The  economic  reform  priorities were partially  addressed  with  efforts  being  made 
to  maintain  macroeconomic  stability  but  there  was  little  progress  in  structural  reform. 
Concerning  the  internal  market  priority,  while  intellectual  and  industrial  property  legislation 
was  adopted,  insufficient  attention  was  paid  to  address  other  priorities,  particularly  as 
concerns  standards  and certification  legislation  and institutional  structures.  The  environment 
priority was not satisfactorily  addressed. 

2. 

National Programme for the Adoption of the Acquis-Assessment 

A  first  version  of the National  Programme  for  the Adoption  of the Acquis  (NPAA),  adopted 
by  the  Slovak  Government,  was  presented  in March  1998. The National  Programme  for  the 
Adoption of the Acquis  is composed of 29 chapters corresponding to the 29 negotiation  teams 
in  the  relevant  ministries  or  central  state  bodies  established  to  prepare  for  future  accession 
negotiations. There is an introduction covering the political  and economic  criteria. The  annex 
contains  tables  on  each  of  the  chapters  showing  the planned  legislation  and  implementation 
arrangements, the related time-schedules as well as the financing provisions. 

The  National  Programme  for  the  Adoption  of  the  Acquis  covers  the  Accession  Partnership 
priorities  but  does  not  adequately  cover  the  whole  acquis. 
It  is  not  consistent  in  quality 
between  chapters,  with  some  sections  not  reflecting  a  full  understanding  of  the  acquis. 
National legislation is referred  to in some sections without necessary links to the acquis being 
drawn.  Attention paid to implementation  and enforcement  of the acquis is inadequate and the 
National Programme  for the Adoption  of the Acquis  does not  adequately  address the issue  of 
reinforcement  of  administrative  capacity.  The National  Programme  for  the  Adoption  of  the 
Acquis  does  not  provide  sufficient  information  on  institution  building.  Training  and  staff 
needs  are  not  accurately  assessed.  Budgetary  needs  are  as  well  clearly  underestimated. 
Finally,  the  time  schedule  for  both  adopting  and  implementing  the  acquis  seems  quite 
unrealistic. 

The  Slovak  Government  is revising the National Programme  for  the Adoption  of the  Acquis. 
On  the  basis  of  the  revised  text,  the  Commission  will  take  a  position  on  the  National 
Programme  for  the Adoption  of the Acquis  which  it will communicate to the Council  during 
the  second  semester  of  1999  on  the  occasion  of  the  re-examination  of  the  Accession 
Partnership. 

46 

Annex 
Statistical data 

47 

STATISTICAL DATA 

Basic data 

Population (end of period) 

Total Area 

National Accounts 

Gross Domestic Product at current prices 

Gross Domestic Product at current prices 

1993 

1994 

1995 

1996 

1997 

in 1000 

5336 

5356 

5368 

5379 

5388 

in 1000 hectares 

4904 

4904 

4904 

4903 

4903 

in Bn Slovak  Koruna 

369.1 

440.5 

516.8 

575.7 

653.9 

in Bn ECU 

10.2 

11.6 

13.3 

14.8 

17.2 

in ECU per capita 

1900 

2200 

2500 

2800 

3200 

Gross Domestic Product at current prices 

in % of Total Gross Value Added 

Structure of Production 

- Agriculture 

- Industry 

-  Construction 

- Services 

Structure of expenditure 

- Final consumption  expenditure 

- household  and NPISH 

- general government 

- Gross fixed  capital  formation 

- Exports of goods and services 

- Imports of goods and services 

4.9 

32.0 

4.9 

58.2 

6.0 

28.0 

4.7 

61.3 

as % of Gross Domestic Product 

69.8 

49.6 

20.3 

27.4 

63.0 

61.2 

72.6 

50.3 

22.4 

36.9 

58.0 

70.0 

71.6 

50.0 

21.7 

38.6 

56.4 

63.5 

% change over the previous year 

Gross Domestic Product 

-3.7 

4.9 

6.9 

6.6 

6.5 

Gross Domestic Product per capita 

6400 

6800 

7400 

8200 

8900 

in Purchasing Power parities 

Inflation  rate 

Consumer Price Index 

Balance of payments 

-Exports of goods 

-Imports of goods 

-Trade balance 

-Services, net 

-Income, net 

-Net current  transfers 

%  change over the previous year 

23.2 

13.4 

9.9 

5.8 

6.1 

in millions of ECU 

4656 

5436 

-779 

232 

-32 

84 

5669 

5577 

92 

557 

. 

