Source: EURLEX
Language: en
Format: md

COMMISSION OF THE EUROPEAN COMMUNITIES

**Brussels, 03.05:1995**
COM(95) 163 final

**WHITE PAPER**

**PREPARATION OF THE ASSOCIATED COUNTRIES**

**OF CENTRAL AND EASTERN EUROPE**

**FOR INTEGRATION INTO THE INTERNAL MARKET OF THE UNION**

**(presented by the Commission)**

**-** **t** **-**

**TABLE** **OF** **CONTENTS**

**Executive Summary**

**1.** **Introduction**

**2.** **The Internal Market and the** **Pre-Accession** **Phase**

**3.** **Community Legislation concerning the Internal Market**

**4.** **Position in the Countries of Central and Eastern Europe**

**5.** **Specialised Technical Assistance**

**6.** **Conclusions**

**ANNEX**

_**M-**_

**EXECUTIVE** **SUMMARY**

**The present White Paper forms part of the** **pre-accession** **strategy for the associated**
**countries** **of central and eastern Europe which was adopted by the Essen European**
**Council in December** **1994.** **Its purpose is to provide a guide to assist the** **associated**
**countries in preparing themselves for operating under the requirements of the European**
**Union's internal market. Alignment with the internal** **market** **is to be distinguished from**
**accession to the Union which will** **involve** **acceptance of the** _**acquis**_ _**communautaire**_ **as**
**a whole.**

**The White** **Paper** **identifies the key** **measures** **in each sector of the internal market and**
**suggests a sequence** **in** **which the** **approximation** **of legislation should be tackled.**
**However a merely formal transposition of legislation will not be enough to achieve the**
**desired economic impact or** **to** **ensure that the internal market functions effectively after**
**further enlargement. Accordingly, equal importance is attached to the estabUshment of**
**adequate structures for implementation and enforcement, which may be the more**
**difficult** **task.** **The inclusion of legislation in the fields of** **competition,** **social and**
**environment policy, parts of which** **are** **essential to the functioning of the internal**
**market, will ensure a balanced approach.**

**The associated countries themselves have** **the** **main responsibility for alignment with the**
**internal market** **and** **will establish their** **own** **sectoral** **priorities.** **But the Union is already**
**providing assistance, notably through** **PHARE,** **for the approximation of legislation and**
**this should now be enhanced and adapted to the White** **Paper's** **recommendations.**

**Additional help** **will be provided, notably through a new technical** **assistance**
**information exchange office, managed by the Commission and supported by a** **multi-**
**country PHARE programme. This office will facilitate the provision of assistance, by**
**setting up a database on alignment** **with** **the internal market and related assistance,**
**which will** **be** **accessible to all interested parties, and by acting as a clearing house to**
**match requests for assistance with** **advice** **and expertise available in the Union. Such**
**assistance will come** **from** **the** **Commission,** **the Member States and private bodies. The**
**White Paper provides for the coordination of assistance and the monitoring of progress**
**in** **implementing** **its recommendations.**

**Alignment with the internal market is expected to reinforce economic reform and**
**industrial** **restmcturing** **and to stimulate trade and commerce. The White Paper outlines**
**the steps to be taken by the** **Commission,** **the associated countries and the Member**
**States to ensure that these benefits are achieved.**

_**7**_ **—**

**INTRODUCTION**

_**The**_ _**pre-accession**_ _**context**_

**1.1** **To help meet the challenge for the associated countries of Central and**
**Eastern Europe (CEECs) of preparing their accession to the European Union,** **the**
**Essen European Council of December 1994 adopted a broad pre-accession**
**strategy. The Council identified the preparation of the associated countries for**
**integration into the** **internal market** **as** **"the** **key element** **in** **the strategy to narrow**
**the** **gap"** **and invited the Commission to prepare a White Paper. From the Union's**
**point of view, the importance of this process lies in** **the** **need to create the**
**conditions that will allow the internal market to** **function** **properly after**
**enlargement, to the benefit of all members.**

**1.2** **The White Paper represents only one strand of the** **pre-accession** **strategy**
**set out** **in** **the Essen conclusions. That strategy relies on two main** **instruments:** **the**
**Europe agreements** **and** **the structured relationship between the associated**
**countries** **and** **the institutions of the European Union.** **The** **associations established**
**by the Europe agreements** **will,** **in the view of the contracting parties, help the**
**CEECs achieve the** **final** **objective of becoming members of the** **Union.** **The**
**agreements include the objective of progress towards realising between the parties**
**the economic** **freedoms** **on which the Union and in particular its internal market is**
**based. They foresee specific efforts towards alignment with the EU and include**
**provisions concerning the approximation of legislation.**

**1.3** **The structured relationship with the institutions of the Union complements**
**the bilateral association agreements with a multilateral** **framework** **for strengthened**
**dialogue and consultation. The Essen European Council underlined that the**
**structured dialogue should help to develop practical cooperation between the**
**Member States and the associated countries. Such cooperation and the**
**opportunities for sustained dialogue which it offers will be important in supporting**
**the process of preparing the CEECs for integration into the internal market.**

**- I f -**

_**Background and purpose of the White Paper**_

**1.4** **A White Paper on preparation for the internal market was** **first** **proposed in**
**two Commission Communications of July 1994** **[12]** **. The purpose was to set out a**
**programme for meeting** **the** **obligations of the** **internal** **market which could be**
**followed by each associated country and monitored by the Union. It was**
**emphasised that this would be done in partnership with the associated countries**
**and that each associated country would need to draw up its own programme of**
**priorities** **and** **timetable. The Commission further** **stressed** **the magnitude of the**
**task of approximation and the need for close co-ordination and for technical**
**assistance. The Member States could contribute their expertise, including those**
**who had most recently undergone the** **process** **of approximation of laws** **in**
**preparation** **for accession to the Union.**

**1.5** **The task of approximation can only be carried out by the associated**
**countries themselves. In** **seeking** **to assist them with this** **task,** **the White Paper**
**recognises the progress that has already been made** **in** **all the CEECs,** **in** **particular**
**under the impulsion of** **the** **Europe agreements. The CEECs are** **establishing** **co-**
**ordinating** **mechanisms** **that will push** **forward** **and oversee the approximation**
**process and comprehensive legislative strategies that reflect their own interests and**
**priorities. To assist their planning and programming, the White Paper goes**
**beyond a simple listing of the relevant legislation. It identifies the key measures in**
**each sector** **and** **suggests** **the** **sequence in which approximation could be tackled.**
**This** **is the White Paper's** **first** **specific contribution to facilitating the task of**
**approximation** **in** **the CEECs.**

**1.6** **In endorsing the proposal for a White Paper on preparing the CEECs for**
**integration** **into the internal** **market,** **the European Council recognised that this**
**involves more** **than** **the approximation of legislation. The Essen conclusions refer**
**to "the creation of the conditions for establishing a single** **market"** **and describe the**
**tasks faced by the associated countries, including putting into place "legislation**
**and** **regulatory** **systems, standards and certification methods compatible with those**
**of the European** **Union".** **Beyond the approximation of** **legislation,** **the** **White**
**Paper therefore highlights and describes the structures which will be necessary to**
**make the legislation effective. This is the White Paper's second contribution.**

1 13 July 1994 (COM(94) 320 final)
2 26 July 1994 (COM (94) 361/3)]

## **s**

1.7 It was further recognised at Essen that the CEECs would need assistance
to accomplish this task. Assistance with the approximation of legislation is already
being provided by the Union to the associated countries through PHARE, within
the framework of the Europe agreements. The White Paper shows how this
assistance can now be enhanced and adapted to support the pre-accession process
and to reflect the recommendations of the White Paper. It provides guidelines for
the content and organisation of an intensive and coherent programme, in which the
Member States are invited to play their full part. This is the White Paper's third
specific contribution.

_**r**_ _**•**_
_**The legal context**_

1.8 As an element in the pre-accession strategy, the White Paper is not part of
negotiations for accession and does not prejudge any aspect of such negotiations,
including possible transitional arrangements. Accession negotiations will cover the
whole field of Community legislation and policy, whereas the White Paper's focus
is on those Community measures which create and maintain the internal market.

1.9 Nor does the White Paper change the contractual relationship between the
Union and the CEECs, which is based on the Europe agreements. As provided for
in the agreements, the approximation of legislation is monitored by a specific SubCommittee. The agreements are dynamic, with some steps towards closer
integration taking place automatically after a specified period and others which
could be negotiated, including for example mutual recognition agreements.

_**The economic context**_

1.10 The European Council also emphasised that sound macro-economic
policies are essential to the success of reform and of the pre-accession strategy.
Progressive alignment with the Union's internal market policies will reinforce the
competitiveness of the CEECs' economies and increase the benefits of transition
thus contributing to the achievement and consolidation of macro-economic
stability. The immediate requirement is to adjust the sequence and pace of
legislative approximation in each associated country so that it reinforces economic
reform.

