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Europaudvalget 2000
KOM (2000) 0703
Offentligt

FROM THE COMMISSION

THE CZECH REPUBLIC’S

PROGRESS TOWARDS

ACCESSION

***********************

8 November 2000

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Table of contents

A. Introduction.............................................................................. 5

a) Preface .............................................................................................................5

b) Relations between the European Union and the Czech Republic ...............7

Recent developments under the Europe Agreement ................................................... 7

Accession Partnership/National Programme for the Adoption of the Acquis ............ 9

Community Aid .......................................................................................................... 9

Twinning ................................................................................................................... 14

Negotiations / screening............................................................................................ 15

B. Criteria for membership ....................................................... 16

1. Political criteria.................................................................................... 16

Introduction............................................................................................................... 16

Recent developments ................................................................................................ 16

1.1. Democracy and the rule of law .....................................................................17

The Parliament .......................................................................................................... 17

The Executive ........................................................................................................... 17

The judicial system ................................................................................................... 19

Anti-corruption measures.......................................................................................... 21

1.2. Human rights and the protection of minorities...........................................22

Civil and political rights............................................................................................ 23

Economic, social and cultural rights ......................................................................... 24

Minority rights and the protection of minorities ....................................................... 25

1.3. General evaluation.........................................................................................27

2. Economic criteria................................................................................. 28

2.1. Introduction....................................................................................................28

2.2. Economic developments ................................................................................28

2.3. Assessment in terms of the Copenhagen criteria ........................................30

The existence of a functioning market economy ...................................................... 30

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

Union......................................................................................................................... 35

2.4. General Evaluation........................................................................................37

3. Ability to assume the obligations of membership............................. 39

Introduction............................................................................................................... 39

3.1. The chapters of the

acquis.............................................................................41

Chapter 1: Free movement of goods ..............................................................41

Overall assessment.................................................................................................... 43

Chapter 2: Free movement of persons...........................................................44

Overall assessment.................................................................................................... 45

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Chapter 3: Free movement of services...........................................................45

Overall assessment.................................................................................................... 47

Chapter 4: Free movement of capital ............................................................48

Overall assessment.................................................................................................... 49

Chapter 5 : Company law ...............................................................................49

Overall assessment.................................................................................................... 50

Chapter 6 : Competition policy.......................................................................51

Overall assessment................................................................................................... 52

Chapter 7: Agriculture....................................................................................52

Overall assessment.................................................................................................... 55

Chapter 8 : Fisheries ......................................................................................57

Overall assessment.................................................................................................... 57

Chapter 9: Transport policy ...........................................................................58

Overall assessment.................................................................................................... 60

Chapter 10 : Taxation.....................................................................................60

Overall assessment.................................................................................................... 61

Chapter 11: Economic and monetary union .................................................62

Overall assessment.................................................................................................... 63

Chapter 12: Statistics ......................................................................................63

Overall Assessment................................................................................................... 64

Chapter 13: Social policy and employment ...................................................65

Overall assessment.................................................................................................... 67

Chapter 14: Energy.........................................................................................69

Overall Assessment................................................................................................... 71

Chapter 15 : Industrial policy ........................................................................71

Overall assessment.................................................................................................... 73

Chapter 16 : Small and medium-enterprises .................................................74

Overall assessment................................................................................................... 74

Chapter 17: Science and research..................................................................75

Overall assessment.................................................................................................... 75

Chapter 18: Education and training ..............................................................76

Overall assessment.................................................................................................... 76

Chapter 19 : Telecommunications and information technologies ...............77

Overall assessment.................................................................................................... 78

Chapter 20: Culture and audio-visual policy.................................................79

Overall assessment.................................................................................................... 79

Chapter 21: Regional policy and co-ordination of structural instruments ..80

Overall assessment.................................................................................................... 81

Chapter 22: Environment...............................................................................82

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Overall assessment.................................................................................................... 84

Chapter 23: Consumers and health protection..............................................85

Overall assessment.................................................................................................... 86

Chapter 24 - Co-operation in the field of justice and home affairs..............86

Overall assessment.................................................................................................... 89

Chapter 25 : Customs union...........................................................................92

Overall assessment.................................................................................................... 93

Chapter 26: External relations.......................................................................93

Overall assessment.................................................................................................... 94

Chapter 27: Common foreign and security policy.........................................95

Overall assessment.................................................................................................... 96

Chapter 28: Financial control........................................................................97

Overall assessment.................................................................................................... 98

Chapter 29 : Financial and budgetary provisions.........................................98

Overall assessment.................................................................................................... 99

3.2. Translation of the

acquis

into the national language................................100

3.3. General evaluation.......................................................................................100

C. Conclusion ............................................................................ 103

D. Accession Partnership and National Programme for the

Adoption of the

Acquis:

Global assessment....................... 106

1. Accession Partnership ....................................................................... 106

Short-term priorities................................................................................................ 106

Medium term priorities ........................................................................................... 110

2. National Programme for the Adoption of the

Acquis

–

assessment........................................................................................... 112

Annexes ....................................................................................... 114

Human Rights Conventions ratified by the Candidate Countries,

September 2000 .....................................................................................115

Statistical data ...............................................................................................116

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A. Introduction

Preface

In Agenda 2000, the Commission said it would report regularly to the European

Council on progress made by each of the candidate countries of Central and Eastern

Europe in preparations for membership, and that it would submit its first report at the

end of 1998.

The European Council in Luxembourg decided that

“From the end of 1998, the Commission will make regular reports to the Council,

together with any necessary recommendations for opening bilateral intergovernmental

conferences, reviewing the progress of each Central and Eastern European applicant

State towards accession in the light of the Copenhagen criteria, in particular the rate at

which it is adopting the Union

acquis”

… “The Commission’s reports will serve as

the basis for taking, in the Council context, the necessary decisions on the conduct of

the accession negotiations or their extension to other applicants. In that context, the

Commission will continue to follow the method adopted by Agenda 2000 in

evaluating applicant States’ ability to meet the economic criteria and fulfil the

obligations deriving from accession.”

On this basis, the Commission presented a first series of regular reports in October

1998, with a view to the Vienna European Council; a second series was adopted in

October 1999, with a view to the Helsinki European Council. The Helsinki European

Council noted that the next regular reports would be presented in good time before the

European Council in December 2000.

The structure followed by this regular report on the Czech Republic is largely similar

to that of the Commission’s 1997 Opinion and of the subsequent regular reports;

however, it differs from that used in previous years on three minor points. Firstly, the

part of the present report assessing the Czech Republic’s ability to assume the

obligations of membership (Part

B.3.1.)

has been structured to follow the list of

twenty-nine negotiating chapters covering the

acquis.

Secondly, this part has been

broadened to cover also the Czech Republic’s administrative capacity to apply the

acquis

under each of the negotiating chapters (previously discussed in a separate

section of the report). Thirdly, the report includes, for the first time, a section

assessing the progress made by the Czech Republic in translating the

acquis

into its

official language.

In line with previous regular reports, the present report:

describes the relations between the Czech Republic and the Union, in particular in

the framework of the Association Agreement;

analyses the situation in respect of the political criteria set by the 1993

Copenhagen European Council (democracy, rule of law, human rights, protection

of minorities);

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assesses the Czech Republic’s situation and prospects in respect of the economic

criteria defined by the Copenhagen European Council (a functioning market

economy and the capacity to cope with competitive pressures and market forces

within the Union);

addresses the question of the Czech Republic’s capacity to assume the obligations

of membership, that is, the

acquis

as expressed in the Treaties, the secondary

legislation, and the policies of the Union. This part gives special attention to

nuclear safety, as underlined by the Cologne and Helsinki European Councils. It

encompasses not only the alignment of legislation, but also the development of the

judicial and administrative capacity necessary to implement and enforce the

acquis,

as requested by the Madrid and Feira European Councils in December

1995 and June 2000 respectively. At Madrid, the European Council underlined the

necessity for the candidate countries to adjust their administrative structures, so as

to create the conditions for the harmonious integration of those States. The Feira

European Council in June 2000 emphasised the vital importance of the candidate

countries’ capacity to effectively implement and enforce the

acquis,

and added

that this required important efforts by the candidates in strengthening their

administrative and judicial structures. The Feira European Council invited the

Commission to report to the Council on its findings on the matter.

This report takes into consideration progress since the 1999 regular report. It covers

the period until 30 September 2000. In some particular cases, however, measures

taken after that date are mentioned. It looks at whether intended reforms referred to in

the 1999 regular report have been carried out, and examines new initiatives.

Furthermore, complementing the assessment of new developments since the last

regular report, this report provides also an overall assessment of the global situation

for each of the aspects under consideration, setting out for each of them the main steps

which remain to be taken by the Czech Republic in preparing for accession.

In accordance with this approach, the assessment of progress in meeting the political

and

acquis

criteria (including the Czech Republic’s administrative capacity to

implement the

acquis)

focuses on what has been accomplished since the last regular

report, complemented with a view of the global situation for each of the aspects

discussed. The economic assessment, for its part, is based on a forward-looking

evaluation of the Czech Republic’s economic performance.

The report contains also a separate section examining the extent to which the Czech

Republic has addressed the short-term Accession Partnership priorities, and has

started to address the medium-term priorities set out in this framework.

As has been the case in previous reports, “progress” has been measured on the basis of

decisions actually taken, legislation actually adopted, international conventions

actually ratified (with due attention being given to implementation), and measures

actually implemented. As a matter of principle, legislation or measures which are in

various stages of either preparation or Parliamentary approval have not been taken

into account. This approach ensures equal treatment for all the candidate countries

and permits an objective assessment and comparison between countries in terms of

their concrete progress in preparing for accession.

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The report draws on numerous sources of information. The candidate countries have

been invited to provide information on progress made in preparations for membership

since the publication of the last regular report. The National Programmes for the

Adoption of the

Acquis

of each of the candidate countries, as well as the information

they have provided in the framework of the Association Agreement and in the context

of the analytical examination of the

acquis

(screening) and the negotiations, have

served as additional sources. Council deliberations and European Parliament reports

and resolutions

have been taken into account in the preparations. The Commission

has also drawn on assessments made by various international organisations, and in

particular the contributions of the Council of Europe, the OSCE and the International

Financial Institutions, as well as that of non-governmental organisations.

b) Relations between the European Union and the Czech Republic

Recent developments under the Europe Agreement

The Czech Republic has continued to implement the Europe Agreement and

contributed to the smooth functioning of the various joint institutions. The fifth

Association Council meeting was held in December 1999, and the sixth Association

Committee and Association Council meetings were held in June and September 2000

respectively. The Association Committee examined in detail the implementation of

the Accession Partnership priorities. The subcommittees continue to function as a

forum for technical discussions. The Joint Parliamentary Committee comprising

representatives of the Czech and European Parliaments met in November 1999 and in

April 2000.

In September 2000, an agreement of principle was reached on the move to the second

stage of the transitional period of the Europe Agreement, indicating that the Czech

Republic has further aligned its legislation on establishment and movement of capital

with Community rules. Procedures for adoption of the relevant Association Council

decision are under way.

Trade between the EC and the Czech Republic has continued to increase. According

to statistics from the Czech Statistical Office, between 1999 and 1998 EC exports to

the Czech Republic increased from CzK 589.9 billion (€ 16.3 billion) to CzK 638.2

billion (€ 17.3 billion) and EC imports from CzK 545.8 billion (€ 15.1 billion) to CzK

642.8 billion (€ 17.4 billion). Therefore, the Czech Republic recorded a trade surplus

with the EC after many years of deficit. In the year 1999, the EC accounted for 69.2%

of Czech exports, and provided 64.0% of Czech imports. In the first three months of

2000, EC exports increased 29% to reach CzK 184.1 billion (€ 5.17 billion), while EC

imports increased 34% to CzK 195.2 billion (€ 5.48 billion). In the first quarter of

2000, the share of the EC in Czech exports increased again to reach 72.6%, while the

EC continued to provide 64.0% of Czech imports. Major categories of Community

exports in 1999 were machinery and electrical articles, transport equipment, base

For the European Parliament the

rapporteur

is Mr Jürgen Schröder.

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metal and chemical products. Major Czech exports were machinery and electrical

goods, transport equipment, especially vehicles, base metal and textiles.

In March 1999 the Council mandated the Commission to open negotiations with the

associated countries with a view to new reciprocal concessions for agricultural

products. The negotiations, which form a part of the overall accession process, have

been carried out on a reciprocal basis and with the aim of leading to a fair equilibrium

between the interests of the European Community, the EU Member States and those

of the Czech Republic. The negotiations have been based on the principle of neutrality

with respect to the functioning of the CAP.

The negotiations with the Czech Republic were concluded between negotiators in

May 2000. As a consequence of the new agreement, almost half of the bilateral trade

of agricultural products will benefit from preferences. The regime entered into force

on 1 July 2000 on an autonomous basis, pending the conclusion of an additional

protocol to the Europe Agreement.

For processed agricultural goods, negotiations are still ongoing. In July 2000, the

Council mandated the Commission to open negotiations with the associated countries

with a view to reciprocal concessions in the field of fish and fishery products.

During the past year, the Czech Republic acted in a number of cases to correct

decisions which were not in conformity with the Europe Agreement and on which the

Czech authorities had not held the necessary prior consultations with the European

Community. The Government corrected by Decree No. 212/1999 of 15 September

1999 its previous decision of 12 March 1999, which had introduced preliminary

safeguard measures for the import of sugar. Similarly, an amendment to the Labour

Code adopted in May 2000 has eliminated the three-year limit on employment in the

Czech Republic for EU nationals which was in the Employment Act approved by

Parliament in July 1999.

Furthermore, the Government adopted on 29 November 1999 Decree No. 297/1999

Coll. which increased customs duties on imports of road tractors for semi-trailers

originating in the EU countries. The Czech authorities justified the measure under

Article 29 of the Europe Agreement, given the difficult economic situation of both

producers of road tractors for semi-trailers in the Czech Republic . Nevertheless, only

one tractor for semi-trailers was produced in the Czech Republic in the first quarter of

the year 2000 while production in the first quarter of the year 1999 amounted to 14

units.

In July 2000, the Protocol to the Europe Agreement on European Conformity

Assessment (PECA) was initialled. The Protocol will facilitate trade by way of the

"pre-extension" of the internal market prior to accession. The required Association

Council decision is under preparation."

In September 1999 the country initiated for the second time an anti-dumping

investigation against an EC company; this was completed in June 2000. Evidence of

injury was found and the Czech authorities decided to impose anti-dumping duties

ranging from 9.28% to 15.71% on imports of salt from the EC.

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Anti-dumping proceedings have been launched by the EU concerning Czech

companies (amongst others) in the polypropylene, seamless tubes and steel ropes

sectors.

Accession Partnership/National Programme for the Adoption of the

Acquis

A revised Accession Partnership was adopted in December 1999. Its implementation

is reviewed in chapter D of this report.

In June 2000, the Czech Republic presented a revised National Programme for the

Adoption of the

Acquis

(NPAA), in which it outlines its strategy for accession,

including how to achieve the priorities of the Accession partnership

(see chapter D

below).

Community Aid

Since January 2000, there are three

pre-accession instruments

financed by the

European Community to assist the applicant countries in central Europe in their pre-

accession preparations: the

Phare

programme;

SAPARD,

which provides aid for

agricultural and rural development; and

ISPA

which finances infrastructures projects

in the fields of environment and transport. These programmes concentrate their

support on the Accession Partnership priorities that help the candidate countries to

fulfil the criteria for membership.

In the years 2000-2002 total financial assistance to the Czech Republic will amount

annually to

€

79 million for Phare,

€

22.1 million for SAPARD and between

€

55 and

€

80 million for ISPA.

The Phare programme has been providing support to the countries of Central Europe

since 1989, helping them through a period of massive economic restructuring and

political change. Its current “pre-accession” focus was put in place in 1997, in

response to the Luxembourg European Council’s launching of the enlargement

process.

Phare provides the applicant countries of Central Europe with support for institution

building, investment to strengthen the regulatory infrastructure needed to ensure

compliance with the

acquis

and investment in economic and social cohesion. This

support comprises co-financing for technical assistance, "twinning" and

accompanying investment support projects, to help them in their efforts to adopt the

acquis

and strengthen or create institutions necessary for implementing and enforcing

the

acquis.

This also helps the candidate countries develop the mechanisms and

institutions that will be needed to implement Structural Funds after accession and is

supported by a limited number of measures (investments or grant schemes) with a

regional or thematic focus.

Around 30% of the Phare allocation is used for “institution building” while the

remaining 70% is used for financing investments.

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During the period 1990-2000 the Phare programme allocated some

€

722.5 million

the Czech Republic. The 2000 Phare Programme for the Czech Republic consists of a

national allocation of

€59

million, which is concentrated on the following priorities :

•

strengthening the democratic system, the rule of law, human rights and the

protection of minorities, in particular the Roma (€ 4.50 million)

improving the legal and regulatory environment for business in the Czech

Republic, focused in particular on bankruptcy legislation, credit risk management,

enforcement of court decisions and pension reform (€ 5.50 million)

ensuring the Czech Republic is capable of applying Internal Market rules and

regulations, in particular in areas such as data protection, the finance,

telecommunications, energy and public procurement (€ 5.60 million)

preparing the Czech Republic for the implementation of the Common Agricultural

Policy, notably in areas such agricultural assets registration, veterinary inspection

and the phyto-sanitary sector (€ 6.20 million)

establishing the institutional arrangements required to implement the

environmental

acquis,

in waste management, air quality monitoring and pollution

prevention and control (€ 4.30 million)

addressing important issues in the area of justice and home affairs, including the

fight against organised and economic crime, drug abuse, the Schengen Information

System and border management, and training of the judiciary at all levels (€ 12.60

million)

ensuring full compliance with the

acquis

in the area of occupational health and

safety (€ 1.30 million)

strengthening the institutional and administrative capacity to manage the

acquis,

particular in the area of public administration and statistics (€ 1.5 million)

developing economic and social cohesion, including SME promotion, employment

measures and small-scale infrastructure (€ 17.50 million)

participation in various Community Programmes (Socrates, Leonardo and Youth)

(€ 6.52 million)

•

An additional

€

10 million has been allocated for a cross-border co-operation (CBC)

programme with Germany,

€

5 million for co-operation with Poland, and

€

4 million

for co-operation with Austria.

This grand total does not take account of the benefit the Czech Republic has had to date from

particular Phare horizontal programmes such as the Special Assistance Programme, and the STAP

and ATA facilities. Similarly, the figure for participation in EC programmes should be revised

further to a decision on pre-financing participation in 2001. It does take account, however, of the

2000 Supplementary Investment Facility

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The Czech Republic also participates in and benefits from Phare funded multi-country

and horizontal programmes such as TAIEX and the Small and Medium-Sized

Enterprises Facility. Furthermore, the Czech Republic participates in SMEs, Equal

Opportunities, SAVE II, Fiscalis, Leonardo da Vinci, Socrates II, Youth, Combating

Cancer, Drug Dependence, Health Promotion and Aids Prevention. The Czech

Republic benefits from a Phare contribution towards its participation in these

Community programmes. Furthermore, it has requested to participate in the Culture

2000 programme.

Following the opening of negotiations regarding the Czech Republic’s participation in

the European Environment Agency, an agreement has been reached. Following

ratification and entry into force of this agreement, scheduled for early 2001, the Czech

Republic will become a member of the Agency.

Overall, the impact of Phare has been positive. Effective transfer of know-how,

equipment and financial resources has taken place in a number of important fields

such as SME and regional development, employment, trade and investment

promotion, the environment and infrastructure. Phare support to SMEs and regional

development has succeeded in developing sector strategies and establishing essential

institutional and financial mechanisms.

