2000 regular Report from the Commission on Cyprus' progress towards accession
Date: 2000-11-08
Institutions: European Commission
Subjects: Cyprus, accession to the European Union, economic situation, political situation, social situation

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 8.11.2000 
COM(2000) 702 final 

2000 

REGULAR  REPORT 

FROM THE COMMISSION 

ON 

CYPRUS' 

PROGRESS TOWARDS ACCESSION 

Table  of  contents 

A.  Introduction 

a)  Preface 
b)  Relations between the European Union and Cyprus 

Recent  developments  under  the  Association  Agreement  (including  bilateral 
trade) 
Accession Partnership 
Community Aid 
Twinning 
Negotiations 

5 

5 
7 

7 
8 
8 
9 
9 

B.  Criteria for membership 

1.  Political criteria 

Introduction 
Recent developments 

1.1.  Democracy and the rule of law 

The 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.  The situation in the northern part of the island 

1.4.  The efforts for a political settlement 

1.5.  General evaluation 

2.  Economic  criteria 

2.1.  Introduction 

2.2.  Economic developments 

2.3.  Assessment in terms of the Copenhagen criteria 
The existence of a functioning  market economy 
The  capacity  to  cope  with  competitive  pressure  and market  forces  within  the 
Union 

2.4.  General Evaluation 

2.5.  The economic situation in the northern part of the island 

3.  Ability to assume the obligations of membership 

Introduction 

32 

32 

35 
35 

2 

10 

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10 

11 
11 
11 
12 
14 

14 
15 
16 
17 

17 

20 

22 

23 

23 

23 

25 
25 

30 

3.1.  The chapters of  the acquis 

Chapter  1: Free  movement  of goods 
Overall assessment 

Chapter  2 Free  movement  of persons 
Overall assessment 

Chapter  3: Freedom  to provide  services 
Overall assessment 

Chapter  4 Free  movement  of capital 
Overall assessment 

Chapter  5: Company  law 
Overall assessment 

Chapter  6 Competition 
Overall assessment 

Chapter  7: Agriculture 
Overall assessment 

Chapter  8: Fisheries 
Overall assessment 

Chapter  9: Transport  Policy 
Overall assessment 

Chapter  10:  Taxation 
Overall assessment 

Chapter  11:  Economic  and  Monetary  Union 
Overall assessment 

Chapter  12:  Statistics 
Overall assessment 

Chapter  13:  Social  policy  and  employment 
Overall assessment 

Chapter  14:  Energy 
Overall assessment 

Chapter  15:  Industrial  Policy 
Overall assessment 

Chapter  16:  Small  and  medium-sized  enterprises 
Overall assessment 
Chapter  17:  Science  and  Research 
Overall assessment 

Chapter  18:  Education  and  training 
Overall assessment 
Chapter  19:  Telecommunications  and  Information  Technologies 
Overall assessment 

3 

37 
37 
38 

40 
40 

41 
42 

43 
44 

45 
46 

47 
48 

49 
50 

52 
53 

54 
56 

57 
58 

59 
60 

60 
61 

61 
62 

64 
64 

65 
66 

67 
67 
68 
68 

69 
70 
71 
71 

Chapter  20:  Culture  and  audio-visual  policy 

Overall  assessment 

72 

72 

Chapter  21:  Regional  policy  and  co-ordination  of  structural  instruments  .. 72 
73 
Overall assessment 

Chapter  22:  Environment 
Overall assessment 

Chapter  23:  Consumers  and  health  protection 
Overall assessment 

Chapter  24:  Co-operation  in the  fields  of  justice  and  home  affairs 
Overall assessment 

Chapter  25:  Customs  Union 
Overall assessment 

Chapter  26:  External  relations 
Overall assessment 

Chapter  27:  Common  foreign  and  security  policy 
Overall assessment 

Chapter  28:  Financial  Control 
Overall Assessment 

Chapter  29:  Financial  and  budgetary  provisions 
Overall assessment 

3.2.  General evaluation 

C.  Conclusion 

74 
75 

77 
77 

78 
81 

84 
84 

85 
85 

87 
87 

88 
88 

89 
89 

90 

93 

D.  Accession  Partnership  and  National  Programme  for  the 

Adoption of the Acquis: Global assessment 

1.  Accession Partnership 
Short-term priorities 
Medium-term priorities 

2.  National Programme for the Adoption of the Acquis 

Annexes 

96 

96 
96 
99 

101 

102 

Human  Rights  Conventions  ratified  by  the  Candidate  Countries, 

September 2000 

Statistical data 

103 

104 

4 

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  Eastern  European  applicant 
State towards accession in the light of the Copenhagen criteria, in particular the rate at 
which  it  is  adopting  the  Union  acquis”  …  “The  Commission  s  reports  will  serve  as 
the basis for taking, in the Council context, the necessary decisions on the conduct of 
the accession  negotiations  or  their  extension  to other  applicants.  In that  context, the 
Commission  will  continue  to  follow  the  method  adopted  by  Agenda  2000  in 
evaluating  applicant  States  ability  to  meet  the  economic  criteria  and  fulfil  the 
obligations deriving from  accession.” 

After  the  European  Council  in  Cardiff  the  same  approach  has  been  followed  for 
Cyprus. 

On  this  basis, the  Commission  presented  a  first  series  of  regular  reports  in  October 
1998,  with  a  view  to  the  Vienna  European  Council; a  second  series  was adopted  in 
October  1999, with a view to the Helsinki European Council. The Helsinki  European 
Council noted that the next regular reports would be presented in good time before the 
European Council in December 2000. 

The structure followed  by this regular report on Cyprus is largely similar to that of the 
Commission  s 1997 Opinion and of the subsequent regular reports; however, it  differs 
from  that used in previous years on  two minor points.  Firstly, the part of  the present 
report assessing Cyprus  ability to assume the obligations of membership (Part  B.3.1.) 
has been structured to follow  the list of  twenty-nine negotiating chapters covering the 
acquis.  Secondly, this part  has been broadened  to cover  also Cyprus  administrative 
capacity  to  apply  the  acquis  under  each  of  the  negotiating  chapters  (previously 
discussed in a separate section of the report). 

In line with previous regular reports, the present report: 

-  describes  the  relations  between  Cyprus  and  the  Union,  in  particular  in  the 

framework  of the Association Agreement; 

- 

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

5 

- 

- 

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

addresses  the  question  of  Cyprus  capacity  to  assume  the  obligations  of 
membership,  that  is,  the  acquis  as  expressed  in  the  Treaties,  the  secondary 
legislation, and the policies of the Union. It encompasses not only the alignment of 
legislation,  but  also  the  development  of  the  judicial  and  administrative  capacity 
necessary  to  implement  and  enforce  the  acquis,  as  requested  by the  Madrid  and 
Feira  European  Councils  in  December  1995  and  June  2000  respectively.  At 
Madrid, the European Council underlined the necessity for the candidate countries 
to  adjust  their  administrative  structures,  so  as  to  create  the  conditions  for  the 
harmonious integration  of those States. The Feira European Council in June 2000 
emphasised  the vital importance of the candidate countries  capacity to  effectively 
implement  and  enforce  the  acquis,  and  added  that  this required  important  efforts 
by the candidates in strengthening their administrative and judicial structures. The 
Feira  European  Council  invited  the  Commission  to  report  to  the  Council  on  its 
findings on the matter. 

This  report  takes  into consideration  progress  since  the 1999  regular  report. It  covers 
the  period  until  30  September  2000.  In  some  particular  cases, however,  measures 
taken after  that date are mentioned.  It looks at whether intended reforms referred to in 
the  1999  regular  report  have  been  carried  out,  and  examines  new  initiatives. 
Furthermore,  complementing  the  assessment  of  new  developments  since  the  last 
regular  report, this report  provides also an  overall  assessment  of  the global  situation 
for each of the aspects under consideration, setting out for each of them the main steps 
which remain to be taken by Cyprus in preparing for accession. 

In accordance  with  this approach, the assessment  of  progress in meeting the  political 
and  acquis  criteria  (including  Cyprus  administrative  capacity  to  implement  the 
acquis)  focuses  on  what  has  been  accomplished  since  the  last  regular  report, 
complemented  with  a  view  of  the  global  situation  for  each  of  the aspects  discussed. 
The  economic  assessment,  for  its  part,  is  based  on  a  forward-looking  evaluation  of 
Cyprus  economic performance. 

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

The report  draws on numerous  sources of  information.  The candidate countries  have 
been invited to provide information  on progress made in preparations for  membership 
since the publication of the last regular report.  The information  they have provided in 
the  framework  of  the  Association  Agreement  and  in  the  context  of  the  analytical 
examination  of  the acquis (screening) and the negotiations, have served as additional 

6 

sources. Council deliberations and European Parliament reports and resolutions1 have 
been  taken  into  account  in  the  preparations.  The  Commission  has  also  drawn  on 
assessments  made  by  various  international  organisations,  and  in  particular  the 
contributions  of  the  Council  of  Europe,  the  OSCE  and  the  International  Financial 
Institutions, as well as that of non-governmental organisations. 

b)  Relations between the European Union and Cyprus 

As the accession  negotiations  progress, the relations between  the EU and Cyprus are 
intensifying.  This relationship is based on an Association  Agreement of  1973 as well 
as  a  new  Accession  Partnership2, supported  financially  by a  Council  Regulation3  on 
the  implementation  of  operations  in  the  framework  of  the  pre-accession  strategy  for 
the Republic of Cyprus.  This regulation replaces the Fourth Financial Protocol, which 
expired at the end of 1999. 

The European Council in Helsinki underlined that, 

“The European Council welcomes  the launch of the talks aiming  at a  comprehensive 
settlement  of  the  Cyprus  problem  on  3  December  in  New  York  and  expresses  its 
strong  support  for  the  UN  Secretary-General  s  efforts  to  bring  the  process  to  a 
successful  conclusion. 

The  European  Council  underlines  that  a  political  settlement  will  facilitate  the 
accession  of  Cyprus  to  the  European  Union.  If  no  settlement  has  been  reached  by 
completion  of  accession  negotiations,  the  Council  s  decision  on  accession  will  be 
made without the above being a precondition.  In this the Council will take account of 
all relevant factors.” 

Recent  developments  under  the  Association  Agreement  (including  bilateral 
trade) 

Cyprus and the European Community have been linked since 1973 by an Association 
Agreement, which was intended to lead to a customs union.  The Agreement  contains 
arrangements  on  trade  as  well  as  on  financial  and  technical  co-operation.  Full 
liberalisation of trade, as foreseen  in the second phase of the Agreement, has not been 
completed in view of  the start of  the accession  negotiations. Cyprus has continued  to 
implement the Association Agreement correctly. 

Since  the  publication  of  the  last  regular  report  the  EC-Cyprus  Joint  Parliamentary 
Committee (JPC) has met three times, in Luxembourg in November 1999, in Nicosia 
in April 2000 and in Brussels in October 2000, to assess the progress made in Cyprus 
accession process. 

1 For the European Parliament the rapporteur is Mr Jacques Poos. 
2  Council  Decision  (EC)  No  248/2000  of  20  March  2000  on  the  principles,  priorities,  intermediate 
objectives  and  conditions  contained  in  the  Accession  Partnership  with  the  Republic  of  Cyprus, 
which entered into force on 1 April 2000 

3 Council Regulation (EC) No 555/2000 of  13 March 2000 on the implementation of  operations in the 
framework  of  the pre-accession strategy for the Republic of Cyprus and the Republic of Malta, which 
entered into force on 19 March 2000 

7 

The EC has long been the major  supplier  of  goods to Cyprus, accounting for  57% of 
total imports in 1999 and receiving  51%  of  Cyprus  total exports in 1999.  The main 
imports  were  consumer  and  capital  goods  such  as  manufactured,  agricultural  and 
construction  products as well as transport  equipment.  The main domestic exports  to 
the  EC  were  industrial  products,  mostly  clothing,  unprocessed  agricultural  products 
(potatoes and citrus fruits) as well as wine.4 

Accession  Partnership 

On  the  basis  of  the  new  Financial  Regulation,  an  Accession  Partnership  was 
established by a Council Decision of 20 March 2000.  The Accession Partnership sets 
out  in  a  single  framework  the  priority  areas  for  further  work,  the  financial  means 
available  to help  Cyprus to implement  these priorities and  the conditions  which  will 
apply to this assistance. 

In mid  September  Cyprus submitted  a first  National  Programme  for  the Adoption of 
the Acquis (NPAA) to the Commission, in which it outlines its strategy for  accession 
including  how  to  achieve  the  priorities  contained  in  the  Accession  Partnership  (see 
Chapter D  below). 

Community  Aid 

Four  financial  protocols  were  signed  with  Cyprus  between  1978  and  1999.  The 
instruments  used  were  mainly  loans  (including  special  loans  for 
infrastructure 
projects),  grants  (equipment,  technical  assistance  training…)  and  also  risk-capital 
funds  (joint  ventures  and  European  Investment  Bank  participation  in  Cyprus 
Development  Bank  capital).  The  priorities  covered  were  mostly  in  the  fields  of 
environment  and  SMEs.  The  Fourth  Financial  Protocol, signed  in  1995, expired  in 
1999 and  comprised  a budget  for  grants of  € 22 million. In 1999, four  projects  were 
committed for a total € 7,775 million: development  of  civil society; creating a system 
of selection and promotion of bi-communal civil society activities; participation in the 
Fifth  Framework  Programme  for  Research  and  Development  and  a  project  for 
harmonisation with the acquis to improve the capacity of the Cypriot administration to 
integrate and implement it in key sectors. 

After  the expiry of  the Fourth Financial Protocol with Cyprus on 31 December 1999, 
the  Council  adopted  on  13  March  2000  Regulation  (EC)  555/2000,  on  the 
implementation  of  operations  in  the  framework  of  the  pre-accession  strategy  for 
Cyprus and Malta.  The global amount of pre-accession aid available to Cyprus for the 
whole five-year  period 2000-2004 will be € 57 million. 

Cyprus  currently  participates  in  the  Fifth  Framework  Programme  for  Research  and 
Development, in Media II, and in the Life II. It is expected also to fully  participate in 
Customs  2000,  Save,  Altener,  Culture  2000,  Media  Plus  and  Fiscalis.  In  addition, 
Cyprus  has been  participating  in  Socrates, Leonardo  and  Youth  for  Europe and  will 
continue to do so in the new phase of the programmes from 2001. 

4 Also see chapter 2, economic criteria 

8 

Cyprus has been participating  in the Third Multi-Annual  Programme for  SMEs since 
1  September  2000.  This  participation  in  the  programme  will  further  strengthen  its 
infrastructure  supporting SMEs, in addition to helping prepare enterprises  themselves 
for accession. 

Cyprus  will  implement  certain  targeted  projects  in  the  field  of  judicial  and 
administrative  capacity  and  in  the  area  of  Justice  and  Home  Affairs,  such  as  the 
training of  judges, external border  control, law enforcement  issues and the setting up 
of  support  and  technical  structures  such  as  computerised  databases  compatible  with 
European  technical  infrastructures  (National  Schengen  Information  System).  These 
projects  will  address  two  main  areas: on  the  one  hand,  adapting  the  organisational 
framework  and  procedures  and  training  of  personnel,  and  on  the  other  hand  the 
improvement of the existing systems and equipment. 

The Financial Regulation mentions the importance of  bi-communal projects. In 2000, 
€ 3 million will be earmarked for these. 

Twinning 

For the time being no twinning projects have been implemented  but the possibility of 
using twinning is being envisaged for 2001. 

Negotiations 

The analytical examination of  the acquis (screening) for  Cyprus started in April 1998 
and  concluded  in  autumn  1999  with  the  examination  of  the  agricultural  chapter.  An 
updated  screening exercise started  in February 2000 to cover the new  acquis  up to  1 
January 2000. 

Since the opening of accession negotiations in March 1998, Cyprus has participated in 
four  rounds  of  ministerial  negotiations.  As  a  result  of  these  negotiations  sixteen 
chapters have been provisionally closed. These chapters are Company Law; Fisheries; 
Economic and Monetary Union; Statistics; Employment  and Social Affairs;  Industrial 
Policy; Small and Medium Sized Undertakings; Science and Research; Education and 
Training;  Telecommunication  and  Information  Technologies;  Culture  and  Audio 
Visual Policy; Consumer  and Health Protection; Customs Union; External Relations; 
Common  Foreign  and  Security  Policy as well  as Financial  Control. Negotiations  for 
the remaining chapters continue. 

9 

B.  Criteria for  membership 

1.  Political criteria 

Introduction 

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

In  its  1999  regular  report  on  Cyprus  progress  towards  accession,  the  Commission 
concluded that: 

“Cyprus  fulfils  the  Copenhagen  political  criteria.  There  has  been  little  progress  in 
the last year in finding a just and lasting settlement to the overall problem of  Cyprus 
although there was a welcome reduction in tension when the government decided not 
to deploy additional  weaponry.“ 

The section below aims to provide an assessment of developments in Cyprus since the 
1999  regular  report, as  well  as of  the  overall  situation  in the  country, seen  from  the 
perspective  of  the Copenhagen  political  criteria, including  the  overall  functioning  of 
the  country s  executive  and  judicial  systems.  Developments  in  this  context  are  in 
many ways closely linked to developments regarding Cyprus  ability to implement the 
acquis, in particular in the domain of  Justice and Home Affairs.  Specific  information 
on the development  of  Cyprus  ability to implement  the acquis in the field  of  Justice 
and Home affairs  can be found  in the relevant section (Chapter  24 – Co-operation  in 
the field of Justice and Home Affairs) of part B.3.1.  of this report. 

Recent  developments 

Since the last regular  report, a number of  developments have taken place which  may 
contribute  towards  a  political  settlement,  notably  the  resumption  of  the  UN  peace 
process, the improvement in Greek-Turkish relations, and the new status of Turkey as 
a  candidate  country for  EU  accession.  Rounds of  proximity  talks were held  in  New 
York  (December  1999)  and  Geneva  (February  and  July  2000),  with  the  aim  of 
preparing  the  ground  for  substantial  direct  negotiations. 
In  the  fourth  round  of 
proximity talks, which took place in New York in September, it was reported that the 
two  sides  engaged  in  substantial  discussion  on  the  core  issues  (territory,  property, 
security and constitution). The next round of  talks was scheduled for early November 
in Geneva. 

In the framework  of the accession negotiations, the European Union regularly refers to 
the offer  extended  by President  Clerides, inviting the Turkish  Cypriot  community  to 
participate  in  the  negotiations.  This  offer  remains  on  the  table.  This  would  ensure 
that  Turkish  Cypriot  concerns  are  taken  into  due  account,  and  assist  the  Union  s 
determination  that  accession  should  benefit  the  whole  of  the  island.  It  would  also 
allow for the implementation of the acquis throughout the island. 

10 

1.1.  Democracy  and  the  rule  of  law 

As  stated  in  the  previous  reports,  Cyprus  has  achieved  stability  of  institutions 
guaranteeing  democracy  and  the  rule  of  law.  This  section  focuses  on  the  most 
significant  developments  of the  past  year.  It  has  to be  taken  into  account  that,  as no 
political  settlement  has been  achieved  so far,  the provisions  of the Constitution  of the 
Republic  of  Cyprus  regarding  power-sharing  at  the  different  levels  between  the 
Turkish and Greek Cypriots communities are not being applied. 

The  Parliament 

The Parliament  continues to function  in full  respect  of democratic principles,  and has 
again  made  impressive  efforts  to  pursue  an  intense  legislative  programme.  A  great 
number  of bills  regarding  alignment  with  the acquis  have been  adopted  over the  past 
year. 

The  special  Committee  for  EU and External  Affairs  established  last year  continues  to 
function  well.  This  Committee,  consisting  of  19  members,  examines  all  legislative 
instruments  that  are  required  for  the  approximation  of the  national  legislation  to  the 
acquis, with the possibility  of a fast-track  procedure. All bills, which  are submitted  to 
the  Parliament  in  the  context  of  the  harmonisation  process  are  examined  directly  by 
this Parliamentary  Committee,  irrespective  of the  specific  topic they  seek to regulate. 
During  1999  and  the  first  half  of  2000,  21  harmonised  laws  and  regulations  were 
adopted  by the  normal  procedure,  whereas  61 were  adopted  in the  framework  of the 
fast track procedure; however, the aim of the initial proposal in the latter is sometimes 
softened  by amendments or 'reviewing right'  clauses. 

The  Planning  Bureau,  which  co-ordinates  the  harmonisation  process  at  the  national 
level,  has  recently  issued  a  Schedule  ("Project  2003  -  Harmonisation  Monitoring 
System"), together with  a very  comprehensive  National  Programme  for  the  Adoption 
of the acquis, which includes deadlines for legal drafting  and legal vetting,  submission 
to  the  House  of Representatives,  and  approval  through  the  fast-track  procedure.  The 
House  of  Representatives  supervises  the  Government's  ability  to  implement  the 
various harmonisation bills once they have been  enacted. 

The  Executive 

the  approximation  of 

The  institutions  of the  state  continue  to  operate  smoothly.  Since the  previous  regular 
report,  efforts  have been  made to reinforce  the Law Office,  which plays a central  role 
the  co-ordination  of  the 
in 
harmonisation  process  within  the various  ministries,  to  speed  up  the  computerisation 
of  the  public  administration,  and  to  enhance  administrative  capacity  at  sub-national 
level. 

to  strengthen 

legislation, 

In view of Cyprus' preparation for accession, within the Law Office  a European Union 
Section  has  been  created,  and  its  staffing  has  been  reinforced  with  a  number  of 
lawyers  qualified  in European  Law.  The Law  Office  staff  take  part  on  a  continuous 
basis  in  training  courses  on  legal  drafting  and  EC  law.  Collections  of  EU-related 

11 

textbooks  and  reference  material  in the Law Office  library have been  reinforced  and 
are being kept up to date. 

The  chief  negotiator  in the negotiations  for  the accession  of  Cyprus to the  European 
Union  continues  to  have  overall  responsibility  for  the  guidance  and  management  of 
the negotiations, the supervision  and co-ordination  of  the harmonisation  process, and 
for  the  dialogue  with  the  House  of  Representatives  and  the  private  sector.  Within 
each  ministry,  an  overall  co-ordinator  for  the  harmonisation  process  and  the  pre-
accession strategy has been nominated. 

Particular  efforts  have been made over  the past year to speed up the  computerisation 
the  public  administration,  and,  in  parallel,  the  re-engineering  of  certain 
of 
administrative processes. The actual amount spent on computerisation  in 1999 (€13.3 
million  according  to  provisional  estimates) was more than  double the  corresponding 
amount for 1998 (€ 6.2 million).  Continued progress in this regard will be required. 

No  significant  developments  are  to  be  reported  as  regards  the  structure  and 
functioning  of  the  public  administration.  The  Cypriot  civil  service  is  largely 
independent  from  political  interference.  Appointments, promotions  and  the  exercise 
of  disciplinary  control  over  civil  servants  are  performed  by  the  Public  Service 
Commission,  an  independent  body. The  agency  responsible  for  the  operation  of  the 
civil service, as well as for the assessment and improvement of its effectiveness,  is the 
Public Administration and Personnel Service of the Ministry of Finance. 

The  Cyprus  Academy  of  Public  Administration  (CAPA),  with  the  approval  of  the 
Council  of  Ministers, continues  to  focus  its activities  on  training  civil  servants  with 
regard to the EU s institutions, structures, policies and legal  framework. 

Efforts  are  underway  to  enhance  administrative  capacity  at  the  sub-national  level 
(regional,  district  and  local  levels).  Thus,  through  a  decision  of  the  Council  of 
Ministers in November 1999, a further  decentralisation of competencies to the district 
level has taken place. The tasks of the District Officers,  who co-ordinate the activities 
of  the  various  Government  Departments  at  district  level,  now  also  include  the 
monitoring  of  the  implementation  of  development  and  infrastructure  projects,  the 
issuing of identity cards, passports and certain construction and town planning permits 
at the district level. 

The Office  of the Ombudsman, whose task is to investigate, report and recommend on 
acts  or  omissions  of  the  administration,  including  local  authorities,  as  well  as  on 
alleged  ill-treatment  by  members  of  the  police,  continues  to  function  well.  During 
1999, a total of  1.267  complaints were submitted to the Ombudsman  s Office,  out of 
which 1.050  were considered  to be within his competence, representing an  important 
increase compared to previous years. 

The  judicial  system 

As already stated in previous reports, the principle of the separation of powers is  fully 
applied  in Cyprus, and  the standard  of  justice is high.  Most  criminal and civil  cases 
start  in  district  courts, from  which  appeals  can  be  made  to  the  Supreme  Court.  No 
special courts exist for  security or political offences.  Cyprus inherited many elements 

12 

of its legal system from the United Kingdom.  A fair public trial is provided for in law 
and accorded in practice. 

The  scale  of  remuneration  of  judges, with  the  exception  of  district  judges, is  fixed, 
and  cannot  be  altered  to  their  detriment.  The  salaries  of  the  judges  of  the  Supreme 
Court are not dependent on the approval of the budget. 

Over the past year Cyprus has taken a range of measures to address issues identified  in 
the previous regular  report, notably to reduce the backlog of  civil and  administrative 
cases, to enhance the training of judges, to upgrade the infrastructure  in the courts, and 
to develop a legal aid system for civil cases. 

In order to reduce the backlog of  civil and administrative cases, the civil court system 
has  been  restructured,  involving  such  measures  as  extending  competences  of  judges 
and  the  reform  and  simplification  of  procedural  rules  in  administrative  cases.  In 
addition,  nine  new  judicial  posts  have  been  created,  bringing  the  total  number  of 
judges from  75 (including the 13 Judges of the Supreme Court) to 84.  Furthermore, a 
third permanent Assize Court has been set up, and a third Rent Control Court. A new 
branch of the Industrial Disputes Court has been established. 

In  order  to  reduce  the  total  number  of  cases  before  the  courts, in  early  2000  a  Tax 
Tribunal  became  operational  to  arbitrate  in  cases  between  the  Inland  Revenue 
Department  and  individual  taxpayers.  This  new  Tribunal  can  revoke  or  affirm  any 
decision  taken  by  the  Inland  Revenue  Department,  and  return  the  tax  file  for 
reconsideration to this Department. 

Other  measures  to  address  the  delays  in  civil  and  administrative  procedures  include 
the  transfer  of  part  of  the  original  jurisdiction  of  the  Supreme  Court  to  the  District 
Courts,  and  calculating  interest  on  the  amount  of  final  judgement  from  the  date of 
instituting court proceedings and not from the date of issuing the judgement. 

As  a  result  of  these  measures  in  the  courts  of  first  instance,  the  number  of  cases 
pending  at  the end  of  each  year  has shown  a marked  decrease.  For  second  instance 
administrative  jurisdiction  of  the  Supreme  Court,  the  number  of  appeals  heard  and 
concluded yearly is now higher than the number of cases filed. 

In order to enhance the training of  the judiciary, a committee consisting of  judges of 
the  Supreme  Court  has  been  set  up  to  prepare  and  monitor  a  comprehensive 
programme  for  the  training  of  judges  in  matters  of  EC  law.  A  programme  for  the 
training  of  judges  from  first  instance  courts  has been  established  which  covers  such 
fields as Human Rights, European Community Law and Civil Procedure. 

The  existing  court  infrastructure  -  buildings  and  equipment  -  is  currently  being 
modernised  and  upgraded.  An  automated  Court  administration  system  is  being 
developed,  which  will  facilitate  the  monitoring  of  all  civil  and  criminal  cases  and 
which will automate the Court  s functions.  This system is expected to be operational 
before the end of 2000.  In addition, a legal information  data bank is being developed, 
which is also expected to be ready in 2000. 

13 

Finally,  regarding  legal  aid  in  civil  matters,  new  legislation  is  under  preparation. 
However,  the  envisaged  legal  aid  law  is expected  to  cover  human  rights  cases  only. 
Parties would thus receive legal aid, both in criminal and civil matters. 

In the meantime, the significant  delays which exist in the publication and  enforcement 
of judgements by the Supreme Court remain a source of concern. 

Anti-corruption  measures 

As  indicated  in  last  year  s  regular  report,  Cypriot  legislation  contains  extensive 
provisions to prevent and combat fraud  and corruption. Various bodies are involved in 
the  enforcement  of  anti-fraud  legislation,  including  the  Unit  for  Combating  Money 
Laundering  (MOKAS,  which  was  reinforced  at  the  end  of  last  year),  and  special 
investigation  units. The  Attorney  General  co-ordinates  all  investigations  concerning 
fraud. 

While corruption  does not  seem  to present  a major  problem  in Cyprus, an  important 
case occurred at the end of 1999. Several high-ranking Cypriot police and immigration 
officers  were  involved,  including  the  head  of  the  Migration  Office.  The  problems 
faced  by the Office  of  the Migration  Officer  (charges of  corruption as well as a large 
number  of  pending  visa  applications)  led  the  Council  of  Ministers  to  decide  in 
November 1999 to restructure it. 

Over  the  past  year,  Cyprus  has  made  further  progress  in  acceding  to  the  major 
international  conventions  in  this  field.  In  November  1999, Cyprus  signed  the  Civil 
Law  Convention  on  Corruption. In July 2000, the House of  Representatives  adopted 
the  act  ratifying  the  Council  of  Europe  Criminal  Law  Convention  on  Corruption, 
which it had signed in January 1999. In March 2000, Cyprus applied to accede to the 
1997  OECD  Convention  on  Combating  Bribery  of  Foreign  Public  Officials  in 
International  Business Transactions. However, there are indications that the accession 
procedure to this latter Convention is stalled, allegedly due to objections raised by one 
OECD member state. 

Cyprus  is  a  member  of  the  Group  of  States  against  Corruption  (GRECO),  and  has 
volunteered  to  be  among  the  first  ten  participating  states  to  be  evaluated  in  the 
GRECO framework  before the end of 2000. 

1.2.  Human rights and the protection of  minorities 

As indicated in the previous regular reports, Cyprus continues to respect human rights 
and freedoms. The following section focuses on the main developments during the last 
year. 

Cyprus  has ratified  most  of  the  international  legal instruments  in  the  field  of  human 
rights.  In  January  2000  Cyprus  ratified  Protocol  6  to  the  European  Convention  on 
Human  Rights  concerning  the  abolition  of  the  death  penalty.  In  September  2000, 
Cyprus also ratified  Protocol 7 to the European Convention on Human Rights as well 
as the revised European Social Charter (see Annex). 

14 

The  Office  of the Law  Commissioner  - who monitors the implementation  of Cyprus' 
obligations  under  these  international  instruments  and  has  the  competence  to  propose 
necessary  action  -  continues  to  function  well.  Due  to  the  increasing  workload, 
however,  the  Commissioner's  work  in  updating  and  reviewing  legislation  has  been 
evolving  at  a  slower  pace  than  expected.  The  Law  Commissioner  also  chairs  the 
National  Institution  for  the  Protection  of  Human  Rights.  He  is  entirely  independent 
and is respected by the legal community as well as by the government. 

Civil  and political  rights 

Besides the ratification  by Cyprus of Protocols 6 and 7 to the European  Convention on 
Human Rights, a number  of other positive  developments  can be reported  in this  field. 
Over the past year, new legislation was enacted on asylum as well as on the  trafficking 
in human beings and the sexual  exploitation  of minors, and amendments were made to 
legislation regarding homosexuality. 

In January 2000, Cyprus adopted new asylum legislation.  The Refugee  Law lays down 
principles for the treatment  of refugees,  specifies  their rights and obligations, provides 
for  the  entry  of  asylum  seekers  and  the  issuing  of  temporary  residence  permits  to 
them,  specifies  the  procedure  for  the  recognition  of  refugee  status  as  well  as  the 
appeal  procedure,  and  establishes  a  relevant  authority.  To  complement  this  legal 
framework,  implementing  regulations  will  now  need  to  be  adopted,  including  the 
creation of a Refugee  Authority. 

Also in  early 2000,  existing legislation  on the  trafficking in human beings  and  sexual 
exploitation  was  enhanced  by  new  legislation  on  action  to  combat  the  trafficking  in 
persons  and the  sexual  exploitation  of minors. Under the provisions  of the  legislation 
on combating trafficking  of persons, the Council  of Ministers has created the office  of 
the Patron of Human Rights, which will  operate from  within the Department  of Social 
Welfare  of  the  Ministry  of  Social  Insurance,  in  close  co-ordination  with  the  Police 
Force. 

The House  of Representatives  furthermore  enacted  amendments to the  homosexuality 
law,  removing  elements  which  had  been  objected  to  by  the  Council  of Europe.  The 
age of consent,  set at  18, remained  unchanged. 

The legal framework  specifically  prohibits torture and the authorities generally respect 
these  provisions  in  practice.  Specialised  courses  in  the  respect  and  protection  of 
human rights are now being taught in the Police Academy.  However, in the past there 
have  been  instances  of  Cypriot  police  mistreating  suspects  in  detention,  mostly 
involving  non-Cypriots.  One  officer  is  on trial  in  connection  with  the  October  1998 
beating of illegal immigrant detainees by members of a special police unit. 

The  police  continues  to  respect  laws  providing  freedom  from  arbitrary  arrest  and 
detention.  Judicially  issued  arrest  warrants  are  required.  No-one  may be  detained  for 
more than a day without referral  of the case to the courts for extension  of the period of 
detention.  Most  periods  of investigative  detention  do not  exceed  8 to  10 days  before 
formal  charges  are  filed.  Attorneys  generally  have  access  to  detainees;  bail  is 
permitted. 

15 

No new developments can be reported with regard to prison conditions.  The existing 
regime and prison  living conditions continue to comply with the minimum  standards 
expected of penal institutions. An issue requiring further  attention is the fact that, as a 
result  of  staff  shortages,  there  continues  to  be  an  inadequate  separation  of  inmates 
serving different  sentences for different  crimes. 

Freedom of speech and of  the press are provided for  by law, and so is the freedom  to 
hold meetings, to associate and to organise.  These rights continue to be respected  in 
practice. 

Freedom  of  religion  continues  to  be  generally  respected.  The  Constitution  of  the 
Republic of Cyprus recognises five religions that are exempted from taxes and receive 
government  subsidies.  Other  religions  may  register  routinely  as  non-profit 
organisations and receive tax exemptions, but not subsidies. Turkish Cypriots residing 
in  the  southern  part  of  the  island  and  non-Muslims  in  the  north  (see  below)  are 
allowed to practise their religions. A positive development over the past year has been 
the  resumption  of  investigations  to  resolve  the  problem  of  persons  missing  after  the 
inter-communal  violence  that  started  in  1963-64  and  the  events  of  July  1974  and 
In  November  1999,  the  autonomous  tripartite  (United  Nations,  Greek 
thereafter. 
Cypriot, Turkish Cypriot) Committee on Missing Persons in Cyprus (CMP), formally 
met  for  the  first  time  since  early  1996  and  agreed  in  principle  to  resume 
investigations.  The official  list of  missing persons was published  in the  Government 
Gazette  on  10  July  2000  and  contained  1493 names  compared  to  the  original  1619 
known  to date.  It excludes 126 names of  persons whose files  were not  submitted  to 
the CMP for investigation into the circumstances of their disappearance.  The relatives 
of  the 126 were informed  of  the reasons why these are no longer  presumed  missing. 
The  list  also  excluded  the  names  of  three  other  persons  whose  remains  were 
identified  through DNA testing. 

Economic,  social  and  cultural  rights 

the  ratification  of 

Apart  from 
the  revised  European  Social  Charter,  other 
developments to be reported in this area concern the implementation  of  legislation on 
spousal abuse, and the implementation of the original European Social Charter. 

As regards equal opportunities,  in Cyprus, women have the same legal status as men. 
Over the past year, progress has been made in implementing existing legislation aimed 
at  making  spousal  abuse  easier  to  report  and  prosecute.  On  the  basis  of  this 
legislation, in force since 1994, but so far largely unimplemented, all cases of  spousal 
abuse reported to the police are now being referred to the courts. 

With regard to the rights and treatment of disabled persons, in July 2000 the House of 
Representatives  enacted  the  "Law  Providing  for  Persons  with  Disabilities",  which 
provides, inter alia, for  the introduction of the general principle of  non-discrimination 
as well as for  specific  measures in the field  of  employment. These include  provisions 
regarding  recruitment,  promotion  in employment,  vocational  rehabilitation  within  the 
enterprise,  special  protection  in  cases  of  termination  of  employment,  mobility, 
communications and means of  transport. 

16 

Legal provisions with regard to children's  rights  demonstrate  a strong commitment to 
children's  welfare.  Legislation  on  the  employment  of  children  is  enforced  through 
inspection  visits  by  qualified  Labour  Inspectors;  in  case  of infringements,  employers 
are  liable  to  a term  of  imprisonment  of up  to  six  months  and/or  a fine  of up  to  300 
Cypriot pounds. 