1.11 Economic reforms in Central and Eastern Europe are developing the
institutions which provide the foundations of a market economy. They include a
system of legal and commercial rules (for example commercial code, property law,
bankruptcy legislation, contract law, consumer law) which ensure both legal
security and transparency for economic operators. They also include the
institutions such as firms, markets and regulatory bodies which make possible
decentralised financial intermediation through private agents. Further progress
with privatisation is crucial in this context. Efforts to create a better qualified
workforce are also a key element for the success of economic reform and the
transition to a market economy.

1.12 Aligning with the Union's internal market legislation goes further than the
economic reforms necessary to put in place a market economy. It aims to facilitate
the integration of the economies of the CEECs, which are at different stages of
development, but which are all still in transition, with the industrial market
economies of the Union. It will require more time both for legislating and for
building the institutions needed to ensure the actual implementation of new laws
and to monitor progress. Consolidation of judicial reform in the CEECs is also
part of this process. Without the necessary institutional changes, the adoption of
internal market legislation could result in a merely formal transposition of rules.
This would not be an adequate basis for the mutual confidence between all
participants on which the internal market depends. Nor would it achieve the real
economic impact and benefits which the associated countries are seeking.

1.13 The sequence and pace of the strategy adopted by each CEEC for its
gradual alignment with the Union's internal market legislation will need to be
regularly reviewed to maintain coherence with its economic reform efforts. More
transparent competition and trade policies harmonised with the Union's policies
over the medium term will also be needed to support the progressive integration of
the EU and CEECs' economies and, at the same time, favour economic reform.

_**The approach and structure of the White Paper**_

1.14 The White Paper is focused on the legislation which is essential for the
functioning of the internal market. It presents this legislation in a way which
shows the key measures in each sector and those measures which should be
tackled first, but it does not attempt to establish priorities as between sectors. It
also describes in some detail the administrative and organisational structures which
are required in each sector if the legislation is to be effectively implemented and
enforced.

1.15 The White Paper is addressed to the six countries which already have
association agreements (Poland, Hungary, the Czech Republic, Slovakia, Bulgaria
and Romania) and will apply equally to those which are negotiating Europe
agreements with the Union (currently the three Baltic Republics, which have
initialled agreements,and Slovenia). The White Paper is a general reference
document which does not adjust its recommendations to the requirements of any
particular country. Each CEEC will establish its own priorities and determine its
own timetable in the light of its economic, social and political realities and of the
work it has achieved so far.

#### **- 1**

1.16 The White Paper is presented in two parts. The first part analyses the
purpose, context and nature of the exercise in political terms, and indicates how it
may be followed up. The second part in Annex is the detailed presentation of
Community legislation in the internal market area.

Chapter 1: the present chapter describes the context, scope and approach of the
White Paper.

Chapter 2 provides a background picture for the exercise. It identifies the
essential characteristics of the internal market and explains its importance. It
describes how Community law has tackled the dismantling of various kinds of
barriers to free movement; and it discusses the fundamental role of competition
policy in relation to the internal market

Chapter 3 describes how legislation relevant to the creation and maintenance of
the internal market has been selected and prioritised for the purposes of the White
Paper. The chapter explains how the sector by sector fiches in the Annex have
been prepared and their purpose.

Chapter 4 describes in broad terms the situation in the CEECs, in relation to both
legislation and structures and identifies some particular difficulties they face in
achieving alignment with Community rules and practices.

Chapter 5 concerns the continuing assistance which the Union will provide to the
CEECs to support their efforts to prepare for the internal market and indicates a
new delivery framework within which existing EU measures could be
strengthened, supplemented and made more coherent. Particular attention is given
to achieving closer co-ordination with Member States' technical assistance
activities.

Chapter 6 indicates the benefits which implementing the White Paper's
recommendations can be expected to bring; and the action to be taken by the
Commission, the associated countries and the Member States to ensure that these
benefits are realised.

Annex

This larger volume contains the sector by sector analysis of the key items of
relevant Community legislation, explaining the purpose and development of
legislation in each sector, describing the structures that are necessary to ensure its
implementation and enforcement and suggesting the sequence in which legislation
in each sector might be tackled. The Commission believes that the emphasis on
how to ensure that the legislation is made effective is an important message for the
associated countries and one which will be helpful to them and ultimately to an
enlarged Union in achieving real rather than simply formal alignment.

_**-%**_ _**-**_

2. THE INTERNAL MARKET AND THE PRE-ACCESSION PHASE

_**The importance of the internal market in realising the objectives of the Union**_

_2._ 1 The Community's internal market is not an objective in itself, but rather
one of the principal instruments for achieving a whole series of objectives:
balanced and sustainable growth respecting the environment, high levels of
employment and social protection, better standards of living and quality of life and
economic and social cohesion.

2.2 The internal market serves these objectives by enhancing the economic
performance of the participating economies in the Community. It achieves this by
promoting a more efficient allocation of the factors of production; allowing a
larger scale of production and the exploitation of resulting economies; improving
economic performance through greater competition, and providing a stimulus to
investment.

2.3 Economic integration achieved in a frontier-free internal market goes
further than other forms of cooperation, such as free trade areas, customs unions
and common markets which retain their physical frontiers. It thereby maximises its
positive economic impact. The legislation which, taken globally, provides the legal
framework for achieving these economic effects has therefore been chosen as an
area to which the associated countries should give particular attention in their
preparations for accession.

2.4 An internal market without internal frontiers relies on a high level of
mutual confidence and on equivalence of regulatory approach. Any substantial
failure to apply the common rules in any part of the internal market puts the rest of
the system at risk and undermines its integrity. This is another reason for making
particular efforts to establish the right conditions for such legislation to be applied.

2.5 The goal of alignment with internal market rules and practices does not
preclude a selective and gradual approach, to reflect the conditions in each CEEC
and to safeguard their efforts to complete the process of economic transition and
achieve macro-economic stability. Indeed, it is essential that the associated
countries should adapt the pace of their approximation programmes to the process
of economic reform.

_**c**_
**-** _**\**_

_**Principles**_

2.6 The internal market of the Union is defined by Article 7a of the Treaty as
an area without internal frontiers in which the free movement of goods, persons
services, and capital is ensured. It is also a market with a social dimension and one
in which active competition is encouraged. Any systematic checks and controls
that are necessary to ensure compliance with the rules take place within the market
and not when national borders are crossed. The Treaty lays down the basic rules
which ensure that these conditions can be achieved:

- **Article** 6 prohibits any discrimination on grounds of nationality as between
Member States and their nationals;

- **Article 8a** establishes the right of citizens to move and reside freely within
the territory of the Community;

- **Articles 9-12** require the abolition of customs duties and taxes having
equivalent effect on exchanges between the Member States;

 - **Articles** **30-36** prohibit quantitative restrictions and measures having equivalent
effect on trade in goods and establish the conditions for exceptions;

 - **Article** 37 forbids discrimination by State monopolies;

 - **Articles** **48-51** establish the principles which ensure the free movement
of workers, Articles 52-57 ensure freedom of movement and freedom
of establishment for self-employed people and Article 58 for companies;

 - Articles 59-66 provide for the freedom to offer services;

 - **Article** 67, later replaced by **Article** 73b, provided for the abolition of
restrictions on the free movement of capital;

 - **Articles** 85/86 prohibit anti-competitive behaviour by undertakings which
could otherwise negate the effects of the internal market; **Article** 90 ensures
that the competition rules apply to public undertakings and undertakings
granted special or exclusive rights;

 - Article 92 establishes strict conditions for aids granted by states to their
undertakings to protect the integrity of the internal market;

 - Article 95 concerns the obligation of Member States not to discriminate in
fiscal matters.

**\C>** **•-**

2.7 Also fundamental to the evolution of the Union's legal structure are the
principles established by the European Court of Justice in its rulings interpreting
the Treaty. One such principle was established by the Court in its landmark
"Cassis de Dijon" ruling of 1979: the principle of mutual recognition. Any
good circulating legally in one Member State must also be free to circulate in any
other part of the Community, except where a Member State can demonstrate that
the rules of the Member State of origin do not afford equivalent protection of the
essential public good. The application of this principle ensures the free movement
of many types of goods and services within the Community without recourse to
legislation at the Community level.

2.8 Rulings of the Court have also been important in interpreting certain terms
in the Treaty, such as measures having an "equivalent effect" to quantitative
restrictions (Article 30 et seq) and the prohibitions, restrictions or limitations on
free movement allowed on various public policy grounds (Article 36, Article 48.3
etc). Such interpretations have facilitated the creation and maintenance of the
internal market without further legislation in a large number of non-harmonised

sectors.

2.9 The application of these principles has involved the removal of physical,
technical, fiscal and tariff barriers. The Treaty itself provides that the creation of
the internal market must be a gradual process. The removal of physical controls at
internal frontiers (itself not yet complete in relation to the free movement of
persons) only became possible once Member States had agreed on arrangements to
carry out by other means and in other places the controls which had been applied
in many cases at the frontiers themselves.