-101 

57 

6568 

6743 

-175 

413 

-11 

71 

6949 

8747 

-1798 

30 

-37 

158 

7752 

9058 

-1306 

64 

-109 

153 

48 

-of which government  transfers 

-Current account balance 

-Reserve assets (incl. gold) 

-Reserve assets (excl. gold) 

Public Finance 

General Government  Deficit/Surplus 

Gross foreign debt 

Financial indicators 

Monetary  Aggregates 

- Ml 

-M2 

- Total credit 

Average short-term interest rates 

- Lending rate 

- Deposit rate 

ECU exchange rates 

- Average of period 

-End of period 

- Effective  exchange rate 

Foreign Trade 

Imports 

Exports 

Balance 

Terms of trade 

Imports with EU-15 

Exports with EU-15 

Demography 

Natural growth rate 

Net migration rate 

3 

-495 

825 

373 

5 

604 

1777 

1375 

13 

298 

2939 

2560 

7 

9 

-1646 

-1198 

3109 

2729 

3264 

2925 

in % of Gross Domestic Product 

11.3 

19.6 

21.6 

1993 

1994 

1995 

1996 

1997 

3.1 

6.9 

14.4 

8 

in Bn ECU 

3.2 

7.8 

3.9 

9.1 

%  per annum 

14.6 

9.3 

16.9 

9 

4.3 

10.3 

13.9 

9.3 

(lECU=..National currency) 

36.03 

37.04 

38.12 

38.47 

38.86 

38.86 

39.38 

39.95 

4.3 

11.8 

12.2 

18.7 

13.4 

38.11 

38.43 

74.74 

in millions of ECU 

5409 

4663 

-746 

5560 

5627 

-67 

6705 

6559 

-146 

8760.8 

6954.9 

9050.8 

7753.7 

-1805.9 

-1298.1 

corresp 

tonding period of the previous yea 

r = 100 

1 

as % of total 

20.6 

24.1 

26.2 

28.4 

34.8 

37.8 

37.3 

41.3 

39.5 

45.0 

per 1000 of population 

3.9 

0.3 

2.8 

0.9 

1.6 

.  0.5 

1.7 

0.4 

; 

'. 

per 1000 live-births 

Infant mortality rate 

10.6 

11.2 

11.0 

10.2 

8.7 

Life expectancy: 

Males 

Females 

68.4 

76.7 

at birth 

68.3 

76.5 

68.4 

76.3 

68.8 

76.7 

68.9 

76.7 

Labour market 

in %  of labour  force 

Economic Activity rate (ILO  methodology) 

62.1 

59.9 

59.8 

60.0 

59.5 

49 

Unemployment rate (ILO methodology):  Total 

< 25 years 

> 25 years 

12.2 

25.7 

9.4 

13.7 

27.6 

10.9 

13.2 

24.8 

10.8 

Average employment by NACE branches (LFS) 

in % of total 

11.1 

20.6 

9.2 

8.9 

31 

8.5 

51.6 

11.6 

9.4 

8.6 

30.4 

8.9 

52.1 

75 

: 

in Km per 1000 Km2 

75 

: 

75 

75 

in km 

198 

215 

75 

: 

- Agriculture and Forestry 

- Industry 

-  Construction 

-  Services 

Infrastructure 

Railway  network 

Length of motorways 

Industry and Agriculture 

previous year = 

100 

Industrial production volume indices 

Gross agricultural  production volume indices 

96.3r 

92.0 

104.9r 

102.6 

108.3 

102.4 

102.5 

102.7 

102.7 

99.2 

50 

Methodological Notes 

Gross  domestic  Product  per  capita  in  PPS  : Revised  data using the  new  PPP  results  from 
the  1996 International  Comparison  Project. 

Reserve assets : are end-year stock data. They are defined  as the sum of central bank holdings 
of  gold,  foreign  exchange,  and  other  (gross)  claims  on non-residents.  Gold  is  valued  at  end-
year market price. 

General  government  deficit  /  surplus  :  is  an  approximation  of  the  national  accounts 
definition,  derived  from  data  based  on  the  IMF's  GFS . (government  finance  statistics) 
methodology.  The  general  government  deficit  /  surplus  is  obtained  by  adding  the  central 
government  deficit  /  surplus  (normally  including  certain  extra-budgetary  funds)  to  the  local 
government  deficit  /  surplus.  The  total  is  adjusted  for  net  lending  /  borrowing  for  specific 
policy purposes, which is a financing item in the national accounts. 

Monetary  aggregates  :  are  end-year  stock  data.  Ml  generally  means  notes  and  coin  in 
circulation plus bank  sight deposits. M2 generally means Ml  plus savings deposits plus  other 
short-term  claims  on banks. Total  credit  generally  means  domestic  credit  to  the  government 
and private sectors. It should be noted that the problem of measuring the circulation of  foreign 
currency in some Applicant Countries may affect  the reliability of the data. 

