Source: EURLEX
Language: en
Format: md

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**COMMISSION OF THE EUROPEAN COMMUNITIES**

**Brussels, 15.07.1997**
**COM(97)** **2007 final**

**Commission Opinion**

**on** **Lithuania's** **Application**

**for Membership of** **the** **European Union**

**Contents**

**A. INTRODUCTION** Page

**a) Preface**

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

**b) Relations Between the European Union and Lithuania**

Historical and Geopolitical Context
Lithuania's Position Concerning the European Union
Contractual Relations

The Pre-Accession Strategy
Trade Relations

General Evaluation

**B.** **CRITERIA FOR MEMBERSHIP**

**1.** **Political Criteria**

**1.1 Democracy and the** **Rule** **of Law**

Parliamentary and Legislative Powers: Structure
Functioning of Parliament
The Executive: Structure

Functioning of the Executive
The Judiciary: Structure
Functioning of the Judiciary
**1.2 Human Rights and the Protection of Minorities**
Civil and Political Rights
Economic, Social and Cultural Rights
Minority Rights and the Protection of Minorities
**1.3 General Evaluation**

**2.** **Economic Criteria**

**2.1 The Economic Situation**

Background
Liberalisation

Stabilisation of the Economy
Structural Change
Financial Sector

Economie and Social Development
**2.2 The Economy in the Perspective of Membership**

Introduction

The Existence of a Functioning Market Economy
The Capacity to Cope with Competitive Pressure and Market Forces
Prospects and Priorities
**2.3 General Evaluation**

**3.** **Ability to Assume the Obligations of Membership**

**3.1 Internal Market Without Frontiers**

The Four Freedoms

    - General Framework

    - Free Movement of Goods

    - Free Movement of Capital

    - Free Movement of Services

    - Free Movement of Persons

    - General Evaluation

Competition
**3.2 Innovation**

Information Society
Education, Training and Youth

  - Research and Technological Development
Telecommunications

Audio-visual

**3.3 Economic and Fiscal Affairs**

Economic and Monetary Union
Taxation

Statistics

**3.4 Sectoral Policies**

Industry
Agriculture
Fisheries

Energy
Transport
Small and Medium Enterprises
**3.5 Economic and Social Cohesion**

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

Consumer Protection

**3.7 Justice and Home Affairs**

**3.8 External Policies**

Trade and International Economic Relations

Development
Customs

Common Foreign and Security Policy

**3.9 Financial Questions**

Financial Control

Budgetary Implications

**4.** **Administrative Capacity to Apply the** _**Acquis**_

**4.1 Administrative Structures**

**4.2 Administrative and Judicial Capacity**
**4.3 General Evaluation**

**C.** **SUMMARY AND CONCLUSION**

**Annexes**

Composition of Parliament
Single Market: White Paper Measures
Statistical Data

**A. INTRODUCTION**

**a) Preface**

**The Application for Membership**

Lithuania presented its application for membership of the European Union on 8 December
1995, and accordingly the Council of Ministers decided on 29 January 1996 to implement the
procedure laid down in Article 0 of the Treaty, which provides for consultation of the
Commission.

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

**The Context of the Opinion**

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

The European Council in Copenhagen in June 1993 concluded that:

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

that the candidate country has achieved stability of institutions guaranteeing
democracy, the rule of law, human rights and respect for and protection of minorities;

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

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

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

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

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

   - the development of the market economy,

   - the adjustment of their administrative structure,

   - the creation of a stable economic and monetary environment".

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

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

The Contents of the Opinion

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

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

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

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

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

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

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

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

**b) Relations Between the European Union and Lithuania**

Historical and Geopolitical Context

Lithuania, a small nation on the Baltic Sea, is about the size of Ireland in terms of both
population and area (3.7 million; 65,200km [2] ). It shares borders with Russia (Kaliningrad),
Poland, Belarus and Latvia.

Lithuania's existence as a state dates back to 1009. The kingdom of Lithuania was founded in
1251. In the Middle Ages trading links between North German, Prussian and Livonian cities
around the Baltic coasts promoted the development of the Lithuanian economy and
strengthened Lithuania's ties with the rest of Europe. The Lithuanian-Polish Commonwealth
was established in 1569 but dissolved in 1795 when Russia occupied all of Lithuanian
territory. Russia dominated Lithuania for over a century. Lithuania declared its independence
on 16 February 1918, and fought both German and Soviet forces to establish it. Between the
Wars Lithuania was an independent state and highly integrated into the world economy.

Lithuania was forcibly annexed by the Soviet Union in 1940, then occupied by Germany from
1941 to 1944. The Soviet Union re-established its rule in 1944, although it was not
recognised by most Western states. In the Soviet period, because of Lithuania's
comparatively good infrastructure and skilled labour force, large industries were established
there. Despite a lack of natural resources, the energy sector was developed, particularly in the
nuclear field . Other important sectors were agriculture and food processing.

In 1989, public pressure forced the Communist party to agree to multiparty elections, which
were won by the Sajudis nationalist movement. The Supreme Council declared the restoration
of independence on 11 March. After violent clashes with Soviet troops throughout 1990,
more than 90% of the population voted for independence in a referendum in February 1991.
The Soviet Union recognised Lithuania's independence in September 1991, and the last
Russian troops left Lithuania in 1992.

**Lithuania's Position Concerning the European Union**

Since restoring its independence in 1990 Lithuania has actively pursued a policy of
strengthening political, economic and social ties with the European Union and anchoring its
security and stability in the transatlantic security structures. Lithuania applied for EU
membership on 8 December 1995. In June 1996 the Lithuanian Parliament ratified an
amendment to Article 47 of the Constitution, thus enabling foreigners to own land for
commercial purposes.

The determination of Lithuania to move towards European integration was underlined by
President Algirdas Brazauskas in his address to the EU Diplomatic Corps on 19 April 1997:
"Those who inspired the Treaty of Rome had surmounted the consequences of the Second
World War just in the western part of Europe. Today we have a chance to overcome the
consequences of the Cold War on a much vaster territory. Lithuania strives for democracy,
peace and prosperity - the values we were unlawfully deprived of for long decades in the past.
Lithuania sees its future in the family of united, secure and thriving states of Europe. Full and
indivisible membership of the European Union constitutes one of our most important foreign
policy goals. We believe that the admittance of new members would be the first step towards
the elimination of a major consequence of the Second World War and the Cold War which
divided Europe. It may be said that it would be a litmus test of the actual progress made by
Europe towards unification and of the prevalence of thinking based on the values of truly
Western civilisation rather than pure pragmatism.

"We are fully aware that the creation of the Europe of the 21st century is neither a question of
charity nor of altruism. It is very good that the Copenhagen European Council established
clear-cut criteria on which each state will be evaluated, Even if we would separate ourselves
from the problems related to EU accession, those requirements are important in that they
enable us to judge ourselves in terms of future prospects."

**Contractual Relations**

Diplomatic relations between the European Communities and Lithuania were established on
27 August 1991. A Trade and Cooperation Agreement was signed on 11 May 1992 and
entered into force in 1993. The present contractual relationship is regulated by a Free Trade
Agreement which was signed on 18 July 1994 and entered into force on 1 January 1995. This
agreement aims at establishing free trade between the EU and Lithuania within a transitional
period of up to six years, on a basis of asymmetry. Some sectors (mainly textiles, agricultural
products and fisheries) are regulated by specific rules. The agreement also contains provisions
covering payments, competition and approximation of legislation.

A Europe Agreement was negotiated with Lithuania in the first half of 1995 and signed on 12
June 1995. Lithuania ratified the Agreement on 5 August 1996. It will enter into force on
completion of ratification by all Member States. The Europe Agreement will then supersede
the Trade and Cooperation Agreement and the Free Trade Agreement.

Once it enters into force, the Europe Agreement will be the basis of the relations between
Lithuania and the Union. Its aim is to provide a framework for political dialogue, promote the

expansion of trade and economic relations between the parties, provide a basis for Community
technical and financial assistance, and an appropriate framework to support Lithuania's
gradual integration into the Union. The institutional framework of the Agreement provides
the necessary mechanism for implementation, management and monitoring of all areas of
relations. Subcommittees examine questions at a technical level. The Association
Committee, at senior official level, provides for in-depth discussion of and often finds
solutions to issues arising under the Agreement. The Association Council, at Ministerial
level, examines the overall status of relations and provides the opportunity to review
Lithuania's progress in preparing for accession.

To manage and implement its policy on European integration, the Government established in
1996 a Governmental Commission on European Integration, chaired by the Prime Minister.
Coordination of all activities linked with integration falls to the Department of European
Integration within the Foreign Ministry. In 1997 a new Ministry for European Affairs was set
up to monitor and control compatibility of draft bills with EC laws. In early 1997 an
Interministerial Delegation for Negotiations and Integration into the European Union was
established, which is currently finalising a National Strategy for European Integration,
including objectives and timetables.

The Pre-Accession Strategy

_Implementation of the Free Trade Agreement and_ _the_ _White Paper_

The Free Trade Agreement is fully functioning according to the agreed timetable. Pending
adoption of an additional protocol (under preparation), autonomous measures have been
adopted for agricultural products, processed agricultural products, textiles and fisheries in
order the adapt the Agreement to the enlargement of the Union and the conclusion of the
Uruguay Round. Rules on undertakings and state aid are under preparation. A new Protocol
on rules of origin entered into force on 1 April 1997 allowing for pan-European cumulation of
rules of origin. Discussions are under way about extending Protocol 1 on trade in textiles
beyond the expiry date of 31 December 1997. Agreement on determination of the agricultural
component applicable to basic agricultural products originating in the Community, in
accordance with Protocol 2, was reached in March 1997.

Other main issues being discussed in the framework of the Agreement are: approximation of
legislation and pre-accession strategy, macro-economic progress, Lithuania's relations with its
neighbours, opening up of Community programmes, customs cooperation, certification and
standardisation issues, third pillar cooperation and trade issues. The Joint Committees,
Interparliamentary Committee and technical working groups have all met regularly.

The Commission's White Paper of 1995 on the Internal Market set out the legislation which
the candidate countries would need to transpose and implement in order to apply the acquis,
and identified elements essential to the implementation of the single market (known as Stage I
measures) which would need priority attention. Lithuania has attached considerable progress
to this work. Ten working groups have been set up in the Ministries concerned to work on
implementing the recommendations of the White Paper. In September 1996 the Parliament
ratified a National Law Harmonisation Programme, which lays down timetables for

harmonisation with EU law. This fits into an overall strategy for legislative approximation
whose target is the entry into effect by the year 2000 of EC internal market legislation.
Progress has already been achieved in a number of areas including banking, insurance,
customs, taxation, transport, environment and consumer protection.

The EC/Lithuania Free Trade Agreement is functioning well. It has been possible to resolve
any problems smoothly and constructively. Cooperation has already advanced further in some
sectors than the Agreement requires. This provides a good basis for the enhanced level of
cooperation and implementation which will be required under the Europe Agreement.

_Structured Dialogue_

Lithuania has participated in the Structured Dialogue since the Cannes European Council in
1995. Lithuania has been an active participant in the political dialogue as well as in the other
areas covered by it.

_Phare_

EU technical and financial assistance to Lithuania started under the 1991 TACIS programme
and has been extended under PHARE since 1992. During the period 1992-1996 the PHARE
programme provided 1794 MECU to Lithuania; The allocation for 1997 was 46 MECU.
Principal sectors of activity have been: reform of the legal and institutional framework;
infrastructure; restructuring and privatisation and third pillar issues. PHARE has had a
particular impact on SME development and reform of taxation and customs.

Under the Cross-Border Cooperation programme over 15 MECU have been allocated since
1994 for infrastructure investment and EU-Belarus Eastern Border Management. In terms of
contracting and disbursement, Lithuania has shown a high absorptive capacity.

_Participation in Community Programmes_

Lithuania will become eligible to participate in Community programmes from the entry into
force of the Europe Agreement. It has already applied to participate in: Socrates, Leonardo,
Media, Youth for Europe, SAVE II, Raphael, Kaleidoscope, LIFE and Ariane. It has
earmarked funds in its 1998 budget to meet the financial obligations which participation
would imply.

Trade Relations

EU-Lithuania trade has developed rapidly. Between 1992 and 1994 the Union's exports more
than tripled, to 724 MECU. Over the same period Lithuania's exports to the EU rose by 30%,
to 750 MECU. The main EU exports are machinery and electrical equipment, agricultural
products and textiles. Lithuania's main exports are minerals and base products and chemicals.
Roughly equal shares of Lithuania's external trade now go to the former Soviet Union and the
EU.

Since the Free Trade Agreement between Lithuania, Latvia and Estonia entered into force for
industrial products in January 1996 and for agricultural products in 1997, trade between the
three countries is expected to grow substantially. Trade with Poland has increased sharply
since the signature of the Lithuanian-Polish Friendship and Cooperation Treaty and a Free
Trade Agreement in 1996. Lithuania also expects to join CEFTA in 1997.

**General Evaluation**

Relations with the EU have developed well since Lithuania regained its independence. No
delays are foreseen to establishing free trade by the year 2000, as foreseen in the Free Trade
Agreement. The various issues dealt with under the Free Trade Agreement have been solved
effectively. Cooperation will be further enhanced when the Europe Agreement with Lithuania
enters into force.

**B.** **CRITERIA FOR MEMBERSHIP**

**1.** **Political Criteria**

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

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

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

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

**1.1 Democracy And The Rule Of Law**

In October 1992, Lithuania adopted by referendum a new Constitution, establishing a
parliamentary democracy. The Lithuanian institutions work smoothly, the various authorities
being mindful of the limits of their powers and of the need for cooperation.

Parliamentary and Legislative Powers: Structure

Parliament consists of a single house - the Seimas. Its 141 members are elected for four years
by a mixed voting system: 71 are elected by the uninominal method of voting in a double
ballot; the other 70 are elected by proportional representation on a national basis, and a list
must receive at least 5% of the votes cast (4% before 1996) if it is to be represented. There are
no longer any rules specifically ensuring the representation of minorities. (Before 1996, a list
representing a minority required only 2% of the votes cast).

The Seimas, on a 2/3 majority vote of its members, can decide to hold early elections. The
President of the Republic can also dissolve Parliament if it refuses to appoint a new
government or, at the latter's request, if the Seimas brings it down. He cannot, however, use
this power during the last six months of his term of office, or if an early election has taken
place during the previous six months.

Members of Parliament enjoy a traditional array of immunities. The involvement of the
Opposition in the workings of the institutions is Tecognised. It has a voice, for example, in the
setting up of cross-party parliamentary select committees.

The existence of numerous political groupings (24 parties put forward candidates for the last
General Election in November 1996) shows that there is a genuine multi-party system in
Lithuania. Political parties receive no State aid, but a bill on this subject is currently before
Parliament.

Legislative power lies with the Seimas, which shares its right of initiative with the President
of the Republic, the Government and 50 000 members of the electorate, who can put forward a
proposal for a law which the Seimas is obliged to consider. The Government has regulatory
power only for the purposes of ensuring that the laws are applied. The President of the
Republic has the power to take the necessary steps to deal with external aggression or an
emergency, but is obliged to put them before the Seimas at its next meeting.

A referendum can be held at the request of Parliament or of 300 000 members of the electorate
"on the subjects of greatest importance for the life of the State and the People" (Article 9 of
the Constitution). To date, this procedure has been used seven times.

Functioning of Parliament

The elections of 1992 and 1996 were free and fair, and in both cases they resulted in a political
change of government (bringing to power first the Democratic Labour Party, then a
conservative coalition).

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

The Executive: Structure

The President of the Republic is elected by direct universal suffrage for a five-year term,
renewable once only. If the Seimas is dissolved by the President, the newly-elected
Parliament may, by a 2/3 majority vote of its members, call an early presidential election. The
President exercises the traditional prerogatives of a Head of State.

The Government, which is accountable to the Seimas, consists of a Prime Minister and
ministers appointed by the President of the Republic after receiving the confidence of
Parliament. The President of the Republic may also dismiss a minister, at the request of the
Prime Minister.

The ministers are individually answerable to Parliament. Criminal proceedings cannot be
brought against them without the consent of the Seimas or, if the Seimas is not sitting, the
President of the Republic.

The administrative organisation of the country depends on the decentralised regional arms of
the central government at the level of the ten counties, whose officials are responsible for
implementing the decisions taken and policies adopted by the central government. Each

county has a regional Governor appointed by the government. The Governor is assisted by an
assembly of the mayors and deputy mayors from the town councils under his jurisdiction.
Lithuania has only one type of local authority, the municipality, of which there are 56. Of
these, 44 are districts and 12 are towns or cities. They are managed by municipal councils,
elected by universal suffrage for a three-year term, and by a Mayor appointed by the Council.
Their deliberations and decisions are monitored by a representative of the Governor, appointed
by him at county level but not placed under the Governor's authority.

The Lithuanian local authorities enjoy a large measure of autonomy and financial
independence.

There is a Civil Service Act, adopted in 1995, which distinguishes'officials appointed by the
government in office (who have no employment guarantees) from permanently-recruited civil
servants. Lithuania has laws on administrative transparency.

The army, the secret services and the police are under the control of the civil authorities. The
police has been reorganised to enable it to tackle more effectively the tasks it has to perform
(in particular the fight against organised crime).

**Functioning of the Executive**

The executive functions in a satisfactory manner.

The local authorities enjoy a certain degree of autonomy, though the decentralised State
authorities at county level seem to have considerable powers in respect of local administration.
Although civil servants' rights and obligations are defined in law, there is at present an
imbalance between their rights, which have been extended, and their obligations, which are
still largely formal. In particular, there is no suitable mechanism whereby public servants can
be held accountable - and this makes it hard to combat corruption effectively. However, a
Civil Service Code of Good Practice is currently before the Seimas, and the government has
announced its intention of setting up an inspectorate to deal with complaints against the
administration.

Since early 1997, the police has been involved in a process of reform intended to improve its
readiness to perform its traditional duties and to tackle new tasks (the fight against organised
crime, ensuring that taxes are collected). Mechanisms are now in place for assessing its
performance and calling police officers to account.

**The Judiciary: Structure**

The situation of the Lithuanian judiciary is such that its institutions can claim to be
independent. It is true that the executive and legislative authorities have a considerable say in
the appointment of judges: Appeal Court judges are appointed by the President of the
Republic with the approval of Parliament; District and Local Court magistrates are appointed
by the President alone; Supreme Court judges are appointed by Parliament on a
recommendation from the President. However, a special Committee of judges makes
recommendations to the President on all matters concerning the management of the judiciary

**10**

(appointments, promotions, transfers or dismissals). Judges are not allowed to take part in the
activities of political parties or other political organisations.

The Procurator's Office is under the authority of the Procurator General, who is appointed and
dismissed by Parliament and is answerable to Parliament. The procurators are answerable to
the courts for their actions during judicial proceedings.

In respect of administrative measures, the Constitutional Court has the power, at the request of
one-fifth of the Members of Parliament, to verify the constitutionality of acts of the President
of the Republic and of the Government. The Lithuanian authorities are also currently drafting
a "Code on violations of the law by the Administration and on administrative procedure",
which will enable acts of the Administration to be challenged in court. Under the
Constitution, special tribunals can also be set up for hearing such disputes (Article 111).

In March 1994, Lithuania set up parliamentary Ombudsmen (five "controllers" were
appointed for a four-year term by the Seimas in December 1994). They have the power to
consider complaints against the Civil service, the army and the local authorities and may, on
the basis of their investigations, initiate legal proceedings to have the offending public servant
removed from his post. They cannot, however, investigate complaints against the President of
the Republic, the Government or the judiciary.

The Constitutional Court, set up in 1993, consists of nine judges" appointed for a nine-year
term, not renewable. Parliament appoints the judges on a proposal from the President of the
Republic, the President of the Seimas and the President of the Supreme Court. (Each of these
authorities proposes one third of the members of the Constitutional Court). The Constitutional
Court ensures the constitutionality of laws and treaties. It may be asked to do so by the
President of the Republic, the Government, one-fifth of the MPs or the courts. It also judges
presidential and parliamentary elections, decides whether the President of the Republic has
become incapable of carrying out his duties and judges impeachment proceedings against
members of the Seimas or other public figures. The decisions of the Constitutional Court are
final, except in respect of the constitutionality of international treaties, in which respect the
Seimas can overrule the "conclusions" of the Court (Article 107(3) of the Constitution).

Functioning of the Judiciary

The main problem affecting the process of justice in Lithuania is the fact that the courts take a
long time to deliver their judgments. This is largely due to a shortage of qualified judges and
to the 1995 reform of the judiciary, which created a four-tier judicial system. Commercial
cases are particularly seriously affected, as the bottleneck obstructs the application of the law
on bankruptcy.

The Procurator's Office also seems overloaded with work at present, since its powers have not
been clearly defined. This, in turn, delays legal proceedings and in particular lengthens the
procedure for preventive detention (see below).

**11**

**1.2 Human Rights and the Protection Of Minorities**

Lithuania has introduced various internal rules designed to ensure respect for human rights
and minorities' rights. Such respect may also be guaranteed by the application of certain
international conventions, most notably the European Convention for the Protection of
Human Rights and its main additional protocols. Under Article F of the EU Treaty, this set of
provisions forms part of the _acquis:_ any State wishing to join the European Union must first
have ratified the said texts.

Lithuania, which has been a member of the Council of Europe since May 1993, ratified the
European Convention for the Protection of Human Rights and most of its additional protocols
in June 1995 (with the exception of Protocol No.6 on the death penalty). It also grants private
individuals the right to appeal to the European Court if they consider that their rights under
that Convention have been violated.

Among the other main conventions on human rights and minorities' rights, Lithuania has
signed, but not ratified, the European convention for the prevention of torture and the
Framework Convention for the Protection of National Minorities. Nor has it signed the
European Social Charter. It has, however, ratified the main human rights conventions
concluded under the aegis of the United Nations.

Under Article 138 of the Constitution, any international treaty ratified by the Seimas forms an
integral part of Lithuanian law.

**Civil and Political Rights**

The Lithuanian Constitution recognises the right of any individual to have recourse to the law.
However, the actual exercise of this right is severely impeded by the slowness of legal
proceedings and the lack, until now, of any procedure for calling public servants or police
officers to account. Moreover, the shortage of lawyers impedes the right of any individual to
obtain the services of a lawyer (Article 31 of the Constitution).

The death penalty has not been abolished in Lithuania, and was last imposed in 1995. Since
then, the President of the Republic has decreed a moratorium, and a new draft Penal Code not
including the death penalty was recently put before the Seimas. Nevertheless, there is strong
public opposition to the proposed abolition of this penalty.

The right not to be arrested arbitrarily is protected by the law which limits the period of
detention to 72 hours. After that time the detainee must be charged or released. This period
may be extended to two months if the detainee is suspected of having committed a "serious
offence", in which case the individual in question must appear in court within 48 hours of his
arrest, so that the judge can decide on the period of detention. The Lithuanian authorities
recognise that this legislation is exceptional in nature: it is a temporary measure and should
cease to be applicable after 30 June 1997.

All citizens over 18 years of age enjoy electoral rights.

**12**

Freedom of association and peaceful assembly is also guaranteed by the Constitution and is
exercised without difficulty. More than 300 associations are active in Lithuania. Since they
are non-profit-making organisations, they are exempt from corporation tax.

There is genuine freedom of expression in Lithuania, as evidenced by great pluralism in the
press and other media: there is one national public television network and four privatelyowned networks, as well as several regional networks. The Law of July 1996 guarantees the
independence of the media and of journalists vis-à-vis the public authorities. Thus the three
regulatory bodies set up under that Law are made up primarily of representatives of the
profession. An Ombudsman has also been set up to investigate libel accusations and other
complaints against the media. The Law also authorises the dissemination of information
about the private life of public figures if it is liable to affect the general public.

The right of ownership is now assured, and expropriation may take place only in the public
interest and with fair compensation paid in advance. Similarly, in June 1996, Parliament
amended Article 47 of the Constitution so as to allow nationals of Member States of the

European Union and of the G24 to own land in Lithuania. Parliament has recently adopted a
law providing for arrangements for compensating persons who were deprived of their property
by the Nazis during the last war or by the Communist regime. The President of the Republic
has asked the Seimas to reconsider this law, in particular so as to guarantee the rights of the
present occupants of certain property which is to be restored. Finally, the land register is still
incomplete and this creates uncertainty regarding the ownership of land in some areas.

Respect for private life is, in principle, guaranteed since searches and the monitoring of
correspondence and communications cannot be undertaken without prior authorisation from
the Procurator's Office or a judge. However, measures of this sort are increasingly being
taken without a warrant as part of the fight against organised crime. An appropriate legal
basis for such actions should be laid down, so that they can be carried out legally and
efficiently.

With regard to asylum-seekers, in January 1997 Lithuania ratified the 1951 Geneva
Convention on refugees, thus bringing into force the 1995 Law laying down the arrangements
and procedure applicable to such persons. The first applications for asylum under this new
system were considered in May 1997. Accommodation and assistance for asylum-seekers are
now of a satisfactory standard.

The situation in prisons gives greater cause for concern. The present state of affairs prevents
Lithuania from ratifying the European convention for the prevention of torture and inhuman
and degrading treatment. However, the prison system is to be reformed in 1997, chiefly by
adopting a Code on the imposition of sentences and a law on prisons and by opening new
penitentiary establishments (two are to be built this year).

Lithuania has no appropriate legislation against pornography and child prostitution or against
the sexual abuse of children. However, NGOs working in this field have, with government
assistance, taken positive steps to protect abused children.

Finally, attention should be drawn to the criticisms levelled against the Lithuanian authorities
for their attitude toward Lithuanian Nazi war criminals living in Lithuania (cf. the case of

**13**

Alexandras Lileikis). Nor have the authorities in Vilnius kept their promise to annul the
measures, illegally taken by the Soviet regime, to rehabilitate persons suspected of crimes
against humanity. However, the Procurator General has referred to the Supreme Court the case
of twenty persons alleged to have benefited from these measures.