2.10 The creation of the conditions for the free movement in the Community of
goods and services, and to a lesser extent of persons and capital, could not be fully
achieved only by applying the Treaty, the Court's interpretations of the Treaty and
the principle of mutual recognition. More detailed secondary legislation has also
been required where wide differences between rules and practices in the Member
States represent obstacles to free movement. The Community legislator must
respect the principle of subsidiarity, only legislating at the Community level where
the same or better effect cannot be achieved at the national or regional level.

2.11 National rules generally pursue legitimate public policy goals shared by all
Member States, for example public security (which includes combatting crime,
fraud and illicit trade), the protection of public health and safety, the protection of
the environment, consumer protection, the preservation of public confidence in the
financial services sector and the guarantee of suitable qualifications for the
performance of certain specialised professions. These policy goals must continue
to be served and in most cases, national rules can be harmonised to create a single
set of Community rules, or approximated to a level where Member States are
prepared to apply the principle of mutual recognition. Achieving this through
legislation at the Community level has meant challenging many national rules and
practices.

#### **u -**

2.12 The Commission is required, under Article 100a.3 of the Treaty, when
preparing its proposals for harmonisation of national legislation concerning health,
safety, environmental protection and consumer protection, to take as a base a high
level of protection. Nevertheless, some Member States may wish to retain even
higher national standards after harmonisation and Article 100a.4 allows this. In
this and in other exceptional cases limitations on free movement may be justified,
provided these are not disguised restrictions to trade and are proportionate and
adequate to their purpose.

2.13 Another reason for legislating at the Community level has been the need to
create and maintain equal conditions for economic operators. Competition could
be distorted if undertakings in one part of the Community had to bear much
heavier costs than in another and there would be a risk of economic activity
migrating to locations where costs were lower. Such costs include those imposed
on governments and economic operators by measures of environmental, social and
consumer protection. The implementation of high common standards of
protection is among the Union's objectives and at the same time helps to ensure
this "level playing field".

2.14 The internal market is also closely linked with other policy areas. The
internal market could not have been created without the reinforcement, in
successive revisions of the Treaty, of the provisions concerning other important
policy areas. This is particularly the case for policies strengthening economic and
social cohesion and for the environment and consumer protection. Concentration
on the purely economic or market aspects of integration would have created an
unbalanced Community unacceptable to a majority of Member States. The
relationship between the internal market and other policy areas is further discussed
in chapter 3.

_**Secondary**_ _**legislation**_ _**as a means of removing barriers**_

2.15 Legislation at the Community level has thus been necessary where
differences in the Member States have been too great for the basic principles of the
freedom of movement and mutual recognition to apply directly. This White Paper
is mainly concerned with presenting and clarifying for the associated countries the
resulting large body of secondary legislation. The way in which this is done is
described in chapter 3 and the detailed presentation is in the Annex.

###### **vz**

2.16 In accordance with the Treaty articles on which it is based, most internal
market legislation is in the form of Directives. These are binding on the Member
States, who take the necessary measures to put them into effect. (Where the
Member States fail to take the necessary implementing measures in the time given,
or do so in a way which is incomplete or inadequate, citizens can enforce their
rights by invoking a Directive directly, provided the latter is worded clearly
enough to leave the Member State no discretion, as several rulings of the Court of
Justice have shown.) Directives are sometimes relatively detailed and leave only a
limited amount of room for manoeuvre for the national legislator. In other cases,
they establish only broad aims or essential conditions, with the result that national
law may incorporate their requirements in different ways. This technique ensures
to the greatest possible extent the preservation of traditional and preferred national
approaches.

2.17 Regulations, which are Community acts directly applicable in the Member
States, also form part of the body of the legislation on the internal market
especially in the agriculture area and also for example concerning the coordination
of social security provisions for migrant workers. There are also some Decisions,
instruments which are binding on those to whom they are addressed.

_**Legislation**_ _**ensuring**_ _**the free movement of goods**_

2.18 The largest amount of internal market secondary legislation concerns the
production and marketing of goods. These laws concern areas where the principle
of mutual recognition could not apply because the divergences in national
legislation were too wide and thus had "an equivalent effect" to tariffs or
quantitative restrictions, so-called technical barriers to trade. Early Directives tend
to establish a detailed set of Community rules which replace national rules. The
more recent approach to-technical harmonisation- the "New Approach" - has been
to establish a limited number of essential requirements and leave more detailed
rules to be made by other standard-making bodies on a voluntary basis.

2.19 In certain product areas, especially food and medicines, as well as products
which are potentially hazardous but are in general use, such as motor vehicles, the
old approach of full harmonisation is still considered the more appropriate. This
legislation also establishes rigorous testing and certification requirements, as well
as market surveillance measures in some cases. Another problem addressed by
Community legislation concerns the harmonisation of differing national rules on
matters such as the denomination of certain products, their labelling and/or their
packaging.

**!?>**

2.20 Thèse rules, taken together with the principle of mutual recognition, ensure
that a producer, manufacturer or importer anywhere in the Community can
introduce a product on to the market and can confidently market it anywhere else
in the EU without falling foul of local rules. A Member State forming part of the
internal market must not only be able to create the conditions for the production of
goods which correspond to Community standards (this applies to any countries
which export to the EU), but must also be able to guarantee that all goods on its
market meet those standards. It must also be able to guarantee free movement
within its territory for all goods from other Member States. The system thus
requires not only the right legislation in all the Member States, but also the full
framework of technical and other structures necessary to ensure the effective
implementation of such legislation. Those structures - be they testing laboratories,
metrology institutes, or customs posts at the external border of the Community all need to win the confidence of the Community as a whole if the principle of
mutual recognition is to be applied.

_**Legislation**_ _**ensuring**_ _**the free movement of services**_

2.21 A further major category of secondary legislation concerns the conditions
under which certain services can be offered. It was necessary because Member
States' legislation - even if it did not overtly discriminate against non-nationals varied too much to allow free movement to be achieved by applying the principle
of mutual recognition Much of this legislation concerns the financial services
sector, laying down minimum prudential requirements, for example, for the
authorisation of banks or insurance companies. It also serves to open up national
markets in areas which have traditionally been dominated by national monopolies,
such as telecommunications and certain parts of the transport and energy sectors.

_**Legislation**_ _**ensuring**_ _**the free movement of persons**_

2.22 Article 8a of the Treaty enshrines the large concept of "free movement and
right of residence of persons" as a fundamental right which is not linked to an
economic objective pursued by the citizen, but which is subject to the relevant
secondary legislation. This legislation is divided into rules which ensure
harmonious development of the labour market and prevent distorsions of
competition and those which establish the conditions of access for citizens from
other Member States. Most of the relevant Community legislation deals with the
latter aspect, dealing with matters such as residence permits, right of entry,
restrictions on extradition and family allowances. (This part of the Community
"acquis" cannot be considered as part of the present exercise of progressive
alignment, although its importance for the establishment of the internal market
after accession is beyond doubt.)

**\4-**

2.23 Parts of the legislation concerning the free movement of persons is closely
linked to the freedom to provide services, especially those services which require
minimum professional qualifications. As with goods, the Community started by
seeking close harmonisation, so that Community rules could replace national rules'
for professions such as architects, doctors and nurses. More recent Directives
take a horizontal approach and lay down general conditions which permit the
principle of the mutual recognition of diplomas to operate.

2.24 Legislation is also necessary to ensure that a worker moving in the
Community can continue to enjoy full social rights. This does not mean just
pecuniary rights, but also rights in the fields of education and health. The social
security systems of the Member States have not been harmonised, but under
Article 51 of the Treaty they have to be coordinated to ensure that migrant
workers are not deprived of their acquired rights as a result of their mobility.

2.25 Company law also falls under this chapter. Article 58 of the Treaty
requires that companies should be treated in the same way as natural persons for
the purposes of free movement. Commumty law irons out some of the major
differences in national laws about the way companies are set up and run.
Community law does not, however, yet ensure full "free-movement" for companies
in matters such as cross-border mergers and takeovers and transfers of seat.

_**Legislation**_ _**ensuring**_ _**the freedom of capital movements**_

2.26 The free movement of capital is not only justified in economic terms, but
also because it is a condition for the free movement of financial services and of

persons. Full hberahsation of capital movements, however has only been achieved
recently within the Community, controls having been an instrument of macroeconomic policy for most Member States. Articles 67-73, which governed this
area up to the end of 1993, are couched in more cautious language than other free
movement provisions and Article 73 provided for a safeguard mechanism in case
of disturbances of the capital market. Secondary legislation allowed the
progressive removal of controls in the Member States. As of 1994, Articles 73b73g, imposing a broader prohibition on restrictions, replace the original provisions
and are of direct application.

_**Competition**_ _**policy**_

2.27 Competition policy is fundamental to the establishment of the internal
market. Without "the institution of a system ensuring that competition in the
common market is not distorted" (Article 3g), the internal market would be
unworkable.