The  European  Committee  of  Social  Rights  -which  supervises  the  application  of  the 
rights guaranteed under the European  Social Charter, of which Cyprus has ratified  43 
of  the  72  paragraphs-has  indicated  that  it  considers  two  provisions  of  Cypriot 
legislation not to be in full  compliance with the Charter. These provisions relate to the 
Defence  Regulations  (forced  labour)  as  well  as  to  the  system  of  social  pensions 
(residence  requirement/contracting  parties).  In  September  2000,  Cyprus  ratified  the 
revised European  Social  Charter. 

All  workers,  except  for  members  of the  police  and  military  forces,  continue  to  have 
the  legal  right  to  form  and  join  trade  unions  of  their  own  choosing  without  prior 
authorisation.  More than  70 percent  of the Cypriot work force belong to  independent 
trade  unions.  Trade  unions  freely  and  regularly  take  stands  on  public  policy  issues 
affecting  workers, and maintain their independence from  the authorities. 

Minority  rights  and  the protection  of  minorities 

By  virtue  of  Article  2  of  the  Constitution  all  Cypriot  citizens  belong  either  to  the 
Greek  or  Turkish  Cypriot  community.  The  small  Maronite,  Armenian  and  Latin 
(Roman  Catholic)  communities,  for  their part,  have opted  to belong  as a group to the 
Greek Cypriot  community. 

Legislation  provides  for  protection  against  discrimination  based  on national,  racial  or 
ethnic  origin  and  this  legislation  is largely  respected.  While the  300 to 400  members 
of  the  Turkish  Cypriot  community  living  in  the  southern  part  of  the  island  are  not 
otherwise  discriminated  against,  they  cannot  vote  in  presidential  or  local  elections, 
given  that the  Constitution  of the Republic  of  Cyprus  provides  for  separate voting in 
relation to the two Cypriot communities. 

In  contrast,  the  Maronite,  Armenian  and  Latin  (Roman  Catholic)  communities,  not 
only benefit  from  normal voting rights in the context of the Greek Cypriot  community, 
but  also elect  special  non-voting  representatives  from  their respective  communities  to 
the  House  of  Representatives.  The  House  is  obliged  to  consult  these  representatives 
before  the adoption  of any legal measure that directly  concerns the religious group(s). 
They  are  entitled  to  deliver  their  position  or to  express  their view  before  the House, 
any  subcommittee  of the  House  or  any  authority.  The  minority  representatives  enjoy 
the same benefits  as the rest of the Members of the House of Representatives. 

1.3.  The situation  in the  northern  part  of the  island 

In  the  existing  political  circumstances  it  is  not  possible  at  this  stage  to  identify  and 
describe  with  precision  the  opportunities  and  problems  which  might  arise  for  the 
northern  part  of  the  island  as  an  integral  part  of  the  EU.  In  every  chapter  of  the 
accession  negotiations  the EU makes  a special  reference  to the future  participation  of 

17 

the Turkish  Cypriot  community.  This would give the possibility to take account  of its 
specific  concerns  and  situation.  A  recent  opinion  poll  showed  that  over  90%  of  the 
Turkish Cypriots are in favour  of EU accession. 

The  area  of  Cyprus  north  of  the  UN  buffer  zone  amounts  to  3335  km2  or 
approximately  37% of the island.  In  1996 a total  population  of some 200000  persons 
lived in the north, of these  107000 are Turkish Cypriots. 

Turkish  forces  have  an  important  influence  in  Turkish  Cypriot  society.  Since  1974 
there  has  been  a  Turkish  mainland  force  on  the  island  estimated  at  around  30000 
persons.  Under  the  Turkish  army  are the  Cyprus  Turkish  Security  Forces  (CTSF), a 
small force  consisting almost entirely  of conscripts which is deployed largely to guard 
the areas  of the buffer  zone in and  around Nicosia.  The  'police'  in the north is under 
the  command  of the  CTSF.  Concerning  the  rule  of law  and  respect  for  human  rights 
and  the  protection  of  minorities,  issues  identified  in  the  1999  regular  report  remain 
largely  unchanged.  While  restrictions  on  free  movement  have  been  slightly  eased, 
obligations  under  the  1975  Vienna  III  agreement  concerning  the  treatment  of  Greek 
Cypriots  and Maronites  are  still  not  fully  respected.  Furthermore,  the  continued  non-
execution of the judgement by the European Court of Human Rights with regard to the 
right of a Cypriot living in the south to property in the northern part,  as well  as recent 
developments with regard to the freedom  of speech, give rise to serious concern. 

Restrictions  on  the  freedom  of  movement  of  the  approximately  600  Greek  Cypriots 
and  Maronites  living  in  the  north  have  been  somewhat  eased.  Turkish  Cypriot 
'authorities'  usually  grant  the  applications  of  Greek  Cypriot  residents  in the  north  to 
visit  the  south.  Applicants  must  return  within  a designated  period  or risk  losing  their 
right  to  return  and  to  keep  their  property,  although  this  rule  is  rarely  enforced  in 
practice.  Turkish  Cypriot  'authorities'  have  also  eliminated  the  previous  monthly 
limit on visits by close family  relatives of Greek Cypriots resident in the north (once a 
month until  1996 and twice a month  thereafter). 

At  the  same  time,  fees  imposed  on  Greek  Cypriots  and  Maronites  crossing  at  the 
Ledra Palace  checkpoint  have been  reduced.  The  significant  charge  of £15  has been 
replaced  by  a  £1  'administrative  levy'.  Furthermore,  Greek  Cypriots  and  Maronites 
visiting the northern part of the island are now allowed to stay for a 'reasonable period 
of  time  subject  to  confirmations  from  the  relevant  ministries'.  Previously  people 
visiting enclaved relatives were restricted to no more than two nights and three days in 
the north. 

In  the  meantime,  access  by  the  United  Nations  Peacekeeping  Force  (UNFICYP)5  to 
Greek  Cypriots  and Maronites  living in the north  remains limited.  Obligations  under 
the  Vienna  III  agreement  of  1975,  concerning  the  treatment  of  Greek  Cypriots  and 
Maronites,  are  still  not  fully  implemented.  The  agreement  provides  in  general  for 
voluntary  transfers  of  populations,  free  and  unhindered  access  by  the  UNFICYP  to 
Greek Cypriot and Maronites living in the northern part and Turkish Cypriots living in 
the  southern  part,  as  well  as  facilities  for  education  and  religious  worship.  This 

5  The  UNFICYP  was  established  in  1964,  in  order  to  prevent  a  recurrence  of  fighting  between  the 
Greek Cypriot and the Turkish Cypriot communities.  Its mandate is renewed every six months. 

18 

agreement also foresees medical care by a doctor from  the Greek Cypriot  community; 
however, in practice only care by a doctor registered in the northern part of the island 
is  permitted.  A  Greek  Cypriot  request  to  replace  a  retiring  Orthodox  priest  in  the 
north has been pending for more than two years.  Both Greek Cypriots and  Maronites 
living  in  the  north  continue  to  be  unable  to  change  their  housing  at  will.  They  can 
only  bequeath  their  properties  to  close  family  members  who  are  also  resident  in  the 
north. 

So  far,  no  Greek-language  educational  facilities  for  Greek  Cypriot  or  Maronite 
children  in  the  north  exist  beyond  the  elementary  level.  Parents  are  thus  forced  in 
many instances to choose between  keeping their children  with  them or sending  them 
to  the  south  for  further  education.  All  textbooks  sent  from  the  south  to  the  Greek 
Cypriot  schools  in  the  northern  part  must  be  screened,  causing  lengthy  delays  and 
shortages of up-to-date texts.  For this reason most of these children move to the south 
for  their secondary education; some of  them choose to stay there for  good.  They are 
allowed to return but have to face heavy restrictions.  There is no possibility of  return 
if they complete military service with the Greek Cypriot National Guard. 

As  regards  the  ruling  of  the  European  Court  of  Human  Rights  that  Turkey  is 
continuing to violate the rights of  the Greek Cypriot Mrs Loizidou  by preventing her 
from  going  to  her  property  located  in  the  north,  in  July  2000  the  Committee  of 
Ministers/Deputies  of  the  Council  of  Europe  adopted  a  Second  Interim  Resolution 
concerning the case of  Loizidou  vs. Turkey. In this interim resolution, the Committee 
of  Ministers  deeply  deplored  the  fact  that  Turkey  had  still  not  complied  with  its 
obligations under the judgement delivered by the European Court of Human Rights on 
28 July 1998 to pay about € 800000 (plus annual interest of 8% until settlement). The 
Committee of Ministers declared: 

“Recalling its Interim Resolution DH (99) 680 of 6 October 1999, in which, inter 
alia, the Committee of Ministers strongly urged Turkey to pay the just satisfaction 
awarded in this case so as to ensure that Turkey […]  meets its obligations under 
the  Convention;”  and  “emphasising  that  the  failure  on  the  part  of  a  High 
Contracting  Party  to  comply  with  a  judgement  of  the  court  is  unprecedented;” 
further  “declares that the refusal of Turkey to execute the judgement of the Court 
demonstrates  a  manifest  disregard  for  its  international  obligations  […]”  and 
“[…] strongly insists that Turkey comply fully and without any further delay with 
the European Court of Human Rights  judgement of 28 July 1998.” 6 

Similar  cases  of  Cypriots  against  Turkey,  now  pending  before  the  Human  Rights 
Court, are estimated to number around 150-200. 

While  freedom  of  speech  is  generally  respected  in  the  northern  part,  recent  events 
related to the closure of  the Turkish Cypriot daily newspaper  „Avrupa  (Europe)  give 
raise  to  serious  concern.  At  the  end  of  1999, „Avrupa  was  convicted  and  fined  $ 
300,000  in  a  libel  action  following  a  complaint  by the  Turkish  Cypriot  leader  Rauf 
Denktash  regarding articles and reports it had published.  In May 2000, „Avrupa  had 
all its property seized, as it was unable to pay this large sum.  Furthermore, both  the 
newspaper  and  several  of  its  journalists  were  accused  of  inciting  hatred  against  the 

6 Resolution DH (2000) 105 

19 

'Turkish  Republic  of  Northern  Cyprus'  as  well  as  humiliating  the  'government'. 
These  actions  were  regarded  as  attempts  to  silence  the  newspaper  and  therefore 
evoked international protests from journalist unions and associations. 

The OSCE (Organisation  for  Security  and Co-operation  in Europe) Representative  on 
Freedom of the Media: 

“addressed  the  Turkish  Government  [in  May  2000]  asking  them  to  use  their 
influence  in  the  northern  part  of  Cyprus  to  try  to  return  the  equipment  to  its 
rightful  owners. [...]  He  believes that the case of Avrupa  is a flagrant  violation of 
the commitments undertaken by an OSCE participating  State regarding freedom  of 
expression  and  expects  the  authorities  in  northern  Cyprus  to  stop  their  attacks 
against Avrupa.” 

Subsequently,  in July 2000 the editor-in-chief  of 'Avrupa  ,  Shener Levent,  and others, 
were  arrested  on  'spying  charges'  against the  'Turkish  Republic  of Northern  Cyprus' 
and  for  allegedly  collaborating  to  pass  secret  military  information  to  Greek  Cypriots. 
They  were  to  be  tried  in  a  military  court.  A  group  of  37  Members  of  the  European 
Parliament  signed a declaration  condemning the arrests of the 'Avrupa 'journalists  and 
demanding  their  immediate  release.  In  the  meantime,  the  court,  citing  a  lack  of 
evidence against them, set the accused  free. 

1.4.  The efforts  for  a political  settlement 

Since  the  previous  regular  report,  the  main  development  has  been  the  launching  of 
proximity  talks.  In  the  context  of  a  G-8  initiative,  on  29  June  19997  the  Security 
Council  asked  the  UN  Secretary-General  to  invite  the  Greek  and  Turkish  Cypriot 
leaders to hold  negotiations  in the autumn.  It also called  on the two  sides in Cyprus, 
including the military,  to work  constructively  with the UN representatives to  create a 
positive climate on the island that could pave the way for these negotiations. 

As an important  step forward to achieving a political  settlement,  on 3 December  1999 
the first round  of “proximity talks”  started in New York.  The UN  Secretary-General's 
Special  Adviser for  Cyprus, Mr Alvaro de Soto, stated that the proximity talks  should 
be  seen  as the beginning  of  an  extended  process.  The  first  round  was  held  with  the 
aim  of  preparing  the  ground  for  future  substantial  direct  negotiations  on  the  Cyprus 
problem. 

In December  1999 the European Council underlined in its meeting in Helsinki that, 

“The European  Council welcomes  the launch of the talks aiming  at a comprehensive 
settlement  of  the  Cyprus problem  on  3  December  in  New  York  and  expresses  its 
strong  support  for  the  UN  Secretary-General's  efforts  to  bring  the  process  to  a 
successful conclusion.” 

Second  and third  rounds  of talks took  place  in  Geneva  in February  and  July,  without 
significant  discussion  of  issues  of  substance.  A fourth  round  of proximity  talks  was 
held in New York in  September.  Mr.  de Soto reported that in this round the two  sides 

7 Resolution 1250/1999 

20 

engaged  in substantial  discussion, which  he regarded  as a “qualitative step  forward”. 
He had put on the table ideas on the four  core issues: territory, property, security and 
constitution, but he stressed  that there were no formal  proposals at this stage. Mr. de 
Soto  referred  to  contacts  with  the  EU  in  order  to  ensure  that  there  was  no 
contradiction between the EU accession process and the goals of the UN process. The 
next round of talks was scheduled for early November in Geneva. 

Concerning  the  UN  peacekeeping  mandate, the  General  Assembly  by its  Resolution 
53/231  appropriated  an  amount  of  about  $  45  million  for  the  maintenance  of 
UNFICYP  for  the  12-months  from  1  July  1999  to  30  June  2000.  This  amount 
includes  the  pledged  voluntary  contributions  of  one  third  of  the  cost  of  the  force, 
equivalent  to  about  $  14  million  from  the  Government  of  Cyprus  and  the  annual 
pledge of $ 6.5 million from the Government of Greece. 

On 14 June 2000, the Security Council adopted a Resolution extending the mandate of 
the UN Mission  in Cyprus, after  lengthy discussions  on a controversial  addendum  to 
the  Secretary-General  s  Report,  which  referred  to  the  position  of  Turkish  Cypriot 
„authorities . This was finally  withdrawn. 

The  Turkish  Cypriot  side  took  measures  against  UNFICYP  in  reaction  to  the 
withdrawal of the addendum to the UN resolution on 15 June.  These measures include 
limitations to the movement of UNFICYP across the 180 km buffer  zone.  Further, the 
UN is now obliged to insure all its vehicles with Turkish Cypriot insurance companies 
and to allow the Turkish Cypriot authorities to collect the fees for the water, electricity 
and  other  services  consumed  by  UN  camps  in  the  north.  The  UN  expressed  its 
disappointment at the measures. 

In early July 2000 Turkish troops advanced  300m  into Strovilia, the UN buffer  zone. 
The  Government  protested  to  the  UN,  which  demanded  that  the  status  quo  be 
reinstated.  The UN still has access to the 8 Greek Cypriots who are now enclaved in 
this area, as well as to their own UN sentry post, which is also enclaved by the Turkish 
forces. 

Nonetheless, over the last  year, contacts between  Greek  and Turkish Cypriots on  the 
island  have increased.  Most  of  them occur through  events arranged  with the help of 
UNFICYP  in  the  United  Nations  buffer  zone.  These  events  included  professional 
conferences, trade union meetings, a media forum, women  s gatherings, youth  events 
and  televised  discussions  between  journalists.  For  the  first  time  in  several  years, 
meetings  took  place  between  political  party representatives  from  both  sides. Also, a 
group of  Greek  Cypriots and  Turkish  Cypriots have set up a bi-communal  Teacher  s 
Centre.  In  addition,  the  United  Nations  Development  Programme  (UNDP), through 
the  United  Nations  Office  for  Project  Services, is  encouraging  both  communities  to 
work  together  in  preparing  and  implementing  projects  in  areas  of  mutual  concern, 
such  as the preservation  of  natural  resources and  cultural  heritage, public health  and 
sanitation. 

21 

1.5.  General evaluation 

Cyprus continues to fulfil  the Copenhagen political criteria. The predominant  political 
problem is the continued division of the island, but over the last year important  efforts 
have  been  made  in  the  search  for  a  political  settlement  in  line  with  the  Accession 
Partnership. From  the fourth  round  of  proximity  talks  held  in  September  there  were 
encouraging signs that the two sides were engaging in substantive discussion. 

22 

2.  Economic criteria 

2.1. 

Introduction 

In its  1993 Opinion  on the application  of the Republic of Cyprus for EU membership, 
the Commission  concluded: 

“The  economy  of the  southern  part  of the island  has  demonstrated  an  ability to  adapt 
and  seems ready to face  integration  provided  that the work already  started  on  reforms 
and  on  opening  up  to  the  outside  world  is  maintained,  notably  in  the  context  of  the 
customs union.” 

This  finding  was  confirmed  in  the  1998  and  1999  Regular  Reports.  In  its  1999 
Regular Report, the Commission found  that: 

"The Republic  of  Cyprus  is a functioning  market  economy.  It  should  be  able to  cope 
with the competitive pressures and market forces within the Union." 

In  examining  the  economic  developments  in  Cyprus  since  1998,  the  Commission  s 
approach  was  guided  by the  conclusions  of the European  Council  in  Copenhagen  in 
June  1993, which  stated that membership of the Union requires: 

• 

• 

the existence of a functioning  market economy; 

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

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

2.2.  Economic  developments 

While  economic  growth  is  strong,  and  the  economy  is  operating  at full  employment, 
the  combined  effect  of  expansionary  fiscal  policy,  rapid  monetary  growth  and  trade 
restrictions  on  agricultural  products  led  to  an  acceleration  of  inflation  from  the 
summer  of  1999 onwards. During  1999, the government  failed  to take any  significant 
measures  towards  curbing  the  fiscal  deficit.  More  progress  was made  on limiting the 
deficit  during the  first  half  of  2000, but  the  additional  measures  are  not  sufficient  to 
place  the  government  accounts  on  a  sustainable  path.  The  speculative  equity  market 
bubble and the inevitable  correction  of equity prices presents risks for financial  sector 
stability.  The  current  account  deficit  was  2.6  percent  of  GDP,  despite  very  strong 
tourist  arrivals.  Current  account  financing  has  increasingly  relied  upon  debt  creating 
inflows. 

23 

Inflation rate 

annual average 
December-on-December 

Unemployment rate, end-year 

ILO definition 

per cent 

General government budget 

per cent of GDP 

Current account balance 

per cent of GDP 
million € 

-5.3 
-375 

-4.0 
-299 

-6.6 
-537 

-2.6 
-219 

Foreign debt 
-  debt export ratio 11 
-  gross foreign debt 

per cent 
million € 

137.3 
4,516 

204.7 
7,215 

293.4 
10,37 
1 

348.6 
E 
13,27 
4 E 

Foreign direct investment in 
flow 
-  balance of payments data 

per cent of  GDP 
million  € 

: 
: 

4.5 
335 

4.1 
336 

3.2 
268 

: 
: 

E = Estimates 

Some  limited  advances  have  been  achieved  in  the  areas  of  liberalisation  and 
structural reforms. After  many years of delay, Parliament passed legislation providing 
a  timetable  for  the  abolition  of  the  interest  ceiling  by  January  2001. However,  the 
legislation  also  provided  for  a  number  of  transitional  measures,  including  subsidies 
protecting current mortgage holders from  the adverse consequences of greater interest 
rate  flexibility.  The  Cypriot  Authorities  have  started  an  important  health  sector 
reform.  Comparatively  little  progress  has  been  made  in  other  areas  of  structural 

PROXY HICP since 1998 (see methodological notes). 
Moving 12 month average rate of  change 
0 Excluding local authorities. 
1  Series break in 1998: more complete  definition 

24 

reform,  and  significant  distortions  due  to  government  intervention  remain  in  several 
important sectors. 

Main Indicators of Economic Structure in 1999 

Population (average) 

thousand 

GDP per head 12 

PPS-€ 

Per  cent  of  EU 
average 

Share of agriculture13 in: 
-  gross value added 
-  employment 

Investment-to-GDP ratio14 

per cent 
per cent 

per cent 

Gross foreign debt/GDP15 

per cent 

Exports of goods & 
services/GDP 

per cent 

Stock of foreign  direct 
investment 

million € 
€ per head 

P= provisional  figure 

667.13 

17,082 

4.2 
9.3 p 

17.8 

155.4 

44.6 

: 
: 

2.3.  Assessment in terms of the Copenhagen criteria 

The existence of a functioning market economy 

As  set  out  in  Agenda  2000,  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. 

12 Figures have been calculated  using the population figures from  National Accounts, which may  differ 

from those used in demographic statistics. 
13 Agriculture, hunting, forestry and  fishing. 
14 Data refer to Gross fixed capital formation as % of GDP. 
15 The 1999 data for foreign debt are estimates. 

25 

While  there  is  broad  agreement  on  the  main  objectives  of  economic  policy,  recently 
there  have  been  significant  difficulties  in  implementing  the  necessary  measures  to 
achieve those objectives. Many indispensable economic reforms suffer  from  excessive 
delays  and  when  they  are  enacted,  they  are  often  burdened  with  additional 
conditionality  to  moderate  the  effects.  In  some  cases, most  notably  with  the  recent 
increase  of  VAT 
to  be 
counterproductive. 

this  additional  conditionality  has  proved 

rates, 

In  recent  years,  the  good  macroeconomic  performance  in  Cyprus  has  deteriorated. 
While  overall  growth  has  remained  strong,  risks  for  macroeconomic  stability  have 
emerged,  particularly  in  the  financial  sector,  fiscal  accounts  and  the  external  sector. 
Unfortunately,  political  difficulties  have  prevented  the  adoption  of  a  coherent 
economic strategy to confront  these risks. 

GDP  increased  by  4.5  percent  in  1999,  a  third  consecutive  year  of  rapid  economic 
growth. Preliminary data for  the first  half  of  the year suggest  that the growth rate for 
2000  could  be  as  high  as  5  percent.  In  1999, real  consumption  growth  slowed  to  2 
percent, down from  9.1 percent  in 1998. In 1998, consumers had anticipated a rise in 
VAT  during  1999,  and  brought  planned  consumption  expenditure  forward.  Early 
indications suggest  that consumption  expenditure has accelerated during the first  half 
of  2000. Investment  expenditures fell  by 2.1 percent  in 1999, as loanable funds  were 
diverted  to equity transactions. After  slowing in 1998, the contribution  of  exports of 
goods  and  services  to  GDP  growth  recovered,  owing  to  the  sharp  rise  in  tourist 
arrivals. 

The sectoral  composition  of growth  has been uneven.  The service sector has  enjoyed 
particularly  robust  growth.  Tourist-related  sectors,  such  as  restaurants  and  hotels 
expanded  by  around  8  percent,  while  the  explosion  in  the  volume  of  equity 
transactions  prompted  the financial  sector  to  increase  by 26  percent. In contrast,  the 
primary sector declined during the first  half  of 2000. This decline was largely due to a 
fall  in  agricultural  production,  which  was  particularly  badly  affected  by  the  recent 
drought. 

By  international  standards  unemployment  is  low.  In  1999, 3.6  percent  of  the  active 
workforce  was unemployed, marginally higher than the rate recorded in 1998. Overall 
employment grew by 1 percent in 1999. Growth was particularly strong in the services 
sector, while both agriculture and  manufacturing  continue to shed  labour. Due to the 
tight  labour  market  conditions,  preliminary  data  suggest  an  acceleration  of  wage 
growth during 2000. 

In  1999,  the  current  account  deficit  was  estimated  to  be  2.6  percent  of  GDP.  As  a 
result  of  a  series  of  one-off  defence-related  expenditures  during  1998  the  current 
account  deficit  was  almost  7  percent  of  GDP,  while  the  elimination  of  these  items 
during  1999  led  to  a  significant  correction.  More  recently,  strong  domestic  demand 
has  led  to  higher  imports  and  a  deterioration  of  the  trade  balance. The  effect  of  the 
rising  trade  deficit  was  mitigated  by  a  powerful  increase  in  tourist  receipts,  largely 
from UK tourists. While the current account deficit is significantly lower than in 1998, 
the  deficit  was almost  entirely financed  by debt-creating  inflows  used  to finance  the 
public sector  deficit. 

26 

The  central  government  deficit  was  4.1  percent  of  GDP  in  1999,  down  from  the  5.5 
percent  recorded  in  the  previous  year.  However,  the  reduction  of  the  deficit  was 
merely  due  to  cyclical  factors,  which  boosted  tax  revenues.  Significant  structural 
weaknesses  remain, in  particular  the  limited  indirect  tax  revenue  base, which  in  the 
event  of  an economic  slowdown  would lead  to a deterioration  in the fiscal  accounts. 
Since  1995,  central  government  deficits  have  been  excessive,  while  public  sector 
indebtedness  has  exceeded  the government's  60  percent  of  GDP  target. In  1998, the 
Ministry of Finance prepared a fiscal  consolidation plan, however the implementation 
of its key measures have been persistently delayed by parliament. 

During  the  first  half  of  2000,  Parliament  passed  a  number  of  revenue  measures 
including a tax on equity transactions,  a temporary capital gains tax on stock market 
profits,  and  increases  in  a  number  of  excises.  Unfortunately,  the  long  delayed  2 
percent  increase in VAT, which was finally  introduced  in July 2000, was offset  by a 
series of  expenditure measures and increased tax allowances which will be at least as 
large as the additional VAT revenues. 

Cyprus has embarked upon an ambitious healthcare reform agenda. While healthcare 
indicators  compare  favourably  with  the  EU, the provision  of  services  is  fragmented, 
and there are significant  concerns about the equity of healthcare provision. The public 
sector  healthcare  system  is congested,  while healthcare  costs  have risen  sharply  as  a 
percent  of  GDP. The current  system  will be replaced  by a general  practitioner  based 
referral  system,  which  will  be  financed  by  a  mixture  of  direct  contributions  from 
employers, employees and the public sector. The new system will also include several 
measures,  including  approved  lists  for  pharmaceuticals  and  global  budgets  for 
healthcare institutions, which will limit the growth of healthcare costs. 

The  average  inflation  rate  during  1999  was  1.3  percent.  However,  inflation 
accelerated during the second half  of the year and by June 2000 the 12 month  inflation 
rate had reached 5.3 percent. The severe drought, combined with the excessive  tariffs 
on  agricultural  imports,  limited  the  domestic  supply  of  vegetables,  and  added  1.1 
percentage points to the inflation  rate. The direct effects  of international oil price rises 
have been limited through the operation of price controls on oil products. The indirect 
effects  of  oil  price  rises  through  electricity  prices  added  a  further  0.8  percentage 
points.  In  addition,  the  expansionary  monetary  and  fiscal  stance  boosted  domestic 
demand and so contributed  to the deteriorating inflationary  performance. While some 
of  these factors are external, a more restrictive fiscal policy and the elimination of  the 
interest  ceiling, which  in turn would  have allowed  a more effective  monetary stance, 
could have kept inflation  lower. Rising inflation  has become a policy concern. 

The  government  included  the  recent  VAT  increase  in  this  year's  cost  of  living 
adjustment. This will inevitably give a further  impulse to wage pressures at a time of 
deteriorating inflationary performance. Moreover, there is little rationale for  including 
the  VAT  increase  in  the  cost  of  living  adjustment  since  workers  will  be  already 
compensated for the VAT increase through increased tax allowances. 

in 

Current  developments 
for 
macroeconomic stability. During 1999, the Cypriot stock market enjoyed  unparalleled 
growth, with  the  market  index  rising by 850  percent. The massive speculative  gains 
were  quickly followed  by large  falls  in  prices  during  the  first  half  of  2000. By  July 

local  stock  market  have  become  a  risk 

the 

27 

2000,  the  market  index  had  fallen  by  50  percent  relative  to  the  highs  enjoyed  the 
previous November, prompting fears  that consumption  may slow as investors seek to 
cover  losses. Even  so, the  sharp  fall  in  prices  has not  discouraged  many local  firms 
from  seeking  a  market  listing.  The  flow  of  funds  into  the  market  has  limited  the 
amount  of  domestic  savings  available  for  productive  investment.  The  rise  in  stock 
prices has also drawn  liquidity from  the commercial  banks, and since March  2000 it 
has eliminated  demand  for  domestic treasury bills, forcing  the government  to borrow 
abroad to finance the  deficit. 

The  extensive  financing  of  equity  purchases  by  commercial  banks  is  a  particularly 
troubling aspect of the speculative bubble. Somewhat belatedly, the central bank acted 
to  prohibit  such  lending  activity  -  a  decision  which  contributed  to  the  market 
correction  that  brought  prices  down  to  more  realistic  levels. Nonetheless,  the  speed 
and the magnitude of the drop in equity prices put the central bank under considerable 
political pressure to reverse its previous decision, and in late July it lifted  the ban on 
bank  financing  of  stock  market  purchases. At  present,  it  is  unclear  what  impact  the 
correction will have upon the commercial bank portfolios. 

Recently  Cyprus  has  introduced  a  number  of  measures  that  will  further  liberalise 
capital  movements.  Controls on inward  foreign  direct investments  have been  relaxed 
for  European  Union  residents.  However,  a  number  of  other  restrictions  regarding 
foreign  ownership continue to apply, most notably on foreign ownership of real estate, 
and  the  purchase  of  domestic  treasury  bills.  Moreover,  the  new  regulations  do  not 
affect  the  banking  sector.  Cypriot  residents  are  now  permitted  to  make  direct 
investments  abroad.  Capital  outflows  would  be  permitted  in  cases  where  Cypriots 
participate  with  a minimum  of  10 percent  ownership  in a foreign  venture. However, 
important  capital  restrictions  remain.  Residents  may  not  purchase  stocks  or  bonds 
overseas,  or  place  deposits  in  foreign  banks. Moreover  the  central  bank  retains  the 
right to prohibit foreign investments abroad in exceptional cases. 

After  several  years  of  delay,  Parliament  has  finally  passed  legislation,  which  will 
remove the 9 percent  interest  rate ceiling.  However, the law requires that the central 
bank  undertake  a number  of  measures before  it  can  come into effect.  The new  legal 
framework  will  include  a  number  of  provisions,  which  will  provide  temporary 
protection  to vulnerable borrowers such as students and  mortgage  holders. However, 
the Central Bank retains the right to fix  maximum and minimum interest  rates which 
banks may charge for loans and advances, or pay on deposits. 

The  interest  rate  ceiling  continues  to  limit  the  capacity  of  the  central  bank  to 
undertake  an  effective  monetary  policy  stance.  If  the  central  bank  had  been  able  to 
increase  interest  rates  during  1999,  it  could  have  mitigated  the  expansionary 
consequences of  fiscal  policy and the speculative stock market bubble. In an effort  to 
limit  domestic  credit  expansion,  the  central  bank  introduced  a  12  percent  credit 
ceiling.  Nonetheless,  credit  growth  for  the  first  half  of  2000  was  excessive.  In  an 
attempt  to  dampen  the  growth  of  monetary  aggregates,  the  central  bank  increased 
reserve  requirements  in  July  2000. However,  the  somewhat  tighter  monetary  stance 
implied by both the credit ceilings and increased reserve requirements was reversed in 
July when the central bank effectively  raised credit ceilings to 14.4 percent. 

28 

The  exchange  rate  regime  has  functioned  well.  The  Cypriot  pound  is  pegged  to  a 
central  parity  with  the  euro, with  intervention  bands  of  ±2.25 percent.  The  level of 
foreign exchange reserves is high. 

In 1999, the private sector produced around 80 percent of GDP and the vast majority 
of prices  are freely determined.  Nonetheless, there is a highly distortionary price cap 
on domestic fuel  prices, while a number  of  residual  controls remain on certain  basic 
consumer goods. The government guarantees a pre-defined  rate of  profit  for  domestic 
fuel  suppliers, and domestic oil prices have not been adjusted  since 1996. In previous 
years, the government  charged  an  excise on fuel,  and  its revenues contributed  to  the 
fiscal accounts. The recent rise in world oil prices coupled with the domestic oil price 
cap has eliminated  these oil-related  tax revenues, and even forced  the government  to 
offer  large subsidies to oil suppliers. The government attempted to bring the domestic 
oil price cap into line with world prices, but the proposal was rejected  by parliament. 
Furthermore,  the  authorities  have  not  removed  residual  price  controls  on  milk, 
common bread, and cement. 

Market entry is relatively straightforward  in most sectors and bankruptcy  procedures 
operate  efficiently.  However,  there  are  significant  barriers  to  entry  in  several  key 
sectors,  with  several  semi-government  organisations  benefiting 
legal 
monopolies, including telecommunications, and electricity. 

from 

Cyprus  has  a  long  established  and  effective  body  of  commercial  law.  Changes  are 
being  made  to  bring  it  into  line  with  EC  law.  Notwithstanding  certain  complex 
political  issues  arising  from  the  conflict  in  1974  and  the  subsequent  division  of  the 
island, property rights are well established. 

The financial  system is both sophisticated  and effective.  The commercial bank  sector 
is well regulated by the central bank. Domestic banks are adequately capitalised. As of 
the  end  of  1999,  the  average  risk  adjusted  asset  ratio  of  domestic  banks  was  11.5 
percent.  Significant  progress  has  been  made  towards  developing  domestic  securities 
markets. With the exception  of  the Cyprus Development  Bank, the financial  sector  is 
in private ownership. 

The  weak  financial  supervisory  structures  within  the  credit  co-operative  sector  is 
worrisome.  The  credit  co-operatives,  which  account  for  around  30  percent  of  bank 
deposits, are not  subject  to the normal  banking sector  supervision  undertaken  by the 
central banks. In addition, the co-operatives enjoy a number of legal advantages - most 
notably exemptions from  both stamp duties and required reserve ratios - which places 
them at a competitive advantage relative to the commercial banks. 

Cyprus  has  an  extensive  off-shore  sector  covering  a  diverse  range  of  activities, 
including  shipping,  re-exports  and  financial  services.  The strong  legal  structure, tax 
incentives,  and  infrastructure  have  contributed  to  making  Cyprus  an  important 
regional  business  centre.  Notwithstanding  this  achievement,  concerns  have  been 
raised  about  preferential  tax  arrangements  enjoyed  by  the  off-shore  sector.  In 
response, the authorities  have announced  their  intention  to eliminate  the  preferential 
treatment  by  2005.  Lately,  the  Cypriot  off-shore  financial  system  has  become  the 
subject  of  increasing  international  scrutiny  as  a  potential  location  for  money 
laundering  activities.  Recent  reports  by  the  Financial  Action  Task  Force  and  the 

29 

Council  of  Europe  have  given  a  generally  positive  assessment  of  the  Cypriot 
supervisory authorities. Since 1996, a comprehensive  anti-money laundering law  has 
been in place. At the same time, the authorities put in place an information  reporting 
system, which has improved the detection of suspicious transactions. In 1999, the law 
was further  amended to improve customer identification  procedures. 

Cyprus  is  a  functioning  market  economy.  However,  macroeconomic  stability  has 
weakened recently, and there is a need to develop a credible and coherent approach to 
fiscal  consolidation.  The  current  level  and  stance  of  fiscal  policy  is  not  sustainable 
over  the  medium  term. Particularly  with  a  view  to  progressive  capital  liberalisation, 
monetary  policy  must  be  made  more  efficient  and  market-oriented  by  the  use  of 
indirect  instruments  rather  than  direct  interventions  such  as the  interest  rate  ceiling, 
administrative  measures  and  direct  credit  controls. Supervision  must  be improved  in 
the co-operative banking sector. Recent  developments in the stock  market  have been 
worrying, and the ultimate economic consequences of  the speculative bubble may not 
yet  have  been  fully  felt.  The  completion  of  price  liberalisation  is  also  required,  as 
remaining  rigidities  distort  relative  prices  and  lead  to  an  inefficient  allocation  of 
resources. 

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

As  set  out  in  Agenda  2000,  Cyprus  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.  Furthermore,  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. 

Cyprus  is  a  functioning  market  economy  with  a  sufficient  degree  of  macroeconomic 
stability  for  economic  agents  to  make  decisions  in  a  climate  of  predictability. 
Nevertheless, the risks for  macroeconomic stability need to be tackled in a consistent 
way in order not to endanger the competitiveness of the economy. 