**Economic. Social and Cultural Rights**

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

Trade union freedoms are recognised. Trade union pluralism is also guaranteed, and there are
some 80 such organisations in existence. However, relatively few workers are members of a
trade union.

The right to strike is guaranteed, except for public officials providing essential public services.
However, the statutory procedure for exercising this right is so complex that only a small
number of strikes have taken place legally.

Freedom of education and religion are guaranteed in Lithuania. However, police protection is
needed for Jewish places of worship, in view of the sporadic acts of vandalism committed
against the Jewish cemeteries at Kaunas, Vilnius and Klaipeda.

Minority Rights and the Protection of Minorities

Minorities represent nearly 20% of the population of Lithuania, the two largest being Poles
(9%) and Russians (8%).

International standards provide a first line of defence for minorities. Lithuania has not ratified
the Council of Europe's framework convention on minorities, and Council of Europe
Recommendation 1201 is not legally binding.

The Lithuanian Constitution recognises the individual rights of persons belonging to
minorities (in terms of language, culture and traditions), but has taken no steps to enshrine
collective rights which would enable minorities to be recognised as politically organised
communities. There are, for example, no particular rules governing the representation of
minorities in Parliament: a party representing the Polish minority obtained one seat in the
November 1996 general election, having succeeded in getting over the 5% threshold of Votes
cast, and five MPs of minority origins were elected on the lists of the national parties (three
for the Conservatives, one for Labour and one for the Social Democrats). However, minorities
have the right to manage their cultural and educational affairs, and at Government level the
Department for national minorities and regional issues is responsible for dealing with these

matters.

The situation of minorities in Lithuania is, in general, satisfactory. The 1991 Law on
nationality has made a major contribution here by granting citizenship to all persons resident
in Lithuania, regardless of their national origins, previous periods of residence or ability to
speak the language. Consequently, some 90% of persons belonging to minorities now have
Lithuanian nationality.

**14**

Minorities are allowed to use their own language for official communications in areas where
the minority in question accounts for a large proportion of the population. In such areas, road
signs are in both languages. It is, however, not permitted to express oneself in a minority
language in court, except via an interpreter.

Minority languages and cultures are supported by the public authorities. The. government
gives grants to minority schools and has introduced a programme of long-term assistance for
such schools. Thus, 14.6% of all schoolchildren are being educated in establishments where
teaching is given in a minority language. There is also a quota system for pupils from minority
communities who wish to go on to higher education. A large number of minority language
media serve these communities, and the national radio and TV networks also broadcast
programmes for the various nationalities.

Almost all the complaints made by minorities have come from the Poles, who complain of
insufficient access to public service employment, especially at high level, of obstacles to the
use of the Polish language and of boundary changes to the administrative districts within the
Vilnius region which they say, have reduced the influence of the Polish minority. These are
nevertheless isolated problems and do not alter the fact that the overall situation is favourable.

**1.3** **General Evaluation**

Lithuania's political institutions function properly and in conditions of stability. They respect
the limits on their competences and cooperate with each other. Elections in 1992 and 1996
were free and fair, and in each case permitted an alternation of power in proper conditions.
The Opposition plays a normal part in the operation of the institutions. Efforts to improve the
operation of the judicial system and to intensify the fight against corruption need to be
sustained.

There are no major problems over respect for fundamental rights.

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

**2.** **Economic Criteria**

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

This part of the Opinion therefore gives a concise survey of the economic situation and
background, followed by a review of Lithuania's progress in key areas of economic
transformation (liberalisation of the price and trade system, stabilisation of the economy,

**15**

structural change, reform of the financial sector) as well as its economic and social
development. It concludes with a general evaluation of Lithuania in relation to the criteria
mentioned by the European Council and a review of prospects and priorities for further
reform.

**2.1 The Economic Situation**

**Background**

Lithuania, with a population of 3.7 million, has a gross domestic product (GDP) of 14 billion
ECU (expressed in purchasing power parity); its population is about 1 percent of that of the
Union, while its economy is only about 0.2 percent of that of the Union, GDP per head is about
24 percent of the Union average. The average monthly wage is about 140 ECU.
Lithuania has applied for WTO membership.

_Progress in Economic Transformation_

In the inter-war period, Lithuania was an independent state, and highly integrated in the world
economy. In 1940, the country was forcibly annexed to the Soviet Union and subsequently
central planning was introduced. Because of its comparatively good infrastructure and skilled
labour force, relatively large and sophisticated industries were established in Lithuania.
Despite a lack of natural resources, development of the energy sector was particularly
emphasised; it achieved sufficient capacity to satisfy the energy demand of most of the Baltic
region of the Soviet Union. Other [1] traditionally important sectors were agriculture and,
especially, food processing. Lithuania's large enterprises were heavily dependent on the rest of
the Soviet Union, both for acquiring raw materials and energy, and for selling finished
products. The industry was the beneficiary of substantial implicit subsidies during this period,
because the system of centrally determined prices allowed it to import its inputs far below
world prices - an advantage that was lost after independence.

Although Lithuania started economic change during the _perestroika_ era under Soviet rule, the
fact that it regained independence only in 1991 has delayed the start of fully-fledged reforms.
The need to establish from scratch the institutions and the legal framework of an independent
state has added considerably to the complications of transition to a market economy.
Nevertheless, immediately after independence, extensive liberalisation and privatisation
programmes were initiated although the latter took much more time than originally planned.
The reorientation of the economy initially induced the most severe decline in output registered
in central and eastern Europe, while at the same time inflation surged. Only after the
introduction of the new national currency and the currency board in 1993-94 was the
economic downturn halted.

Before independence, the private sector practically did not exist. The industry sector consisted
of large state enterprises, and agriculture was entirely collectivised. A programme of voucher
privatisation began in 1991, and succeeded in privatising both the important agricultural sector
and all small and medium-sized enterprises relatively rapidly. However, in the larger industrial
enterprises, the state kept important stakes, while in key enterprises (e.g. electricity, railways,
telecommunications, oil refinery) no private influence was allowed at all. The authorities
report the share of the non-state sector in GDP to be around 65 percent, but this figure contains

**16**

many companies with large state participations. A second stage of privatisation started in
1996, and is based on several schemes, including cash payments. Although, it is still too early
to assess the results, privatisation is one of the policy priorities of the new government which
has initiated divestment procedures for several of the aforementioned key enterprises.

_Foreign Direct Investment_

Foreign direct investment (FDI) inflows have been low, with an average annual inflow of
approximately 1% of GDP (SOURCE: EBRD). This has been due to several factors, including
macroeconomic instability and the slow pace of cash privatisation and other structural
reforms. Recent policy changes (cf. below) could clearly improve the situation in the future.

_Economic Structure_

In Lithuania, agriculture has. always been a key sector. However, in recent years output fell
steeply: from 27.7 percent of gross value added in 1990 to roughly 9 percent in 1995. A rapid
privatisation coupled with the restitution of property rights on land has led to a strongly
aggregated ownership structure, resulting in low productivity. The authorities are protecting
the profitability of the sector with important subsidies. Consequently, the fall in output has not
been reflected in a similar employment decline, and the agricultural sector still employs more
than 20 percent of the workforce. To be able to expose the sector to international competition,
a substantial restructuring effort still has to be made, with mostprobably significant effects on
employment. The new government has introduced reform measures: production subsidies are
being reduced and replaced by income support.

Industry is still an important economic sector, although its share in gross value added fell from
32.8 percent in 1990 to 29 percent in 1995. Employment represents over one fifth of the total
workforce. The most important sub-sectors are food processing (30 percent) and petroleum
refining (19.4 percent), although the latter lost importance because Russia is no longer using
the Lithuanian refinery. The large energy-intensive manufacturing enterprises have been
confronted with a sharp price increase of their inputs, as Russia started to charge world prices
for raw materials and energy, while they simultaneously lost most of their traditional export
markets. The transformation of the sector from energy-intensive production for Soviet
markets, to higher-quality production, more in line with natural endowments, for western
markets, is still unfinished.

Under the Soviet regime, the services sector was typically underdeveloped. Consequently,
output in the services sector declined less than in agriculture and industry, and its share of
gross value added nearly doubled in five years to 55 percent in 1995.

The reform of the tax system and the rapid expansion of the number of small private
enterprises have created considerable difficulties for the statistical office to record all
economic activity, and for the tax administration to impose taxes. Consequently, the informal
sector has become very important.

**17**

**Main indicators** of economic structure

_(all_ _data_ _for_ _1996_ _unless otherwise indicated)_

Population _million_

GDP per head

Share of agriculture in:

Gross foreign debt/GDP

**3.7**

4100

24

9

23.7

15.6

Exports of goods & services/GDP

_p_ _PS-ECU_ _(1995)_
_per cent (1995)_

_per cent_ _(1995)_
_per cent (1995)_

_per cent_

_per cent_

52.4

Stock of foreign direct investment _billion ECU_ 0.23

_ECU_ _per head_ 65

FDI stock converted at end-1996 exchange rate of **1** ECU = $ 1.2

_Source: Commission services, national_ _sources,_ _EBRD,_ _IMF_

Stock of foreign direct investment

_billion ECU_
_ECU_ _per head_

**Liberalisation**

_PriceRegime_

Prices were almost fully liberalised during 1991-92. Restrictions remain on prices for energy,
housing and some prices for public transport and utilities. Goods and services with
administered prices represent approximately 10 percent in the basket of the consumer price
index.

_Tirade_ _Regime_

Lithuania's trade regime is relatively liberal, as all non-tariff restrictions were removed during
1991-92. The trade-weighted average tariff is very moderate at only 4.3 percent (1995) with a
large majority of products zero-rated. However, there has been some reversal in trade policies
under pressure from influential interest groups. In the last two years, import tariffs on some
agricultural products have been reduced more slowly than previously announced. On the
other hand, the Community has accepted a Lithuanian request for further trade liberalisation in
textiles.

Lithuania also has free trade agreements in place with the EFTA, with Latvia and Estonia, and
with most of the individual member states of CEFTA. Once it will have joined the WTO -for
which it has applied-, Lithuania will fulfil all formal conditions to become a member of

CEFTA.

**18**

_Foreign Exchange Regime_

The introduction of the new national currency, the litas, was done in several steps. First, the
Russian rouble was replaced by the talonas in October 1992, which was allowed to float
freely. The talonas initially continued to depreciate, but stabilised after a tightening of
monetary policy. Consequently, the litas was introduced in June 1993, and was pegged to the
us dollar, at an exchange rate of 4 litas per dollar, on 1 April 1994. Simultaneously, a currency
board mechanism was set up to increase the credibility of the exchange rate peg (cf. below,
section 6.3). The Bank of Lithuania (BoL) has the power to change the peg when necessary.
The Litas is fully convertible for current-account transactions, and there are virtually no
restrictions on capital transactions. Residents and non-residents may open accounts in foreign
currencies.

The BoL has recently announced that the monetary policy framework and the exchange rate
regime will be changed over the coming years. The currency board system would be gradually
abolished, while the exchange rate peg would initially remain unchanged. Only in the final
phase of the change of policy, which would not start before 1999, the exchange rate link to the
dollar would be progressively shifted towards a link to the euro.

**Stabilisation of the Economy**

_Domestic_

The transition from a command to a market economy, and, even more importantly, the breakup of the close input and output relations with the Soviet Union, provoked a steep output
decline in industry and agriculture during the first years of independence, leading to a
contraction of real GDP by almost 60 percent between 1990 and the end of 1993. Starting in
1994, the economic downturn was brought to an end, and economic growth accelerated to 3
percent in 1995. Preliminary and partial figures indicate that the pace of economic growth
continued to increase in 1996, despite the consequences of the serious banking crisis of
December 1995. If structural reforms of the economy are continued, it should be possible to
maintain similar or even higher growth rates in the coming years.

Inflation surged in 1992, not only as a result of rapid price liberalisation and the terms-of-trade
shock, but also because of the fact that the currency remained pegged for too long to the
sharply depreciating Russian rouble. In mid-1993, a first substantial attempt was made to
reduce inflation by leaving the rouble zone and introducing a new currency, the litas. These
effects were reinforced by the adoption of a currency board in April 1994, which severely
limits the BoL's room for manoeuvre. As a result, hyperinflation was halted. End-of-period
inflation fell drastically to less than 50 percent at the end of 1994, and declined gradually
afterwards to reach 13 percent at the end of 1996. The fall of the inflation rate continued into
the first months of 1997. This downward trend can be expected to continue. The moderate
wage developments and the real appreciation of the currency, which restrain import prices,
have probably played a major part in the sharp reduction of the inflation rate. However, the
expected adjustments in the relative price of energy products will continue to exert some
inflationary pressure.

**19**

Through the currency board system, the litas is pegged to the dollar and base money needs to
be backed for at least 100 percent by gold and foreign reserves. Monetary financing of the
budget deficit is not possible, and credit to the banking sector by the central bank - in its role
as lender of last resort - is limited to the amount of foreign reserves in excess of those needed
to provide full backing for base money. The Bank of Lithuania used this last possibility to
inject additional liquidity into the economy after the December 1995 banking crisis, which can
explain why the negative effect of the crisis on economic growth remained limited, despite the
fact that one quarter of the economy's deposits was frozen in the suspended banks.

Main economic trends

Real GDP growth rate

Consumer price inflation

December-on-December

Unemployment rate, end-year

General government b
balance

Current account balance

Debt/export ratio

Foreign direct investment inflo

1996

3.6

24.6

13.1

6.2

-2.5

-8.2

29.8

1.0

1995

**3.0**

39.6

35.7

**7.3**

-1.8

-10.3

25.9

0.9

_per cent_

_per cent_
_per cent_

_per cent_
_ILO_ _definition_

_per cent of GDP_

_per cent of GDP_

_per cent_

_per cent of GDP_

1994

1.0

72.2

45.1

4.5

-1.7

-2.1

20.7

1.4

_Source:_ _Co?nmission_ _services, national_ _sources,_ _EBRD_

Recently, the BoL has announced changes to the monetary policy framework. In a first stage,
the central bank would start to influence liquidity by intervening more actively on the treasury
bill market, while maintaining the general principles of the currency board and the fixed
exchange rate. The currency board mechanism would only be removed in a second phase,
while the exchange rate peg would remain unchanged until the third phase, which would not
begin before 1999.

Despite sharply reduced tax revenues, Lithuania has managed to keep public deficits
moderate. Given that the currency board mechanism does not allow for monetary financing of
government deficits, the weak revenue performance had to be offset on several occasions by
additional expenditure cuts. Due to the recapitalisation of the state banks and lower-thanexpected tax receipts, the deficit came out higher than planned in 1996 at 2.5 percent.
Therefore, the authorities are presently trying to extend the tax base, and to make the
appropriate improvements in tax collection and administration, in order to reduce the
government deficit ratio significantly in 1997.

**20**

_External_

As a consequence of its secession from the Soviet Union, which accounted for 95 percent of
its exports, Lithuania lost almost 70 percent of its exports in the first two years of
independence, resulting in a rapid increase of the trade deficit to 6 percent of GDP in 1993. The
external balances started to improve gradually afterwards, thanks to the undervaluation of the
real exchange rate at the time of the introduction of the currency board as well as to economic
restructuring. The recent evolution of the trade balance is hard to assess because of important
changes in statistical methods, which make comparisons with observations from before 1995
impossible. Available figures show sharp increases in both imports and exports, resulting in a
slight improvement of the 1996 trade balance as a proportion of GDP.

Lithuania has rapidly built up foreign exchange reserves, mainly as the result of official
external borrowing and, to a much lesser extent, foreign direct investment. The fall in reserves
after the banking crisis, which amounted to 20 percent in March 1996, was already completely
offset in August. The litas is now backed by reserves of about 2.5 months of imports.

Lithuania's external debt has increased substantially since 1993 but remains modest, at
roughly 15 percent of GDP at the end of 1996. A large part (about 40 percent) of the credits
received so far went to finance the purchase of oil and gas, while only about one quarter of the
loans was used to finance investment projects.

**Structural Change**

_Foreign Trade_

Lithuania is a small open economy with exports of goods accounting for above 40 percent of
GDP in 1996. Lithuania has been relatively successful in shifting its trade towards Western
Europe. Roughly equal shares of the country's external trade now go to the former Soviet
Union and to the European Union. However, Lithuania remains heavily dependent on Russian
oil imports because of technical and logistical constraints.

The geographical redirection of trade has been accompanied by a significant change in the
composition of exports and imports. While the share of agricultural goods, machinery and
textiles decreased significantly, exports of chemicals, wood and metals have gained in
importance. Redirecting exports has been successful in the latter areas and in textiles. These
shifts clearly illustrate the difficulties formerly important industrial sectors have to penetrate
western markets.

The Lithuanian authorities are currently establishing a set of measures and institutions to
promote exports, comprising an export development agency, an export "insurance and
guarantee system, and the creation of trade missions in the main trading partner countries.

_Labour Market_

Initially, the sharp contraction of the economy did not generate a rapid increase of registered
unemployment. To compensate for the lower output, employers relied on unpaid leave and
shorter working hours, instead of layoffs, which were legally limited until October 1992. Only

**21**

in the second half of 1994, registered unemployment started to increase, to reach a peak of 8.3
percent of the active population in early 1996. Recently, registered unemployment declined
again to 6.2 percent at the end of 1996. However, some rural areas are disproportionately hit,
with jobless rates of over 20 percent. Total unemployment remained relatively low compared
to many central European countries in transition, as a consequence of the important fall of
labour market participation from about 90 percent in 1991 to 83 percent in 1995.
The minimum wage is now about 86 ECU per month, approximately half the average wage.

_Public Finances_

The reform of the Lithuanian tax system from the Soviet government revenue system, which
mainly consisted of levies on enterprise turnover, to a tax system suited for a market economy,
has led to a major erosion of government receipts: while general government revenue
represented almost 44 percent of GDP in 1990, it fell to only 25 percent of GDP in 1995.
Nevertheless, the fiscal reform in Lithuania has put in place most of the necessary instruments.
VAT was introduced at an early stage, and the rate was increased to 18 percent in 1994.
However, VAT, personal income tax, and corporate profits tax, are all eroded by many
exemptions. The tax administration also lacks experience to trace tax obligations of the rapidly
developing private sector. Therefore, the authorities are presently removing a number of
exemptions on VAT, and increasing rates on some food products and fuel. Furthermore, the
government intends to fight tax evasion and smuggling more vigorously, in order to reverse
the downward trend in public receipts.

Notwithstanding this substantial decline of government revenues, deficits remained limited
because of strict cash management, reducing expenditures whenever revenues were
insufficient. The fact that the currency board system precludes monetary financing of
government deficits, also forces the government to conduct a credible fiscal policy, by
keeping the budget close to balance. Consequently, government expenditures decreased from
around 40 percent of GDP in 1990, to almost 28 percent in 1995. The structure of government
expenditure has changed considerably. Subsidies to enterprises were reduced significantly
from 14 percent of GDP in 1990 to only 1.3 percent in 1995 (mainly directed to agriculture and
the energy industry). However, the latter number underestimates the actual government
support, because of the enterprises' build-up of tax and energy payments arrears. Also, part of
the banking system's non-performing loans to enterprises are likely to become a liability for
the state, through future bank recapitalisation, or compensation of depositors in case of bank
failure. Public expenditures are now dominated by wages and transfer payments to
households, mainly pensions. Together these two categories represent almost two thirds of
total government expenditures. Despite the continued downward pressure on expenditures,
public investment has been maintained at around 3 percent of GDP. Nevertheless, the
modernisation of public infrastructure may require an increase in public capital expenditures.
A social security system has been created, based on payroll taxes. Employers contribute 30
percent of wages and salaries, and employees contribute 1 percent. The main expenditure
category of the social security system is pensions. Despite the current equilibrium of the
system, there is a risk that it will become unsustainable in the medium term. Although the
pension age is being gradually increased, the ageing of the population and a relatively
generous benefit calculation method will make it difficult to maintain the present system.

**22**

_Enterprise Sector: Privatisation and_ _Enterprise_ _Restructuring_

The first stage of Lithuania's voucher privatisation came to an end in 1995, almost four years
after its initiation. During this period, 85 percent of eligible objects were privatised. This rate
was characteristic for most sectors of the economy. According to official estimates, the private
sector's share in GDP was 68 percent in 1996. However, this number includes a large number
of enterprises that are still partly state-owned.

The voucher privatisation programme has not been very conducive to enterprise restructuring,
partly because of some structural features of the Lithuanian economy. Attracting the financial
means needed for restructuring is a particularly challenging problem when distributing
enterprises free of charge to the population. However, the availability of long-term funds for
restructuring has also been limited by the weakness of the banking sector, and the lack of
important inflows of foreign direct investment, which have remained close to .only 1% of GDP
in the last few years. Moreover, privatised companies are now owned, to a large extent, by
worker co-operatives, which tend to favour short-term job security over restructuring.
Although the tight fiscal and monetary policy has put major pressure on the enterprises to
restructure, the continued direct and indirect support to important sectors, such as energy and
agriculture, slowed down restructuring in these sectors. Finally, the lack of an efficient
bankruptcy legislation has so far reduced the incentives for restructuring.

Because voucher privatisation did not generate sufficient - enterprise restructuring, the
authorities approached the second stage of privatisation differently, selling the assets for cash.
In this way, the country also wants to attract more foreign investment. Although the initial list
of enterprises to be privatised was rather limited, the authorities have recently added a number
of key enterprises from the financial, energy, telecommunications, and transport sectors,
including the national air carrier Lithuanian Airlines, major state banks and the
telecommunications operator Lietuvos Telekomas.

**Financial Sector**

In 1992, a two-tier banking system was created, whereby the commercial banking operations
of the Bank of Lithuania were separated from its central bank functions. In the initial stage of
financial sector reform, Lithuania witnessed an important increase in the number of financial
institutions, as capital requirements and other prudential regulations were fairly weak.
Nevertheless, the sector remained very concentrated, with the four biggest banks representing
about two-thirds of all deposits, while the three biggest banks were still state-owned. Most of
the banks were undercapitalised and had an important portfolio of, often politically directed,
non-performing loans. Initially, the real value of these loans was quickly eroded by high
inflation, but when inflation was gradually reduced, banks were faced with liquidity problems.
Tighter controls by the BoL, which was given extensive powers to supervise the banking
system and enforce prudential regulations by the 1994 Commercial Bank Law, forced a large
number of smaller banks to enter bankruptcy procedures, and the government had to support
some medium-sized banks with additional liquidity. At present 28 banks are registered with
the central bank although only 12 banks are actually active on the market. The state holds a
majority stake in three banks, the Agricultural Bank, the State Commercial bank and the
Savings Bank. The state participates also in the capital of 16 commercial banks. Foreign
investors account for about 16 per cent of the capital of the banking sector. There are

**23**

favourable conditions for the founding of foreign subsidiaries, and amendments to the
legislation introduced in 1996 provide for the possibility of foreign banks opening branches in
Lithuania.

A banking crisis erupted in December 1995, when one large and two medium-sized
commercial banks, representing about 25 percent of the value of total deposits, were found to
be insolvent. Moreover, auditing reports revealed that two of the state-owned major banks
would also need to be recapitalised in order to meet capital adequacy requirements. The
authorities in the first months of 1996 hesitated between liquidating and bailing out the
insolvent banks, but finally decided to renationalise the biggest suspended bank, to
recapitalise the banks in state hands, which now.represent almost three quarters of all deposits,
and to establish a special asset management company to take over the bad loans from troubled
banks. Recently, it has been announced that two of the state-owned banks will be restructured
and privatised in 1997. The insolvent Innovation Bank is being liquidated-(and depositors
compensated). Additionally, a new law on deposit insurance was approved, according to
which small deposits in the suspended banks would be reimbursed. Other banks will be
eligible for the new insurance scheme only if they comply with Central Bank prudential rules.
The budgetary cost of the bank restructuring programme will partly be financed by World
Bank support.

The banking system remains fragile and the performance of banks weak as their results are
adversely affected by the need to make provisions for non-performing loans and to cope with
increasing competition. Regulatory and supervisory rules have been tightened following the
banking crisis, and measures have been taken to improve banks' flow of information about
credit risks. The maturity transformation in the banking system is still limited as two thirds of
bank loans have maturity of less than one year. However the number of loans extended for the
financing of investment projects is rising.

The National Stock Exchange of Lithuania began operations in 1993, as a result of the
privatisation of state enterprises and state property. The capitalisation is very limited (about 2
percent of GDP) and the turnover remains low. The role of the stock market as an alternative
source of finance for the corporate sector is quite modest. There was recently some interest
from companies to raise capital by issuing short-term bonds. The secondary market for
government securities is not significant, although efforts are being made to encourage it. A
new law on insurance should bolster Lithuania's insurance market. Companies and individuals
are allowed to deduct insurance payments from their taxes. The law has a protectionist side:
when foreign insurance companies wish to enter the market, they can only do this through a
tender and must prove that no local company is able to take on the work.

**Economic and Social Development**

_Social Indicators_

Lithuania is a small country with 3.7 million inhabitants. Although the population is still
young - 60 percent are below the age of 40 - birth rates started to fall steeply in recent years.
Life expectancy at birth in 1994 was 62.8 years.
The labour force is skilled and enrolment rates are comparable to those in most of the Member
States. About one third of the workforce has completed tertiary education (including

**24**

vocational training). However, teachers are paid low salaries and can find better-paid jobs in
other industries. Over time, this could lead to a weakening of the education system.

_Sectoral Differences_

Differences between urban and rural areas are getting more important. Employment in rural
areas is being affected by the not yet completed restructuring of the agricultural' sector.
Although urban areas have to overcome the consequences of enterprise restructuring, this is
partially offset by the growth of the services sector in the cities. As a result, some rural areas
are disproportionally hit by unemployment, with jobless rates of over 20 percent

**2.2 The Economy in the Perspective of Membership**

**Introduction**

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

are:

- the existence of a functioning market economy;

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

These criteria are linked. Firstly, a functioning market economy will be better able to cope
with competitive pressure. Secondly, in the context of membership of the Union, the
functioning market is the internal market. Without integration into the internal market, EU
membership would lose its economic meaning, both for Lithuania and for its partners.