**-** **\ ^**

2.28 The removal of barriers to trade requires the establishment and
enforcement of a new set of transparent rules to regulate competition. In the
absence of such rules, the desired optimal allocation of resources would be
frustrated by anti-competitive behaviour. Competition rules need to regulate both
company and state behaviour in four main areas:

where state barriers to trade fall, there may be a temptation for companies
to get together in market sharing and other restrictive agreements, or to
abuse their dominant positions, to ward off competition. This deprives the
economy of the benefits of free trade and active competition. The benefit
of the barriers, however, which previously accrued to the state (for instance
through import duties), is now appropriated by the private partners of the
agreement. Hence the importance of effective rules to prevent this type of
abusive company behaviour.

the internal market brings new challenges to companies which they may
better be able to face by concluding strategic alliances in the form of
mergers and acquisitions. While this is in principle a legitimate business
strategy, care must be taken that market structures stay competitive.
Absence of regulation may lead to the creation and abuse of dominant
position, reducing global welfare.

where borders are opened, governments may also be tempted to award
state aids to protect their industry against increasing competition. Where
state aids are granted to promote general objectives, such as research and
development, environmental protection or ensuring regional cohesion, they
may be accepted to the extent that the investment undertaken generates a
positive effect for society which cannot be appropriated by the company
itself. However, other forms of aid that have the effect of distorting
competition without accompanying benefits must be condemned. This
justifies strict state aid monitoring in the internal market.

state monopolies of a commercial character, public undertakings and
undertakings with special or exclusive rights also present a risk for free and
open competition. There is deliberate creation of economic rents for
certain players based on the assumption that the benefit is used for
delivering public services or will accrue to the state as revenue. Whilst this
is basically unobjectionable, it is a delicate task to constrain the market
distortion to what is strictly necessary in the general interest, for instance
with a view to the provision of public services in remote areas.

2.29 An active competition policy helps create healthy economic structures and
avoid abnormal profits. It is essential to the creation of the internal market in
pohcy sectors such as energy, transport and telecommunications. In competition
policy as in other areas, the requirement is not confined to the adoption of laws
and structure building. There has to be a continued effort to enforce the pohcy, to
make it widely known and accepted and to create the expectation that it will be
applied. Only then does the market realise its full potential.

IL

_**Implementation and enforcement**_

2.30 At the Community level, it is the responsibility of the Commission and of
the Court of Justice to ensure the enforcement of Community law, but the actual
implementation and enforcement on the ground of Community law, whether it is
directly applicable in the Member States or transposed into national legislation, is
based on the existence of appropriate judicial and administrative machinery in the
Member States. Constitutionally, the Member States are states subject to the rule
of law, with a separation of public powers guaranteeing the independence of the
judiciary. The judicial system needs to guarantee access to justice for the
individual citizen, in particular with regard to decisions of the public authorities.
The decentralised economic system which is characteristic of market economies
also requires that access to justice be reasonably rapid. Ensuring that Community
law is effectively applied also depends on a variety of specific administrative
structures and technical and professional bodies in the private sector.

_**Conclusion**_

2.31 The principles governing the internal market are in essence simple, but the
rules and structures required to make them a functioning reahty are numerous and
complex. They dismantle the barriers to free movement, ensure that other
important public pohcy goals are not neglected in the process, prevent the creation
of new obstacles and ensure that neither public authorities nor private bodies take
short-sighted or self-serving actions which interfere with fair and active
competition. While the resulting picture is still marked by imperfections, the
Union is committed to the completion of the internal market and to maintaining it
in good working order.

### **0**

3 COMMUNITY LEGISLATION CONCERNING THE INTERNAL

MARKET

3.1 The Annex of this White Paper provides a comprehensive and detailed
presentation of current Union legislation relating to the Internal Market. Twenty
three different areas of legislative activity are examined in turn. The present chapter
explains the Commission^ approach and draws attention to certain aspects of the
presentation^ the information in the Annex.

3.2 The Commission's presentation of the detailed legislation covered in the
White Paper has been based on four principles:

the White Paper should focus on the Internal Market and not attempt to
cover the whole "acquis communautaire";

within the selected areas legislation should be presented not as a single
list or block, but showing which measures are more fundamental and
which should logically be tackled first;

the White Paper should serve as a reference document for present and
future associated states and its recommendations are not fine-tuned to the

needs of any one of them;

the legislation should be presented to the CEECs in a way which makes
clear the measures and structures which are required to make the
legislation effective.

_**Delimitation of internal market legislation**_

3.3 In preparing the White Paper, it was necessary to decide on the limits of the
"internal market" in legislative terms. As explained in the preceding chapter, the
successful operation of the internal market not only rests on a comprehensive
framework of detailed legislation to remove formal barriers, but also assumes the
fulfilment of a wide range of basic economic conditions. These include in particular
the existence of open and fair competition between economic operators. This
depends on the introduction of formal and transparent competition rules and also on
a common framework which ensures that minimum social standards and adequate
protection of the environment apply across the whole territory of the Union.

##### **l£-**

3.4 The Treaty itself represents a careful balance between different objectives
and policies with the result that no part of the "acquis communautaire" can be
separated in practice from the rest. The Treaty expressly underlines this
interdependence, for example in Article 13 Or which provides that environmental
protection requirements must be integrated into the definition and implementation
of other Community policies. Eventual accession negotiations with the CEEC will
cover the entire body of Community legislation. Work to approximate legislation
across the board is therefore important. The Europe agreements already provide for
approximation and identify a large number of areas, including competition policy,
environmental protection, social policy and consumer protection, for particular
attention.

3.5 The White Paper adopts a focused approach to describe the relevant
legislation. The Treaty articles and secondary legislation referred to in the Annex
are those which directly affect the free movement of goods, services, persons or
capital. It is legislation without which obstacles to free movement would continue
to exist or would reappear. Other legislation which indirectly affects the operation
of the single market, for example because it affects the competitive situation of
firms, has not been covered in the detailed presentation.

3.6 This approach offers practical advantages, in particular given the volume of
secondary legislation involved. It will allow approximation to be more
systematically organised within a coherent work programme and supported by
specialised technical assistance. Approximation in other areas will continue to be
the subject of separate initiatives within the pre-accession strategy.

3.7 In identifying the legislation which is essential to the the functioning of the
internal market, it has been necessary to look particularly closely at social pohcy
and environment pohcy in order to strike the right balance. In other areas too the
dividing line requires some explanation.

3.8 The social dimension is an essential element of internal market pohcy. This
is explicit in the Treaty. Moreover, much social legislation has an internal market
reasoning among its justifications. An uneven approach in national legislation
concerning workers' rights or health and safety in the work place could result in
unequal costs for economic operators and threaten to distort competition. For this
reason, much social legislation adopted before 1985 has Article 100 of the Treaty as
its legal base.

_**\**_ _**[c]**_ _**\**_

3.9 At the same time, certain social legislation is not aimed exclusively at
achieving a level playing field. High levels of social protection are a fundamental
aim of the Union. They are served by, among other things, the economic benefits
arising from the internal market. The White Paper's presentation of internal market
related legislation includes those parts of social legislation which affect the
functioning of the internal market or which are a necessary complement to other
measures identified as key instruments, in particular in the area of company law.
Previous European Councils have made clear that approximation in the social area
must not be neglected by the associated countries and forms an essential part of
their preparations for accession to the Union.

3.10 Similar considerations apply to legislation concerning the environment.
Environment pohcy and the internal market are mutually supportive. The Treaty
aims at sustainable growth and high levels of environmental protection and provides
that environmental requirements be integrated into the definition and
implementation of other policies. An integrated approach to allow a more
sustainable path of social and economic development is not only vital for the
environment itself but also for the long-term success of the internal market.

3.11 The White Paper includes legislation that directly affects the free
movements of goods and services, leaving out legislation which relates to pollution
from stationary sources and to processes rather than products and which therefore
relates only indirectly to the internal market. The result is that most environmental
legislation is not covered. Important legislation concerning quality standards for air
and water and nature protection is not included at all and waste strategy is only
covered to a limited extent. The present exercise concerning the internal market
will therefore need to be complemented by a more comprehensive approach in the
environment field, which is an important objective in its own right.

3.12 So far as the energy sector is concerned, approximation in this field, cannot
be disconnected from the application of competition rules. For example, the
Community framework concerning state aids is essential if distorsions of
competition are to be avoided in an integrated energy market. The legislation in the
field of price transparency also needs to be accompanied by the application of
competition rules, including sanctions. Energy policy is also closely, linked with
environmental and other policies. It will be difficult, for example, to accept
electricity import if electricity production in the exporting country does not respect
the same levels of environmental protection or nuclear safety.

**.o**

3.13 Agriculture is another important area, in terms both of the extent of
legislation and of its place in the economy in many of the CEECs. Many aspects of
agricultural policy and legislation have not been covered in this White Paper,
because they relate to market support arrangements rather than the free movement
of goods. Although the extent and means of support for agriculture have an impact
on the internal market for agricultural products, they are not essential for the
purposes of achieving and maintaining free movement. The Commission will
present a separate communication on agriculture in the framework of the preaccession strategy before the end of the year. The White Paper therefore 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.