The  Republic  of  Cyprus  has  a  sufficient  amount  of  human  and  physical  capital, 
including  infrastructure.  Living  standards  are  high,  with  per  capita  incomes 
comparing  favourably  with  current  Member  States. Levels  of  investments  are  high, 
although capital account restrictions have limited foreign  direct investment flows. The 
lack of  adequate sources of  water has become a serious economic and  environmental 
constraint  confronting  the  island. In recent  years, average rainfall  has been  about  18 
percent  lower  than  during the first  decade of  the twentieth  century. Furthermore, the 
quantity of  water stored in dams and reservoirs has also fallen  dramatically. With the 
demand for water expected to grow significantly  over the medium term, Cyprus needs 
further  infrastructure  investments  to  provide  for  additional  supply.  The  government 
has proposed  the construction  of  a new desalination  plant. Unfortunately,  these plans 
have  been  delayed  due  to  political  difficulties  in  obtaining  an  appropriate  site.  In 

30 

addition,  pricing  policy  should  more  closely  reflect 
particularly in the area of supply to agricultural users. 

the  costs  of  production, 

Government  policy  and  legislation  have  provided  a  sheltered  environment  for  the 
growth and development of the private sector. Nonetheless, Cyprus has also adopted a 
protectionist  and  interventionist  approach  to  industrial  policy,  which  has  favoured 
domestic  producers  at  the expense  of  foreign  competitors. The  semi-public  sector  is 
extensive, and often protected by legal monopolies. Despite its comparative advantage 
in new  technology  with  its highly educated  and  computer-literate  workforce,  Cyprus 
has  largely  failed  to  develop  a  significant  internet-related  service  sector.  This  is  in 
large part due to the excessive dominance of the state telecommunications company in 
the provision of  internet services, which has limited  the growth of  the new economy. 
While the extent of  government  ownership in the business sector is not large, it owns 
significant  equity  holdings  in  a  number  of  enterprises. The  government  has  not  yet 
developed  a strategy for  divesting these state-held  assets, although it recently sold  its 
outstanding stake in the Nicosia Hilton. In some areas, notably the oil sector, finance, 
and air transport, indirect state aids are significant, and lack transparency. 

The  agricultural  sector  needs  to  be  restructured  extensively  in  the  pre-accession 
period.  Although  agriculture  still  makes  a  significant  contribution  to  GDP,  its 
importance  has  declined  both  in  terms  of  GDP  and  employment.  The  prospects  for 
future  growth  are  poor.  The  sector  is  heavily  concentrated  in  irrigation-dependent 
products,  such  as  citrus  fruits  and  vegetables.  Agricultural  production  consumes 
around  three-quarters  of  the  total  water  supply.  Moreover,  the  sector  enjoys  high 
levels of tariff  protection and significant  water-related subsidies. 

The  European  Union  accounts  for  51  percent  of  Cypriot  exports  and  57  percent of 
imports. However, trade data understates the extent of integration between Cyprus and 
the EU. The majority  of  tourist  arrivals come from  the EU with  around  half  coming 
from  the  United  Kingdom  alone.  Reflecting  its  regional  location,  Cyprus  also  has 
intense  trade  relations  with  the  countries  of  Central  and  Eastern  Europe  and  the 
Middle East. 

Exports are not very diversified and expose Cyprus to external shocks.  The economy 
has become increasingly dependent upon tourist revenues. Many traditional sources of 
export earnings, particularly within the manufacturing  sector, have suffered  from  long 
term  decline. Although  the  financial  sector  has  grown  at  a  remarkable  rate  over  the 
last  18  months,  much  of  this  growth  is  due  to  domestic  factors,  especially  the 
speculative  bubble within the local stock market. As such, these factors  alone do not 
provide  a  sufficient  basis  for  sustainable  growth  in  the  future.  As  capital  account 
liberalisation  proceeds, the financial  sector will confront  increasing competition  from 
foreign financial institutions, which may limit its domestic growth. 

Cyprus  has  a  strong  entrepreneurial  culture,  demonstrated  by  the  large  number of 
small and medium sized enterprises. Notwithstanding the damage caused by the recent 
speculative  movements  in  local  equity  prices, the  development  of  the  Cypriot  stock 
market  could  provide an important  source of  financing  for  local enterprises  over  the 
medium term (see also chapter 16 – Small and medium-sized  enterprises). 

31 

Cyprus should be able to cope with competitive pressure and market forces within the 
Union. Nevertheless, competitiveness is hampered by a number of structural rigidities 
which  protect  domestic enterprises. Cyprus must  prepare its private sector to  operate 
in  the  open  environment  that  integration  in  the  EU  requires.  Greater  political 
consensus is needed to develop a comprehensive  structural reform  agenda which will 
address  these  rigidities. There is  also  a  need  to  limit  the extent  of  both  implicit  and 
explicit  state  involvement  in  economic  activities,  open  up  key  sectors  to  foreign 
competition,  and  resolve  important  environmental  constraints.  The  influence  of  the 
state in the economy needs to be reduced through the divesting of its assets in private 
enterprises, the further  reduction  of  direct and indirect state aids and the introduction 
of more competition in a number of key sectors. 

2.4.  General  Evaluation 

Cyprus is a functioning  market economy and should be able to cope with competitive 
pressure and market forces within the Union. 

The Cypriot economy continues to grow strongly and is operating at full  employment. 
Some  progress  is  being  made  in  the  areas  of  liberalisation  and  structural  reforms. 
After  many years of delay, Parliament passed legislation providing a timetable for  the 
abolition of the interest ceiling by January 2001. The Cypriot Authorities have started 
major health sector  reform. 

However,  macroeconomic  stability  has weakened  recently, and  the  current  level  and 
stance of fiscal  policy are not sustainable over the medium term. Supervision must be 
improved in the co-operative banking sector. The completion of  price liberalisation  is 
also  required.  Competitiveness  is  hampered  by a  number  of  structural  rigidities  and 
significant state involvement in the economy. 

There  is a  need  to  develop  a  credible  and  coherent  approach  to  fiscal  consolidation. 
With a view to progressive capital liberalisation, monetary policy must be made more 
efficient  and  market-oriented  by  the  use  of  indirect  instruments  rather  than  direct 
interventions.  Cyprus  must  prepare  its  private  sector  to  operate  in  the  open 
environment  that  integration  into  the  EU  requires.  Greater  political  consensus  is 
needed  to  develop  a comprehensive  structural  reform  agenda  which  should  limit  the 
extent  of  state  involvement  in  economic  activities,  open  up  key  sectors  to  foreign 
competition, and resolve important environmental constraints. 

2.5.  The economic situation in the northern part of the  island 

The  northern  part  of  Cyprus  has fallen  far behind  the  southern  part  of  the  island  in 
terms of economic development and per capita income. Excessive "state" intervention 
has thwarted the growth of the private sector, while the financial dependence upon the 
Turkish  government  has  increased  markedly  over  the  last  few  years.  The  recent 
banking  crisis  has  further  weakened  a  vulnerable  and  badly  supervised  financial 
sector. There is significant  evidence of poverty, particularly in the rural areas. 

32 

The economic data produced by the "TRNC  (Turkish Republic of Northern Cyprus)16 
authorities"  appears  to  be  limited  and  unreliable.  Fiscal  data  lacks  transparency 
particularly  with  respect  to  transfers  from  Turkey.  Current  account  data  is  highly 
aggregated,  while  capital  account  data  has  only  limited  coverage. National  accounts 
data is a particular problem, and the per capita GDP of $4,500 claimed by the "TRNC 
authorities"  seems  to  be  significantly  overestimated.  Moreover,  recent  data  does 
indicate a clear deterioration in both the fiscal accounts and the external sector. 

The  public sector  plays  a disproportionate  role  in  economic  affairs.  It is the  biggest 
employer  and  accounts for  over  half  of  fixed  capital investment. The 'state' currently 
has  a  monopoly  on  agricultural  purchases  and  is  thereby  active  in  price  support  for 
citrus, milk  and  cereals. In  addition,  a  significant  number  of  industries  are  in  direct 
public ownership, including airline, electricity, telecommunications, tobacco products, 
shipping, and fuel  supply. 

Recent  increases  in  public  expenditure,  combined  with  a  limited  tax  revenue  base, 
have led to growing fiscal deficits.  In 1999, the deficit  was in the order of  20 percent 
of  GDP, compared  to  a deficit  of  around  15 percent  in  1995. The growing deficit  is 
almost  entirely  due  to  rising expenditures, which  have  increased  from  39  percent  of 
GDP  in  1995  to  almost  50  percent  in  1999. The  domestic  tax  revenue  base  is  very 
weak with the total revenues amounting to just 30 percent of GDP. 

The  "TRNC  administration"  is  heavily  dependent  upon  fiscal  transfers  from  Turkey. 
The  extent  of  financial  assistance  is  difficult  to  ascertain.  Financial  aid  is  granted 
through a series of  economic protocols with the Turkish Government. There is also a 
moratorium  on  debt  repayments,  while  certain  large  public  sector  infrastructure 
investments  are financed  directly by the Turkish  government  and  are not included  in 
the "TRNC" budget. Reflecting  the deteriorating fiscal position, transfers from  Turkey 
have  grown  significantly  since  1996,  such  that  by  1999,  acknowledged  financial 
assistance  from  Turkey  was  in  the  order  of  $200  million,  and  covered  around  40 
percent  of  total  government  expenditures  and  20%  of  GDP. Despite  this  enormous 
financial  support, the "TRNC  government" has also accumulated  domestic  payments 
arrears.  However,  the  acknowledged  financial  assistance  from  Turkey  amounts  to 
0.3%  of  Turkey's  consolidated  government  expenditures  and  therefore  has  a  limited 
fiscal impact within Turkey. 

The need for fiscal restraint in Turkey, and the deteriorating financial position  within 
the  "TRNC"  have  prompted  the  Turkish  authorities  to  develop  a fiscal  consolidation 
plan  for  the  north.  In  an  effort  to  limit  the  "TRNC" fiscal  deficit,  the  authorities  in 
Ankara have proposed significant  increases in taxes, cuts in expenditures, particularly 
in the areas of  social  security expenditure and  subsidies, and  extensive  privatisation. 
The "TRNC" has a currency union with Turkey. As a consequence, high and persistent 
inflation  has  been  imported  from  Turkey.  In  1999,  the  local  inflation  rate  was 
estimated to be around 60 percent. Recently, the "authorities" have considered  giving 
the local "central bank" greater independence. However, it is not clear what  practical 
implications this initiative might have, given the limited  number  of  tasks the "central 
bank" currently undertakes. 

16  The "Turkish Republic of Northern Cyprus" is recognised only by Turkey. 

33 

Since  1996  the current  account  has  worsened  significantly.  Both export  receipts and 
tourism  revenues  have  stagnated  while  import  growth  has  been  strong.  The 
development  of  financial  services  has,  in  part,  covered  the  short  fall.  In  1999,  the 
current  account  deficit  was around  7 percent  of  measured  GDP. However  this  figure 
understates  the  true extent  of  financial  dependence, since  part  of  the direct  transfers 
from  Turkey are included  as current  account  credits, and thus reduce the deficit.  The 
financing gap, which excludes financial assistance from Turkey seems to be at least 25 
percent of GDP. 

Due to the existing political situation, the export of goods to the EC is complicated. In 
1994,  the  European  Court  of  Justice  ruled  that  the  certificates  for  preferential 
treatment of goods can only be issued by authorities with which the EC has signed an 
agreement,  which  is  not  the  case  with  the  non-recognised  "TRNC".  Offers  by  the 
Republic  of  Cyprus  to provide the necessary  documents  have been  so far  refused  by 
the  Turkish  Cypriot  community.  The  "TRNC"  has  continued  to  export  through 
Turkey, where Turkish officials  issued the required documentation  before  the exports 
continued  to  the  EC.  Nonetheless,  the  court  judgement  has  led  to  a  increase  in 
transportation and administration costs, and export volumes have fallen  considerably. 

The  manufacturing  and  agricultural  sectors  are  underdeveloped  because  of  the 
limited  export  possibilities.  The  manufacturing  base  is  characterised  by  small  to 
medium  sized  companies, mainly  focused  on  the  processing  of  food  and  beverages, 
textiles (hides, leather, wool) and finished  clothing. The agricultural sector was badly 
affected  by  last  year's  drought,  which  followed  devastating  fires  in  the  summer  of 
1998.  The  farmer's  union  has  lobbied  for  assistance,  but,  given  the  present  fiscal 
difficulties,  it  is  unlikely  that  the  "authorities"  can  offer  a  significant  contribution. 
Moreover, the "agricultural insurance fund" is effectively  bankrupt. 

Tourism  is  the  most  important  source  of  foreign  exchange  earnings.  Despite  its 
importance, the industry remains considerably less developed than in the south of  the 
island. Around 80 percent of tourists come from  Turkey. The north finds it difficult  to 
attract  high expenditure tourists from  EU countries, who are unable to travel  directly 
to the north, and must go via Turkey. In an effort  to attract more tourist revenues, the 
"authorities”  have  encouraged  the  expansion  of  casinos,  which  are  not  permitted  in 
Turkey. Nonetheless,  the  potential  for  growth, in  the  event  of  a  political  solution  is 
enormous. 

The  north  has  a  large  tertiary  education  system  with  five  universities,  as  well  as  a 
Teachers'  Training  College  and  a  distance  learning  based  Open  University.  This 
sector  now  constitutes  the  north's  fastest  growing  sector.  The  majority  of  students 
come  from  Turkey,  and  its  significance  as  a  source  of  current  account  earnings  has 
grown in  importance. 

Despite  its  small  size,  the  "TRNC"  has  a  significant  financial  sector.  The  domestic 
sector is known to have at least 35 banks while another 38 off-shore  banks are known 
to  operate  in  the  north. Many  off-shore  banks  are  subsidiaries  of  Turkish  banks  and 
offer  higher  deposits  rates  than  those  on  the  mainland.  Some  off-shore  banks  are 
extremely small, and seriously under-capitalised. The minimum capital required to set 
up a bank is extremely small  by international  standards. There is also a concern  that 
the banking system may have been used for money laundering. 

34 

In  January  2000  a  serious  banking  crisis  developed  in  the  "TRNC".  In  response  to 
banking difficulties  in Turkey, in December 1999, the "TRNC authorities” placed  the 
off-shore  subsidiaries  of  five  mainland  banks  under  the  supervision  of 
the 
"government's Saving Deposit  Insurance Fund". The decision  provoked  a run on  five 
domestic  banks,  forcing  the  "authorities"  to  also  take  control  of  them.  The  crisis 
exposed  the lack  of  supervisory  control, and  excessive  connected  lending  within  the 
domestic banking  system. The "judicial  authorities" have also  launched  a number of 
criminal  investigations against  the previous management  of  the affected  banks. In an 
effort  to prevent  further  deposit  withdrawal  infecting  the rest  of  banking system, the 
"TRNC government” has offered  a "state" guarantee covering all bank deposits and a 
timetable  for  the  repayment  of  outstanding  deposits  over  18  months.  The  ultimate 
fiscal  cost  of  this  guarantee  is  unclear.  The  "central  bank"  received  an  emergency 
credit  line  from  Turkey  that  provided  the  resources  to  cover  the  initial  payments. 
Nevertheless,  the  "TRNC  authorities”  have  found  it  difficult  meeting  later  deposit 
repayments. 

The  banking  crisis  has exacerbated  the  economic  problems  in the  north.  Confidence 
in  the  financial  system  has  evaporated  and  there  has  been  widespread  capital  flight, 
particularly  within  the  off-shore  sector,  which  in  turn  has  further  weakened  the 
system.  The  slow  speed  of  deposit  repayment  and  the  widespread  belief  amongst 
deposit  holders  that  the  "authorities"  have  insufficient  resources  to  refund  all  the 
deposits have provoked considerable social unrest. 

Given  the  present  political  environment,  the  possibilities  for  sustained  economic 
growth  over  the medium  term are poor. There is limited  potential  for  export  growth, 
and  the  practical  difficulties  with  receiving  EU  visitors  limit  the  extent  to  which 
tourist  revenues  can  increase.  The  financial  dependence  upon  Turkey  has  distorted 
economic  activity, and  encouraged  the  growth  of  a bloated  public sector. The  recent 
banking  sector  crisis  has  eroded  confidence  in  the  domestic  financial  system  and  it 
will  inhibit  future  private  sector  investment.  The  Turkish  fiscal  consolidation  plan 
may help to reduce the severe fiscal imbalance, but it is unlikely to make an important 
contribution to the long-term growth potential of the northern economy. 

3.  Ability to assume the obligations of membership 

Introduction 

This section aims to update the Commission  s 1999 regular  report on Cyprus' ability 
to  assume  the  obligations  of  membership  -  that  is,  the  legal  and  institutional 
framework,  known  as  the  acquis,  by  means  of  which  the  Union  implements  its 
objectives. Alongside  an  evaluation  of  relevant  developments  since the 1999  regular 
report, this section seeks to provide an overall assessment of Cyprus' ability to assume 
the  obligations  of  membership,  and  of  what  remains  to  be  done.  This  section  has 
been structured to follow the list of twenty-nine negotiating chapters, and incorporates 
also  an assessment  of  Cyprus' administrative  capacity to implement  the  acquis  in  its 
various  aspects  (in  previous  regular  reports  this  had  been  covered  in  a  separate 
section). 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 

35 

theme, in  Agenda  2000  the Commission  underlined  the  importance  of  incorporating 
Community  legislation  into  national  legislation  effectively,  and  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,  which  has  become  a  central  issue  in  the 
negotiation process. 

The European Council in Feira in June 2000 recalled the link between progress in the 
negotiations  and  the  candidate  countries  capacity  to  effectively  implement  and 
enforce  the  acquis,  and  added  that  this  called  for  important  efforts  by the  candidate 
countries  in  strengthening  their  administrative  and  judicial  structures.  The  Feira 
European Council invited the Commission  to report to the Council on its findings  on 
the matter.  Building on the assessment of Cyprus' administrative capacity provided in 
the  1999  regular  report,  the  present  report  seeks  to  add  further  depth  and  detail, 
focusing  on  the  main  administrative  structures  which  are  required  for  implementing 
the acquis in its various aspects. 

In the 1999 regular report, the Commission concluded that  : 

“Cyprus  has  made  very  little  progress  in  further  alignment  with  the  internal  market 
acquis since the last Regular Report.  There has been no new legislation in the area of 
standardisation  and the adoption of  a new law regulating this area is urgently needed. 
So  far  Cyprus  has  only  adopted  15% of  existing  European  standards.  Progress  in 
liberalisation  of  capital  movements  has  been  modest  and  should  be  accelerated.  In 
competition there is already quite a high degree of alignment on anti trust and this has 
been further  improved by the adoption of  a law on control of concentrations  although 
public undertakings with special or exclusive rights are still not subject to competition 
rules.  However,  there  is  no  systematic  control  of  state  aids  and  the  adoption  of  a 
framework  law to ensure compliance with the acquis should be treated as a matter of 
priority. 

There  has  been  some  progress  in  preparing  Cypriot  agriculture  to  participate  in  the 
common agriculture policy but alignment  in the veterinary and phytosanitiary areas is 
only  partial.  There  is  a  need  to  strengthen  veterinary  controls  at  border  posts.  In 
transport  there is still substantial legislative work to be done, and there is a particular 
need  to  improve  maritime  safety.  Alignment  with  the  environment  acquis  is  well 
advanced  but  further  progress  is  pending,  awaiting  adoption  of  several  pieces  of 
sectoral  legislation.  Cyprus  needs  to  pay  particular  attention  to  the  allocation  of 
sufficient  budgetary  and  administrative  resources  to  the  environmental  sector  to 
ensure  implementation  of  the  acquis,  given  the  size  of  the  alignment  task  in  this 
sector.  In the area of justice and home affairs  Cyprus has  made little progress in the 
fields  of  immigration  and asylum.  Attention should be paid to alignment in the area 
of  visa  control.  Cyprus  has  a  modern  customs  administration  but  needs  to  take 
forward the process of harmonisation and further  computerisation. 

Concerning administrative capacity, whilst starting from  a good base, Cyprus needs to 
set  up  institutions  in  the  areas  of  telecommunications,  free  movement  of  goods  and 
justice and  home affairs.  Further  re-inforcement  is needed  in  the maritime  transport 
and environment sectors." 

36 

3.1.  The chapters of the acquis 

As  indicated, the review  of  Cyprus' ability to assume the obligations  of  membership 
that is provided  below has been  structured  in accordance with the list of  twenty-nine 
negotiating chapters.  Accordingly, this section opens with an assessment of  progress 
related  to the so-called  “four  freedoms”,  the cornerstones  of  the internal  market, and 
continues with  a systematic  review  of  progress on each  of  the chapters, to cover  the 
acquis  in  all  its  various  aspects:  sectoral  policies,  economic  and  fiscal  affairs, 
economic and social cohesion, innovation, quality of life and environment, justice and 
home affairs, external policies, and financial questions. 

Chapter  1: Free  movement  of  goods 

During the period covered by this report, Cyprus has made progress in the field of  free 
movement of goods. 

Since  the  last  regular  report,  in  the  area  of  horizontal  and  procedural  measures 
there has been no concrete progress, although the Government has decided to speed up 
the process and to give priority to the adoption of harmonised standards relating to the 
New  Approach  Directives. Accelerating  the adoption  of  EN standards was  identified 
as short-term priority. 

As regards the administrative infrastructure  that is necessary to apply the acquis in the 
areas of standardisation, the establishment of a national accreditation and  certification 
system and the introduction and application of the notification  procedure, the Council 
of  Ministers  approved  the  establishment  of  the  private  organisation  which  will  be 
responsible for certification. On the basis of this decision the Cyprus Organisation  for 
Standards and Control of  Quality (CYS) will maintain the function  of  standardisation 
and will be assigned the responsibility of national accreditation and  notification. 

As  regards  sector  specific  legislation,  new  legislation  on  fertilisers  complying  with 
the acquis  entered  into force  in November  1999. In the  field  of  legal metrology  and 
pre-packaging,  a Weights  and  Measures  Order  was enacted  in March  2000. There  is 
also new legislation to comply with the Quick Frozen Foodstuffs  Directive, adopted in 
early 2000, as well as with  the Directives  on Materials  and  Articles  in Contact  with 
Foodstuffs, in effect  as from December 1999. Cyprus also aligned its legislation in the 
field  of motor vehicles and forestry tractors as a new law concerning type approval of 
motor vehicles came into force in February 2000.  Cyprus has partially met the short-
term priorities identified in the Accession Partnership as regards public procurement. 

Concerning  non-harmonised  areas  to  which  Articles  28-30  of  the  EC  treaty  apply, 
screening  of  the existing  legislation  is currently  taking  place  in  order  to  identify  the 
statutes to be amended through the introduction of mutual recognition clauses. 

As  regards  public  procurement,  a  centralised  statistical  system  was  set  up  at  the 
beginning  of  2000,  at  the  Treasury  Department  of  the  Ministry  of  Finance,  for 
recording public contracts. To this end a database has been developed for keeping the 
necessary  statistical  information  according  to  the  requirements  of  the  relevant 
provisions of the acquis on public procurement. In the 1999 Accession Partnership for 

37 

Cyprus further  harmonisation of legislation with regard to publication, time limits and 
review bodies was identified  as a short-term priority. 

Overall  assessment 

The transformation  of  the Cypriot  legal system in this area, aiming at full  integration 
into the EU system as well as its implementation, requires adaptation of the legislation 
and a different  institutional infrastructure. This implies that the existing administrative 
capacity needs to be reinforced  and well-equipped  in order  to ensure application  and 
enforcement.  Cyprus  has  already  a  clear  understanding  of  the  principles  and 
legislation covered by EC directives on products. However, continuing serious  efforts 
are  required  to  transpose  and  implement  the  acquis  as  far  as  possible  prior  to 
accession. 

The  sector  specific  Cypriot  legislation  in  a  number  of  areas  covered  by  the  New 
Approach  Directives, is significantly  different  from  that  applied  by the  EC. In  other 
fields  no  national  legislation  exists  at  all.  Therefore  Cyprus  is  in  the  process  of 
adopting  a  framework  law  on  the  principle  of  New  Approach  Directives  and 
implementing  regulations  covering  different  product  groups  such  as  mechanical 
devices; personal  protective equipment  in explosive  atmospheres; or  simple  pressure 
vessels and pressure equipment. 

Concerning horizontal and procedural measures, with respect to the adoption of EN 
standards, according  to the Government  Cyprus adopted  1300 EN standards up  until 
August  2000.  Additional  human  resources  were  made  available  to  the  Cyprus 
Organisation for Standards and Control of  Quality. 

Regarding restructuring in the areas of standardisation, accreditation, certification  and 
notification  procedure the above mentioned decision on the establishment of a private 
organisation for the certification  activities and the future  role of the CYS provides the 
legal  basis  for  the  operation  of  the basic infrastructure  that  is necessary  to apply the 
acquis  in  these areas, which  were identified  as short  term  priorities. On  the basis of 
this organisation, framework  legislation  could  be enacted  for  the transposition  of  the 
New  Approach  Directives,  supplemented  by  regulations  for  each  of  the  groups  of 
products covered by those directives. In the 1999 Accession Partnership, continuing to 
strengthen  administrative  structures  in  particular  on  standards,  certification  and 
accreditation and continuing with the transposition of New Approach Directives were 
identified  as short-term priorities. 

The  Cyprus  Organisation  for  Standards  and  Control  of  Quality  takes  part  as  an 
observer in the European Co-operation for  Accreditation. 

As regards foodstuff  legislation, further  efforts  are needed for  the transposition of  the 
acquis  in  this  area. The  Ministry  of  Health  is responsible  for  the  implementation  of 
foodstuffs  legislation.  In  the  field  of  official  control  of  foodstuffs,  for  Health 
Inspectors provisions  are foreseen  for  further  training  at the  local  level as well as in 
other  European  countries including  seminars and  workshops, as well  as  scholarships 
(e.g. on Environmental  Health or Food Safety). An important  effort  to strengthen  the 
administrative capacities in this field needs to made. 

38 

As  regards  sector  specific  legislation,  concerning  the  pharmaceutical  sector:  no 
medical  products  may  be  placed  on  the  market  unless 
the  competent  authority, 
namely the Drugs Council, issues a marketing authorisation. The criteria for the issue 
of  marketing  authorisations  as  well  as  for  their  renewal  are  quality,  efficacy  and 
safety.  Only about  5000 products with  an active licence are currently on the  market. 
New  harmonised  legislation  providing  for  the  setting  up  of  a  Drugs  Price  Control 
Committee, which will be the body responsible for  the implementation  of  the  acquis 
relating to medicinal products should be adopted. 

As regards administrative capacity, several authorities and institutions are responsible 
in this sector  such  as the  Cyprus Organisation  for  Standards  and  Control  of  Quality. 
Different  Ministries  carry  out  market  surveillance  activities  such  as  the  Ministry of 
Labour  and  Social  Insurance  for  machinery,  lifts  and  personal  protective  equipment 
whereas  for  pressure  vessels  the  market  surveillance  responsibilities  lie  with  the 
Ministry of Communications and Works. Market surveillance in the fields of toys and 
electrical  equipment  is  carried  out  by  the  Ministry  of  Commerce,  Industry  and 
Tourism. Necessary laboratory  tests are carried  out  at the Higher  Technical  Institute, 
the  University  of  Cyprus  and  the  State  General  Laboratory  as  well as the  Electricity 
Authority and the Electrical and Mechanical Services. 

The general  import  licensing system and  the compulsory origin marking of  imported 
products  are due to be lifted  before  accession.  The Ministry of  Commerce, Industry 
and  Tourism  will  be  the  administrative  entity  responsible  for  the  follow-up  of  the 
application  of  Articles  28-30  of  the  EC  Treaty  on  non-harmonised  areas  and  the 
implementation of the principle of mutual recognition. 

As  regards  the  acquis  in  the  field  of  the  functioning  of  the  internal  market  and 
information  exchange  the  Ministry  of  Commerce,  Industry  and  Tourism  has  been 
designated  as  the  authority  responsible.  As  regards  firearms  and  the  return  of 
unlawfully  removed cultural goods, the Ministry of Interior as well as the Department 
of Antiques are assigned for the implementation of the relevant  acquis. 

As  regards  safety  checks  on  products  at  external  borders,  Cyprus  still  needs  to 
establish  appropriate  customs  and  market  surveillance  infrastructure  as  well  as 
effective  administration co-operation between competent authorities. 

In  the  field  of  public  procurement,  the  Cypriot  legislation  maintains  at  present  a 
national  preference  clause by imposing a 20% charge over the duty free  value of  the 
respective imported  goods and up to 5% on the tender amount of  services and  works 
of foreign bidders (under certain conditions). However, in accordance with a provision 
already incorporated  in  the existing  Public  Procurement  Law, this type of  protection 
will be automatically eliminated upon accession. In addition, laws to extend the scope 
of public procurement legislation to local authorities as well as to achieve compliance 
with  EC  review  procedures  still  need  to  be  enacted;  however  preparatory  work  has 
been undertaken. 

Concerning  the  administrative  remedy  system,  all  tenderers  are  entitled,  during  the 
tendering  stage,  to  submit  to  the  main  Tender  Board  comments,  suggestions  and 
complaints  in  relation  to  the  technical  specifications  and  the  general  terms  of  the 
tender.  As  regards  the  judicial  remedy  system,  Cypriot  legislation  foresees  that  a 

39 

decision  by  a  public  body  to  award,  reject  or  cancel  a  tender  is  treated  as  an 
administrative act or decision subject  to judicial review. During the period, June 1999 
to  June  2000, 31  cases  in  relation  to  public  procurement  were  subjected  to  judicial 
review before the Supreme Court. 

The Treasury Department of the Ministry of Finance under the Accountant General, is 
the  competent  authority  for  the  overall  monitoring  of  public  procurement  issues. 
During 1999, the total number of public procurement procedures came to 1515. 

Chapter  2 Free  movement  of  persons 

During  the period  covered  by this regular  report, Cyprus  has continued  to  undertake 
measures  for  further  harmonisation  with  the acquis  in the field  of  free  movement of 
persons. 

In  the  field  of  the  mutual  recognition  of  professional  qualifications,  in  February 
2000 the Council of Ministers issued a Decision that provides for a distinct separation 
between  recognition  of  academic  qualifications  and  professional  qualifications. 
Professional  recognition  will  be  vested  with  the  various  professional  councils.  The 
Ministry  of  Labour  and  Social  Insurance  has  been  appointed  as  the  national  co 
ordinating authority for the implementation of the General System Directives. 

As regards citizen rights no further  developments can be reported since last year. 

In the field  of  free movement  of  workers, while no further  legislative changes have 
taken  place,  the  computerisation  of  the  Public  Employment  Services  of  the 
Department of Labour has been completed and is now operational. 

With  a  view  to  the future  co-ordination  of  social  security  systems, the  preparatory 
work to develop sufficient  administrative structures is continuing. 

Overall  assessment 

Cyprus has undertaken  certain measures to abolish existing discrepancies between  its 
legislation  and  the acquis  in this area, but  important  legislative work still remains to 
be done. 

Concerning  the  mutual  recognition  of  professional  qualifications,  a  number  of 
professions  are  already  regulated  in  Cyprus  but  not  all.  For  example,  those  not 
requiring  a  university  degree  are  not  regulated.  Common  features  of  most  of  the 
regulated  professions  are  the  requirements  of  Cypriot  nationality,  of  residence,  and 
obligatory membership of professional  bodies/associations. 

Further  alignment  with  the  acquis  as  regards  the  abolition  of  existing  restrictive 
conditions  (e.g.  the  requirement  of  Cypriot  citizenship,  the  recognition  of  good 
character/repute  certificates  from  other member States or the above mentioned  points 
concerning  lawyers, architects  and  the  health  care  professionals)  is  needed,  as  there 
should  be  no  provisions  in  the  legislation  which  contradict  Community  rules,  in 
particular with respect to nationality, residence or language requirements. 

40 

The various professional  councils are the competent authorities in their specific  sphere 
of  responsibility.  A  unit  dealing  with  the  recognition  of  professional  qualifications 
still needs to be created in the Ministry of Labour. 

As  regards  citizen  rights,  amendments  to  the  existing  legislation  relating  to  voting 
rights will be required to comply with the acquis on municipal elections and elections 
to the European Parliament. As existing legislation on student rights is not in line with 
the principle of equal treatment, further  efforts for alignment will be needed. 

With  respect  to  the  free  movement  of  workers,  with  regard  to  the  right  of  residence 
and public order, currently residence permits are classified  into temporary permits and 
permanent  permits.  The  employment  of  foreign  nationals  is regulated  by the  Aliens 
and Immigration Law as well as the Aliens and Immigration Regulations issued under 
this Law. All foreigners  employed  in Cyprus enjoy  equal treatment  with  nationals  as 
regards  e.g.  conditions  of  work,  salaries,  social  insurance  benefits  or  income  tax 
liabilities.  There  are  permanent  and  temporary  work  permits.  EU  nationals  enjoy 
preferential  treatment  in  this  regard.  However,  as  current  legislation  gives  Cypriot 
nationals  preferential  access  over  foreign  nationals  to  professional  positions,  further 
alignment in this regard is needed. 

Efforts  will have to be continued to strengthen public employment services in view of 
future participation in the EURES network. 

In the field  of supplementary pension rights of workers moving within the Union, the 
existing legislation  already provides that there should  be no discrimination  regarding 
the preservation of vested rights for members in respect of whom contributions are no 
longer being made and who moves to another country. 

With  a  view  to  the  future  co-ordination  of  social  security  schemes  existing 
structures, procedures and institutions will need to be upgraded and improved in order 
to meet the requirements of the  acquis. 

The  Department  of  Social  Insurance, which  is planned  to be the competent  body  for 
implementation  of  the regulations, has gained experience in the area of  co-ordination 
of social security through the implementation of bilateral agreements. This department 
should be further  strengthened. 

Chapter  3: Freedom  to provide  services 

Since  last  year s  regular  report,  Cyprus  has  made  significant  progress  regarding 
financial services and enhancing administrative capacity. 

In the field of the right of establishment and the freedom to provide services (other 
than  financial  services)  there  has  been  no  significant  legislative  and  administrative 
development since last year. 

In the field of financial services, with regard to the banking sector, in December 1999 
the  Central  Bank  of  Cyprus  issued  a  directive  to  banks  with  effect  from  1  January 
2000 incorporating in detail the layout and content of the balance sheet and profit  and 
loss  account,  in  line  with  the  provisions  of  the  acquis  in  this  field.  In  addition,  for 

41 

further  alignment  with  the  acquis,  regulations  for  the  establishment  of  a  deposit 
protection scheme were approved in January 2000. The deposit  guarantee scheme for 
commercial  banks as well as for  Co-operative  Credit  and Savings Societies has been 
in operation since the beginning of  September. 

Concerning  the  insurance  sector,  during  1999  an  Information  Systems  Strategy  was 
elaborated  to  provide  a  framework  within  which  the  Service  for  the  Control  of 
Insurance  Companies  can  develop  and  operate  information  systems  to  support  its 
supervision.  As  regards  administrative  capacity,  an  increase  in  the  personnel  of  the 
Service  has  already  been  approved  by the  Government  and  foreseen  in  the  National 
Budget.  In  addition,  legislation  to  achieve  further  alignment  with  the  acquis  in  the 
field of motor insurance was approved in June 2000. 

With regard to investment services and securities markets the Securities and Exchange 
Commission has recruited additional staff  to ensure compliance with the requirements 
of  the Securities and Stock Exchange Laws of Cyprus and has issued regulations with 
respect  to  the  clearance  and  settlement  of  transactions,  including  the  supervision  of 
prospectuses information  and the ongoing obligations of issuers. 

Concerning  the  protection  of  personal  data  and  the  free  movement  of  such  data 
and information  society directives there have been no legislative and  administrative 
developments since last year. 

Overall  assessment 

Cyprus  has  progressed  in  the  harmonisation  process,  although  further  legislative 
alignment is needed. 

In the field  of the right of establishment and freedom to provide services there are 
still  provisions  in  Cyprus  leading  to  discriminatory  effects  against  non-Cypriot 
nationals. Restrictive provisions exist, such as the requirement  of  Cypriot  nationality 
or  the  requirement  of  permanent  residence,  in  the  exercise  of  certain  regulated 
professions. 

Concerning  self  employed  commercial  agents,  the  acquis  in  this  field  is  partially 
transposed; minor amendments are needed as regards the time limit for the obligation 
of the principal to notify the agent for the commission due. 

Concerning financial  services, the Cypriot domestic law is already in line with most 
of  the EC requirements. Further alignment is needed in the field  of  the recognition of 
contractual netting agreements, consolidated accounts and capital adequacy for market 
risks. 

The  question  of  the  possible  exclusion  of  the  Co-operative  Credit  and  Saving 
Societies regulated by the Co-operative Societies Law from  the scope of  EC Banking 
Directives is still under consideration. The authority responsible for the supervision of 
these  societies  is  the  Ministry  of  Commerce,  Industry  and  Tourism.  Co-operative 
Credit and Saving Societies are examined on-site, twice a year. According to the 1999 
Accession  Partnership,  to  ensure  and  complete  reporting  by  the  offshore  banking 
sector was identified as a short-term priority for 2000. 