Examples of Phare support in the Czech Republic include:

−

With regard to the political criterion, Phare continues to promote the sustainability

of civil society organisations in the Czech Republic. More than 350 new projects

were financed in 2000, ranging from training for treasurers of charities, support to

fundraising activities for handicapped children, finance for Citizen’s Advice

Bureaux and educational support groups to anti-racism events. A particular new

initiative has been to provide more than 60 grants for Roma community projects,

including, for example, the provision of advice on citizens’ rights in the case of

racially motivated attacks, the development of a Roma education programme, and

support for Roma information and community centres.

−

As to the economic criterion, Phare support in 2000 was given particularly to

human resources development, including training for top managers in corporate

governance; management training for construction companies and hospitals,and

promoting links between cutting edge research in universities and new technology

companies. A new Regional Development Fund was launched which lent money

to develop 7 industrial parks during 2000, in order to provide attractive, well-

serviced sites for new companies to locate. This activity is part of a strategy to

promote foreign direct investment, which has been increasingly successful.

CzechInvest, the national investment promotion agency, received the prestigious

award “European Investment Promotion Agency of the Year” in 2000 at the World

Direct Investment Forum. Over the years, CzechInvest has attracted, with Phare

support,

€3.5

bn into the Czech Republic and helped to create 33,000 jobs.

−

In the environment sector, one project focuses on the introduction

Environmental Management and Auditing Systems into Czech companies. If

pilot scheme is successful, it is hoped to persuade more companies to adopt

system, which should ensure that environmental concerns are always at

the

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forefront in company decision-making. Phare is also helping to improve the

environment in a way that is directly visible in the quality of water in Czech rivers,

for example 13 Waste Water Treatment Plants were completed with Phare co-

financing so far in the year 2000, concentrated particularly in the area of North

West Bohemia where industrial pollution has been particularly bad in the past.

−

The largest Phare-funded investment project to date in the Czech Republic, and

the second largest ever (€34 m), was completed in May 2000: A section of the

Pan-European rail corridor no.4, which runs from Berlin to Vienna, was

modernised. As a result, track speeds have increased from 120 to 160 km per hour

and, together with other investment financed by the Czech budget and the

European Investment Bank, the result will be a reduction in journey time from

Prague to Vienna of 2 hours.

−

The Pro-Active Labour Market Intervention Fund is financed by Phare to help

create and protect jobs. One particularly successful PALMIF project has trained

700 unemployed people, of whom 65% set up their own businesses and 30% got

jobs within two months of receiving the training.

A reform of the Phare management system took place in 1998 and 1999 to improve

the speed, efficiency, effectiveness and transparency of Phare’s activities. The recent

Phare Review Communication in 2000 continues to refine these basic management

structures so as to further bridge towards accession and the structural funds. First,

management can be fully decentralised from 2002 if the strict pre-conditions set down

in Co-ordination Regulation 1266/99 are met. Second, Phare’s programming can be

moved onto a multi-annual basis if supporting strategies are in place. Third, the trends

introduced in 1997 will continue with an increased role for Delegations, further

streamlining procedures and lastly, increasing emphasis of management on raising the

impact of Phare’s projects in institution building, investment in compliance with the

acquis

and economic and social cohesion.

Implementation of Phare in the Czech Republic continues to be generally satisfactory.

While projects are often subject to substantial delays and there is room for

improvement in preparation and management, 99% of projects have so far been

contracted before the deadlines and implemented to acceptable standards. It should

however be noted that implementation in all sectors suffers from insufficient internal

communication, both within and between ministries and other organisations. Quality

of implementation also tends to depend on particular staff rather than on institutional

strength of the ministries. It is clear that substantial and sustained investment in the

administrative capacity in all Czech ministries and spending centres at all levels is

required, in particular as concerns human resources, if the Czech Republic is to assure

a smooth transition from EC pre-accession support to participation in the EC

Structural Funds.

With regard to the overall financial management of EC funds by the National Fund,

implementation has been poor. The National Fund has been slow in submitting

requests for funds and distributing funds received ; applications submitted have been

subject to shortcomings that have resulted in some cases in loss of funds. The CFCU

should be more active in seeking to improve implementation. Preparation for

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Structural Funds by the Ministry for Regional Development is satisfactory, especially

with regard to investment projects and establishment of the organisations required by

Structural Funds, though with regard to grants and loans improvements are necessary.

Communication between the ministry and the regions also should be improved. The

implementation of Community Programmes by the relevant ministries is satisfactory.

As regards

SAPARD,

the Czech Rural Development Plan got a favourable opinion in

the STAR Committee (EC Management Committee on agricultural structures and

rural development) in September 2000 and was approved by the Commission in

October 2000. The plan is based on two major priorities: improvement of production

and marketing structures in agriculture and food processing (75% of the EC funds)

and economic diversification and improvement of rural infrastructure (24% of EC

funds). The average annual public expenditure will amount to

€

29.8 million during

the period 2000-2006, of which

€

22.4 million (at 2000 prices) represent the

Community contribution. The Agency of the Czech Republic for Agricultural

Markets and Rural Development has been established and preparations for its

accreditation as the SAPARD Agency are underway. Accreditation has so far not

taken place and there have been substantial delays in making the Paying Agency

operational.

As concerns the

ISPA

programme, the Commission has informed the Czech Republic

that its indicative ISPA allocation would range from 5.5 to 8 % of the ISPA budget

per year, in order to encourage the country to propose high quality projects in the areas

of transport and environment. The Czech authorities have elaborated sectoral strategy

documents for transport and environment. The main priorities included in the Strategy

Paper for Transport are road network development, railway infrastructure

development, waterway transport development and airport projects. The document

was adopted by the ISPA Management Committee (MC) in July 2000. The main

priorities included in the Strategy Paper for the Environment are drinking

water/waste-water, air quality and climate protection and waste management.

Projects submitted by the Czech authorities for ISPA financing in 2000 are presently

under review by the Commission. The Commission has commented on the

environment strategy, indicating in particular the need for links to quality standards set

by environmental legislation in the sectors of water and air.

For ISPA, the relevant structures and committees have been established, but it has yet

to be decided which would be implementing agency for ISPA projects. Overall co-

ordination of ISPA is assured by the Ministry for Regional Development, with line

ministries responsible for sectoral input. Inter-ministerial co-operation has been good.

Implementation of ISPA will follow the same institutional framework as for the Phare

programme, with the National Fund at the Ministry of Finance being in charge of the

overall financial management and a number of Implementing Agencies responsible for

the technical implementation. For the programming and financial management of

SAPARD, a different system will apply which reflects the EAGGF (European

Agricultural Guidance and Guarantee Fund) rules and is based on a fully decentralised

approach through an accredited paying and implementing agency.

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Twinning

One of the main challenges the candidate countries continue to face is the need to

strengthen their administrative capacity to implement and enforce the

acquis.

As of

1998, the European Commission proposed to mobilise significant human and financial

resources to help them in this respect, through the process of twinning of

administrations and agencies. The vast body of Member States’ expertise is now being

made available to the candidate countries, in particular through the long-term

secondment of civil servants and accompanying short-term expert missions. Thanks to

the strong support and response from EU Member States 107 twinning partnerships,

funded by Phare 98 and involving all candidate countries and almost all Member

States are operational. Under Phare 99 a further 99 projects are being implemented

and the programming exercise for Phare 2000 includes a further 129 twinning

projects. It is estimated that around 250 twinning projects will be operational

throughout the candidate countries at any one time.

To start with, twinning focused primarily on the priority sectors of agriculture,

environment, public finance, justice and home affairs and preparatory measures for the

Structural Funds. It now covers all sectors pursuant to the

acquis.

For the Czech Republic, 18 projects have so far been twinned under Phare, of which 8

projects are ongoing and 10 are in preparation. Under the 2000 national programme, a

further 20 twinning projects are envisaged.

Under the 1998 programme, Germany and France are assisting the restructuring of the

Ministry of Agriculture and the Market Intervention Agency, while Germany,

Denmark and Sweden are working together with Czech partners to strengthen

environmental law enforcement bodies. The state aid system will be developed, and

Germany and Greece will strengthen the capacity of the insurance sector and the

banking regulatory authority. Preparation for the Structural Funds is being led by the

UK, Ireland and France, while three justice and home affairs projects will strengthen

border control (Germany, Netherlands), develop law enforcement institutions

(Germany, UK), and promote the independence of the judiciary ( Netherlands).

The 10 twinning projects under the 1999 programme will help the Czech Republic

strengthen its administrative capacity in areas such as participation in the European

Structural Fund, control and management of EC financial flows, the fight against

economic crime, and preparation for Schengen implementation. The Consensus

programme, a horizontal programme to finance twinning projects in the social area in

all the candidate countries is being launched. It will finance four projects in the Czech

Republic, expected to start by the end of 2000.

The 2000 programme foresees both a continuation and an increase of twinning activity

in the Czech Republic. No less than 20 twinning projects are foreseen to help the

Czech public administration prepare for implementation of the

acquis

in areas such as

telecommunications and energy, air quality monitoring and pollution prevention and

control. As a priority sector for PHARE twinning assistance, justice and home affairs

will be particularly targeted by the 2000 programme, as will the modernisation of

Czech public administration.

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Although it is as yet too early to assess the overall impact of twinning in the Czech

Republic, the projects currently underway are proceeding satisfactorily after some

initial take-off problems. Pre-Accession Advisers and their host organisations alike

report satisfaction with the mechanism. There is a growing demand for twinning

projects in the Czech Republic and an increasing quality of Member States’ proposals

for the implementation of such projects.

Negotiations / screening

The analytical examination of the

acquis

(screening) for the Czech Republic started in

April 1998 and concluded in May 1999 with the examination of the chapter on

financial and budgetary provisions. An update of the screening started at the

beginning of 2000.

Since the opening of accession negotiations in March 1998, the Czech Republic has

participated in four rounds of Ministerial negotiations. As a result of these

negotiations, thirteen chapters of the 29 opened thus far have been provisionally

closed (science and research, education and training, small and medium-sized

enterprises, statistics, industrial policy, telecommunications, fisheries, consumer

protection, free movement of goods, customs union, external relations, common

foreign and security policy and EMU) while negotiations continue for the remaining

chapters.

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B. Criteria for membership

1. Political criteria

Introduction

The political criteria for accession to be met by the candidate countries, as laid down

by the Copenhagen European Council in June 1993, stipulate that these countries must

have achieved “stability of institutions guaranteeing democracy, the rule of law,

human rights and respect for and protection of minorities.”

In its 1999 Regular Report on the Czech Republic’s progress towards accession, the

Commission concluded that:

“The Czech Republic fulfils the Copenhagen political criteria. Further efforts should

be made to reform the judiciary and improve the situation of the Roma through the

implementation of an adequately funded policy and efforts to combat discriminatory

attitudes in society. Attention should also be paid to developing an effective policy to

combat economic crime and corruption.”

The section below aims to provide an assessment of developments in the Czech

Republic since the 1999 Regular Report, as well as of the overall situation in the

country, seen from the perspective of the Copenhagen political criteria, including the

overall functioning of the country’s executive and its judicial system. Developments

in this context are in many ways closely linked to developments in the Czech

Republic’s ability to implement the

acquis,

in particular in the domain of Justice and

Home Affairs. Specific information on the development of the Czech Republic’s

ability to implement the

acquis

in the field of Justice and Home Affairs can be found

in the relevant section (Chapter

24 – Co-operation in the field of justice and home

affairs)

of part

B.3.1.

of this report.

Recent developments

The minority government in place since July 1998 has been functioning normally in

both domestic and foreign affairs. Its programme has focused in particular on

management of the economy and economic restructuring as well as accelerating

preparations for EU membership and consolidating and improving good neighbourly

relations.

Relations between the CSSD government and the largest opposition party (ODS) are

characterised by the “Agreement on establishing a stable political environment in the

Czech Republic signed between the CSSD and the ODS” which was renewed and

extended in February 2000 on the basis of reciprocal commitments. Four other

opposition parties, which do not participate in this Agreement, have formed a “four

party coalition” and participate actively in the democratic process as a principled

opposition (KDU-CSL, US, ODA and DEU).

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Parliament adopted an amendment to the electoral law in May 2000 which, following

the request of the President, is being examined by the Constitutional Court. Elections

to the Senate and, for the first time, to the recently created 14 regions, are scheduled

for November 2000.

1.1.

Democracy and the rule of law

As stated in the previous Regular Reports, the Czech Republic has achieved stability

of institutions, guaranteeing democracy and the rule of law. This section focuses on

the most recent developments of the past year.

The Parliament

The

functioning

of the Parliament has been significantly improved through a more

effective dialogue with the government and the streamlining of its legislative scrutiny

procedures. Thus the Chamber of Deputies has amended its rules of procedure to

introduce a fast track possibility for,

inter alia,

EC related draft laws. The Chamber of

Deputies’ Committee for European Integration now holds discussions with Ministers

on legislative drafts prior to submission by the Government to the Parliament.

The Senate, in plenary and in its committees, also plays a role in the legislative

process. It has streamlined its procedures and a greater number of its proposed

amendments are now being adopted by the Chamber.

Since the 1999 Regular Report there has been a significant acceleration in the

legislative process, including for EU related laws. Thus, since 1 July 1999, 132 acts

were promulgated in the Collection of Laws, an almost fivefold increase on the period

covered by the 1999 Regular Report, during which only 27 acts were passed. Out of

192 acts published in the Collection of laws, 79 were identified by the Government

when proposed to the Parliament as EU-related (as of 12 October 2000).

The Executive

The

structure

and

functioning

of the government is stable but several important

reforms, outlined below, to improve effectiveness have still not been enacted. Within

the Cabinet certain procedural changes have been made in response to the need to

strengthen the preparation of draft laws and to ensure better policy coordination,

including on EU accession preparations.

The 1999 Accession Partnership established as a short term priority the adoption and

implementation of the Act on the Civil Service, as well as training of state officials.

Although the Accession Partnership priorities on the training of state officials are

being partly met through various Government initiatives, the requirement concerning

the adoption of the Act on the Civil Service has not yet been fulfilled.

The Government’s 1998 Manifesto identified the Act on the Civil Service as one of

the most important objectives to be reached by mid-election term (i.e. mid-2000). The

draft Act has recently been approved by the Government. However its original

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commitment that the Act would enter into force by 1 January 2001 has been deferred

to 1 January 2002.

The performance of the state administration remains crucially dependent on the

approval and implementation of the Act on Civil Service. This should foster political

independence and will reduce the scope for political interventions in the appointment

of officials. It should also promote effective management and assist in the creation of

a unified system of human resources development. The terms and conditions of

officials should also be improved, so helping to attract and retain sufficiently qualified

staff.

A number of measures have been taken to prepare for the introduction of the Act,

including training for senior officials in EU affairs and languages. Furthermore the

Office of the Government has established a small unit charged with examining ways

in which the central civil service can be reformed within the current legal and

administrative arrangements. This unit will evolve into a central personnel

department for the whole civil service. The Ministry of the Interior has established

“state civil service reform units“ in some Ministries.

In September 2000 the “Lustration Law” that excludes from public service posts (but

not from political offices) members of, and persons who cooperated with, the former

State Security Service was amended in order to extend its provisions until the new

Civil Service Act is approved. It is important that this deadline for phasing out the

lustration measures be respected.

In general, the Czech Republic needs to do more to complete the process of

administrative reform. Although there are undoubtedly areas in which incremental

changes are being made and where some improvements have already been achieved,

there is a clear need to improve public administration standards further. The absence

of an Act on Civil Service continues to impact negatively on the overall effectiveness

of the public administration in a number of ways.

Under the present system there is a lack of legal distinction between political

appointees and career officials. There is no legislation to define civil servants in the

Czech Republic, nor any official definition of a civil servant. This has a tendency to

encourage short-term appointments and to discourage professionalism. Low salaries

also make it difficult to attract and retain staff. Establishing a proper legal basis for the

civil service should provide a more attractive career package, including security of

tenure where appropriate as well as recognisable opportunities for career progression

based on merit.

A decision is required on the development of a central system for uniform training of

state officials. Furthermore, the effectiveness of performance targets is undermined by

the lack of measures to hold staff accountable for policy implementation. The Czech

Republic needs to develop clear systematic mechanisms to ensure the implementation

of objectives across government.

The Government cited decentralisation of public administration as one of the key

priorities in its 1998 Manifesto. The Government’s 1998 legislative programme

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included a commitment to prepare the necessary legislation by mid-term in order to

convene regional elections in autumn 2000. At the same time, the Government

committed itself to passing a number of conceptual documents on regional

administration, covering

inter alia

the exercise of powers and regional competencies.

The Czech Republic has taken a number of measures to meet these commitments. In

June 1999 the Parliament approved the concept of the overall reform of public

administration, the main element of which was decentralisation.

Following

Government approval in November 1999, a package of decentralisation measures was

adopted in June 2000. The package entailed a significant shift of powers and

competencies from the centre to the regions, particularly in the areas of education,

health care, culture, transport, regional affairs, and agriculture. Elections to the

regional assemblies will take place on 12 November 2000. This will put in place a

new level of public administration in the Czech Republic.

Despite these steps, important decisions remain to be taken regarding the financing

and staffing of the decentralisation process. Furthermore, a number of conceptual

documents on specific issues related to decentralisation remain to be adopted. A

decision also needs to be taken on the status of public servants working for regional

assemblies and for municipal assemblies. Currently such public servants do not come

under any uniform structure of human resources management. Consequently

conditions of employment and the exercise of duties may differ from region to region.

Homogeneous selection criteria for the recruitment and remuneration of regional

assembly staff also need to be drafted to ensure selection based on professional

considerations.

The judicial system

The 1999 Accession Partnership established as a short term priority the

implementation of a programme to reform the judiciary by filling vacancies,

simplifying procedures, and stepping up the training of judges in EC law. However,

certain key parts of the reform remain to be adopted.

In February 2000, the Czech Government adopted the ambitious and comprehensive

reform programme ‘Concept of the Reform of the Judiciary’, aiming to deal with the

administration and structure of courts, the independence of the judiciary and training,

as well as complete re-codification of the civil, criminal and commercial codes.

Progress was made in the passing of an amendment to the Civil Procedure Code and

the Commercial Code (both coming into force in January 2001) which are intended to

simplify and accelerate civil and commercial proceedings as regards interim measures,

the taking of evidence, rules governing appeals, enforcement of judgements, and the

Commercial Register. Also, the ineffective Regional Commercial Courts will be

abolished from January 2001.

However, substantial draft amendments to both the Criminal Code and the Criminal

Procedure Code, as well as draft constitutional amendments regarding judicial self-

administration and the functional structure of the courts, have been rejected by the

Parliament as insufficiently prepared. This has led to a revision of the legislative

timetable, thus delaying significantly the date for full completion of the reform. It is

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crucial, for the effective implementation and enforcement of the EC

acquis,

that the

full momentum of judicial reform be maintained.

As confirmed in last year’s Regular Report, the speeding up of judicial proceedings,

training of judges and prosecutors and adequate administrative support for the courts

are still key areas requiring improvement. The performance of the judiciary in the

fight against organised and economic crime must also be addressed.

The

length of judicial proceedings

and the backlog of cases remain considerable. The

average length of court cases in the Czech Republic has increased since the last

Regular Report as far as civil cases in the District Courts (563 days) are concerned. It

has decreased slightly for criminal cases in the District Courts (252 days) and civil and

criminal cases in the Regional Courts (311 days and 489 days respectively).