_**Presentation of internal market legislation in the Annex**_

3.14 Information concerning the relevant Community legislation is presented in a
series of analyses under 23 sector headings in the Annex. Some sectors represent
broad policy areas which have been divided into sub-sectors. Each pohcy area is
preceded by a general introduction to the sector, describing the underlying
objectives and methodology of the legislation. This explains why the legislation is
necessary and, in most cases, how it has evolved over time. The relationship
between national and Community law is also explained.

3.15 The more detailed presentation in each sector is designed to guide the
associated countries in planning their strategy for progressive alignment with
Community law and its implementation and enforcement. In particular, each
analysis contains indications on the _sequence in which the associated countries_
_could tackle approximation_ and a section on _conditions necessary to operate the_
_legislation._

"2 I

_**Indicative priorities for approximation**_

3.16 Although every piece of Community legislation is important in principle, and
while accession to the Union can only be achieved by taking over the entire body of
Community legislation, the Commission considers that it is appropriate in the preaccession phase to propose an appropriate sequence in which the associated
countries could take over the legislation for each major area. Resources for the
approximation exercise are limited in both the Community and the associated
countries, whether in terms of legal or technical expertise, Parliamentary time, or
the availability of training. These resources should be focused on areas where they
will have the greatest effect.

3.17 The Commission has therefore presented the legislation for each area in a
way that distinguishes "key measures" from the total number of measures applicable
and which then proposes a further breakdown of key measures into two stages.
The division into Stage I and Stage II measures shows the indicative priorities
which emerge from the logic of the legislation itself and provides a guide to the
associated countries for the most effective sequencing of their work programmes
for the approximation, implementation and enforcement of legislation.

3.18 Stage I measures have usually been selected using one or more of the
following criteria:

the measures concerned provide the overall framework for more detailed
legislation,

the measures concerned address fundamental principles or provide for the
basic procedures which govern the sector concerned;

the measures are a pre-condition for the effective functioning of the
internal market in that sector.

In some areas Stage I measures may also include measures that require a
particularly long lead-time for effective implementation.

_**22**_

3.19 The following general points should also be noted in respect of the
Commission's approach. First, key measures include in some sectors those which
have not yet been adopted by the Community, but which are in the legislative
pipeline. Many measures are also included, sometimes in Stage I, which have only
been adopted recently. The fact that the Community adopted these measures or
will only adopt them at a relatively late stage in the internal market's evolution does
not necessarily reduce their importance for the CEECs. Measures in the process of
being adopted are likely to form part of the "acquis" to be accepted by future
Member States.

3.20 Second, the criteria used for establishing the recommended sequence for
approximation within each area of legislation are based on a coherent approach to
the legislation itself, without reference to the economic costs or benefits of its
adoption. The economic dimension is one which each associated State will need to
judge for itself in laying down its strategy for approximation.

3.21 Third, the indicative priorities are internal to each analysis or area of
legislation. No attempt has been made to produce a global order of priorities,
incorporating judgements about the value of early action in different areas of
legislation. This is to some extent the logical consequence of the approach
described in the previous paragraph. In the absence of an overall economic
analysis, there is no evident set of objective criteria that could be used to determine
priorities between sectors. Some of the legislation covered by this exercise,
however, such as basic company law, must be considered as essential "buildingblocks" for the operation of a market-economy and as such has already been tackled
by the associated countries in the earlier stages of their economic transition. The
priority given by the CEECs to different sectors will depend on the political and
economic situation of each associated country. The choice has to be made by those
countries rather than by the Union.

3.22 Fourth, in a limited number of areas it is not possible to establish distinct
phases because the legislation concerned represents a whole and the adoption of any
single part of it could yield no benefit without the rest.

3.23 Fifth, it should be noted that legislation is listed regardless of what has
already been accomplished by the associated countries, even in cases where they
may all be considered to have enacted the legislation concerned. This is in line with
the Commission's approach of producing a general reference document which can
be used by all prospective Member States. Moreover, it is not the task of the White
Paper to deliver judgements about the conformity of specific national legislation.

**23>**

3.24 Finally, no timetables have been set. These will be decided by each
associated country in the light of its own situation and strategy.

_**Conditions necessary to implement and enforce the legislation**_

3.25 The main challenge for the associated countries in taking over internal
market legislation lies not in the approximation of their legal texts, but in adapting
their administrative machinery and their societies to the conditions necessary to
make the legislation work. This is a complex process requiring the creation or
adaptation of the necessary institutions and structures, involving fundamental
changes in the responsibilities of both the national administrative and judicial
systems and the emerging private sector. To help guide the CEECs in this task, the
introduction to the Annex gives a summary of the different types of structures
which ensure the effective operation of Community legislation. Each analysis
identifies the relevant national (or international) structures in its sector, based on
relevant experience in the Union.

3.26 The presence of the necessary enforcing authorities is crucial to provide
certainty to other members of the Community that legislation is properly
implemented. The proper operation of these administrative, judicial or private
sector structures in turn depends on training and education facilities for the
personnel concerned. The provision of such training and the transfer of relevant
Commumty experience in this area will be one of the main tasks of the
approximation exercise and is considered further in chapter 5.

_**Conclusion**_

3.27 The Annex contains a set of detailed recommendations to the associated

countries on how to proceed with legislative approximation and implementation in
each area of Community law governing the internal market. The recommendations
are not prescriptive. There may be sound reasons, of a political, economic or
commercial kind, for individual associated countries to take a different view about
the order in which approximation is to be carried out. The analyses are in any case
useful in showing the key measures to be covered and what is needed to make them
effective.

**^ v**

POSITION IN THE COUNTRIES OF CENTRAL AND

EASTERN EUROPE

_**Introduction**_

4.1 The Commission has maintained regular contacts with the associated
countries during the preparation of the White Paper. It first.convened a meeting of
six CEECs in November 1994, at which it explained its proposed approach and
received presentations from each associated country about the state of its own
work on approximation, as well as comments on the approach to be taken by the
White Paper. In February and March of this year, in accordance with fhe Essen
conclusions, the Commission consulted the CEECs on a bilateral basis.
Commission officials visited each capital and conducted sector-by-sector
discussions, as well as bringing the CEECs' authorities up-to-date on the
preparation of the White Paper. Discussions focused particularly on Stage I
measures and the need to create structures for implementation and enforcement.

4.2 In addition, the Commission has a continuing dialogue with each
associated country in the approximation of law Sub-Committees of the Europe
agreements. These provide an opportunity to gather information on the progress
being made in the CEECs. Despite these contacts, the information at the
Commission's disposal remains incomplete. Much of the new legislation has not
been translated into any Community languages. Its scope often does not coincide
precisely with the relevant Community legislation, making comparisons difficult.
This chapter will not therefore attempt to present a detailed analysis of the
legislation already in place in each country.

4.3 However, in planning future technical assistance in this area, it is necessary
to understand in general terms the extent to which the CEECs have harmonized
their legislation with that of the Commumty and have created the structures
required to implement and enforce such legislation and to examine in broad terms
where their problems lie. This chapter provides such an overview.

_**Progress with legislative approximation**_

4.4 The associated countries are in the process of preparing and adopting a
large amount of new legislation and it is their general aim that this should be in
conformity with that of the Community. Indeed, they have an obligation to use
their "best endeavours to ensure" this under the Europe agreements. In
approaching the task of approximating legislation, however, each CEEC has made
its own choices about priorities.

**^**

4.5 Their choices reflect economic and political realities, particularly the
CEECs' growing trade relations with the Union, as well as their judgements about
which legislation is important in the context of economic transition and/or
preparation for accession to the Union. They have also responded to the list of
priorities for approximation specifically mentioned in the Europe agreements.
Some of them have also assumed other international obligations which affect their
priorities. Moreover, certain associated countries started their processes of
legislative harmonization with a view to Community membership well in advance
of others. The overall result is that there are wide divergences among the CEECs
in the amount and type of legislation that has been enacted and the order in which
they are approaching the task.

4.6 In all cases, the CEECs have begun to make a systematic effort to draw up
programmes for legislative approximation, to set priorities and to verify
conformity with relevant Community law. Most already have an overall
coordinating machinery in place within their administrations. They are also at
different stages in their programming and setting of priorities. For most countries
some degree of national priority setting will have taken place before the
publication of the White Paper. The indicative priorities set out in the Annex of
this document should therefore lead to a process of comparison and reassessment
in each associated country.

4.7 The general picture is one in which old legislation, sometimes dating back
many years, exists alongside new. In a limited number of sectors, the new law is
almost complete, while in others legislation may be scheduled but not yet drafted.
A very large amount of new law is being drafted, or is awaiting adoption by
national Parliaments. The state of progress in a given sector does not necessarily
reflect its economic importance.

4.8 In some areas, the CEECs themselves recognise that enacted or prepared
legislation does not conform fully with the relevant EU texts, either as a dehberate
choice (step by step approximation) or as a result of amendments introduced
during the passage of the legislation through Parliament. In certain cases, there
has been a dehberate decision to suspend new legislation awaiting new or modified
Community legislation in the field.