42 

Regarding  the  administrative  capacity, the  Central  Bank  of  Cyprus  is the  competent 
authority for  the regulation  and supervision  of  the banking sector. The rules, policies 
and practices are similar to the Recommendations of the Basle Committee of  Banking 
Supervision  and  to  EC  directives.  The  supervisory  process  includes  both  on-site 
examination  and  off-site  monitoring,  exercised  by  the  Banking  Supervision  and 
Regulation  Division. The competent  division  in the Central  Bank  appears to be well 
staffed  with qualified  personnel. 

As regards the insurance sector, some basic features of the EC supervisory system are 
covered by the current legislation. However, some of the Cypriot prudential provisions 
are still quite different  from  those contained  in the acquis; this goes, for  instance, for 
those  concerning  reinsurance  or  for  the  minimum  capital  requirements. In  addition, 
further  alignment is needed as regards accounting rules. 

Concerning  administrative  capacity  all  the  powers of  the law are conferred  upon  the 
Superintendent  and  the  Assistant  Superintendent  of  Insurance.  The  supervisory 
authority called the Insurance Companies Control Service carries out an average of  6-
7 on site inspections every year. 

In  the  field  of  investment  services  and  securities  markets,  in  order  to  align  with  the 
acquis,  there  is  still  need  for  certain  amendments  to  the  Securities  and  Stock 
Exchange Laws, e.g. to ensure the ability of the Securities and Exchange Commission 
to  exchange  information  and  co-operate  with  other  competent  authorities. There  is 
also a need to amend the existing Joint Compensation Fund for broker members of the 
Stock Exchange. 

The Council of the Stock Exchange and the Securities and Exchange Commission  are 
the relevant competent authorities for the implementation and supervision of the Stock 
Exchange  Laws  and  Regulations.  In  1998  and  1999  few  on-site  examinations  have 
taken place, because of limited human resources. However, in general, the standard of 
supervision in the financial service sector in Cyprus appears to be  satisfactory. 

In the field  of the protection of personal data and the free movement of such data, 
legislation  is under  preparation  which  will  have  to ensure, inter  alia,  the  transfer  of 
data to third countries with an adequate level of  data protection  and the setting up of 
an autonomous supervisory authority. 

In  the  field  of  Information  Society  Services  there  are  no  regulations  in  Cyprus 
covering the area of the acquis on the provision of information in the field of technical 
standards and regulations and on the legal protection of services on conditional access 
to information society services respectively. 

Chapter  4 Free  movement  of  capital 

Since  the  previous  regular  report  Cyprus  legislation  has  achieved  some  progress  in 
this  area  and  has  therefore  partially  fulfilled  the  Accession  Partnership  short-term 
priorities identified  in this area. 

In  the area  of  capital  movements, at  the beginning of  this year  the Central  Bank of 
Cyprus  (CBC)  lifted  some  of  the  restrictions  on outward  and  inward  investments  to 

43 

and  from  the  island.  With  regard  to  direct  investment  in  Cyprus,  all  restrictions 
concerning the maximum  or minimum  allowable percentages of  foreign  participation 
in  any  Cypriot  enterprise  were  abolished  in  January  2000  with  the  very  important 
exception of the banking sector, where investment is limited to 50% of the total share 
capital.  Also,  since  the  beginning  of  this  year,  residents  of  Cyprus  are  allowed  to 
undertake  direct  investment  abroad. However, the  transfer  of  capital  is only  effected 
when the Central Bank of  Cyprus (CBC) is satisfied  that it concerns a genuine direct 
investment. Where the foreign exchange cost is substantial, the CBC reserves the right 
to take measures in order to mitigate the impact on balance payments. 

A  new  law  for  the  abolition  of  the  existing  9%  interest  rate  ceiling  was  adopted  in 
December 1999. Entering into force  on 1 January 2001, this legislation will allow the 
CBC to proceed with the gradual abolition of  remaining exchange controls on capital 
flows, in accordance with the liberalisation programme. 

Concerning  cross  border  credit  transfers,  an  amendment  to  the  Banking  Law 
extending the areas where the central Bank can issue mandatory instructions to banks, 
including the matters covered by the acquis on cross border transfers, was approved in 
June 2000, thus giving Cyprus the legal base to implement the acquis in this field. 

In  the  field  of  money  laundering,  Cyprus  has  brought  its  legislation  further  in  line 
with  the Money Laundering  Directive  as it  enacted  an amendment  of  the  Prevention 
and  Suppression  of  Money  Laundering  Activities  Law  with  respect  to  the  threshold 
amount of customer identification  in October 1999. 

In  November  1999  the  staff  of  the  Unit  for  Combating  Money  Laundering  was 
increased  with  the permanent  attachment  to the Attorney General  s Office  (Office  of 
the  Unit) of  four  members  of  the  police  and  a member  of  the Customs  Department. 
Therefore, the number of  members of  the Unit has now been increased to fourteen  (3 
attorneys  and  11  investigators/analysts).  During  the  past  year  emphasis  was  also 
placed  on  the  training  of  staff  of  the  Unit  on  Financial  Intelligence  and  Financial 
Crime Investigation. 

Overall  assessment 

In  general,  although  some  progress  has  been  achieved  since  the  last  regular  report, 
Cyprus should make important efforts  in aligning with the acquis in the sector of  free 
movement  of  capital.  For  proper  functioning  of  the  markets  from  the  date  of 
accession,  a  timely  and  orderly  removal  of  remaining  restrictions  on  capital 
movements, as well as restrictions on the acquisition of secondary residences, together 
with  an  appropriate  strengthening  of  the  financial  sector  and  its supervision,  will  be 
necessary. 

As  regards  capital  movements  and  payments,  the  liberalisation  process  is  well 
underway but  there is considerable  distance to go in complying with the acquis.  The 
law  abolishing  the  interest  rate  ceiling  should  come  into  effect,  as  provided  in  the 
Law,  on  1  January  2001 in  order  to  enable  the  Central  bank  to  go  ahead  with  the 
implementation of its plan for the removal of the remaining restrictions. 

44 

the 
Concerning  payment  systems,  Cyprus  has 
harmonisation  of  the payment  systems legislation  by granting to the Central  Bank of 
Cyprus the powers to issue mandatory instructions to banks. However, further  efforts 
are needed to align the Cypriot legislation to the EC acquis in this area. 

introduced  a  framework 

for 

To prevent the use of the financial system for the purpose of money laundering, after 
the  amendment  of  the  Prevention  and  Suppression  of  Money  Laundering  Activities 
Law with respect to the threshold amount of customers identification  in October 1999, 
the legislation on money laundering appears to be in line with the acquis. Its  effective 
application  (particularly  regarding  the  offshore  sector)  will  however  need  to  be 
monitored closely. 

Cyprus  has  anti  money  laundering  legislation  in  place  since  1996  and  since  1997  a 
special  “Unit  for  Combating  Money  Laundering”  (MOKAS)  has  been  created  with 
investigative  powers. The  Unit  was  recognised  as  a  member  of  the  Egmont  Group 
(International Group of Financial Intelligence Units). In the course of its investigative 
functions,  the  unit  is  assisted  by  the  Financial  Crime  Unit  of  the  Police  and  the 
Investigation  Section  of  the  Customs  Department.  Concerning  this  section  see  also 
chapter 24, Co-operation in the Field of Justice and Home  Affairs. 

Since January 1997, 333 cases have been reported  to the Unit, MOKAS has obtained 
28  freezing  orders  and  219  disclosure  court  orders.  There  have  been  2 
prosecutions/convictions,  while  four  cases  are  before  the  courts.  MOKAS  supports 
international co-operation in this area of  combating criminal activities. To this end, it 
gives  priority  to  requests  for  legal  assistance  submitted  by foreign  authorities. From 
the  above  333  cases  dealt  with  by  the  Unit  up  to  June  2000,  70  cases  represented 
requests for  legal assistance by foreign  authorities through formal  rogatory letters, 77 
cases represented requests for information  by foreign  Financial Intelligence Units and 
9 cases represented requests for information by drug liaison officers  posted in Cyprus. 

Chapter  5: Company  law 

Since last year s regular report, Cyprus has made good progress in this area as regards 
company law and the protection of intellectual and industrial property rights, the latter 
being  a  field  which  was  identified  as  a  short-term  priority  in  the  2000  Accession 
Partnership for Cyprus. 

Regarding company law  as such, Cyprus enacted  in early 2000 a new law  amending 
the  existing  Company  Law,  in  order  to  cover  the  provisions  of  the  Twelfth  Council 
Company  Law  Directive  on  single-member  private  limited-liability  companies.  The 
Department  of  the Registrar of  Companies and the Official  Receiver is continuing  to 
take  various  measures  to  exercise  effective  implementation  of  the  legislation.  New 
computer  hardware  and  software  were installed  aiming  at facilitating  the  publication 
of  company  documents.  In  this  respect,  the  Council  of  Ministers  approved  in  July 
2000 new legislation, which is in line with the First Company Law Directive and now 
has to  be  endorsed  by the House of  Representatives. Companies  that  do not  comply 
with  the  disclosure  requirements  of  the  Company  Directives  (to  file  annual  reports 
with the registrar  of  Companies), also incorporated  under Cyprus Company Law, are 
being struck off  the register. Statistics show that the number of  companies struck  off 

45 

were  1205  in  1998  and  5167  in  1999. From  January  to  June  2000  more  than  900 
companies were struck off  the Register. Fifteen  additional staff  have been recruited to 
strengthen the enforcement  efforts. 

In  the  field  of  accounting  law,  no  particular  developments  occurred.  In  the  field  of 
industrial  and  intellectual  property  rights,  the  law  ratifying  the  International 
Convention  for 
the  Protection  of  Performers,  Producers  of  Phonograms  and 
Broadcasting Organisations entered into force in October 1999. 

As  regards  the  computerisation  of  the  Patent  Registry,  in  June  2000  a  co-operation 
programme was agreed between Cyprus and the European Patent Office  aiming at the 
further 
strengthening  of 
computerisation  and  training  of  employees  working  in  this  field  so  that  the 
implementation  of  the  Cyprus  Patent  Law  and  Regulations  may  be  facilitated.  The 
programme also aimed at assisting in the efficient  retrieval of  information  on  patents 
and in bringing the patent system closer to industry. 

the  administrative  capacity  of 

the  country  through 

A special unit, the IPR Management Centre, within the Department of the Registrar of 
Companies and Official  Receiver to deal with Intellectual Property Rights issues and 
to enforce effective  border control has been established. To this end, two officers  have 
been  assigned  the  task  of  co-ordinating,  at  a  central  level,  the  various  issues 
concerning  the  implementation  of  the  relevant  provisions  of  the  legislation.  In 
addition, the training of personnel of the services involved has started. 

As regards border enforcement  the number of seizures performed  at the border for the 
protection  of  intellectual  and  industrial  property  rights, amounts  to  31 seizures  of  a 
total  value  of  €  210  000  and  up  to  the  middle of  June  2000, 7  seizures  with  a  total 
value of € 16 500. There were 15 infringement  cases in 1999; none have been reported 
for 2000. During the period January 1998 to December 1999, 46 different  cases under 
the  Trade  Descriptions  Law  for  misleading  information  and  for  infringement  of 
intellectual property rights were pursued. However, due to shortage of staff, there have 
been  no  cases  of  prosecution  so  far  as  the  existing  staff  is  focusing  on  the  product 
safety provisions of the law. 

Overall  assessment 

Cyprus has already achieved to a large extent alignment with the acquis in the area of 
company  law,  and  transposition  in  the  field  of  industrial  and  intellectual  property 
rights is continuing at a steady pace. 

As regards Cypriot company law, even though many of the EC directives in this field 
are already incorporated in the national law of  Cyprus, some divergences still remain, 
for  instance as regards the First Council Directive on the co-ordination  of  safeguards. 
Although some work on the implementation of the Second Directive on co-ordinating 
safeguards  has started, further  efforts  to implement  the acquis  are needed,  especially 
as regards  the  Third  Directive  on  mergers  as  well  as the  Sixth  Directive  concerning 
the division of public limited liability companies. 

46 

Concerning accounting law, Cypriot legislation is already to a large extent in line with 
the  acquis.  As  regards  the  Eighth  Council  Directive  on  the  Approval  of  Persons 
Responsible for  Carrying out the  Statutory Audits  of Accounting Documents the legal 
vetting has been completed but still needs to be enacted. 

Cyprus  is  interested  in  joining  the  Lugano  Convention,  which  is  equivalent  to  the 
Brussels  Convention  and  open  to  third  countries.  With  respect  to  the  Rome 
Convention,  Cyprus has to prepare the necessary legislation in order to allow for  swift 
implementation  of the convention after  accession,  specifically  in relation to the courts. 

In the field  of industrial  and  intellectual  property  rights  (IPR), Cyprus'  trademark 
law  is  already  to  a  large  extent  in  line  with  the  acquis.  Patent  protection  for 
pharmaceutical  products,  has been  provided  in Cyprus  since  1920. With  regard to the 
Supplementary  Protection  Certificate,  all  medicinal  products  can  obtain  such  a 
certificate,  irrespective of whether they are protected by a patent under the Patent Law 
or rather by a patent which has been registered before the enactment of that law. 

In  the  field  of  intellectual  property  rights,  further  legislative  and  enforcement 
measures  are  needed  as  regards  copyright.  As  regards  administrative  capacity  in  the 
field  of  intellectual  and  industrial  property  rights,  the  Courts  and  the  competent 
Copyright  Authority  are  strict  in  implementing  the  provisions  of  the  copyright  law. 
The  Department  of  the  Registrar  of  Companies  and  Official  Receiver,  consisting  of 
eleven  persons, the Ministry  of  Commerce,  Industry  and  Tourism,  the Law  Office  of 
the Republic,  the Department  of  Customs  and Excise  of the Ministry  of Finance, the 
Police  and the  Courts  are the institutions  responsible  for  administering  and  enforcing 
company law as well as intellectual  and property rights. 

Further  efforts  are required  to  strengthen  capacity to enforce  legislation  in the area of 
IPR,  especially  as  regards  border  controls  as  they  should  be  implemented  more 
efficiently.  Also,  further  attention  should  be  given  to  combating  piracy.  Particular 
attention  should  be given to  strengthening  the  effectiveness  of the  administrative  and 
judicial  bodies  involved  in  enforcement  such  as the  customs  services, the  police  and 
the judiciary, and to reinforce  co-ordination between them. Further targeted training is 
necessary both for copyright officials  and for enforcement  officials. 

Chapter  6  Competition 

During the  period  covered  by the regular  report,  Cyprus  has  achieved  progress  in the 
field  of anti-trust. No progress has been made with regard to the State aid sector. 

Since the last  regular  report  Cyprus  has  continued  to make  progress  in the  alignment 
and  enforcement  of  its  anti-trust  policy.  A  Bill  amending  the  Protection  of 
Competition  law  to  achieve  further  alignment  with  the  acquis  by  submitting  public 
undertakings  and  undertakings  with  special  and  exclusive  rights  to  the  rules  of 
competition,  was enacted  in June  2000.  Completing the harmonisation  with the anti 
trust legislation was identified  in the Accession Partnership  for  Cyprus as a short-term 
priority.  An  order  named  the  Block  Exemption  on  agreements  between  air  transport 
undertakings  (concerning  joint  planning  and  co-ordination  of  schedules,  joint 
operations,  consultations  on passengers,  on  scheduled  air  services  and  slot  allocation 

47 

at  airports)  was  approved  with  immediate  effect  in  June  2000  and  provides  for  the 
application  of  measures  within  the  territory  of  Cyprus  equivalent  to  the  relevant 
acquis. 

A  decision  of  the  Council  of  Ministers  for  reforming  the  Commission  for  the 
Protection  of  Competition  was  adopted  on  16  February  2000.  The  reforms  are 
included  in  the  second  amendment  to  the  Protection  of  Competition  Law,  which  is 
presently  with  the  House  of  Representatives  for  adoption.  They  provide  for  the 
Chairman  of the  above  Commission  to be  employed  on  a full-time  basis  and  for  the 
reduction  of the  Commission's  members from  7 to  5, aiming  at enabling  it to  operate 
in  a more  flexible  way  and  reach  decisions  faster  and  more  efficiently.  The  reforms 
provide  also  for  permanent  specialised  staff  to  be  recruited,  so that  the  Commission 
acquires  its  own  data  collection  and  investigation  capability.  Its investigative  powers 
are  also  being  reinforced,  especially  as  regards  examining  transgressions  of  the 
Competition Law, including dawn raids. In addition, the said amendment provides  for 
increased  fines,  inter  alia,  for  cases  of  non-co-operation  of  enterprises  with  the 
Commission for the Protection of Competition. 

No  progress  has  been  made  in  the  creation  of  a  State  aid  control  and  monitoring 
system  since the last regular report. 

Overall  assessment 

Although  Cyprus  has  already  achieved  good  alignment  with  the  EC's  anti-trust 
legislation, further  efforts  to establish an efficient  State aid discipline are needed. 

Competition  legislation  has  been  in  force  since  June  1990  in  the  form  of  the 
Protection  of  Competition  Law.  Cyprus  legislation  includes  most  of the principles  of 
the  EC's  anti-trust  legislation,  including  a  large  part  of  the  secondary  legislation. 
Merger  control  has  been  in  place  since  March  1999.  Further  alignment  is  still 
necessary especially in view of developments in the acquis on vertical restraints. 

for 

the  Commission 

the  Protection  of 
Concerning  administrative  capacity, 
Competition  (CPC) examines cases of suspected breaches of the Law ex motu proprio 
or upon  complaint.  It has investigative  powers  and may impose fines of up to  10% of 
an enterprise's  annual  turnover.  For its investigations  the Competition  and  Consumer 
Protection  Service  of  the  Ministry  of  Commerce,  Industry  and  Tourism  currently 
supports  the  CPC.  The  said  Service  has  a  staff  of  30  people,  of  which  5  qualified 
officers  deal  exclusively with  competition  matters. With  only  5 employees, the  Office 
needs reinforcing  with  additional  qualified  and properly trained  staff.  Since  1990, the 
CPC  has  examined  50  cartel  cases,  49  cases  of  abuse  of  a  dominant  position  and  5 
applications  for  individual  exemption  and/or  negative  clearance.  Additionally,  since 
March  1999,  14 merger  control  cases have been  examined.  The main  challenge  now 
is to ensure that the application and enforcement  of anti-trust rules is effective  and that 
priority is given to cases that concern the most serious distortions of competition. 

With regard to  State aid, currently no proper control  exists. There is no legal base  for 
State aid discipline and there is no effective  State aid monitoring  authority. 

48 

Cyprus  should  consequently  accelerate  its  efforts  to  establish  an  efficient  State  aid 
discipline. In the framework  of the preparations for the establishment of the State Aid 
Unit  an  inventory  of  the  existing  support  schemes  and  ad  hoc  measures  has  been 
drawn up by the existing Working Group for State Aid within the Ministry of Finance, 
with the aim of preparing an assessment of the compatibility of each  scheme/measure 
with Community State aid rules. This inventory should  be continuously updated. The 
alignment of State Aid legislation and an increase in transparency, identified  as short-
term priorities, cannot be considered achieved. 

With  a  view  to  drawing  up  a  Regional  Aid  Map  for  the  promotion  of  regional 
development  objectives, Cyprus will have to designate the regions eligible to receive 
aid under the derogation  of  the acquis for  this objective. This being a key area of  the 
state aid acquis, Cyprus should accelerate its efforts in this regard. 

An additional priority in the State aid field  concerns the taxation regime in Cyprus (in 
particular the offshore  tax regime) which seems to include export aids, various  forms 
of  operating  aid  and  other  aid  measures  that  need  to  be  brought  into  line  with  the 
Community s  State  Aid  acquis.  Another  special  case  with  regard  to  Cyprus  is  the 
importance  of  the  role  played  by  co-operatives  in  the  Cypriot  economy  and  the 
advantages offered  to these bodies. The tax regime applicable to co-operatives appears 
to include State aid elements that need to be further  clarified. 

Chapter  7:  Agriculture 

Over  the years the contribution  of  agriculture  has gradually  fallen  to 4.2%17 of  GDP 
and  9.3%  of  employment.  Due  to  the  fall  in  agricultural  production,  which  was 
particularly  badly  affected  by  the  recent  drought,  the  primary  sector  declined  by 
almost  7%  in  2000. The  output  of  the  agricultural  sector  expanded  by  7.5% in  real 
terms  in  1999  following  an  increase  of  6.2%18 in  1998, due  to  less  adverse  weather 
conditions as compared to previous years. 

In 1999 total agricultural support was 46 million Cyprus Pounds and included  various 
types  of  direct  and  indirect  subsidies  in  favour  of  agriculture  as  well  as  ad  hoc 
measures to compensate farmers for the effects of  drought. 

In 1999 EC imports of  agricultural products originating in Cyprus increased by 5% to 
€  108  million. EC  exports  to  Cyprus  increased  by 16% to  €  259  million. The  trade 
balance in favour of the Community amounted in 1999 to € 151 million compared to € 
120 million in 1998.19 

Horizontal issues 

17 Source of all agricultural statistics is EUROSTAT unless otherwise  specified 

18 These figures have been provided by the Cypriot authorities 

19Source  of  trade  figures:  Uruguay  Round  definition  of  agricultural  products,  figures  taken  from 
EUROSTAT COMEXT (see Agriculture in the EU – statistical and economic information  1999 p. 36 
for definition of the products). 

49 

As  regards  an  integrated  administration  and  control  system  (IACS)  and  the 
establishment  of  a Paying Agency, only some preparatory work has been  undertaken, 
such as the formation  of a core group in the Department of  Agriculture. 

Common Market Organisations 

New  legislation  on  harmonised  marketing  standards  in  floriculture  has  been  enacted 
by the House of Representatives in 2000. 

Several  legislative  and  administrative  adaptations  in  order  to  achieve  further 
alignment with the acquis in the field  of eggs and poultry, have taken place in the last 
few  months,  for  instance  the  reduction  of  import  duties  on  day-old  chicks  and 
hatching  eggs  in  January  2000  and  the  enactment  of  legislation  on  the  “Production, 
Grading,  Labelling  and  Marketing  Standards  for  Poultry  Meat”  in  July  2000.  In 
addition, for fresh fruit and vegetables, the Council of Ministers adopted in July 2000, 
new harmonised legislation related to 32 standards in the fruit and vegetable sector. 

Further  incentives  providing  for  the  establishment  and  further  development  of  co 
operative  producer  organisations, specifically  for  the fruit  and vegetable sector,  were 
established  in  July  2000  by  a  Government  decision;  adoption  by  the  House  of 
Representatives is not required. 

Rural development and forestry 

No concrete developments can be reported in this area since the last regular report. 

Veterinary and phytosanitary issues 

An amendment to the Welfare of Animals Law was approved in June 2000. With this 
amendment  the  law  became  a  basis  on  which  further  alignment  with  the  acquis  as 
regards the directives on animal  welfare  will take place. As regards plant  protection, 
inter  alia,  revised  implementing  regulations  concerning the acquis  in the field  of  the 
toxicity  classification  of  pesticides  and  the  content  of  the  active  substance  in  a 
pesticide were enacted in July 2000. In addition, regarding plant health, a programme 
for  the  upgrading  of  offices,  equipment  and  other  facilities  at  the  border  inspection 
posts is under implementation. 

Overall  assessment 

Although  there  has  been  some  progress  in  preparing  Cyprus  agriculture  for  the 
Common  Agricultural  Policy  --notably  through  preparatory  work  with  regard  to  the 
necessary reforms  such as the abolition of state monopolies-- substantial elements and 
mechanisms of the agricultural acquis remain to be applied, in particular related to the 
Common Market Organisations. 

Concerning  horizontal  issues,  with  regard  to  the  European  Agricultural  Guidance 
and  Guarantee  Fund  (EAGGF),  Cyprus  has  substantial  experience  in  support, 
restructuring and development  measures. Concerning budgetary and financial  aspects, 
agricultural  policy  is  conceived  and  implemented  within  the  framework  of  multi-

50 

annual  Strategic  Development  Plans. Some  administrative  and  financial  adjustments 
are required for full harmonisation with the procedures prescribed by the  acquis. 

Although  preparatory  work  has  started,  the  procedure  for  the  establishment  of  the 
IACS  has  to  be  accelerated.  Under  the  present  national  agricultural  support 
framework,  payments to farmers  and other beneficiaries  are made by the  Department 
of  Agriculture and a number of  other governmental and semi-governmental  agencies. 
Present arrangements need to be reformed  and Cyprus will have to establish a Paying 
Agency  to  handle  the  Common  Agriculture  expenditure,  this  being  identified  as  a 
short-term priority. 

Legislation  in  the  field  of  quality  policy  relating  to  designations  still  needs  to  be 
adopted.  Furthermore,  Cyprus  has  not  yet  signed  international  agreements  on 
designation  of  origin  and  geographical  indications.  The  ratification  of  the  Lisbon 
Agreement is progressing. In the field  of  certificates  of  special character, currently no 
equivalent  regulations  exist.  In  addition,  the  acquis  on  organic  farming  has  not  yet 
been adopted. 

The  competent  authority  for  geographical  indications,  designations  of  origin  and 
certificates  of  specific  character  as  a  special  unit  within  the  Office  of  the  Official 
Receiver and Registrar of Companies needs to be appointed, the core of which already 
exists. A body of inspectors needs to be established too. 

With  a  view  to  Common  Market  Organisations  the  envisaged  system  of  direct 
hectare  payments  for  cereals  still  requires  adoption  by  the  Council  of  Ministers. 
Several areas in the field  of arable crops need to be brought in line with the acquis. In 
parallel  to  the  abolition  of  the  monopoly  of  the  Cyprus  Grain  Commission, 
reorganisation  of  the existing  administrative  infrastructure  will have to take place in 
order to create an intervention agency and intervention centres as well as management 
of export and import licenses and tenders for cereal export. 

For  fresh  fruit  and  vegetables 
there  is  no  legal  framework  in  Cyprus  for  the 
recognition  of  POs according to community criteria, therefore  the relevant  provisions 
governing the setting up, recognition and operation of Producer Organisations remain 
to be adopted.  As regards wine, legislation  is already partially harmonised. However 
further  alignment  with  the  acquis,  mainly  as  regards  the  rules  of  wine  growing 
potential,  market  rules  for  wine  and  the  protection  of  wine  designations,  is  needed. 
Apart  from  fruit  and  vegetables,  as  regards  specialised  crops,  legislative  work  still 
needs to be done to achieve alignment with the acquis on marketing standards. 

The  monopolies  of  the  Cyprus  Grain  Commission,  of  the  Cyprus  Olive  Products 
Marketing Board and  of  the Cyprus Milk Industry Organisation as well as the statute 
of  the  Cyprus  Vine  Products  Commission  will  have  to  be  brought  in  line  with  the 
acquis.  Preparatory  work  with  regard  to  the  necessary  reforms  has  already  been 
undertaken. 

In terms of  administrative capacity to implement  the acquis,  Cyprus has a good basis 
but  the  state  monopolies  managing  the  different  markets  hamper  the  necessary 
restructuring  of  the existing  infrastructure.  Therefore  the  process of  abolishing  these 
monopolies should be accelerated. 

51 

As regards Rural Development and Forestry,  Cyprus has already some experience 
in these areas, also comprising agri-environmental  measures. However, the necessary 
control bodies for the environmental scheme will have to be put in place. Furthermore, 
a code of good agricultural practice needs to be established. 

As regards rural development, the Department of  Agriculture is gradually aligning its 
procedure  for  authorisation,  internal  audit  and  execution  of  payment  to  those  of  the 
acquis.  The administrative  capacity  for  the implementation  of  the rural  development 
acquis (also identified  as a short-term priority) needs to be further  enhanced  . 

Concerning  veterinary  and phytosanitary  legislation, transposition  of  the acquis  is 
still  partial.  Cyprus  should  further  align  its  veterinary  and  phytosanitary  legislation 
with  the  acquis  as  well  as  upgrade  inspection  arrangements,  in  particular  at  future 
external  borders,  as  this  was  identified  as  a  short  term  priority  in  the  Accession 
Partnership. 

In  the  veterinary  sector,  in  the  field  of  animal  disease  control  measures,  Cyprus 
laboratories are capable of carrying out serological diagnosis regarding notifiable  viral 
diseases. Contingency  plans, such  as for  food  and  mouth disease and  classical  swine 
fever, should be developed. 

As  for  phytosanitary  issues,  the  border  inspection  posts,  inter  alia,  will  have  to  be 
equipped  with  laboratory  facilities  for  initial  on  the  spot  examination  of  imported 
produce. The relevant market-place surveillance and control of imports and exports of 
food  (both of plant and animal origin) are carried out by the State General Laboratory 
of  Additional  Veterinary  Checks,  required  in  the  framework  of  the  internal  market. 
Strengthening of the personnel and the diagnostic capability of the Laboratories of  the 
Veterinary Services will be required. A computerised  system will also be needed  for 
recording  movement  of  animals  and  products  in  the  internal  market.  Inspection  and 
Certification  of  organic  produce  is  currently  undertaken  by  inspection  bodies, 
approved  for  this  purpose  in  member  states  of  the  EU,  since  there  is  no  relevant 
legislation as yet in Cyprus. 

Cyprus  legislation has been going through a gradual process of harmonisation in key 
areas,  however  important  elements  of  the  acquis  have  not  yet  been  adopted.  The 
proposed Framework Law, under which all Community Veterinary Legislation will be 
covered  -- such as for  instance control systems in the internal  market, expenditure in 
the veterinary field, animal disease control measures, animal health (live animals and 
animal products) and public health protection-- still needs to be enacted. 

The  process  of  preparing  Cyprus  agriculture  for  the  Common  Agricultural  Policy 
needs  to  be  continued,  notably  regarding  the  establishment  of  the  necessary 
administrative  and  structural  procedures. This concerns, in particular, the import  and 
trade of animals and animal health as well as plant health and plant quality. 

Chapter  8:  Fisheries 

Since  the  last  regular  report,  Cyprus  has  made  progress  in  the  field  of  fisheries, 
especially  concerning  the  implementation  of  legislation  and  the  enforcement  of  its 

52 

infrastructure.  However,  in the field of  market  policy,  no further  developments  have 
been recorded. 

As  regards  resources  management,  inspection  and  control,  in  the  field  of 
monitoring and licensing, amendments  of the Fisheries Law and Fisheries Regulations 
to regulate  the  fishing  licence  system  outside territorial  waters  and the monitoring  of 
fishing  activities were adopted in June 2000. These amendments foresee, inter alia, the 
obligation  for  the  installation  on  all  fishing  vessels  of  a  blue  box  for  monitoring 
purposes. Furthermore, a Law on Aquaculture was adopted in June 2000. 

In  view  of  strengthening  Cyprus'  infrastructure  and  inspection  capabilities,  a  new 
patrol  boat  was  purchased  and  was  delivered  to  the  Department  of  Fisheries  and 
Marine  Research  in  February  2000.  Therefore  Cyprus  has  fulfilled  the  short-term 
priority  of 
the 
administrative  capacity  notably  in  the  areas  of  inspection  and  control  of  fishing 
vessels.  Besides,  Cyprus  is  initiating  a  project  to  introduce  a  system  for  satellite 
monitoring. 

the  Accession  Partnership  concerning 

the  strengthening  of 

Concerning  structural  measures  (including fleet  registration), further  alignment with 
the  acquis  in  the  field  of  licensing  of  fishing  vessels  under  the  Cypriot  flag  was 
identified  as  a  short-term  priority.  This  priority  has  been  met,  since  Cyprus  has 
introduced  new measures for fishing vessels. All fishing  vessels under the Cyprus flag 
are required to obtain  a fishing  license from  the Fisheries Department  of the Republic 
of  Cyprus,  irrespective  of  whether  they  fish  in  or  outside  the  territorial  waters  of 
Cyprus. Failure to obtain a license implies deletion from  the registry. 

With respect to state aid to the fisheries  sector, no developments have been reported 
since the last regular report. 

Overall  assessment 

In spite of having achieved  progress in some areas, Cyprus needs to pursue legislative 
implementation  as  well  as  strengthening  of  institutions  and  instruments  capable  of 
implementing  the  Common  Fisheries  Policy.  In  addition,  further  progress  is  needed 
with  regard to the  current  and  planned  structure  of the fishing fleet under the  Cypriot 
flag. 

Concerning market policy, with regard to Common Market  Organisation  for  fisheries 
products,  they  are of limited  importance  for  Cyprus,  since Cyprus  does not  engage in 
fishing  of  the  main  species  covered  by  CMO  and  daily  quantities  are  very  small  as 
well.  The majority  of the  products  covered  by  CMO  are not  imported.  Since there  is 
no wholesale  market  and  representative  wholesale  price,  Cyprus  will  have to  submit 
an  equivalent  representative  wholesale  price  for  imports  of  fish  and  fish  products. 
However,  a relevant  system for  recording landing prices of imported  products  already 
exists. 

In  the  field  of  international  fisheries  agreements  Cyprus  is  already  signatory  to  the 
General Fisheries Commission for the Mediterranean  Agreement. 

53 

Concerning  resources,  management,  inspection  and  control,  according  to  the 
Cyprus Fisheries Regulation,  a ceiling to the number of licences that can be issued  for 
fishing  within  territorial  waters  exists.  The  Fishing  Regulations  also  provide  for  the 
issue of permits for landing catches in Cyprus. 

Cyprus  has  initiated  the  procedure  for  ratifying  specific  UN  and  FAO  agreements  in 
this  area  as well  as  for  becoming  a member  of the  International  Commission  for  the 
Conservation  of  Atlantic  Tunas.  Cyprus  co-operates  with  the  relevant  International 
and  Regional  Fisheries  Organisations  for  the  sustainable  exploitation  of  fishing 
resources. 

With  regard  to  the  administrative  capacity,  the  Department  of  Fisheries  and  Marine 
Research  of  the  Ministry  of  Agriculture,  Natural  Resources  and  Environment,  is 
responsible  for  the  fisheries  sector.  Within  the  Department  of  Fisheries  and  Marine 
Research,  a specialised Inspectorate  Service comprising  11 inspectors and 3 fast patrol 
boats  exists.  This  Service  carries  out  regular  patrolling  of the  coastal  fishing  zone  as 
well as on-the-spot checks 

Concerning  structural  measures,  Cyprus'  policy  to  reduce  the  number  of  fishing 
vessels under  its flag  that  operate in distant waters will  have to be steadily  continued. 
The  efficiency  of  the  means  introduced  so  far,  including  penalties  for  infringement 
will  have to be reviewed  after  a year.  The establishment  of a Fishing  Vessel  Register 
in  line with  the  requirements  of the  acquis,  identified  as  a  short-term  priority  in  the 
Accession  Partnership,  is  being  pursued.  The  legal  framework  was  adopted  in  June 
2000 and implementation  regulations will  follow. 

Concerning  State  aid, there  is  a  subsidy  scheme  for  trawling  in  international  waters, 
aiming  at  the  encouragement  of  Cypriot  trawlers  to  fish  continuously  in  the 
international  waters  of the Eastern  Mediterranean.  The  purpose  of this  is to  increase 
the  production  and  alleviate  the  pressure  exerted  on  Cyprus'  fishing  grounds. 
Alignment with the acquis, in this area, should be ensured upon the time of accession. 

Chapter  9:  Transport  Policy 

Since the last regular report, noticeable progress has been made in the field  of land, air 
and  especially  as regards maritime transport. However,  concerning  horizontal  issues, 
there is very little progress to report other than the completion  in  October  1999 of the 
Transport  Infrastructure  Needs  Assessment  (TINA)  process,  in  which  Cyprus 
participated.  Cyprus  has  approved  the  Final  Report  that  should  form  the  basis  for 
extending  the  Trans-European  Networks  to  Cyprus.  Within  this  framework,  Cyprus 
had proposed the inclusion  of its ports, its airports and a number of its highways in the 
extension of the Trans-European Networks. 

In the field  of land transport, in June and July 2000 regulations amending the Motor 
Vehicles  and  Road  Traffic  Regulations  were  approved  in  order  to  achieve  further 
alignment with the acquis.  This concerns the field  of distinguishing  signs, tread  depth 
of  tyres  of  motor  vehicles  and  trailers,  as  well  as  the  installation  and  use  of  speed 
limitation  devices  for  certain  categories  of  motor  vehicles. 
In  the  case  of  speed 
limiters,  legislation  was  adopted,  taking  effect  for  all  newly  registered  vehicles  as 

54 

from 1.1.2001 and for existing vehicles from 1.1.2003.  The authorities have taken the 
necessary  decisions  to  increase  the  administrative  capacity  in  the  different  fields  of 
road transport by recruiting and training additional personnel, inter  alia, on technical 
inspections  of  public  and  high  risk  vehicles, to  be  carried  out  by the  Department  of 
Road Transport of the Ministry of Communications and Works. 