The Ministry of Justice’s figures show that in the first half of 2000 the total number of

court rulings was 33,733 out of which 8,648 were appealed. The corresponding

figures for the year 1999 were 62,594 and 14,988. Also, in the first half of 2000 the

total number of unresolved cases stood at 381,405 for the District Courts (criminal,

civil, family and succession cases and enforcements) and at 175,887 for the Regional

Courts (criminal, commercial, insolvency, pension, and administrative cases). In 1999

the Supreme Court decided on 2,874 cases out of 3,002 cases filed, and at the end of

1999 it had a backlog of 2,048 undecided cases. In 1999, 18 disciplinary proceedings

were initiated against judges in the case of delays, and 7 have been brought since

2000.

As regards

status and remuneration,

judges are appointed for life by the President of

the Republic and are independent, although the Minister of Justice can formally recall

them (in practice, this has not happened). Judges’ salaries are set by law and are

relatively high. State prosecutors are subject to a security vetting procedure, their

salaries are on average lower than those of judges and their employment conditions

are inferior. These comparatively inferior conditions of work may have a negative

impact on their motivation and performance and should be redressed.

The Ministry of Justice determines the number of judges. Six vacant posts for judges

were filled in the reference period, bringing the number of

judicial vacancies

to 300

out of a total of 2,801 posts. 370 trainee judges are currently undergoing training, but

will not be fully qualified for a further three years. Out of a total of 990 posts for state

prosecutors, there are currently 88 vacancies. 100 trainees are being trained under a

programme to be completed in three years’ time.

The

training

of judges is also the responsibility of the Ministry of Justice and is

mainly provided by the Higher Institute of Training for Judges and State Prosecutors.

This training is still not systematic, and lacks long term concepts and planning. The

courses focus on a key number of areas (human rights, democracy, civil and criminal

judicial co-operation) but there is a lack of specialised knowledge of EC law due

inter

alia

to the absence of foreign language skills.

Thus, judges and state prosecutors remain insufficiently specialised in EC law.

Training in international and EC law is in principle mandatory, and is currently

provided through bilateral or multilateral projects, but it has covered so far only

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around 4% of Czech judges and 10% of state prosecutors. However, the situation

should improve as a result of several Phare initiatives during 1999 and 2000. Besides,

judges and state prosecutors also lack sufficient specialisation in the areas of

economic crime, corruption and money laundering.

Many courts continue to still suffer from a lack of modern

equipment

and information

technology. This situation is now being addressed with Phare support. Judges and

prosecutors also continue to lack adequate administrative support staff, which

contributes to the length and inefficiency of court proceedings.

Anti-corruption measures

Corruption continues to be a problem, as does economic crime (fraud, money

laundering, institutional theft, and the phenomenon of ‘tunnelling’ or asset-stripping).

Despite efforts to combat them, implementation in these areas is still far from

satisfactory

(see Part B.3.1., Chapter 24 on Cooperation in the field of Justice and

Home Affairs).

Opinion surveys show that one in five Czechs assume that corruption pervades many

areas of everyday life. According to public opinion, corruption in the Czech Republic

is most widespread in the state administration, followed by the police and intelligence

services, healthcare, banking and the political sphere.

The Government announced in 1998 that it would undertake a campaign against

corruption and economic crime. This was named the “Clean Hands Campaign” and

aimed to “create

an environment acceptable for both foreign and domestic investors

and to recover credibility of the state in the eyes of its own citizens

”

Responsibility was located within the government itself. The Committee for the

Protection of the Economic Interest (CPEI), chaired by the Prime Minister, was

charged with overall coordination. It included the Deputy Prime Minister for

Legislation, Minister of Justice, Minister of the Interior and Minister without

Portfolio. The latter also chaired a Coordination and Analytical Group (CAG).

The CAG was mandated to analyse the institutional and legal framework with a view

to strengthening the fight against economic crime and corruption but also to present to

the CPEI specific cases of alleged crime.

Over the one and a half years of its duration the campaign was able to identify

shortcomings in the public administration and it pointed to the need for further action.

However, whilst the police registered some progress in some of its anti-corruption

activities, the Clean Hands Campaign itself yielded little in terms of actual

prosecutions and convictions. Thus, of the 209 reports on specific complaints which

Report from the Minister without Portfolio to the Government approved on 15

March 2000 entitled,

“Analysis of Activities Conducted by the Committee for the Protection of Czech Republic’s

Economic Interests and its Co-ordination and Analytical Group”.

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the CPEI submitted to the State Prosecutor, 70 were submitted to the Police for further

investigation. In 18 of these cases criminal proceedings have been launched, while

only 6 have so far lead to a trial. The prosecution of another 10 cases was postponed.

Figures made available by the Ministry of Justice give an overview of the overall

results obtained in this field. As regards corruption (bribery related offences) there

were 203 prosecutions and 110 sentences in 1999 and 84 prosecutions and 50

sentences in the first half of 2000. As regards “abuse of the position of public

official” there were 253 prosecutions and 85 sentences in 1999 and 141 prosecutions

and 47 sentences in the first half of 2000. Concerning money laundering, there were

16 prosecutions and 5 sentences in 1999 and 9 prosecutions and 4 sentences in the

first half of 2000.

In Spring 2000, the Government announced that the CPEI and CAG were to be closed

down. At the same time, the Ministry of Justice allocated additional funds in order to

establish, within the State Prosecutor’s Offices in Prague and Olomouc, specialised

units dealing with corruption and economic crime.

At present, the fight against corruption and economic crime suffers from inadequate

staff, a lack of specialised training and a lack of effective cooperation among the law

enforcement institutions involved. In particular, the duplication of work between the

police and investigators, and the insufficient police powers to investigate offences

continue to seriously hamper the prosecution of corruption and economic crime.

The rejection by Parliament in May 2000 of an amendment to the Criminal Procedure

Code, which intended

inter alia

to modernise the Czech police, as well as the absence

of concrete progress in the reform of the Civil Service statute and the low salaries of

state employees, continue to bear negatively upon the overall effectiveness of the law

enforcement institutions.

The current situation gives cause for concern, not least because of its possible impact

on the investment climate. Efforts need to be stepped up to obtain quick and tangible

results in the fight against economic crime and corruption. The achievement of such

results requires full political commitment and the mobilisation of the necessary

material and human resources.

In January 2000, the Czech Republic ratified the OECD Convention on Combating

Bribery of Foreign Public Officials in International Business Transactions. On 8

September 2000, it ratified the Council of Europe Criminal Law Convention on

Corruption. The Czech Republic has not yet signed the Council of Europe Civil Law

Convention on Corruption.

1.2.

Human rights and the protection of minorities

As indicated in the previous Regular Reports, the Czech Republic continues to respect

fundamental human rights and freedoms.

The Czech Republic further completed its participation in the main international

human rights conventions by ratifying, in November 1999, the European Social

Charter. However, the revised European Social Charter has not been signed yet.

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The Czech Republic has continued to develop its internal institutional framework in

the field of human rights. Following the establishment of a Human Rights

Commissioner mentioned in the 1998 Regular Report, the Act creating the Public

Protector of Rights (Ombudsman) came into force in February 2000. The

establishment of the Office of the Ombudsman is intended to reinforce the protection

of citizens against unlawful conduct of, and maladministration by public bodies and

institutions. The Ombudsman will be responsible for scrutinising ministries, district

and financial offices and other state administration bodies whilst investigating

whether fundamental rights and freedoms have been violated. He/she will also be

empowered to deal with complaints concerning the police, the army, prison services,

public health insurance offices and medical facilities. However, the Ombudsman has

no power to sanction the authorities, his powers being limited to notifying a superior

organ, or the Government, and to making the case public. Whilst several candidates

for the post have been proposed to the Chamber of Deputies, in line with the

established procedure, agreement has not yet been reached on the appointment.

Civil and political rights

The 1999 Regular Report noted the Parliamentary approval of the Access to

Information Act, with the purpose of ensuring citizens’ access to non classified

information, as well as approval of amendments to the citizenship law which made it

easier for former Czechoslovak citizens to obtain Czech citizenship. These pieces of

legislation have now entered into force. The Report underlined the problems of

prison overcrowding, the conditions of police detention and the persistence of

trafficking in women and children.

Since the last Regular Report, the outstanding issue regarding the

citizenship

of those

individuals who lost their citizenship in the period between 1948 and 1990, under the

Communist regime, was addressed by an amendment to the Act on Citizenship of

Some Former Citizens. These individuals may now apply for acquisition of Czech

citizenship on the basis of a declaration.

The Minister of Justice has taken steps to improve the

prison system.

The budget for

the prison service was increased in 2000 from CzK 4.6 billion to CzK 5 billion,

equivalent to a 9% rise. The new Prisons Act , which came into force in January, aims

to bring about improvements in the rights and conditions of prisoners and in the

relationship between prisoners and prison services. However, certain aspects were

contested, in particular the introduction of a financial levy on prisoners. The Custody

Law has been amended to improve the conditions of suspects in custody.

Whilst prisons generally meet minimum international standards, the chronic problem

of overcrowding remains, with negative consequences for both prisoners and the

prison administration. Statistics of the Prisons Services indicate that the average

length of pre-trial detention has dropped slightly, from 225 as indicated in the 1999

Report, to between 190-200 days. In May 2000, the number of pre-trial detainees was

down to 6,457 and the total prison population fell to 22,953 whilst the total prison

capacity increased to 19,918. Thus a slight improvement has been registered since the

1999 Regular Report.

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The situation in a considerable number of

police detention

facilities remains

unchanged i.e. persons in detention are frequently unable to notify a third person of

their situation. In April 2000 the Czech Republic signed the Additional Protocol to

the Convention on the Transfer of Sentenced Persons.

Although specific laws prohibit

trafficking in women and children,

and despite the co-

operation between the authorities and third countries to enforce them, there is still

room for improvement in this area.

The

asylum

law, which entered into force in January 2000, aims to increase the

selectivity of criteria for granting asylum, notably by establishing a list of countries

deemed to be a “safe country of origin”. Applicants from these countries will be

unlikely to receive asylum. The new law also allows the state to finance legal advice

for asylum applicants and to support towns with asylum centres. However, the law

does not have an independent second instance for rejected asylum applications.

In 1999, 7,219 people requested asylum in the Czech Republic. In the period 1990-99,

1,898 were granted the status of refugee, of which 80 in 1999. The government funds

an integration program to assist those granted refugee status to locate housing and

receive other social assistance.

In March 2000 the Human Rights Council of the Czech Republic found that the

aliens

law, which entered into force in January, contains a number of discriminatory

provisions and, in particular, violates the Convention on Rights of the Child.

Subsequently, the government proposed an amendment in August which

inter alia

addresses this finding. The law on the

restitution of property

confiscated during the

Holocaust was adopted in the Chamber of Deputies. The law will allow the return of

confiscated property to the Federation of Jewish Communities or individual Jewish

communities. The Government has set aside CzK 300 million for a fund to

compensate owners whose property cannot be returned.

As regards

freedom of expression

and the media, in March the Parliamentary Media

Commission dismissed the Television and Radio Council on the legal grounds that

Czech TV had failed to fulfil its public service role. The Council was criticised widely

during the year for its lack of initiative and ineffective action in addressing an

ownership dispute at the country’s largest private television channel.

Economic, social and cultural rights

As regards

equal opportunities,

the Czech Republic signed the optional protocol to the

Convention on the Elimination of All Forms of Discrimination against Women

(CEDAW) in December 1999. Nonetheless, despite the ban on all forms of

discrimination against women, salaries for the same type of work remain

approximately 25% lower than those of men according to the 1999 report on human

rights of the government Council for Human Rights.

An amendment of the Employment Act which entered into force in October 2000 bans

all forms of discrimination and gives the district labour offices the power of sanction

(for details see Chapter 13 – Social Policy and Employment in part B.3.1. of this

report).

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In April 2000, the law on the social and legal

protection of children

entered into force.

In 2000 there have been demonstrations prompted by the non-payment of wages by

some large firms. This is reported by the government to be affecting 53,000 workers.

The Act on the Protection of Employees in case of insolvency, which came into force

in May 2000, addresses this issue by making district labour offices responsible for the

payment of wages in case of insolvency. In addition, the government launched a loan

scheme, which enables district offices to grant loans to people who are not being paid.

Membership in

trade unions

has been steadily declining since 1989 and continued to

do so in 1999. While in 1998 26% of the labour force was unionised, by 1999 this

had fallen to 23%. The spokesman of the Czech-Moravian Confederation of Trade

Unions said that the decrease in membership is mainly due to the industrial

restructuring.

Minority rights and the protection of minorities

The 1999 Regular Report concluded that the greater attention paid by the government

to the improvement of the condition of the

Roma

needed to be translated into a

comprehensive long-term policy to fight discrimination and social exclusion. The

1999 Accession Partnership established as a short term priority the implementation of

the Government Resolution of 7 October on Roma including provision for the

necessary financial support, measures aimed at fighting discrimination, fostering

employment opportunities and increasing access to education.

In June 2000 the Czech government adopted a draft outline for a long-term policy

called, “Concept of the Government Policy towards Members of the Roma

Community”. It envisages a strategic action programme for the period 2001-2020,

focusing on the key areas of education, employment, housing and the fight against

discrimination. The Inter-Ministerial Roma Commission also submitted a progress

report in June 2000 on the fulfilment of the measures of the government’s 1997 action

plan to improve the situation of the Roma. The report indicates that the vast majority

of the measures have been fulfilled.

The action plan has had the most tangible results in the field of education. The 1999

state budget set aside CzK 12.3 million to pay for assistants for Roma children in

kindergartens, primary schools and special schools. There are currently 180 assistant

teachers in schools helping Roma children.

The Ministry of Education, Youth and Sports has recommended that schools include

in their syllabus multicultural education programmes and schools have acted to make

information concerning Romany culture more widely available. An amendment to the

School Act entered into force in February 2000 which significantly improves access to

higher education for the Roma community.

Nonetheless, education levels for Roma children remain low and these still make up

some 70 % of children sent to special schools ie schools for children with educational

difficulties. Out of the extended network of 114 preparatory schools set up in 1999 to

prepare Roma children for mainstream primary schools, 41 have actually been set up

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in the special schools. The European Roma Rights Centre (ERRC), an independent

body based in Budapest which monitors Roma human rights issues and provides legal

defence, has filed a suit against the Ministry of Education and the principals of the

special schools, alleging that the high proportion of Roma children in special schools

has meant

de facto

segregation. The action was first brought before the Czech

Supreme Court but was dismissed in October 1999. The ERRC then took the case to

the European Court of Human Rights in April, where the case is still pending.

There have been some positive steps in the field of housing. In particular, in April

2000 the government earmarked CzK 32.5 million for the reconstruction of two

buildings, mainly occupied by Roma, in Brno (Moravia). The government will also act

as guarantor for a CzK 32.5 million soft loan from the Council of Europe

Development Bank to the city of Brno.

In October 1999 the city of Usti nad Labem constructed a wall between a building

occupied mostly by Roma citizens and its neighbours across the street. The Chamber

of Deputies reacted by condemning the construction of the wall. The government also

expressed its opposition, and appointed a deputy Minister for the Interior as its special

mediator in discussions between the district authority and the local council.

Subsequently, in November the city dismantled the wall. In return it received a state

subsidy worth CzK 10 million, of which CzK 3.6 million was used to buy the houses

of the citizens who had required the Council to build the wall. In April the

Constitutional Court upheld a subsequent complaint by the City Council that the

Chamber of Deputies’ vote to abrogate the City Council’s decision to construct the

wall was not in line with the division of competence between Parliament and local

government.

As regards the overall situation of the Roma in the Czech Republic, further efforts are

needed, in particular to combat anti-Roma prejudice and to strengthen the protection

provided by the police and the courts. Estimated Roma unemployment remains very

high at 70-90 %. Health and housing conditions are still much worse in the Roma

communities than amongst the general population. Attitudes at local level are largely

unaltered, as illustrated by some recent district court judgements. The inter-

Ministerial Roma Commission still has no budget to implement policies, no executive

power and few permanent staff. The long-term strategic action programme essentially

comprises a list of tasks for individual ministries, but contains no overall budgetary

provisions.

In June the government approved the draft principle of a law on the rights of national

minorities.

On the whole the situation as regards

other minorities

in the Czech Republic

(comprising particularly Slovaks, Poles, Germans, Hungarians and Ukrainians)

remains satisfactory. In March 2000 the Ministry of the Interior banned the National

Alliance, an extremist group. Nonetheless, the Ministry of the Interior’s 2000 Report

on Extremism noted a slight increase in the number of followers of

extremist

movements

over the period 1998-1999 (following a doubling of membership over the

period 1997-1998).

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In 1999 the number of racially motivated or extremist crimes rose to 316 (from 133 in

1998) of which 273 were solved (compared to 100 in 1998). The 2000 Report on

Extremism stressed the improved effectiveness of the police and the increase in the

number of crimes reported, especially by the Roma. In 1999, there were no fatalities

caused by extremist movements although a number of assaults took place.

A number of positive steps have been taken to fight discriminatory attitudes and the

spread of racism. In particular, in December the government launched an anti-racism

campaign for the first time, allocating CzK 10 million from the state budget.

1.3.

General evaluation

The Czech Republic continues to fulfil the Copenhagen political criteria. Recent

significant developments include, in particular, a more effective collaboration between

the government and Parliament.

There has been progress in setting the legal framework for regional government.

However, the reform of the public administration has not advanced significantly and

therefore the short term priority of the Accession Partnership in this field has not been

met. The reform of the judiciary is equally a short term priority of the Accession

Partnership. Whilst progress has been made, it is regrettable that certain key parts of

the reform have not yet been adopted. Administrative and judicial reform are both

essential for effective enforcement of the

acquis

and improved good governance.

Thus efforts must be pursued in these fields, in line with the medium term priorities of

the Accession Partnership.

Furthermore, the fight against corruption and economic crime has so far been

insufficient. Tangible results in this field will respond to public concern and help

ensure a transparent business environment.

The Czech Republic continues to respect human rights and freedoms and has

developed its internal institutional framework in this field. Nevertheless, areas of

concern remain, in particular overcrowding of the prison system and persistence of

trafficking in women and children.

Increased and, in some areas, significant efforts have been made since last year

regarding the situation of the Roma community, notably with regard to the education

system. However, a lasting improvement in the situation of the Roma requires

sustained effort over time. Further progress is needed, as indicated in the medium

term priorities of the Accession Partnership.

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2. Economic criteria

2.1.

Introduction

In its 1997 Opinion on the Czech Republic´s application for EU membership, the

Commission concluded:

"The Czech Republic can be regarded as a functioning market economy; it should be

able to cope with competitive pressure and market forces in the Union in the medium

term provided that change at the enterprise level is accelerated."

This finding was confirmed in the 1998 and 1999 regular reports. In its 1999 regular

report the Commission found that

"The Czech Republic should be able to cope with competitive pressure and market

forces within the Union in the medium term, provided that the government accelerates

implementation of legal and structural reforms."

In examining the economic developments in the Czech Republic since the 1997

Opinion, the Commission’s approach is guided by the conclusions of the European

Council in Copenhagen in June 1993 which stated that membership of the Union

requires:

•

the existence of a functioning market economy;

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

Union.

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

Opinion, as well as in the previous regular reports.

2.2.

Economic developments

The macroeconomic situation in the Czech Republic has improved since the last

regular report.