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

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

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

**25**

that a country will be unable to maintain its commitment to the economic obligations of
membership.

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

**The Existence of** **a** **Functioning Market Economy**

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

In its transition to a market economy, Lithuania has advanced considerably in liberalising and
stabilising the economy. The introduction of a currency board, the liberalisation of financial
markets, the freeing of foreign transactions, and the reduction of fiscal deficits had substantial
stabilising effects. Price liberalisation, voucher and cash privatisation, trade opening, legal
reform, institutional development, and social safety net enhancement have also been
implemented or are under way. The investment regime is relatively liberal.

However, the more fundamental restructuring of the economy and the shift to a higher growth
path have been delayed. Genuine "hard budget constraints" are not yet in place (in essence,
this would require that loss-making enterprises know they will not, as in the past, be bailed out
by the authorities). Tax collection is weak; there are mounting payment arrears, especially in
the energy sector; bankruptcy proceedings have been ineffective and cash-based privatisation
designed to bring in strategic investors has only recently become a matter of priority.

Administrative controls remain in place for energy and housing. Some prices for transport and
utilities fall short of production costs (when capital replacement is included in the cost
calculation). A newly established Agency for competition has been established, but it has no
effective power to break up monopoly enterprises. Competitive pressures coming from the
liberal trade regime are insufficient to reduce the very high profit margins in retail distribution
networks substantially.

Property restitution has been impeded by administrative and legal difficulties as well as cuts in
the budgetary allocation for compensation to former land owners. A cadaster is being set up
but the process is inherently lengthy. Uncertainty surrounding legal ownership of properties,
which may yet be returned to the original owners, continues to complicate a number of
privatisation, cases. However, in view of its preparation for EU membership, in August 1996,

**26**

Lithuania amended Article 47 of its Constitution so as to enable foreigners to purchase land
for business purposes.

Lithuania's banking system remains fragile: the majority of banks are undercapitalised and
still hold a large amount of non-performing loans. Recently, the government announced a
banking sector restructuring plan that envisages privatisation, recapitalisation, and liquidation
of insolvent banks. Only when this restructuring phase will be completed, confidence in the
financial system might be restored, and the sector might start to fulfil its role as an
intermediary between savings and investment.

Public administration had to be established after independence. Moreover, transition to a
market economy poses formidable challenges in adapting government institutions and the
legal framework. Some progress has been made, but many areas need to be addressed further
in the period ahead: bankruptcy and competition legislation, property registers, a
simplification of business regulations, including licensing requirements, etc.

**The Capacity to Cope with Competitive Pressure and Market Forces**

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

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

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

Lithuania has made substantial progress in stabilising its economy in recent years. The
introduction of the currency board regime and the reduction of fiscal imbalances has created
the conditions for a more stable economic environment. The way in which the economy has
been able to absorb the negative effects of a relatively serious banking crisis without a
significant relapse in the stabilisation process, shows the durability of the progress. This

**27**

durability is also illustrated by the apparent acceptance by the financial markets of the
authorities' plans to gradually abolish the currency board regime.

In general, enterprise restructuring, which is essential to make the economy competitive in the
single market, has not made sufficient progress, mainly as a consequence of a lack of capital,
resulting from the relatively low level of foreign direct investment and the weakness of the
banking sector. The lack of a hard budget constraint, voucher privatisation to insiders, and the
absence of a credible bankruptcy threat, were also not conducive to enterprise restructuring.
Consequently, substantial adjustments still have to be made, which would probably result
more in higher unemployment than in further important output reductions. Lithuania has been
caught in a vicious circle, where an old capital stock implies obsolete and costly products, loss
of market share, loss of profitability and therefore little possibility of financing restructuring
investments. Nevertheless, there is a chance that this vicious circle might be broken by the
new government's policy to accelerate the completion of the privatisation process, which
might attract important amounts of foreign direct investment. This would not only bring in the
necessary financial means for restructuring, but would also contribute to product innovation
and improved management skills. Higher foreign involvement in the economy would also
improve the knowledge by enterprises on the requirements of the _acquis_ in the area of the
single market, which should make access to the single market easier.

Lithuania's legacy from the Soviet era consisted mainly of a large-scale manufacturing sector,
including an important energy industry, and a collectivised agricultural sector. The
profitability of manufacturing has been hampered seriously by the adjustment of the price of
its imported inputs to world levels, and the loss of most of its output markets. The ability of
these enterprises to reorient their sales towards western markets is limited by outdated
technology and by insufficient quality standards. The undercapitalised privatised agricultural
sector also needs substantial restructuring.

The competitiveness of the sectors that have been able to compete on external markets (mainly
textiles, chemicals, refined oil, and food products) is predominantly based on low wage costs.
In the case of food, the high protection level of the agricultural sector also plays a role.
Lithuania may also still be benefiting from a somewhat undervalued currency, despite its
uninterrupted real appreciation. To offset the expected gradual erosion of these competitive
advantages, there is an urgent need to increase productivity, and to diversify production
towards sectors that are more in line with Lithuania's natural endowments. Provided the right
economic incentives were in place, such a process would be facilitated by the relatively good
level of Lithuania's human capital and R&D activities.

Prospects and Priorities

Over the past few years, policy has often been guided to a substantial degree by the need to
obtain support from the International Monetary Fund and to focus on short-term stabilisation
issues. The new government is developing a more articulated medium-term economic
strategy. A "1997-2000 Action Plan" has been announced, envisaging strict fiscal policy,
incentives to business and investment activity, accelerated privatisation, stabilisation of the
banking sector and improvements in living standards. A new Ministry for European Affairs
has been instituted with responsibilities for FDI and export promotion, large-scale
privatisation and law approximation.

**28**

The plan designed to solve the problems in the banking sector, resulting from the December
1995 crisis, has worked well to date. The combination of privatisation, liquidation, and
recapitalisation, should be able to promote the further consolidation of the sector.
Nevertheless, as long as the precarious situation is not entirely solved, additional budgetary
pressures could emerge, as the whole sector remains afflicted by liquidity problems and bad
loans. The expected consolidation of the banking sector, as prudential ratios are being adjusted
towards international standards, will require that the authorities stick firmly to their announced
strategies.

The second stage of privatisation is designed to attract buyers with the necessary skills and
means, seeking to increase the enterprises' profitability, rationalise the management, introduce
product innovation, and develop the future strategy of business. To attract sufficient interest
from suitable investors, authorities have to respect their commitment to surrender effective
control of the enterprises to be divested.

In the energy sector, outdated technology, excess capacity, inefficient pricing, weak payment
enforcement, and political intervention, drive public energy companies into chronic deficits
and provide little incentive for profit-driven management or energy conservation. To date, the
sector has always represented an important drain on public finances. The decision to include
some enterprises from the energy sector on the privatisation list is an important step towards
solving the sector's problems. Nevertheless, given the magnitude of the problems, the
restructuring process in the energy sector could take considerable time, and could have
widespread effects on other sectors if the payment of energy bills is better enforced.

As long as Lithuania's competitiveness remains intact, and an acceptable trade balance is
maintained, the currency board can continue its role as a stabilising factor. However, when
capital inflows no longer finance the current account gap, which also happened in early 1996
after the banking crisis, reserves fall and the money stock shrinks through the currency board
system, thus causing contractionary effects on the whole economy. Therefore, industrial
restructuring and productivity increases need to proceed rapidly and continuously, if
macroeconomic balance is to be maintained. This will even be more the case when the

currency board is gradually removed and will no longer be able to play its stabilising role.

Removal of the currency board will greatly increase the discretionary power of the central
bank and allow it to smooth fluctuations in monetary conditions. The corollary is that
economic agents need to be convinced that these greater powers will be used wisely and
prudently, so as to guarantee continued macroeconomic stability.

**2.3 General Evaluation**

Lithuania has made considerable progress in the creation of a market economy. Trade and
prices have been largely liberalized, and considerable progress has been achieved in the area
of macroeconomic stabilization. However, further progress is needed, particularly in the areas
of relative price adjustment, large-scale privatization, and bankruptcy proceedings. The main
element that is still missing is the enforcement of financial discipline for enterprises.
Lithuania would face serious difficulties to cope with competitive pressure and market forces
within the Union in the medium term. The marked recent improvement in policy would, if

**29**

sustained, accelerate the establishment of a market economy and strengthen competitiveness.
However, substantial enterprise restructuring is still required. Agriculture needs to be
modernized, and the banking sector is still weak.

**3.** **Ability to Assume** **the** **Obligations of Membership**

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

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

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

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

**3.1** **Internal Market Without Frontiers**

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

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

**30**

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

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

**The Four Freedoms**

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

- The Association Agreement between the Community, its Member - States and
Lithuania was signed in 1995 and is being ratified. With regard to the four freedoms and
approximation of legislation, the Agreement provides, in particular, for immediate or
gradual application of a number of obligations, some of them reciprocal, covering, in
particular, freedom of establishment, national treatment, free trade, intellectual property
and public procurement.

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

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

_-_ **General Framework**

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

**31**

**Descriptive Summary**

A new law on Public Procurement was adopted by the Lithuanian Parliament in 1996. This
new law is intended to cover all types of procurement and governs the procedure for the award
of contracts in all sectors, provided that public funds are used. A Public Procurement Office
has been established to be in charge of managing the various aspects of public procurement
policy and supervising enforcement of legislation.

In the area of industrial property, new Laws on patents, trade marks and designs have been
adopted in 1992 and 1993. The Civil Code regulates intellectual property. A new draft Law, in
compliance with the acquis, is expected during 1997. The trade related aspects of intellectual
property rights (TRIPs) will be applicable to Lithuania upon its accession to WTO (World
Trade Organisation).

Company law is governed by a number of statutes. Several different types of enterprises are
provided for, including public and private limited companies and investment companies. As of
3 June 1996 there were approximately 32,000 companies registered. Public companies may
issue shares and stock financing of companies is common. Shareholders are protected by law.
Minimum capital requirements are laid down by law, and there are safeguards to protect a
company's authorised capital. There are particular obligations relating to the protection of
creditors. Companies are obliged to publish information regarding important developments
and a central register is kept with details of each company. The public is entitled to consult the
register on payment of a basic fee.

A _Law of Principles of Accounting_ (1992), different decrees and notes provide the basic
framework for the annual accounts of companies. Professional requirements for auditors are
issued by the Ministry of Finance. An Institute of Audit and Accounting was created in 1996.
The Institute will assist in preparing national accounting rules and it will be responsible for the
training of auditors and professional examinations.

Lithuania adopted a law on the protection of personal data on 11 June 1996. This sets up an
authority empowered to check that personal data are handled properly but contains no
provisions on its statutes, organisation or powers.

**Current and Prospective** Assessment

The Lithuanian legislation contains the essential features of EC public procurement rules.
However, this legislation does not apply to entities operating in the sectors of
telecommunications, transport, energy and water. Moreover, the new Law still maintains a
national preference system. The review procedures established seem to be in line with most of
the requirements of the EC rules. The Lithuanian authorities intend to adopt new measures to
ensure that their rules are fully compatible with the Directives by the end of 1998. It appears
in general that Lithuania is heading in the right direction, although the process of
approximation has not been completed.

Lithuania must make a big effort on adopting and implementing intellectual and industrial
property legislation to bring its laws into line with the _acquis._ This legislation is expected in

**32**

1998. A management organisation has started to collect fees. A smaller, but nonetheless
significant, effort must also be made on industrial property. The inexperience of the Patent
Office staff raises doubts about effective implementation of these laws in the medium term.
On the basis of information on company law provided by Lithuania, its legislation appears to
be largely consistent with the First and Second Directives, and legislation to bring the
remainder in line is intended to be adopted in 1997. The provisions of the Third, Eleventh and
Twelfth Directives are also for the most part already reflected in Lithuanian law. It is
understood that additional legislation to align Lithuania's laws fully with the _acquis_ is
intended to be adopted in 1998.

The 1992 accounting law meets most of the requirements of the 4th Directive, but some
revisions are needed to bring it fully into line. Rules for consolidated accounts implementing
the 7th Directive are under preparation and are scheduled to be adopted before the end of
1997. It is also intended to modify the existing law and decrees to make the regulatory
framework more easily accessible. The present professional requirements for auditors need to
be adapted in order to comply with the 8th Directive, but no draft to this effect is yet available.
Certain transitional problems are in evidence relating to the practical implementation of the
new rules, including a shortage of qualified accountants and auditors which requires major
efforts in the medium term.

The 1996 law on data protection is clearly based on the Community framework Directive.
However, improvements will have to be made to bring it fully into line with the Directive.
The Commission has no information on implementation of the law, particularly on the
establishment of a monitoring authority, nor on the secondary legislation provided for by the
1996 law. There are no immediate plans to accede to Council of Europe Convention No 108
for the protection of personal data.

Although Lithuania has not been invited to accede to the Lugano Convention on jurisdiction
and the enforcement of judgments in civil and commercial matters, it intends to modernise its
civil code and civil law procedures.

Conclusion

The process of approximation in the field of public procurement needs to be strengthened.
Further amendments will be needed to meet all the requirements of the public procurement
directives.

Lithuania must make a big effort on adopting and implementing intellectual and industrial
property legislation to bring its laws into line with the _acquis._ A smaller, but nonetheless
significant, effort must also be made on industrial property.

As far as company law is concerned, no major problem is envisaged with Lithuania's
implementation of the _acquis_ and there is no reason at present to question its ability to meet
the timetable set for bringing its legislation fully in line. For accounting, legislation alignment
in the medium term is not expected to present a problem, but implementation could pose more
persistent difficulties. In auditing, the information provided does not represent a sufficient
basis on which to make a detailed assessment of conformity with the _acquis_ or Lithuania's
prospects of achieving this in the medium term.

**33**

Lithuania has made progress on data protection. Nevertheless further efforts are still needed to
bring the legislation into line with the framework Directive.

- **Free Movement of Goods**

Free movement of goods can be achieved only by removing measures which restrict trade not only customs duties and quantitative restrictions but all measures with equivalent, i.e.
protectionist, effect, irrespective of whether or not they are specifically aimed at domestic or
imported products. Where technical standards are not harmonised, the free movement of
goods must be ensured by applying the principle of mutual recognition of national rules and
accepting the rule that national specifications should be no more stringent than is required to
achieve their legitimate objectives. This rule was established in the _Cassis de Dijon_ judgment.

For the purpose of harmonisation, the European Community has developed the "New
Approach" which introduces an approach carefully balanced between government and private
autonomous bodies and in which European Community legislation and European standards
play a distinct complementary role. Thus, instead of imposing technical solutions, European
Community legislation is limited to establishing the essential requirements which products
must meet. Products manufactured in accordance with European standards are presumed to
meet such essential requirements, but European standards are not the only way to prove such
conformity. The "New Approach" works in conjunction with the "Global Approach" on
product certification which governs the apposition of the "CE Mark" on the product. For other
products such as pharmaceuticals, chemicals, motor vehicles, and food products, European
Community directives follow the traditional regulatory pattern of providing fully detailed
rules.

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

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

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

**Descriptive Summary**

Lithuania has made good progress towards establishing the conditions for the free movement
of goods which requires abolishing all quantitative restrictions and eliminating discriminatory
measures. It has already liberalised most of its price, trade as well as foreign exchange
regimes. Except for some energy, housing, public transport and utilities price restrictions,
most prices are freely determined by the market. The principle of mutual recognition of goods
is accepted.

**34**

Regarding technical barriers to trade, the process of alignment is progressing. Licenses are
needed for importation of alcohol/spirits, tobacco, cars, pharmaceuticals, arms, and metals.
The principal objective of this system is the protection of public health. For alcohol, tobacco
and pharmaceutical products, the procedures for obtaining import licenses is not entirely
transparent and may be favouring local producers.

According to the Lithuanian national approximation plan a first set of New Approach
directives should be adopted as early as 1997, although no evidence exists of substantial
progress in this field. Similarly, no information is available on alignment with the rest of the
New Approach directives. Some measures have been recently adopted on pharmaceuticals
products and building materials, and progress seems underway in the foodstuffs sector. In the
chemical and automotive sectors the bulk of work remains to be done.

In the field of standardisation a draft law in preparation should improve compatibility with the
EC system, in particular as to the voluntary application of standards. The Lithuanian
Standards Board (LST), which is an affiliate member of both the European Committee for
Standardisation (CEN) and the European Committee for Electrotechnical Standardisation
(CENELEC), is currently a government-linked body and is planned to perform also
accreditation functions. This is at variance with EU principles. A draft law also exists in the
field of conformity assessment which seems to have a good degree of compatibility with the
EC Global Approach.

Concerning conformity assessment infrastructure, no quality system certification body exists
at the moment for lack of qualified personnel and financial resources. This human resources
and funding issue needs being addressed as it affects management and upgrading of
laboratories and certification bodies.

Current and Prospective Assessment

The implementation of free trade in goods between Lithuania and the EU is well advanced and
will be monitored within the framework of the Europe Agreement, including the full
abdication of any quantitative restrictions or discriminatory measures. The price system in the
energy sector must be liberalised before the time of accession. The licensing system will need
to be reviewed and, as necessary, adjusted.

Moreover, while the establishment of a general regulatory framework towards EC
compatibility is under way, the process of approximation of technical legislation to the EC
_acquis_ needs to be further strengthened.

In the areas subject to national rules and not covered by Community harmonisation, there is
too little information available to assess whether Community legal principles on the free
movement of goods are properly applied in Lithuania. The reporting procedures which form
part of the internal-market machinery are not yet operational and so cannot be used in the preaccession period. The most important instruments in this connection are: Directive 83/189,
requiring governments to report draft national technical standards and regulations; Decision
3052/95 on measures derogating from the principle of the free movement of goods;
procedures by which complaints can be submitted to the Commission; and Article 177 of the

**35**

Treaty, enabling Member States to ask for preliminary rulings from the Court of Justice. It is
also hard to assess whether Lithuania complies with the principle of mutual recognition; more
information is required on its national rules, and on administrative practices, which can have
an effect on product sales.

**Conclusion**

Significant progress has been made in a number of fields. Nevertheless, efforts are still
required, particularly on the alignment of technical legislation and with respect to
standardisation and conformity assessment as well as on price liberalisation and licensing
requirements. However, provided current efforts are continued and technical expertise is
upgraded, free circulation of goods should be achieved in the medium term.
The Lithuanian authorities should also ensure that, in areas not covered by Community
harmonisation, their own national laws do not hamper trade. In particular, they should check
that measures are proportionate to their objectives.

**Free Movement of Capital**

The Europe Agreement establishes the principle of the free movement of capital between
Lithuania and the EU. This, as far as the obligations of Lithuania are concerned, applies from
the entry into force of the Europe Agreement as regards direct and portfolio investment,
commercial credits and financial loans made by companies already established in Lithuania
and, as regards branches and agencies of Community companies (as well as the selfemployed), gradually during the transitional period. According to the Agreement the parties
shall create the necessary conditions for the further gradual application of Community rules
on the free movement of capital.

The White Paper highlights the link between the free movement of capital and the free
movement of financial services. It describes and suggests a sequence for the adoption of the
legislation in this field, and recalls the growing significance of free international capital flows.

**Descriptive Summary**

Partly due to the slow pace of cash privatisation, foreign direct investment (FDI) inflows have
been disappointingly low, averaging an annual flow of approximately 1 percent of GDP. By
1996, the stock of foreign direct investment in Lithuania reached 230 MECU. However, the
flow of foreign direct investment in Lithuania has picked up, reaching 1 % of GDP and is
expected to continue increasing in the years ahead. The new government has introduced tax
incentives to promote investment (new corporate income tax).The improved macro economic
results of 1996 are also likely to encourage foreign direct investment to pick up over the
medium term.

The investment regime is relatively liberal. Companies may be wholly owned and managed
by foreigners. Profits may be expatriated freely. Since 1996, an amendment to the
Constitution (article 47) has allowed foreigners to own land for business purposes.
Moreover, among the main priority areas in the Action Programme of the new government for
the 1997-2000 period is the establishment of a more favourable legal and economic
framework for long foreign investment. One of the first steps towards this objective was the

**36**

establishment in 1997 of a Ministry for European Affairs, which is responsible for foreign
investment promotion, large scale privatisation and export promotion.

**Current and Prospective Assessment**

In its transition to a market economy, Lithuania has advanced considerably in liberalising and
stabilising its economy. The liberalisation of financial markets and the freeing of capital
transactions had stabilising effects. The investment regime is relatively liberal and the new
government's policy to accelerate the completion of the privatisation process, is likely to
attract important amounts of foreign direct investment inflows. Higher foreign involvement in
the economy would also improve the knowledge by banks and investment firms on the
requirements of the acquis communautaire, which should facilitate access to the single market.

**Conclusion**

The Lithuanian government's efforts to liberalise its capital markets have met with success in
some areas. The recommendations of both the White Paper and the Europe Agreement have
largely been implemented.

Further efforts are required in order to complete the liberalisation of Lithuania's capital
markets, especially concerning cross border restrictions on investment companies but, given
sufficient political will, this should not be a significant difficulty.
The degree of capital liberalisation introduced by Lithuania is in line with the obligations
undertaken under the Europe Agreement. Lithuania should have no difficulties in removing
residual restrictions and assume the Community acquis in the area of capital movement in the
medium term.

- **Free Movement of Services**

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

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

**Descriptive Summary**

The Banking sector was threatened by a crisis in December 1995 when several banks,
including the largest private bank in the country were declared insolvent. The banking sector

**37**

remains fragile although evident signs of recovery have followed the Lithuanian government's
swift reaction.

At the start of 1997 3 banks in which the majority shareholding was owned by the state
occupied a dominant position in the banking system of the country (65% of the assets of the
operating banks and _66%_ of the deposits were concentrated in them). Recently the share of the
state owned capital has greatly increased in them, after the new program of the recapitalisation
of banks has been started in order to meet the required capital adequacy.

When the state is not the majority shareholder, the share of capital is decreasing. Private banks
have a lower market share but their situation is improving.

The Government is now preparing the program of privatisation of the state banks. The priority
task is to privatise the State Commercial Bank of Lithuania, and the decision relative to
another bank must be adopted. In addition, the Government in the near future will decide
whether some banks should be left under state control for the implementation of some state

programs.

As far as market access to the banking sector is concerned, foreign banks are not allowed to
set up subsidiaries in Lithuania. As regards foreign branches only one has been authorised so
far. Banks provide deposit guarantees only to residents in Lithuania. Banking sector
supervisory functions are carried out by the Bank of Lithuania. Its powers are similar than in
Member States.

As far as the Securities sector is concerned, a licence is required for membership to the
National Stock Exchange, granted by the Lithuanian Securities Commission, a body which
supervises the compliance with the Law on Public Trading in Securities.

According to the Law on Insurance, insurance issues are co-ordinated and supervised by the
State Insurance Supervisory Authority under the Ministry of Finance. Pursuant to the new law
on Insurance of 1996 (Art. 25 & 27), EC insurance companies have the right to establish
insurance companies in Lithuania, after registration.

**Current and Prospective Assessment**

As regards Banking many aspects of the First Banking Directive, Own Funds and Solvency
Directives have been incorporated into Lithuanian banking law. However, legislation on both
deposit guarantee scheme and prevention of money laundering compatible with the relevant
EU Directives has not yet been adopted.

While some key elements of the Second Banking Directive (notably, recognition of a licence
issued in the EU and the principle of home country supervision) have been implemented and
the Annual Accounts and Consolidated Accounts Directive have already been partially
implemented, large exposures legislation is not yet in full conformity with EU requirements.
In addition provisions concerning capital adequacy for market risks and supervision on
consolidated basis are missing.

Since June 1996 the legal situation in principle permits foreign banks to open branch offices in
Lithuania, provided there is an agreement between the Bank of Lithuania and the home

**38**

country's supervising authority. Although measures foreseen in the White Paper on banking
legislation should be in piace by 1999, profound structural reforms must take place. These
include privatisation of remaining state owned banks, introduction of capital adequacy ratios
for market risks and sound banking principles, which are essential for a participation in the
Single Market.

In the Securities sector, the current legal system is not yet in line with relevant EC Directives.
However, the general framework is well structured, with particular regard to the supervisory
authority's powers, mainly the Securities Commission.

In the Insurance sector, as well, the situation as of today must be described as unsatisfactory.
But the new insurance law adopted in 1996, which is not fully in force yet, should improve the
situation. Some of the Stage I directives should be implemented within 1997 and the other
ones and those of Stage II within 1998.

Lithuania is on the right path towards creating an insurance supervision system responding to
free market requirements, both in terms of consumer protection, financial supervision and
foreign EC access. The remaining obstacles are practical (more actuaries, more experience)
and financial (higher capitalisation of companies needed) and could be overcome in the
medium term if the necessary legal framework will be completed as scheduled in the
Government's plans.

**Conclusion**

Full free establishment in the areas of banking, securities and insurance still has to be
adequately introduced in the sectors' legislative frameworks and duly implemented. However,
provided harmonisation proceeds as planned and banking restructuring is carried out, no major
difficulties are foreseen in achieving full approximation to the acquis communautaire
concerning financial services.

But some doubt may be cast on the capacity of the Lithuanian authorities to implement
quickly the large legislative programme they have committed themselves to achieve. The
example of the "Insurance Law" adopted in 1996, but not yet fully in operation is a warning
sign in this respect. Efforts will be needed, as far as the whole financial sector is concerned, to
comply with the acquis in the medium term.

- **Freedom of Movement of Persons**

The free movement of persons encompasses two concepts with different logical implications
in the Treaty. On the one hand, Article 7a in Part One of the Treaty on 'Principles' mentions
the concept in. connection with the establishment of the internal market and implies that
persons are not to be subject to controls when crossing the internal frontiers between the
Member States.