As  regards  air  transport,  the  latest  amendments  and  the  revised  Convention  of 
Eurocontrol  were ratified  by Cyprus in June 2000. Following the Council mandate of 
December 1999, negotiations between the EC and Cyprus to join the draft  Multilateral 
Agreement  on  the  Establishment  of  a  European  Common  Aviation  Area  started  in 
January 2000. As  regards administrative  capacity, recruitment  of  additional  staff  has 
been  approved  for  the  Department  of  Civil  Aviation  (DCA)  with  a  view  to  the 
implementation  of  the  action  plan  “Development  of  Oversight  Capabilities  in  the 
DCA Cyprus”, ending in December 2002. 

Concerning maritime transport, at the beginning of 2000 the Government introduced 
a  new,  more  restrictive  policy  for  the  registration  of  Cypriot  ships,  to  enhance  the 
quality  of  the  Cypriot  flagged  fleet  and  to  improve  its  overall  safety  record.  The 
policy  restricts  the  new  registration  of  ships  over  15  years  of  age  unless  specific 
criteria  are  met  and  additional  inspections  are  carried  out  by government  surveyors. 
At  the  end  of  1999,  the  Council  of  Ministers  adopted  the  International  Maritime 
Organisation (IMO) Code for the Investigation of Marine Casualties and Incidents. 

In  February  2000  the  Harmonised  System  for  Survey  and  Certification  (HSSC)  was 
put in place to better regulate the role of classification  societies. 

In an effort  to accelerate  harmonisation  with  the acquis,  in July 2000, five  new  bills 
were  approved  under  the  Merchant  Shipping  Law  of  2000,  which  implement  the 
Convention  on  Standards  of  Training,  Certification  and  Watchkeeping  (STCW 
Convention).  These  bills  separately  regulate  issues  such  as  the  issue/recognition  of 
seafarers  certificates  and  the  registration  of  seafarers  and  the  establishment  of 
seafarer  s Register. 

Amending  legislation  introducing  a  common  model  identity  card  for  Port  State 
Control inspectors to align with the acquis was also approved. 

The Convention for the Suppression of Unlawful  Acts Against the Safety of  Maritime 
Navigation of 1988 and the Protocol for the Suppression of Unlawful  Acts Against the 
Safety  of  Fixed  Platforms  Located  on the Continental  Shelf  were ratified  in  October 
1999. 

In  addition,  in  June  2000  Cyprus  signed  an  Amended  Agreement  with  Sri  Lanka 
deleting  the relevant  cargo-sharing  clause in  order  to  achieve further  alignment  with 
the  acquis  relating  to  the  principle  of  freedom  to  provide  services  concerning 
maritime transport. 

Promising results are expected  from  the implementation  of  the 1999 Action  Plan  on 
strengthening the capacity of the Department of  Merchant Shipping and  improvement 
of  the  safety  record  of  the Cyprus  fleet.  This  would  ensure  Cyprus  fulfilment  of  its 
obligations  under  international  and  European  regulations  in  the  field  of  maritime 

55 

safety.  In  1999, Cyprus  increased  the  number  of  Flag  State  inspections.  For  these 
inspections  Cyprus  relies  upon  a  world-wide  network  of  inspectors. Measures  have 
been taken to considerably increase the total number of  inspectors from  24 at present 
to around 44 by the end of this year. In March 2000, the Minister of Finance approved 
the  recruitment  of  11  additional  Marine  Surveyors  and  4  additional  Merchant 
Shipping  Officers 
the  Department  of  Merchant  Shipping  (DMS).  The 
administrative  capacity  of  the  DMS  will  be  further  enhanced  through  technical 
assistance, training of personnel and computerisation of the DMS. Cyprus fulfilled  its 
Accession Partnership short-term priorities in this field. Likewise, with regard to Port 
State Control, more inspections are being carried out and followed  up in Cyprus ports. 
In  addition,  the  implementation  of  the  new  computerised  Flag  State  Administration 
System “MARCUS” of the DMS has started in September 2000. 

for 

Regarding detentions, the steady decline in their number is welcomed and reflects  the 
increased efforts  of the Cypriot authorities in this domain (the detention rate decreased 
from  10.85% in 1998 to 9.97% in 1999), however, further  efforts  are needed  for  the 
Cyprus  fleet  to  achieve  a  safety  record  corresponding  to  the  current  EU  average of 
3.6%. 

Overall  assessment 

Overall,  during  the  last  year  Cyprus  has  advanced  well  in  its  harmonisation  of  the 
basic legislative and administrative framework  with the acquis. 

Regarding  horizontal 
the 
Community  guidelines  in  the  field  of  Trans-European  Transport  Networks  (TEN-T) 
lies with the Ministry of Communications and Works. 

issues,  the  overall  responsibility  for  administering 

Regarding  land  transport,  legislation  to  align  with  the  acquis  on  recording 
equipment (tachographs), minimum levels of driver training as well as, among others, 
regarding market access, fiscal harmonisation and driving licences, still need to be put 
in place. 

As regards technical and safety issues, as specific legislation transposing the extensive 
acquis on transport of dangerous goods is not yet in place, Cyprus should considerably 
strengthen its efforts  for achieving alignment in this field prior to accession. 

The main responsibility for  administering and enforcing  the land transport  acquis lies 
with the Ministry of Communications and Works. 

In  the  field  of  air  transport,  in  view  of  the  envisaged  achievement  of  full 
liberalisation and harmonisation of the air transport sector, the relevant legislation still 
needs to be put in place. Cyprus still needs to make substantial progress in the field of 
aviation  safety,  particularly  to  strengthen  the  applicability  of  the  JARs  (e.g.  JAR 
OPS), as well as the licensing and safety oversight procedures. 

The Department of Civil Aviation of the Ministry of Communication and Works is the 
competent  authority. Recruitment  of  additional  personnel  has  been  approved  for  the 
DCA. 

56 

Concerning  maritime  transport,  Cyprus  needs  to  improve  its  performance  on  Port 
State  Control.  Care  should  be  taken  that  there  is  a  sufficient  number  of  trained 
inspectors to apply the acquis. Specific efforts  are still required in order to ensure that 
Cyprus  adequately  monitors the  performance  of  the classification  societies acting on 
behalf  of the Cyprus government. 

the  Cyprus  merchant  fleet  further  strengthening  of 

Due  to  the  size  of 
the 
administrative capacity of the Department of Merchant Shipping is needed and  efforts 
are  in  fact  being  focussed  on  this  aspect.  New  legislation  to  align  with  further 
elements of the maritime safety  acquis still needs to be put in place.  The Ministry of 
Communications  and  Works, the Department  of  Merchant  Shipping, and  the  Cyprus 
Ports Authority, as regards the operation of ports, are the competent authorities in this 
area. 

Cyprus  still  needs  to  renegotiate  its  bilateral  agreement  with  Syria  in  order  to  align 
with  the  acquis  regarding  freedom  to  provide  services  in  maritime  transport,  as  has 
already been done with Sri Lanka. 

Chapter  10:  Taxation 

Since  the  last  regular  report,  Cyprus  has  achieved  some  progress  in  the  area  of 
taxation. 

In the field  of indirect taxation, the standard Value Added Tax (VAT) rate of 8% was 
increased  to  10%  as  of  1  July  2000.  Furthermore,  the  House  of  Representatives 
approved  in  June  2000  a  VAT  Bill  which  includes  substantive  alignment  with  the 
Community VAT acquis, inter alia, for the abolition of the special VAT provisions in 
favour  of  international  business  enterprises,  which  was  identified  as  a  short-term 
priority in the Accession Partnership, and a refund  scheme for foreign  taxable persons 
not  established  within  Cyprus. However, the entering into force  of  the Bill, which  is 
not expected  until sometime during 2001, is dependent  on a Decision  of  the Council 
of  Ministers pending the adaptation  of  the existing  VAT computerised  system  to the 
new Bill. 

Since the end of 1999, the excise duties on domestic produced spirits and petrol have 
been  increased. In  addition,  excise  duties  have  been  introduced  on  gas oil, kerosene 
and  imported  spirits  whereas  the  import  duty  on  imported  alcoholic  beverages  has 
been decreased. The specific  duty on cigarettes was increased  in June 2000, bringing 
the duty level close to the Community s minimum excise duty incidence of 57%. 

Whereas  no  concrete  progress  is  to  be  reported  in  the  field  of  direct  taxation,  it 
should  be  noted  that  Cyprus  has  undertaken  a  commitment  towards  OECD  to 
eliminate  harmful  tax  practices  by  the  end  of  2005.  That  political  undertaking  is 
interpreted  to be valid as well as with regard to the – political - obligations stemming 
from  the  Code  of  Conduct  for  Business  Taxation  and  therefore  must  be  seen  as 
“indirect”  but  substantial  progress.  It  is  however,  to  be  noted  that  the  rollback 
obligation of harmful  tax measures under the Code of Conduct is set at end of 2002 at 
latest. 

57 

No further  developments since the previous year can be reported in the area of  direct 
taxation and administrative co-operation and mutual assistance. 

As regards the administrative capacity, a new section has recently been established  at 
Customs Headquarters for the promotion of the harmonisation effort  and the  effective 
implementation  of the acquis on excise duties. In addition 53 VAT officers  have been 
recruited and trained. The new officers  have been deployed to the field of control. 

Overall  assessment 

Although  Cyprus has undertaken  several measures to further  align its legislation  with 
the  acquis,  there  are  some  discrepancies  in  several  essential  areas  between  Cyprus 
legislation and the acquis, therefore further  efforts are required. 

Regarding indirect taxation, VAT was introduced in Cyprus in 1992. Two VAT rates 
are applied, a zero rate and a standard rate of 10%. The main difficulties  for Cyprus in 
terms  of  the acquis  relate to the application  of  rates. The substantive use of  the zero 
rate  raises  some  concern,  since  full  alignment  in  this  area  is  most  likely  to  have  a 
significant  impact  on  consumer  prices.  The  pursuit  of  VAT  harmonisation  by 
dimishing the zero-rate  extension  was identified  as a short-term  priority. Although  it 
has recently been decided to increase the standard VAT rate from  8% to 10% the gap 
between that and the EC standard rate of  15% remains very large. There are concerns 
as  to  whether  Cyprus  will  be  able  (both  on  political  and  economical  grounds)  to 
introduce  the necessary adjustments  in a reasonable timeframe,  especially if  it  has to 
be  accompanied  by  –politically-  sensitive  adjustments  of  rates  also  in  other  areas 
(reduced rates VAT, excises, taxation of off-shore  companies). 

The  VAT  Service, with  a  separate  structure  within  the  Department  of  Customs  and 
Excise,  administers  VAT  in  Cyprus.  Although  it  is  a  modern  tax  administration 
further  efforts  are  needed 
that  of 
to  ensure  Cyprus 
computerisation,  to  implement,  control  and  enforce  the  acquis.  The  administrative 
system of control of VAT is based on central administration with local control. 

including 

capacity, 

Some  substantial  efforts  have  been  made  since  the  last  regular  report,  however,  the 
excise  legislation  of  Cyprus  remains  different  in  several  essential  areas  from  that of 
the acquis. This is in particular the case regarding the taxable scope, the duty level and 
the  level  of  duty  rates. The  continued  use  of  protective  measures  in  the  form  of  in 
particular  the Temporary  Refugee  Levy, results  in imported  goods being taxed  more 
heavily than  similar  domestically  produced  products. Abolishing such  discrimination 
has been identified  as short-term priority in the Accession Partnership. Although  it is 
fully  recognised that efforts  have been initiated to align the excise legislation, a more 
complete assurance for the remaining parts should be pursued. 

The Department  of  Customs and  Excise of  the Ministry of  Finance is the  authorised 
government  body for  the administration  of  excise duties. Further  efforts  are required 
with regard to the introduction of a tax warehouse system. 

In  the field  of  direct  taxation, the special  regime for  offshore  companies  in  Cyprus 
needs  to  be  addressed.  (There  are  about  42,000  registered  offshore  companies  in 

58 

Cyprus, which employ 3000 non-Cypriots and 2500 Cypriots. It is estimated that they 
brought some 200 million CY Pounds in foreign  currency to Cyprus in 1999, roughly 
4.4% of the GDP.) 

The Department  of  Inland Revenue  is the competent  authority for  the  administration 
of  direct  taxation.  Currently,  the  Department  employs  around  600  employees.  Its 
systems are computerised for the issuing of income tax returns, raising of  assessments 
and collection of taxes. 

In the area of administrative co-operation and mutual assistance, Cyprus will have 
to introduce harmonised legislation on the VAT Information Exchange System (VIES) 
and  develop  the  existing  infrastructure  to  apply  this  system.  Cyprus  already  has  a 
computerised  system for  the collection and processing of VAT returns. In order to be 
able  to  meet  the  new  demands  concerning  administrative  co-operation  and  mutual 
assistance, Cyprus  will  have to  further  reinforce  its tax  administrative  structures  and 
control  procedures. The  establishment  of  a  strategy  for  the  modernisation  of  the  tax 
administration is an essential starting point. 

Chapter  11:  Economic  and  Monetary  Union 

A  detailed  assessment  of  Cyprus  economic  policy  in  its  various  aspects  has  been 
given  above,  in  the  chapter  discussing  the  economic  criteria  (B-2).  Therefore,  the 
present  section  is  limited  to  a  discussion  of  those  aspects  of  the  Economic  and 
Monetary  Union  acquis  –  as  defined  by  title  VII  of  the  EC  treaty  and  the  other 
relevant texts – which candidate countries should implement by accession at the latest, 
i.e.  the  prohibition  of  direct  public  sector  financing  by  the  central  bank,  the 
prohibition  of  privileged  access  of  the  public  sector  to  financial  institutions,  and 
independence of the national central bank. As to the process of liberalisation of capital 
movements,  upon  the  completion  of  which  compliance  with  the  EMU  acquis  is 
conditional, this aspect  has been  covered  above, in  the section  on  Chapter  4  –  Free 
movement of  capital. 

Since the last  regular  report, Cyprus  has made  some progress  in the adoption  of  the 
EMU  acquis. 

Concerning  the  direct  public  sector  financing  by  the  central  bank,  no  further 
developments since last year have been recorded. 

In  December  1999 Cyprus  enacted  a  law  liberalising  interest  rates. This  law,  which, 
inter  alia,  repeals  provisions  for  an  interest  rate  ceiling,  will  come  into  force  in 
January 2001. These provisions can be seen in the framework  of privileged access of 
the  public  sector  to  financial  institutions,  therefore  their  removal  represents 
progress in the adoption of this part of the EMU  acquis. 

No  concrete  progress  can  be reported  in  ensuring  the  independence  of  the  Central 
Bank. 

59 

Overall  assessment 

Cyprus  will  participate  in  EMU  upon  accession  with  the  status  of  a  country  with  a 
derogation  as per  article  122 of the EC treaty. It will need to implement the necessary 
changes to its institutional  and legal framework  by the date of accession. 

Overall,  Cyprus  has yet to fully  implement  important  parts  of the EMU  acquis,  such 
as the direct financing  of the public sector and the independence of the Central Bank. 

From  June  1992  to December  1998  the  Cyprus  pound  was  pegged  to the  ecu  within 
the fluctuation  margins  of ±2.25%.  Since the beginning  of  1999 it has been pegged to 
the euro within the same fluctuation  band. 

Concerning administrative  capacity in the field  of EMU, the  services  responsible  are 
the Ministry  of Finance,  the  Central  Bank  of  Cyprus  as well  as the Planning  Bureau. 
The Central Bank of Cyprus has the overall responsibility for  defining  and  conducting 
monetary  policy.  For  the  efficient  conduct  of  monetary  policy,  the  Central  Bank  of 
Cyprus  will  need  to  have  full  responsibility  for  setting  the  interest  rate.  Therefore 
Cyprus  still  needs  to  amend  the  Law  on  the  Central  Bank  as  well  as  the  relevant 
provisions  of  the  Constitution  in  order  to  establish  statutory  independence  of  the 
central  bank  and  to  achieve  compatibility  in  all  material  respects  with  the  EMU 
acquis, a process which should be accelerated. 

Chapter  12:  Statistics 

Since the last regular report Cyprus has made good progress in the field  of statistics. 

As  regards  statistical  infrastructure,  at the beginning  of 2000  a new  Statistics  Law 
was  enacted.  This  forms 
the  legal  basis  for  the  collection,  production  and 
dissemination  of  statistical  information  and includes general  provisions governing the 
statistical  system  in  Cyprus.  It  also  specifies  the  tasks  of  the  Statistical  Service  of 
Cyprus (renamed  in January 2000, former  Department  of  Statistics and Research) and 
redefines  its role  and  function  as the  central  agency responsible  for the production  of 
official  statistics.  It  contains  provisions  for  the  carrying  out  of  statistical  enquiries 
required  by  the  EC,  access  to  administrative  records,  and  the  transmission  of  data 
subject  to  statistical  confidentiality  to  EUROSTAT,  and  the  creation  of  an  Advisory 
Council.  The fundamental  principles  of impartiality  and  reliability  of  data as well  as 
the  transparency  of  statistics  and  confidentiality  of  personal  data  are  safeguarded 
under the Statistics Law. 

A census of enterprises was carried out in May 2000, which will form  the basis for the 
drawing  up  of  a fully  harmonised  business  register  of local  units  and  enterprises.  As 
regards  transport,  a  pilot  survey  on  transport  of  goods  by  road  was  completed  in 
November  1999, another  survey was  launched  in the  second  quarter  of 2000 to  fulfil 
the requirements for  statistical returns in respect of transport of goods by road. 

In  addition,  a unit  within  the  Statistical  Service  for  the  co-ordination  of the work  of 
various  Government  Departments  dealing  in  the  collection  of  environmental  data, 
with  the  aim  of  initiating  the  production  of  statistics  on the  state  of the  environment 
on a systematic basis, was  set up.  Seven  statistics assistants were recruited  in  October 

60 

1999 and the budget for 2000  contains provisions for  another  seven  statistics  officers. 
The  Statistical  Service is computerised  to  a high level  in terms  of terminals,  personal 
computers, and connection to the LAN and access to the Internet. 

Overall  assessment 

Although  Cyprus possesses the main  statistical  infrastructure  and fulfils  the  statistical 
requirements  of  the  international  organisations  to  which  it  belongs,  there  are  still  a 
number  of areas in which  Cyprus  does not  at present provide  comparable  data, which 
in  some  cases is due to the  small  size of the country. Further  efforts  need to be made 
to bring the statistical  system into line with EC requirements. 

As  regards  demographic,  social  and  regional  statistics,  several  important  new  data 
collection  systems  are  needed.  A labour force  survey  was undertaken  in  1999, while 
labour  cost  and  public  health  surveys  still  have to be introduced.  The introduction  of 
NUTS  classification  is  under  discussion  in  order  to  allow  the  compiling  of  regional 
community statistics. 

In  order  to  improve  macro-economic  statistics,  the  Statistical  Service  and  other 
statistic  producers  will  have  to  strengthen  the  provision  of  basic  statistics.  Existing 
production  accounts have to be complemented by economic accounts at regional level. 
Quarterly  national  accounts,  accounts  by  institutional  sector  and  financial  accounts 
which  do  not  exist  yet  need  to  be  compiled,  while  maintaining  the  principle  of 
independence  of  statistics  production  from  policy-making  instances.  As  far  as  debt 
and deficit  statistics are concerned, the delimitation  of the government sector has to be 
reviewed  according to the ESA 95 requirements.20 

Cyprus has  started to implement the  consumer  price  indices, but  no full  compliance 
has yet been  reached.  In the area of  business  statistics,  a number  of existing  surveys 
need  to  be  adopted  and  extended.  Statistics  need  to  be  established  for  money  and 
finance.  In  general,  a good  compliance  level  has  already  been  reached  in the  field  of 
agriculture,  forestry  and  fisheries.  Some  changes  in  crop  and  livestock  surveys  are 
necessary. 

Chapter  13: Social  policy  and  employment 

Since the last  regular  report  Cyprus  has  achieved  some progress  in the field  of  social 
policy and employment. 

As regards labour law, in June 2000 two laws relating to the provision  of  information 
to  employees  (employment  contract)  and  the  preservation  and  safeguarding  of 
employee's rights in the event of transfer  of business or undertakings were enacted. In 
addition, in September 2000 Cyprus ratified the revised European  Social  Charter. 

Concerning  equality  of  treatment,  although  legislation  is  under  preparation  for 
instance regarding parental  leave, equal treatment for women  and men in  employment 

20 European System of National and Regional Accounts in the Community 

61 

and vocational training or indirect discrimination, no new legislation has been adopted 
since the last regular report. 

In the field  of  health and safety, in order to bring Cyprus  legislation  further  in  line 
with  the  acquis,  an  amendment  to  the  Asbestos  Law  relating  to  the  protection  of 
workers from  risks related to exposure to asbestos at work was enacted in April 2000. 
In addition, in July 2000, legislation for further  alignment in the field  of provisions of 
safety  and  health  sign  boarding  at  work  was  enacted.  The  Labour  Inspectorate  has 
been upgraded to the level of  a Government  Department within the Ministry (as  from 
the  beginning  of 
this  year)  and  reorganised,  in  order  to  exercise  the  new 
responsibilities  and  functions  emanating  from  the  transposition  of  the  acquis.  The 
strengthening  of  enforcement  structures  in the fields  of  health  and  safety  at work, in 
particular as regards the Labour Inspectorate, was identified  as a short-term priority in 
the 1999 Accession Partnership. 

Regarding social dialogue, no further  developments since the last regular report  have 
been recorded. 

Employment is estimated to have grown by 1% in 1999, and unemployment  remained 
relatively  low  at  just  over  3%. Overall  labour  force  participation  and  employment 
rates  remain  relatively  high  –  in  1998, for  example, some  72% of  the  working-age 
population was in the labour force, as compared with 68% in the EU-15. 

The  government  has  commenced  work  on  a  national  employment  action  plan.  An 
assessment  of  employment  policy  priorities  is  also  being  prepared  jointly  by  the 
national authorities and the Commission. 

In the field  of  social  protection, as from  the beginning of  2000 the pensionable  age 
for  the social pension  was decreased  to sixty-five  years, the same as the  pensionable 
age under the Social Insurance Scheme. 

With  regard  to  discrimination,  in  July  2000,  a  “Law  Providing  for  Persons  with 
Disabilities” was enacted which, inter alia, provides for the introduction of the general 
principle of non-discrimination against the disabled as well as for specific measures in 
the  field  of  employment,  like  provisions  regarding  recruitment,  promotion  in 
employment,  vocational  rehabilitation  and  training  as  well  as  accessibility  and 
mobility. 

Overall  assessment 

Although  Cyprus  has  achieved  progress  in  this  area,  substantial  parts  of  the  acquis 
have not yet been fully  transposed. Further progress in transposition thus is necessary, 
in  particular  as  regards  labour  law,  equality  of  women  and  men  and  occupational 
health and  safety. 

Cyprus  has  the  essential  enforcement  structures,  which  the  government  plans  to 
strengthen  further.  This will in particular  be needed  with  regard  to labour  inspection 
services monitoring health and safety at work, Labour Law and equality treatment. 

62 

Concerning  equality  of  treatment  further  adaptations  to  Cypriot  legislation  will  be 
needed to fully align with Community provisions. 

In  the  field  of  health  and  safety  at  work,  in  order  to  reduce  work  accidents  and 
occupational injuries and diseases, the implementation of health and safety  legislation, 
entailing  investment  both  in  enforcement  structures  by  the  Government  and  in 
technical and organisational measures by enterprises, has to be strengthened. 

In the field  of  public health, steps have already been taken to upgrade the provisions 
of  health care services and to improve the quality of  health, as for  example through a 
programme  for  training,  computerisation  or  development  of  health  prevention 
programmes. 

Cyprus  needs  to  undertake  further  efforts  to  develop  a  health  monitoring  system  in 
order  to  obtain  health  data  and  indicators  comparable  with  the  Community  health 
monitoring  system.  It  will  also  have  to  nominate  an  organisation  that  can  fully 
contribute  to  tasks  at  European  level  agreed  in  the  framework  of  the  Network  as 
regards a systematic surveillance of communicable diseases. 

In the public health area some further  adaptations to legislation will be needed to  fully 
align with the acquis in the area of labelling of tobacco products and on maximum tar 
yields of cigarettes. Cyprus will have to establish a laboratory to measure tar yield. 

Concerning  social  dialogue,  Cyprus  has  a  long-standing  practice.  Workers  and 
employers  organisations  are  strong  and  play  an  active  role  in  particular  in  various 
existing  tripartite  bodies.  However  especially  at  sectoral  level,  bipartite  social 
dialogue, including the Government  s administrative capacity in this field, is relatively 
less  well  developed.  This  could  influence  the  implementation  of  the  Community 
acquis  at  the  local  level,  and  also  limit  social  partners  future  participation  in  the 
sectoral  social  dialogue  at  European  level. The  support  of  social  partners  capacity-
building  efforts  to  develop  and  implement  the  acquis  was identified  as a  short-term 
priority in the Accession Partnership. 

Concerning  employment  and  the  European  Social  Fund,  preparatory  work  has 
started  for  developing  a  National  Action  Plan  for  Employment  according  to  the  EC 
Employment  Guidelines. It is planned  that the management  of  the ESF will be under 
the responsibility  of  the Labour  Department  and for  this purpose, suitable training of 
personnel should be organised. 

With regard to Eures (European  Employment  Service), the Ministry of  Labour  is the 
national  authority  dealing  with  employment  services.  Cyprus  is  computerising  the 
existing  system  in  order  to  be  able  to participate  fully  in  the network. However,  the 
employment policy delivery systems and specifically  the Public Employment Services 
will need to be strengthened. 

In  the  field  of  social  protection,  regarding  the  healthcare  system,  draft  legislation, 
which provides for  the introduction of  a National Insurance Health Scheme, has been 
submitted  to  the  House  of  Representatives.  The  new  Health  Scheme  will  provide 
universal  coverage  and  its  financing  will  be  based  on  contributions  from  the  social 
partners and the budget. 

63 

Legislation transposing the EC Directive based on Article 13 of the Treaty relative to 
discrimination on the grounds of race or ethnic origin will have to be introduced and 
implemented. 

Chapter  14:  Energy 

Since  the  last  regular  report,  Cyprus  has  undertaken  two  assessment  studies  in  the 
energy sector, the results of which will assist in the development  of  a national energy 
strategy as well as in the transposition of important areas of the energy acquis as yet to 
be transposed.  The studies are now reaching completion. Since further  steps to align 
with the acquis are dependent on these findings, progress with regard to legislation in 
this area over the past year has been limited. 

The  first  of  these  studies  provides  Cyprus  with  an  assessment  of  the  costs  and 
infrastructure  required  for  the  building  up  of  its  oil  stocks  to  reach  the  requisite  90 
days  supply.  The  second,  which  addresses  the  current  monopoly  in  the  electricity 
market,  will  allow  Cyprus  to  put  into  place  the  measures  needed  to  ensure  the 
liberalisation  of  the energy sector, including the appointment  of  an energy  Regulator, 
and the establishment of a regime for network access and for building of new capacity 
in the electricity market. 

Consequently, no concrete developments have taken place with regard to the security 
of  supply  since last year and Cyprus does not yet have legislation  in place regarding 
oil stocks. 

Similarly, there has been no progress with  regard  to aspects of  competitiveness  and 
the internal energy market. 

In  order  to  achieve  further  alignment  with  the  acquis  and  to  promote  energy 
efficiency  in  the  industrial,  commercial  and  agricultural  sectors, a  grant  scheme  for 
investments  in  energy  efficiency  promotion,  encouraging  the  use  of  energy  from 
renewable sources, became fully operational at the beginning of 2000. 

Moreover, in 2000 Cyprus, has joined  the Organisation  for  the Promotion  of  Energy 
Technology (OPET), the main aim of  which is the implementation of measures in the 
fields  of  rational  use  of  energy,  renewable  energy  sources  and  fossil  fuels.  In  June 
2000,  the  Government  of  Cyprus  established  an  Institute  of  Energy,  which  together 
with the Applied Energy Centre, will implement the OPET-Cyprus Program. 

Cyprus has no nuclear energy production and no plans in this regard. 

Overall  assessment 

There has been limited  progress towards the adoption  of  the acquis,  therefore  further 
efforts  are needed. 

With  regard  to  the  security  of  supply,  due  to  the  heavy  dependency  of  Cyprus  on 
imported oil, the issue of  oil stocks is of particular significance. Currently, stocks are 

64 

held  by the petroleum  refinery,  the  Electricity  Authority  and  oil  companies  for  their 
own requirements, but additional storage capacity needs to be developed. 

In  the  field  of  competitiveness  and  the  internal  energy  market,  concerning 
electricity,  the  Electricity  Authority  currently  remains  the  sole  producer  and 
distributor  of  electricity  in  Cyprus.  It  has  the  status  of  a  semi-governmental 
organisation with a legal monopoly. Under the present rules only when the Electricity 
Authority  lacks  capacity  can  permission  to  generate  electricity  be  granted  to  others. 
This monopoly position will need to be altered in order to comply with the  acquis. 

Cyprus being an island, there is physically no transit possible. As regards the rules of 
transparency of energy prices, efforts  for the implementation of these are needed. 

Although possibilities for the future  development of a gas sector continue to be under 
study,  the  current  situation  whereby  there  is  no  consumption  of  natural  gas, no  gas 
network  and  no  interconnections  remains  unchanged.  Similarly,  as  Cyprus  does  not 
have any coal mines the sector of  solid fuels is of  no significance, although a new oil 
fired  power plant is under construction, which also can be converted for  coal. Cyprus 
continues to have no plans for on-shore/off-shore  oil exploration. 

Concerning the oil related acquis, further  adjustments  are necessary for  alignment. 

Although  Cyprus  has  already  taken  some  steps  with  regard  to  energy  efficiency, 
further  efforts  are needed  to achieve alignment  with the acquis  in this field. As most 
electrical equipment/appliances are imported, particular emphasis will be needed with 
regard to placing on the market as well as on market surveillance. 

In  the  field  of  nuclear  energy  Cyprus  has  already  ratified  a  number  of  IAEA 
Conventions, is a member of the International Atomic Energy Agency and has ratified 
a  safeguards  Agreement  with  the IAEA. It has also signed  an Additional  Protocol  to 
this  Agreement.  Due  attention  should  be  given  to  preparing  the  implementation  of 
Euratom  safeguards. 

As regards administrative capacity, the Energy Section of the Ministry of  Commerce, 
Industry and Tourism  is the competent  department  for  all energy matters and has the 
overall  responsibility  for  implementing  the  acquis.  The  Energy  Section  incorporates 
an  Inquiry  Point  to  which  any  request  for  information  about  laws, regulations,  and 
administrative  rulings  may  be  addressed.  No  Energy  Regulator  has  as  yet  been 
established in Cyprus. 

Chapter  15:  Industrial  Policy21 

Since  the  1999  regular  report,  Cyprus  has  made  some  progress  in  the  field  of 
industrial policy, particularly with regard to investment promotion. 

21 Developments in Industrial policy should be seen in relation to developments in the context of  SME 

policy (see chapter 16- Small and medium sized  enterprises) 

65 

With  respect  to  industrial  strategy, in January 2000 Cyprus eliminated  the  controls 
on  Foreign  Direct  Investment  (FDI)  in  companies  for  EU  investors.  The  foreign 
investment  ceiling  previously  in  force  was  never  above  50%. Restrictions  still  exist 
for  investors  from  third  countries. In  the  same  period,  control  restrictions  on  share 
capital  of  Cypriot  companies  for  EU  citizens were also  abolished. These  regulations 
are a step towards the abolition of all capital controls. 

A Foreign Investors Service Centre (“One-Stop-Shop”) has been set up in the Ministry 
of  Commerce, Industry  and  Tourism  to  provide  guidance  to international  enterprises 
searching  for  local  partners. It  will  be  gradually  developed  into a  fully-fledged  one-
stop-shop  both  for  foreign 
investors  and  local  enterprises  providing  detailed 
information concerning the national administrative procedures. 

As regards privatisation and restructuring, few developments such as the sale of the 
shares in the Cyprus Tourist Development Company since the last regular report have 
been recorded. 

Overall  assessment 

The industrial policy of Cyprus is significantly  in line with the concepts and principles 
of  EC industrial policy. It has always been  based  on the premise that productive  and 
commercial activity is the responsibility of  the private sector, whereas the role of  the 
state  is  to  foster  an  environment  conducive  to  private  initiative  and  to  create  the 
necessary infrastructure.  The degree of  state intervention  in the production process in 
the manufacturing  sector in Cyprus is limited, although the government participates in 
some  companies.  However,  special  efforts  have  to  be  made  to  fight  structural 
problems such as high production costs or low productivity. 

Cyprus  industrial policy is laid down in the 1999-2003 Strategic Development  Plan. 
The  five-year  plan  puts  emphasis  on  structural  reforms  aimed  at  improving  the 
competitiveness  of  Cypriot  industry.  Main  objectives  of  the  industrial  strategy  are 
support  for  the  restructuring  of  traditional  industrial  sectors,  assistance  to  existing 
production  units  and  the  attraction  and  development  of  new  high-tech  industries  as 
well  as  better  exploitation  of  the  industrial  potential  of  policies  on  innovation, 
research  and  technological  development.  Progress to implement  this strategy  should 
be  further  sustained.  Many  manufacturing  sectors  like  textiles, clothing  and  leather 
suffer  from  intensifying  foreign  competition.  Special efforts  have to be made to fight 
structural problems like high production costs and low productivity. 

Incentives  were  also  introduced  in  June  1999  to  promote  exports  of  manufactured 
products. Measures have been introduced to support co-operation between  companies 
such  as  mergers,  joint  ventures  or  subcontracting,  the  technological  upgrading  of 
industrial  units  and  the  quality  improvement  of  manufactured  products.  Planned 
investments  in  infrastructure  and  tourism  are  expected  to  boost  the  construction 
sector,  which  is  still  characterised  by  low  productivity.  In  this  respect,  it  should  be 
noted that an important element of any industrial policy is the control of state aid and 
that the compatibility of support schemes with EC rules will have to be examined (see 
Chapter 6: Competition  policy). 

66 

No  clear  progress  has  been  recorded  on  the  creation  of  the  Centre  for  Technology, 
Research and Development mentioned in the previous regular report. 

The  execution  and  monitoring  of  the  implementation  of  industrial  policy  is  the 
responsibility  of  the Ministry of  Commerce, Industry and Tourism, which  introduces 
the  appropriate  policy  and  administrative  measures  and  formulates  policy  or  sets 
objectives  according  to emerging  needs.  Co-operation  with  other  Ministries  and  the 
Planning  Bureau  is  well  established.  Private  sector  institutions  such  as  chambers, 
business associations etc. participate, through the Advisory Committee on Commerce 
and  Industry,  in  both  the  formulation  and  the  monitoring  of  implementation  of 
industrial policy.  At local level, apart from  the Cyprus chamber of  Commerce, there 
are regional Chambers of Commerce in the five major cities. 

Industrial policy is developed  in an integrated manner among the different  Ministries 
and  private  sector  institutions.  There  is  no  need  to  establish  new  institutions  or 
administrative bodies for the implementation and the enforcement  of the  acquis. 

Chapter  16:  Small  and  medium-sized 

enterprises22 

Since the last report, the main progress in the area of  SME policy has been made in 
improving the access of companies to finance. 

Guarantees  for  loans  to  SMEs  and  interest  rate  subsidies  and  a  special  scheme  for 
start-up loans have been introduced.  At the same time, a one-stop shop has been set 
up  within  the  Ministry  of  Commerce,  Industry  and  Tourism  to  provide  guidance  to 
international enterprises searching for local partners. 

A  national  Euro  Info  Centre  was  established  in  Nicosia,  nosted  by  the  Chamber  of 
Commerce and Industry. 

Overall  assessment 

In  Cyprus  SME  policy  is  overall  in  line  with  the  principles  and  objectives  of  EC 
enterprise policy. A specific chapter on SMEs was included in the Five-Year Strategic 
Development  Plan  (1999-2003). It  sets, among  others, the  following  objectives:  the 
creation of a simplified  legal and institutional framework  for SMEs, the improvement 
of  the  financial  environment  as  well  as  the  enhancement  of  the  competitiveness  of 
SMEs through their internationalisation and their access to the information  society. 

As  regards  the  implementation  of  SME  policy  in  Cyprus,  sufficient  infrastructure 
already  exists. The  Ministry  of  Commerce,  Industry  and  Tourism  is  responsible  for 
SME  policy.  Its  action  is  supported  by  other  ministries  and  private  bodies  such  as 
Trade Associations or Chambers of  Commerce. Private sector institutions  participate 
in both the formulation and the monitoring of the implementation of the policy. 