Three years of recession came to an end in the second quarter of 1999,

when GDP growth resumed. In the first half of 2000, real GDP growth rose by 3.1%.

This recovery was driven by external demand, reflecting the revival of economic

activity in the EU, and by private consumption. The unemployment rate, which

increased during the period of recession and reached 9.4% by the end of 1999, edged

down to 9% in August 2000. Foreign direct investments have supported job creation

and have helped to offset part of the job losses due to restructuring. The current

account deficit narrowed from 2.4% of GDP in 1998 to 2% in 1999. As a result of

prudent monetary policy, inflation fell to an average rate of only 2.1% in 1999, but,

mainly due to the rise in international commodity prices, the inflation rate has recently

been increasing. The general government budget deficit in 2000 will be considerably

higher than the 0.6% of GDP recorded in 1999. The monetary and fiscal policy mix

has been appropriate.

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Czech Republic

Real GDP growth rate

Inflation rate

- annual average

- December-on-December

Unemployment rate, end-year

- ILO definition

General government budget

balance

Current account balance

per cent

1996

4.8

1997

-1.0

1998

-2.2

1999

-0.2

2000 latest

3.1 Jan-June

per cent

9.1

8.9

8.6

10.2

10.8

6.8

2.0

2.5

3.3

Sept

4.1 Sept

per cent

3.9

4.8

6.5

8.7

8.7 April-June

per cent of GDP

million

€

-1.7

-7.4

-3,381

-2.1

-6.1

-2,835

-2.4

-1,187

-0.6

-2.0

-993

–754 E Jan-June

Foreign debt

- debt export ratio

- gross foreign debt

Foreign direct investment in flow

- balance of payments data

per cent

million

€

45.9

11,062

43.1

11,388

38.2

11,492

37.7 E

11,932 E

per cent of GDP

million

€

2.5

1,125

2.5

1,148

4.9

2,416

9.6

4,792

2,135 E Jan-June

E = Estimates

The Czech Republic has accelerated structural reforms.

Privatisation activities, which

were under review in 1999, were re-launched at the beginning of 2000, when the

minority government and the largest opposition party agreed to complete the

remaining privatisation of large enterprises within the next two years. The

Revitalisation Agency has selected nine large companies to be restructured. With a

view to the improvement of business practices, the privatisation of banks has been

progressing with the sale of

Česká

Spořitelna (the Czech savings bank) to a foreign

bank; Komerční Banka, the largest commercial bank in the Czech Republic and the

only one left with a majority state participation is envisaged to be privatised in 2001.

The agreement between government and opposition also contains commitments on

income tax and pension reform.

PROXY HICP since 1996 (see methodological notes).

Moving 12 month average rate of change.

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Main indicators of Economic Structure in 1999

Population (average)

GDP per head

Thousand

PPS-€

Per cent of

EU average

Share of agriculture

in:

- gross value added

- employment

Investment-to-GDP ratio

Gross foreign debt/GDP

Exports of goods &

services/GDP

Stock of foreign direct

investment

End of 1999 data (Eurostat)

10,283

12,498

per cent

Million

€

per head

3.7

5.2

26.4

24.0

63.6

16,191

1,575

2.3.

Assessment in terms of the Copenhagen criteria

The existence of a functioning market economy

As set out in Agenda 2000, the existence of a functioning market economy requires

that prices, as well as trade, are liberalised and that an enforceable legal system,

including property rights, is in place. Macroeconomic stability and consensus about

economic policy enhance the performance of a market economy. A well-developed

financial sector and the absence of any significant barriers to market entry and exit

improve the efficiency of the economy.

The agreement between the minority government and the largest opposition party has

resolved the differences on the implementation of economic policy, and thus reflects

greater consensus.

Only after reaching this agreement, could the state budget for 2000

be approved by Parliament in March 2000. The Government has committed itself to a

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

from those used in demographic statistics.

Agriculture, hunting, forestry and fishing.

Data refer to Gross fixed capital formation as % of GDP.

The 1999 data for foreign debt are estimates.

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gradual reduction of budget deficits. However, the agreement also allows the

government to create new extra-budgetary funds for housing and transportation. The

Government has further agreed not to raise income tax, to submit a proposal for

pension reform and to speed up privatisation.

The medium-term framework for macroeconomic policy in the Czech Republic is

provided by the Government’s "Economic Strategy of the Accession to the European

Union", which was adopted in May 1999.

In November 1999 the Czech government

and the European Commission services signed a "Joint Assessment of Economic

Policy Priorities", which reviews the economic policy options for the medium term.

Considering the current favourable macroeconomic developments in the Czech

Republic, the government is planning to move medium term economic priorities into

the centre of attention, especially in the area of fiscal policy. Policy co-ordination

between the Government and the Czech National Bank has improved substantially.

The Government has endorsed the CNB’s medium-term monetary strategy and the

inflation target for 2001. A joint policy has been formulated in order to contain

upward pressure on the currency. Special attention needs to be paid to the preservation

of the central bank’s independence, as required by the EC

acquis.

In 1999 real GDP contracted by 0.2%, compared with a negative growth rate of 2.3%

in 1998.

The recession of the Czech economy bottomed out in the first quarter of

1999, when real GDP was 3.3% lower than in the same period of the previous year.

Growth picked up subsequently, although only moderately at first. The recovery was

led by external demand and private consumption. Fixed capital formation, which

shrank by 5.5% year-on-year, contributed more negatively to economic growth than

the year before. In the first half of 2000, however, fixed capital formation increased by

3.8% and overall economic growth was 3.1% compared with the same period of 1999.

Strong demand in the EU continued to push up exports, which rose by 22.5% in value

year-on-year, whilst imports increased by 19.4%.

Unemployment in the Czech Republic has remained at a rather high level.

This goes

hand in hand with wide regional disparities. At the end of January 2000, the

unemployment rate peaked at 9.8%, after which it came down to 9.0% at the end of

August 2000. This decline reflected the economic recovery, the job creation due to

foreign investments, helped by active labour market policy. However, as an

acceleration of large-scale enterprise restructuring is likely to increase lay-offs, the

challenges of reducing structural unemployment and improving the flexibility of the

labour market remain.

Inflation came down sharply from an average rate of 10.7% in 1998 to 2.1% in 1999.

The inflation target of the Czech National Bank, which had been set at 4.5±0.5%, was

undershot considerably, as was the case in 1998. The sharp reduction of inflation was

the result of prudent monetary policy and low economic activity in the first three

quarters of 1999. Since the end of the year, the resumption of price deregulation, the

rise in world energy prices and the recovery of economic activity have induced an

acceleration of inflation to 4.1%, at the end of September 2000 year-on-year. Net

inflation, excluding administrative price changes, amounted to 3.2% .

Monetary policy has been eased over the last year in an attempt to support the growth

prospects of the economy.

In the autumn of 1999 the Czech National Bank cut the key

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interest rates, but it took some time for these measures to have effect in terms of

market rates offered to the public. Commercial banks have remained cautious in the

extension of credit to enterprises as they still suffer from weak balance sheets and

insufficient management capacity.

Strong foreign capital inflows have continued to put the Czech crown under upward

pressure.

Though an explicit exchange rate target does not exist for the Czech

currency, the central bank has been intervening selectively in the foreign exchange

market in order to prevent the Czech crown from undesirable appreciation. Renewed

foreign capital inflows are expected for this year. As one element of the "Strategy of

Economic Policies in a Period of Higher Capital Inflows", the Government has

established a special account to collect privatisation revenues from foreign investors

by the Czech National Bank.

The current account deficit has narrowed significantly.

In 1999 it fell to 2% of GDP

from 2.4% in 1998. The improvement was caused mostly by a decrease in the trade

deficit. In 1999 exports grew significantly slower than in 1998, but export growth still

outpaced import growth. The deficit was more than fully covered by financial flows,

which added to the reserves. This situation continued in the first half of 2000.

In 1999, the general government posted a deficit of 0.6% of GDP, benefiting from a

surplus on the budget of local authorities.

This result was far better than the expected

deficit up to 3.5% of GDP and could only be achieved by deferring the 1998 losses of

state-owned Konsolidacni Banka to the 2000 budget. At the beginning of this year, the

deficit of the general government budget for 2000 was projected to be about 3.5% of

GDP, but the government has recently revised its projection to 5.2% of GDP. It has

explained the higher deficit with the need to cover Konsolidacni Banka´s losses of

1998 and 1999, which amount to

€1.369

billion. However, if privatisation receipts

were not counted as revenue, the general government deficit would reach some 7.7%

of GDP. Official public debt rose by

€1.193

billion in 1999, leading to a total debt

stock of

€8.051

billion (or 16% of GDP).

Fiscal reform is a political priority.

The government has taken steps to enhance fiscal

transparency in line with the IMF Code of Good Practices on Fiscal Transparency. A

new Law on Budgetary Rules for the State Budget was approved, which requires the

government to present an indicative three-year rolling budget simultaneously with the

annual draft of the state budget. The law will enter into force on 1 January 2001 but it

has already been applied to the draft state budget for 2001. Furthermore, a complete

list of outstanding state guarantees will be worked out, including the medium-term

projection of the losses of the off-budget institutions.

A strong commitment to fiscal transparency is needed to stop the proliferation of off-

budget deficits and contingent liabilities, which could endanger macroeconomic

sustainability in the medium term.

If the official fiscal deficit of the general

government were to be adjusted for the deficits of all off-budgets entities, the fiscal

deficit would be considerably higher. Moreover, significant contingent liabilities have

been accumulated through off-budget funds and the extensive use of state guarantees.

These liabilities, if properly accounted, could double the amount of public debt. Most

worryingly, this situation continues to deteriorate. New off-budget entities are being

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created - the Transportation Fund and the Housing Fund - and the amount of state

guarantees is rapidly increasing in connection with bank and enterprise restructuring.

Privatisation of strategic enterprises has been revived.

The proportion of private

ownership has remained more or less constant since 1996. Three quarters of GDP is

produced in the private sector. The state, through the National Property Fund, still

retains significant stakes in more than some 350 companies. Apart from the successful

sale of the Ceska Sporitelna bank, the state sold its 30% share in Skoda Auto to

Volkswagen AG in June 2000. The approval of the new Telecommunications Act in

early 2000 has paved the way for privatisation in the telecommunications sector. The

sale of the oil refinery Paramo is also expected to take place in 2000. In addition, the

large-scale enterprises in the portfolio of the Revitalisation Agency are being prepared

for sale. Finally, it is worth noting that the state is actively involved in the

restructuring of already privatised enterprises.

Market forces determine the prices of a vast majority of goods.

Trade and foreign

exchange regimes have been liberalised. Administered prices form 18% of the

consumer basket. Price deregulation, which slowed down in 1999, has gained

momentum this year. The government has committed itself to pursuing further price

alignments aiming to eliminate market distortions. In 2000, prices for public transport,

postal services, housing, gas and electricity will be increased. The deregulation of

administered prices is foreseen to be completed by the end of this parliamentary term.

Market entry and exit mechanisms have not been functioning sufficiently well.

The

registration of business activities continues to be a lengthy and uncertain process in

the Czech Republic, marred by inequality of treatment. Similarly, the lack of efficient

bankruptcy procedures has been a serious drag on economic adjustment in the

enterprise sector. In 1999, the number of bankruptcy proposals submitted to courts

amounted to about four thousand, but only two thousand bankruptcy judgements were

delivered. Obsolete bankruptcy legislation and capacity and qualification problems

within the courts have been the main reasons. An amendment to the Bankruptcy Law

and a new Law on Public Auctions entered into force in May 2000. The new

legislation aims to accelerate bankruptcy proceedings and to balance creditor’s and

debtor’s rights by allowing specialised firms or legal persons to act as trustees in

bankruptcy. The Law on Public Auctions further simplifies the procedure of recovery

of claims in favour of the creditor through seizure and sale of collateral. As the role of

courts remains dominant, the effective implementation of the amended Bankruptcy

Law depends very much on improvement of the court system. That the amended

Bankruptcy Law is still not satisfactory is illustrated by a new amendment that has

recently been submitted to Parliament.

Although private ownership is dominant in the economy as a whole and the land

market has been liberalised, a large share of agricultural land is still in state hands.

Currently, the State Land Fund is supervising about 900,000 hectares of agricultural

land; plans of selling off some 500,000 hectares have been discussed for a long time.

An amendment to the law on the sale of state land, which entered into force in June

1999, has created the legal basis for privatising state property in the coming years.

However, the amendment to the Transformation Law of 1992, settling ownership

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relations in agricultural co-operatives, was abrogated by the Constitutional Court at

the end of last year.

Banking privatisation has speeded up during the last two years, leaving only

Komercni Banka majority state-owned.

The banking sector currently comprises 42

commercial banks, with about two thirds of the assets representing foreign capital.

The sale in March 2000 of Ceska Sporitelna to a foreign bank for

€

515 million was

conducted in a transparent manner. Privatisation of the largest commercial bank,

Komercni Banka, was hampered by the discovery of irregularities and fraud. In

February 2000, the government agreed to a massive bailout of Komercni Banka, and

transferred bad assets worth

€1.626

billion to a new subsidiary that was sold to

Konsolidacni Banka. Despite these delays the privatisation of Komercni Banka is

expected to be completed at the beginning of 2001.

Investicni a postovni banka (IPB) – the third largest bank in the Czech Republic and

privatised in 1998 – experienced severe problems in maintaining the legal capital

adequacy ratio due to the high level of classified loans in its portfolio.

This led in turn

to growing concern on the part of depositors, who withdrew considerable amounts of

money from the bank, provoking a liquidity crisis. The Czech National Bank and the

Government acted in concert to calm the fears of depositors and find an adequate

solution to the problems of IPB. Forced administration was imposed on 16 June 2000,

and on 19 June, the bank was sold to Ceskoslovenska Obchodni Banka (CSOB),

which had itself been successfully privatised in 1999. Although intervention by the

authorities might have been the only available option under the circumstances, it

should have been possible to avoid such actions by strong, independent, supervision

of the banking sector.

Despite sharp falls in nominal interest rates, the supply of bank credit to the private

sector has in fact declined, as banks have become more cautious in extending new

credit.

The domestic credit to GDP ratio was 65% in 1999. The large amount of bad

loans represents a serious burden for the Czech banking sector. In 1999, bad loans,

excluding Konsolidacni Banka, amounted to

€7.89

billion, or 32% of all loans; around

40% of the bad loans were labelled as losses. Konsolidacni banka’s total assets, which

consist of the bad loans of the rest of the banking sector, increased by almost 39% in

1999 to

€5.31

billion. Thus, overall, bad loans in the Czech financial system have

reached

€13.2

billion, or 26.5% of GDP, which is a serious matter of concern.

Since its establishment, the work of the Securities Commission has met with only

partial success.

The situation on the Czech capital markets is still characterised by

significant lack of transparency and by price manipulation. Although the regulatory

framework has been strengthened and the Securities Commission has enforced it with

determination, the capitals market remains largely illiquid and a negligible source of

finance for commercial and industrial enterprises. This does not encourage strong

corporate governance. The continued presence of divergent prices for the same stock

due to the fragmented organisation of the securities market remains an important

problem. The new law on securities, now under discussion, should be an opportunity

for increasing the regulatory and enforcement powers of the Securities Commission.

The failures of the financial sector, combined with deficiencies in the enterprise sector

and weaknesses of the legal system, have allowed the development of some

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inappropriate business practices.

This has manifested itself in the stripping of assets

from enterprises by managers, known in the Czech Republic as “tunnelling”, which

has affected many of the industrial companies privatised through the coupon

privatisation scheme of the mid-1990s, in addition to investment funds, and

agricultural co-operatives. The recent collapse of most credit unions, in which 70% of

the deposits are unaccounted for, and the irregularities and fraud uncovered in several

banks, are the results of those business practices. Better co-operation between the

police, the courts, the Securities Commission and other supervisory institutions is

needed to fight these irregularities effectively.

The Czech Republic can be regarded as a functioning market economy. In the past

year, macroeconomic stability has increased. Growth has resumed, while the

favourable performance on inflation and the external balance has been maintained.

Efforts are being made to increase the transparency of the public accounts. However,

measures need to be taken in order to ensure fiscal sustainability in the medium term.

Progress has been made on further restructuring and privatisation of banks. The

strengthening of proper supervision in the financial sector is crucial in order to

reinforce macro-economic policies and to foster economic activity. The prudential

regulations should be implemented without further delay. Moreover, every effort

should be made to maintain the momentum in the process of restructuring and

privatisation of state-owned enterprises and to effectively implement the recent

amendment to the bankruptcy laws. Effective action must be taken to strengthen

corporate governance and the enforcement of laws.

The capacity to cope with competitive pressure and market forces within

the Union

As set out in Agenda 2000, the Czech Republic's ability to fulfil this criterion depends

on the existence of a market economy and a stable macroeconomic framework,

allowing economic agents to make decisions in a climate of predictability. It also

requires a sufficient amount of human and physical capital, including infrastructure.

State enterprises need to be restructured and all enterprises need to invest to improve

their efficiency. Furthermore, the more access enterprises have to outside finance and

the more successful they are at restructuring and innovating, the greater will be their

capacity to adapt. Overall, an economy will be better able to take on the obligations of

membership the higher the degree of economic integration it achieves with the Union

prior to accession. Both the volume and the range of products traded with EU Member

States provide evidence of this.

Macroeconomic policy has been conducted with a sufficient degree of predictability to

allow proper decision making by economic agents.

Co-ordination of economic

policies and regained macroeconomic stability have improved the general

environment for economic activity.

The Czech Republic has enjoyed high overall levels of investment over the years.

Fixed investment, as a share of GDP, has been around 30%. Infrastructure is

comparatively well-developed. However, the additions to the capital stock have not

led to rapid and sustained output growth, mainly due to former inconsistencies in

economic policies. Past investment in both the private and public sector are starting to

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bear fruit in a more appropriate economic environment. In this respect, it is worth

noting that productivity growth has recently outstripped the growth in real wages.

The country has a skilled and educated workforce, as illustrated by the short

qualification periods reported by foreign investors.

Considering ongoing industry

restructuring and adjustments in the agricultural sector, adequate qualification and

training measures are gaining importance in order to develop new or extend existing

skills. The government is aware of this challenge and has adopted a "National

Employment Plan" in May 1999, and has signed a "Joint Assessment of Employment

Priorities" with the European Commission services in May 2000. Both strategies aim

to increase the flexibility of the labour markets and to improve the skills of the

unemployed to better respond to growth opportunities.

Foreign direct investment has been very strong in 1999, reaching an inflow of

€4.79

billion (more than double the level of 1998) or about 9.2% of GDP.

This result was

strongly affected by the sale of CSOB to a foreign bank. Strong foreign direct

investment should continue in 2000, as the first quarter already showed inflows close

€1

billion and significant privatisation projects are scheduled for the remainder of

the year. Greenfield investments are becoming more important. Attractive investment

packages have supported this development up to now. However, beyond the beneficial

impact on employment, productivity, exports, and growth, the extent of these

incentives should be considered carefully in terms of their fiscal cost and the impact

on distorting initial investment incentives.

Overall, enterprise restructuring has gained momentum, but continued political

support is needed as the process involves sizeable lay-offs.

The programme for the

revitalisation of industry approved by the Government in April 1999 is on track. The

Revitalisation Agency, a 100% subsidiary of Konsolidacni Banka, started to operate in

November 1999. Its portfolio includes nine major industrial companies, and it

provides financing for companies with realistic medium-term perspectives. However,

it is not clear how these companies have been selected (see also Chapter 15 –

Industrial policy). The Agency follows a tailored approach for each firm and, in spite

of the high social cost of restructuring in some cases, the Government has so far

refrained from interfering in the operations.