4.9 In most areas, the CEECs have sought outside advice, often through
PHARE programmes. They tend to look for models in one or more Member
States. Advice on preparing and drafting legislation is sometimes given by
Community and national officials, but also often by consultants.

4.10 In most but not all associated countries, parliamentary timetables are overcharged and delays result. The legislative burden is huge, the changes are often
radical, the subject matter is sometimes unfamiliar, amendments to texts are
numerous and progress is slow. Moreover, in the CEECs, as elsewhere,
governments and political priorities change, which can also complicate and
prolong the approximation process.

_**2L-**_

_**Legislative approximation and economic reform**_

4.11 The associated countries have not yet fully resolved the intricate problem
of adjusting their alignment programmes to the need to consolidate economic
reforms. The difficulty which the CEECs face can be illustrated by a few
examples:

in the field of financial services, internal market legislation strengthens
prudential requirements and leads to more deregulated markets. Such a
regulatory change made too soon could seriously weaken financial entities in
Central and Eastern Europe, since most of them still have to cope with a
legacy of bad loans;

in the area of taxation, the pace of tax harmonization will have to be related to
the development of the different tax bases and may have to take into account
the need for temporary tax incentives to correct inherited allocative
distortions;

the liberalization of capital flows will be conditional on the attainment of
overall macroeconomics stability, in order to avoid the danger of unmatched
capital flight and balance of payments difficulties. Of course, such a stable
macro-economic environment is intimately related to several key aspects of
the transition process, such as the soundness of public finances or success in
the restmcturing process.

_**Specific sectors**_

4.12 It is not intended to review all sectors, but a number of specific
achievements or problems are worth mentioning.

4.13 All the CEECs have put in place a basic form of company law as part of
their transition to market economies. This has usually followed the model of one
or other of the Member States and is therefore broadly in line with Community
requirements, but coverage is in most cases incomplete. The non-discriminatory
treatment of foreigners and foreign companies has in most cases been dealt with
satisfactorily, given the interest in attracting foreign investment. The picture is
broadly the same for financial reporting where many of the requirements of the
three principal EU directives are in place, but the task remains to be completed.

4. _14_ For similar reasons, priority has been given to putting in place the basic
legislation in the financial services sector. Banking is generally ahead of
insurance, but there are limits on how far the CEECs can go, as long as restrictions
on capital movement remain necessary for macro-economic reasons and banks
remain burdened by bad loans from the past. A great deal of legislation is in the
pipeline in this sector.

**2 } ~**

4.15 Two areas in which much progress has been made are indirect taxation
and customs. All the CEECs have introduced value added tax and in several cases

this appears to be broadly in conformity with Community requirements. This is an
example of a sector in which more has been achieved precisely because the system
had the advantage of starting from scratch. On excise taxes, most CEECs cover
the principal product ranges covered by Community legislation. Some rates will
need to be lowered, but this will be tackled cautiously in view of the revenue
considerations.

4.16 In the customs field, harmonisation has followed the rapid development of
trade with the EU: National nomenclatures based on the Harmonised System have
been adopted and closer harmonisation with the Community's Combined
Nomenclature is taking place gradually in the framework of the Europe
agreements. Close contacts between customs authorities are already established,
both under the auspices of the Sub-Committees on customs cooperation under the
Europe agreements and as a result of technical assistance actions under the
PHARE programme. Full alignment is in any case unnecessary before accession.

4.17 Trade considerations have also spurred harmonisation efforts in the area of
**industrial** **standards.** The legislative requirements in this area appear to be well known and all the CEECs have begun the process of adapting to EU standards,
but the way this is achieved is often through existing mechanisms originally set up
for the purpose of elaborating compulsory technical regulations rather than
voluntary standards. Much work remains to be done, especially at the level of
industry itself), before full convergence is achieved. Attempts to take over a large
body of legislation in a single instrument are slowing progress in many cases. In
addition, the considerable gaps still existing in the field of conformity assessment
are tending to frustrate alignment efforts. The possibility of the conclusion of
Mutual Recognition Agreements held out by the Europe agreements will
encourage further efforts in this field. (Further consideration of this area is in the
section below concerning progress with creating implementation and enforcement
Structures).

4.18 Progress in the area of agriculture (where the legislation relevant to the
internal market concerns the veterinary, plant health and animal nutrition fields and
agricultural commodities subject to specific marketing standards, such as wine)
reflects the importance of the sector in the economy of the associated country
concerned, as well as following closely its specific product interests. In several
associated countries, the immediate priorities are basic questions such as land
reform, although legislative approximation which will affect conditions for trade is
also generally recognised as a high priority. Privatisation has started in all the
CEECs, including upstream and downstream activities linked to agriculture, but
needs to be carried through. Most of the CEECs are supporting their agriculture
to some extent, but border protection is still low. This may change when the
GATT agreement is implemented. All the CEECs have to differing extents been
conducting discussions with the Commission designed to lead to equivalence
agreements in the fields of veterinary, plant health and animal nutrition controls.
While still falling far short of what is required in the context of a frontier free
internal market, such agreements wili mark important progress in the right
direction. The Community is negotiating the adaptation of the Europe agreements
to take account of enlargement and of the results of the Uruguay Round.

**-** **2:** **: " }**

4.19 In the transport area, the impetus given by the Europe agreements is
particularly marked. Specific mandates to conclude bilateral agreements with
certain CEECs in one or other transport sector have been presented to the Council
and in one case agreed. These will offer the prospect of market access and lay
down conditions under which international transport services can be offered. They
will thus offer strong incentives for legislative harmonisation prior to accession.
The CEECs' participation in various international agreements tends to help the
approximation process.

4.20 The picture in the energy sector varies from country to country, but it
generally remains heavily dominated by public sector monopolies. Although a
great deal of legislation is scheduled or in draft, much work remains to be done in
this sector and the restructuring of existing legal and industrial structures will have
major economic and social implications..

4.21 This is less true in the telecommunications sector, where separate
regulatory bodies have been set up and a certain measure of liberalisation has
already been introduced, at least in some of the associated countries. The practice
of investors seeking and in many cases obtaining both sovereign loan guarantees
and generous government assurances about the duration of special or exclusive
rights may inhibit early conformity with Community competition rules. Efforts to
achieve conformity with Community legislation are often helped by participation in
international bodies. A similar amount of progress has been made towards
approximation in the audiovisual sector.

4.22 Competition policy is of particular importance during the period of
economic transition. The basic rules are laid down in the Europe agreements. The
Europe agreements also contain deadlines for agreeing on implementing rules and
a provision that the associated countries will further adapt their laws on
competition to those of the Union. In this context the CEECs are obliged to take
over the principles of Community pohcy, but they can adopt the monitoring and
enforcement structures that best serve their purpose. On accession certain tasks
that will for now remain the responsibility of the associated countries will be taken
over by the Commission.

4.23 In the area of intellectual property the advances are uneven, even if the
CEECs have shown interest in legislative developments in the Union and are keen
to modernise their legislation. Significant progress has been made on industrial
property, especially patents and trademarks. Some work has also been done on
copyright and and neighbouring rights legislation.

4.24 The overall picture on legislation concerning the environment is very
uneven and the associated countries are acutely conscious of the likely costs of
bringing their levels of protection up to those of the Community. In some cases,
however, including on specific products, their preparatory work on new legislation
is relatively well advanced.

**?o** **-**

4.25 In the area of social policy, the associated countries believe that much of
their legislation is close to meeting EU standards and they appear to attach
considerable importance to this sector. Emphasis is put on legislation on health
and safety in the workplace in most of the CEECs. The question of costs is once
again a determining factor, however, and it remains to be seen to what extent even
legislation which is already in place can be effectively implemented.

4.26 All the CEECs have recognised that consumer protection requires some
legislative intervention as part of their transition to market economies. The
functioning of the internal market is, at least in part, Unked to the approximation of
rules in this sector. Moreover, this new recognition of the rights of consumers,
ensuring their participation in decision-making, is also perceived as a contribution
to the consolidation of democratic societies in the associated countries. Specific
consumer legislation has been adopted or is under preparation in all the CEECs
and consumer policy aspects are often also covered in other sectoral or horizontal
legislation.

_**Implementation and enforcement structures**_

4.27 It is particularly difficult to obtain a complete picture of progress in the
CEECs with creating the necessary implementation and enforcement structures.
The Commission has placed considerable emphasis on this aspect of the preaccession process in its contacts with the associated countries. Improving this
knowledge will be an important part of the tasks to be pursued after the
publication of the White Paper and in the context of preparing and delivering the
related technical assistance package.

4.28 It is possible at this stage, therefore, only to make a number of general
points about what the CEECs have achieved so far and some of the difficulties
they have encountered. The overall picture is that the process of establishing,
staffing and making operational all the necessary administrative structures is
lagging behind the legislative process itself. The situation varies between the
associated countries and from sector to sector, but there is a widespread need for
more effort in this respect.