On the other hand, Article 8a in Part Two of the Treaty on 'Citizenship of the Union' gives
every citizen of the Union the individual right to move and reside freely within the territory of
the Member States, subject to certain conditions. The abolition of frontier checks must apply

**39**

to all persons, whatever their nationality, if Article 7a is not to be meaningless. While the
rights deriving from Article 8a apply in all Member States, those stemming from Article 7a
have not yet been fully applied throughout the Union.

a) _Free Movement of_ _Union_ _Citizens. Freedom of Establishment and Mutual Recognition of_
_Diplomas and Qualifications_

The Europe Agreement provides for the non-discriminatory treatment of workers that are
legally employed (as well as their families). It covers the possibility of cumulating or
transferring social security rights, and encourages member states to conclude bilateral
agreements with Lithuania on access to labour markets. From 1999, the Association Council
will examine further ways of improving the movement of workers.

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

The free movement of workers is one of the fundamental freedoms enshrined in the Treaty;
freedom to practise certain professions (e.g. in the legal and health fields) may, however, be
subject to certain conditions, such as qualifications. Depending on the case, these may be dealt
with through coordination or by applying the principle of mutual recognition. Freedom of
establishment is also guaranteed under the Treaty and covers the economic activity of selfemployed natural persons and companies.
The free choice of place of residence may thus be subject to minimum conditions as to
resources and health insurance where the person does not exercise a profession in the country
concerned.

Descriptive Summary

The legal status of foreigners in the Republic of Lithuania is determined by the Law on
Temporary Employment of Foreigners as well as the Law on Immigration which
establishes the conditions for entry for foreigners for permanent residence.

Foreigners can reside in Lithuania if they are issued a visa for a period of up to 90 days.
Foreigners with special working visas can reside in Lithuania for a period up to two
years, renewable. Permits for permanent residence in Lithuania can be granted to those
holding Lithuanian citizenship before 1990 and are currently residents and to those who
were permanent residents before 1990 and are currently still residing.

Regarding mutual recognition of Diplomas and Qualifications the timetable provided by
Lithuania foresees implementation of stage 1 of the White Paper by 1997, stage 2 by 1998 and
stage 3 by the end of 1998. The formal transposition of the acquis has been completed but the
question of implementation and enforcement needs to be further strengthened. It will be
necessary to establish supplementary structures (bodies) to issue, attest and receive diplomas
and certificates.

Concerning training (where coordinated by Directives), for doctors, dentists, midwives,
architects, veterinary surgeons and nurses, the basic training period seems to be in

**40**

conformity. Concerning enforcement structures, ministries, a few bodies and some
professional associations (mainly trade unions) exist.

**Current and Prospective Assessment**

Lithuanian legislation will need to be prepared for the equal treatment of EU citizens
with nationals working in Lithuania. Such measures are foreseen in Article 37 of the
Europe Agreement.

Transposition of legislation is needed on the protection of data, among others, in regard of the
definition of personal data and the access to databases. Although some progress has been
made, significant efforts will be necessary to establish the required border control system.
This should be possible in the medium term.

As regards mutual recognition of professional qualifications, the setting up or strengthening of
the necessary enforcement structures will need to be intensified if they are to be in place in the
mid-term perspective.

**Conclusion**

The necessary structures in this area are in place, but it is hard to assess their real effect
and enforcement. From a technical point of view, adaptations of regulations with regard
to the free movement of persons are feasible in the medium term,
(b) _Abolition of Checks on Persons at Internal Frontiers_

The free movement of persons within the meaning of Article 7a of the EC Treaty, i.e. the
abolition of checks on all persons, whatever their nationality, at the internal frontiers has not
yet been fully implemented in the Union. Doing away with checks on persons is conditional
on the introduction of a large number of accompanying measures, some of which have yet to
be approved and implemented by the Member States (see separate section on Justice and
Home Affairs).

However, that objective has been achieved by a limited number of Member States in
accordance with the Schengen Convention (seven Member States already apply it and another
six are working towards implementation).

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

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

**General Evaluation**

**41**

1. Lithuania's progress in the implementation of legislation relating to the White Paper is
summarised in the annex. According to the table, Lithuania considers that by 30 June 1997 it
will have adopted national implementing legislation for 316 of the 899 directives and
regulations in the White Paper. That figure covers provisions for which Lithuania considers it
will have adopted implementing legislation or which it will have checked for compatibility
with Community rules and does not prejudge actual compatibility as such, on which the
Commission is not able at this stage to state an opinion.

2. Lithuania has made some progress towards compliance with Internal Market legislation. It
has in particular achieved a substantial degree of alignment with Community rules in the areas
of company law, accounting law, data protection and, to a certain extent, in the area of Free
Movement of Goods. Most of the measures have been partly implemented according to the
Lithuanian authorities, although at this stage the Commission is unable to judge whether they
are fully compatible with Community law. By contrast, serious problems, remain in such
important fields as public procurement, intellectual property and financial services.

3. A severe problem for further progress may be the weakness of the Lithuanian public
administration, which affects not only the pace of approximation of legislation but also the
quality of its enforcement. Similar doubts must be raised about the capacity of the various
structures necessary to implement internal market legislation, but since the legislation is
mostly of such recent date, and the structures themselves have in some cases not yet been set
up, there is insufficient evidence at this stage on which to base a definitive judgement.
As things currently stand, the Commission cannot yet express an opinion on the capacity of
companies, particularly small and medium-sized businesses, to implement the _acquis._
4. Leaving aside certain specific aspects relating to agriculture, checks at the internal frontiers
of the Union can only be abolished once sufficient legislative harmonisation has been
achieved.

This calls for mutual confidence, based in particular on sound administration (e.g. the
importance of safety checks on some products at the place of departure). As far as goods are
concerned, the completion of the internal market, on 1 January 1993 was only achieved by
doing away with all the formalities and checks performed by the Member States at the internal
borders of the Union. In particular these checks covered technical points (product safety),
veterinary, animal-health and plant-health matters, economic and commercial matters (e.g.
prevention of counterfeiting of goods), security (weapons, etc.) and environmental aspects
(waste, etc.). In most cases, the abolition of checks was only made possible by the adoption
and application of Community measures harmonising the rules on movement and placement
on the market (particularly as regards product safety) and, where applicable, by shifting the
place where controls and formalities are conducted within the Member States or their markets
(in particular as regards VAT and excise duties, veterinary and plant-health checks, and the
collection of statistics). A section of Lithuania's present borders will become the Union's
external frontier and this means border checks will need to be stepped up (see separate section
on Customs).

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

**42**

5. Lithuania has already adopted significant elements of the acquis relating to the Single
Market. However, the Commission is not yet able to take a position on every measure whose
transposition has been reported by Lithuania. Further progress will be needed with regard
notably to public procurement, financial services and intellectual property. In most areas,
enforcement needs to be strengthened. Strong efforts will be necessary with regard to the
strengthening of the administration. In the medium term, provided considerable efforts are
undertaken, Lithuania should have adopted and implemented most of the Single Market
legislation and made the necessary progress on the mechanisms of enforcement, in order to be
able to participate fully in the Internal Market.

**Competition**

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

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

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

**Descriptive Summary**

Competition rules applicable to undertakings, where a new _Law on Competition_ has been
drafted in 1996, are broadly in line with EC Law, mainly in terms of procedural aspects. The
investigative powers of the Competition Committee are, to some extent, similar to those of the
Commission.

**The Competition Authority of Lithuania,** _**(State Competition and Consumer Protection**_
_Office)_ was established in 1995 under the supervision of the government. It covers two main
activities: promotion and protection of competition/consumer rights protection.

Important steps towards the liberalisation of previously _regulated sectors_ have been taken
recently. Thus, the telecommunication sector has been liberalised as regards terminal
equipment, voice telephony, closed user groups and the construction and operation of mobile
telephony systems and satellite. Railway transport is in the process of being liberalised and
the energy sector seems in principle open to competition subject, however, to alicense system.

In some sectors, such as the oil sector and the sector for beverages, further clarifications are
needed in order to assess whether the state regulation is compatible with the Community
_**acquis.**_

**43**

In 1997 the Government has adopted a Government Resolution for the monitoring of _**state aid**_
which gives the power to control the granting of state aid to the State Competition and
Consumer Protection Office. The Resolution is based on the Community state aid rules. It
provides, in particular, that all aid needs to be notified and approved by the State Competition
and Consumer Protection Office prior to its granting, that the Office has the power to collect
all information necessary to examine the compatibility of the aid and that the Office has the
power to adopt a negative decision on the aid and the possibility to go to Court if its decision
is not complied with.

In respect of the establishment of a state aid inventory further work still needs to be done.

**Current and Prospective Assessment**

Overall, the substantive provisions of the Lithuanian draft _**law on**_ _Competition_ (1996) reflect
the relevant EC rules to a reasonable degree, and is oriented towards EC competition rules.
The approximation of competition legislation process is well underway.

Substantial training and other kinds of assistance will be needed in the future for the
Monitoring Authority to carry out a credible control of _state aid_ in Lithuania. The important
progress made in terms of approximation of legislation in this field with the adoption of the
Government Resolution on the monitoring of state aid is welcomed. However, transparency is
still lacking. An immediate priority will be the establishment of an aid inventory based on the
methodology applied by the Commission in its own aid surveys.

Certain aid measures seem to be contingent upon export performance which is clearly not
compatible with the Europe Agreement. Moreover, an important part of state aid seems to be
granted through indirect forms of state aid, such as tax reliefs, debt write-offs and tax arrears.
These aid measures constitute operating aid which are only allowed under very strict
conditions. Due to the lack of transparency it is as yet unclear whether the conditions for
granting operating aid are complied with.

In Lithuania _state monopolies of commercial character_ are in place for Alcoholic Beverages,
Tobacco Products, Sugar and Metals and Scrap Metal sectors. Licensing requirements for the
production, distribution and import of all of these state monopolies will have to be reviewed,
as they raise concerns over conformity with the competition _acquis,_ within the meaning of
Article 37 of the Treaty.

Licences for the purchase and sale of copper and other non-ferrous metals may only be
granted to enterprises registered in Lithuania. The existence of exclusive rights to purchase
specified types of non-ferrous metals and scrap metals raises concerns under Articles 37 and
90 (1) of the Treaty and Article 66 and the free movement of goods provisions of the Europe
Agreement.

In addition to the adoption of legislation sufficiently approximate to that of the EU, _credible_
_enforcement_ of competition law requires the establishment of well functioning anti-trust and
state aid monitoring authorities. It requires moreover that the judicial system, the public

**44**

administration and the relevant economic operators have a sufficient understanding of
competition law and policy.
**Conclusion**

In the field of _**anti-trust,**_ significant progress has been made towards satisfying the
requirements as regards approximation of legislation. The competition authority needs further
support to carry out its activities and to ensure a wide information of the concerned operators
in the market place.

As regards _**state aid,**_ the required transparency is still lacking and an aid inventory covering all
measures granted by the State, regional or local authorities or through state resources, should
be established as a matter of priority. A considerable effort will be necessary to fulfil the
requirements as regards transparency over the medium term. Close cooperation with the
Commission in this field will be necessary.

It appears, moreover, that in certain _sectors exclusive_ _**or**_ _special_ _**rights**_ exist which are not
compatible with the Community _acquis._ These problems should be addressed in the near
future.

**3.2** **Innovation**

**Information Society**
**Present Situation**

The economic and social effects made possible by the combination of information technology
and telecommunications are great. In Lithuania these possibilities were neglected before 1990
although education generally was not and awareness of their importance was high. One result
was the creation of a Ministry for Communications and Informatics, the only one in Europe.
Trade data for the information technology sector (IT) are lacking but there are said to be three
Pes per 100 inhabitants of which 20% are connected to communications networks.
Nevertheless, the apparent number of host computers on the Internet (only 0.5 per 1000

inhabitants), as a relative measure of development towards the IS, suggests that Lithuanians
have yet to discover the Internet in large numbers. The underdeveloped state of the telephone
network is likely to act as a brake on information society (IS) developments for several years

more.

**Conclusion**

The underdeveloped state of the telephone network is likely to act as a continuing brake on
Information Society developments unless the growth in the economy and investments in
telecommunications greatly increase.
**Education. Training and Youth**
Articles 126 and 127 of the EC Treaty provide that the Community shall contribute to the
development of quality education and implement a vocational training policy aimed at
promoting the European dimension in education and at enhancing industrial adaptation and
the responsiveness of the labour market through vocational training policies.
The Europe Agreement provides for co-operation in raising the level of education and
professional qualifications. The White Paper includes no measures in this field.
Descriptive Summary
Lithuania's spending on education amounts to 5.5%) of GDP. It takes 22.8%> of the state
budget.

**45**

There are 2,380 schools in Lithuania with 537,000 pupils and 47,000 teachers. At university
level, there are 15 higher education institutions and 54,000 students.
The Lithuanian government attaches high priority to reform of the educational system, with
legislation in 1991 and 1993. The reforms published are still being implemented; they include
priority for teacher's training, new teaching materials and quality control and for higher
education the introduction of teaching methods comparable with other European systems.
Vocational training is in a transition phase. A draft law on vocational training and a draft of
the fundamental scheme for adult vocational training and counselling are being developed.
The Tempus programme has contributed to the achievement of the goals of higher education
reform and created the basis for cooperation with the EU higher education institutions.
About 16.2 % of the total population of Lithuania is aged between 15 and 25 (age group
eligible to the Youth for Europe programme). Some Lithuanian youth organisations have
been participating in European youth activities since 1995, in the framework of the Youth for
Europe programme, as a first step towards participation of Lithuania to this programme.
**Current and Prospective Assessment**
One of the most important elements of Lithuania's accession process is the provision of a
solid background in education and training. The institutional reforms and the development of
curricula should support education in those professional areas which contribute directly to
accession. The development of European Studies, the introduction of new courses and study
programmes in the field of regulated professions, the application of modern technologies and
the establishment of quality assurance systems are the immediate challenges of the Lithuanian
education system.

Significant attempts have been made to reform the vocational training system. There is a great
need to develop a system to ensure quality in terms of pedagogic standards, as well as
management and administration to the vocational training system itself. A further problem is
the lack of legal base for vocational training policy. There is a strong need for final approval
of the-outstanding draft vocational training law.
The participation of Lithuania in Community Programmes in the field of education, training
and youth (Socrates, Leonardo da Vinci, Youth for Europe programmes) will have positive
effects on the people concerned and represent a good preparation for integration.
**Conclusion**

In the perspective of accession, no major problems should be expected in these fields.
**Research and Technological Development**

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

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

**Descriptive Summary**

Presently the Ministry of Education and Science has the complete responsibility for scientific
activities in Lithuania. The funds are allocated directly to the research institutes by the

**46**

Government upon the recommendation of the Ministry of Education and Science and the
Science **Council** of Lithuania. 

After the restitution of independence the main changes in the organisation of this sector have
been the transfer of the large institutes from the Lithuanian Academy of Sciences to the Ministry
of Education and Science and the creation of Science Council of Lithuania. Neither the nature of

the institutes nor their method of financing has changed in a fundamental sense.

The current science expenditure represents about 0.5 _%_ of GDP.

Until now the stated objective of science policy is to preserve the operation potential of
Lithuanian science and to fulfill the needs of the economy and culture of the country. The
government has still to reach consensus on a strategy. In the beginning of 1997 a commission for
the restructuring of the sector has been installed.

National priorities are fundamental and applied research in the fields of Lithuanian language,
culture, history and nature; research of high international level, and research involved in
international research programmes; applied research which is necessary to carry out the state
programmes of the development of Lithuanian economy, culture, social sphere, care of public
health, environmental protection.

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

Since 1997, the statistics on RTD are compatible with OECD standards.

**Current and Prospective Assessment**

Lithuania has a number of good, even excellent research institutions and individual researchers,
also by international standards. Nevertheless there is a need for further changes aiming at the
reorganisation of institutions and replacement of central funding by the competitive merit-driven
funding system.

Lithuania has recently stated its interest in some form of association with the 5th Framework
Programme.

**Conclusion**

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

**Telecommunications**

The objectives of EC telecommunications policy are the elimination of obstacles to the
effective operation of the Single Market in telecommunications equipment, services and
networks, the opening of foreign markets to EU companies and the achievement of universally

**47**

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

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

**Descriptive Summary**
A new telecommunications law was enacted in 1991 which created the operating companies
subordinate to the Ministry of Communications and Informatics. In 1995 a new law removed
the monopoly enjoyed by the national operator, Lietuvos Telekomas (LT) by permitting the
government to licence other companies. There are at least two mobile telephone companies
operating networks using the pan-European digital standard (GSM).
The Ministry is the formal regulatory body but, in practice, it controls LT and manages most
of the sector through its shareholders rights.
LT had expanded the telephone penetration rate to 25.4 per 100 by the end of 1996. The
Government's plan (amended in 1996) describes its aim as eliminating the waiting list by the
year 2000 and having 32.2 lines per 100 at that time. Digital access using the pan-European
ISDN standard is not planned before the year 2000. The national postal operator has the
exclusive rights for the delivery of letters and payment of pensions. The sector is regulated by
the Communications Law of 1995. The Government is subsidising Lithuanian Post to cover
the deficit of the letter and parcel services. The restructuring of the sector is not yet very
advanced.

**Current and Prospective Assessment**
_Degree of Liberalisation_

Although Lithuania has created a liberal telecommunications regime where the monopoly has
been removed from the government controlled public operator (Lithuania Telecom- LT) and
in which many companies are providing a variety of services there is still no effective
competition for the public operator. Apart from the public network, the markets for
infrastructure have been liberalised. For example, CATV networks and alternative
infrastructure can provide telecommunications services. The markets for services have also
been liberalised, with three competing mobile service operators (one of them GSM), 50
private CATV operators, and 32 paging operators. Data and satellite communications markets
are open to competition. Although operators of telecommunications services are permitted by
law to connect to the to the public network, the conditions set by LT present an effective
barrier to interconnection in practice. The government plans to privatise LT by the year 2000.
_Approximation to EC Law_

In 1991, general legislation for the telecommunications sector was passed and the new
Ministry of Communications and Informatics was created. Further telecommunications
legislation was passed in December 1995, providing for the liberalisation of some
telecommunications services and requiring all companies wishing to operate such services on
Lithuanian territory to be granted a licence.

**48**

In preparation for the privatisation of LT by the year 2000 the Ministry of Communications
and Informatics is planning new legislation for 1998. The new telecommunications law
planned for 1998 will establish the legal framework in which LT will be obliged to operate. Its
content, currently unknown, and the degree of enforcement will dictate how quickly Lithuania
conforms to the _acquis._ In order to approximate to EU law, the new law would need to ensure
that the regulatory entities are effectively separated from operating entities, and that effective
provisions are made for interconnection and universal service. Although there has been good
progress to date, it is doubtful if there is sufficient administrative capacity to implement and
enforce the remaining legislation needed to comply with the _acquis._
_Infrastructure_

LT had expanded the telephone penetration rate from 22.0 per 100 inhabitants in 1992 to 26.8
per 100 by the end of 1996 but the waiting time for a new connection is still about 2 years.
About 80% of the local switches are electro-mechanical equipment of Russian design and
these will need either expensive modifications or replacement when tariff rebalancing will be
addressed.

The Government's plan (amended in 1996) aims at eliminating the waiting list by the year
2Ô00 and having 32.2 lines per 100 at that time. About 5% of the network had been digitised
in 1995 (compared to a current average of 62.4% for Portugal, Greece and Ireland). By the end
of 1997, fibre optic cable connections will enable fast communication with all its neighbours.
LT has been purchasing small digital switches designed and manufactured locally by the
Sigma company in addition to other small amounts of digital equipment from the EU. Digital
access using the pan-European ISDN standard is not planned before the year 2000.
Securing this level of investment will be difficult, even taking into account the privatisation of
LT, given the low competitiveness of the public operator.
_Competitiveness of the Sector_

Based on the GDP per capita level expressed as a purchasing power, the revenue per telephone
line (about 86 ecu in 1995) cannot be increased enough to support a network undergoing
modernisation of LT's present size. Performance as judged by the number of employees/1000
lines (10.6) is low relative to an average of 6.2 for Portugal, Greece and Ireland. Tariffs
remain extremely distorted in order to keep local service affordable. Lithuania may have
inherited more lines from the past than the country can afford to modernise. Without
substantial economic growth, and substantial further investment, it will be well after 2000
before a modern telephone service could be universally available on demand, and many more
years before the penetration approaches present EU levels
In its Master Plan for the year 2005, LT foresees the full digitisation of the network and a
penetration rate of 40 main telephone lines per 100 inhabitants. Implementing this Master Plan
is estimated to cost about ECU 400 million (about 1% of GDP for the period).
Conclusion

Subject to maintaining the current efforts, there are prospects for telecommunications in
Lithuania to comply with EC law. Greater competitiveness of the public operator must be
achieved to attract the investment needed to modernise and face up to competition.

Audio-visual

**49**

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

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

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

**Descriptive Summary**

Only limited information is available concerning the situation in this field in Lithuania.

The legal framework for the audio-visual sector is determined by the 1990 Law on Press
and Mass Media, the 1995 Law on Communications, and the Law on Licensing of Postal
and Telecommunications activities.

The main television broadcaster is the Lithuanian State Radio and Television Company
(LRT), although many private channels operate.

State subsidies are granted to the Lithuanian State Radio and Television Company to
encourage national film production and distribution.

**Current and Prospective Assessment**

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

Although full information on Lithuanian audio-visual legislation is lacking, the analysis
of available legislation to date reveals a considerable number of deficiencies, including
questions of freedom of reception, jurisdiction, the promotion of European works,
advertising and sponsorship rules, protection of minors, and the right of reply.

Draft laws on multimedia and broadcasting are currently under discussion in the
Lithuanian Parliament. The effect of these Laws remains to be determined. Prospects for
alignment to the _acquis_ are consequently uncertain.

**Conclusion**

**50**

More complete information is required on the evolving legislative situation. However,
provided that the necessary legislative measures are pursued with sufficient urgency and that
they are accompanied by the necessary structural adaptations of the industry, it is reasonable
to expect that Lithuania should be able to meet EC requirements in the audio-visual sector in
the medium term.

**3.3.** **Economic and Fiscal Affairs**

**Economic and Monetary Union**

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

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

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

Current and Prospective Assessment

The Lithuanian Central Bank is largely independent from the government in terms of the
appointment procedure of the governor and the conduct of monetary policy. Its formal

**51**

objective is the stability of the currency. The Law on the Central Bank does not explicitly
prohibit the financing of the budget deficit. Lithuania has adopted a currency board since April
1994 and the monetary policy conduct is severely limited by the amount of foreign reserves in
the central bank balance sheet. Within the currency board arrangements there is very limited
scope for discretionary monetary policy or for central bank budget deficit financing.

Lithuania has always adopted the "hard" version of the currency board, where domestic
liabilities were more than fully covered by foreign assets in the Bank's portfolio. This strategy
has left the Bank enough room for manoeuvre which it used on the occasion of the banking
crisis of December 1995. The recovery from the crisis has started: most banks recorded good
results in 1996 and managed to improve the quality of their loan portfolio. The government is
actively pursuing its three-pronged policy based upon a strengthening of the regulatory
framework, a rapid clean-up of the troubled banks' balance-sheets and eventual privatisation.
The privatisation of two main state banks out of three is envisaged by end-September, and the
loan restrictions imposed on the third one have been lifted. A definitive solution for the two
private banks whose insolvency triggered the December 1995 crisis may be approaching.
However, a full recovery of the financial system still has to be achieved. The effective
implementation of the new regulations remains to be tested and no divestiture has been carried
out as yet. As the fall of deposits and loans in real terms during 1996 shows, investor
confidence has not yet been recovered.

The exchange rate is fixed (against the USD) as the currency board arrangement requires.
There has been no significant turmoil on the foreign exchange market and the central bank
was able to react to the 1995 banking crisis by raising domestic interest rates and preserving
the credibility of the peg.

Gradually, over the next two years, Lithuania has planned to abandon the currency board and
to peg to the US Dollar before possibly switching to a more flexible exchange rate regime.
Hence, the Central Bank will gradually assume the classic functions of a modern central bank.
At that moment, the issue of the central bank's independence, of the efficiency of monetary
policy in stabilising price and the ability to maintain a stable exchange rate will become
relevant.

Conclusion

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

Lithuania's participation in the third stage of EMU as a non-participant in the euro area still
poses problems in the medium term. It will be necessary that in the transition from the
currency board to the establishment of a modern central bank, the legislation regarding
monetary and fiscal policy made fully compatible with EC rules. In particular it is important
that the full recovery of the financial system is achieved. This will have a major impact on the
future ability of the central bank to efficiently conduct monetary policy actions, based on
indirect instruments.

**52**

**Taxation**

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

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

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

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

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

**Descriptive Summary**

_Direct Taxation_

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

_Indirect Taxation_

The overall contribution of VAT and excise duty revenue to the Lithuanian state budget was
about 34%) for VAT in 1995 and about 14% foi excise in 1996. More recent statistics
indicating trends in these figures are not currently available.

_Value Added Tax_

The current Lithuanian VAT system was introduced in May 1994. Lithuania applies a single
VAT rate of 18%) which is applicable to all taxable transactions, including imports.

**53**

Certain activities are exempt from VAT without the right to claim the input credit on such
supplies. These exemptions relate mainly to activities in the public interest, financial and
insurance services. Taxable persons are entitled to deduct VAT incurred on their purchases
for business purposes of goods and services. However, the Lithuanian VAT Act does not
contain any provisions enabling tax to be refunded to taxable persons not established within
the country.

Lithuania applies special VAT schemes to small farmers and supplies of second-hand goods.

_Excise_

Since April 1997, a new range of excise rates is in application in Lithuania, designed to be in
line with EC requirements. Excises were increased for tobacco, alcohol and oil products.
Equal excise tariffs are applied to imported as well as to domestic products. . _

_Mutual Assistance_

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

Current **and** Prospective Assessment

_Value_ _Added Tax_

The current VAT system in Lithuania has been based on the main principles of the VAT
legislation of the Community. However, it is characterised by being very general and
inconsistent in its application.

The Lithuanian approach regarding exempt transactions deviates to a large extent from that of
the Community legislation both in terms of scope and substance. Since Lithuania does not
operate any arrangements for the refund of VAT to non-registered foreign taxable persons,
VAT represents an increased cost to such traders.