The overall business climate in the Czech Republic has improved in the past year.

new Act on Investment Incentives entered into force in May 2000. The new Act

maintains the minimum level of investment of $10 million as a general threshold, but

this can be reduced to $5 million in areas with high unemployment. Another change

with respect to the previous arrangements is that the new Act has introduced tax

incentives to already existing companies which plan expansion. The package of

investment incentives contains the possibility of direct tax holidays of up to 10 years,

duty free technology imports, job creation and training grants, and subsidies for

building up infrastructure.

The Czech Republic has already achieved a high degree of trade integration with the

EC.

It continues to increase, with the EC accounting for 69% of total Czech exports

and 64% of imports in 1999. The main traded goods, both on the export and the

import side, are manufactured products and machinery and transport equipment. These

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higher value-added categories have also continuously increased in importance as a

share of total exports to the EC.

Small and medium-sized enterprises (SMEs) comprise 56% of the labour force and

produce 53% of GDP.

SMEs in the Czech Republic still have limited access to

outside finance and to business advisory services. The SME development strategy

adopted by the government in June 1999 is aimed at tackling these problems whilst

improving the business environment, enhancing access to training and encouraging

the internationalisation of SME business activities. In addition, the SME fund has

been doubled. The Government should now ensure the full and transparent

implementation of this strategy, including a better co-ordination between the many

agencies that are active in this field

(see also Chapter 16 – Small and medium-sized

enterprises).

The Czech Republic should be able to cope with competitive pressure and market

forces within the Union in the near term, provided that it keeps up and completes the

implemention of structural reforms. The authorities need to concentrate on developing

a transparent and predictable environment supportive of business activity - especially

in the area of small and medium-sized enterprises - and on other measures conducive

to sustaining economic growth. In this respect, the further improvement of the legal

framework, the strengthening of corporate governance, the acceleration of enterprise

restructuring, and the continued development of the financial sector are essential.

These measures would result in more efficient enterprise and banking sectors, and

help to sustain increases in productivity and competitiveness.

2.4.

General Evaluation

The Czech Republic can be regarded as a functioning market economy and should be

able to cope with competitive pressure and market forces within the Union in the near

term, provided that it keeps up and completes the implementation of structural

reforms.

Macroeconomic stability has increased. Growth has resumed, while the favourable

performance on inflation and the external balance has been maintained. Efforts are

being made to increase the transparency of the public accounts. Progress has been

made on further restructuring and privatisation of banks.

However, the strengthening of competition and of supervision in the financial sector is

crucial in order to reinforce macro-economic policies and to foster economic activity.

The sustainability of public finances in the medium-term is not yet assured. The

efforts to privatise and restructure the state owned enterprises must continue and

corporate governance must improve.

The authorities need to concentrate on developing an environment supportive of

business activity – especially in the area of small and medium-sized enterprises.

Further improvement of the legal framework, the implementation of the prudential

regulations for the financial sector and the continued development of this sector are

essential. The restructuring and privatisation of state-owned enterprises and the

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restructuring of other enterprises must go hand in hand with the strengthening of

corporate governance.

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3. Ability to assume the obligations of membership

Introduction

This section aims to update the Commission’s 1999 regular report on Czech

Republic’s ability to assume the obligations of membership - that is, the legal and

institutional framework, known as the

acquis

by means of which the Union

implements its objectives. Alongside an evaluation of relevant developments since the

1999 regular report, this section seeks to provide an overall assessment of Czech

Republic’s ability to assume the obligations of membership, and of what remains to be

done. This section has been structured to follow the list of twenty-nine negotiating

chapters, and incorporates also an assessment of Czech Republic’s administrative

capacity to implement the

acquis

in its various aspects (in previous regular reports this

had been covered in a separate section). Furthermore, for the first time, a separate

section has been included assessing progress made by Czech Republic in translating

the

acquis

into its official language.

The European Council in Madrid in December 1995 referred to the need to create the

conditions for the gradual, harmonious integration of the candidates, particularly

through the adjustment of their administrative structures. Taking up this theme, in

Agenda 2000 the Commission underlined the importance of incorporating Community

legislation into national legislation effectively, and the even greater importance of

implementing it properly in the field, via the appropriate administrative and judicial

structures. This is an essential pre-condition for creating the mutual trust

indispensable for future membership, which has become a central issue in the

negotiation process.

The European Council in Feira in June 2000 recalled the link between progress in the

negotiations and the candidate countries’ capacity to effectively implement and

enforce the

acquis,

and added that this called for important efforts by the candidate

countries in strengthening their administrative and judicial structures. The Feira

European Council invited the Commission to report to the Council on its findings on

the matter. Building on the assessment of Czech Republic’s administrative capacity

provided in the 1999 regular report, the present report seeks to add further depth and

detail, focusing on the main administrative structures which are required for

implementing the

acquis

in its various aspects.

In the 1999 regular report, the Commission concluded that :

“The pace of legislative alignment in the Czech Republic has not picked up

significantly and progress is uneven across sectors. Alignment and effective

application of the laws are well advanced in the area of standards and certification

although there is a need to complete the legislative framework through adoption of

amendments to the existing framework legislation, sector legislation and product

liability legislation. Further progress has been made in liberalisation of capital

A description of the

acquis

for each chapter can be found in the Commission’s 1997 Opinion on

Czech Republic’s application for EU membership.

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markets with an amendment to the Foreign Exchange Act and in the banking and

insurance sectors. A high level of alignment has been reached in the customs area and

legislation adopted on border enforcement (counterfeit and pirated goods) combined

with a continuing focus on modernisation of information systems indicated that

necessary attention is being paid to the effective enforcement of the laws. Continued

efforts are being made to put the necessary structures into place for regional and

structural policy. It is important that the legal framework be completed and

administrative capacities reinforced so as to sustain momentum in this field.

In other key internal market areas such as intellectual property, public procurement,

data protection, insurance, anti-trust, state aids and VAT/excise, legislation is already

partially aligned, but there has been little or no movement towards completing

alignment. Although preparatory work has been done, the legal framework for state

aids is incomplete and the resources committed to the area are insufficient to ensure

an effective system of state aid monitoring. No effort has been made to align audio-

visual legislation. In environment, a general policy was adopted, some conventions

ratified and a limited number of laws passed. However important framework

legislation has not been adopted and an implementation plan with investment

planning has not been worked out. Until a more coherent approach is adopted, there is

a risk of a piecemeal approach to the alignment process . Other than air transport,

alignment in the transport sector has not moved ahead. The pace of alignment in

agriculture, veterinary and plant health is slow. No progress was made in the areas of

labour legislation and health and safety at work. Apart from adopting laws on drugs,

efforts in the area of justice and home affairs have stalled. The pace of alignment

needs to pick up substantially across the board.

The Czech Republic has taken limited steps toward general public administration

reform. The Government has recently approved a programme for overall reform of the

judiciary which addresses current problems such as vacancies, a lack of specialisation

of the judges, lack of equipment and inadequate training. Capacities in certain areas of

the internal market

acquis

are well developed and progress has been made in

strengthening banking and financial services supervision capacities. State aid

monitoring capacities need to be strengthened and independent authorities for data

protection and telecommunications still need to be set up. While the veterinary and

phytosanitary administrations are being reinforced to meet EC requirements, little

progress has been made in setting up the structures necessary for the implementation

of the Common Agricultural Policy. Efforts need to be stepped up in general public

administration reform and continued attention needs to be paid to border management,

enforcement of environment legislation and improving internal financial control

capabilities. Initiatives in the fight against organised crime and corruption should

also be reinforced.

The Czech Republic’s record in terms of meeting the short term Accession

Partnership priorities is not satisfactory, despite efforts by the government to prepare

and put forward legislation. The difference between the government’s policy

intentions and implementation can be explained by the length of parliamentary

procedures, the minority status of the government and the fact that certain priority

policy areas did not receive sufficient attention from previous government. While the

Czech Republic met short term Accession Partnership priorities in areas such as

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economic reform, standards and certification, regional development and veterinary,

priorities in the areas of industrial restructuring, administrative capacity (strengthening

environment and agricultural institutions), the internal market (alignment of

intellectual property and state aid legislation), justice and home affairs (border

enforcement) and environment have not been adequately dealt with.”

3.1.

The chapters of the

acquis

As indicated, the review of the Czech Republic’s ability to assume the obligations of

membership that is provided below has been structured in accordance with the list of

twenty-nine negotiating chapters. Accordingly, this section opens with an assessment

of progress related to the so-called “four freedoms”, the cornerstones of the internal

market, and continues with a systematic review of progress on each of the chapters, to

cover the

acquis

in all its various aspects: sectoral policies, economic and fiscal

affairs, economic and social cohesion, innovation, quality of life and environment,

justice and home affairs, external policies, and financial questions.

Chapter 1: Free movement of goods

The 1999 Regular Report stated that continued progress could be noted in this area.

This positive assessment can be repeated this year.

In the area of

horizontal and procedural measures,

one of the short-term priorities

of the 1999 Accession Partnership was to modify horizontal legislation on technical

requirements for products, conformity assessment and public health protection. The

process of alignment has been progressing well and is generally well advanced. In

April 2000 an Amendment to the Act on Technical requirements for products of 1997

came into force, concerning essential requirements and conformity assessment

procedures. This will permit the full implementation of the principles of the New

Approach through a number of new Government Orders adopted in July. It will also

facilitate implementation of the Protocol to the Europe Agreement on conformity

assessment and acceptance of products (PECA) initialled in July 2000. The areas

covered by the annexes to the PECA are machinery, lifts, personal protective

equipment, electrical safety, electromagnetic compatibility, equipment and protective

systems intended for use in potentially explosive atmospheres, hot water boilers, gas

appliances, pressure equipment and good manufacturing practice for medicinal

products: inspection and batch certification. The level of the transposition of technical

standards amounts to around 90 % of the total of European technical standards,

demonstrating good progress.

Concerning administrative capacity, progress has been made in meeting the Accession

Partnership short-term priority to improve market surveillance and conformity

assessment structures as regards equipment and training of staff. A network of

conformity assessment bodies has been enlarged. The authorised bodies are expected

to act as notified bodies in the sectors covered by the PECA with mandates lasting

only two more years, while new unlimited authorisations were granted to bodies

operating in the areas of lifts, medical devices and pressure equipment. Further

improvement in technical equipment for authorised bodies and metrological

laboratories has been supported.

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In the fields of

sector specific legislation,

further progress has been achieved in

overall alignment of legislation, in line with the short-term priorities of the Accession

Partnership. The EC Directive on Safety of Toys is now transposed since July 2000

but technical standards must be further aligned. In the area of legal metrology and pre-

packaging the amendment to the Act on Metrology came into force in July 2000

followed by three implementing Decrees in August 2000. The institutional

responsibility lies with the Czech Metrological Institute. The personnel are constantly

trained and the effectiveness of the institution is at a very good level.

With regard to medical devices, further progress was made following the adoption of

both the Act on Medical Devices, which came into force in July 2000, and the

Government order laying down technical requirements for active implantable medical

devices which came into force six months earlier. The veterinary medical legislation is

in line with the

acquis

following the approval of the Act on Veterinary Care and of the

subsequent secondary legislation in 1999. The legislation in the area of simple

pressure vessels and pressure vessels is in line with the

acquis

following the entry into

force of the Government regulation in January 2000. In the area of construction

products a Government Order on technical requirements came into force in October

1999.

The area of chemicals is in line with the

acquis

following the entry into force of the

Act on Chemical Substances and Preparations in January 2000. The registration

authority for chemical substances placed on the Czech market works well. The

Designated National Authority managing the import and export of selected dangerous

substances works satisfactorily. An amendment to the Act on Dependency Producing

Substances entered into force in July 2000, accompanied by specific secondary

legislation on export authorisations, record-keeping and documentation.

The amendment to the Act on Fertilisers was also adopted and will enter into force in

January 2001. The area of pharmaceuticals is in line following the entry into force in

August 2000 of the Act on Pharmaceuticals. In the areas of crystal glass and footwear,

the entry into force in June 2000 of the Amendment to the Act on Consumer

Protection provides for the transposition of the

acquis

by decrees.

Progress has been achieved in the area of food legislation. The Act on Foodstuff and

Tobacco was adopted and will enter into force in January 2001. Developments also

took place as regards maximum levels for pesticide residues in foodstuffs. As regards

consumer protection, the State Veterinary Administration is the main supervising

body for foodstuffs of animal origin. Its structures for control and inspection are well

established and generally function well, both in the country and at the border. The

Czech Agricultural and Food Inspection supervises the safety and quality of food. It

has seven regional offices. The testing laboratories of regional offices are accredited

in accordance with European Standards. All local branches are connected through a

common network. In order to enforce all the food legislation, the appropriate

administrative structures need to be strengthened.

In the area of cosmetics, the adoption of the Act on Public Health Protection in July

2000 will allow alignment with the

acquis.

The institutional responsibility was shifted

in July 2000 from the Czech Trade Inspectorate to the Hygiene Service.

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In the fields of

non-harmonised areas,

initial progress has been made in the area of

the application of Articles 28 - 30 of the EC Treaty. The Czech Republic has screened

the necessary legislation and analysed the discrepancies. The rules concerning control

of products from third countries are being implemented. With regard to cultural

goods, alignment with the

acquis

has progressed but implementing legislation has yet

to be examined for its substance. As regards cultural goods unlawfully removed from

the territory of a Member State, the General Directorate of Customs and the Police are

responsible bodies. Although the institutions claim their close contacts, there is no

evidence that a network system among the customs, police, Ministry of Culture, and

courts operates.

As regards safety checks on products at external borders, the Czech Republic still

needs to establish appropriate customs and market surveillance infrastructures as well

as effective administrative co-operation between competent authorities.

Finally, as regards

public procurement,

the new law amending the Act of 1994 by

introducing the utilities sector (water, energy, transport and telecom) came into force

on 1 June 2000.

Overall assessment

The Czech Republic has made significant progress, building on a solid basis that was

already acknowledged in last year’s report and which permitted further harmonisation

in the field of the New and Global Approach. The adoption of the amendment to the

Act on Technical Requirements for Products has created the conditions for further

alignment of Czech legislation in this field. The finalisation of the talks on the PECA

agreement represents a recognition of the progress made by the Czech Republic.

However, further progress is still needed, particularly in the areas of medical devices,

motor vehicles and cosmetics.

The administrative bodies need to be strengthened in the areas of cosmetics and

pharmaceuticals. Otherwise, the level of administrative capacity is good. The

necessary separation between legislative regulatory, conformity assessment,

standardisation and market surveillance functions has been achieved. Standardisation

and certification bodies are generally functioning well, both in terms of personnel and

technical equipment.

The Czech Standards Institute, is a member of CEN, Cenelec and the European

Telecommunications Standards Institute (ETSI). The Institute, which is independent,

prepares, adopts and issues standards, and co-operates with international non-

governmental organisations and agencies for technical standardisation. The institute

works on the basis of the principles of transparency and independence.

The Czech Accreditation Institute (ČIA) is a full member of the European

Cooperation for Accreditation (EA) and the international accreditation organisations

ILAC and IAF. The

ČIA

became a signatory to MLA IAF (for the accreditation of

certification bodies certifying Quality Systems) in September 1999. The Institute has

the status of an independent company, although the Ministry of Industry and Trade

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(MIT) appoints the chairman. Its main tasks are to ensure the accreditation of testing

laboratories, calibration laboratories and certification bodies.

Market surveillance of industrial products, with the exception of some specific sectors

(foodstuffs, medicinal products, cosmetics), is performed by the Czech Trade

Inspectorate (CTI) which is also the main supervising body for the protection of

consumer economic interests. Its performance should be strengthened in terms of the

control of the market and with the respect of combating dual pricing where the CTI´s

activity has not been fully satisfactory.

The Czech Office for Standards, Metrology and Testing, which is the central state

administration responsible for legislation in the field of industrial goods, performs its

duties independently of the MIT, to which it is formally subordinated. The

competence of the staff and the level of equipment is generally good. It has

established the Centre for Translation of EC Technical Regulations with the task of

inter-ministerial co-ordination and control of the elaboration of official translations.

In the area of metrology, the Czech Republic has signed the Agreement on Mutual

Recognition of National Measurement Standards and the Czech Metrology Institute

continues to increase its equipment and improve its personnel.

Further efforts are still necessary in the area of public procurement.

Chapter 2: Free movement of persons

In the area of

mutual recognition of professional qualifications,

the legal

framework of mutual recognition of both diplomas and professional qualifications still

does not match with EC requirements, as stated already in the previous Regular

Report. However, the establishment of an inter-Ministerial working group for mutual

recognition at the Ministry of Education should facilitate the alignment of the Czech

system with the

acquis.

Some progress has also been made through the entry into

force of the Act on Veterinary Care in September 1999.

As regards the regulation of sectoral professions, and despite several draft laws

adopted recently by the Government in March 2000, the legislation still needs to be

adopted for medical professions.

As regards

citizens’ rights

an amendment was adopted to the Act on the Elections

into Municipality Representative Bodies which includes the right of EU citizens to

take part in the elections after the Czech Republic enters the European Union.

In the field of

free movement of workers,

since the previous Regular Report, some

progress in alignment with the

acquis

has been achieved. The Act on Employment

has been amended abolishing the rule that foreigners can only work in the Czech

Republic for three years, at which point they had to stop working for 12 months.

With a view to the future

co-ordination of social security systems,

in May 2000 the

Government decided to work on institutional, technical, and personnel preparation for

the co-ordination of social security systems.

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Overall assessment

Some limited preparatory work has been undertaken in this area and further serious

efforts are required to ensure that there are no provisions in Czech legislation which

contradict Community rules. Overall, the preparation for the application of the

acquis

must be accelerated especially in the area of mutual recognition of professional

qualification and of the free movement of workers, in the areas of public health

insurance and social security of migrant workers.

In the area of mutual recognition, the main concern is the introduction of language

requirements as a condition for professional recognition in recent legislation, without

respect for the principles of non-discrimination and proportionality. The tendency to

apply academic recognition procedures to the case of professional recognition is still a

concern, in particular in the case of the sectoral Directives that foresee automatic

recognition. As regards the regulation of sectoral professions, while some draft

legislation has been prepared, legislation remains to be adopted on medical

professions.

The necessary structures for mutual recognition are generally in place. The Ministry of

Education, Youth and Sport co-ordinates the process of alignment of the Czech

legislation. However, a general system of mutual recognition of qualifications has not

yet been set up and the appointment of a national co-ordinator (through the creation of

a Centre for recognition of professional qualifications) is not due to be set up before

June 2001. The Ministry of Labour and Social Welfare is responsible for the free

movement of persons.

In the field of the free movement of workers, progress has been made in transposing

the

acquis

but it is necessary to ensure that all the necessary legislation and structures

are put into place. An inter-connected system including the Ministry of Labour and

Social Affairs, the Labour Offices and the EURES system is not yet established,

although the current system is compatible with EURES. With regard to future

participation in EURES, training efforts should be continued, especially with regard to

language training.

With a view to the future co-ordination of social security systems, further work to

develop the necessary administrative structures, including training of staff, is needed.

Chapter 3: Free movement of services

Further progress has been achieved in the alignment of the areas identified in the

previous Regular Report as requiring further efforts.

In the area of

freedom of establishment and freedom to provide services,

some

progress was achieved principally in the area of business undertakings, self-

employment and provision of services with the approval of an amendment to the Act

on Trade Licensing (in March 2000).