4.29 The particular difficulty faced by the CEECs which was not shared by
existing Member States is the transition to a market economy. In mature market
economies, many of the structures required to ensure that obhgations arising under
Community legislation are fully met already exist. Individuals are generally aware
of their rights and access to justice is assured. For the associated countries, on the
other hand, new or adapted structures, including changes in the judicial system, are
often required.

_**1C**_

4.30 As far as the building blocks of the market economy are concerned, all the
CEECs began putting new structures in place in the early 1990s. Constitutional
changes created independent judiciaries and their entire judicial systems are
gradually being reformed. In some cases, further changes are needed to ensure the
independence and quality of judicial appointments and all the CEECs face the
problem of a shortage of resources in the judiciary, with the result that courts and
administrative tribunals are severely overloaded and speedy access to justice is far
from being assured. Judiciaries in the associated countries also face new tasks .
Intellectual property is often cited as an area which will create new requirements,
both in terms of training and of adapting judicial processes to allow cases to come
to court more quickly. Some CEECs' administrations also recognise that they
need to change their rules regarding access to courts, to implement legislation in
such areas as consumer protection.

4.31 As to basic economic structures, all of the CEECs have public registers of
companies and gazettes in which information about companies is published. Some
also have banking supervisory bodies, offices for registering intellectual property
rights and so on, but the picture is uneven and even where the institutions
themselves have been created, the trained staff to run them cannot always be
found. In general, they inevitably suffer from alack of experience. In this
context,assistance through TEMPUS, the activities of the European Training
Foundation and participation by the CEECs in the LEONARDO and SOCRATES
programmes will help them develop the relevant skills.

4.32 In some cases, existing structures can be used. Veterinary and plant health
inspectorates are a case in point. Several of the associated countries are fairly well
served in this respect. Even here, however, there is a need to modernise
equipment and services and to make them country-wide. Laboratories for testing
and measuring industrial goods also exist, but are equally often in need of more
modern equipment. For existing exports to the EU, identified structures have
already been verified as meeting Community standards - for example, abbatoirs for
the export of meat and meat products - but preparing for integration into the
internal market means bringing all such structures up to the required level.

4.33 In the area of industrial standards, the change from a compulsory to a
voluntary system based on legislation establishing essential requirements may
cause difficulties, as may schemes requiring producers to attest conformity on their
own responsibility. These changes require not only new structures, but also new
thinking. Changes will remain formal and not have the required impact if attitudes
do not change, both among regulators and among economic operators.

4.34 Ensuring that the new arrangements are widely understood will in any case
be an important part of the challenge in a number of areas. In the public
procurement area, for example, markets are not being opened in practice despite
the basic legislation being put in place, because firms have not yet accepted that
they have a genuine chance of winning contracts, or alternatively, old monopolies
have not yet accepted that they may lose contracts. In both cases, they fail to
enter bids. Similarly, consumer legislation has begun to be put in place, but tends
to remain a dead letter where consumers do not understand their rights and/or the
mechanisms do not exist for exercising them.

_**Conclusion**_

4.35 All the associated countries are making a serious effort to organise a
concerted approximation and implementation exercise, especially in the internal
market area. The task before them is far-reaching and complex, however, and it
will require an exceptional effort of coordination and an unwavering commitment
to the task. There is room for strengthening the role of the various interministerial coordinating mechanisms that have been set up and for a more rigorous
approach to programming and priorities.

4.36 The Union needs to enhance and adapt its technical assistance response to
the challenge of preparing the CEECs for integration into the internal market. For
this reason in particular, the Community needs to improve its knowledge of the
situation on the ground. This will require a coordinated effort, drawing on the full
range of available inputs both from the CEECs themselves and from the
Commission and the Member States. These questions are considered further in the
next chapters.

_**12.**_ **-**

5. SPECIALISED TECHNICAL ASSISTANCE

_**Introduction**_

5.1 The particular contribution of this White Paper, through its presentation of
the relevant body of Community legislation, is first to provide guidance of the
organisation of the legislative task and second to describe and explain the
functions of the structures necessary for the effective implementation of national
legislation. This will help the CEECs to sharpen the focus of their preparations for
integration into the internal market and to ensure that legislative changes have a
real impact in the economy. The associated countries have expressed their wish to
take the White Paper's recommendations into account in finalising their national
alignment strategies in the internal market area and fixing priorities.

5.2 Another contribution of the White Paper, as indicated in Chapter 1, is to
provide guidelines for the content and organisation of technical assistance.
Ensuring that the White Paper's analytical contribution is translated into coherent
and effective technical assistance covering both legislation and structures, in
response to the needs emerging from the CEECs' national strategies, is the subject
of this Chapter.

_**Strategies for the associated countries**_

5.3 The task of enacting, implementing and enforcing laws which meet the
requirements of the internal market can only be carried out by the associated
countries themselves. Individual work programmes for the adoption and
implementation of internal market legislation are being developed by the
associated countries within their pre-accession and approximation strategies. Such
work programmes need to be consistent with each country's economic policies and
reform programme and with other aspects of the pre-accession strategy. They
should take account of the recommendations of the White Paper, cover all sectors
relevant to the functioning of the internal market and pay attention to the
administrative and organisational aspects of applying and enforcing the legislation.

5.4 It is the responsibility of each associated country to coordinate its requests
for assistance and to provide information about progress made in implementing the
White Paper, so as to ensure that assistance from the Union, Member States and
other bodies is consistent and mutually reinforcing.

_**-**_ **7.** **i**

_**A coordinated**_ _**Union**_ _**response**_

5.5 On the Union side, the key objective must be to organise technical
assistance in this wide and diverse field in a way which makes the best possible use
of scarce resources. Finance is not unlimited and the expertise on which the
associated countries need to draw is concentrated in a relatively small number of
officials and practitioners, mainly in the Member States. The Union is already
providing technical assistance, notably through PFIARE, and this should now be
enhanced and adapted to the White Paper's recommendations. Other Community
programmes open to the associated countries, as well assistance from the Member
States and private bodies also have a useful contribution to make. Special
attention needs to be given to ensuring that all these efforts are mutually
reinforcing and well focused. Improved information exchange and transparency
concerning developments in the associated countries and the assistance on offer
will help match supply and demand and provide common services where common
needs are identified.

_**Specialised technical assistance**_

5.6 Technical assistance from the Union should cover the programming and
drafting of legislation and its implementation and enforcement. Assistance could
include the following:

assistance with appraising the costs and benefits of different sequences of
approximation;

direct and rapid access to complete and up-to-date EU legislative texts and
jurisprudence, as well as translation services;

a "one stop shop" on the Union side to which requests for help
with specific problems relating to legislation and its application can be

addressed;

advice from legal and technical experts, on the Union's legal system and,
sector by sector, about the interpretation of Community texts and the
drafting of national laws;

information concerning implementation and enforcement mechanisms in
, the Member States and first-hand experience of their functioning through
participation in exchange programmes;

access to administrative, language and specialised technical training;

information about the functioning of the internal market for economic
operators in particular sectors and for the public at large.

**^** **-**

Assistance measures should take into account the need to reach national . 
Parliaments as well as administrations. Parliamentarians and parliamentary
officials require information about the structures required to implement and
enforce the new laws as well as about the Community laws that have to be
transposed.

5.7 It would also be appropriate for the Union to provide for existing
Community programmes which are specifically designed to reinforce the operation
of the Internal Market, such as KAROLUS (dealing with exchanges of officials
responsible for implementation of Community law), MATTHAEUS (a similar
programme concerning customs), MATTFIAEUS TAX (dealing with indirect tax)
and others, to be opened to participation from the CEECs. The precise modahties
for this and its budgetary implications will be indicated in separate Commission
proposals. Training projects developed in the context of the Leonardo programme
and in the framework of the European Training Foundation will also contribute to
the preparation of the CEECs for the internal market.

_**Delivery**_ _**mechanisms**_

_**National programmes**_

5.8 For each associated country, national framework programmes for the
approximation of internal market legislation could be established which would
ensure complementarity among all PHARE programmes relevant to the objectives
of the White Paper.

5.9 These national programmes in each associated country should be placed
under the authority of a body responsible for assistance and coordination in the
framework of the pre-accession strategy. Regular reports on the work of the
national programmes should be made to the Association Council and the
competent structures of the Europe agreements.

5.10 PHARE programming for the five year period starting this year is already
well advanced. The Commission will invite each associated country to hold
discussions with it as soon as possible after the publication of the White Paper, to
help clarify each country's programme and priorities in the light of the White
Paper. Existing national framework programmes for the reform and
approximation of law can be adjusted accordingly.

**^ -^**

_A technical_ _assistance_ _information exchange_ _office_

5.11 Certain assistance needs are common to all associated countries. To

respond to these needs, the Commission intends to establish a Technical
Assistance Information Exchange Office supported through a multi-country
PHARE programme. The Office will be located in Brussels and managed by the
Commission. It will provide for the exchange of information and will help ensure
the adequate delivery of services to the associated countries. It will facilitate the
provision of the highest possible quality of assistance in the most cost effective
way from a variety of public and private sector bodies.