Interest  rates  :  Annual  average  rates.  Lending  rates  generally  consist  of  the  average  rate 
charged on loans granted by reporting banks. Deposit rates generally refer  to average  demand 
and time deposit rates. 

Exchange  rates  : Where available, the ECU exchange rates are those officially  notified  to DG 
II. The  effective  exchange  rate index  is weighted  by major  trading partners, with  a base  year 
of 1990. 

Imports  and  exports  (current  prices)  : The data  is based  upon  the  "special  trade"  system, 
according  to  which,  external  trade  comprises  goods  crossing  the  customs  border  of  the 
country.  Trade  data  excludes  direct  re-exports,  trade  in  services  and  trade  with  customs  free 
zones as well as licences, know-how and patents. Value of external trade turnover includes the 
market  value  of  the  goods  and  the  additional  costs(freight, 
insurance  etc.).  Trade 
Classification: Merchandise  trade  flows  are using  the  commodity  classification  according  to 
the Combined Nomenclature. 

Imports  are  recorded  on  FjOB  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  state border.  The value of  exports  is  given 
in  FOB.,  i.e.  the  price  of  the  goods  decreased  by  direct  trade  costs  abroad.  That  price, 
converted  by  a valid  exchange rate into  the  Slovak  crown, gives  a base  for  the calculation  of 
customs duty, value added tax and other charges and fees. 
Eurostat  has  converted  the National  Currency  to  the US  dollar  by  applying  the  International 
Monetary Fund annual average exchange rates. 

51 

Imports  and exports  with  EU-15  : Source: Data declared  by \he republic  of  Slovakia.  Data 
for years  1993 and  1994 refer to trade with EU-12 only. 

Economic  activity  rate  (ILO  Methodology)  :  Percentage  of  labour  force  in  the  total 
population  aged  15+. This rate is derived from LFSS (Labour Force  Sample Survey)  observing 
the following ILO definitions  and recommendations: 

Labour  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. 

Unemployment  rate  (by  ILO  methodology)  : - Percentage  of the unemployed  labour  force. 
This  rate  is  derived  from  LFSS  (Labour  Force  Survey)  observing  the  ILO  definitions  and 
recommendations (see ILO definitions  above) 

The unemployment  rate is recalculated  on economically  active persons  (excluding  women  on 
additional maternity leave). 

Average  employment  by  NACE  branches  (LFS)  :  This  indicator  is  derived  from  LFSS 
(Labour Force Sample Survey) observing the ILO definitions  and recommendations. 

Industrial  production  volume  indices  : Industrial  production  covers mining  and  quarrying, 
manufacturing  and  electricity,  gas,  steam  and  water  supply  (according  to  the  NACE  Rev.l 
Classification  Sections  C,D,E).  The  total  industrial  production  includes  estimates  for 
enterprises and for tradesmen. The indices are in constant prices of December  1995. 

Gross  agricultural  production  volume  indices  :  The  gross  agricultural  output  has  been 
calculated  on  the  basis  of  the  gross  turnover  at  current  prices.  Agricultural  output  index  is 
recalculated to the constant prices of the corresponding period of the previous year. 

52 

Sources 

Basic  data,  National  Accounts,  Foreign  trade,  Demography,  Labour  market, 
Infrastructure, Industry and Agriculture : New Cronos. 

Reserve assets and Financial  indicators  : Where possible Eurostat B-4's  questionnaire on 
monetary and financial statistics has been used as the source. Applicant Countries are asked to 
supply  regularly  an  update  of  tables  contained  in  the  questionnaire.  The  statistics  covered 
include  foreign  official  reserves,  monetary  aggregates,  interest  rates,  and  exchange  rates. 
Failing  this, the  IMF's  'International Financial  Statistics'  publication  has  been  used  as the 
source. The European Commission (DGII) is used as the source for exchange rates against the 
ECU, where possible 

Concerning gross foreign  debt, the OECD External Debt Statistics publication has been used 
as the source. 

Concerning general government deficit / surplus, Applicant Countries are presently unable to 
provide  reliable  data.  Unit  B-4  is  working  closely  with  these  countries  with  the  aim  of 
improving  their  national  accounts  based  government  finance  statistics.  Given  the  lack  of 
reliable data, an approximation  for  general government  deficit  /  surplus is derived from the 
IMF's  Government  Finance  Statistics  Yearbook  (for  an  explanation  of  methodology,  see 
below). 

53 

ISSN 0254-1475 

COM(98) 703  final 

DOCUMENTS 

EN 

01  02  06  11 

Catalogue  number  :  CB-CO-98-645-EN-C 

Office  for Official  Publications of the European  Communities 

L-2985  Luxembourg