Further liberalisation in the tourist sphere has been achieved through the Act on

Conditions of Enterprising in the Tourist Industry which entered into force in March

2000.

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In the field of

financial services,

and as regards the

banking

sector, the transposition

process continues to be satisfactory, even though this process is not yet completed.

A new amendment to the Bankruptcy Act has been introduced (in May 2000), but its

positive effect on the credit business remains questionable, because the procedures to

seize collateral still remain very complex. The amendment makes only existing loans

subject to foreclosure and is not retroactive, thus leaving a heavy burden from the past

unresolved.

An amendment was adopted in October to strengthen the position of Czech Credit

Unions which provide final services only on a self-help basis. Under the Act on

Credit Unions, the Office of Supervision of Credit Unions can impose remedial

measures or apply restrictions.

The Banking Supervision Department of the Czech National Bank has presently 89

staff. Each of the five supervision divisions has an inspection team. The CNB’s staff

has continued to be very stable with a low turnover and thus has preserved its

institutional knowledge. However, given the ongoing difficulties of the banking

sector, the CNB faces a great challenge in its supervisory role.

In the

insurance sector,

Czech legislation has progressed further towards EC

requirements, mainly as regards the status of the former State monopoly and as

regards motor insurance. A new Insurance Act in line with the

acquis

entered into

force in April 2000, setting the framework for an overall restructuring of the sector

and improvement of supervision. The question of distortion of competition because of

the conditions for the licensing of new companies has been a subject of concern. The

level of coverage has increased since the adoption of the new Motor Third-Party

Liability Insurance Act and is considered to be in line with the

acquis.

The new Insurance Act strengthens the Insurance Supervision Department at the

Ministry of Finance and gives it considerable powers and new resources, including a

significant increase in staff. In 1999 only 3 inspections were carried out (and only

when there was reason to suspect something). On the other hand, insurance companies

submitted regular reports. As regards motor vehicle insurance, an insurance bureau has

been set up with a guarantee fund to cover non-insured vehicles and non-identified

drivers.

In the area of

investment services and securities’ markets,

the 1999 Accession

Partnership also considered as a short-term priority the reinforcement of the Securities

Commission (SC) and of its field of operation. As regards the legal framework, the

Act on the Stock Exchange was adopted recently. The Ministry of Finance is

responsible for drafting legislation and the SC for the correct functioning of the

market. Co-operation between the Ministry and the SC should be effectively

strengthened.

Furthermore, in September 2000 the amendment to the Commercial codes, the

Securities Act and Bonds Act were adopted.

The Securities Commission has a staff of 60 persons, which will be increased to 95 in

the course of 2000. The SC makes active use of all the powers invested in it by the act,

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which has substantially improved the standard of supervision of entities on the capital

market. The SC has launched the daily monitoring of non-standard securities

transactions, assesses cases of trades and transactions made on the public markets,

where prices deviate from the defined price band, uncovers violations of due expert

care by securities traders, price manipulation, misuse of information (insider trading)

and other areas.

In the fields of

protection of personal data and free movement of such data,

a new

Act on Personal Data Protection entered into force in June 2000 and is intended to be

well in line with the

acquis.

The Act covers the protection of personal data processed

by public and regional authorities as well as individuals and businesses. It foresees the

independence of the Office for Personal Data Protection.

In the field of the

information society,

an amendment to the Act on Technical

Requirements for Products has entered into force. It harmonises definitions related to

technical standards and technical regulations of the Information Society Directives.

Overall assessment

The overall situation is satisfactory as the Czech Republic has adopted a large part of

the

acquis

in most of the sub-sectors, or has set a clear harmonisation timetable. In

spite of the progress achieved, a lot remains to be done in the capital markets and in

the insurance sectors, but the recognition of these weaknesses has been a positive step

forward. No particular problems can be foreseen in the field of information society.

In the field of freedom of establishment and freedom to provide services (craftsmen,

traders, and farmers), a second amendment to the Act on Trade Licensing must be

prepared to complete the current legislative framework. There is still however a

concern as regards the lack of a clear distinction between establishment and provision

of services, the latter requiring a more flexible and quick procedure, whereas the

tendency is to apply establishment procedures.

As regards the banking sector, the Czech Republic needs to adopt the new Act on

Banks, the amendment to the Act on the CNB, both of which are currently before

Parliament, and the Payments System Act for both banks and non-banking

institutions. The level of non-performing loans remains very high and strengthened

monitoring by the regulatory authorities should be ensured.

In the insurance sector, significant progress has been achieved with the adoption of

new Acts, and the strengthening of Insurance Supervision. However, these efforts must

be pursued to create a fully functioning, open and effective insurance sector that gives

equal opportunities to all the market participants. The new Insurance Act strengthens

the Insurance Supervision Department at the Ministry of Finance and gives

considerable powers and new resources to it (staff is expected to rise from 17 last year

to 40 by the end of 2000).

The overall restructuring of the insurance industry will have to be achieved through

another amendment to the new Insurance Act, which will cover all three generations

of non-life insurance and life assurance directives. A new Act on Insurance Contracts,

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on Insurance Intermediaries, Insurance Advisers and Independent Loss-Adjusters has

to be prepared.

In the area of investment Services and securities’ markets, market surveillance must

be further strengthened with a stronger Securities Commission remaining fully

independent from the Ministry of Finance. New Acts on the Stock Exchange and on

the Securities Commission have to be prepared, as well as a new Act on Collective

Investment. As regards the Czech market, the structural problem of the two prices

system for the same security is however still not sufficiently well addressed.

As regards protection of personal data, the timing in the establishment of this new

Authority, its degree of independence, its real means (financial and human resources)

and the transmission of tasks from the OSIS to the ISA will need to be closely

monitored.

Finally, as concerns information society the transposition has been achieved with the

approval of the Act on Technical Requirements for Products. Progress has not yet

been made on alignment with the

acquis

in the fields of electronic signatures,

conditional access and electronic commerce.

Chapter 4: Free movement of capital

Significant progress has been achieved in this field.

In the area of

capital movements,

the liberalisation process continued with the

adoption of two new acts: the Act on Insurance, effective since April 2000, which

liberalises the conclusion of insurance contracts with foreign insurance companies and

the Act on Telecommunications which abolishes restrictions on direct investments

into local telephone networks as from the end of 2000. Additionally, the Act on

Bonds was adopted in September 2000 and removes the need for a prior authorisation

for issuing debt securities to the foreign capital market.

In the field of

payment systems

the Act on securities’ settlement transactions has

been amended and the real time gross settlement (RTGS) system has been modernised

by the Czech National Bank (CNB).

As regards the prevention of the use of the financial system for the purpose of

money

laundering,

the amendment to the Money Laundering Act of 1996 entered into force

on 1 August 2000, widening the duties of financial institutions (see also chapter on

justice and home affairs). The amendment foresees the cancelling of new anonymous

accounts (bearers passbooks) and the suppression of anonymous treatment before their

cancellation, the identification of third persons acting on behalf of a client, the

identification of unusual transactions, the record keeping of transfers for 10 years and

the creation of a new control system.

The Financial Analytical Unit (FAU), created in January 1997 within the Ministry of

Finance (28 staff), has the responsibility to monitor and identify money laundering

activities, but has no power to indict or to impose sanctions. Its role is to analyse and

present strong cases to other bodies having the capacity to penalise illegal

transactions. The FAU plays therefore a key role but must permanently liaise with the

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CNB, the Ministry of the Interior, the Ministry of Justice and the Securities

Commission among others. Its performance and know-how has improved significantly

in the last three years. However, in three years of existence, there has not been any

indictment.

Overall assessment

In the field of capital movements liberalisation is almost completed.

remaining restriction concerns acquisition of real estate by non-residents.

The main

As regards administrative capacity, the Ministry of Finance and the CNB ensure

supervision of foreign exchange and are also responsible for collecting statistical data.

The inter-bank payment system and Cross-border payments are managed by the CNB

in its clearing centre, in line with the current Act on Banks.

In the field of payments the further improvement to the RTGS system already in

operation and the preparatory activities to implement the EC

acquis

confirm the good

overall progress of the Czech Republic in this area.

Significant progress has been achieved with the passage of money laundering

legislation but questions and concerns remain as regards the effective closing of

existing anonymous accounts. This requires an amendment to the Accounting Act,

regulating reporting for derivatives, including all monetary and financial institutions

in the monetary statistics and an increase in foreign reporting.

The prevention of the use of the financial system for the purpose of money laundering

requires effective and well functioning co-operation between the different institutions

involved. On the other hand, it is necessary and urgent to reinforce their legal powers

in order to obtain more concrete results (indictments). The lack of an appropriate legal

basis for empowering enforcement bodies, together with the unclear time table for the

cancelling of existing anonymous bank accounts, do not facilitate either the prevention

nor the sanction of this kind of criminal activities. These two aspects must be tackled

urgently by the Government in the context of the reform of the judiciary and the

announced revision of the code on criminal proceedings.

Chapter 5 : Company law

Since the 1999 Regular Report a wide range of measures has been taken.

As regards

company law,

amendments to the Acts on Bankruptcy and Settlement

have been adopted to shorten the legal procedures and to the Bankruptcy Law to give

creditors more guarantees. Also, in September 2000 a major revision of the

Commercial Code was adopted which brings legislation more fully in line with the

acquis

in such areas as minority shareholders’ rights, publicity of the Commercial

Implementation has been partially enhanced by various measures, e.g. the Commercial

improve the efficiency of court proceedings and enforcement.

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In the area of

audit,

the Act on Auditors was adopted in July 2000 and will enter into

force from 1 January 2001.

Progress has been made in the field of

protection of intellectual property rights.

The new Copyright Act has been adopted in line with the

acquis.

Also the protection

of the rights of performing artists, producers of phonograms and broadcasters have

been strengthened. The rights of the audio-visual producers will be newly protected.

A further step towards alignment with the

acquis

in the field of

industrial property

rights

was taken with the adoption of the new Act on industrial property in December

1999. The Patent Law and several other laws on Trademarks, Utility Models and

Topographies of Semiconductor Products were amended, taking over provisions of the

European Patent Convention and the TRIPS provisions concerning compulsory

licenses, enforcement of rights and enhanced protection of wines and spirits. The

Czech Republic also introduced legislation on Supplementary Protection Certificates.

The new provisions dealing with relations between the EC and national patent systems

will enter into force on 1 July 2002 and enable a smooth accession to the European

Patent Convention. Finally, the Czech Republic has aligned its legislation in the areas

of the protection of both Designs and Biotechnological Inventions with the adoption

of two Acts which will enter into force on 1 October 2000.

A special Inter-ministerial Commission was set up in February 2000 at the Ministry of

Industry and Trade to co-ordinate the fight against copyright violation. This follows a

co-operation agreement among the Czech Trade Inspection, Police, Ministry of

Finance (Customs and Industrial Property Office) and Ministry of Culture in the

activities against the infringement of regulations on unfair competition, trademarks,

appellation of origin of goods, utility models, industrial designs, inventions and

copyrights. According to this agreement the Industrial Property Office (IPO) provides

information on the legal status of the products of industrial property, which are within

its competence, to the partners. The IPO also provides information from the Madrid

Express database, which also includes the trademark applications according to the

agreement concerning the International Registration of Marks. The staff of the IPO

amounts to 266. The capacity of the Office seems adequate and it works satisfactorily.

As regards bad faith trademark registrations, the Patent Office confirmed that about

half of the applications were rejected or proceedings stopped. The Office reported that

it processes nearly 10 000 trademark applications per year, which is about 10 times

more than before 1990. As the new Act will increase the responsibilities of the

Ministry of Culture, an extension of the Copyright Section of the Ministry is vital.

Currently, all its tasks are managed by only 3 expert staff members, which is

completely inadequate, and was already noted in the last Regular Report.

Overall assessment

The legislation in the area is largely in line with the

acquis.

Legislation in the field of accountancy is already largely in line with the

acquis,

although new legislation (expected for the end of 2000) is still necessary to fill in the

remaining gaps.

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In 1999 the Czech Republic was invited to join the European Patent Organisation as

of 1 July 2002. There should be more emphasis put on the enforcement process, where

long delays still persist at all stages. The implementation and monitoring capacity of

the relevant authorities in the fields of intellectual and industrial rights should be

increased and their mutual co-operation should be improved.

Chapter 6 : Competition policy

The 1999 Regular Report noted that alignment of Czech legislation in general was

well advanced and since then some further progress has been made.

In the field of

anti-trust,

one of the short-term priorities of the Accession Partnership

was further alignment of anti-trust legislation but only limited progress has been

achieved.

An amendment to the Act on Economic Competition, which entered into force in

September 2000, introduced more precise terms and conditions and performance

requirements for the Chairman of the Office for the Protection of Economic

Competition.

The Act on the Protection of Competition contains the main principles of Community

anti-trust rules as regards restrictive agreements, abuse of dominant position and

merger control. A block exemption on franchise agreements entered into force in

March 2000.

state aids,

significant progress has been made in aligning state aids legislation and

completing the state aid inventory, a short-term priority of the Accession Partnership.

The Czech Republic made significant progress in this area through the adoption of the

Act on State (Public) Aid. This Act entered into force on 1 May 2000. The Act

provides for the transfer of the state aid monitoring role from the Ministry of Finance

to the Office for the Protection of Economic Competition. The Office will have the

powers to assess all state aid and to recover all illegal state aid. The Office has

published guidance notes, setting out the criteria applicable for state aid notifications

in certain areas.

As far as the regional aid map is concerned, the Czech Republic has created an inter-

ministerial commission to consider this issue.

Preparations for a State aid inventory have been carried out.

inventory should be tackled as a priority.

Completing the

One of the short-term priorities of the 1999 Accession Partnership was to reinforce the

state aid monitoring authority with sufficient qualified staff. The Office recruited 13

new employees in January 2000 to deal with its new tasks as the state aid monitoring

authority. The Office has also co-operated closely with the Ministry of Finance to

share expertise in advance of the transfer of responsibilities. A State aid manual and

other guidance material has been prepared and circulated to key officials.

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Overall assessment

The Czech Republic’s achievements in the area of anti-trust are generally satisfactory,

and legislation is largely in line with the

acquis.

However the failure of the

amendment to the Act on the Protection of Economic Competition represents a delay

in the overall process of alignment. Gaps remain in a number of areas relating to

restrictive agreements, market dominance and the definition and notification of

mergers. Further alignment will still be necessary, especially in view of developments

in the

acquis

on vertical restraints.

As regards administrative capacity, the Office for the Protection of Economic

Competition has around 120 employees and has examined a large number of cases on

anti-trust matters. The staff’s knowledge of the

acquis

in this field is also good. The

main challenge now is to ensure that there is effective application and enforcement of

anti-trust rules. Priority should be given to cases which raise the most serious

concerns in terms of distorting competition. Staff should also receive adequate

training on developments in EC competition law and practice.

In general, alignment of Czech legislation on state aid is now well advanced. Good

progress has been made in meeting the short-term priorities of the Accession

Partnership. The establishment of an independent system for monitoring state aid

issues is to be welcomed. One major shortcoming of the current state aid regime is

that there is currently no comprehensive notification system in operation. A system

whereby all public aid providers inform the Office of aid projects in advance is

necessary to ensure effective control and monitoring of state aid. Furthermore the

Office should complete the State aid inventory and also ensure that it is kept up to

date. Annual reports on state aid should follow the methodology and presentation of

the EC’s survey.

On state aid, the main challenge is again to ensure the effective application and

enforcement of state aid rules. In view of the greater efforts required, further

resources may be needed. State aid expertise should be strengthened further, not least

in view of the transfer of responsibilities from the Ministry of Finance to the Office.

Chapter 7: Agriculture

Agriculture in the Czech Republic accounted for 3.7% of gross value added in 1999,

as compared to 4.6% in 1998

. Employment in agriculture has declined over the past

years, accounting for 5.3% of total employment

. During the same period, the gross

The source for all agricultural statistics is EUROSTAT unless otherwise specified.

In order to improve consistency and comparability, the employment figures presented are now

defined according to Labour Force Survey definitions (LFS). Agricultural employment is defined in

LFS terms as economically active persons who gain a significant part of their income from

agriculture. The agricultural census, which was previously a source of employment data in many

countries, takes into account all persons nominally active on a farm. There are therefore some

significant differences between previous and new figures. Fuller information can be found in the

Eurostat publication “Central European Countries’ Employment and Labour Market Review”

available free of charge through the Eurostat Data Shops.

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agricultural output increased by 9.1%, with a 10.6% increase in crop production and a

5.6% increase in livestock production

In 1999, EC imports of agricultural products originating in the Czech Republic

increased to

€

379 million, compared with

€

299 million in 1998. In the same period,

EC exports to the Czech Republic were stable at

€

954 million. The trade balance in

favour of the EC amounted to

€

575 million in 1999, compared to

€

655 million in

1998

. As a consequence of the new reciprocal concessions on agricultural products

negotiated under the Europe Agreement, approximately half of EC imports and one

third of EC exports of agricultural products will be exempted from duties

(see section

A.b – Relations between the European Union and the Czech Republic).

In January 2000, the government approved an Implementation Strategy for the Area of

Agriculture, laying down a schedule of pre-accession activities.

Legislation adopted in January 2000 modifies the law on restitution of agricultural

property, to allow for restitution of agricultural land confiscated during World War II.

Originally, restitution legislation only provided for the return of agricultural property

confiscated after 1948.

Horizontal Issues

Some limited progress has been made in these areas over the past year. The short-term

priorities of the 1999 Accession Partnership include the preparation of measures

required to implement the Common Agricultural Policy. The Czech Republic has

made some progress over the past year as regards measures related to the

European

Agricultural Guidance and Guarantee Fund (EAGGF).

The Act on the State

Agriculture Intervention Fund, establishing the basis for a new system of market

regulation for agricultural and food products originating in the Czech Republic,

entered into force in August 2000. The new Act is partly in line with current

Community regulations. It contains basic provisions of the EC common market

organisations, the Integrated Administrative and Control System (IACS) and other

functions of the intervention agencies.

The SAPARD Rural Development Plan, which describes the main lines of the Czech

Republic’s rural development policy and the main objectives to be attained by

SAPARD assistance, was approved by the Commission inOctober 2000. The

accreditation of the SAPARD Agency is currently ongoing. (See

Section A.b –

Relations between the European Union and the Czech Republic).

As to preparations to establish the

Integrated Administration and control System

(IACS)

in the Czech Republic, progress has been made as regards the registration of

animals. A system for cattle identification and registration was introduced in July

1999. Based on the new Veterinary Act and the new Act on Livestock Improvement,

Source: FAO

Source: Uruguay Round Agreement definition of agricultural products, figures taken from

EUROSTAT COMEXT (see Agriculture in the European Union – statistical and economic

information 1999 p. 36 for definition of the products).

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Breeding and Registration, the system will be obligatory for cattle by January 2001

and will be extended to cover sheep, goats and pigs by April 2002. The new Act

establishing the State Intervention Fund contains basic provisions on the IACS. The

harmonisation of animal identification systems is a short-term priority in the 1999

Accession Partnership.

An Act on Ecological Agriculture was adopted in 2000, setting rules for ecological

agriculture and labelling of bio-foodstuffs, import requirements on bio-foodstuffs and

bio-products from other countries. It will enable access to ecologically oriented EC

structural programmes and is in line with Community rules concerning organic

farming.

An amendment to the Act on Foodstuffs and Tobacco was adopted in August 2000. It

aligns legislation with Community requirements as regards foodstuff labelling, the

regime for manufacture, import and marketing of novel foodstuffs, in particular

foodstuffs produced from genetically modified organisms. A number of Decrees have

also been approved in this field

(see Chapter 1 - Free movement of goods).