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

The Lithuanian national strategy plan for implementing the recommendations of the White
Paper regarding VAT is limited to implementing measures for refund schemes for tourists and
taxable persons not established within Lithuania.

_Excise_

There remain discrepancies between the Lithuanian excise regime and EC requirements.

**54**

There exists no excise suspension system where goods can move between authorised tax
warehouses without payment of duty. In addition, the registration of traders for excise
purposes needs to be reviewed.

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

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

The Lithuanian national strategy plan for implementing the provisions of the White Paper
does not provide a clear and detailed timetable for future adjustments of Lithuanian excise
legislation. A short term objective consists of the gradual approximation of excise rates to the
EC minimum levels. However no full harmonisation of legislation is planned.

_Mutual Assistance_

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

**Conclusion**

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

As regards indirect taxation, although some progress has been made a considerable effort will
continue to be required if Lithuania is to comply with the _acquis_ concerning VAT and excise
duties in the medium term.

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

**Statistics**

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

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

**55**

The White Paper includes no provisions in this field.

**Descriptive Summary**

The Department of Statistics (LDOS) is the central body charged with producing and
disseminating official statistics in Lithuania.

The legal basis for Lithuanian official statistics consists of the 1993 Law on Statistics.

**Current and Prospective Assessment**

The Lithuanian legislation made available for assessment to date is vague; further information
is required. Issues concerning respect of the main principles of statistics needxlarification.

There are deficiencies in sectors such as business statistics, capital and financial accounts, and
regional data.

**Conclusion**

On the basis of information received to date, Lithuania will require a sustained effort if it is to
comply with EU requirements for official statistics in the medium term.

**3.4 Sectoral Policies**

**Industry**

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

In order to cope with competitive pressure and market forces within the Union, the industry of
applicant countries needs to have achieved a certain level of competitiveness by the time of
accession. The applicant countries need to be seen as pursuing policies aimed at open and
competitive markets along the lines set out in Article 130 ("Industry") of the Treaty. Cooperation between the EU and the candidate countries in the fields of industrial co-operation,
investment, industrial standardisation and conformity assessment as provided for in the
Europe Agreement is also an important indicator of development in the right direction.

**56**

**Descriptive Summary**

Industrial output of Lithuania stood at around 1.2 bn Ecu in 1995, equivalent to one-third of
the industrial production of Luxembourg. The transition process entaileb! a marked decline in
industrial production and in the period 1990-1995 the share in GDP dropped from 43%> to
36%. Industrial production reached its bottom in 1994, but production has been growing
slightly since then.

Industry accounts for 245,000 jobs (21%> of total employment). Textiles/clothing, food and
wood processing industries are the main employers. The total number of enterprises in
industry is estimated at around 2,000of which 88% have less than 250 employees.

Industrial development in Lithuania began on a large scale following the country's annexation
by the USSR after World War II (before the war _15%_ of the population worked in agriculture).
During the Soviet era, Lithuania was specialised in a combination of heavy and light
industries, i.e. machine-tools, electric motors, shipbuilding, machinery for agriculture,
fertilisers, bicycles and TV sets. After independence and the loss of its main outlets in the
countries of the former Soviet Union, industrial output plummeted. Some productions such
as electric motors, TV sets and fertilisers are holding relatively steady partly thanks to
continuing exports to the CIS or/and FDI inflows. However industrial growth tends to
concentrate on "new" light industrial sectors, namely food processing, textiles and clothing,
wood processing and construction, which are relatively successful in attracting FDI.

**Lithuanian Industry: Main Production Sectors in 1996**

Sector %-share industrial %-share industrial

production employment
(value added)

Food processing / Tobacco 36 20

Refined petroleum products 17 n.a.

Textiles / Clothing / Leather 14 24

Chemicals 9 4

Non-metallic mineral products 4 6

Electronic engineering 3 5

Machinery & equipment 3 9

Transport equipment 2 3

Electrical machinery and apparatus 2 2

Wood processing 2 6

Pulp / Paper / Printing / Publishing 2 4

Furniture 2 4

Total of the above 96 87

Other sectors 4 13

Total Industry 100 100

_Industrial production as % GDP/_ _%_ _employment_ _28_ _21_

**Food processing** industry (meat and dairy products) is the leading sector. During the last 3
years it has been stabilising, which is also reflected by the stabilisation of imports from the
West. However deep restructuring is necessary to sustain competitive pressures from EU

**57**

companies. Currently the average utilisation of capacity is estimated at 45% and the share of
private capital at 40%. Medium-sized enterprises have been more successful in modernising
both management and equipment. The development of the food processing industry also
depends on the increase in standards of living.

**Oil processing** industry has been developing again since 1996. Prospects of further
development should arise from the privatisation of the oil sector in the Russian Federation.
There is a market for low quality oil products in both the Baltics and the CIS.

The flagship of Lithuania is **textiles/clothing.** Despite a further need for modernisation, this
sector has been steadily growing. FDI have largely contributed to this growth. Lithuanian
companies already compete with the EU. The biggest privatised companies in clothing
depend on 90 to 100% on outward processing trade. New technologies have already been
introduced, notably through Joint-Ventures. The same applies to **furniture. ..**

**Chemicals** has been recovering since 1994, notably the production of fertilisers. 80% of the
production is exported.

**Construction** is developing fast essentially in medium-sized enterprises. Cement is exported
to Germany, Belgium and the Netherlands.

Following Turkish investment, the production of tubes for TV **sets** has picked up. More than
80 % of this production is exported.

**Machinery** is still declining (the lowest figures were registered in 1996) and face difficulties
in restructuring. Like the defence industry (left without markets), a qualified work force
remains.

In spite of the government's intentions to promote **pharmaceuticals** via reduced corporation
taxes and VAT exemptions, the sector remains small and under-developed. Only 10% of
pharmaceuticals consumed in the country are produced locally, but 35% of the production
(low-quality generics) are exported to CIS countries.

The privatisation performance is slower than originally envisaged. In June 1995 after the first
round of "voucher privatisation", only 30% of all state assets in industry were sold. The
second round of privatisation (sales for cash through open tenders) is behind schedule, due to
the difficulties in attracting private investment. Yet in some sectors such as machinery and
electrical apparatus, motor vehicles, leather products, paper industry, furniture, chemicals and
pharmaceuticals, privatisation is already advanced.

The sector with the most significant shares of foreign capital include plastics, wood
processing, textiles, food processing, leather products, electrical equipment, and clothing.

Current and Prospective Assessment

Several indicators support the assessment that Lithuania is not yet very advanced in the
transformation process. While considerable progress has been made in macroeconomic

**58**

liberalisation, privatisation of large enterprises has been limited, energy pricing is still a problem
and Lithuania's trade has less shifted to western markets than other applicant countries.

The underpricing of energy is probably behind the fact that the Lithuanian economy has the
highest energy intensity of all applicant countries. It appears that Lithuania has so far preserved
a larger part of the energy intensive industries inherited from the Soviet regime than the other
Baltics. Since growth prospects for these sectors are limited, a restructuring towards less energy
and more labour intensive sectors (Lithuania has the lowest wages of all applicants) and food
processing appears overdue.

The domestic financial system cannot yet provide medium to long term capital, since
stabilisation is recent and the restructuring of the banking system has only started recently.
Growth prospects are also hampered by a still inadequate framework and administrative system
for FDI.

Industrial production should continue to grow in the coming years, even if the recovery of
domestic demand remains modest. However, it is expected that, by the year 2000, industrial
output will still only be 40% of its 1990 level.

As regards privatisation, the government intends to speed up the process and start the
privatisation of 14 state-owned "strategic" enterprises of the telecommunications, transport
(including shipyards) and energy sectors, by the end of 1997, through international public
tender. The privatisation of the national télécoms enterprise was already launched in March
1997.

The main difficulty faced by the Lithuanian industry is the lack of long-term finance to
continue progress towards full privatisation and restructuring. Attracting foreign direct
investment will in fact be one of the main responsibilities of the Minister for European Affairs
in the newly appointed government (December 1996). The government estimates that six
years will be required to complete industrial restructuring.

Conclusion for Industrial Competitiveness

Provided that current positive trends in restructuring and privatisation continue, in the
medium term most of Lithuanian industry should be able to cope with the problems of
integration within the European single market.

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

Agriculture

The Common Agricultural Policy aims to maintain and develop a modern agricultural system
ensuring a fair standard of living for the agricultural community and the supply of food at a
reasonable price for consumers, and ensuring the free movement of goods within the EC.
Special attention is given to the environment and rural development. Common market
organisations exist to administer the CAP. These are complemented by regulations on
veterinary health, plant health and animal nutrition and by regulations concerning food

**59**

hygiene. Legislation also exists in the area of structural policy, originally developed primarily
to modernise and enlarge agriculture, but more recently with an increasing emphasis on the
environment, and the regional differentiation of the policy. Since reforms in 1992, increasing
contributions to farm support have come from direct aid payments compensating cuts in
supports prices.

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

**Descriptive Summary**

_Agricultural Situation_

The value of the agricultural production in 1995 was approximately 0.12% of that of the
Union.

After a sharp fall in the beginning of, the transition period, the contribution of agriculture to
total GDP has stabilised and accounted for 9.4% of GDP in 1995. In 1996 the share of

agriculture in GDP increased to 11.4%, mainly because of good grain harvests. Agriculture
maintains a very important place in the country's economy, with a share in national
employment increasing from 18% in 1990 to 24% in 1995 reflecting the lack of alternative
employment. Of the 6.53 million ha of total land, the agricultural areas equals 3.5 Million ha.
Arable land represents 84% of total agricultural area.

The restitution of ownership rights or the payment of compensation in cash or kind formed the
cornerstone of land reform in Lithuania. At the end of 1996, land ownership titles had been
restored to only 250,000 farmers but the documentation was well advanced for many others.
The process of privatisation resulted in the establishment of almost 400,000 private
"household" plots with an average size of 2.1 hectares and 135,000 individual farms, which
averaged 8.4 hectares. The individual farms account for 34% of agricultural land. This has
led to fragmentation not only of ownership but also of operation since many small-scale
private farms were created that were unlikely to provide sufficient income for full-time
farmers.

Almost one-third of the agricultural land (1.2 Mio ha) in Lithuania is farmed by agricultural
companies (Bendrove). These entities have the legal status of private limited liability
companies, but under current legislation cannot acquire ownership titles to the land they work.

Agricultural companies are not only involved in agricultural production, but are also often
engaged in processing activities and retailing through a network of retail shops. The
development of this closely related chain involving production, processing and retailing has
resulted in increased competition for the remaining monopolies in the food processing and
distribution sectors.

**60**

There were 2,000 agricultural companies in existence at the beginning of 1997, but that
number is likely to decline in the near future.

The loss of markets in the former Soviet Union, the fall in domestic consumption and the
gradual adjustment to the new economic environment, all combined to bring about a sharp fall
in Lithuania's agricultural production, which shrank by 50% during the transition period. The
worst hit activity was livestock production, which declined by over 50%, while crop
production fell by more than 40%.

Agricultural partnerships account for 45% of grain production, half of sugar beet production
and possess 60% of cattle and 54% of pigs. Household plots on the other hand produce twothirds of potatoes, 60% of vegetables and have 51% of dairy cows. Private farms produce
some 30%> of arable crops but have a very low share of the livestock sector.

Lithuania is self sufficient (1995) in many products (milk; 1.8 Miot; 163%; beef meat
87,000t; 106%; vegetable: 121%, but not for cereals (2.5 Miot; 83%) and pigmeat
(93,000t; 93%).

The processing industry has been privatised to a certain extent, but 30% of most sectors
remain in state hands. While part of the downstream food processing sector continues to
function under monopolistic arrangements, a more competitive environment has developed as
a result of food imports and the activities _of_ the new processing and distribution plants
established by the agricultural companies. In 1995, the financial* situation in the food
processing sector remained weak, with a high level of debts in the food industry.

With regards to trade, Lithuania is dependant on export revenues, since its domestic market is
small. Agricultural and food products continue to account for a large share of Lithuania's
total trade (1995: 18%). In 1995, EU accounted for 61% of Lithuania's imports and 30.5% of
its exports for this sector. However, Russia remains a significant trading partner, taking
almost half of its food exports in 1995. Trade with other Newly Independent States of the
former Soviet Union, which had been negligible in the early transition years, has increased in

recent years.

_Agricultural Policy_

The PSE (Producer Subsidy Equivalent) calculated by the OECD was 3% in 1995 compared
to 49% in the EU.

As part of its agricultural policy, the "National agricultural development program" was
established by the Government in 1994 in order to co-ordinate government support and to
stabilise farm income. It intends to provide low interest credits and to support the agricultural
sector in research, education and training.

Under the provisions of the 1994 Law on the State Regulation of Economic Relations in
Agriculture, minimum purchase prices, purchase quotas, input subsidies, direct payments for
less favoured areas, export subsidies, and subsidies for storage have been introduced in 1995

**61**

for the main agricultural products. Minimum support prices were set so as to provide a "floor
price" for producers.

However, the Government has no institutional mechanisms for enforcing minimum purchase
prices and totally relies on competition among processors to ensure that producers receive
these minimum prices. The subsidies are then paid directly to the processing industry to keep
consumer prices lower than they would otherwise be.

The change in government of December 1996 has resulted in a reorientation of the agricultural
policies. The objective of the policies is to support the development of a competitive farm
sector. The main trend is to gradually abolish consumer price subsidies currently applied
through subsidies to the processing industry and to support farm incomes through application
of support prices for main agricultural products, direct payments and investment support.

In 1995, about 10% of the national budget was spent on agriculture. About 50% (ECU 23
million in 1995) of the agricultural budget was spent on price support measures for
commodities, such as milk, grain and beef/pig meat. Direct payments and soft credits are
administered through funds such as the "Farmers Support Fund", which invests in rural
infrastructure projects. 27 million Litas (ECU 5.16 million) were spent on export subsidies
mainly for the dairy and pig sectors and 13.8 million Litas (ECU 2 million) on aid to farming
in less favoured areas. Since the beginning of 1997, funding for agricultural support has been
concentrated in a single fund through the Rural Support Fund.

In terms of price support measures, agricultural prices are significantly lower than EC prices.
Milk and beef prices were 30-35% of EC average, while wheat and pig meat prices are
relatively high, about 70-80% of EC prices in 1995.

With the reorientation of agricultural policies, increasing attention is given to rural and
structural development policies. 56% of the Lithuanian population live in rural areas. From
1992 to 1995, it allocated ECU 16 million for infrastructure assistance, 2 MECU were used
for covering part of farmers interest payments on equipment and to cover running production
costs. Support in less favoured areas is allocated according to soil quality (must be one
quarter below average productivity).

It aims to compensate for income losses due to natural handicaps. In 1995, 2 MECU were
spent on the programme.

The Free Trade Agreement between Lithuania and the European Community entered into
force on 1 January 1995. Reciprocal agricultural concessions are included. Community
concessions were improved in 1996.

Since April 1995, Lithuania's border protection policy is based entirely on a differential
system of tariffs which distinguishes between conventional, preferential and autonomous
tariffs. Protection ranged from 5% for olive oil (no domestic production) to 87% for grain and
35% for refined sugar. Higher tariffs are applied on processed products like sugar and butter
in order to protect the domestic processing industry.

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Lithuania is also a member of the Baltic Free Trade Agreement; since January 1997 this
includes agricultural products - Lithuania is now negotiating membership of the WTO.

Lithuania is beginning to introduce the legislation identified in the White Paper.

In December 1996, the Ministry of Forestry has been merged with the Ministry of Agriculture
and an overall restructuring of the services has taken place with the aim to concentrate
responsibility while at the same time favouring the decentralisation of the implementation
aspects of agricultural policy. The "organisational infrastructure" of agriculture is not well
developed in Lithuania, and there are several agricultural producers associations, such as the
Chambers of Agriculture, the Association of Agricultural Companies, the Union for Family
Farmers, and the Association for Landowners. The food industry has also become organised
into sectional lobby groups.

**Current and Prospective Assessment**

One of the major problems which Lithuania will face over the next few years is the issue of
completing land registration. At the present rate, the establishment of full ownership titles is
likely to take up to ten years to complete. Indeed, the unresolved issues of restitution claims
and ownership patterns are blocking the development of a functioning "land market". As a
consequence, farm investment, which is essential for modernising agriculture, is not taking
place either due to the unavailability of mortgage credit.

The industries suffer from overcapacity, outdated equipment and high indebtedness.
Moreover, most plants do not meet EC quality and hygiene standards and are consequently
not able to export to the EC market. However 2-3 poultry farms are expected to obtain EC
hygiene certification soon. This sector faces problems of increasing competition due to
liberalisation of trade policies and growing imports. Overall, while part of the agro food
processing sector continue to function under monopolistic arrangements, a more competitive
environment has developed as a result of food imports and the activities of new processing
and distribution plants established by agricultural companies.

There are a number of impediments to agricultural policy-making in Lithuania, at least as
regards medium-term policy goals. For example, alternative markets for agricultural products
are limited because of quality requirements, and strong competition from other CEECs.
Despite the liberalisation of domestic retail prices, most commodity prices in Lithuania remain
substantially below world market prices.

Over the next few years, Lithuania will not have sufficient public funds to support agriculture
in any significant way and foreign currency constraints will continue to limit imports of feed
grains and other essential inputs.

It appears to be in the process of establishing a more structured agricultural policy, including
price support mechanisms, structural and rural development measure. While some elements
of the current policies have some resemblance with EC policies, the main market policy
instruments applied in the EC are not applied in Lithuania. This includes key instruments
such as dairy quotas, key features of the arable crop schemes (base area, set-aside,

**63**

compensatory payments and premia in the livestocks sector), as well as certain rural and
structural development programmes.

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

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

Although progress has been made in adapting rural and structural policies, a number of
policies and input subsidies appear to be inconsistent with EC policies. A detailed analysis of
eligibility criteria is needed to fully assess compatibility with EC measures.

Lithuania is introducing the legislation identified in the White Paper.

In the veterinary field adaptation of Lithuanian legislation is in an early stage of preparation.
Although legislation appears to be adequate for the purposes of assuring public and animal
health in Lithuania, important differences exist between their legislation and the acquis. The
testing and diagnostic facilities are still inadequate for Community veterinary control. The
system of registration of holdings and identification of animals will need to be adjusted to the
EC systems. Substantial legislation in the field of animal nutrition also needs to be adopted.

Moreover, harmonisation of legislation is needed in areas of plant protection products,
pesticide residues, organic farming, seeds and propagation material as well as plant health.
The control and inspection arrangements for plant health need to be strengthened to ensure
appropriate levels of protection.

Conclusion

Substantial sustained efforts of alignment to the acquis are still necessary, although progress
has been made in adopting the measures mentioned in the White Paper.

Particular efforts are needed in relation to :

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

- strengthening of the administrative structures to ensure the necessary capacity to implement
and enforce the policy instruments of the CAP;

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

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Since only a limited number of the mechanisms of the common agricultural policy presently
exist, a fundamental reform of the agricultural policy will be needed, and a substantial effort
will be necessary to prepare for accession in the medium term.

**Fisheries**

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

The Europe Agreement includes measures concerning trade in fisheries products with the
Community and provides for co-operation. The White Paper includes no measures in this
field.

**Descriptive Summary**

Total employment in the fishery sector in Lithuania reached 3,510 in 1996 as opposed to
10,261 in 1992. In 1995, the total catch was about 54,000t and its value about 48 million
ECU. Klaipeda State Sea Port (main port), Nida and Sventoji are regions that mostly depend
on fishing.

The ocean fleet was comprised of 57 vessels in 1996 which caught 33,000t (down from
109,000t in 1993) valued at 32 million ECU. About 40% of the ocean and Baltic fleets are
over 20 years old. The Baltic fleet consisted in 1996 of 70 vessels and 150 smaller boats
which caught 20,000t (up from 7 OOOt in 1993).

In 1996, 54 processing companies employed an average total of 2050 people. Total production
has decreased between 1993-1996, owing to a drastic drop in frozen products.

As a trading partner of the Community, Lithuania represents 0.09% of EC total imports
(independently of origin) of fisheries products and 3.6% of EC imports of fisheries products
from the candidate countries alone (in terms of value). As regards EC exports, Lithuania
imports 0.34% of EC total exports of fisheries products and 4.1% of our exports of these
products to CECs candidate countries (in terms of value).

Management of the fishing resources in the Baltic is currently accomplished between EC and
Lithuania in the framework of a common body - the International Baltic Sea Fishery
Commission (IBSFC). Lithuania has concluded fisheries agreements with Faeroe Islands,
USA and Canada. The latter texts do not provide for the exchange of quotas.

Current and Prospective Assessment

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

**65**

The changeover from state to private ownership of structures has already made some progress.
However, although the adaptation period is far from over, it can be seen that the break-up of
the ocean fleet has had a profound effect on all branches of the sector. Whether the sector can
check its decline before accession is uncertain but it is clear that assistance will be required to
deal with the aftermath of this decline and the modernisation of the whole industry.

According to the data available as regards fisheries agreements concluded and Lithuania's
membership to international or regional fisheries organisations, no major problems should be
expected.

The reduction of the fleet capacity and the modernisation of the whole sector will become the
main issues.

It will be necessary for Lithuania to establish a fisheries administration with corresponds to
the Community requirements of managing fishing stocks, fishing, fish processing and fish
trade, and which is capable of collecting data and co-ordinating the necessary restructuring.

Conclusion

Significant efforts are needed to adapt the sector for accession. The integration of the
Lithuanian fisheries sector into the Common Fisheries policy will not cause major problems.

Energy

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

In the field of nuclear energy, the Community _acquis_ has evolved substantially from the
original EAEC Treaty to a framework of legal and political instruments, including
international agreements. At present, it addresses issues of health and safety, including
radiation protection, safety of nuclear installations, management of radioactive waste,
investment including EURATOM financial instruments, promotion of research, nuclear
common market, supplies, safeguards, and international relations.

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

**66**

**Descriptive Summary**

Lithuania has only limited indigenous energy resources (oil, wood, peat, hydro and
geothermal). It relies for 60% on imports (oil, gas, nuclear fuel and also coal) mainly from
Russia, but has excess capacity of electricity generation and oil refining (the Maizeikai
refinery is the only one in the Baltic region) which allow export earnings.

The energy sector is three to four times less efficient than the EU average due to the heritage
of low prices, inadequate policies and obsolete technologies.

Lithuania wishes to link energy networks increasingly to the European Union. A possible
future Baltic electricity ring could contribute to such connections but in the short/medium
term the country will most likely remain essentially linked to the Russian power system. Its
present and future oil terminals play, also for the country's refinery, a regional role. Lithuania
is a strategic transit country for oil, gas and electricity supplies to Kaliningrad.

Lithuania operates two large RBMK nuclear reactors (Chernobyl type) at Ignalina, producing
85% of the country's electricity in 1995 and exporting electricity to neighbouring countries.
Improvements are ongoing at the plants mainly through the assistance of the Nuclear Safety
Account of the ERBD. The assistance is linked to an extensive Safety Report made with
support of Western experts. This report provides many recommendations to be implemented
by the plant to get the safety Authority license for further operation. The intention is to
operate the plant until the limit for channel re-tubing is reached. Re-tubing is precluded by the
Nuclear Safety Account Agreement, but the position of the government needs clarification.. A
review of the safety report by independent experts insists on the implementation of all urgent
recommendations before restart after their present annual shutdown for maintenance.
Comprehensive and realistic programmes including closure as necessary have to be agreed
upon and implemented in due course. After closure of the reactors, an important
decommissioning programme will have to be implemented.

**Current and Prospective** Assessment

Lithuania's 1994 National Energy Strategy, which is in line with EU-principles, aims at
addressing the key issues of the energy sector: security of energy supplies; introducing more
competition; protection of the environment and increasing energy efficiency; rehabilitation of
the energy infrastructure; and increased co-operation with the other Baltic countries and with
the EU. Particularly in the energy sector regional Baltic co-operation is beneficial due to
complementarities of the countries concerned.

The competition framework in the energy sector does not yet fulfil the directives of the
internal energy market in combination with the application of EC competition law. The law
on competition is only partly applicable to the energy sector and the Energy Act, laying down
global principles, does not ensure compliance with EC rules. The enactment and
implementation of the necessary complementary legislation, which should ensure regulation
of the sector, should therefore be stepped up.

**67**

The sector is characterised by State dominated monopolies. Oil exploration and production
licenses have however been issued to foreign EU-based companies, bringing in the necessary
investments, whereas foreign operators are also active in the Lithuanian oil products retail
market or gas import.

Energy price increases have been applied, but particularly those for household energy
consumption (gas, electricity, heating) do not recover costs.. Accumulation of arrears between
the state owned energy company Lietuvos Energija and municipalities had been an
impediment to restructuring of the energy sector. However, recent energy sector price
liberalisation and decentralisation increase prospects for restructuring of the sector including
the privatisation of energy companies.

Lithuania does not fulfil the EC _acquis_ on emergency preparedness including the obligation
to hold ninety days of oil stocks although work for compliance has started. Both considerable
legislative and financial efforts are to be made.

The country will have to make considerable efforts to comply with EC energy efficiency (e.g.
labelling appliances, minimum efficiency norms) and environmental (e.g. fuel quality)
legislation. In this context, it is not yet clear how the country's refinery, in which major
investments are to be made, would function on the saturated European market.

The safety measures recommended in the recently issued safety report, the capability of the
Lithuanian regulatory body for nuclear energy (VATESI) to implement the western-style
licensing regime need to be strengthened as a priority.

Nuclear fuel is directly imported in manufactured form from Russia, partly in exchange for the
electricity exported to Russia. These arrangements seem potentially uncertain and since
accession by Lithuania would increase an enlarged EU's dependence on Russia, there could be
security of supply concerns. Attempts to diversify nuclear fuel supplies have so far not been
successful for technical and economic reasons. The common nuclear materials supply policy
of security through diversification of sources will apply to supply contracts concluded after
accession. Spent fuel is stored in ponds at the plant site. Future intermediate dry storage is
under development. Provision for spent fuel handling and decommissioning is in the process
of being included in the electricity tariff structure.