22 Developments in SME policy should be seen in relation to developments in the context of  Industrial 

policy (see chapter 15-Industrial  policy) 

67 

The  simplification  of the  business  environment,  within  which  SMEs  operate,  is  an 
important  policy  objective  in  Cyprus.  For  example  a  single  number  is  given  to  each 
company  registered  and  all  companies  are  listed  in  an  easy  to  handle  computerised 
catalogue.  In  the  registration  procedure,  there  is  no  involvement  of  any  other 
government  department  apart from  the Department  of the Registrar of Companies and 
Official  Receiver.  These efforts  are welcomed  and should be further  sustained. 

Concerning  SME  definition,  Cyprus has adopted  provisions that  distinguish  between 
medium-sized,  small  and  micro-enterprises.  The  definition  is  in  line  with  the  EC 
definition  with respect to the number of employees.  Financial  data (turnover,  balance 
sheet) are not available for all enterprises. 

Chapter  17: Science  and  Research 

Cyprus  has  undertaken  further  measures  to  strengthen  its  capacity  to  implement  the 
acquis in the field  of Science and Research  since the previous report. 

Since  the  agreement  on  association  with  the  Fifth  Framework  Programme  for 
Science  and  Research,  Technological  Development  and  Demonstration  Activities 
(FP5) entered into force in May  1999, Cyprus has established  a National  Contact Point 
(NCP) system in order to promote participation  at national  and at European levels, and 
aiming  at  the  effective  utilisation  of  the  Fifth  Framework  Programme.  Cyprus  also 
participates in the FP5 Programme  Committees. 

One of the main  characteristics  of the agreement  is that it is based  on the principle of 
reciprocity.  Cyprus  opened  all  research  programmes  launched  at  national  level,  to 
institutions and researchers from  EU member states. 

In the  field  of European  co-operation  in  science  and technology  (COST)  Cyprus was 
accepted as a full  member in 1999. 

The  authority  responsible  for  the  formulation  and  implementation  of  the  national 
science  and research  policy is the Planning bureau,  in co-operation  with the Research 
Promotion  foundation.  This  Foundation  has  become  the  means  through  which  the 
planning  bureau's  strategy  and  policies 
in  Research  and  Development  are 
implemented. 

Overall  assessment 

In  Cyprus,  co-operation  in the field  of  science  and technology  is well  established  and 
participation  in  the  FP5  should  enable  Cyprus'  authorities  to  become  more  familiar 
with Community rules and proceedings. 

For  the  further  development  of  the  sector  it  is  important  to  have  an  increase  in  the 
gross  domestic  expenditure  in  research  and  development  as  a  percentage  of  GDP 
which is relatively low (0.23%  in  1998). Within the framework  of the New Industrial 
Policy  for  the  Development  of  High  Technology  Industry  in  Cyprus,  the  concept  of 
incubators  for  high  technology  companies  and  centres  for  applied  research  and 
development  is  promoted.  However,  as  the  research  infrastructure  in  Cyprus  is 

68 

relatively  limited  and  the  main  research  institutions  are  within  the  public  sector, 
further  concrete  measures  are  required  in  order  to  gradually  increase  the  support  of 
this sector. 

The  human  resources  available  to  the  Research  Promotion  Foundation  increased  in 
September 1999. Apart from  launching national research programmes the Foundation 
is  actively  involved  in  the  co-ordination  and  encouragement  of  the  participation  of 
research  and 
Cypriot 
Development.  It  has  also  included  among  its  priorities  the  improvement  of  links 
between academia and research institutions with the industry and SMEs. 

the  Fifth  Framework  programme 

institutions 

for 

in 

Chapter  18:  Education  and  training 

Since  the  last  regular  report  Cyprus  has  achieved  progress  in  the  alignment  of  its 
legislation  as  well  as  capacity  building  measures  with  the  acquis  in  the  field  of 
education  and  training. Cyprus  has  continued  to  participate  actively  in  a  number  of 
Community  programmes  (see  bilateral  part  A).  Once  the  necessary 
legal 
arrangements  have  been  completed  by the  end  of  this  year, Cyprus  should  take  part 
from  2001 in  the second  phases  of  Socrates and  Leonardo da Vinci  programmes,  as 
well as in the new Youth programme, which incorporates European Voluntary Service 
activities. 

Concerning  the  issue  of  non-discrimination  towards  EU  citizens  in  the  field  of 
education, a Council of  ministers decision, which provides for  the recognition of  the 
European  Baccalaureate  as equivalent  to  the  corresponding  qualifications  in  Cyprus, 
entered into force at the end of 1999. 

Concerning  reforms  in the field  of  education, training  and  youth, in particular  as 
regards the establishment  of  a National  System of  Vocational Qualifications  relevant 
amendments/provisions  have  been  included  in  the  new  law  of  the  Human  Resource 
Development  Authority (HRDA). This human resource development  law published in 
November  1999,  foresees,  amongst  other  things,  the  development  of  vocational 
qualification  standards, which will constitute a major  step forward  in the transparency 
and  mutual  recognition  of  qualifications.  Sustainable,  coherent  and  comprehensive 
development  of  a  national  system  of  vocational  education  and  training  (VET) 
standards,  from  initial  to  continuing  vocational  education  and  training,  remains  a 
priority. 

The newly established  Cyprus Council on Academic Recognition and Equivalence of 
Tertiary Education Diplomas has started its work and it is expected that by the end of 
the  year  the  council  will  be  fully  operational.  This  will  further  enhance  the 
transparency of  the educational  qualification  structure. In addition, a proposal for  the 
reform  of  secondary  vocational  education  and  training  by the  Minister  of  Education 
has been  developed. The  proposal  addresses  a  number  of  issues  such  as the need  to 
upgrade curricula, the need to develop the capacities of  secondary VET, retraining of 
teachers etc. 

69 

Overall assessment 

In  general, appropriate  legislation  is in  place and  does  not  conflict  with  EC laws. In 
addition, basic structures are already in place to enable participation in EC  education, 
vocational  training  and  youth  programmes.  Cyprus  has  made  good  progress  in  the 
field  of  education  and training, however, further  efforts  in strategic policy making  as 
well as implementation  are required  especially in order to ensure the development of 
high  quality  vocational  education  and  training  as  part  of  an  open,  flexible  and 
transparent lifelong learning system. Besides, it will be necessary to set up institutions 
and  procedures  for  the  future  use  of  European  Community  financial  instruments 
relevant for the ongoing improvement of vocational education and training. 

As  regards  Community  programmes,  the  national  Co-ordinating  Committee  is  the 
central body for setting the general policy in relation to the participation of Cyprus in 
the said  programmes. The Ministries  of  Labour  and  Social  Insurance, Education  and 
Culture  and  Justice  and  Public  Order,  are  the  competent  national  authorities 
responsible for their implementation. 

As  regards  the  education  of  children  of  migrant  workers,  the  principles  of  the 
existing  legislation  (which  have  to  be  implemented  effectively),  are  in  line  with  the 
acquis.  In particular  there are already provisions in public schools for  facilitating  the 
reception  of  the  children  of  migrants. Specifically,  a  number  of  teachers  have  been 
trained  especially  for  teaching  the  local  language  and  facilitating  the  integration  of 
these  children  in  the  school  system.  The  main  EU  languages  are  already  taught  in 
public  schools,  the  system  for  providing  means  for  learning  the  local  as  well  as 
foreign  languages  is  in  place  and  could  further  be  enhanced  according  to  arising 
needs.  In  addition,  in  order  to  increase  the  capacity  for  teaching  these  children  a 
special  teacher-training  programme  is  being  developed.  This  programme,  besides 
enhancing  the  contents  of  the  existing  training,  also  provides  for  the  training  of 
additional teachers. 

As  regards  non-discrimination  toward  EU  citizens  in the  field  of  education,  free 
circulation  of  persons  and  the  principle  of  non-discrimination,  in  particular,  on 
grounds of nationality must be applied throughout the fields of education, training and 
youth. Concerning the equal treatment for students in higher education, regarding fees 
and  admission  procedures,  further  alignment  with  the  acquis  is  needed  in  order  to 
avoid discrimination between Cypriots and EU nationals. 

With  respect  to  reforms  in  the  fields  of  education,  training  and  youth,  the 
competent  authority is the Ministry of  Education  and Culture. Concerning  vocational 
training,  The  Ministry  of  Labour  and  Social  Insurance  is  the  authority  responsible 
involved  in  the  formulation  of  the  national  policy  and  the  promotion  of  relevant 
measures. The Youth Board of  Cyprus is the competent authority for  the  formulation 
and implementation  of  the national youth policy. Youth organisations are represented 
in the Youth Board, a statutory public corporation  operating under the auspices of  the 
Ministry of Justice and Public Order. 

70 

Chapter 19: Telecommunications  and Information  Technologies 

the 

Since 
telecommunications and information technologies sector. 

regular 

report  some  progress  has  been  achieved 

last 

in 

the 

For  the  telecommunication  market,  various  harmonisation  measures  have  been 
undertaken  by administrative  acts, for  example  the  acquis  on technical  requirements 
on  various  telecommunications  systems,  the  introduction  of  a  single  European 
emergency  call  number,  the  international  telephone  access  code as well as  reserving 
frequency  bands  for  land-based  mobile  communications  (GSM),  land-based  public 
radio paging (ERMES) and digital European cordless telecommunications (DECT). In 
addition, from  August  to November  1999 the Cyprus Telecommunications  Authority 
(CYTA) lowered international tariffs, in part up to 59%. 

A new  tariff  rebalancing  package has been under  discussion  in Parliament  since July 
2000.  This  new  tariff  rebalancing  scheme  includes  new  tariffs  in  three  steps  up  to 
April 2001 and increases relating to fixed local telephony (installation, rental and local 
costs) and  leased  lines. It also includes reductions on international  and  long  distance 
calls in the fixed network, mobile telephony and ISDN. 

As  to  the  current  regulatory  system  and  the  postal  market,  although  legislation  is 
under  preparation,  no  concrete  developments  since  the  last  regular  report  have  been 
recorded. 

Overall  assessment 

Whereas infrastructure  and services are well advanced in Cyprus, considerable  efforts 
have to be made to adopt a regulatory framework  in line with the acquis, in particular 
in the field of gradual market opening and licensing. 

Steps  have  been  taken  concerning  the  establishment  of  an  independent  National 
Regulatory  Authority  covering  the  telecommunications  sector  as  well  as  the  postal 
service.  The  establishment  of  an  independent  regulatory  authority,  identified  as  a 
short-term  priority by the Accession Partnership, has not been met yet. This authority 
will have to be sufficiently  staffed  in order to carry out the essential tasks of  drafting 
regulations  and  ensuring  market  surveillance.  In  addition,  a  new 
law  on 
telecommunications  to align with the acquis needs to be adopted in the short-term  as 
identified  in  the  Accession  Partnership  in  order  to  put  in  place  the  regulatory 
framework  required. 

As  the  use  of  Very  Small  Aperture  Terminal  (VSAT)  networks  for  providing  non-
voice services is permitted, the Cyprus market has further  been opened to competition. 

The  main  regulatory  functions  are  currently  exercised  by  the  Directorate  of 
Telecommunications  of 
the  Ministry  of  Communications  and  Works.  The 
administrative capacity of the Directorate of Telecommunications was enhanced in the 
last two years through the recruitment of additional personnel, training of staff  and the 
purchase  of  modern  equipment,  e.g.  a  sophisticated  mobile  radio  frequency 
monitoring station. 

71 

Concerning  the  postal  market,  there  is  not  yet  provision  for  a  Universal  Service 
Provider, but in practice the Department of Postal Services offers the universal service 
to  98% of  the  population.  In  addition,  there  is  no  licensing  regime  in  the  existing 
postal  field.  The  regulatory  functions  in  the  field  of  postal  services  are  currently 
exercised  by the  Ministry  of  Communication  and  Works.  Although  Cyprus  Post  is 
still a  civil service department  there  were improvements  in its profitability  last  year. 
Meanwhile, Cyprus Post has, in its capacity as a member of  the European  association 
of  postal  public  operators  (USPs)-PostEurop,  established  a  full-participation  in  a 
cross-border QoS end-to-end  measuring-UNEX. 

Chapter  20:  Culture  and  audio-visual  policy 

During the period covered by this report, Cyprus has made further  substantial progress 
in alignment with the culture and audio-visual policy acquis. 

In  February  2000  Cyprus  amended  its legislation  aiming  at  achieving  full  alignment 
with the audio-visual  acquis. 

Cyprus,  being  a  party  to  the  Convention  of  the  Council  of  Europe  on  trans-frontier 
television, also ratified  the Protocol amending the above Convention in February. 

In January 2000, implementing regulations to the Radio and Televisions Stations Law 
were approved. 

The Radio-Television Authority completed its main recruitment phase, thus providing 
the  basis  for  an  effective  implementation  of  the  legal  framework  concerning  private 
television and radio stations. 

A set of  Regulations was approved, as mentioned  above, allowing the Cyprus Radio-
Television Authority to proceed with the issuing of  permanent licences for  all private 
television  and  radio  stations; furthermore  this  authority  can  impose  fines  and  other 
penalties  on  stations  which  violate  the  law.  In  addition,  the  Cyprus  Broadcasting 
Corporation  set  up  a  self  regulating  mechanism  during  1999, which  is  headed  by  a 
three member Committee. 

Overall  assessment 

On  the  whole,  Cyprus  has  made  substantial  progress  and  reached  a  high  degree  of 
alignment with the Community  acquis. 

The  new  law  has  brought  Cyprus  audio-visual  legislation  closer  to  the  acquis. 
However,  further  progress  and  clarification  will  be needed, in  particular,  concerning 
certain definitions, public access to major events and right to reply. 

Chapter  21:  Regional  policy  and  co-ordination  of  structural 

instruments 

Over the reporting period, few new developments are to be reported in this area, given 
that most  of  the elements required  to participate in EC structural  policies are already 
in place. A decision was however taken in April 2000 by the Council of Ministers for 

72 

the  further  involvement  of  local  authorities  in  the  programming  and  implementation 
of development programmes. 

Overall  assessment 

Cyprus can be considered  as being very close to having the full  capacity to implement 
structural policies. 

As  regards  territorial  organisation,  Cyprus  administration  relies  on  the  division  of 
the island into six districts and 33 self-governing  municipalities,  as well as 352 village 
authorities.  Cyprus  still  needs  to  submit  to  the  Commission  a  proposal  for  a 
provisional  definition  of NUTS Levels 2, 3 and 4 regions. 

Concerning  the  legislative  framework,  no  further  legislative  initiatives  appear 
necessary in order to implement the EC structural  policy acquis. 

As regards preparation  of programming, the Planning Bureau (comprising a staff  of 
57  persons)  is  the  national  planning  and  co-ordination  authority,  which  is  also 
responsible  for  medium  and  long  term  macroeconomic  planning.  The  administrative 
capacity seems to be  sufficient. 

Since  1960,  the  Government  of  Cyprus  has  drawn  up  five  year  national  Strategic 
Development Plans (SDP). The current  SDP covers the period  1999-2003. The SDP is 
implemented  annually  through  the  budget  category  of  development  expenditure. 
Programming  of  expenditure  is  established  on  an  annual  basis  with  a  Memorandum, 
issues.  This 
which  accompanies 
procedure is to a large extent in line to meet the pluri-annual  commitment  requirement 
needed by the Structural Funds. 

the  budget  document  covering  multi-annual 

In  the  field  of  administrative  co-operation,  co-ordination  of  government's  policies 
for  regional  development 
is  performed  by  the  Planning  Bureau.  Concerning 
evaluation,  although  Cyprus  has  already been  implementing  an ex-post  assessment  of 
the  development  projects  within  the  planning  mechanism,  the  system  is  not  at  the 
level required by Structural Funds regulations. 

The  Ministry  of  the  Interior  co-ordinates  consultations  with  all  local  authorities  on 
development  programmes  and  other  related  issues,  through  the  District  Officers 
(Community  Councils)  or  the  Directorate  responsible  for  Town  Planning  and 
Housing.  However,  the  current  system  will  have  to be  adjusted  in  order  to  meet  EC 
requirements. 

In  the  field  of  financial  and  budgetary  management,  the  budgetary  procedures 
required  for  the implementation  of the  Structural  Funds  are generally  in line with the 
provisions  of  the  relevant  regulations.  The  Directorate  for  the  Development 
Expenditure  of  the  budget,  within  the  Planning  Bureau,  is  responsible  for  the 
formulation  as well as the implementation  of development  expenditure. 

Financial  control  is  carried  out by the independent  Internal  Audit Directorate  of the 
Treasury,  external  auditing  is  carried  out  by  the  Office  of  the  Auditor-General.  The 
institutional,  legal  and administrative framework  for the financial  control  of  structural 

73 

assistance is already to a large extent in place. (See chapter 28-Financial control, and 
Chapter 29- Financial and budgetary  provisions) 

Cyprus  development  objectives  are  generally  in  line  with  the  objectives  and  policy 
framework  of the EC structural policy as stipulated in the regulations. No further  legal 
initiatives seem to be necessary in order to implement the EC structural policy  acquis. 
With the exception of evaluation, and pending minor adaptations concerning  financial 
and budgetary management, Cyprus administrative and budgetary framework  appears 
to be already in line with the acquis. 

Chapter  22:  Environment 

Since the last  regular  report  there  has been  concrete  progress  in  the  transposition  of 
the acquis  and  several  laws and  orders have been  adopted. Administrative  structures 
need to be further  strengthened. 

A  programme  for  legislative  transposition  and  implementation  to  align  Cyprus 
legislation, institutions, programmes and policies to the acquis, has been  finalised. 

As regards horizontal legislation, at the end of 1999 Cyprus signed a ratification  law 
on  the  United  Nations  Convention  on  Environmental  Impact  Assessment  in  a 
Transboundary  Context.  This  will  assist  Cyprus  implement  article  7  of  the  EIA 
Directive  (involvement  of  the  neighbouring  countries  in  case  of  projects  having  a 
transboundary  effect).  Furthermore, in  order  to  reduce greenhouse  gas emissions, an 
Action Plan for  improving the efficiency  of  the energy sector and  a Strategic Energy 
Plan for  the future  accession  of  Cyprus to the EU have been completed. In July 2000 
the Environmental  Information  Directive was fully  brought  in line through  a Cypriot 
Law  on  Freedom  of  Access  to  Environmental  Information,  providing, inter  alia,  for 
the publication of a State of the Environment report every two years. 

As regards air quality, there has been little change since the last report, although  the 
acceleration of transposition in this area was identified  as a short-term priority. At the 
beginning of  this year, Cyprus enacted  a new law on type approval of  motor  vehicles 
that will enable it to request an EC certificate  of  conformity  for all imported  vehicles 
upon accession. 

In  the  field  of  waste  management,  in  April  2000  a  law  was  passed  ratifying  the 
amendment  to  the  Basel  Convention  concerning  hazardous  waste,  Cyprus  partially 
fulfilled  its short-term Accession Partnership priority. 

With respect to water quality, several legal orders adopting ambient quality standards 
and  measurement  methods, were enacted  at  the beginning of  2000 for  bathing  water 
and  surface  waters  intended  for  the  abstraction  of  drinking  waters, Cyprus  therefore 
partially fulfilled  its Accession  Partnership  short-term  priorities. In the framework  of 
the LIFE programme a project for the monitoring of the quality of waters in reservoirs 
was completed in April 2000. 

In  the  field  of  nature  protection,  an  interim  Decision  of  the  Council  of  Ministers 
taken  in  March  2000  provided  policy  guidance  for  the  Akamas  Peninsula.  The 
government will make its final decision on the protection measures to be taken once it 

74 

has completed its dialogue with the various interested parties. With the designation of 
NATURA 2000 sites not due for formal  completion before  the latter half  of  2001 the 
situation  will  need  to  be  monitored  in  the  interim  period  to  ensure  that  Cyprus 
complies with the spirit of the legislation. 

At the end of  1999 a law ratifying  the Desertification  Convention was passed and the 
Council of Ministers approved the ratification  of the Convention for the Protection of 
Migratory  Species  of  Wild  Animals.  In  July  2000  legislation  in  order  to  take  full 
account of the stricter protection requirements for CITES species was approved. 

With  regard  to  industrial  pollution  control  and  risk  management,  no  major 
developments have been recorded since last year. 

In the field of chemicals and genetically modified organisms, in 2000 implementing 
regulations under the Animals (Scientific  Experiments) Law were passed, in addition, 
the  amended  Protocol  to  the  European  Convention  for  the  Protection  of  Vertebrate 
Animals Used for Experimental and Other Purposes was ratified, which completed the 
alignment with the  acquis. 

Concerning  nuclear  safety,  although  legislation  is  under  preparation  no  concrete 
progress since the last regular report has been reported. 

In  the  Environment  Service,  two  additional  posts  have  been  approved  by  the 
parliament.  There  are  provisions  in  the  Budget  for  2000  for  the  enhancement  of 
monitoring operations through the purchase and installation of upgraded equipment. 

Overall  assessment 

Cyprus  continued  with  its  harmonisation  measures  in  terms  of  transposition  of 
legislation  as well as strengthening  administrative  capacity, but given the  importance 
and  scope  of  the  environment  acquis  this  sector  should  be  given  further  priority 
attention. 

Concerning  horizontal  legislation,  harmonisation  has  made  good  progress  so  far 
although  efforts  are  still  needed  to  achieve  alignment  with  the  acquis  as  regards 
environmental  impact  assessment,  policies  and  measures  aiming  at  the  reduction  of 
greenhouse  gas emissions  and  reporting  requirements. It is expected  that  this will be 
one of the first areas to achieve full  alignment. 

With regard to air quality, further  alignment with the acquis is needed  in areas such 
as  air  quality  framework,  air  pollution  by  ozone  or  the  control  of  volatile  organic 
compound  (VOC)  emissions  resulting  from  the  storage  of  petrol  and  its  distribution 
from  terminals  to  service  stations.  On  the  latter  point,  Cyprus  has  issued  a  legal 
notification  under  the  Atmospheric  Pollution  Control  Law,  by  which  all  existing 
service  stations  are  obliged  to  install  the  necessary  equipment  to  comply  with  the 
relevant  acquis  until  the  beginning  of  2003.  However,  according  to  the  Accession 
Partnership  the  transposition  in  the  field  of  air  quality  should  be  accelerated  in  the 
short-term. 

75 

In  the  field  of  waste  management,  Cyprus  rates  of  recycling  are  limited,  partly 
because  the  relevant  legislation  is  missing.  A  Household  Recycling  Partnership 
programme is under way, aiming to demonstrate the necessity for  recycling, cultivate 
awareness  and  establish  a  pilot-recycling  network.  Further  alignment  is  needed 
regarding,  inter  alia,  hazardous  waste, supervision  and  control  of  shipment  of  such 
waste,  packaging  and  packaging  waste  as  well  as  batteries  and  accumulators 
containing  dangerous  substances.  The  acceleration  of  transposition  of  the  acquis  in 
this  area  should  be  treated  as  a  short-term  priority  according  to  the  Accession 
Partnership. 

Water  is  particularly  scarce  in  Cyprus. Water  protection  therefore  features  highly  in 
Cyprus  environmental  policy. Strict  provisions apply for  discharges into any waters, 
so that a basis for alignment with the acquis in the field of water quality exists. Much 
of  the  acquis  relating  to  drinking  water  is  still  to  be  transposed.  The  necessary 
administrative and technical infrastructure  is however largely in place. 

Nature  protection  has  been  subject  to  legislation  since  the  early  60s  (town  and 
country planning law, forest  law, fisheries  law, law on game and wild birds). Further 
alignment  is needed  with regard to trade in endangered  species, wild birds as well as 
the  habitats  directive,  although  concerning  the  latter,  Cyprus  is  party  to  the  Bern 
Convention  on  the  protection  of  habitats. How  Cyprus  treats  the  Akamas  issue  will 
need to be monitored closely in the coming months. 

Parts of the acquis in the field of industrial pollution control and risk management 
still need to be transposed, for instance concerning integrated pollution prevention and 
control, air  pollution  from  industrial  plants  or  the  control  of  major  accident  hazards 
(Seveso II). The application  of  the acquis  on large combustion  plants in Cyprus  still 
requires  clarification.  A  project  on  Integrated  Pollution  Prevention  and  Control  and 
Chemical Substances is being implemented. 

The basic institutional and administrative structures for  effective  control of  industrial 
pollution and risk management have been established. Within this context most of the 
industrial plants have been licensed and are regularly inspected under the Atmospheric 
Pollution Control Law and the Water Pollution Control Law. 

In the field of chemicals, genetically modified organisms, the competent authority in 
this field  is the Director of Veterinary Services of the Ministry of Agriculture, Natural 
Resources  and  Environment.  There  is  only  one  laboratory  in  Cyprus  carrying  out 
animal  experiments.  Further  efforts  are  needed  to  complete  transposition  and 
implementation of the legislation relating to chemicals. 

With  respect  to  nuclear  safety  and  radiation  protection,  under  the  present 
arrangements five different  ministries are involved in the area of  radiation  protection. 
(See  also  Chapter  14,  Energy)  There  are  3  monitoring  stations  used  for  an  early 
warning  system. Further  alignment  with  the acquis  is needed  in such  areas as  health 
protection  of  individuals against  ionising radiation  in relation to medical exposure or 
the  supervision  and  control  of  shipments  of  radioactive  waste. In  the absence of  the 
legal framework  Cyprus reports that there is still a high level of practical compliance. 

76 

As regards administrative  capacity, at the national level, the Council of  Ministers has 
overall  responsibility  for  the formulation  of  environmental  policy.  The  Environment 
Service  of  the  Ministry  of  Agriculture,  Natural  Resources  and  Environment  is 
mandated  to advise on environmental  policy, ensure implementation  and  co-ordinate 
the  programmes  for  the  protection  of  the  environment.  The  enforcement  of 
environmental legislation is in the hands of the respective departments. 

An important component in the environmental management mechanism is the Council 
for the Environment, with a wide representation of NGOs, which advises the Minister 
and on environmental problems. 

The  short-term  priorities  of  the  Accession  Partnership  need  further  attention, 
especially the adoption of a strategy and detailed directive-specific  programme for the 
transposition,  implementation  and  enforcement  of  the  EC  environmental  acquis  as 
well as the development of a plan for financing investments (directive specific), based 
on estimations of costs of alignment and realistic sources of public and private  finance 
year-by-year.  However,  the  approximation  policies  and  programmes  have  been 
incorporated into the new Strategic Development Plan 1999-2003. 

Chapter  23:  Consumers  and  health  protection 

Since the last regular report Cyprus has achieved some progress in this field. 

In the field  of  safety related measures, the Certain Aspects of the Sale of  Consumer 
Goods  and  Associated  Guarantees  Law  entered  into  force  in  January  2000,  thus 
improving alignment  with the acquis  in the field  of  consumer protection  in this area. 
Through legislative amendments, adopted in July 2000, progress was also achieved in 
the field of the liability of defective products. 

With  regard  to  non-safety  related  measures,  the  Consumer  Contracts  Away  from 
Business  Premises  Law, relating  to  the  acquis  in  the field  of  doorstep  sales, entered 
into force in January 2000. Also, a new law incorporating the provisions of the acquis 
on  the  protection  of  consumers  in  respect  of  distance  contracts  entered  into  force  in 
March 2000. 

Concerning  a  functioning  market  surveillance  mechanism 
the  Control  of 
Misleading  and  Comparative  Advertising  Law was adopted  with immediate  effect  in 
June 2000, bringing Cyprus  legislation further  in line. In addition, progress was made 
in  the  field  of  product  pricing  through  legislation  adopted  with  immediate  effect  in 
July 2000. 

Overall  assessment 

The  present  state  of  compliance  with  the  acquis  is  already  quite  satisfactory. 
Transposition is continuing in Cyprus, with no major  difficulties  with the adoption or 
with the practical implementation. 

Overall  responsibility  for  the  enforcement  of  legislation  concerning  general  product 
safety  and  dangerous  imitation  rests  with  the  Minister  of  Commerce,  Industry  and 

77 

Tourism, and with its Competition and Consumer Protection Service which acts as the 
national  market  surveillance  authority. This  Service  is staffed  with  30  people, 25 of 
them  dealing  exclusively  with  consumer  protection  matters. The  Minister  can  (by  a 
reasoned  decision) prohibit  any person from  supplying products or require a  warning 
to consumers  in the case of  unsafe  products. The Department  of  Veterinary  Services 
with  56  veterinarians  of  the  Ministry  of  Agriculture,  Natural  resources  and 
Environment  assumes  the  responsibility  for  veterinary  matters  related  to  consumer 
protection. 

The Cyprus law  on unfair  contract  terms is not  yet in conformity  with the  acquis,  in 
particular  concerning  the  power  of  consumer  associations  to  take  actions  before 
courts.  Cyprus  does  not  yet  have  laws  covering  time-share  and  consumer  credit; 
however, new legislation  in these fields  is under preparation. In non-safety  fields, the 
Minister  of  Commerce,  Industry  and  Tourism  can  delegate  to  the  Competition  and 
Consumer  Protection  Division  the  control  of  the  application  of  the  national  law 
implementing  the Package Travel  Directive. The Division  has, according  to the Law 
on Unfair  Terms in Consumer  Contracts, the authority to proceed  to an injunction  in 
the case of unfair contract terms. 

Education  programmes  for  consumers  have  been  held  by  the  Cyprus  Consumer 
Association,  which  is a non-government  organisation  registered  since 1973, and  is a 
full member of Consumers International since 1980. 

In the field  of the functioning  market surveillance mechanism, concerning redress  for 
consumers; judicial  measures are open  to consumers  on the basis of  civil law  and in 
some  cases,  on  the  basis  of  the  criminal  law. The  Director  of  the  Competition  and 
Consumer  Protection  Division  of  the  Ministry  of  Commerce,  Industry  and  Tourism 
may, either after  a complaint made by a consumer, or ex proprio motu, intervene and 
enforce compliance with the Law through a process of  injunctions. 

The  Competition  and  Consumer  Protection  Division  of  the  Ministry  of  Commerce, 
Industry and Tourism will need to be reinforced  to cope with implementation issues as 
a  result of  compliance with new  areas of  consumer  protection, and staff  will need  to 
be  trained  accordingly.  There  are  two  testing  laboratories,  the  Higher  Technical 
Institute and the Government General Laboratory. 

Chapter  24:  Co-operation  in the  fields  of  justice  and  home  affairs 

Since the last regular  report, progress has been  registered  in Cyprus especially in the 
fields  of  judicial  co-operation  in  criminal  and  civil  matters  and  concerning  the  fight 
against fraud  and corruption as well as in the area of asylum through the setting up of 
an institutional  framework. 

In the field  of  data protection, although legislation is under preparation, no concrete 
developments can be reported since the last regular report. 

As  regards  visa  policy,  Cyprus  has  been  gradually  aligning  its  visa  policy  since 
October  1999.  It  has  extended  visa  requirements  to  nationals  of  Commonwealth 
countries, and  has published  an  order  revising  the visa  free  list  of  countries. Cyprus 

78 

also harmonised in November 1999 its policy with regard to travel facilities for school 
pupils from third countries resident in a Member State. 

Concerning  border control, some progress has been registered. The 1999  Accession 
Partnership  had identified  as short-term  priority to upgrade border control  equipment 
and  to  improve  training  of  personnel  to  prevent  illegal  immigration  as  well  as  to 
ensure further  progress in the detection of forged  documents. Border guards and other 
police  officers  took  part  in  1999  and  2000  in  training  provided  under  the  Odysseus 
and the Oisin programmes. Cyprus has already adopted  an upgrading programme  for 
acquiring  border  control  equipment  such  as  coastal  radar,  patrol  boats  and  forgery 
detection equipment at ports of entry. 

In  addition, Cyprus  is upgrading  its existing  police computer  network  by  purchasing 
new equipment to install at all entry points and police stations.  The installation of  the 
Automated Fingerprint Identification  System (AFIS) is underway. 

As  far  as  migration  is  concerned,  the  Aliens  and  Immigration  Law  was  enacted  in 
March  2000. The  problems  faced  by the  office  of  the  Migration  Officer  (charges of 
corruption  and  pending  applications  for  visa,  about  17  600)  led  the  Council  of 
Ministers  to  decide  in  November  1999  to  restructure  the  Office  of  the  Migration 
Officer,  who  is  the  main  authority  for  migration  policy,  and  to  unify  it  with  other 
Ministry  Services  by  creating  a  Public  Registry  Department  with  three  separate 
Divisions,  i.e.  the  Aliens  Division,  the  Citizenship  and  Passports  Division  and  the 
Registration Division. 

In July 2000 an amendment  to the “Aliens and Immigration Regulations”  concerning 
family reunification  was enacted. 

Cyprus  has  made  further  progress  in  aligning  with  the  acquis  relating  to  the 
organisation  and the development  of  the CIREFI (Centre for  Information,  Discussion 
and Exchange on the crossing of frontiers and immigration) in May 2000. The contact 
point  for  the  CIREFI  information  system  is  the  Police  Aliens  and  Immigration 
liability)  Law  on 
Department.  In  addition,  the  Aliens  and  Immigration  (Carriers 
combating illegal immigration was enacted in March 2000. 

In the field of asylum, Cyprus has made progress since the previous Regular Report as 
it  adopted  new  legislation  on asylum  in  January 2000  thus  fulfilling  partially one of 
the  short-term  priorities  in  the  Accession  Partnership.  Generally  speaking,  the 
legislation is in line with the 1951 UN Convention (and its 1967 Protocol) relating to 
the status of  refugees  and is aimed at aligning with the acquis. This law provides  for 
the setting up of  a Refugees  Authority composed  of  the Permanent Secretaries of  the 
three key Ministries. Under this law an asylum seeker  can appeal any decision to the 
Ministry  of  the Interior  and  if  the later  decision  is still negative, to the Court. There 
are also provisions for legal and linguistic assistance. 

Regarding  police  co-operation  and  the  fight  against  organised  crime,  Cyprus 
enacted  in  January  2000  the  Combating  of  Trafficking  of  Persons  and  Sexual 
Exploitation of Minors Law, aimed at bringing its legislation in line with the  acquis. 

79 

With a view to the fight  against fraud  and corruption, Cyprus signed the Council of 
Europe Criminal Law Convention  on Corruption  in  1999 and in July 2000, the House 
of  Representatives  adopted  the  act  ratifying  the  Convention,  thus  fulfilling  a  short-
term priority in the Accession Partnership. Cyprus applied in March 2000 to accede to 
the  1997  OECD  Convention  on  Combating  Bribery  of  Foreign  Public  Officials  in 
International  Business  Transactions,  as  required  by  the  short-term  priorities  of  the 
Accession Partnership, Cyprus should  sign this convention. Cyprus signed the Council 
of Europe Civil Law Convention  on Corruption in November  1999. 

Cyprus  is  a  member  of  the  Group  of  States  against  Corruption  (GRECO),  and  has 
volunteered  to  be  among  the  first  ten  participating  States  to  be  evaluated  in  the 
GRECO framework  before the end of 2000. 

Concerning  drugs,  the  Drugs  and  Pyschotropic  Substances  Law  was  amended  in 
January  2000  to  criminalise  the  sale  of  cannabis  seeds.  In  view  of  Cyprus' 
participation 
in  Reitox  (information  network  on  drugs  and  drug  addiction) 
preparations  for  the  necessary  legislative  and  administrative  arrangements  for  the 
appointment  of a national  focal  point  and representative  for the European  Monitoring 
Centre for Drug Addiction  are underway. 

In July 2000 a bill  establishing the Anti-Drug Board  and Fund which will be the main 
co-ordinating  body  for  public  and  private  initiatives  in the  field  of  drug  demand  and 
drug supply reduction was enacted. 

As regards money laundering,  Cyprus has further  intensified  its preventive  measures 
necessary  for  ensuring  protection  against  criminal  activities,  including  money 
laundering.  Cyprus  achieved  further  alignment  with  the  acquis  as  it  enacted  in 
October  1999 an amendment to the Prevention  and  Suppression  of Money Laundering 
Activities  Law  concerning  the  threshold  amount  of  customer  identification.  The 
in 
special  Unit  for  Combating  Money  Laundering  (MOKAS)  was  reinforced 
November  1999  (from  9  to  14  people),  thus  fulfilling  a  short-term  priority  in  the 
Accession Partnership. 

In  the  field  of  customs  co-operation,  a bilateral  Memorandum  of Understanding  on 
Mutual  Administrative  Co-operation  on  Customs  Matters  was  signed  in March  2000 
between  the  Customs  Administrations  of  the  United  Kingdom  and  the  Republic  of 
Cyprus. 

In an effort  to reinforce the Department of Customs and Excise's personnel,  especially 
at  the  Investigation  Section  of  the  Customs  Headquarters  and  at  the  Preventive 
Services  of the  Customs  Stations, the procedure  of filling  about  85 vacant  posts  was 
initiated.  Furthermore,  seminars  on  risk  analysis  for  customs  officers  were  organised 
in June 2000. 