The Czech

legislation is partly in line with the Community

acquis,

but the control system needs

to be established.

Common Market Organisations

In this field, the Czech Republic has made some important progress over the past year

as regards the introduction of an administrative structure, notably with the adoption of

the Act on the State Agricultural Intervention Fund, which contains basic provisions

on the establishment of Common Market Organisations. This can be the basis for a

number of agricultural regulations, such as the introduction of quota policies in the

milk, sugar and potato starch markets.

As regards the adoption of specific regulations organising the different markets

covered by the

acquis,

some progress has been made. Concerning

arable crops,

Decree was adopted in February 2000 laying down the measures and state intervention

in creating the conditions to secure and maintain sugar beet and sugar production, and

to stabilise the market in sugar. The decree lays down temporary measures for one

year and is a step towards alignment with the

acquis.

A new department for the sugar

sector was established in the Ministry of Agriculture in April 2000.

In the field of

specialised crops,

an amendment of the Act on Viticulture entered into

force in August 2000, partly aligning legislation with Community requirements

concerning

wine

and acting as a precursor to a new viticulture law. This concerns

oenological practices, requirements on imported wine, vineyard register, the

conditions for the production of quality wines and the labelling of individual types of

wine. An Amendment to the Act on Protection of Hops entered into force in May

2000. The amendment aims to ensure the same standard of qualitative control of hops

and hop products for domestic producers and importers, and is partly in line with the

acquis.

In March 2000, a new department for permanent plantations was established at

the Central Institute for Supervision and Testing in Agriculture. Its task will be to

prepare the introduction of the system of contract registration in the hops sector in

accordance with Community regulations.

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In relation to

animal products,

the government has decided to introduce milk quotas

as of April 2001, based on the new Act on the State Agriculture Intervention Fund. A

department for the classification of slaughter animals was established at the Research

Institute for Livestock Productions to carry out the activities of the future

Classification Agency. The introduction of the common classification of carcasses

(SEUROP) is foreseen by the amendments to the Act on Foodstuffs adopted in August

2000.

Veterinary and Phytosanitary Legislation

The short-term priorities of the 1999 Accession Partnership include legislative

alignment and upgrading of inspection arrangements in the veterinary and

phytosanitary sector and the elaboration of a plan to modernise meat and dairy plants

to meet EC hygiene and public health standards.

In the

veterinary

field, the new Veterinary Act entered into force in 1999. It covers

conditions for veterinary care, identification and registration of animals, animal

welfare and conditions for animal trade. Several implementing Decrees have been

issued. The new Veterinary Act does not ensure full transposition of all Community

Directives in this field. An Act on Livestock Improvement, Breeding and Registration

(Breeding Act) was adopted in May 2000. It changes the structure and organisation of

the livestock improvement and breeding process and is a step towards alignment with

EC legislation.

The HACCP (Hazard Analysis at Critical Control Points) system, which involves

measures to identify and control hazards related to food processing and the monitoring

of safety requirements became obligatory for all food producers in January 2000.

As regards administrative capacity, an

animal welfare

department was established

within the State Veterinary Administration in January 2000.

In the

phytosanitary

field, an amendment to the Act on fodder was adopted in 2000,

bringing legislation on animal nutrition further in line with the

acquis,

although some

gaps still remain in the area of inspection. The new amendment stipulates rules for

the production, use and circulation of fodder and additives, including supervision and

sanctions.

Overall assessment

Overall, progress has been made with regard to legislative alignment and the setting

up of implementing structures for the CAP. However, efforts need to be stepped up,

particularly in terms of introducing market organisation regulations in specific sectors

and the strengthening of administrative structures to effectively implement the

veterinary and phytosanitary

acquis.

In order to prepare for the future management of the Common Agricultural Policy, the

Ministry of Agriculture still needs to carry out the restructuring of its organisation and

to accelerate its decision-making procedures.

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In the field of

horizontal issues,

further progress in the alignment of legislation as

regards

trade mechanisms

is needed. In the field of

quality policy,

supervision

mechanisms in line with Community requirements need to be put in place.

Further measures should be taken to ensure a fully functioning and accredited

SAPARD Agency. Efforts are needed with regard to payment procedures, accounting

procedures as well as a fully functioning internal audit, which is a key requirement for

the accreditation of the SAPARD Agency. The organisational restructuring of the

Ministry of Agriculture, in view of the future management of the CAP, needs to be

completed.

In the preparations for implementation of the IACS (Community Integrated

Administration and Control System), good progress has been made with the system of

animal identification and registration. In order to provide an efficient animal disease

prevention system, it needs to be centralised and connected to the Czech

epidemiological surveillance network. Preparations for the establishment of the land

parcel identification system have begun, but the system is not yet completed.

As regards the Farm Accountancy Data Network (FADN) the existing surveys are

only partly in line with the

acquis.

The collection of data and administrative capacity

still needs to be fully established in conformity with Community requirements and co-

operation on the exchange of data must be ensured.

As regards the implementation of

Common Market Organisations,

an effective

network with a reliable market monitoring system, capable of collecting price data in

real time at all points in the chain is missing. Legislation establishing quality and

marketing standards for

arable crops

and

animal products

needs to be completed. The

Czech Republic also needs to complete market regulation for

specialised crops.

The

marketing standards for fruit and vegetables are currently aligned to Community

requirements. However, the quality control system in the area of fruit and vegetables

needs reorganisation. The existing legal framework for producer organisations is not

in line with Community requirements. However, the government has been supporting

the establishment of producer marketing organisations since January 1999.

In the area of

rural development and forestry,

the horizontal legislation is largely in

place, but the administrative structures for implementation need to be completed.

Concerning the

veterinary

field, progress has been made in the alignment of

legislation, and the horizontal legislation is largely in place. However, further progress

is needed in the transposition of veterinary legislation, e.g. in the fields of

animal

welfare, food safety control

and

rules concerning imports from third countries.

The

Veterinary Administration as well as the Food Inspection generally function well, but

need to be strengthened in terms of adequately trained staff and equipment.

In the field of

veterinary control in the internal market,

the process of introducing

both the internal computerised system linking veterinary authorities inside the country

and an external movement control system (ANIMO) needs to be completed. Progress

has been made as regards the system of identification and registration of cattle, but

should also be extended to other species according to decisions taken. Border

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inspection posts and import checks need to be reinforced and aligned with Community

requirements.

Little progress has been made over the past year in upgrading the two

border posts

Ruzyne airport and Decin airport. The infrastructure needs to be completed and

adequately equipped, and the staff should be trained with regard to border inspection

procedures.

In the field of

control of animal diseases and animal health,

preparations to

participate in the animal notification system (ADNS) need to be completed. The Chief

Veterinary Officer needs to be empowered to take the necessary safeguard measures in

case of an emergency.

A substantial part of the plants processing products of animal origin do not yet meet

Community hygiene and public health requirements. They need to be modernised and

up-graded in terms of construction, equipment, water quality, cleaning systems and

training of staff. As regards

animal waste treatment,

most of the rendering plants for

high-risk waste are operating according to Community requirements.

The Agriculture and Food Inspection authority is working relatively well, but needs

further strengthening in terms of specialised equipment and expert staff.

In the

phytosanitary

field, most legislation is in line with the

acquis,

but efforts are

needed to complete legislative alignment. On the enforcement side, the phytosanitary

control must be upgraded to be in full compliance with Community requirements,

including border control procedures, sampling methods for plants and plant products,

surveys, monitoring and registrations systems. The State Phytosanitary Administration

is preparing its linkage to the EUROPHYT information system in the field of plant

health and harmful organisms. The State Phytosanitary Administration generally

functions well, but needs to be strengthened in terms of sufficient number of

adequately trained staff and equipment. The situation with regard to specialised

equipment has improved but will require further investment.

Chapter 8 : Fisheries

Fisheries activities in the Czech Republic are limited to acquaculture, mainly carp.

Since the last regular report, little progress has taken place as regards the management

of resources and control, international fisheries agreements, common market

organisations or state aids and structural actions.

Overall assessment

Further progress is needed as regards the legislative transposition and administrative

capacity necessary to implement the Common Fisheries Policy. Legislative

transposition is needed in the fields of public and animal health. Legislation regarding

the control on imported fish needs to be adopted. In the field of fishery products and

live fish for direct consumption, conditions of production and export to the EC are

adequate. Export health certification and public health aspects are being observed.

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However, a public health certificate should also be issued for live fish to be exported

to the EC. Monitoring plans should be drawn for e.g. environmental contaminants. A

system of control of sources and species of fish needs to be set up.

A specialised unit was established in the Ministry of Agriculture in 1999 to improve

administration of the tasks associated with the accession to the EU in the area of fish

and fisheries. The unit operates satisfactorily, but needs further strengthening in terms

of expertise and technical equipment in view of the expected increase in workload.

To improve the processing and marketing of fishery products in line with EC

practices, the establishment of producer organisations should be encouraged.

Institutions also need to be set up in order to implement the

acquis

as regards

controlling the implementation of common market standards, collecting and

transmitting data concerning the price reference regime, and applying the recognition

conditions for producer organisations. They should also implement the

acquis

concerning the management of Community structural actions in fisheries. In order to

establish a well-functioning monitoring system regarding the control of fish resources

and imports, co-operation between relevant authorities should be improved.

Chapter 9: Transport policy

Since the previous regular report, the Czech Republic has made progress in several

areas of the transport

acquis.

The Medium Term Strategy for the Transport,

Telecommunications and Postal Sector was approved by the Government in February

2000. This strategy reflects the medium and short term Accession Partnership

requirements.

As regards

horizontal issues,

the government approved by a resolution the “Proposal

for the Development of Transport Networks in the Czech Republic until 2010”.

In July 2000 the State Transport Infrastructure Fund was established on the basis of an

Act approved by Parliament. The Fund forms the basis for participation in EC

structural aid and will improve transport infrastructure financing through limiting the

previous fluctuations due to the annual changes in the relevant State budget lines.

As regards transport infrastructure, the state budget for 2000 set aside the same

percentage of GDP, 1.36%, as in 1999 for the modernisation of the stretches of the

Pan-European Transport Network in Czech territory, but at the cost of higher credit

and delays in the timing of construction. In road transport infrastructure, some

progress has been made in linking the Czech Republic to the trans-European Network

by speeding up construction of the D5 motorway (from Prague to Nuremberg), around

Plzen and by building the D8 motorway (connecting Prague to Dresden and Berlin),

both part of Pan-European Transport Corridor IV. The upgrading of national road

Corridors Iand II is ongoing, as is the case with the railway Corridors. The Czech

Republic has approved the final report on Transport Infrastructure Needs Assessment

(TINA) of October 1999 that should form the basis for extending the trans-European

networks to the Czech Republic.

As regards the interoperability of high speed trains, the relevant EC Directive will be

complied with through the amendment to the Act on Tracks, which entered into force

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in April 2000, as well as a forthcoming implementing decree. However, whilst the

Government does not intend to implement the

acquis

in this area pending decisions to

construct high-speed railway infrastructure, there is a legal obligation to do so, in

particular since the

acquis

also provides for an internal market for the construction of

high speed train equipment.

In so far as

road transport

is concerned, further amendments to the Act on Road

Transport entered into force in January and in July 2000, with the aim of adapting the

Czech provisions on access to the profession to those of the

acquis,

namely with

regard to the financial standing criterion. Furthermore, the Act on the Professional

Competence for Driving Motor Vehicles, which approximates to the

acquis

on driving

licenses, was adopted in June 2000. As regards road fiscality, a new system of road

user charges, providing for annual, monthly and 10-day vignettes, entered into force in

January 2000.

In April 2000, the multilateral INTERBUS agreement on occasional bus services was

initialled by the Czech Republic. Its implementation will result in partial alignment

with road passenger transport

acquis.

Regarding

railway transport

the amendment to the Act on Tracks sets out the legal

framework for a new system for the financing of railway infrastructure and public

passenger railway, as well as conditions for market access. However, these provisions

can only be implemented once the forthcoming Act on the Transformation of Czech

Railways has entered into force. As in previous years, there has been no progress in

the legislative procedures due to a lack of political consensus.

Concerning inland waterways an amendment to the Act on Inland Waterways was

adopted in January 2000 which aims at transposing the EC

acquis

on access to the

occupation of carrier of goods by inland waterways.

In April 2000, the government approved a Programme of support to combined

transport, which aims at fostering this type of services, based upon railway transport

and at approximating the relevant

acquis.

air transport,

an amendment to the Civil Aviation Act entered into force in June

2000 which is expected to implement both the Joint Aviation Requirements (JARs)

and the Eurocontrol standards.

Following the approval of an analysis on

administrative resources by the government in April 2000, restructuring of the Civil

Aviation Authority and Air Traffic Control was started. This is aimed at a progressive

increase of civil aviation personnel and at the establishment of independent bodies for

the investigation of air accidents and the allocation of slots. Negotiations between the

EC and the Czech Republic on the multilateral Agreement to establish a European

Common Aviation Area (ECAA), which will result in significant progressive

alignment with the

acquis

prior to accession, were concluded at the end of 1999 and a

bilateral protocol has been signed.

As regards

maritime transport,

a new Act on Maritime Navigation entered into force

this year in July 2000. The Act provides for further harmonisation with the

acquis

areas such as cabotage, the investigation of maritime accidents and the professional

competence of the crews of sea-going ships.

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Overall assessment

Further progress has been made in several areas of transport, although certain key

steps regarding legislation and administrative structures remain to be taken. On

horizontal issues, although investments into the modernisation of transport

infrastructure do show positive results, they could be further strengthened, particularly

as regards the framework partnerships between the public and private sector.

Regarding land transport, the harmonisation of road transport has advanced

considerably but has not yet been concluded on a number of issues. Thus the Act on

Road Transport should be adapted in particular concerning fiscal and social rules and

safety requirements. Administrative structures to bolster the enforcement capabilities

in land transport are still to be implemented.

The significant lack of progress, in both legal and institutional terms, regarding the

restructuring of the Czech railways remains a major obstacle. As a consequence,

harmonisation with the developing railway

acquis

will continued to be hampered as

will the strengthening of administrative structures and improvements in

competitiveness. It is recommended that the Czech Republic intensify its efforts to

achieve compliance with the railway

acquis

ahead of accession.

In the field of air transport, independent bodies for the investigation of air accidents

and for slot allocation remain to be established. The Czech Republic expects to

become a full member of the Joint Aviation Authority (JAA) by the end of 2000. As

regards maritime transport, whilst the Czech Republic is a landlocked country, the

adoption of the Maritime Act constituted an important step in the approximation to the

acquis,

which needs to be followed by the issuing of secondary legislation.

Chapter 10 : Taxation

The 1999 Regular Report found that the Czech Republic had established solid VAT

legislation compared to the

acquis.

This was also the case generally for excise duty,

although to a lesser extent. Since then certain additional measures have been taken.

As regards

indirect taxation,

an amendment to the Act on VAT entered into force on

1 April 2000. This included refund schemes for tourists, for armed forces of NATO

Member States and for foreign taxable persons not established within the Czech

Republic (for the latter only in respect of certain selected goods). In addition, the

transfer of land became a taxable transaction exempt from tax.

In July 1999 the Czech Republic changed the measure unit quantity for duty purposes

from the net mass in tons to the volume-measuring unit of hectolitres for fuel

products. Also the duty rates for cigarettes and other tobacco products and fuel were

increased. As of April 2000 the definition of mineral oils subject to excise duty has

been based upon the Nomenclature Code and heavy fuel oil has been included in the

taxable scope. Furthermore, the duty exemption for non-denatured alcohol for the

production of cosmetics and soap has been repealed and fortified wine mixed with

ethanol has become taxable at the duty rate applicable for spirit. Spirit with actual

alcohol strength by volume exceeding 1.2-% volume has become taxable and so have

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products containing spirits and spirit products (chilled wine and fruit bowls, spirit in

chocolate, etc.). Moreover, losses due to "force majeur" have been exempted from the

duty for spirits and the possibility of official impairment of spirit and spirit products

has been introduced.

The legislation (VAT and excise duties) for the permanent closure of duty-free shops

at land-borders by 31 December 2001 has been adopted.

No particular developments are to be reported with regard to

administrative co-

operation and mutual assistance.

Concerning

direct taxation

the tax rates for corporate and personal incomes were

decreased to 31% and 32% (for highest income range) respectively by 1 January 2000.

In addition the legislation concerning the withholding tax rate of 15% from dividends

and interests has been aligned in that the withheld tax remains a credit to total tax

liability in entrepreneurial subjects.

Preparations for a merger of the Customs Directorate and the District Financial

Authorities have continued with a view to creating an independent authority

responsible for the customs and excise administration. An amendment to the Act on

District Financial Authorities, which entered into force on 1 January 2000, introduced

the legal base for the improvement of inspections aimed at combating certain areas of

tax evasion. A new software application called “VAT Tax Return Credibility” was

distributed to the local financial authorities in 1999. The software assists in identifying

the so-called high risk VAT Tax Returns and taxpayers that have submitted incorrect

tax returns. The software also helps to limit unauthorised deduction of VAT and the

refund of excess VAT.

Overall assessment

While significant progress has already been achieved in the alignment of the tax

system, a number of issues remain to be tackled.

Some efforts have been carried out in the tax area since the previous Regular Report.

However, the more sensitive areas such as the application of rates in the field of both

VAT and excise duties and VAT exemptions remain to be solved. Taking into account

that alignment in this field is likely to have a significant impact on consumer prices, it

is important that the Czech Republic address these issues in a more structured and

coherent way. Further efforts are also required as regards the VAT treatment of public

authorities, the inclusion of subsidies directly linked to the price in the VAT taxable

amount, a complete refund VAT scheme for foreign taxable persons not established

within the Czech Republic and the application of the right of deduction of input VAT.

On excise duties attention should also be addressed to in particular the introduction of

a single combined (specific/ad valorem) duty structure for cigarettes.

As regards the complete closure of duty-free shops at land borders by 31 December

2001, this issue requires close monitoring as the date for the closure of such shops has

been postponed several times in the past.

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The preparations for restructuring the Czech tax administration so as to become more

efficient is seen as a positive step, although the full impact remains to be seen.

However, the Czech Republic’s tax administration needs further strengthening in

order to ensure that the

acquis

is implemented, controlled and enforced in an effective

manner. Problems persist in retention of officials. It is also important that the Czech

Republic pays attention to issues such as administrative co-operation and mutual

assistance, including recovery of tax claims.

Chapter 11: Economic and monetary union

A detailed assessment of the Czech Republic’s economic policy in its various aspects

has been given above, in the chapter discussing the economic criteria (B-2).

Therefore, the present section is limited to a discussion of those aspects of the

Economic and Monetary Union

acquis,

as defined by title VII of the EC treaty and the

other relevant texts, which candidate countries should implement by accession at the

latest, i.e. the prohibition of direct public sector financing by the central bank, the

prohibition of privileged access of the public sector to financial institutions, and

independence of the national central bank. As to the process of liberalisation of

capital movements, upon the completion of which compliance with the EMU

acquis

conditional, this aspect has been covered above, in the section on

Chapter 4 – Free

movement of capital.

Since the previous Regular Report, little further progress has been achieved in the

adoption of the EMU

acquis.

Little progress has been made as regards the

prohibition of direct public sector

financing by the central bank.