Upon accession, Lithuania needs to comply with the provisions of the Euratom Treaty, in
particular with those related to supply of nuclear material, the nuclear common market,
safeguards, health and safety and international agreements. Lithuania is not yet party to all
international regimes in these fields (notably the Nuclear Suppliers Group and the IAEA
scheme for extended reporting on certain nuclear material transfers) or has not yet
implemented them fully in its legal order, but draft legislation is under preparation. Lithuania
also has a full-scope safeguards agreement with the IAEA. Hence in these areas, no major
difficulties in applying Community legislation are expected. The development towards an
independent safety authority should be further supported.

Conclusion

**68**

Provided that current efforts are intensified, no major problems are foreseen to approximate
progressively to the EC _acquis_ in the medium term. Of specific importance in the preaccession period will be the adjustment of monopolies including import and export issues,
access to networks, energy pricing, emergency preparedness including the building up of
mandatory oil stocks, energy efficiency and environmental norms.

No major difficulties are foreseen for compliance with Euratom provisions. Lithuania has to
implement certain international nuclear regimes or implement them in its legal order. The
safety of the Ignalina nuclear power plant requires continued particular attention and rapid
implementation of the programmed closure of the nuclear power plant and longer term
solutions for waste need to be found.

**Transport**

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

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

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

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

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

**Descriptive Summary**

Lithuania's ice-free Baltic port meant that it was a significant transit route for trade between the
former Soviet Union and the West. As a result, its port developed capacities for particular trades
which are no longer fully exploited. The country's role as a transit corridor between Western
Europe and Russia, Belarus, the Ukraine and the Central Asian States is however dependent on
the state of relations with Russia; these have not always facilitated this traffic, although the
current situation is relatively easy and transit traffic started to increase. The establishment of
new frontiers with Belarus, Russia (Kaliningrad) and Latvia has also affected the
competitiveness of Lithuania as a transit route. Lithuania is therefore investing in improvements
to its East-West transport network and to improve border crossing infrastructures at all the new
borders, as well as in its ports. The Lithuanian territory is issued by two Pan-European
Corridors, as identified at the Pan-European Transport Conference in Crete.

The changes in the Lithuanian economy have led to a sharp decrease in the transport demand
since the opening of the country, although transport is taking an increasing share of GDP. At the
same time there is an accelerating change in the modal split, with road transport of goods

**69**

increasing its share, and railways declining, losing two-thirds of their traffic between 1990 and
1995. Use of private cars has grown very rapidly and it is now dominant in passenger transport,
resulting in an increase in congestion in the cities and around them, as well as at certain border
crossings.

Although the modal split is not very different from that in some Member States, the
competitiveness of railways is handicapped by the poor situation of the track and by the fact that
most of the rail network is at Russian track gauge, different from the European one, except one
line from Poland to Kaunis.

**Current and Prospective Assessment**

As regards completion of the internal market, Lithuania has made great efforts to implement
the existing Community legislation. To a large extent, the international transport sector in
Lithuania already applies rules similar to the Union rules. However, further progress must
still be made, particularly on safety and passenger transport by road. Road freight transport
will also have to be made compatible with the Community rules, particularly on admission to
the profession, driving licences, weights and dimensions and road taxation. In the case of the
railways, over the next few years effective application of the existing Community legislation
on public service obligations and harmonisation of accounts will have to be monitored. As
regards air transport, the rules in force are compatible with the general principles of the
Community legislation, although more specific measures must still be adopted.

The Lithuanian authorities have taken account of the objective of developing an integrated and
competitive transport system. The two principal constraints in this area will probably be to
achieve acceptable safety standards and optimum use of the transport system. Lithuania has
made encouraging progress on safety. On the other hand, the objective of a coherent transport
system seems harder to achieve. Lithuania will probably have to face a steady increase in road
use and to concentrate its efforts on use of rail, despite the handicap of having a different
gauge from its Western neighbours.

To improve links with the Union Member States and its neighbours, between 1995 and 1999
Lithuania plans to invest ECU 0.5 billion from its own budget in transport infrastructure used
by international traffic, principally the pan-European corridors. This is equivalent to around
1.2% of GDP and should be sufficient.

**Conclusion**

Lithuania is likely to be able to comply with most of the Community transport _acquis_ (air, rail,
road, maritime) in the medium term.

Accession appears unlikely to pose significant problems for Lithuania in the transport sector,
on condition that adequate attention is given in the pre-accession period to safety
improvements (notably in maritime safety), harmonisation of environmental standards in
transport (air pollution, noise) and _acquis_ implementation for road transport of goods and for
railways.

**70**

It will also be necessary to make sure that the resources necessary to lay the foundation for
extension of the future trans-European transport network to the acceding countries are
provided. It would also be prudent rapidly to reinforce Lithuania's administrative structures,
including the supervisory bodies, for example for safety.

**Small and Medium Enterprises**

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

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

**Descriptive Summary**

In Lithuania, 65% of joint stock companies are small and medium-sized enterprises (SMEs)
with have less than 50 employees, while only about 12% have more than 250 employees.
SMEs are concentrated in the wood industry, the food industry, the clothing and fur industry,
the publishing and printing industry, and in non-metallic mineral products. Since 1995, small
scale privatisation has been comprehensive.

In its policy document, the SME Development Programme, (1995), the government provides
for a wide range of services directed at SMEs, such as export promotion, training, and
incentives for foreign capital. The Law on Small Enterprises of 1991, amended in 1995,
grants a tax reduction of 70% for the first two years of operation of a company to firms
employing up to 50 persons.

Amongst the structures for SME support, six Business Advisory Services Centres provide
counselling and training to start-ups and to self-employed entrepreneurs.

**Current and** Prospective Assessment

There is a specific programme aimed at SME development in Lithuania and the basic support
structures for SMEs are in place. There is however, a need for further strengthening of the
support structures as well as further measures aimed at, simplifying the legal and
administrative environment in order to make it more "SME friendly". Efforts should also be
directed towards the improvement of SME's access to financing.

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

**71**

**Conclusion**

There are no problems regarding Lithuania's integration specific to SMEs.

**3.5 Economic and Social Cohesion**

**Employment and Social Affairs** '

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

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

**Descriptive Summary**

The social dialogue takes place between four major trade unions with regular contacts to the
European Trade Union Confederation (ETUC) and several employers' organisations which
are not members of the Union of Industrial and Employers' Conference of Europe (UNICE).
There are close to 80 trade unions in Lithuania which complicates the question of
representation. The tripartite social dialogue appear to work well, while bipartite negotiations
need to be developed further.

The level of unemployment was about 6,2 % in 1996 according to ILO methodology.
However, this figure is likely to conceal considerable hidden unemployment. Regional and
structural disparities are substantial. The already high proportion of agricultural
unemployment has grown over recent years to 25%.

Lithuania has developed a regionalised employment service to conduct labour market policies.
Lithuania should be encouraged to further develop labour market institutions appropriate for
integration into the European single market.

Lithuania's social security system underwent considerable changes in 1990 and 1991, but
further reform is needed to strengthen the administrative structures and to develop, for
instance, social insurance. Although social security is public, various private security
schemes exist alongside. A pension reform introducing a pension fund is presently on the

**72**

table. Expenditure on social security was about 10% of GDP in 1995 and has increased
considerably over the last few years. It is mainly financed by social tax which is largely
paid by employers. Continued efforts are required to ensure that measures of social
protection are developed.

The health system in Lithuania has to be significantly improved.

**Current and Prospective Assessment.**

In 1993, Lithuania adopted a new Labour Protection Act which lays down the principles for
the protection of health and safety at work and which has been modelled on the EC
framework directive. Many of the specific measures have still not been introduced. They are
in the course of being taken or readapted to the new strategy. The Lithuanian Labour
Inspection Services are in the starting phase now as regards the implementation of the new
inspection structure. Appropriate independence in compliance with ILO convention 81 has to
be granted to existing inspection structures.

On labour law. Lithuania is developing a system which is generally in compliance with EU
requirements. A draft law to protect employees interests in the event of insolvency of the
employer is under preparation. Some amendments might be needed to bring provisions on
work contracts and the protection of workers in case of a transfer of the undertaking in line
with EC rules. The information and consultation of workers on company level as requested
by a number of EC Directives should be strengthened. An Act to reinforce the information
and consultation right is under preparation.

On equal opportunity, the basic provisions of EC non discrimination law between women
and men are covered by Lithuanian legislation. The non discrimination principle is not always
respected, particularly in the field of equal pay for equal work and in gender based advertising.
The difference in pay between women and men is considerable.

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

In the field of social security of migrant workers, accession does not, in principle, pose any
major problems, although some technical adaptations will be necessary. More important is the
administrative capacity to apply the detailed co-ordination rules in co-operation with other
countries. It is not clear whether Lithuania has the administrative structures required to
integrate into the co-ordination system. A great deal of further planning, preparation and
training will be necessary in order to prepare their administration for the tasks of coordination.

The Directives on tobacco, respectively on the warning labelling of cigarette packages and the
maximum tar content have been transposed to the Lithuanian legislation.

**73**

**Conclusion**

Social reform should be pursued, and the public health system to be significantly improved. In
addition, the social dialogue needs to be further developed. Lithuania will need to make
substantive efforts to ensure the realignment of its legislation with EC requirements in areas
such as health and safety, labour law and equal opportunities and to continue to develop the
structures needed to ensure the effective implementation of legislation. Provided Lithuania
pursues its efforts, it should be possible to take on the obligations of EU membership in the
social area in the medium term.

**Regional** **Policy** **and** **Cohesion**

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

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

**Descriptive Summary**

In 1995, Lithuania's national GDP per capita was at some 24 % of the EC average. The main
income disparities exist between the cities and the country side which cannot be quantified
due to the lack of regionalised information for GDP.

National unemployment levels have increased, since independence, up to 8% in 1996.
Regional disparities of registered unemployment range from 1.7% in Kaunas to 10.3% in
Silales and recent estimates have stressed they are growing.

For the time being, Lithuania has a rather complete range of problems of regional
development :

low quality of infrastructures, (they were only satisfactory "by Soviet standards") their
condition is now considered as critical, particularly in rural areas;
pockets of industrial decline or urban crisis;
conversion of the activities of defence;
general decrease of incomes in rural areas (where the population is still numerous).

Lithuania has a less concentrated urban structure than its two Baltic neighbours. The urban
functions are shared between Vilnius, Kaunas and Klaipeda. The previous planning systems
tried to develop this multipolarity by promoting other secondary cities.
There is no structure of independent regional government in Lithuania. The 10 counties
(average population: 371000 inhabitants) are the newly formed higher territorial
administrative units. As part of the State administration, they are led by an appointed

**74**

governor, who implements the state policy. However it is still highly centralised and there is
no self governing body at county level.

Under the law on the territorial administrative units of the Republic of Lithuania, 56 self
governing municipalities (average population: 66300 inhabitants) have been established,
coming from a grouping of around 500 villages in rural areas into 44 new units and 12 urban
municipalities.

There is currently no regional development policy in Lithuania. A National Strategy Plan is
under preparation. Yet it deals foremost with spatial planning.
Regional policy instruments in the strict sense do not exist in Lithuania. The share of
Lithuania's total development related expenditure which could constitute counterpart funds to
the EC structural policy cannot be determined. Therefore, Lithuania's co-financement
capacity cannot presently be evaluated with sufficient reliability.

Current and Prospective Assessment

According to available information, the Lithuanian authorities do not appear to have
considered the issue of implementing community regional policy on their territory and do not
intend to create a regional policy in the short term.

Consequently, Lithuania's progress in establishing the adrninistrative and budgetary
procedures necessary to channel the EC structural funds is clearly limited. Indeed, most of the
necessary administrative structures and instruments still need to be created if Lithuania is to be
ready to implement EC structural programmes within its territory.

Conclusion

Lithuania's progress in establishing a differentiated development policy addressing rising
regional disparities is clearly limited. A general framework for an integrated development
strategy which, given its size, could constitute an integrated part of a national development
strategy, should be introduced. Moreover, Lithuania's administrative capacity to manage
integrated regional development programmes clearly needs to be improved. Significant
reforms thus need to be implemented before Lithuania can apply the Community rules and to
channel effectively the funds of the EC structural policies.

3.6 **Quality of Life and Environment**

Environment

The Community's environmental policy, derived from the Treaty, aims towards sustainability
based on the integration of environmental protection into EU sectoral policies, preventive
action, the polluter pays principle, fighting environmental damage at the source, and shared
responsibility. The _acquis_ comprises approximately 200 legal acts covering a wide range of
matters, including water and air pollution, management of waste and chemicals,
biotechnology, radiation protection, and nature protection. Member states are required to

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ensure that an environmental impact assessment is carried out before development consent is
granted for certain public and private projects.

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

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

**Descriptive Summary**

The environmental situation in Lithuania is less severe than elsewhere in the region. Decline
in industrial and agricultural activity has led to a reduction in pollution levels. Water
pollution remains the most acute environmental problem, but other problem areas include
waste management and disposal.

River, ground and coastal water pollution from urban wastes and agriculture is particularly
important. However, the significant investments in sewage treatment plants in all the major
cities should radically reduce polluting discharges to water by the year 2000. In the area of
waste management, particular concern is caused by hazardous wastes which are currently
dumped in inadequate municipal landfills or burnt in incinerators that do not meet EU
emission standards. Air pollution, mainly originating from industrial and other stationary
sources has been declining, but emissions from mobile sources have been increasing. Overall
the situation with respect to air pollution is relatively good. Lithuania possesses areas of great
natural value, which would represent an asset to the environment of an enlarged Union.

The Environmental Protection Act of 1992 is Lithuania's main environmental framework Act,
and a National Environment Strategy was adopted in 1996. The polluter-pays-principle is also
embodied in two tax laws and the prevention principle is set out in the draft Law on
Environmental Impact Assessment. A Law on Charges for the Contamination of the
Environment (air pollution), including charges on pollution from mobile sources into the
atmosphere was adopted in 1991. In the area of nature conservation, various types of
protected areas are governed by the Law of Protected Territories. An important part of
sectoral environmental legislation including standards and lower level regulations is inherited
from the Soviet era, although this should change over 1997. Economic instruments are being
introduced, with tax differentials for unleaded petrol, and the development of a revolving
environmental fund, based on pollution fees and fines.

Lithuania has ratified both the 1974 and the 1992 Helsinki Conventions on the protection of
the Baltic sea, and has shown commitment to cleaning up Baltic Sea "hot spots".

**Current and Prospective** Assessment

Lithuania has made considerable progress in adapting its environmental legislation to EU
standards and also by way of implementing secondary legislation and strengthening the

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necessary institutions. However, the country still has much to do to achieve either formal or
effective compliance.

In the water quality sector, standards for pollutants have been prepared on the basis of
comparable EC Directives for water management. Lithuania has recently established new air
pollution standards for power generation combustion plants and new air quality standards are
under elaboration. In the waste sector, new legislation is being introduced in accordance with
the acquis and an action plan on hazardous waste is under preparation. In the area of nature
conservation, a number of draft laws under discussion are adapted to the provisions of the
Community Birds and Habitats Directives. While Lithuania has adopted a framework act on
nuclear safety, this needs to be supplemented by legislation on radiation protection and
radioactive waste management, and emergency planning. In this area there is at present
generally a lack of safety culture. Particular attention should be given to the quick
transposition of framework directives dealing with air, waste, water and the Integrated
Pollution Prevention and Control (IPPC) directive, as wellas the establishment of financing
strategies for legislation in the water, air and waste sectors requiring major investments.

Lithuania aims at completing transposition of the White Paper legislation by the year 2000.
As regards remaining environmental legislation, the country is fairly advanced in preparing a
detailed accession strategy, which should be ready during 1997.

In order to achieve effective compliance to the EC _acquis,_ Lithuania will have to greatly
increase environmental investment, and strengthen implementation and enforcement structures
and instruments, as well as public awareness and participation. An important bottleneck which
needs to be addressed is the lack of human resources with expertise to conduct the
approximation process. The country's environmental accession strategy should include
implementation timetables for meeting the EC environmental acquis, starting amongst others
with implementation of the framework and IPPC directives mentioned above.

Conclusion

With current trends and the recent acceleration in legislative and policy reforms, transposition
of the environmental acquis in Lithuania could be achieved in the medium term. However,
effective compliance with a number of pieces of legislation (e.g. drinking water, aspects of
waste management and air pollution legislation) could only be expected in the long term, and
will require a significant increase in environmental investment, as well as a major effort to
reinforce administrative capacity.

Consumer Protection

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

The Europe Agreements provides for approximation of the legislation with Community law
and co-operation with a view to achieving full compatibility between the systems of consumer
protection in Lithuania and the Community. Stage I measures of the White Paper focus on

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improving product safety, including cosmetics, textiles and toys, and on the protection of the
economic interests of consumers, notably measures on misleading advertising, consumer
credit, unfair contract terms and indication of prices. Stage II measures relate to package
travel, sales away from business premises and time-share property. New EU legislation which
has been adopted recently (distance selling) or will be adopted soon (comparative advertising,
price indication) will also need to be taken into account.

**Descriptive Summary**

The Consumer Protection Act was adopted'by the Lithuanian Parliament in 1994. Although it
provides a basis for protecting consumer rights, it is not adequate to implement EC legislation.
The draft of a new Consumer Protection Act is now under discussion. It introduces new

provisions and amendments to ensure that Lithuania can meet EC requirements for consumer
affairs.

Overall responsibility for consumer policy and affairs resides with the State Competition and
Consumer Protection Office. The role of the Office is to co-ordinate the activities of state and

public institutions in the field of consumer protection. In 1989, Lithuania established an
independent consumers' association which brings together a number of consumer groups.

**Current and Prospective Assessment**

Consumer protection policy has been a priority for the Lithuanian government in recent years.
The new draft version of the Consumer Protection Act aims at implementing different EC
directives, such as unfair terms, package travel, sales away from business premises and
consumer credit. In addition, there are separate drafts under preparation concerning the
indication of prices, package travel, and general safety of goods and services. There appears
to be no planned initiatives for timeshare property.

Although the Consumer Act contains some provisions relating to product safety, the subject is
not covered fully according to EC legislation. A draft on a separate General Product Safety
Act is under preparation which will help alignment with EC standards. For sectors such as
the safety of toys, textile names and cosmetics, there are occasional piecemeal provisions but
no specific measures to protect the consumer.

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

**Conclusion**

There are important gaps in Lithuanian consumer protection legislation compared to EC
Directives, particularly on general products safety. Although Lithuania has created the
institutional structures to implement legislation on consumer protection, enforcement of
existing legislation appears to be a pressing problem. But provided that the harmonisation
efforts are continued, Lithuania should be ready to take on the EC _acquis_ on consumer
protection in the medium term.

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**3.7 Justice and Home Affairs**

**The Present Provisions**

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

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

_The New Treaty_

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

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

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

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

_The Europe Agreement and_ _the_ _White Paper_

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

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

**Descriptive Summary**

_General Preconditions for JHA Co-operation_

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

Institutional reform of JHA institutions is underway, although there are stilL important human
resource and management systems constraints. Progress has been made in all areas of the
third pillar. Lithuania has not yet signed the 1990 data protection convention, but parliament
adopted a data protection law in July 1996 designed to meet the requirements of the
convention and the EC Directive. (See also separate section on Single Market).

_Asylum_

Lithuania ratified the Geneva Convention and the 1967 Protocol in January 1997. This
ratification brings into force the law on refugees, adopted by the Parliament in 1995. The
processing of asylum applications began in May 1997. This law has been designed to be
generally in line with EU provisions and includes for example the safe third country provision.
A key feature of the Lithuanian practice is the screening procedure for migrants (at the
Foreigner Registration Centre in Pabrade) before potential refugees are admitted to the refugee
centre at Rukla. Facilities for refugee reception and support are now being built up, with
support from EU countries (notably Denmark) and UNHCR and IOM.

_Immigration/Border_ _Control_

There is a growing problem of illegal migrants, mostly from Asia, aiming to transit Lithuania
to the west. Organised gangs are involved in attempts to traffic illegal immigrants through
Lithuania to Poland. In early 1997 some 600 such migrants and potential refugees were being
held at the Registration Centre pending resolution of their status. Lithuania has visa-free
agreements with the UK, Ireland, Denmark, Norway, Sweden, Finland, several central
European countries, and third countries, as well as Estonia and Latvia, with which it operates a
visa free space. It is adopting the EU third country list for which visas are required.
Lithuania's citizenship and aliens legislation generally respects democratic norms. Lithuania
has readmission agreements Estonia, Latvia, Denmark, Sweden, Finland, Switzerland,
Norway and the Ukraine. Lithuania is seeking to conclude, but has not yet reached,
readmission agreements with Belarus and Russia. Border management with Belarus and
Russia is still inadequate, with the border not being effectively demarcated. The border guard
suffers from institutional and human resource deficiencies and a shortage of surveillance
equipment.

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_Police_ _Co-operation_

Organised crime is active in Lithuania in particular in the fields of smuggling of human
beings, weapons, alcohol and tobacco, money laundering and financial fraud; violence and
extortion are used, notably against companies operating in the "grey market" (evading taxes).
The police service and other law enforcement bodies have been given extraordinary powers of
detention when dealing with organised crime. The Government has recently adopted a
programme on crime prevention, including plans to amend the criminal and criminal
procedure codes, the code of conduct of civil servants, and to strengthen the law on money
laundering. Reorganisation of the key institutions is also underway. Lithuania has ratified the
1990 Money Laundering Convention. (See also separate section on Single Market).
Lithuania experiences no internal terrorist threat. It has signed the key international terrorist
conventions and has adopted appropriate legal and administrative measures against terrorism.

_Drugs_

Opiates, cannabis and cocaine are occasionally found.

Domestic demand and production are a growing concern although drug abuse is still limited.
Lithuania is party to most of the main international drugs conventions and plans to ratify the
others soon. A State Drugs Control Commission has been established to develop strategy and
prevention policy for drugs abuse and a Drug Control Unit is part of the police force.

_Judicial Co-operation_

Reform of the judiciary and preparation for EU accession are still at an early stage, but
increasingly progressing. Lithuania has ratified the main criminal conventions and is revising
its criminal and civil code to allow for judicial co-operation. Lithuania has not ratified any of
the Hague Conventions, but legislation is in preparation for the key ones. It is planned to
apply for accession to the Lugano Convention and legislation ensuring compatibility with the
Rome and Brussels Conventions is under preparation.

Current **and** Prospective Assessment

Lithuania has made progress in putting a legislative and implementation framework in place,
in line with the EU _acquis._ The Government's priorities for the near future are focusing on
illegal immigration, developing effective border control systems, and tackling organised
crime.

The main institutional problems lie in the field of resource constraints and the impact of
organised crime and institutional corruption. The new Government is committed to take
action in these areas and is currently reviewing its policy and institutions in the JHA sector.
Some officials have experience of co-operation with EU counterparts; the Government is
concerned to promote the development of such expertise.

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**Conclusion**

Lithuania has made some progress in important areas such as asylum. Nevertheless, given the
scale of the problems facing Lithuania in the JHA field, a significant, sustained effort will be
needed if it is to meet the justice and home affairs _acquis_ (present and future) in the medium

term.

**3.8 External Policies**

**Trade and International Economic Relations**

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

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

The White Paper includes no provisions in this field.

Descriptive Summary

Lithuania has developed an open, trading economy and is expected to become a member of
the World Trade Organisation (WTO) in 1998. Lithuania has observer status in the
Government Procurement Agreement and, upon accession would have to comply with the
obligations of the plurilateral WTO agreements to which the Community is a party.

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

**Current and** Prospective Assessment

On accession Lithuania would have to apply the Community's Common Customs Tariff, and
the external trade provisions of the Common Agricultural Policy. The post Uruguay Round
weighted average level of most favoured nation duties for industrial products will be 27.5%
for Lithuania and 3.6% for the Community.

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

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

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In the area of trade in services and establishment, Lithuania has sought to keep its multilateral
commitments under GATS as consistent with those of the Community as possible during its
negotiations to join the WTO. It should be possible to resolve any remaining, significant
inconsistencies.

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

Experience from previous accessions has shown that the automatic extension of existing antidumping measures to new member states prompts third countries to raise problems in terms of
the compatibility of this approach with relevant WTO provisions. It has also shown that
accession creates a potential for circumventing measures adopted by the Community under the
commercial defence instruments. This happens when, prior to accession, substantial quantities
of the products subject to measures are exported to the territory of the future member state
and, on accession, are automatically released for free circulation in the enlarged customs
territory. These two problems would have to be addressed during Lithuania's pre-accession
phase.

Lithuania is not a member of any non-proliferation regime, although it has expressed interest
in membership. The Lithuanian control list of dual-use items is a direct translation of the
Community control list. Arms export is also controlled. There appears to be no obstacle in
principle to Lithuania applying EC legislation in this field.

Conclusion

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

Development

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

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

Descriptive Summary

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

Lithuania has no budget for development aid.

Current and Prospective Assessment

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

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

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

**Conclusion**

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

**Customs**

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

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

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

**Descriptive Summary**

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

Lithuania's capacity fully to apply the _acquis_ presupposes the possibility to adopt and
implement the Community legislation; and the existence of an adequate level of
infrastructure and equipment, in particular in terms of computerisation and investigation
means and the establishment of an efficient customs organisation with a sufficient
number of qualified and motivated staff showing a high degree of integrity. Lithuania
has experienced severe problems with corruption in the customs administration; it
instituted important measures, in March 1997, to combat this.

With the support of the technical assistance provided by customs programmes, Lithuania
has drafted a Customs code harmonised with the Community's customs code which will
enter into force on 1 January 1998. At present, the legislation in force as well as the
customs-related legislation outside the scope of the customs code is not EC compatible

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Lithuania has almost aligned its national goods nomenclature to the Community's
Combined Nomenclature. However, at his stage the Lithuanian administration does not
have an integrated tariff which will make the comparison of the Lithuanian tariff rates
with the Common Customs Tariff rates difficult. However, Lithuania operates a Binding
Tariff Information system similar to the one applied in the Community.

