4. 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 the 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 Community 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 deliberate 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 deliberate 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 over-charged 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.

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:

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.

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 will 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.

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 policy, 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.

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, linked 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 pre-accession 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 obligations 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.

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 a lack 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 inter-ministerial 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.

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