As  regards judicial  co-operation  in  criminal  and  civil  matters,  Cyprus  ratified  the 
European  Convention  on  Mutual  Assistance  in  Criminal  Matters  and  its  additional 
protocol,  which  entered  into  force  in May  2000,  thus  fulfilling  one  of the  short-term 
priorities  in  the  Accession  Partnership.  Also,  Cyprus  ratified  in  June  2000  the 
European  Convention  on  the  Transfer  of  Proceedings  in  Criminal  Matters.  The 
ratification  law includes  provisions facilitating  the implementation  of Protocols  6 and 

80 

7 of the European Convention for the Protection of Human Rights. In addition, Cyprus 
ratified  in January 2000 the Convention on Civil Procedure as well as the Convention 
on  International  Access  to  Justice.  In  December  1999  an  amendment  to  the 
Ratification  Law  of  the  UN  Convention  on  the  Elimination  of  all  forms  of  Racial 
Discrimination was enacted. 

The  Department  of 
the 
Information  Technology  Services 
computerisation  in  the  field  of  public  services  is  currently  developing  an  automated 
court administration. 

responsible 

for 

Overall  assessment 

Cyprus has undertaken considerable efforts  to align its legislation  and to reinforce  its 
administration  in  the  field  of  justice  and  home  affairs  and  has  therefore  achieved  a 
good base for further  alignment and implementation efforts. Cyprus' infrastructure  and 
equipment have already reached a good level, and all the staffing  of the administration 
is  in  general  sufficient,  except  for  specific  fields  such  as  the  Refugee  Authority. 
However further  training is needed and co-ordination  between the relevant  authorities 
has to be improved. 

Concerning data protection, Cyprus signed the Council of Europe Convention for the 
protection of individuals with regard to automatic processing of personal data in 1986, 
but  has  not  yet  ratified  it.  However,  the  relevant  harmonisation  legislation  is  under 
preparation and the adoption of legislation in this field as well as the ratification of the 
Council of Europe Convention should be accelerated. 

As  regards  visa  policy,  Cyprus  should  continue  the  process  of  aligning  its  visa 
legislation  and  practice.  It  has  several  bilateral  agreements  for  issuing  visas  at  the 
border  with  Lebanon,  Syria  and  Israel  as  well  as  bilateral  merchant  shipping 
agreements  regarding  seamen  in  transit,  which  are  not  aligned. Cyprus  should  also 
provide an on-line system for  issuing visas.  Cyprus is undertaking efforts  to prepare 
for the issuing of a uniform  visa as well as to participate in the Schengen  Information 
System. 

With a view to border control, further  efforts  are needed as regards the  infrastructure 
in order to bring all points of  entry in line with the acquis, for  instance regarding the 
instalment of equipment for the detection of forged documents or the establishment of 
the  Schengen  Information  System.  As  far  as  international  airports  are  concerned 
(Larnaca  and  Paphos), the  architectural  plans  of  the  Larnaca  airport  will  need  to  be 
upgraded to be compatible with the Schengen requirements. 

As regards migration, due to its geographical situation, Cyprus is a target country and 
a potential transit area for illegal immigration. As the majority of illegal residents have 
legally,  e.g.  as  visitors  or  under  not-renewable  work  permits,  the 
entered 
implementation  of  the  legislation  on  combating  illegal  migration  has  to  be 
strengthened.  In  1999  1,966  non-nationals,  who  were  not  working,  were  arrested 
because they had overstayed their visa term. Also 396 non-nationals were found  to be 
working  illegally  (without  a  proper  visa).  Implementation  of  the  legislation  on 
combating illegal employment  as well as on expulsion also has to be strengthened. In 

81 

addition,  Cyprus  should  accelerate  its  efforts  as  regards  adopting  legislation  in  the 
field marriages of convenience. 

As  regards  asylum,  Cyprus  should  make  further  progress  in  developing  a  fair, 
effective  and  efficient  set  of  procedures  relating  to  the  treatment  of  asylum 
applications.  To  complement  the  Refugees  Law  enacted  in  January  2000,  6 
implementing  regulations  have  been  drafted,  which  need  to  be  adopted.  The 
implementation  capacity should  be strengthened, in particular through the creation of 
a Refugee Authority as foreseen in the Refugee  Law. 

Regarding  police co-operation, much  of  the necessary legislation  is already in  place 
through  ratification  of  major  international  conventions  and  the  transposition  of  EU 
decisions and joint actions. 

Although  Cyprus  has  no  specific  legislation  dealing  with  terrorism  and  terrorism-
related  offences,  provisions  are  contained  in  different  laws  and  regulations  such  as 
regarding the Convention Against Taking of Hostages. 

Organised  crime is relatively  rare in Cyprus, and  the overall  crime rate is one of  the 
lowest in Europe. The main criminal activities of local organised crime groups include 
narcotic  drugs  trafficking,  illegal  gambling,  extortion  and  prostitution.  Cypriot 
legislation  does  not  contain  a  definition  of  a  criminal  organisation,  therefore  it  will 
have to align its legislation in this regard. 

The Cyprus police co-operates closely with the police authorities of all Member States 
concerning  exchange  of  information,  for  example  in  the  fields  of  suspected  money-
laundering cases, illegal trafficking  in human beings or terrorist activities.  Finally, the 
Cyprus  Police  has  established  an  information  network  with  Interpol  as  regards  the 
exchange  of  information  on  suspected  money-laundering  cases,  unlawful  drug 
trafficking,  trafficking  of  nuclear  and  radioactive  substances,  illegal  immigration, 
motor vehicle crime and terrorist activities. The administrative capacity of  the police, 
however, should be reinforced  by additional training. 

As  regards  the  fight  against  fraud  and  corruption,  there  is  a  broad  legislation 
covering  both  active  and  passive  corruption.23  Still,  Cyprus  has  to  prepare  for 
accession  to international  instruments  including  European  conventions  and  protocols 
on the fight  against  fraud  affecting  the financial  interests of  the Communities and on 
corruption.  Cyprus  should  also  continue  to  strengthen  its  efforts  towards  alignment 
with  the  acquis  on  the  fight  against  fraud  affecting  the  financial  interests  of  the 
European Communities and on corruption. 

As regards the administrative  infrastructure,  public expenditure and control is within 
the sphere of competence of the Auditor-General, who is an independent officer  of the 
Republic. Investigation  of  corruption  cases  is  assigned  to  expert  police officers  who 
are  members  of  a  special  team  at  the  Criminal  Investigation  Department  (CID) 
Headquarters. Enforcement  and  co-ordination  of  antifraud  work  is carried  out  by the 
Unit  for  Combating  Money  Laundering  at  the  Law  Office  of  the  Republic,  the 

23 Criminal Code, Prevention of Corruption Law, Customs and Excise Law 

82 

Financial  Crime  Unit  of  the  Police  and  the  Special  Investigation  Unit  at  the 
Department  of  Customs  and  Excise.  Furthermore,  in  the  income  Tax  and  VAT 
Departments,  investigation  units  were  set  up  for  the  investigation  of  irregularities, 
including fraud  cases. The Attorney General co-ordinates all investigations concerning 
fraud. 

In  the  field  of  drug  prevention,  Cyprus  is a  party to  the  UN  Vienna  Convention  on 
narcotic  drugs  and  psychotrophic  substances.  Following  its  ratification  in  1990, 
amendments  to  the  existing  legislation  on  drugs,  together  with  new  laws  for  its 
implementation were adopted. 

Currently,  the  co-ordination  of  public  and  private  initiatives  in  the  field  of  drug 
demand  reduction  and  drug  supply  reduction  is  performed  by  an  inter-ministerial 
committee.  The  Drug  Law  enforcement  Unit  of  the  Police  and  the  Customs  and 
Excise  Department  co-operate  with  various  foreign  institutions  and  governmental 
organisations through the drug liaison  officers. 

As adequate implementation  of  the acquis requires the preparation of  a national  drug 
strategy and preparation for the participation in the European information  network on 
drugs  and  drug  addiction  (Reitox)  of  the  European  monitoring  centre  for  drugs  and 
drug addiction  (EMCDDA), Cyprus has to continue  with  its preparatory work for  its 
participation in Reitox. 

As  regards  money  laundering,  a  special  unit  for  combating  money  laundering 
(MOKAS), consisting  of  representatives  of  the Attorney  General, the Police and  the 
Customs  and  Excise  Department,  is  a  recognised  Financial  Intelligence  Unit  and 
member of the Egmont Group. (See also Chapter 4, free movement of  capital.) 

Cyprus ratified  the Council of Europe Convention on Laundering, Search, Seizure and 
Confiscation  of  the  Proceeds  from  Crime  already  in  1996.  Cyprus  legal  structure 
regarding money laundering is based on existing international  anti-money  laundering 
standards and  goes even further  than  the requirements. It does not matter  whether  or 
not  the  offence  was  subject  to  the  jurisdiction  of  the  Cyprus  courts.  Cyprus  has 
criminalised  laundering  of  proceeds  from  a  broad  range  of  enumerated  predicate 
offences.  The law applies to both natural and legal persons. There is a system for  the 
confiscation  of  proceeds,  which  includes  the  reversal  of  the  burden  of  proof  when 
assessing the benefit. 

In  the  field  of  customs  co-operation, the  full  computerisation  of  the Department  of 
Customs and  Excise  is a high  priority, therefore  Cyprus  has decided  to implement  a 
fully  integrated  Customs  Information  System,  which  should  be  completed  by 
September 2001. 

The  Department  of  Customs  and  Excise  is  in  close  co-operation  with  the  Customs 
Administrations of other countries, including those of the EU. 

Cyprus should further  improve its customs computer network and the development of 
information  derived  from  Memoranda  of 
risk  analysis,  using 
Understanding.  Besides,  Cyprus  should  reinforce  its  implementation  capacity  in 
particular with regard to inter–agency co-operation; mutual assistance agreements; the 

in  particular 

83 

establishment of a special investigation service with sufficient  resources, and adequate 
methods for  the fight  against  fraud  (including the introduction of  mobile  surveillance 
units). 

As  regards  judicial  co-operation  in  criminal  and  civil  matters, Cyprus  is  already 
party to most of the relevant conventions. It ratified  in 1999/2000 Protocol No 7 to the 
European  Convention  for  the  Protection  of  Human  Rights  and  Fundamental 
Freedoms, the European  Convention  on  the  transfer  of  sentenced  persons  as well  as 
the Hague Conventions on Civil Procedure and on International Access to Justice. 

The  Ministry  of  Justice  and  Public Order  is designated  under  all Conventions  as the 
Central  Authority or the Transmitting/Receiving  Agency and acts as the  co-ordinator 
for  the  execution  of  requests. Other  authorities  involved  in international  judicial  co 
operation  are,  among  others,  the  Judicial  Service  and  the  police.  A  Unit  for 
is  in  charge  of  improving  and  accelerating 
International  Legal  Co-operation 
International Co-Operation. 

Chapter  25:  Customs  Union 

Very  limited  progress  was  achieved  by  Cyprus  during  the  period  covered  by  this 
regular report. The Department of Customs and Excise has prepared an action plan for 
ensuring alignment and effective  implementation of the acquis by 2003. The adoption 
of  a  pre-accession  strategy  for  the  harmonisation  of  the  Cypriot  customs  legislation 
was identified  as a short-term priority in the Accession Partnership. 

Regarding  alignment  with  the  EC  customs  code  and  its implementing  provisions, 
some  preparatory  work  has  been  undertaken  by  Cyprus  as  regards  customs  value, 
temporary importation and customs warehouses, but none of the legislative drafts  that 
have been prepared has been adopted to date. As regards the customs acquis  outside 
the customs code, preparatory work  has been carried  out in relation to the  Common 
Customs  tariff,  precursors  and  intellectual  property  rights  protection.  Also  in  this 
case,  no  legislative  draft  has  been  adopted.  No  particular  developments  are  to  be 
reported in the field of mutual administrative assistance on customs matters. 

As  regards  administrative  and  operational  capacity,  a  Reform  and  Modernisation 
Programme for  the Department  of  Customs and Excise has been prepared,  consisting 
of  a Business Change Management  Plan elaborated  through the process of  “gap-and-
needs-analysis”,  covering  2000-2002  and  targeting  at  strengthening  the  legal, 
administrative  and  operational  capacity  of  the  Department.  Although  an  integrated 
computerised  system and risk profiles  modules need still to be developed, a National 
Risk  Assessment  document  has been prepared  in order to assist in proper analysis of 
the  risk  involved  in  all  areas  where  customs  control  is exercised. Currently  customs 
controls are based on a manual risk analysis and selectivity system. 

Overall  assessment 

Cyprus  needs  to  accelerate  the  development  of  its  administrative  and  operational 
capacity in this area. 

84 

It should be noted that Cyprus appears to have some difficulties  in meeting certain of 
its  own  deadlines  for  alignment  and  tends  to  postpone  them,  therefore  it  should 
undertake serious efforts  to ensure a timely transposition of the acquis. Cyprus should 
also take steps to achieve further  alignment in the area of customs procedures with an 
economic impact as soon as possible, with a view to ensuring sufficient  experience for 
its customs  administration  prior  to  accession. In addition,  although  the  legislation  is 
already to some degree in line with the acquis, further  alignment is needed as regards 
simplified  procedures, import and export of counterfeit  and pirated goods as well as of 
cultural goods and Customs Warehouses. 

As  for  administrative  capacity,  the  training  of  staff 
is  taking  place  and  the 
computerisation  of  the Customs and Excise Department  is proceeding.  However, the 
existing  operational  systems  are  limited  and  must  be  developed,  as  requested  in  the 
framework  of the 1999 Accession Partnership. The methodology used by the Customs 
and  Excise  Department  includes,  inter  alia,  the  use  of  informants,  risk  analysis, 
profiling  and targeting. An integrated  computerised  system and risk profiles  modules 
should also be developed. 

Chapter  26:  External  relations 

During the period covered by this report, Cyprus has continued with its harmonisation 
measures. 

Upon  accession,  Cyprus  will  need  to  apply  the  Common  External  Tariff.  In  the 
framework  of the Customs Union Agreement with the EC, Cyprus has already adopted 
the Common  Customs Tariff  for  industrial products and  for  a number  of  agricultural 
products  covered  under  the  Cyprus–EC  Protocol.  Cyprus  external  trade  regime  is 
already  substantially  aligned  with  that  of  the  EC.  In  1998  Cyprus  applied  tariffs 
averaged  12.1% (EC 5.4 %) on all products, 4.8% (EC 4.2 %) on industrial products, 
35.4% (EC 9.4 %) on agricultural products and 9,8% (EC 12.4%) on fishery products. 

As  regards  the  Common  Commercial  Policy,  Cyprus  has  continued  its  alignment 
with the Community  acquis. 

Since the last regular report no major developments have occurred as regards bilateral 
agreements with third countries as well as development policy and humanitarian 
aid.  The  acquis  for  external  relations  consists  mainly  of  Community  legislation, 
which  is directly binding on Member  States and  therefore  generally does not  require 
transposition into national law. 

Overall  assessment 

Cyprus  has  continued  alignment  with  the  Common  Commercial  Policy  acquis,  yet 
further  progress still needs to be achieved. 

Cyprus is a member  of  the WTO and  has an open  trading  economy, in line with  the 
agreements  concluded  under  the  Uruguay  Round.  The  EU  and  Cyprus  have 
established  a  framework  for  co-operation  regarding  WTO  issues  both  at  ministerial 
and at services level. Cyprus has been supportive of  EU policies and positions within 

85 

the WTO framework.  As regards the new round, Cyprus concurs with the EU on  the 
need to launch  a comprehensive  trade round  as soon  as possible and shares the view 
that  the  results  of  work  under  the  build-in-agenda  would  be  less  substantial  in  its 
absence. 

As  regards  export  credits,  the  Cypriot  system  is  in  line  with  the  OECD  consensus. 
Where  medium  and  long  term  export  credits  are  granted,  further  alignment  to  the 
acquis is necessary. 

Concerning  textiles,  as  regards  the  WTO  Agreement  on  Trade  in  Textiles  and 
Clothing, Cyprus needs to use the third stage of integration under the ATC to align its 
integration  programmes  with those of  the EC, while notably avoiding the  integration 
of products not yet integrated by the EC. 

Further  co-ordination  is also  necessary  in  order  to  consolidate  the  adjustment  of  the 
Cypriot  list  of  commitments  in  GATS  with  the  EC  commitment  and  EC  MFN 
exemptions. 

As regards dual-use  goods, legislation  is under preparation. Some progress has taken 
place  in  this  field,  however  further  alignment  with  Community  acquis  is  necessary. 
Cyprus  became  recently  a  member  of  two  international  arrangements,  a  step  which 
contributes to further  alignment to international commitments in this area. 

As  Cyprus  will  have  to  accede  to  the  WTO plurilateral  Agreements  on  Government 
Procurement  and  on  Civil  Aircraft,  it  needs  to  set  target  accession  dates  to  these 
instruments. Cyprus is already a signatory to the Information  Technology Agreement. 

As regards administrative  capacity,  responsibility for commercial policy lies with the 
Ministry  of  Commerce,  Industry  and  Tourism,  which  co-operates  closely  with  other 
Ministries  especially  the  Department  of  Customs  and  Excise.  The  administrative 
infrastructure  which  needs  to  be  in  place  as  regards  customs  services  is  dealt  with 
under the chapter relating to the Customs Union (Chapter  25 – Customs  Union). 

Concerning  development  policy  and  humanitarian  aid,  recently,  regarding 
humanitarian  aid,  there  has  also  been  growing  co-operation  with  international  non 
governmental  organisations. This  facilitates  the  provision  of  humanitarian  assistance 
in the form of medicines, clothing and food  aid. 

Although  there  is  not  as  yet  a  Ministry  or  Department  dedicated  to  development 
issues,  development  aid  and  technical  assistance  are  promoted  through  the  Bilateral 
Political  Affairs  Division  of  the  Ministry  of  Foreign  Affairs.  Internally,  such 
assistance  is  coordinated  and  managed  by the  Planning  Bureau, in  cooperation  with 
the ministries and services involved in each case. 

The Ministry of Foreign Affairs  is responsible for the formulation of national policy in 
other  fields,  such  as  the sanctions  imposed  by the  UN  Security  Council, the  control 
and transit of dual-use goods and the Law of the Sea. For the implementation of  these 
policies, the Ministry is jointly responsible  with  the Law Office  of  the Republic  and 
other relevant Ministries. 

86 

Chapter 27: Common foreign and security policy 

Cyprus  continues  to  participate  actively  in  the  multilateral  political  dialogue  within 
the  framework  of  the  Common  Foreign  and  Security  Policy  (CFSP),  including  the 
regular  meetings of  Political Directors, European Correspondents  and at the Working 
Group level. 

Cyprus  has  shown  a  keen  interest  in  the  development  of  the  European  Security  and 
Defence  Policy (ESDP) as part of CFSP and has actively participated in exchanges in 
this context  with the EU, in EU + 15 format  (i.e. non-EU European NATO members 
and candidates for accession to the EU). 

As  regards  alignment  with  EU  statements  and  declarations, Cyprus  has  regularly 
aligned its positions with those of the Union and when invited to do so has associated 
itself  with  the  Union s  joint  actions  and  common  positions. In  addition,  Cyprus  has 
co-operated with the European Union in international fora  such as the United Nations 
and the OSCE. 

Since  January  2000  the  Associated  Correspondents  Network  Mail  System  is  in 
operation  at the Ministry of  Foreign  Affairs,  ensuring direct  communication  with  the 
Secretariat  of  the  Council  and  the  other  Associated  States. The  main  purpose  of  the 
system  is  the  association  of  Cyprus  with  the  Common  Foreign  and  Security  Policy, 
e.g.  alignment  with  declarations,  common  positions  etc.,  and  the  exchange  of 
information between the aforesaid parties. 

Overall  assessment 

Cyprus  national  policy  is  in  line  with  the  Common  Positions  regarding  sanctions. 
Cyprus applies equally the mandatory sanctions of the United Nations, of the Security 
Council  and  the  autonomous  measures  of  the  European  Union.  In  both  cases, 
decisions  of  the  Council  of  Ministers  apply  existing  legislation  such  as  the  Law  on 
Transportation,  the Customs  and  Excise Law and  the Law on Defence. Decisions of 
the  Council  of  Ministers  are  implemented  by  Decrees,  Circulars  and  other 
administrative  measures  issued  by  the  competent  Ministries  and  Departments.  Such 
decisions,  implementing  EU  Common  Positions  attach,  as  a  point  of  reference,  the 
implementing regulations issued by the European Union. With respect to the sanctions 
applied  by  the  EU  against  the  Federal  Republic  of  Yugoslavia,  Cyprus  applies  an 
embargo  of  arms,  an  oil  embargo,  an  entry  ban  on  officials  and  others,  as  well  as 
financial sanctions in so far as the existing legislation allows. 

Following the adoption by the European Council of  Feira of the Common Strategy of 
the European  Union on the Mediterranean  Region, Cyprus has declared  its  readiness 
to co-operate with the Union alongside other Mediterranean  Partners in  strengthening 
security in the region. 

Concerning  the  implementation  capacity, the  structures  required  to participate  in  the 
formulation  and  implementation  of  the  CFSP  are  in  place,  including  the  posts  of 
European Correspondent and Political Director. 

87 

At  the  Ministry  of  Foreign  Affairs  there  are  two  divisions, the Multilateral  Political 
Affairs  Division  and the Bilateral Political Affairs  Division. Overall responsibility  in 
this area rests with  the Director  of  the Multilateral  Political Affairs  Division, who  is 
also the Political Director. The post of  the European Correspondent  is situated within 
this Division. 

Chapter  28:  Financial  Control 

The  1999  regular  report  on  the  Financial  Control  Chapter  concluded  that  the  public 
financial  control  system  in  Cyprus is sound  and  consistent  with  European  standards. 
Although  no  substantial  progress  in  the  field  of  financial  control  for  the  period 
covered by this report can be mentioned, emphasis was placed on the training of  staff 
in the Unit on Financial Intelligence and Financial Crime Investigation. 

Overall  Assessment 

Although  Cyprus  is  already  far  advanced  in  the  area  of  financial  control,  further 
efforts  are  needed  on  such  issues  as  the  implementation  of  risk  analysis  methods; 
strengthening  the  internal  control  of  revenues;  the  proper  management  of  pre-
accession  funding  and  future  structural funds,  as well as alignment  in the area of  the 
protection of financial interests of the EC. 

Public  Internal  Financial  Control  is  carried  out  by  the  Internal  Audit  Directorate 
(IAD) of  the Treasury. The IAD comprises 23 persons, they are supported  by a team 
of  18  auditors.  The  Cypriot  Ministries/Departments  have  internal  accounting 
departments,  the  heads  of  which  are  appointed  by  the  Accountant  General.  At  the 
moment the ex ante control of individual transactions is not carried out on the basis of 
risk  analysis. Cyprus  needs  therefore  to  take  the  necessary  steps  to  ensure  that  risk 
analysis methods are implemented as soon as possible. 

External financial  control is carried out by the Auditor General as head of the Audit 
Office  which  is  independent  from  the  executive,  legislative  and  juridical  powers of 
government. The Office  of the External Auditor has a staff  of  about 100 auditors and 
10 administrative staff. 

Regarding control measures relating to Own Resources, the VAT administration at 
the  Ministry  of  Finance  is  in  charge  of  controlling  revenues  resulting  from  VAT. 
Customs duties are collected (and controlled) by the Customs and Excise Department 
of  Cyprus. However, Cyprus needs to take measures to further  strengthen the internal 
control of revenues. 

In the field  on structural action expenditure, Cyprus should take the necessary steps 
to ensure the proper management of pre-accession funding and future structural  funds, 
in particular  through the development  of  adequate  financial  management  and  control 
systems for receiving EC funds. Cyprus should also develop an audit trail tool for  the 
control of EC funds as identified  as a short-term priority in the Accession Partnership. 
Although  preparatory  work  is  underway,  Cyprus  will  have  to  have  all  necessary 
instruments in place to assist the EC bodies in charge of on-the-spot checks. 

88 

Concerning the protection  of financial  interests  of the EC, the Attorney  General, as 
head  of  the  Law  Office  of  the  Republic,  co-ordinates  all  investigations  concerning 
fraud  and  is the  "single contact point  ", responsible  for  co-operation  with the  relevant 
EC  bodies  in  the  field  of  the  protection  of  financial  interests  of  the  Community,  in 
particular  the  European  Anti-Fraud  Office  (OLAF).  Cyprus  should  pay  attention  to 
ensure full  legislative alignment in this area. 

Most  of  the  Accession  Partnership  short-term  priorities  are  fulfilled.  The  Cypriot 
government  has  in  place  a  fully-fledged  system  of  public  external  and  internal 
financial  control  for  the  entire  national  budget.  As  regards  reinforcement  of 
administrative  and judicial  capacity  to  manage  and  control  EC  funds,  further  efforts 
are being made to  ensure  sound  financial  management  and transparency  in the use of 
these  funds.  Further  efforts  are,  however,  needed  regarding  the  introduction  of 
'functional  independence'  for national, internal  controllers/auditors  at both central and 
decentralised levels. 

Chapter  29:  Financial  and  budgetary  provisions 

During  the  period  covered  by  this  report  Cyprus  has  made  progress  in  the  area  of 
financial  and budgetary provisions. 

As  regards  the  national  budget  and  EC  co-financed  measures,  as  from  the  year 
2000,  the  three  Budgets  of  the  Central  government  were  amalgamated  into  a  single 
unified  budget.  The  new  comprehensive  Budget  is  divided  into  three  categories  of 
expenditure,  i.e.  direct  charges  on  the  Consolidated  Fund  (e.g.  pensions  and 
gratuities),  ordinary  (current)  expenditure  and  development  expenditure.  The  latter 
category  covers  all  capital  expenditure,  which  is  of  a  non-recurrent  development 
nature and reflects the public investment programme for that year. 

In  the  field  of  own  resources  and  administrative  infrastructure,  a  technical 
committee  chaired  by  the  Statistical  Service  and  involving  representatives  from  all 
relevant  Government Departments  has been  established.  In March 2000 this technical 
committee started to study in detail the issue of the calculation of VAT own resources. 

In  1999 the VAT Service was strengthened by the recruitment of 53  officers. 

Overall  assessment 

Overall  Cyprus  has  established  the  necessary  rules  and  procedures  concerning  its 
Development  Budget  for  medium  term  programming  of  expenditure  as  well  as  for 
evaluation and follow-up. However, these procedures need to be  strengthened. 

The  competent  administrative  authorities  in  the  field  of  the  national  budget  and  EC 
co-financed  measures are the Directorate  of Budget and Fiscal  Control  of the Ministry 
of Finance  and the Directorate  for  Development  Expenditure  of the Planning Bureau. 
Both  administrative bodies  are supported by qualified  and experienced  staff  as well  as 
latest  computerised  systems.  However,  further  strengthening  of  their 
by  the 
administrative capabilities is needed. 

89 

Traditional  Own  Resources  fall  under  the  responsibility  of  the  Customs  and  Excise 
Department  of  the  Ministry  of  Finance.  The  Treasury  Department  (through  the 
Internal  Audit  Directorate)  is  responsible  for  conducting  all  checks  and  enquiries 
concerning the establishment and the making available of Traditional Own Resources. 

In  the  field  of  VAT,  for  estimating  the  weighted  average rate  for  the  VAT  resource 
(which is basically an estimate of the average rate applicable to the various categories 
of  taxable  goods)  Cyprus  will  have  to  adopt  the  Classification  of  Individual 
Consumption  by  Purpose  (COICOP)  and  other  classifications  used  in  the  European 
System of Accounts (ESA 95), as well as the institutional sectors breakdown. VAT is 
administered by the VAT Service within the Department of Customs and Excise. The 
VAT Service, a well-organised and computerised independent structure, is responsible 
for  the  collection  of  VAT  in  Cyprus.  The  Cypriot  administrative  system  of  VAT 
control is based on  a central administration with local control.  The Treasury and the 
VAT  service  will  have  to  be  able  to  ensure  that  VAT  resources  and  all  required 
information is made available to the Commission. 

As  regards  GNP,  the  Department  of  Statistics  and  Research  is  responsible  for 
implementing the European System of Accounts. The making available of  GDP/capita 
data in accordance with EC methodology was identified  as a short-term priority in the 
1999 Accession Partnership. 

The Directorate of  Budget and Fiscal Control of  the Ministry of  Finance will have to 
ensure the co-ordination  of the proper collection, monitoring and payment of funds  to 
and  from  the  EC  budget.  The  Directorate  is  making  efforts  to  enhance  its  capacity 
through  the  continuous  training  of  its  staff  and  the  upgrading  of  its  technological 
infrastructure  (equipment and  software). 

3.2.  General  evaluation 

During  the  period  covered  by  this  regular  report,  Cyprus  has  achieved  substantive 
progress  in  various  areas  of  the  acquis  and  continued  with  further  harmonisation 
measures. As regards administrative  capacity, it  continued  with  the upgrading  of  the 
existing infrastructure, including staff  recruitment. 

Over  the last  year, there has been progress in adopting legislation in key areas of  the 
internal  market.  Although  new  legislation  has  been  adopted  in  some  areas  of  free 
movement  of  goods, further  efforts  are still needed  in respect  of  standardisation  and 
certification  as  well  as  of  the  framework  for  the  New  Approach  Directives.  In 
financial  services  further  progress  has  been  achieved  in  the  adoption  of  appropriate 
national  legislation  and  enhancing  administrative  capacity. The  steps  taken  towards 
liberalisation  of  capital  movements  are  positive;  however,  further  efforts  are  still 
needed  for  a  timely  and  orderly  removal  of  remaining  restrictions  on  capital 
movements before accession. Moreover, the already quite high degree of alignment on 
anti-trust  has been  further  improved  by amending  legislation  on  public  undertakings 
and  undertakings  with  special  and  exclusive  rights  in  respect  of  the  rules  of 
competition.  However,  as  regards  State  aid,  the  situation  remains  unsatisfactory,  as 
there  still  exists  no  proper  State  aid  control  and  no  legal  basis  for  it.  Cyprus  has 
achieved progress in the field  of indirect taxation, as the standard rate of Value Added 

90 

Tax (VAT) has been increased  from  8% to 10% and legislation for  further  alignment 
with the VAT acquis has been adopted. 

During the last year Cyprus has enacted some harmonisation legislation in the field of 
agriculture,  however,  what  has  been  done  is  mainly  preparatory  work,  therefore 
harmonisation  with  the acquis  in the veterinary and phytosanitary fields  continues  to 
be partial. Further efforts  are still needed regarding veterinary controls at border posts. 

In  the  fields  of  transport  and  fisheries,  Cyprus  has  undertaken  serious  efforts  to 
achieve  further  alignment  with  the  acquis  by  adopting  legislation  as  well  as 
strengthening its administrative capacity. 

As regards alignment with the environment acquis, several laws and orders have been 
adopted, but the emphasis lay on preparatory work. Although more attention has been 
paid  to  the  allocation  of  sufficient  budgetary  and  administrative  resources  to  the 
environmental sector to ensure the implementation of the acquis, given the size of  the 
alignment task in this area, this sector still remains a high priority. 

In the area of justice and home affairs, Cyprus has made progress with the adoption of 
legislation  on  asylum  and  also  with  a  view  to  judicial  co-operation  in  criminal  and 
civil matters. However, attention should be paid to the enforcement  of border control, 
with special regard to the fact that Cyprus will be an external border of the EU, as well 
as  to  efficient  implementation  of  the  existing  legislation  on  money  laundering, 
although in this area considerable efforts  have already been undertaken. 

Cyprus has further  strengthened  its administrative  capacity.  Several institutions  have 
already  gained  experience  in  several  areas  of  the  acquis,  such  as  for  instance  the 
Department  of  Social  Insurance in the case of  the co-ordination  of  social security. In 
the fields  of regional policy and financial  control the required structures are already to 
a  large  extent  in  place.  Various  measures  are  being  taken  to  further  strengthen  the 
capacity to implement  the acquis  and to upgrade the existing equipment; this applies 
for example to the area of free movement of goods, company law, fisheries and justice 
and  home  affairs.  In  some  of  these  sectors,  and  as  regards  employment  and  social 
policy, this also  involves  administrative  restructuring  and  reorganisation. A  concrete 
example  is  the  efforts  undertaken  for  maritime  transport,  where  in  order  to  improve 
the  safety  record  of  the  Cyprus  fleet,  the  last  year  has  seen 
the  number  of  ships 
inspected  more than double and  an increase in the world-wide  network  of  inspectors 
of  Cyprus  ships. Furthermore, additional  staff  have been  recruited/trained,  or this  is 
foreseen in the budget, for areas such as taxation and combating money laundering. 

However, despite the strong basis of its administrative capacity, the country still has to 
set  up  regulatory  authorities, and  build  institutions  in  the  field  of  free  movement  of 
goods,  agriculture,  energy,  telecommunication  and  justice  and  home  affairs.  Further 
recruitment  of  staff  in  several  areas  such  as  company  law,  transport,  taxation, 
environment and justice and home affairs  is needed. 

During  the  last  year  Cyprus  has  met  the  short-term  priorities  of  its  Accession 
Partnership  with  regard  to  fisheries  and  transport.  In  most  other  areas  the  priorities 
were  partially  fulfilled.  However,  in  some  areas  of  the  acquis  such  as  the  State  aid 

91 

sector  in  the  field  of  competition  and  the  transposition  and  enforcement  of  the 
environmental acquis further  harmonisation measures are needed. 

Cyprus  has  made  progress  in  addressing  the  medium-term  Accession  Partnership 
priorities, and has partially fulfilled  a number  of  them, including in such areas as the 
internal market, energy, and justice and home  affairs. 

92 

C.  Conclusion 

Cyprus continues to fulfil  the Copenhagen political criteria. The predominant  political 
problem is the continued division of the island, but over the last year important  efforts 
have  been  made  in  the  search  for  a  political  settlement  in  line  with  the  Accession 
Partnership. From  the fourth  round  of  proximity  talks  held  in  September  there  were 
encouraging signs that the two sides were engaging in substantive discussion. 

Cyprus is a functioning  market economy and should be able to cope with competitive 
pressure and market forces within the Union. 

The Cypriot economy continues to grow strongly and is operating at full  employment. 
Some  progress  is  being  made  in  the  areas  of  liberalisation  and  structural  reforms. 
After  many years of delay, Parliament passed legislation providing a timetable for  the 
abolition of the interest ceiling by January 2001. The Cypriot Authorities have started 
major health sector  reform. 

However,  macroeconomic  stability  has weakened  recently, and  the  current  level  and 
stance of fiscal  policy are not sustainable over the medium term. Supervision must be 
improved in the co-operative banking sector. The completion of  price liberalisation  is 
also  required.  Competitiveness  is  hampered  by a  number  of  structural  rigidities  and 
significant state involvement in the economy. 

There  is a  need  to  develop  a  credible  and  coherent  approach  to fiscal  consolidation. 
With a view to progressive capital liberalisation, monetary policy must be made more 
efficient  and  market-oriented  by  the  use  of  indirect  instruments  rather  than  direct 
interventions.  Cyprus  must  prepare  its  private  sector  to  operate  in  the  open 
environment  that  integration  into  the  EU  requires.  Greater  political  consensus  is 
needed  to  develop  a comprehensive  structural  reform  agenda  which  should  limit  the 
extent  of  state  involvement  in  economic  activities,  open  up  key  sectors  to  foreign 
competition, and resolve important environmental constraints. 

During  the  period  covered  by  this  regular  report,  Cyprus  has  achieved  substantive 
progress  in  various  areas  of  the  acquis  and  continued  with  further  harmonisation 
measures. As regards administrative  capacity, it  continued  with  the upgrading  of  the 
existing infrastructure, including staff  recruitment. 

Over  the last year, there has been progress in adopting legislation  in key areas of  the 
internal  market.  Although  new  legislation  has  been  adopted  in  some  areas  of  free 
movement  of  goods, further  efforts  are still needed  in  respect  of  standardisation  and 
certification  as  well  as  of  the  framework  for  the  New  Approach  Directives.  In 
financial  services  further  progress  has  been  achieved  in  the  adoption  of  appropriate 
national  legislation  and  enhancing  administrative  capacity.  The  steps  taken  towards 
liberalisation  of  capital  movements  are  positive;  however,  further  efforts  are  still 
needed  for  a  timely  and  orderly  removal  of  remaining  restrictions  on  capital 
movements before accession. Moreover, the already quite high degree of alignment on 
anti-trust  has been  further  improved  by amending  legislation  on public  undertakings 
and  undertakings  with  special  and  exclusive  rights  in  respect  of  the  rules  of 
competition.  However,  as  regards  State  aid,  the  situation  remains  unsatisfactory,  as 

93 

there  still  exists  no  proper  State  aid  control  and  no  legal  basis  for  it.  Cyprus  has 
achieved progress in the field of indirect taxation,  as the standard rate of Value Added 
Tax  (VAT) has been  increased  from  8% to  10% and legislation  for  further  alignment 
with the VAT acquis has been adopted. 