5.12 The assistance covered by the Office will include Community legislation,
its transposition into national legislation, legal terminology, translation, training
and exchanges, including short-term placements in the Commission's services and
relevant bodies in the Member States. In addition, the Office will serve as a "onestop-shop" or clearing house to which requests for assistance with the recruitment
of specialist advisors can be addressed.

5.13 The Office will be the focal point for advice and expertise on legislation
and implementing structures, mainly through a PHARE framework agreement
establishing a panel of experts from the Commission and the Member States with
relevant expertise in different pohcy sectors. Its services will also be at the
disposal of nationally delivered programmes.

5.14 A data base, drawing on information from the Commission, Member
States, the associated countries and the private sector will be developed, to
achieve transparency and to avoid duphcation of effort. It will be accessible to all
interested parties.

5.15 The Commission will make available through the database all relevant
information about assistance available under PHARE and other Community
programmes open to the CEECs. The Commission will also provide the database
with information.about the CEECs' progress in implementing the White Paper,
especially in areas where technical assistance is being provided. The Commission
invites the associated countries, the Member States and other providers of
assistance to provide similar information.

.Se,-.

_**Coordination and Monitoring**_

5.16 The Commission will report regularly on the activities of the Office to the
association committees or subcommittees established by the Europe agreements.

5.17 Taking into account reports on the Office's activities and information
gathered in the database, coordination and monitoring of assistance will take place
with the Member States through the PHARE Management Committee, with the
associated countries bilaterally through the competent structures of the Europe
agreements, and where questions concern several or all of the associated countries
in the framework of the structured relationship.

**VI** **~**

**6.** **CONCLUSIONS**

**6.1** **Transition in central and eastern Europe to political and economic systems**
**compatible with those** **in** **the European** **Union** **is a** **complex** **process. It involves the**
**strengthening of democracy and civil society, the implementation of sound macro-**
**economic policies, privatisation and industrial restructuring, legal and institutional**
**changes,** **and** **trade** **liberalisation,** **aiming at free trade with the Union and with**
**neighbouring** **countries.** **Although the** **situation** **varies** **from** **country to country,**
**this process of transformation is now well underway.**

**6.2** **The primary** **responsibility** **for the success of this process lies with the**
**associated countries themselves. But the strategy** **agreed** **at Essen provides for** **,.**
**additional** **support** **from** **the** **Union,** **including a closer working relationship with its**
**own** **institutions,** **the adaptation of PHARE priorities to changing needs, and a**
**major new effort to prepare the associated countries for their future integration**
**into the internal market.**

**6.3** **The present White Paper marks the beginning of a process and provides** **a**
**guide for the associated countries in adapting their** **legal** **structures to those which**
**are needed for future participation in the internal market. It sets out a logical**
**sequence** **for** **adopting the necessary measures and will enable associated countries**
**to draw** **up** **internal market work programmes adapted** **to** **each** **country's** **own**
**economic and reform priorities. It will also** **enable** **the Union to provide the kind**
**of support which is most needed, drawing on the necessary expertise in** **the**
**Union's own institutions,** **in** **the Member States and in the private sector.** **The**
**proposed Technical Assistance Information Exchange Office will greatly facilitate**
**the provision of well targeted assistance from PHARE and** **from** **sources** **of**
**expertise** **in** **the Member States.**

**6.4** **The progressive adoption by the associated** **countries** **of internal market**
**legislation and the** **establishment** **of the structures needed for its implementation**
**and enforcement will support the economic reform process. Significant economic**
**advantages** **to** **business** **and commerce in the associated countries and in the Union**
**are expected. The progressive elimination of barriers will increase competitiveness**
**and allow business to expand. At the** **same** **time, the inclusion in the White Paper's**
**recommendations of legislation in the fields of** **competition,** **social and**
**environmental pohcy, which are essential to the functioning of the internal market,**
**will ensure that alignment takes place in a balanced way. Alignment with the**
**internal market is to be** **distinguished** **from accession to the Union which** **will**
**involve acceptance of the** _**acquis communautaire**_ **as** **a** **whole.**

**-** **%&** **-**

**6.5** **Besides the specific process which it will set in** **motion,** **the White Paper**
**will give a** **fresh** **impetus to the wider process of integration between the**
**associated countries and the Union and will stimulate trade. As the Commission**

**indicated in its Communication of** **13** **July 1994 on the pre-accession strategy,**
**"once satisfactory implementation of competition and state aids policies (by the**
**associated countries) has been achieved, together with the application of other**
**parts of Community law linked to the wider market, the Union could decide to**
**reduce progressively the application of commercial defence instruments for**
**industrial products form the countries concerned, since it would have a level of**
**guarantee against unfair competition comparable to that existing inside the internal**
**market."**

**6.6** **The White Paper process will also facilitate trade by creating favourable**
**conditions for the conclusion of agreements on the mutual recognition of tests of**
**the conformity of products with established industrialised standards. The purpose**
**of such agreements would be to secure mutual acceptance of certificates, marks of**
**conformity and test reports issued by technical bodies concerned with industrial**
**standards in the associated countries and in the Union. It should be possible to**
**begin negotiations on mutual recognition when the procedures followed by**
**certification institutes, testing laboratories and** **similar** **bodies in the associated**
**countries** **have been brought into line with those in the Union. The White Paper**
**provides guidance on how this is to be achieved. It will be followed up by**
**enhanced technical assistance** **from** **PHARE in these specialised fields.**

**6.7** **The progressive alignment of the associated countries with the internal**
**market will strengthen economic reform and help create a favourable environment**
**for economic integration. Costs for public administrations and businesses in the**
**countries concerned and in the Union will also be reduced. The Commission**

**intends to make an analysis of these potential benefits and to present the results of**
**this analysis to the institutions of the Union and to the associated countries.**

**6.8** **The process of** **integration** **with the internal market has already been**
**launched through consultations, cooperation and assistance in the** **framework** **of** *****
**the Europe agreements, PHARE and in the preparation of this White Paper.**
**Following publication of the White Paper and its consideration by the European**
**Council, the Commission considers that the following actions should be taken to**
**implement its recommendations.**

**^** **[e]** **t ~**

**6.9** **The Commission** **will:**

**transmit to the** **associated** **countries the White Paper, in their own**
**languages, and the conclusions of the European Council**

**hold consultations with** **each** **associated country on national work**
**programmes to implement White Paper recommendations, on the**
**adaptation and enhancement of technical assistance, and on internal**
**coordination within each associated country on all questions related to the**
**White Paper**

**set up the Technical Assistance Information Exchange Office, referred to in**
**Chapter 5, with support from a new multi-country PHARE programme**

**arrange for the coordination of technical assistance and** **monitoring of**
**progress in implementing White Paper recommendations within the Union**
**through the internal market advisory committee and the PHARE**
**management** **committee**

**keep the associated countries informed about changes in internal market**
**legislation**

**pursue preparations** **for** **extending the Karolus and Matthaeus programmes**
**to the associated countries and examine the** **extension** **to them of other**

**relevant programmes**

**recommend ways to involve the associated countries in the work of**
**sectoral advisory bodies to improve their understanding of the functioning**
**of the internal market**

**maintain** **an economic pohcy dialogue with the associated countries**
**on the interaction between alignment with the internal market and the**
**wider transition process, within the** **framework** **of the structured**
**relationship with the institutions of the** **Union**

**report regularly on progress to the Internal Market Council, the General**
**Affairs Council and the European Council, after preparatory meetings with**
**representatives of the associated countries.**

**-** **4-Q** **-**

**6.10** **The associated countries are invited to**

**identify a single coordinator for all matters related to the implementation of**
**White Paper recommendations**

**draw up national work programmes for the implementation of these**
**recommendations; advice and assistance for this is available through**
**PHARE**

**review, together with the** **Commission,** **existing work on the approximation**
**of legislation and related** **assistance,** **with a view to adapting these to the**
**requirements of the national work programmes**

**take full advantage of the** **facilities** **provided by the** **proposed** **Technical**
**Assistance Information Exchange Office to enhance their work on the**
**approximation,** **implementation and enforcement of internal market**
**legislation**

**6.11** **The member states are invited to**

**make available expert advice on the transposition of Union internal market**
**legislation into national law, and on the structures needed for its**
**implementation and enforcement**

**provide information on their own assistance efforts and on the availability**
**of expert advice through the PHARE management committee and the**
**Technical Assistance Information Exchange Office**

**coordinate planned assistance efforts through the mechanisms referred to**
**above to ensure that support from different sources is effective and**
**mutually reinforcing**

**ISSN 0254-1475**

### **COM(95) 163 final**

# **DOCUMENTS**

#### EN 11 01 Catalogue number : CB-CO-95-191-EN-C

##### ISBN 92-77-88423-1

**Office** **for** **Official Publications** **of** **the** **European Communities**

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