Lithuania adopted on 1 April 1997 the new system of cumulation of origin between European
countries.

Lithuania has applied to become a contracting party to the EC/EFTA Common Transit
Convention and the Single Administrative Document Convention. A Community Task
Force is assisting Lithuania in this field. Accession to the Transit Convention will
require a period of considerable further preparation.

**Current and Prospective Assessment**

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

It will be important that the Lithuanian customs authorities can participate appropriately
in the various computerised systems necessary for the management, in the customs
union/internal market, of the customs and indirect tax provisions, as well as the
computerised systems for mutual administrative assistance in customs, agricultural and
indirect tax matters. Computerisation is at a very preliminary stage of development in
Lithuania.

Lithuania would need on accession to dismantle customs controls at the borders with EU

member states and with other acceding countries. The resources needed for the
reinforcement of the border posts along its frontiers with non-EU member states should
be taken into account in its strategic planning.

**Conclusion**

Lithuania will need to continue major efforts to align its organisation and staff to the
duties that have to be carried out by a modern customs administration. If it does so it
may be able to meet EC requirements in the medium term.

**Common Foreign and Security Policy**

Since regaining its independence in 1991, Lithuania has orientated its foreign and security
policy towards the EU and NATO. Lithuania has a constitutional act of non-alignment to
post-Soviet Eastern alliances of 8 June 1992. This act forbids the government from joining
any alliance "formed on the basis of the former USSR" and also forbids the stationing of any
forces from the former USSR on Lithuanian territory. Lithuania has been an active participant

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in the arrangements provided for under the Union's Common Foreign and Security Policy and
when invited has supported EU actions within that framework.

Lithuania is a member of the UN, OSCE, Council of Europe and many other international
organisations. It is an associate partner of WEU, participates in the NACC, the PfP and has
made clear its desire to become a member of the WEU and NATO as soon as possible. It has
sent troops to participate in IFOR/SFOR. It also participates in a number of regional
organisations including the Council of Baltic Sea States, the Baltic Council and intends
joining CEFTA.

There are no territorial disputes between Lithuania and any member state of the Union,
although a formal delineation of the maritime border with Sweden remains to be agreed.
Neither does Lithuania have any major disputes with neighbouring associated countries.
Relations with Poland have improved significantly in recent years and are based on the 1994
Treaty on Friendly Relations and Good Neighbourliness which forms part of the Stability
Pact. Both countries are in the process of establishing a joint peacekeeping unit. Negotiations
concerning the delineation of the maritime border with Latvia are continuing and have reached
an advanced stage.

Although more than 30 treaties and agreements have been signed between Lithuania and
Russia, there remain disagreements concerning the demarcation of the sea and land borders:
the Russian territory bordering Lithuania is the Kaliningrad oblast. The question of military
transit by rail between Russia and Kaliningrad through Lithuania is regulated by an agreement
renewable on an annual basis.

Relations with Belarus are based on the Agreement on Good Neighbourly Relations and
Cooperation and the Agreement on the State Border. Both Agreements entered into force on
26 April 1996. The precise delineation of the border remains to be agreed.

Lithuania has a new and small diplomatic service with limited experience and resources. In
due course, it should nevertheless be able to play a full role as a member of the Union. It
maintains 38 representations abroad and employs some 325 diplomatic staff.

Lithuania supports non-proliferation of nuclear, biological and chemical weapons and is a
signatory to all relevant international arms control agreements. The small Lithuanian armed
forces, which are being brought under democratic control, are being reorganised to meet
NATO requirements. Lithuania is a member of the Baltic peacekeeping battalion
(BALTBAT) and participated in a major PfP exercise (Baltic Challenge) in 1996. Lithuania
has no defence industrial base.

In the statement accompanying its application for membership of the Union on 8 December
1995 and in its replies to the Commission in July 1996, the Lithuanian government confirmed
that it was ready and able to participate fully and actively in the CFSP of the Union.

The assessment x)f Lithuanian foreign and security policy to date leads to the expectation that
as a member it could fulfil its obligations arising under the CFSP.

**86**

**3.9.** **Financial Questions**

**Financial Control**

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

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

**Descriptive Summary**

The State Control (SC) of the Republic of Lithuania, directly accountable to the Parliament, is
the supreme (external) audit institution similar in status to the Court of Auditors. The
activities of the SC are regulated by the 1995 Law on State Control. The SC takes an active
part in international bodies of supreme audit institutions.

The SC supervises, by a posteriori control, the legality of holding and use of State property
and the application and use of the State Budget. The Controller General presents to
Parliament a report and opinion on the annual account of the State Budget. The Parliament
may also request the SC to carry out special investigations.

Presently there is no central internal control body. Each minister is responsible for financial
control within his ministry. Internal control units exist within 12 of the 18 Ministries,
however, they do not entirely meet internationally accepted standards. In the absence of a
single central authority established especially for fighting fraud, the Ministry of Finance fulfils
this responsibility.

Internal control within the Ministry of Finance and the customs organisation is ensured by the
State Tax Inspection and the Customs Department. The customs administration is responsible
for the collection of import duties. Within this administration the import duties are
administrated by the tax divisions. They are responsible for accounting for import duties,
securing recovery of unpaid import duties and dealing with investigations and appeal
procedures.

By the time that internal and external control measures will function in accordance with
international standards, it is envisaged that both national and Community funds will be
controlled and protected against fraud in the same way.

Current and Prospective Assessment

There seems to exist a weakness of internal control institutions (insufficient number of
qualified auditors). However the external control system appears to respond to generally
accepted standards.

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The required instruments for a successful implementation of EU policies will need to be
established. Special attention must be given to the development of efficient internal control
mechanisms.

The new Customs Code, which will come into force on 1 January 1998, seems to have
identical provisions on the customs debt as Regulation 2913/92. Further cooperation with the
Commission will be needed on the accounting procedure.

**Conclusion**

The field does not appear to present major obstacles for accession in the medium term,
although considerable preparations will still be necessary to establish the necessary
management and control mechanisms.

**Budgetary Implications**

The communication entitled "Agenda 2000" sets out the overall financial framework which
should accommodate the budget impact of any future enlargements in the medium term. This
is to ensure that any enlargement is compatible with proposed Community policy guidelines
within reasonable budget limits.

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

the date on which the applicant country joins;
developments in Community policies between now and then, in particular the
decisions to be taken on further reform of the common agricultural policy and new
guidelines for structural measures;
the progress made by the applicant countries in terms of growth, increasing their
competitiveness and productivity and their ability to absorb the _acquis;_

the transitional measures that will come out of the negotiations.

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

**Expenditure**

If the common agricultural policy were to be reformed along the lines suggested by the
Commission, once the reforms were fully up and running and in terms only of market
intervention measures, Lithuania's accession would give rise to additional expenditure in the
order of 1 to 2% in relation to likely expenditure on the present fifteen Member States.

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

Application of the other internal Community policies in the new member countries would be
likely to involve additional expenditure probably in excess of their relative proportion of

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Union GNP, since for certain policies the additional implementing costs also depend on the
target population, the geographical area covered or the number of Member States involved in
the coordination and harmonisation measures. The GNP of Lithuania is currently
approximately 0.1 % of total Union GNP.

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

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

In light of the above, the estimated costs in the three areas mentioned arising from Lithuania's
accession should fall within the range of, annually, ECU 0.7 to 0.9 billion in 2005-06 (at
constant 1997 prices).

**Revenue**

Assuming full application of the own resources system, the new members' contributions to the
Community budget should, in terms of total GNP and VAT resources (taking account of the
capping rules applying to VAT), be close to the proportion of the Union's GNP they account
for, which in Lithuania's case is around 0.1%. Lithuania's portion of traditional own resources
will depend on the structure of its trade flows at the time of accession.

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

**4 Administrative Capacity to Apply the** _**Acquis**_

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

**4.1 Administrative Structures**

**89**

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

At the central level there are 17 ministries and a Prime Minister's Office. A European
Integration Department is part of the Ministry of Foreign Affairs.

A Civil Service Law was approved by the Seimas in 1995. It creates a two-tier civil service:
Category A, for political civil servants appointed by the current government, and Category B
for permanent civil servants. The new Government has introduced in 1997 high level
"experts" in each ministry, thus creating a parallel civil service structure. However, in order to
stabilise the system, an amended civil service law is currently under preparation by the

government.

The principle of political independence of the civil service is recognised in Lithuania,
although senior positions are not always free of party political influence.

18,000 civil servants are employed by central government. Pay and conditions are well below
those in the private sector, leading to low morale and motivation.

The reform of the central administration has been a central policy of the current government
with comprehensive changes made to the organisation of ministerial responsibilities. The
amended civil service law will draw on the conclusions of a policy document prepared in 1996
by the Ministry of Public Administration, a "Concept of Public Administration Reform in
Lithuania" which develops a reform strategy, indicating projects, timetable and resources
while also proposing organisational structures. The Government of Lithuania set up a
Ministry of Public Administration and Local Government Reform in June 1994. It submits
proposals to the government in form of State programmes or draft laws on administration
reforms. It is in the process of elaborating the training criteria and the state system of civil
service training and certification.

Concerning EU matters, an inter-ministerial coordinating committee for European Integration
affairs under the Prime Minister's responsibility has been set up, alongside the creation of
European Integration units in every line ministry. The Lithuanian Public Administration
centre, which trains civil servants mainly on implementation of EU accession related matters,
was established in 1993. (See also the section of the Introduction concerning relations
between the European Union and Lithuania).

**4.2 Administrative and Judicial Capacity**

Lithuania was part of the Soviet Union until 1991 and administered under central planning
until then. The communist system rejected the primacy of the rule of law and subjugated the
law and the administration to the implementation of Party policy. Against this background,
both the administration and the rule of law itself increasingly came to be seen by the public as
instruments of political control.

**90**

The administrative structures are appropriate for an effective administration. The framework
for a permanent civil service exists. Despite the important progress which has been made,
however, further development of the system will be necessary.

The Lithuanian public administration is constrained by a lack of experience and resources
and, at the lower levels, a legacy from the past which tends to hinder the Government's strong
efforts at reform. Despite this, the State Control Department and the Prosecutor General are
able to function adequately. An important strength in the system, particularly in the context of
enlargement, is the Government's commitment to achieving standards compatible with EU
membership.

The legal basis for the civil service is adequate. However, it will take sometime for a
politically independent civil service fully to develop.

The civil service is over-staffed. The present government has plans to reduce its size. One
effect of this should be to release funds for higher civil service salaries. This in turn should
help to prevent high staff turnover caused by a "brain drain" to the private sector. As in any
public administration, some staff are of a high quality. It is difficult to assess the overall
standard, but there are clearly significant deficiencies in many parts of the administration.

Public confidence in the civil service is not assured. Most public contact is with the more
junior civil servants in routine administrative jobs; this is not widely considered to provide an
attractive advertisement for the Lithuanian publfc administration. Eradicating corruption in the
public administration is a high priority of the present government. There have been dismissals
and prosecutions for improper conduct involving the Customs Department and the Public
Prosecutors Office.

The present government's intentions in the field of civil service reform are positive. As
regards local government reform, Lithuania has achieved good progress. The third wave of
reform is on the drawing board, moving one step further along the road to decentralisation at
municipality level. It remains unclear, however, at the level of legislation how the local
governments should manage their responsibilities. In the local government area, the question
of legislation and policy with regard to the divisions between levels of government is the most
difficult. Recently, there has been progress in formulating and enforcing appropriate
legislation for further decentralisation, with special regard to the issues of municipal property
and land ownership as well as to clarify the respective spheres of fiscal control at local level
and of the balance between fiscal incomes and state grants.

The administrative structures set up since 1996 for European Integration have already
achieved some good results.

_Key Areas for the Implementation of the Acquis_

The uniform application of EC law: The effective application of the _acquis_ presupposes
that the judicial authorities of member states are able to apply the provisions of the
Treaty dealing with ensuring the unity and application of the _acquis,_ and are able to
ensure the proper functioning of the Single Market and Community policies in general.
A high quality and well trained and resourced judiciary is necessary for the application

**91**

by the courts of EC law, including cases of direct effect, and cases of referral to the
European Court of Justice under the terms of Article 177 EC.

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

Single market: The ability of Lithuania to ensure the correct application of Community
requirements in the Single Market, particularly concerning the free movement of goods and
services presupposes the existence of highly developed and effective regulatory,
standardisation, certification and supervisory authorities, able to act fully in accordance with
EC rules. An analysis of these points is made in Chapter 3.1 (under "The Four Freedoms").
Concerning the administrative capacity in respect of free movement of goods the situation in
Lithuania is not yet satisfactory. In the field of standardisation, proposed legislation should
improve compatibility with the EC system. The Standards Department is however still not
an independent body, at variance with EC principles. As regards conformity assessment
infrastructure, no quality system certification body exists yet. Concerning free movement of
services the situation remains somewhat unsatisfactory as it is not clear that the Lithuanian
authorities have the administrative resources to implement quickly the large legislative
programme to which they have committed themselves. The Bank of Lithuania has 62 staff;
the State Insurance Supervision Authority has 5 staff.

In order to meet EU requirements in this area it will be necessary to improve the overall
quality of staff.

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

In Lithuania the central authority is the State Competition and Consumer Protection Office
which has 37 staff in all; this is probably adequate. The level of expertise is not high. The
ability effectively to implement EC requirements in this field will require further investment
in technical and human resources.

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

The Commission has limited information on the administrative situation in this field in

Lithuania, however it is to be doubted whether sufficient administrative capacity exists.

Indirect taxation: The effective administration of the indirect taxation _acquis_ presupposes
structures capable of implementing the EC legislation concerning the harmonisation of Valued
Added Tax and excise duties in an environment in which fiscal controls at internal EU

frontiers have been abolished; and the excise system is based on the tax warehouses, duty
being payable at the local rate in the member state at the time the goods are consumed. This

**92**

requires a highly developed and well trained and resourced service, with a high degree of
integrity.

In Lithuania the relevant authority is the Ministry of Finance (a central ministry and 56
regional offices) with a total of 31,000 staff (3,000 on indirect taxation). Due to a large
turnover of staff, resulting partly from trained staff being recruited by the private sector, it is
difficult to estimate the capacity of existing staff. In order to ensure the effective
administration of the _acquis_ in this area it will be necessary to consolidate and improve overall
the professional standards of the staff, including training measures and improvements in pay.

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

Concerning the administrative capacity in respect of veterinary and phytosanitary controls in
Lithuania, testing and diagnostic facilities remain inadequate. The veterinary and food
inspectorate functions would benefit from reinforcement. Concerning the administration of
general CAP requirements, substantial adaptation of the current administrative structure will
be required.

In order to meet EC requirements in this area considerable improvements will be required.
Transport: The application of the EC Internal Market and competition requirements to the
transport sector, the development of relevant infrastructure products, and other aspects of the
transport _acquis_ will present administrative challenges to new member states.

The responsible government authority in Lithuania is the Ministry of Transport (86 staff)..
There is a shortage of qualified staff. This raises particular concerns with regard to the
enforcement of safety controls.

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

In Lithuania the State Labour Inspectorate (50 inspectors) requires considerable reinforcement
of staff resources and expertise.

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

In Lithuania, there is no nationally established, regional policy. The situation concerning
financial control is not yet satisfactory (see the section, below, on "Financial control"). The
effective administration of the _acquis_ in this area will require the creation of administrative
and budgetary control frameworks.

**93**

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

In Lithuania the Environment Ministry employs 130 staff. Monitoring is carried out by the
Joint Research Centre, enforcement by the Ministries and 44 District Agencies. These
arrangements are not yet adequate and enforcement structures need to be reinforced. The
effective administration of the _acquis_ in this area will require a greater human resources,
especially as legislation is progressively approximated.

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

In Lithuania the main responsibility lies with the State Competition and Consumer Protection
Office (7 staff working on consumer protection), a competition authority which has extended
its scope to cover consumer issues. As regards non-governmental consumer bodies these
remain far too weak. There remains confusion about the exact scope and objectives of
consumer policy. This in part explains difficulties in the effective enforcement of consumer
laws; however, other factors which need to be addressed include a lack of expert staff,
organisational deficits, and a lack of sensitivity to consumer questions among the judiciary.

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

In Lithuania the justice and interior ministries are adequately staffed. The capacity to handle
asylum and migration questions is not yet assured since the processing of asylum applications
began in May '97, and facilities for refugee reception are being built up. Border management
is inadequate, with a shortage of staff and equipment. The police service is being restructured
to help tackle organised crime. Regarding the judiciary, reforms are being implemented,
though currently there is little practical cooperation with the EU. The effective administration
of the _acquis_ in this area will require greater human and technical resources, and steps to
combat corruption.

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

In Lithuania the customs service employs 3,295 staff. Due to a high turnover of staff, it is
difficult to estimate their efficiency, and therefore the adequacy of staffing levels. The
effective administration of the _acquis_ in this area will require the retention of experienced and

**94**

qualified staff, and computerisation of the customs administration. In particular, the problem
of corruption will have to be seen to have been adequately tackled.

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

In Lithuania the main external control body is the State Control (295 staff). The effective
administration of the _acquis_ in this area will require considerable preparations to establish the
necessary management and control systems.

**4.3 General Evaluation**

Lithuania's administrative structures will require a major, reinforced effort of reform if there is
to be an adequate capacity in the medium term effectively to administer the _acquis._

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

**95**

**C.** **SUMMARY AND CONCLUSION**

Lithuania submitted its application for membership of the European Union on 8 December
1995. Its request is part of a historic process of ending the division of Europe and
consolidating the establishment of democracy across the continent.

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

Lithuania's preparation for membership is going forward notably on the basis of the **Free**
**Trade Agreement** which entered into force on 1 January 1995. The European Union and
Lithuania signed a **Europe Agreement** on 12 June 1995. Once the ratification procedures are
complete and it enters into force, it will supersede the Free Trade Agreement.- Implementation
of the **White Paper** of May 1995 on the Internal Market, another essential element of the preaccession strategy, is going ahead on the basis of a National Legislation Harmonisation
Programme adopted in September 1996. The government has put in place the necessary
mechanisms to coordinate its policies for European integration.

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

  - stability of institutions guaranteeing democracy, the rule of law, human rights and respect
for and protection of minorities;

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

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

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

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

**96**

**1.** **Political Criteria**

Lithuania's political institutions function properly and in conditions of stability. They respect
the limits on their competences and cooperate with each other. Elections in 1992 and 1996
were free and fair, and in each case permitted an alternation of power in proper conditions.
The Opposition plays a normal part in the operation of the institutions. Efforts to improve the
operation of the judicial system and to intensify the fight against corruption need to be
sustained.

There are no major problems over respect for fundamental rights.

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

**2.** **Economic Criteria**

In the first three years after independence there was a very serious decline in output. It was
halted only by the introduction of a new currency and the establishment of a currency board in
1993/94. Since then there have been increasing rates of positive growth every year (3.6% in
1996), despite the banking crisis in 1995. Despite reduced tax revenues, Lithuania has
maintained a reasonably tight fiscal stance. Foreign debt is at modest levels, and the trade
deficit is under control. Inflation is down from very high levels in 1992/93 to 24.6% in 1996.
GDP per head is about 24% of the EU average, for a population of 3.7 million. The
agricultural sector employs 24% of the labour force, and accounts for 9% of Gross Value
Added. The EU is Lithuania's largest trading partner, taking 37% of total trade.

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

Lithuania has made considerable progress in the creation of a **market economy.** Trade and
prices have been largely liberalised, and considerable progress has been achieved in the area
of macroeconomic stabilisation. However, further progress is needed, particularly in the areas
of relative price adjustments, large-scale privatisation and bankruptcy proceedings. The main
element still missing is the enforcement of financial discipline for enterprises.

Lithuania would face serious difficulties to cope with **competitive pressure and market**
**forces** within the Union in the medium term. The marked recent improvement in policy
would, if sustained, accelerate the establishment of a market economy and strengthen
competitiveness. But substantial enterprise restructuring is still required. Agriculture needs to
be modernised, and the banking sector is still weak.

3. Capacity to take on **the** obligations of **membership**

Lithuania's ability to take on the _acquis_ has been judged according to several indicators:

**97**

  - the obligations set out in the Europe Agreement (even though this has not yet entered into
force for Lithuania), particularly those relating to the right of establishment, national
treatment, free circulation of goods, intellectual property and public procurement;

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

  - progressive transposition of the other parts of the _acquis._

Even before the Europe Agreement has entered into force, Lithuania has made significant
efforts to comply with some of the obligations which will come into effect with it. It is
meeting its obligations under the Free Trade Agreement, and according to the timetable for
implementation set out in it. No serious bilateral problems have arisen. Lithuania has also
made some progress towards compliance with the essential single market legislation. It has
made progress in the areas of company law, data protection and accounting. But further work
needs to be done on intellectual property rights, public markets, liberalisation of capital
markets, financial services, taxation, competition and other areas.

A problem for further progress may be the weakness of the Lithuanian public administration,
which affects not only the pace of approximation of legislation but also the quality of its
implementation and enforcement.

As for the other parts of the _acquis,_ Lithuania should not have significant difficulty in
applying it from the date of accession in the following fields: education, training and youth;
research and technological development; audio-visual; small and medium enterprises; trade
and international economic relations; and development.

By contrast, substantial efforts will be needed in the fields of telecommunications; statistics;
fisheries; and customs.

Provided that currently positive trends towards industrial restructuring and privatisation
continue, most of Lithuanian industry should be able to cope with integration within the
single market in the medium term.

For the environment, very substantial efforts will be needed, including massive investment
and strengthening of administrative capacity to enforce legislation. Full compliance with the
_acquis_ could only be expected in the long term and would require increased levels of public
expenditure.

Lithuania should not have major problems in applying the transport _acquis,_ provided that
attention is given to maritime safety and environmental standards. Investment will be needed
to extend the European transport network so as to ensure that the single market functions well.

It should be possible for Lithuania to achieve the employment and social affairs acquis in the
medium term, provided that it makes substantial efforts to adapt its legislation to EU
requirements in fields such as health and safety and labour law.

**98**

**On regional policy,** Lithuania will need to make the necessary administrative reforms, and
establish effective systems of financial control, in order to become able to use the Union's
regional and structural funds for its development effectively.

The **agriculture** sector needs restructuring, and only a limited number of the mechanisms of
the common agricultural policy currently exist. A substantial and sustained effort will be
required to prepare for accession in the medium term.

In the **energy** field, Lithuania is heavily dependent on nuclear power generation. It has
committed itself to closing the nuclear plant at Ignalina, and must maintain the agreed
timetable for this. In the meantime it must make the necessary short-term adjustments to
bring safety procedures to internationally accepted standards. No other major problems are
foreseen for Lithuanian accession in this sector, though there is a need for further work on
monopolies, access to networks and energy pricing.

On the basis of the analysis of Lithuania's capacity to apply the _acquis,_ it is not yet possible to
be sure when it could become able to take and implement the measures necessary to remove
the controls at **borders** between Lithuania and member states of the Union.

Lithuania's participation in the third stage of **economic and monetary union,** which implies
coordination of economic policy and complete liberalisation of capital movements, still poses
problems in the medium term. It is premature to judge whether Lithuania will be in a position,
by the time of its accession, to participate in the Euro area. That will depend on how far the
success of its structural transformation enables it to achieve and sustain permanently the
convergence criteria. These are, however, not a condition for membership.

In **justice and home affairs,** Lithuania has made some progress, eg in the field of asylum.
But a significant sustained effort will be needed if it is to be ready to meet the _acquis_ in the
medium term.

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

In addition, Lithuania has no major territorial disputes with any Member State or candidate
country. It has attached high priority to improving its relations with Poland.

**4.** **Administrative and legal capacity**

For Lithuania to have in the medium term the administrative structures necessary for the
essential work of applying and enforcing the _acquis_ effectively, there will need to be a major,
reinforced effort of reform.

It is not yet possible to judge when Lithuania's judicial system, which has an equally
important role to play, will acquire the capacity to play it effectively.

**99**

**CONCLUSION**

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

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

  - Lithuania has made considerable progress in the creation of a market economy, but it
would face serious difficulties to cope with competitive pressure and market forces within the
Union in the medium term;

  - Lithuania has made some progress in transposing and implementing the _acquis_ relating
particularly to the single market. With considerable further effort it should become able to
participate fully in the single market in the medium term. Particular efforts, including
investment, will be needed to apply the _acquis_ fully in sectors such as agriculture, energy and
environment. Strengthening of the administrative structure is indispensable if Lithuania is to
have the structures to apply and enforce the _acquis_ effectively.

In the light of these considerations, the Commission considers that negotiations for accession
to the European Union should be opened with Lithuania as soon as it has made sufficient
progress in satisfying the conditions of membership defined by the European Council in
Copenhagen.

The reinforced pre-accession strategy will help Lithuania to prepare itself better to meet the
obligations of membership, and to take action to improve the shortcomings identified in this
Opinion. The Commission will present a report no later than the end of 1998 on the progress
Lithuania has achieved.

100

**ANNEXES**

**Composition Of Parliament**

Results of the most recent Parliamentary elections (1996)

**Political Party** **Number of Seats**

Homeland Union

Christian Democratic Party
Centre Union

Democratic Labour Party
Social Democratic Party
Democratic Party
Christian Democratic Union

Women's Party
Liberal Union

Union of Political Prisoners and Deportees
Poles' Electoral Action

National Union

Young Lithuania
Farmers' Party
Independents

TOTAL

70

16

13

12

12

2

4

137*

4 seats could not be filled because the turnout in the constituencies concerned was too low.

_**16**_ _**\**_

30-06-97

LT
**Single Market: White Paper measures**

This table is based on information provided by the Lithuanian authorities and confirmed by them as correct as at the end of June 1997. It does
not indicate the Commission's agreement with their analysis. The table includes directives and regulations cited in the White Paper which total
899. These have been listed in accordance with the categorization used in the White Paper and in relation to the policy areas covered. The table
shows the number of measures for which the Lithuanian authorities have notified the existence of adopted legislation having some degree of
compatibility with the corresponding White Paper measures.