During the last year Cyprus has enacted  some harmonisation  legislation in the field of 
agriculture,  however,  what  has  been  done  is  mainly  preparatory  work,  therefore 
harmonisation  with  the acquis  in the veterinary  and  phytosanitary  fields  continues  to 
be partial. Further efforts  are still needed regarding veterinary controls at border posts. 

In  the  fields  of  transport  and  fisheries,  Cyprus  has  undertaken  serious  efforts  to 
achieve  further  alignment  with  the  acquis  by  adopting  legislation  as  well  as 
strengthening its administrative capacity. 

As regards alignment with the environment acquis,  several  laws and orders have been 
adopted, but the emphasis lay on preparatory work. Although more attention has been 
paid  to  the  allocation  of  sufficient  budgetary  and  administrative  resources  to  the 
environmental  sector to ensure the implementation  of the acquis, given the size of the 
alignment task in this area, this sector still remains a high priority. 

In the area of justice and home affairs,  Cyprus has made progress with the adoption of 
legislation  on  asylum  and  also  with  a view  to judicial  co-operation  in  criminal  and 
civil matters. However,  attention  should be paid to the enforcement  of border control, 
with  special regard to the fact that Cyprus will be an external border of the EU, as well 
as  to  efficient  implementation  of  the  existing  legislation  on  money  laundering, 
although in this area considerable efforts  have already been undertaken. 

Cyprus  has  further  strengthened  its administrative  capacity.  Several  institutions  have 
already  gained  experience  in  several  areas  of  the  acquis,  such  as  for  instance  the 
Department  of  Social  Insurance  in the  case  of the  co-ordination  of  social  security.  In 
the fields of regional  policy  and financial  control the required  structures are already to 
a  large  extent  in  place.  Various  measures  are  being  taken  to  further  strengthen  the 
capacity  to  implement  the acquis  and to upgrade the  existing  equipment;  this  applies 
for  example to the area of free  movement of goods, company law, fisheries  and justice 
and  home  affairs.  In  some  of  these  sectors,  and  as  regards  employment  and  social 
policy,  this  also  involves  administrative  restructuring  and  reorganisation.  A  concrete 
example  is  the  efforts  undertaken  for  maritime  transport,  where  in  order  to  improve 
the  safety  record  of  the  Cyprus  fleet,  the  last  year  has  seen 
the  number  of  ships 
inspected  more  than  double  and  an increase  in the world-wide  network  of  inspectors 
of  Cyprus'  ships. Furthermore,  additional  staff  have been  recruited/trained,  or this  is 
foreseen  in the budget, for areas such as taxation and combating money laundering. 

However,  despite the strong basis of its administrative capacity, the country still has to 
set  up  regulatory  authorities,  and  build  institutions  in  the  field  of  free  movement  of 
goods,  agriculture,  energy,  telecommunication  and justice  and  home  affairs.  Further 
recruitment  of  staff  in  several  areas  such  as  company  law,  transport,  taxation, 
environment and justice and home affairs  is needed. 

During  the  last  year  Cyprus  has  met  the  short-term  priorities  of  its  Accession 
Partnership  with  regard  to  fisheries  and  transport.  In  most  other  areas  the  priorities 

94 

were  partially  fulfilled.  However,  in  some  areas  of  the  acquis  such  as  the  State  aid 
sector  in  the  field  of  competition  and  the  transposition  and  enforcement  of  the 
environmental acquis further  harmonisation measures are needed. 

Cyprus  has  made  progress  in  addressing  the  medium-term  Accession  Partnership 
priorities, and has partially fulfilled  a number of  them, including in such areas as the 
internal market, energy, and justice and home  affairs. 

95 

D.  Accession  Partnership  and National  Programme  for the 

Adoption of the Acquis: Global assessment 

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 regular report; 

the  financial  means  available  to  help  candidate  countries  implement  these 
priorities; 

• 

the conditions which will apply to this assistance. 

Each  candidate  has been  invited  to  adopt  a National  Programme  for  the Adoption  of 
the  Acquis.  This  sets  out  how  the  country  in  question  envisages  to  deal  with  the 
Accession Partnership, the timetable for implementing the Partnership's priorities, and 
implications  in  terms  of  human  and  financial  resources.  Both  the  Accession 
Partnerships  and the National  Programmes  for the Adoption  of the Acquis  are revised 
on a regular basis, to take account of progress made, and to allow for new priorities to 
be set. 

1.  Accession Partnership 

In  the  following  assessments  the  main  sub-headings  are  indicated  in  bold  type  and 
further  key concepts taken from  the Accession Partnership highlighted in italics24. 

Short-term  priorities 

Political  criteria:  As  an  important  step  towards  achieving  a political  settlement  the 
first  round  of  proximity  talks  started  in  New  York  on  3  December  1999  and  was 
subsequently  followed  by  three  further  rounds.  This  process  is  ongoing  and  Cyprus 
therefore  continues  to  maximise  its  efforts  to  support  a  settlement  under  the 
auspices of the UN 

Economic  criteria:  In  1999, the  current account  deficit  was  estimated  to  be  around 
2.6 percent  of GDP. More recently,  strong domestic demand has led to higher imports 
and  a  deterioration  of  the  trade  balance.  Little  progress  has  been  achieved  in 
correcting  the widening  of  the fiscal  and  current  account  deficits.  The  interest  rate 
ceiling has limited the capacity  of the central bank to undertake  an effective monetary 
policy  stance. However,  a law which will remove the nine percent interest rate ceiling 
has  been  adopted.  Apart  from  this,  Cyprus  has  introduced  a  number  of  measures 
which  will  further  liberalise  capital  movements,  such  as the  relaxation  of  control  on 
inward  foreign  direct  investment  for  European  Union  residents.  As  regards  the  co 
operative  credit  and  saving  societies,  no  further  developments  concerning  the 

24  For  the  detailed  text  on  the  short  and  medium  term  priorities  established  in  the  1999  Accession 
Partnership please refer to Council Decision 2000/248/EC (OJ L 78, 29.03.2000). 

96 

alignment with  the acquis  and international accounting standards  have been reported. 
Therefore, this priority has been addressed to a limited  extent. 

Internal Market: 

•  As regards public procurement,  a centralised  statistical  system  has been  set up  for 
recording  public  contracts.  To this end a database has been  developed  for  keeping 
the  necessary  statistical  information  according to the requirements  of the  relevant 
provisions of the acquis on public procurement.  The law still needs to be extended 
to local authorities  and bodies governed by public law. 

• 

• 

In  the  field  of  industrial  and  intellectual property  rights,  the  law  ratifying  the 
International  Convention  for 
the  Protection  of  Performers,  Producers  of 
Phonograms  and Broadcasting  Organisation  entered  into force.  In addition  further 
efforts  to  strengthen  the  administrative  capacity  have been  undertaken  as  regards 
computerisation  and  the  creation  of  a  special  unit  to  enforce  effective  border 
control.  However,  further  efforts  are  needed  as  regards  the  alignment  and 
enforcement  of industrial  and intellectual property rights. 

In  the  area  of free  movement  of  goods,  Cyprus  has  adopted  new  legislation  in 
various  fields  such  as  fertilisers,  foodstuffs  and  motor  vehicles.  In  addition  the 
government  decided to  speed up the adoption  of harmonised  standards  relating to 
the New Approach Directives. However further  efforts  are still needed in the field 
of  standardisation  and  certification  and  the  adoption  of  a  framework  law 
regarding the New Approach Directives. 

•  As  regards  capital  movements,  the  Central  Bank  of  Cyprus  lifted  some  of  the 
restrictions  on outward and inward investments to and from  the island. A new law 
for  the  abolition  of the  existing  9%  interest  ceiling was  adopted.  This  legislation 
will  allow  the  Central  Bank  to  proceed  with  the  gradual  abolition  of  remaining 
exchange  controls  on  capital  flows,  in  accordance  with  the  liberalisation 
programme. 

• 

In the  field  of competition,  further  legislative  alignment with  the anti-trust  acquis 
has  been  achieved  and  a  decision  has  been  taken  to  reform  the  existing 
infrastructure,  however  this  will  need  further  reinforcement.  Attention  should  be 
also paid to the State aid sector, where no proper legislation  currently exists. 

•  Several  harmonisation  measures  have been  undertaken  in the  telecommunications 
sector  and  a  new  law  on  telecommunications  to  align  with  the  acquis  has  been 
drafted,  however  the  establishment  of  an  independent  regulatory  authority  is 
further  awaited. 

•  The  VAT  standard  rate  has  been  increased  and  further  legislation  has  been 
adopted  in  order to  abolish  the  special  VAT provisions  in favour  of  international 
business  enterprises.  In  addition,  the  excise  duties  on  several  products  such  as 
home  produced  spirits,  petrol  and  cigarettes  have been  increased.  Cyprus  decided 
not to introduce any tax measures which are considered harmful  under the terms of 
the  Code of Conduct on Business  Taxation. Further  efforts  are needed  in the field 
of a tax warehouse system and the movement procedures  of excisable goods. 

97 

•  As  regards  customs  matters,  the Department  of  Customs  and  Excise  prepared  an 
action plan  for  ensuring  alignment  and  effective  implementation  of  the  acquis. 
The  computerisation  of  the  Department  is  proceeding  and  the  adoption  of  the 
ASYCUDA  software  is already at an advanced stage. 

Overall,  although  not  all  issues  have  been  effectively  addressed,  this  priority  has 
been partially met 

the  procedure  for 

Agriculture:  Although  preparatory  work  has  started, 
the 
establishment  of  the  integrated  administration  and  control  system  (IACS)  should  be 
accelerated  and  a  Paying  Agency  to  handle  the  Common  Agricultural  expenditure 
should  be  established.  Administrative  structures  should  also  be  established  for  rural 
development  policies.  Some  legislation  has  been  adopted  in  the  veterinary  and 
phytosanitary  area,  and a Programme for the upgrading  of the offices,  equipment  and 
other  facilities  at  the  border  inspection  posts  is  currently  under  implementation. 
Therefore, this priority has been partially met. 

Fisheries:  Cyprus  adopted,  in  June  2000,  amendments  to  the  existing  legislation  on 
licensing.  Among  other  things,  the  amendments  foresee  the  obligation  of  a  fishing 
licence  for  all  fishing  vessels,  licence  fees  and  the  installation  of  a  blue  box  for 
satellite  monitoring.  A  Fishing  Vessel  Register  has  been  established  and  the 
administrative capacity has been reinforced.  Therefore this priority has been met. 

Environment:  The  transposition  and  enforcement  of  the  Environmental  Impact 
Assessment  directive  should  be completed.  A programme  for  legislative  transposition 
and implementation to align Cyprus' legislation, institutions, programmes and policies 
to  the  acquis  has  been  finalised.  However,  further  efforts  are  still  needed  in  this 
regard.  Some laws  and  orders have been  adopted  in the  area  of air and water  quality 
as  well  as  waste  management,  in  particular  relating  to  type  approval  of  motor 
vehicles,  legislation  in  the  field  of  quality  standards  and  measurement  methods  and 
the law ratifying  the amendment to the Basle Convention concerning hazardous waste. 
Further  acceleration  of  the  transposition  in  this  area  is  still  needed.  In  addition, 
following  a  study,  estimates  of  the  costs  of  approximation  have  been  established. 
However,  a plan  for  financing  investments  (directive  specific)  based  on  these  cost 
estimates  and realistic  sources  of public  and private finance  year-by-year  is  still to be 
developed  Therefore this priority has been partially met. 

Employment  and  Social  Affairs:  Social  dialogue  is  a long  standing  practice  and  in 
addition to the various existing tripartite bodies, bipartite social dialogue, although not 
formalised,  is important  and  developing.  Capacity-building  efforts  of social  partners 
should  be  further  supported.  Cyprus  continued  its  legislative  alignment  process  with 
the  acquis  in  some  areas  such  as  labour  law,  health  and  safety  at  work  and 
discrimination.  The  country  has  undertaken  efforts  to  strengthen  its  administrative 
capacity.  The  Labour  Inspectorate  especially  has  been  upgraded  and  reorganised. 
Therefore this priority has been partially met. 

Transport:  Cyprus  has  adopted  several  laws  and  regulations  in  this  area  and  has 
strengthened its administrative capacity. To enhance the quality of the Cypriot flagged 
fleet  and to improve its overall safety record, the government introduced  a new, more 
restrictive  policy for  the registration  of Cypriot  ships. Regarding  detentions,  although 

98 

the steady decline in their number is welcomed  and reflects the increased  efforts  of the 
Cypriot authorities in this domain, further  efforts  are still needed for the whole Cyprus 
fleet  to  achieve  a  safety  record  corresponding  to  the  current  EU  average  of  6%.  An 
action plan  on  Merchant  Shipping,  including  monitoring  of  classification  societies 
and the  improvement  of the  Cyprus  flag,  has been  prepared.  Therefore  this  priority 
has been met. 

Justice  and  Home  Affairs:  Cyprus  adopted  new  legislation  on  asylum.  This  law 
provides  for  the  setting  up  of  a Refugee  Authority,  which  has  yet  to  be  established. 
Further  efforts  are  needed  to  ensure  regular  and  complete  reporting  by  the  offshore 
banking  sector.  Cyprus  has  already  adopted  an  upgrading  programme  for  acquiring 
border  control  equipment  such  as  coastal  radar,  patrol  boats  and forgery  detection 
equipment  at  ports  of  entry.  In  addition,  the  existing  police  computer  network  is 
upgraded.  Cyprus  ratified  several  conventions  in  this  area,  however,  as  regards  the 
Council  of Europe Criminal Law  Convention on Corruption, only the act ratifying  this 
convention  has  been  adopted  yet.  Cyprus  applied  to  accede  to  the  1997  OECD 
Convention  on  Combating  Bribery  of  Foreign  Public  Officials  in  International 
Business  Transactions.  In  addition,  the  country  has  further  intensified  its  preventive 
measures  necessary  for  ensuring  protection  against  criminal  activities,  including 
money  laundering.  The  special  Unit  for  Combating  Money  Laundering  has  been 
reinforced,  however  the  actual  implementation  of  the  money  laundering  legislation 
should be further  enhanced  Therefore this priority has been partially met. 

Reinforcement  of  administrative  and  judicial  capacity  including  capacity  to 
manage  and  control  EC  funds:  The  preparatory  work  undertaken  has  laid  the 
groundwork  for  further  harmonisation  measures.  A  liaison  officer  from  the  tax 
authorities  was  appointed  by  the  Director  of  the  Inland  Revenue  Department  to  co 
operate  with  the Unit  for  Combating  Money  Laundering  (MOKAS)  on tax  issues.  A 
new  consolidated  Budget  divided  into  three  categories  of  expenditure  has  been 
introduced.  The  Cypriot  government  has  in  place  a  fully-fledged  system  of  public 
external  and  internal  financial  control  for  the  entire  national  budget.  As  regards 
reinforcement  of administrative and judicial  capacity to manage and control EC  funds, 
further  efforts  are being made to ensure sound financial  management  and transparency 
in the  use  of these  funds.  This  covers  the  priorities  as  regards  the  completion  of the 
legislative framework  for  internal and external financial  control and the setting up of 
internal audit/control  units  in spending  centres  and  ex-ante  financial  control  as well 
as the issuing of an audit manual  and the development  of audit trails for the control  of 
EC  funds.  Further  efforts  are  needed  as  regards  the  introduction  of 
functional 
independence' 
internal  controllers/auditors  at  both  central  and 
decentralised  levels.  On  the  other  hand,  the  capacity  of  the  VAT  service  has  been 
strengthened  by  the  recruitment  of  new  staff  and  a  central  co-ordination  point  has 
been  created.  Cyprus  needs  to  undertake  further  efforts  to  make  available  GDP/per 
capita data  in  accordance  with  EC  methodology.  Therefore,  this  priority  has  been 
largely met. 

for  national, 

Medium-term  priorities 

Only those  medium-term  priorities  of the  1999 Accession  Partnership  that  have been 
met or where a degree of progress has been made are mentioned below. 

99 

Internal  market: As regards free movement of goods, new legislation  in the field  of 
legal metrology  and  pre-packaging  has been adopted. In accordance with a  provision 
already incorporated in the existing Public Procurement Law, the national preferential 
clause will be automatically eliminated upon accession. In the field  of  free movement 
of  persons,  the  Council  of  Ministers  issued  a  Decision  that  provides  for  a  distinct 
separation  between  recognition  of  academic  qualifications  and  professional 
qualifications.  A new law amending the existing Company Law in order to cover  the 
provisions of  the Twelfth  Council Company Law Directive on single-member  private 
liability companies was enacted and preparatory work has been undertaken as regards 
the  other  directives  mentioned  in  the  Accession  Partnership.  As  regards  free 
movement of capital, at the beginning of  this year the Central Bank of Cyprus (CBC) 
lifted  some  of  the  restrictions  on  outward  and  inward  investments  from  and  to  the 
island.  In  addition,  since  the  beginning  of  this  year,  residents  of  Cyprus  have  been 
allowed to undertake direct investment abroad without restrictions as to the amount of 
foreign  exchange involved or the sector of the investment. The transfer  of capital will 
be  effected  as  soon  as  the  CBC  is  satisfied  that  it  concerns  a  genuine  direct 
investment.  Furthermore, the  CBC  has abolished  all  restrictions  on  the  use  of  credit 
cards for current payments abroad. As regards competition, in February the Council of 
for  Protection  of 
Ministers  took  a  decision  for  reforming 
Competition.  The  reforms  provide  also  for  a  permanent  specialised  staff  to  be 
recruited.  Its  investigative  powers  are  also  being  reinforced.  Several  measures  have 
been  undertaken  for  further  alignment  with  the  acquis  on  taxation.  In  the  field  of 
consumer  and  health  protection,  concerning 
functioning  market  surveillance 
mechanisms  the  Control  of  Misleading  and  Comparative  Advertising  Law  was 
adopted, bringing the Cypriot legislation further  in line with the acquis in this area. In 
addition, progress was made in the field of product pricing by adopting legislation. 

the  Commission 

Agriculture:  Cyprus  has  begun  with  preparations  for  the  implementation  of  the 
common agricultural policy and rural development  policies. 

Energy: In order to achieve further  alignment with the acquis and to promote energy 
efficiency  in  the  industrial,  commercial  and  agricultural  sectors,  a  grant  scheme  for 
investments  in  energy  efficiency  promotion  encouraging  the  use  of  energy  from 
renewable  sources  became  fully  operational.  Moreover,  Cyprus 
the 
Organisation for the Promotion of Energy Technology (OPET), the main aim of which 
is the  implementation  of  measures  in  the  fields  of  rational  use  of  energy,  renewable 
energy sources and fossil  fuels. The Government  of  Cyprus established an Institute of 
Energy,  which  together  with  the  Applied  Energy  Centre  will  implement  the  OPET-
Cyprus Programme. 

joined 

Employment  and Social  Affairs: The  process  of  employment  review  in Cyprus  has 
been  initiated  and  a  background  study  on  the  labour  market  in  Cyprus  has  been 
completed.  Preparatory  work  has  started  for  developing  a  National  Action  Plan  for 
Employment in accordance with the EC Employment Guidelines. The management of 
the European  Social Fund  will be under  the responsibility of  the Labour  Department 
and  for  this  purpose,  suitable  training  of  personnel  will  be  organised.  Transport: 
Regulations  amending  the  Motor  Vehicles  and  Road  Traffic  Regulations  were 
approved  in order to achieve further  alignment with the acquis. In addition, the latest 
amendments  and  the  revised  Convention  of  Eurocontrol  were  ratified  by  Cyprus. 

100 

Furthermore, five  new bills were approved  under  the  Merchant  Shipping  Law  which 
implement  the Convention on Standards of  Training, Certification  and  Watchkeeping 
(STCW  Convention). Apart  from  this, further  legislation  in  the  maritime  sector  has 
been  adopted  and  further  efforts  have  been  undertaken  to  strengthen  administrative 
capacity, especially as regards the Department of Merchant Shipping. 

Justice  and Home Affairs: Several  measures have been undertaken  to upgrade  law 
enforcement bodies and the judiciary, such as an increase in the number of judges, the 
extension  of  competencies  or  the  setting-up  of  an  additional  court.  In  addition  the 
number  of  staff  of  the  Unit  for  Combating  Money  Laundering  has  been  increased. 
Furthermore,  the  position  of  a  Patron  of  Human  Rights  has  been  approved  by  the 
Council of Ministers under the provisions of the legislation on Combating  Trafficking 
of Persons. 

2.  National Programme for the Adoption of the Acquis 

A full  first  NPAA for Cyprus has been submitted to the Commission for evaluation in 
the first half of September 2000. 

101 

Annexes 

102 

Human Rights Conventions ratified by the Candidate  Countries, 
September 2000 

Parties to following  conventions 
and protocols 

BG 

CY 

cz 

EE 

HU 

LV 

LT 

MT 

PL 

RO 

SK 

sv 

TK 

ECHR (European Convention 
on Human Rights) 
Protocol 1 (right of property et 
al.) 

Protocol 4 (freedom  movement et 
al.) 
Protocol 6 (death penalty) 

Protocol 7 (ne bis in idem) 

European Convention for 
the Prevention of Torture 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

O 

X 

O 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

O 

X 

O 

X 

X 

O 

O 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

O 

O 

O 

X 

European Social Charter 

O 

X 

X 

O 

X 

O 

O 

X 

X 

O 

X 

O 

X 

Revised European Social 
Charter 
Additional Protocol to the ESC 
(system of collective complaints) 

Framework  Convention 
for National Minorities 

ICCPR (International Covenant 
on Civil and Political Rights) 
Optional Protocol to the ICCPR 
(right of individual 
communication) 
Second Optional Protocol to 
ICCPR (abolition death penalty) 

ICESCR  (International 
Covenant on Economic, Social 
and Cultural Rights) 

CAT (Convention against 
Torture) 

CERD (Convention on the 
Elimination of All Forms of 
Racial Discrimination) 

CEDAW (Convention on the 
Elimination of All Forms of 
Discrimination against Women) 

CRC (Convention on the Right 
of the Child) 

X 

X 

O 

X 

O 

O 

O 

O 

O 

X 

O 

X 

O 

O 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

O 

X 

X 

X 

O 

X 

O 

X 

X 

X 

O 

X 

O 

X 

X 

X 

X 

X 

O 

O 

X 

X 

O 

X 

O 

X 

X 

X 

O 

X 

O 

X 

X 

X 

X 

X 

O 

O 

X 

X 

O 

X 

O 

X 

X 

X 

X 

X 

O 

X 

X 

X 

X 

X 

O 

X 

X 

X 

X 

X 

O 

O 

O 

O 

O 

O 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

O 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X  =  Convention  ratified 
O =  Convention NOT  ratified 

BG = Bulgaria; CY = Cyprus; CZ = Czech  Republic; EE = Estonia; HU = Hungary; LV 
Latvia; LIT = Lithuania; MT = Malta; PL = Poland; RO = Romania; SK = Slovakia; SV 
Slovenia; T = Turkey 

103 

Statistical data25 

Basic data 

Population (end of the year) 

Total area 

National accounts 

1995 

1996 

1997 

1998 

1999 

in 1000 

645 

652 

658 

663 

667 

in km² 

9.251 

9.251 

9.251 

9.251 

9.251 

Mio Cyprus Pound 

Gross domestic product at current prices 

4.004 

4.157 

4.366 

4.680 

4.943 

1000 Mio ECU/euro 

Gross domestic product at current prices 

6,8 

7,0 

7,5 

8,1 

8,5 

Gross domestic product per capita26at current prices 

10.500 

10.800 

11.400 

12.300 

12.800 

Gross domestic product at constant prices (nat. currency) 

6,1 

1,9 

2,4 

5,0 

4,5 

Gross domestic product per capita27 at current prices 

13.829 

14.524 

15.259 

16.033 

17.082 

in Purchasing Power Standards 

% change over the previous year 

ECU/euro 

Structure of production 

-  Agriculture 

- Industry (excluding construction) 

-  Construction 

-  Services 

Structure of expenditure 

- Final consumption expenditure 

- household and NPISH 

- general government 

- Gross fixed capital formation 

- Stock variation 

- Exports of goods and services 

- Imports of goods and services 

Inflation rate 
Consumer price index2 

in % of Total Gross Value Added 

4,8 

14,7 

8,9 

71,6 

4,3 

14,2 

8,4 

73,1 

4,4 

13,8 

8,1 

73,7 

as % of Gross Domestic Product 

83,1 

65,1 

18,0 

19,9 

3,3 

46,8 

53,1 

84,9 

66,1 

18,8 

19,0 

1,2 

47,0 

52,1 

87,8 

68,5 

19,3 

17,3 

2,6 

43,6 

51,3 

5,3 

15,0 

8,9 

70,8 

79,8 

63,7 

16,1 

19,2 

4,3 

46,6 

49,9 

4,2 

13,4 

7,7 

74,7 

84,9 

66,9 

18,0 

17,8 

2,0 

44,6 

49,3 

% change over the previous year 

2,6 

3,0 

3,6 

1,9 

1,3 

5  Data provided refer to the Republic of Cyprus only, with the exception of data on area which refer  to the whole 
of the island. 
6  Figures have been calculated using the population figures from National Accounts, which may differ  from  those 
used in demographic statistics. 
7  Figures have been calculated using the population figures from National Accounts, which may differ  from  those 
used in demographic statistics. 
8  Changes  in  Methodology:  Data  upto  1997  refer  to  the  national  CPI,  while  data  as  from  1998  onwards  are 
calculated in accordance to the Harmonised Indices of Consumer Prices (HICP). 

104 

Balance of payments 

-Current account 

-Trade balance 

Exports of goods 

Imports of goods 

-Net services 

-Net income 

-Net current transfers 

-of  which: government transfers 

- FDI (net) inflows 

Public finance 
General government deficit/surplus29 

Financial indicators 
Gross foreign debt of the whole economy30 

in Mio ECU 

-131 

-375 

-299 

-537 

-219 

-1.595 

-1.720 

-1.827 

-2.175 

939 

2.534 

1.398 

-23 

90 

15 

1.097 

2.817 

1.352 

-100 

93 

14 

: 

: 

1.099 

2.926 

1.509 

-73 

91 

15 

335 

955 

3.130 

1.632 

-94 

101 

23 

336 

: 

: 

: 

: 

: 

: 

: 

268 

in % of Gross Domestic Product 

-0,9 

-3,4 

-5,3 

-5,5 

in % of Gross Domestic Product 

60,4 

64,3 

96,3 

128,0 

155.4 E 

as 

% of expor 

ts 

Gross foreign debt of the whole economy31 

129,6 

137,3 

204,7 

293,4 

348.6 E 

Monetary aggregates 

-  M1 

- M2 

Total credit 

Average short-term interest rates 

- Lending rate 

- Deposit rate 

ECU exchange rates 

- Average of period 

- End of period 

1,0 

6,3 

6,8 

8,5 

5,8 

in 1000 Mio ECU/euro 

1,1 

7,0 

7,8 

1,2 

8,0 

8,8 

% per annum 

1,3 

8,3 

9,9 

1,8 

9,9 

11,2 

8,5 

5,8 

8,0 

8,0 

: 

: 

: 

: 

(1ECU/euro=…Cyprus  Pound) 

0,592 

0,599 

0,592 

0,589 

0,583 

0,580 

0,577 

0,582 

0,579 

0,577 

1995=100 

- Effective exchange rate index 

100,0 

102,0 

102,8 

108,3 

106,0 

Reserve assets 

-Reserve assets (including gold) 

-Reserve assets (excluding gold) 

Mio ECU/euro 

985 

850 

1.360 

1.231 

1.382 

1.260 

1.315 

1.183 

1.825 

1.824 

Excludes local authorities. 
Series break in 1998: more complete  definition. 
Series break in 1998: more complete  definition. 

105 

External trade 

Trade balance 

Exports 

Imports 

Terms of trade 

Exports with EC-15 

Imports with EC-15 

Demography 

Natural growth rate 
Net migration rate (including corrections)32 

Infant mortality rate 

Life expectancy  : 

Males: 

Females: 

Labour  market  (ILO  methodology) 

Economic  activity  rate 

Unemployment  rate, total 

Unemployment  rate of  persons  <  25  years 

Unemployment  rate of  persons  >=  25  years 

Average employment  by  NACE  branches 

- Agriculture and forestry 

- Industry (excluding construction) 

-  Construction 

-  Services 

Infrastructure 

Railway network 

Mio ECU/euro 

-1.865 

-2.089 

-2.168 

-2.354 

-2.443 

403 

386 

377 

383 

372 

2.268 

2.475 

2.545 

2.737 

2.815 

previous year=100 

: 

: 

: 

: 

: 

as % of total 

59,0 

59,0 

55,4 

57,2 

48,0 

56,3 

50,4 

61,9 

50,7 

57,3 

per 1000 of population 

7,7 

3,1 

8,5 

7,2 

2,8 

6,3 

3,1 

5,2 

3,0 

5,1 

0,0 

per 1000 live-bi 

rths 

8,3 

8,0 

7,0 

6,0 

at  birth 

75,3 

79,8 

: 

: 

75,0 

80,0 

: 

: 

: 

: 

% of labour force 

62,0 

62,0 

61,3 

61,2 

61.5  P 

2,6 

2,3 

2,7 

10,8 

16,3 

9,1 

63,8 

3,1 

2,7 

3,1 

3,4 

3,2 

3,5 

3,4 

3,1 

3,4 

3.6  P 

2.9  P 

3.8  P 

in % of total 

10,5 

15,5 

8,9 

65,1 

9,5 

15 

8,8 

9,6 

9.3  P 

14,5 

14.0  P 

8,4 

8.3  P 

66,7 

67,5 

68.4  P 

in km per 1000 km² 

0 

0 

0 

0 

0 

km 

Length of  motorways 

168 

194 

199 

204 

216 

Industry and agriculture 

Industrial production volume indices 

Gross agricultural production volume indices 

previous year=100 

101,5 

116,0 

96,9 

99,6 

99,8 

88,8 

102,8 

101,7 

109,1 

108.4  P 

Net migration for the Republic of Cyprus, excluding the northern part of the island. 

106 

Standard of living 

Number of cars 

Telephone subscribers 

Number of Internet  connections 

P=provisional figures  E= estimates 

per 1000 inhabitants 

342 

541 

: 

350 

565 

10 

359 

590 

24 

377 

613 

44 

387 

638 

56 

107 

Methodological Notes 

Finance 

Note on sources: 

General  government  deficit  /  surplus:  Candidate  Countries  are  presently  unable  to 
provide  reliable  data  on  a  national  accounts  basis.  Eurostat  is  working  closely  with 
these  countries  with  the  aim  of  improving  these  statistics.  Given  the  lack  of  reliable 
data,  an  approximation  for  general  government  deficit  /  surplus  is  derived  from  the 
IMF's Government Finance  Statistics Yearbook (see explanation below). 

Gross foreign  debt: the  OECD  External  Debt  Statistics  publication  has been  used  as 
the source. Data for  1999 are estimates. 

Foreign  official reserves, monetary aggregates,  interest rates, and effective exchange 
rates:  where  possible,  Eurostat's  reporting  form  for  Candidate  Countries  is used  for 
the data  on. Failing this, the IMF's  'International  Financial  Statistics'  publication  has 
been used as the source. 

Exchange  rates against  the ECU  (euro): European  Commission  data is used for  ECU 
rates, European Central Bank data for euro rates. 

Note on methodology: 

General  government  deficit  /  surplus:  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 
consolidated  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.  GFS  data  are  on  a  cash  basis.  For  Cyprus,  the  data  exclude  local 
government. 

Gross foreign  debt: of the whole  economy;  includes  both  short-  and  long-term  debt. 
According  to  the  convention,  the  stock  of  outstanding  debt  is  converted  from  US 
dollars  into  ECU  at  end-year  exchange  rates,  whereas  GDP  is  converted  into  ECU 
using annual  average exchange rates. For the ratio of gross foreign  debt to exports, the 
national accounts definition  of exports of goods and services is used. 

Monetary  aggregates:  end-year  stock  data. M1  refers  to notes  and  coin  in  circulation 
plus bank  sight deposits. M2 refers  to M1 plus  savings  deposits plus  other  short-term 
claims  on banks.  Total  credit generally  means domestic  credit to the government  (net 
of deposits, including  non-financial  public  enterprises),  plus the private  non-financial 
sector, plus other non-monetary financial  institutions. 

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

Exchange  rates:  ECU  exchange  rates  are  those  that  were  officially  notified  to  the 
Commission  until  1 January  1999,  when  the ECU  was  replaced  by  the  euro.  Euro 
exchange  rates  are  reference  rates  of  the European  Central Bank,  where  available. 

108 

The  effective  exchange  rate  index  (nominal)  is  weighted  by  major  trading  partners, 
and calculated on a base period of 1995 (annual  average). 

Reserve  assets:  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. 

External trade 

Imports  and  exports  (current  prices):  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:  trade  in  goods  is  recorded  using  the  commodity  classification 
according to the Combined Nomenclature (CN). 

The term FOB means that all costs incurred in transport up to the customs frontier  are 
charged to the seller. The term CIF means that the purchaser pays the additional costs. 
Imports are recorded on CIF basis, exports on FOB basis. 

Imports and exports with EC-15: data declared by the Republic of Cyprus. 

Demography 

Net migration rate: crude rate of net migration for year X is: 

{population  as at  31 December  (X)  -  population  as  at 1  January (X) +  Deaths  (X)  -
Births (X)} / average population (X). This assumes that any change in population not 
attributable to births and deaths is attributable to migration. 

Labour force 

Economic  activity  rate  (ILO  Methodology):  percentage  of  labour  force  in  the  total 
population aged 15+. This rate is derived from  an Establishments Survey observing the 
following ILO definitions and recommendations: 

-  Labour  force:  employed  and  unemployed  persons  according  to  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 co-operatives 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: 

have no work, 

are actively seeking a job 

are ready to take up a job within a fortnight. 

109 

Unemployment  rate  (by  ILO  methodology):  percentage  of  the  unemployed  in  labour 
force. This rate is derived from the number of registered unemployed observing the ILO 
definitions and recommendations (see ILO definitions above). 

Average employment: by NACE branches.  This indicator is derived observing the ILO 
definitions and recommendations. 

Infrastructure 

Railway network: all railways in a given area. This does not include stretches of  road 
or  water  even  if  rolling  stock  should  be  conveyed  over  such  routes; e.g. by  wagon-
carrying trailers or ferries. Lines solely used for tourist purposes during the season are 
excluded  as are railways constructed  solely to serve mines; forests  or other  industrial 
or  agricultural  undertakings  and  which  are  not  open  to  public  traffic.  The  data 
considers the construction length of railways. 

Length  of motorway:  road, specially designed  and built for  motor traffic,  which  does 
not serve properties bordering on it, and which: 

(a) is provided, except at special points or temporarily, with separate carriageways for 
the two directions of  traffic,  separated  from  each  other, either by a dividing strip not 
intended for traffic, or exceptionally by other means; 

(b) does not cross at level with any road, railway or tramway track, or  footpath; 

(c) is specially  sign-posted  as a  motorway  and  is reserved  for  specific  categories of 
road motor vehicles. 

Entry  and  exit  lanes  of  motorways  are  included  irrespectively  of  the  location  of  the 
signposts. Urban motorways are also included. 

Industry and agriculture 

Industrial  production  volume  indices:  industrial  production  covers  mining  and 
quarrying,  manufacturing  and  electricity,  gas, steam  and  water  supply  (according  to 
the NACE Rev.1 Classification, Sections C, D and E). 

Gross  agricultural  production  volume  indices:  gross  agricultural  production  volume 
indices are calculated in constant prices of 1995. 

Standard of living 

Number of cars: passenger car: road motor vehicle, other than a motor cycle, intended 
for  the  carriage  of  passengers  and  designed  to  seat  no  more  than  nine  persons 
(including the driver). 

The  term  "passenger  car"  therefore  covers  microcars  (need  no  permit  to  be  driven), 
taxis  and  hired  passenger  cars,  provided  that  they  have  less  than  ten  seats.  This 
category may also include pick-ups. 

Telephone  subscribers:  the  number  of  telephone  subscribers  per  1000  inhabitants 
refers  to  the  number  of  direct  exchange  lines  (fixed  telephone  only)  and  does  not 
include mobile phone subscribers. 

110 

Internet connections: the number of internet connections per 1000 inhabitants refers to 
the  number  of  internet  subscribers  of  the  four  internet  access  service  providers  in 
Cyprus. 

Sources 

Total  area,  external  trade,  labour  market,  infrastructure,  demography,  industry  and 
agriculture, standard of living (except Internet connections): National sources. 

National accounts, inflation rate, balance of payment, public finance, finance: Eurostat. 

111