Regul ations

White Paper chapters

l.Free Movement of Capital Lithuania

Number of White Paper measures
2.FM and Safety of Industrial Products Lithuania

Number of White Paper measures
3.Competition Lithuania

Number of White Paper measures
4.Social policy and action Lithuania

Number of White Paper measures
5.Agriculture Lithuania

Number of White Paper measures
6.Transport Lithuania

Number of White Paper measures

7.Audi0Visual Lithuania

Number of White Paper measures

8.Environment Lithuania

Number of White Paper measures

^Telecommunication Lithuania

Number of White Paper measures

lO.Direct Taxation Lithuania

Number of White Paper measures
1 l.Free movement of goods Lithuania

Number of White Paper measures

H.Public Procurement Lithuania

Number of White Paper measures
13.Financial services Lithuania

Number of White Paper measures
14.Protection of personal data Lithuania

Number of White Paper measures
15.Company Law Lithuania

Number of White Paper measures
16.AcCOUntancy Lithuania

Number of White Paper measures

1 7 . C i v i l l a w Lithuania

Number of White Paper rr.«3su»c*
18.Mutual rec. of prof. Qual. Lithuania

Number of White Paper measures
19.1ntellectual property Lithuania

Number of White Paper measures

2 0 . E n e r g y Lithuania

Number of White Paper measures
21.CustOmS law Lithuania

Number of White Paper measures
22.1ndirect Taxation Lithuania

Number of White Paper measures
23.Consumer Protection Lithuania

Number of White Paper measures

T o t a l Lithuania

Number of White Paper measures

Dire ctives

Stage
I

1

3

25

56

1

3

10

12

47

93

16

19

1

1

17

31

7

9

0

2

0

0

5

5

11

13

0

0

2

2

0

3

0

1

1

2

4

5

6

10

0

2

1.0

15 '

0

8

164

295

Stage
II/III

1

l

59

104

-0

0

2

15

15

46

11

15

0

0

0

7

3

7

0

2

0

0

1

l

6

8

0

2

3

3

0

2

0

1

8

16

2

3

1

2

1

1

6

54

0

3

119

293

Stage
I

0

0

3

4

1

1

0

0

7

62

6

8

0

0

3

7

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

3

3

1

14

0

0

0

0

24

99

899

_**/oi**_

Stage
II/III

0

0

0

l

0

0

2

2

0

2

4

13

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

1

I

0

0

0

0

0

0

0

3

0

0

2

184

0

6

0

0

9

212

Total

2

4

87

165

2

4

14

29

69

203

37

55

1

1

20

45

10

16

0

4

0

0

6

6

17

21

0

2

6

6

0

5

0

2

9

18

6

n

10

15

4

201

16

75

0

11

316

Source: TA!EX

**Statistical Data**

If not explicitly stated otherwise, data contained in this annex are collected from «Lithuanian
Department of Statistics (STATISTIKOS DEPARTAMENTAS)" with whom Eurostat and
Member States' statistical offices are co-operating since several years in the framework of the
Phare programme. Regular data collection and dissemination are part of this co-operation
process with the aim to enable the application of EU laws and practices in statistics. The data
presented below have been compiled as far as possible using EU definitions and standards
which in some cases differ from national practices. This may occasionally give rise to
differences between the data presented here and those shown elsewhere in the opinion, which
are generally based on the individual applicant countries' updated replies to the questionnaire
sent to them in April 1996. The exact compatibility with EU standards on statistics and thus
the comparability with EU figures can still not be guaranteed, particularly those statistics that
have not been supplied through Eurostat, but have been delivered directly by the countries
concerned. Wherever available, methodological notes are given describing content and
particularities of statistical data presented in this annex. . Data correspond to the information
available as of May 1997.

**BASIC DATA**

1990 1993 1994 1995 1996

**1000** **hectares**

Total Area

Population ( end of the period)

   - Total

   - Females

   - Males

Population density

Urban Population

Deaths rate

Births rate

Income and GDP per capita

-Average monthly wage and salary per employee

-GDP per capita

Structure of production: share of branch GVA

-agriculture

-industry

-construction

-services

6530. 6530.1 6530.1 6530.1

**in 1000**

3724.0

1962.8

1761.2

3717.7

1961.1

1756.6

**per** **1 km2**

3711.9

1959.3

1752.6

3707.2

1952.2

1749.0

56.8 56.9 56.8

**in** **%** **of** **total** **population**

68.1 68.0 67.8

**per 1000 of population**

12.2

11.1

70

932

11.6

10.6

_**)**_ _**02**_

12.3

12.5

12.5

11.5

**European Currency Unit**

27.7

32.8

10.5

_<_ 29.0

**in** **%** **of** **Total** **Gross Value Added**

9.3

29.0

6.7

55.0

**share** **of** **branch** **GVA in 1995**

 - 0.0

il 29.

10.5

**share** **of** **branch** **GVA in 1990**

 - 0.0

127.7 g -agriculture

g -industry

Q -construction

{H -services

                   -                    - Others

#### **_K_**

129.0

B -agriculture

g -industry

- -construction

g -services

- - Others

_**/01**_

.55.0

19.3

129.0
## **4**

,32.8 16.7

**Total** **Area:** Data presented at the end of the year.

**NATIONAL ACCOUNTS**

Gross Domestic Product (Current Prices)

Gross Domestic Product (Current Prices) 

Gross Domestic Product

Gross Domestic Product

Final consumption expenditure

-of households and NPISH

-of general government

Gross fixed capital formation

Exports of goods and services

Imports of goods and services

Final consumption expenditure

-of households and NPISH

-of general government

Gross fixed capital formation

Exports of goods and services

Imports of goods and services

1990 1991 1992 v 1993 1994 1995

**in Millions of National Currency**

**12897.** **42282.** **3386.** 11107. 16980. 23829.

**in Billions** **of** **ECU**

**1.2** 2.0 2.9 3.5

**in Purchasing Power Standard per capita**

3411. 3592. 4128.

**% change over the previous year**

**-3.3** **-13.1** **-34.0** -30.4 1.0 3.0

in _%_ of Gross Domestic Product

85.5

69.1

16.4

24.2

86.1

94.3

90.6

72.4

18.2

20.6

55.1

61.1

89.2

69.5

19.8

21.4

53.6

65.4

##### **_/of_**

**82.1**

**69.4**

**12.7**

**29.2**

**31.8**

**22.8**

74.9

54.9

**11.0**

**28.8**

**54.2**

63.0

**66.5**

**55.5**

**11.0**

**22.0**

**29.1**

20.6

5.0

0.0

-5.0

-10.0

-15.0

-20.0

-25.0

-30.0

-35.0

GDP (% Change over the previous year)

1992 j^iPO; [ l] ?~' . s< [.] [ 1.1995 ]

**MAIN ECONOMIC INDICATORS**

Inflation rate

Industrial production volume indices

Gross agricultural production volume indices

Unemployment rate (ILO methodology)

-Total

   - less then 25 years

   - 25 years and more

Gross Foreign debt

Balance of payments

-Exports of goods

-Imports of goods

-Trade balance

-Services, net

-Income, net

-Current account balance

-Capital and fin. acc.(excl. reservesj

-Reserve assets

1990 1991 1992 1993 1994 1995 1996

**percentage change over the previous year**

9.1 **216.** **1020.** 410. 72.2 39.6 24.6

**previous year** **»** **100**

92

**in** **%** **labour force**

3.5

3.5

3.5

**in Billions of USD**

73.4

82

4.5

4.3

4.5

103.

115.

6.2

5.1

6.4

**0.03** 0.32 0.57

**in millions of USD**

2026

-218

-155

-55

8

-86

401

-308

2029

-223

-205

-55

9

-94

321

-180

105.

110

7.3

5.9

7.7

2706

-340

-698

-13

-13

-614

558

-231

**Inflation rate:** Percentage change of yearly average over the previous year - all items index (data are based on national CPIs which are
not strictly comparable)

Gross **agricultural production volume indices:**

Constant prices refer to 1989.

Indices based on evaluation of all individual products of gross agricultural production.

**Unemployment rate (by ILO methodology):** -Registered unemployment from Labour Exchange percentage of economically active
population. This rate is derived from LFSS (Labor Force Survey) observing the following ILO definitions and recommendations:
_Labor_ _force_ employed and unemployed persons in the sense of the ILO definitions stated below.

_The_ _employed_ all persons aged 15+, who during the reference period worked at least one hour for wage or salary or other
remuneration as employees, entrepreneurs, members of cooperatives or contributing family workers. Members of armed forces and
women on child-care leave are included.

_The unemployed_ all persons aged 15+, who concurrently meet all three conditions of the ILO definition for being classified as the
unemployed: (i) have no work, (ii) are actively seeking a job and (iii) are ready to take up a job within a fortnight.

Gross **foreign** debt: Debt is extracted form the OECD's External Debt Statistics.

Balance of payments: Data is derived from IMF database, their comparability with respective EU statistics can not be guaranteed, but
balance of payments is compiled mainly in accordance to IMF standards. Balance in trade of goods in accordance with balance of
payments principles. Exports and imports arc both in fob. values. Net income includes direct, portfolio and other investment
income, compensation of employees. Current account balance by definition of IMF 5th Manual, capital transfers are excluded.
Reserve assets: it means changes in reserve assets during the year; (+) signifies an increase, (-) a decrease in reserve assets.

_**/d<***_

**FOREIGN TRADE**

**Imports and exports (current prices)**

       - Imports

-Exports

-Balance of trade

**External trade volume indices**

        - Imports

       - Exports

**Structure of Import by** **SITC** **(current** **prices)**

       - (0+1) food and live animals, beverage and tobacco

        - 2 crude materials, inedible

        - 3 mineral fuels and lubricants

        - 4 animal and vegetable oils etc.

       - 5 chemicals and related products

       - 6 manufactured goods classified chiefly by material

       - 7 machinery and transport equipment

       - 8 miscellaneous manufactured articles

**Structure of export by SITC (current prices)**

       - (0+1) food and live animals, beverage and tobacco

        - 2 crude materials, inedible

        - 3 mineral fuels and lubricants

        - 4 animal and vegetable oils etc.

       - 5 chemicals and related products

        - 6 manufactured goods classified chiefly by material

       - 7 machinery and transport equipment

       - 8 miscellaneous manufactured articles

External trade price indices

        - Imports

        - Exports

**1993** **1994** **1995**

**in millions of USD**

```
2255.

2004.

-251.

```

```
2351.7

2030.4

-321.3

```

```
3648.5

2705

-943.5

```

```
 1996

4404.5

3279.8

-1124.8

```

_**/o?**_

previous **year** " 100

in _'/»_ of total Export

in % of total Import

previous year ~ 100

**Imports and exports (current prices):** Trade data exclude direct re-exports, trade in services and trade with customs free zones as well as
licenses, know-how and patents. The data are based upon the General trade system and are regularly updated. _Trade Classifications:_
Lithuania is using the commodity classification according to the _Combined Nomenclature._ _**Imports**_ are recorded on CIF basis.
_Exports_ are recorded on FOB basis.

**/ôf**

**FOREIGN TRAD**

Structure of imports by main countries (current prices)

1st partner

2nd partner

3rd partner

4th partner .

5th partner

others

Structure of exports by main countries (current prices)

1st partner

2nd partner

3rd partner

4th partner

5th partner

others

**Structure of** **export by** **main partners**

**in** **1996**

**RU**

**,.,«-,-^^^** **23.8%**

**36.1%**

**Structure of import** **by** **main partners**

**in*1996**

**45.4%**

**DKGB** **P L**

**3.8%0%** **5 J %**

1993 1994 1995 1996

**in %** **of total imports**

**R**

**D**

**U**

**B**

**D**

**R**

**U**

**B**

**L**

**P**

**53**

**9.**

**6.**

**3.**

**2.**

**24**

**33**

**1**

**7.**

**7.**

**7**

**3**

**R**

**D**

**U**

**P**

**B**

**R**

**D**

**L**

**B**

**U**

39

13

5

4

3.

34

28

11

8.

6.

6.

39

R

D

P

U

B

2

15

"5.

4

3.

45

23

1

10

9.

7.

36

**in %** **of total exports**

31

14

4.

3.

3.

4

20

14

10

7.

7.

39

R

D

P

G

D

R

D

B

L

U

R

D

B

- U

L

Latvia

Poland

Russian Federation

Ukraine

LV

PL

RU

UA

BY

DE

DK

GB

Belarus

Germany

Denmark

United Kingdom

_**t<&**_

**SOCIAL INDICATORS**

**1991** **1992** **1993** **1994** **1995**
**Population on 1 January** **thousand**

3746.9 3736. 3723.9

**in** **%** **of total** population

total number

```
53617

41455

 887

 434

30112

13981

```

8.02

3.72

3.25

-5.91

-2.66

1.89

16.54

8.03

**Proportion of population by age (1 January 1995)**

**y0_14**

yl5_24

y25_44

y45_64

y65_max

**Live births**

**Deaths**

**Infant deaths**

    - Less than 1 year

    - Still birth

**Marriages**

**Divorces**

**Crude marriage rate**

**Crude divorce rate**

**Natural growth rate**

**Net migration rate**

**Total population** growth rate
**Total fertility rate**

**Infant** mortality rate

**Late foetal** mortality rate

**Life** expectancy

    - Males

    - Females

Life expectancy

    - Males

    - Females

3736.

56219

41013

806

408

**34241**

15250

9.2

4.06

4.05

-1.41

2.64

1.97

14.34

7.21

```
  46727

  46107

   746

   37Ô"

  23709

  13884

```

per 1000 of population

6.36

3.72

0.16

-3.51

-3.35

1.67

15.97

7.86

at birth

at 65 years

```
42832

46486

 603

 297

23337

11061

```

6.3

3.0

-1

-0.7

-1.7

1.54

14.08

6.89

**3717**

21.9

14.6

29.5

22.1

11.8

6.0

2.8

12.5

63.6

75.2

12.9

16.9

Marriages and Divorces: The rates were recalculated, using the resident population as denominator.

Net Migration: The migration totals were calculated as overall change minus the natural increase. However this data do not represent
actual figures of arrivals from and departures for the Republics of the former USSR because of different methods of migration
calculations.

_**Ko**_

**LABOUR MARKET**

**Economic Activity Rate (ILO methodology)**

**Average employment**

**Unemployment rate (ILO methodology)**

-Total

        - less then 25 years

       - 25 years and more

**Registered unemployment (end of period)**

Average **paid employment** indices **by** NACE classes

        - Agriculture, hunting, forestry and fishing

       - Mining and quarrying

       - Manufacturing

        - Production and distribution of electricity, gas and water

        - Construction

       - Transport, storage and communication

Monthly wages **and** salaries indices

-real

        - nominal

**1993** **1994** **1995**

**in** **%** **of population age +15**

65.3

3.5

3.5

3.5

3.5

**in** _***/»**_ **of economically active population**

**4.5** **7.3**

**61.1** **61.4**

**in thousand**

65.3 65.3

**in** **%** **of labour force**

4.5

4.3

4.5

7.3

5.9

7.7

**1996**

62.3

65.3

6.2

5.1

6.4

6.2

**1993** **1994** **1995** **1996**

**previous year** _**™**_ **100**

100.1

97.5

90

112.2

103.4

103.3

103.2

144

102.2

89.7

95.3

100

100.8

98.8

104.0

129.6

110.2

66.7

84.1

109.5

74.9

80.6

61

311.2

97.7

100

80

112.9

87.5

92.2

114.2

196.6

Unemployment rate (by ILO methodology): Registered unemployment from Labour Exchange percentage of economically active
population. This rate is derived from LFSS (Labor Force Survey) observing the following ILO definitions and recommendations:
_Labor force_ employed and unemployed persons in the sense of the ILO definitions stated below.

_The employed_ all persons aged 15+, who during the reference period worked at least one hour for wage or salary or other
remuneration as employees, entrepreneurs, members of cooperatives or contributing family workers. Members of armed forces and

women on child-care leave are included.

_The unemployed_ all persons aged 15+, who concurrently meet all three conditions of the ILO definition for being classified as the
unemployed: (i) have no work, (ii) are actively seeking a job and (iii) are ready to take up a job within a fortnight.

Registered unemployment (end of period): Registered unemployment in per cent - percentage of unemployed registered in civil
economically active population, based on Labour force sample survey (LFSS). Registered unemployment covers persons as looking
for a job in Local Labour Exchange in the area in which they are living.

Monthly wages and salaries indices: Nominal wages refer to net nominal wages.

_**Id**_

**PUBLIC FINANCE**

Government budget

-Consolidated central government revenue

-Grants

-Consolidated central government expenditure

-Consolidated general government expenditure

-Consolidated central government deficit/surplus

-General government deficit/surplus

Government budget

-Consolidated central government expenditure

-Consolidated general government expenditure

-Consolidated central government deficit/surplus

-General government deficit/surplus

**Government budget:** These data relate to central and general government

1990 1991 1992 1993 1994 1995

**in millions of national** currency

4031.

2.2

4292.

5660.

-258

-282.

25.3

33.3

-1.5

-1.7

133.

0.5

120

139.

13.8

17.4

2688.

5.5

2475.

3253

218.

244

in _'A_ of Gross Domestic Product

22.3

29.3

2.0

2.2

5661.

0

6079.

7860.

-418

-384.

27.4

35.4

-1.9

-1.7

Atta

ched are working tables showing how series on consolidated general government expenditure and deficit/surplus were calculated
from data published in the IMF's _Government Finance Statistics Yearbook (1996) (GFSY);_ included also is the country's
presentation in the _GFSY._

Bee

ause the _GFSY_ does not present statistics for general government, but for individual levels of government separately, the
consolidated series presented here were obtained from central and local government data and adjusted in consolidation for the
identified intergovernmental transfers.

Eve

n though the statistics cover the central and local government published in _GFSY,_ the coverage may not be exhaustive if some
central or local government units are not included in that coverage. A measure of the exhaustiveness of the coverage can be
obtained by comparing in the _GFSY_ the note on the coverage of data for individual countries with the list of central and local
government units provided.

It

should be noted that the deficit/surplus used here is equal to revenue and grants minus expenditure, and does not take lending
minus repayments into account (see further below).

The

netting of inter-government transfers carried-out in the attached tables is limited to the current and capital transfers consisting of
the identified grants and current and capital subsidies between the levels of government. Other types of transactions occurring
between government levels, such as the payments of taxes and employers' social security contributions, and the reciprocal
purchases of goods and services are not normally classified as inter-governmental transfers have not been eliminated in the
consolidation process. Finally, whether the absence of data for current and capital transfers should be attributed to the absence of
transfer or to lack of data is unclear; in all cases absence of information on transfers have been deemed to represent zero-transfers.

_**I/V**_

_**a.**_

_**Government expenditure**_ **consists of general government cash expenditures on current and capital goods and services, interest**
**payments and current and capital transfers but excludes** **non-cash** **transactions.**

_**b.**_

_**Deficit/surplus**_ **equals cash revenue and cash grants minus cash expenditure. This measure of the** **deficit/surplus** **differs from that**
**used in GFS which equals cash revenue and cash grants, minus cash expenditure, minus net lending. This exclusion of net**
**lending(consisting, in the** _**GFS**_ **methodology, of operations in financial assets and liabilities carried out for specific policy**
**purposes, rather than for liquidity purposes) brings the measure of the** **deficit/surplus** **presented here closer to the national accounts**
**concept of net** **borrowing/net** **lending. Also, as a result of** **this** **exclusion, receipts from privatisation (classified as repayments in**
_**the GFS**_ _**methodology)**_ **do not enter in the determination of the deficit/surplus presented in the attached tables (and therefore do not**
**reduce the deficit).**

_**1/3**_

**FINANCIAL SECTOR**

**Monetary aggregates**

   - Monetary aggregate **M** 1

   - Quasi money
**Total reserves (** **gold** **excluded, end of period)**

**Average short term interest rates**

    - lending rate

    - deposit rate
**Official discount rate (end of period)**
**USD exchange rates**

Average of period

End of period

ECU **exchange rates**

Average of period

End of period

**1990** **1991** **1992** **1993** **1994**

**Billions** **(10*9)** **of** **US** **Dollars**

**199**

0.91

0.49

777.2

J 6

6

6.36

50.1

0.45

0.24

0.62

0.47

**Millions** **(10*6)** **of** **US** **Dollars**

350.3 525.4

**% per annum**

**1995**

**0.88**

0.55

757.0

27.1

8.4

6.876

5.257

1.773

3.79

2.787

2.147

91.9

48.7

**1 USD - ...LTL**

4.344

3.9

**1 ECU»...LTL**

5.675

4.846

62.3

27.4

3.978

4

5.820

4.893

Monetary aggregates (end of period): _Money_ _(Ml)_ Includes demand deposits and currency outside banks. _Quasi money_ Include time,
savings and foreign currency deposits. Time deposits of the national currency, convertible currency, or non convertible foreign
currency. Eurostat has converted National Currencies to the US dollar by applying the International Monetary Fund annual end of
period exchange rates.

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

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

_**IW**_

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

###### **_M_**

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

**Ja** **Fe** **M** **Ap** **M** **Ju** **Ju** **Au** **Se** Od **No** **De**

**199** **797** **594** **613** **708** **753** **707** **553** **477** **364** **319** **247** **188**

**613**

**119**

**45.**

**31.**

**708**

**78.**

**.44.**

**31.**

**594**

**158**

**47.**

**30.**

**68.**

**39.**

**28.**

**753**

**553**

**60.**

**38.**

**24.**

**477**

**62.**

**36.**

**24.**

**364**

**59.**

**35.**

**22.**

**319**

**53.**

**36.**

**18.**

**247**

**48.**

**37.**

**15.**

**188**

**45.**

**35.**

**13.**

**199**

**199**

**199**

**797**

**176**

**46.**

**32.**

**707**

**61.**

**37.**

**28.**

**Inflation (% change of** **CPI)**

**1.**

**^ >** **^ ^**

y f f, w ^-•nf^-yns» fiv^f^r

**Inflation (12 months changes):** Inflation rates (12 months changes) are percentage changes of the CPIs with the current month compared
with the corresponding month of the previous year. Inflation rates are based on national CPIs which are not strictly comparable
between candidate countries or with those based on EU HICPs (different methods, concepts, practices in the calculation of CPIs).

**//O**

**INDUSTRY**

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

    - Mining and quarrying

    - Manufacturing

    - Production and distribution of electricity, gas and water

Industrial production volume indices by NACE classes

    - Total

    - Mining and quarrying

    - Manufacturing

    - Production and distribution of electricity, gas and water

**INFRASTRUCTURE**

198 199 199 199

in Km **per** 1000 Km2

1993 1994 1995 1996

**in** % **of** **Gross** **Domestic Product**

24.8

5.6

65.3

73.4

70.2

88.4

23.1

2.7

25.9

3

25.9 25.2

3 3.1

**previous year» 100** —

105.3

100.9

121.9

_**Hi**_

103.7

101.3

110.8

Railway network

Length of motorways

Number of inhabitants per passenger car

40. 39.

Kilometre

31 42 39 40

**inhabitants**

10. 7. 5.

**AGRICULTURE**

Land area by land-use categories

    - total

    - agricultural land

    - forest

    - arable land

   - permanent meadows and pastures

Agricultural land by legal status

    - state enterprise

   - Cooperatives

    - others

Share of GDP

   - Agriculture, hunting, forestry and fishing (Nace A+B)

Gross agricultural production volume indices

Main crops by area

    - Cereals

    - of which: wheat

    - Potatoes

   - Sugar beet

   - Fodder beet

Main crops by yield

    - Cereals

   - of which: wheat

    - Potatoes

   - Sugar beet

   - Fodder beet

Sales or procurement of animal for slaughter

    P'gs

    - cattle

    - poultry

Livestock breeding intensity (end of period)

    - cattle

   - of which: cows

   - sheep

   - P'gs

199 199 199 199 199

**in 1000 Hectares**

653

352

300

459

653

351

197

297

473

31.

131

217

6530

351

1975

2958

495.

26.

935.

255

6530

3506

1990

2946

500.

**in** **V»** **of agricultural land**

6530

350

1978

2567

500.

24.

547.

2931

25.

67

2802

199 199 199 199 199

**in** **%** **of** **Gross** **Domestic Product**

11. 7.4 9.4 11.

**Previous year = 100**

92 82 11 11

**in** **1000** **Hectares**

1194 1026

27 260.

11 12

27 24

55 65

**in** **100** **kg/Hectares**

17. 18.

20. 24.

94. 12

173. 283.

239. 338.

113

283

11

33

56

19.

29.

94.

190

251

126

375

12

35

54

21.

23.

145

246

371

108

351.

12

32

54

199 199 199 199 199

**in 1000 tons of live weight**

30.

195

13.

23.

116.

15.

32.

90.

20.

**heads per 1000 Ha of agricultural land**

45.

103.

20.

31

17

8

42

20

14

38

20

13

31

17

10

**heads per 1000 Ha of arable land**

434 499. 452. 400.

##### _II?_

BELARUS

**Lithuania**

**1995**

Legend:

A / Country boundary

A / Region boundary

**COUNTRY NAME**

**REGION NAME**

_**CITYNAME**_

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

**•** **250- 500**

**•** **500- 1000**

**•** **>1000**

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

**<15**

**15-** **65**

**>65**
# **1 =**

Living standard (in 1993): ECU 585
**(aDPparoaplta)**

Area: 65 300 km [8 ]

Administrative regions: 10 provinces
Population: 3 712 500

**Soutottt Uttiuanian Dapartrnaiit** **of** **Qlatlatfca**
**Cartography and gaographle Information managamant QI800**

**25** **75 km**
### **_m_**

POLAND

**ISSN** **0254-1475**

COM(97) 2007 final

#### **DOCUMENTS**

EN 11 01 06

Catalogue number : CB-CO-97-375-EN-C

ISBN 92-78-22873-7

Office for Official Publications of the European Communities

L-2985 Luxembourg

_**lu>**_