This is addressed in an amendment to the Act on the

Czech National Bank (CNB) recently adopted by the Parliament and sent to the

President for signature. A new Act on Budgetary Rules for the State Budget was

approved which contains the provision that the government is committed to present an

indicative three-year rolling budget simultaneously with the annual draft on the state

budget. The new Act increases fiscal transparency in view of granting and evaluating

state guarantees and it standardises the rules for the state budget and the state extra-

budgetary funds. The new Act does not apply to the general government budget as a

whole.

The Czech Republic is already largely in line with the

acquis

on the

prohibition of

privileged access of the public sector to financial institutions.

No new legislative

developments have taken place in this regard.

Concerning the

alignment of national central bank status with the Treaty,

the

amendment to the Act on the CNB modifies the primary objective of the CNB,

formalising the shift from currency stability to price stability. As regards the

independence of the CNB, the amendments to the Act are incompatible with the

Treaty. There are two areas of incompatibility: the provision for the approval by

Parliament of a separate operating and investment budget, and the obligation to

consult and to agree with the government in setting the inflation target.

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Overall assessment

The Czech Republic will participate in EMU upon accession with the status of a

country with a derogation as per article 122 of the EC treaty. It will need to implement

the necessary changes to its institutional and legal framework by the date of accession.

Overall, substantial parts of the EMU

acquis

have been adopted.

As far as the prohibition of direct public sector financing by the central bank is

concerned, the CNB continues to be able to grant short-term credit to the Government

through the purchasing of state treasury bills which mature within three months of

their purchase. This is not in line with the

acquis.

In addition, the Ministry of Finance

should improve notifications of public debt and public deficit in order to create the

conditions necessary to meet the Maastricht Criteria. An Act on Budgetary Rules

needs to be approved. This will introduce the obligation to compile a medium-term

budget outlook and set rules for monitoring and evaluating state guarantees as a

significant fiscal risk, with a view to creating a more stable medium-term fiscal

outlook.

On the prohibition of privileged access of the public sector to financial institutions,

the position is satisfactory. However further monitoring is needed, in particular on the

acquisition of state bonds by the savings and credit unions.

As regards the alignment of national central bank statutes with the Treaty, the CNB

has pursued its policy of alignment with the ECB. The CNB has already adjusted its

set of monetary instruments to the ECB framework, with the exception of the

minimum reserve requirements. The current practice of inflation targeting provides a

medium-term framework to monetary policy. The Commission attaches particular

importance to safeguarding the independence of the Czech National Bank, in line with

the EMU

acquis.

In the light of the recent adoption of the amendment to the Act on

the CNB, significant efforts are needed to align Czech legislation in this regard.

As regards administrative capacity, the CNB already functions effectively. The level

of professionalism and competence amongst its staff is generally high. Turnover of

staff is low, due at least in part to higher salaries compared to other parts of the Czech

administration. However some improvements in administrative capacity will have to

be made, particularly as far as the Ministry of Finance is concerned. The Ministry

needs in particular to strengthen its financial policy department and ensure a better

statistical follow-up.

Chapter 12: Statistics

The Czech Republic has made considerable progress in the field of statistics.

As regards

statistical infrastructure,

legislation is substantially aligned with the

acquis.

In April 2000 Parliament approved the first reading of the amendment to the

State Statistical Service Act which will allow the Czech Statistical Office (CSO)

access to the Ministry of Finance’s tax registers.

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Last year’s Regular report concluded that the

administrative structures

for

implementing and enforcing the

acquis

were largely in place but that the co-ordinating

role of the statistical office needed strengthening with particular regard to access to

other administrative sources. During 1999 Eurostat conducted an overall assessment

of the Czech Statistical Office (CSO) and concluded that regarding institution

building and building of administration, the Czech Republic met the EC requirements.

Concerning

demographic and social statistics,

progress has been made although full

compliance with the

acquis

will be possible only after the population census in 2001

is conducted. Demographic statistics are largely in alignment with EC standards.

In the field of

regional statistics,

the Czech government has upgraded its system of

regional classification to bring it into line with the EC system of regional

classification (NUTS). A new law on the Establishment of Higher Self-Administering

Units will increase the number of regions from 8 to 14 at the NUTS 3 level. The Act

is expected to come into force in January 2001 following the first regional elections in

November 2000. This will mean that the NUTS 2 level will have to be redefined

accordingly. Regional classification requires further improvement regarding the data

for NUTS 2 or 3 levels. The NUTS classifications should also be used for forest and

water statistics.

In the area of

macroeconomic statistics,

the CSO has made a great deal of progress in

developing a system of national accounts in line with ESA95. However, reliability of

data in this area will also depend on the improvement of the quality of the Business

National Bank has improved. In 1999 the Ministry of Finance set up a Unit on

Government Financial Statistics ensuring that this data is processed according to the

IMF methodology.

In the field of

business statistics,

the main EC requirements have been met. Fuel and

energy nomenclature has been produced. Also the legal basis of the business register

has been changed to encompass local units and ‘kind of activity units’. The regulation

on structural business statistics had been implemented in surveys.

As far as statistics regarding

external trade

are concerned, the external trade statistics

conform to international guidelines and the methodology used conforms to that used

by the EC.

For

agricultural statistics,

the methodology is largely in line with EC requirements,

further improvement is needed covering individual commodities and the

regionalisation of data needs to be taken into account. The preparation of Agrocensus

2000 has been completed and the census was launched in September 2000.

Overall Assessment

Overall the Czech Republic has made considerable progress in the field of statistics.

The Czech Statistical Office functions well and is preparing for accession to the EU.

Still outstanding is the issue of personal data protection which is not yet resolved as

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measures resulting from the Amendment on Data Protection to the State Statistical

Service Act remain to be implemented.

There is also a need to ensure that the various registers being compiled (particularly

the business register and the business profiling exercise) are harmonised. Compliance

for business surveys is envisaged for 2002 but a review will evaluate whether this is

feasible.

The administrative structures to implement and enforce the

acquis

are largely in place.

The Czech Statistical Office has improved its co-ordinating role particularly in respect

to accessing the data of other authorities. However, human and financial resources of

the CSO are not yet sufficient to meet the increased need for structured data in line

with the

acquis.

Linked to this, the establishing of an efficient field network is

necessary.

The basic infrastructure in the area of statistics is in place and operates on the

principles and standards practised in the EC. The EC methodology is also being

implemented and know-how of EC statistical requirements is being transferred in

collaboration with EUROSTAT. Progress has been made but improvements need to

be made in the methodology of production, collection and dissemination of statistics

to make the gathering and use of statistical data fully consistent with EC methods in

key areas.

Legislation is substantially aligned with the

acquis.

However some inconsistencies

remain in methodology and quality and timeliness of data provision. Further

improvements are required in regional and agricultural statistics, the business register,

short term statistics and in the quality of government finance statistics.

Chapter 13: Social policy and employment

The 1999 Regular Report concluded that legislative alignment had been limited and

administrative capacity should be strengthened. Since then considerable progress has

been achieved in both areas.

Concerning

Labour law,

the amendment to the Labour Code, which will enter into

force on 1 January 2001, intends to transpose the

acquis

in a number of areas: those

on collective redundancies; transfers of undertakings; written statement; posting of

workers in the framework of provision of services; working time; and safety and

health at work of workers with a fixed–duration employment relationship. The

amendments also go a long way towards transposition of the European Works Council

directives. The directive on young people has been partially transposed. The Act on

the Protection of Employees in the case of insolvency, which entered into force on 1

July 2000, aligns legislation with the

acquis

regarding insolvency. The responsibility

for decisions concerning the timing and the amount of the payments to employees in

the case of insolvency is transferred from bankruptcy administrators to District Labour

Offices.

As regards

social protection,

important achievements have been obtained. The

amended Act on Supplementary Pension Insurance strengthening the surveillance

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powers of the Ministry of Finance and imposing stricter requirements on pension fund

management entered into force in 1999. In April 2000, new legislation to improve the

social and legal protection of children, including the surveillance of social care came

into force. On the basis of this act, an independent Office for the International Legal

Protection of Children was established in June 2000 in the city of Brno. The role and

importance of non-governmental actors, in social service delivery and more generally

in the social sector, is gradually gaining fuller acceptance and support.

Regarding

equality of treatment,

in October 1999, the amendment to the

Employment Act entered into force, incorporating the requirements of the directive on

equal opportunities for men and women in their access to employment into the Czech

legal order. The amendment includes an explicit prohibition of any discrimination in

access to employment, among others because of gender, and it explicitly forbids

publishing discriminating advertisements. The requirements of the directive on

parental leave were incorporated into the aforementioned amended Labour Code. The

amendment to the Act on the Civil Procedure was adopted and will take effect on 1

January 2001. It aligns legislation with requirements of the

acquis

on the burden of

proof in gender discrimination litigation cases. The amendments to the Wages Act and

to the Salary and Bonus Act were adopted by Parliament in June 2000 and will enter

into force in January 2001, aligning legislation with the requirements of the

acquis

regards equal pay. The co-ordination on equal opportunities and equal treatment for

men and women is a competence of the Ministry of Labour and Social Affairs.

As regards

employment,

progress has been made in developing the national strategy,

building on the Joint Employment Review, in line with the short term Accession

Partnership priority. Czech employment policy is formulated on the basis of the

National Employment Plan (NEP) of May 1999. The Joint Assessment of

Employment Policy Priorities was signed in May 2000. The NEP is currently being

updated in light of changes to the EC Employment Policy Guidelines for 1999/2000,

and will take account of the conclusions of the Joint Assessment Paper. In April, the

Government increased the levels of staff at the Labour Ministry and those at its

Labour Offices. Retraining efforts by the Czech Labour Offices increased in 1999, as

did the number of vacancies filled (10 200 compared to 5 200 in 1998). The

Government has also increased its budget to implement its active employment policy,

and approved measures to increase the employment of school graduates. Relevant

public expenditure increased between 1998 and 1999, from 0.28 to 0.42% of GDP.

This includes unemployment benefits and active measures for disadvantaged youth

and the disabled, and subsidised employment for direct job creation through public

works and labour market training. The employment rate stood at 65.9% in 1999,

compared to 69.2% in 1994.

The support of social partners' capacity-building efforts to develop and implement the

acquis

in terms of the

social dialogue,

notably at the bipartite level, is a short-term

1999 Accession Partnership priority. In order to promote the social dialogue at

enterprise level the Government adopted amendments to the Act on Employment and

to the Labour Code. Increased protection of employees' representatives against

discrimination when taken on in a new job and then during employment because of

his or her trade-union membership or activity, or because of his or her being an

employees' representative, has been incorporated into both acts. The amended Labour

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Code also covers the issue of employees' larger involvement in decision-making

through regular information of employees and consulting matters with them at the

enterprise level. In 1999, the Government continued its dialogue with its social

partners within the framework of the Economic and Social Agreement Council. The

Council discussed a number of strategic socio-economic issues such as industrial

restructuring, the lifting of state control of rentals and energy prices or pension

reform. The social partners also took part in the preparation of strategic documents

within the framework of the Czech Republic’s preparation for accession, such as the

National Development Plan.

In the field of

public health,

the Act on the Protection of Public Health was adopted

in July 2000. The act and the implementing regulations ensure compliance with a

substantial part of the relevant

acquis.

It contains the codification of rights and

obligations of institutions in the protection of the population’s health and the powers

and authority of state healthcare supervisory bodies. The transposition of directives on

tobacco products has shown no noticeable progress.

As regards

health and safety at work,

the adoption of the amendment to the Labour

Code is aimed at aligning legislation with the requirements of the Framework

Directive. The decrees of the Czech Mining Office transposing the requirements of the

acquis

on health and safety of workers in drilling industries were published in 1999.

In 1999, the Ministry of Labour and Social Affairs took the first steps to create a co-

ordinated system of occupational health and safety inspection. This system is

intended to enable effective enforcement of the

acquis

in the field of labour law and

occupational health and safety. The Act on Competencies of Central Bodies of State

Administration transfers the responsibility for occupational health from the Ministry

of Health to the Ministry of Labour and Social Affairs, with the aim of improving co-

ordination in the area of occupational health and safety.

Overall assessment

Despite a slowdown in 1998 and 1999, the Czech Republic has now made progress in

the transposition of EC legislation and has effectively overtaken its own legislative

timetable in some areas, notably as concerns labour law and equal opportunities.

However, enforcement of legislation in areas such as occupational health and safety

and public health is weak.

As regards labour law, the Directive on Young People is only partially transposed.

The requirements for regulating work of children below the age of fifteen needs to be

incorporated in Czech law and applied.

Notwithstanding achievements in developing social protection in recent years, there is

a pressing need for further reforms. The state social insurance scheme faces an

increasing deficit and the social assistance scheme and safety net benefits need

attention to improve both the organisation and delivery of benefits and work

incentives, and to control fraud and abuse. The need for reform is recognised by the

Czech Republic which has a number of proposals in hand. It will be important to

track the development of these reforms, and others such as the strengthening of health

care financing.

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As regards equal treatment for men and women, only two directives, on equal

treatment in social security and equal treatment in occupational social security, still

need to be transposed. The administrative capacity needed to ensure that the

directives on equal opportunities for men and women are duly enforced, needs to be

strengthened.

The Czech Republic has moved in the right direction in transforming the labour

market and adapting its employment system so as to be able to implement the

European Employment Strategy. The Joint Assessment of Employment Policy

Priorities has identified key challenges where progress would still be needed. The

process of restructuring has caused a substantial rise in the unemployment rate, which

is particularly acute in certain regions. This makes the implementation of further

reforms of tax, benefit and social assistance systems particularly important, in addition

to the implementation of new active employment policies already introduced and

planned, in particular in the context of the National Employment Plan. In order to

assure smooth implementation of future ESF programmes, it is important that a

precursor of an ESF management office is created and appropriate administrative

structures need to be strengthened.

As regards social dialogue, autonomous social dialogue needs to be strengthened

especially at sectoral level. The Czech Republic should continue to promote forms of

dialogue and workers’ participation at enterprise level, especially with regards to the

implementation of the relevant

acquis.

The legislative process of harmonisation with the

acquis

in the area of public health

should be continued; new acts on public health insurance and protection against

damage should be adopted, and the act on public health protection should be

implemented together with the adoption of the relevant accompanying legislation. The

institutional basis of public health protection should be created, resulting in

restructuring of public health protection bodies with increased ability to implement the

state administration tasks and to enforce legislation. Enforcement of legislation

concerning tobacco control should be improved.

As regards health and safety at work, harmonisation with the

acquis

in the field of

health and safety at work will only be achieved once implementing regulations are

issued and put into practice. As concerns the administrative capacity to implement the

acquis,

continued efforts are needed to strengthen enforcement bodies, notably the

national labour inspectorate.

The Ministry of Labour and Social Affairs (MoLSA) is a central institution of state

administration responsible for the issues addressed under this chapter. It has a staff of

some 563 people. It is competent and well-informed on EU related issues, and

harmonisation efforts are well advanced. The bulk of remaining work consists in the

implementation and enforcement of new legislation, and the testing of newly created

structures. Supervision of occupational health and safety and working conditions is

the responsibility of the Czech Occupational Safety Office (COSO), which reports to

MoLSA. Activities of COSO are to undergo changes further to recent legislative

developments, which aim to ensure alignment with EC standards and policies in

labour inspection. As for health related issues, the Ministry of Health (MoH) is

responsible for health care, public health and related activities. It has a staff of some

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279 people. The ministry suffered from instability in terms of political leadership and

staff over the last decade, which adversely affected all its departments. Under the

current minister, a systematic approach to the harmonisation with EC standards and

policies has been started.

Legislation transposing the EC Directive based on Art. 13 of the Treaty relative to

discrimination

on the grounds of race or ethnic origin will have to be introduced and

implemented.

Chapter 14: Energy

Compared to last year’s Regular Report which concluded that legislation remained

insufficiently aligned to the

acquis

in several important areas, some progress has been

made so far.

In January 2000, the Government approved the Czech Energy Policy as a document

for long-term sectoral strategy (an outlook for the next 15 – 20 years) related to the

Economic Strategy of entry to the EU. The policy places emphasis on: the objectives

of environmental protection and respect for principles of sustainable development, the

safety of the energy supply and support for the competitiveness of the economy.

In January 2000, the Czech Republic became a full member of the International

Energy Agency.

As regards

security of supply

progress has been made since the previous Regular

Report. The Act on Emergency Oil Stocks came into force in November 1999 thus

further aligning with the EC

acquis.

It requires oil stocks to be increased by 5 days

per year until they reach the required 90 days level. The aim is to reach the

acquis

level (90 days) in 2005.

On the basis of this law, the Administration of State Material Reserves (AMSR),

responsible for the management of emergency oil stocks, has established an

Emergency Management Centre. The AMSR has since the end of 1999 been

submitting information on the amounts of emergency stocks to the European

Commission on a monthly basis.

As regards the issues of

competitiveness and the internal energy market,

the

Energy Management Act has recently been adopted. This Act creates a basis for

improving energy efficiency in line with

acquis.

No other developments can be

reported in legislative terms pending the adoption of the Energy Act currently before

Parliament.

Concerning the liberalisation of the energy market, the Ministry of Industry and Trade

identified 2005 as a realistic date to reach the EU level regarding the opening of the

power market and 2008 for the gas market. The rules for market opening and the pace

of the process are dependent on the proposed Energy Act.

In April 2000, the Ministries of Finance and Trade submitted their energy

privatisation plan. Privatisation is planned for a number of companies between 2001

and 2002. The procedure for the privatisation of the state-owned energy companies

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and the gas and electricity distribution companies remains to be finalised. The

decision to privatise these companies is seen as a political one that has been much

debated and delayed over the years. However, further progress was made on

privatisation of the electricity market with the partial privatisation of two regional

energy distributors in South Bohemia. The National Property Fund maintains a 48%

share.

In so far as deregulation in the electricity and gas sectors is concerned, a gradual

process of price liberalisation is underway; this process aims at eliminating cross-

subsidies by 2002. In December 1999, tariffs were revised. The Ministry of Finance

issued a decree that came into effect at the beginning of 2000, which increased the

maximum prices for gas and power for households.

The restructuring and privatisation process in the coal and ore mining sector is

ongoing. The rules for state intervention in the phasing-out of mining operations have

been adopted. This intervention mainly regards social obligations resulting from

restructuring and the technical liquidation of mines and repairing of damage caused by

past mining activities. A time-scale for phasing-out mining operations has been

adopted. At the end of 1999, one of the largest Czech coal companies (Mostecka

Uhelna) was fully privatised.

A major development in the solid fuel sector was the merger of two coal companies

into one holding company as part of a gradual privatisation process. With some state

financial participation, these companies are carrying on with the discontinuation of

activities in inefficient mines.

As regards

nuclear energy,

the 1999 Regular Report recalled in particular that the

Temelin NPP is a VVER 1000 type design, which is considered to be upgradeable to

international safety standards, and called for a modernisation programme to be

implemented. The Temelin NPP is subject to a wide scale upgrading programme

which addresses,

inter alia,

the instrumentation and control system as well as nuclear

fuel management.

In February 2000 a reduced scope review of the Czech State Office for Nuclear Safety

(SUJB) was conducted by the International Regulatory Review Team as delegated by

the International Atomic Energy Agency (IAEA). The Review Team made some

recommendations for improvement to further strengthen the Czech regulatory body.

Many of the recommendations were concerned with long-term development of the

organisation, building on current practices.

Further steps have been taken towards completion of the NPP at Temelin. Hot testing

for unit 1 was completed in April 2000 under the regulatory authority of the SUJB,

which delivered a license for fuel loading of Unit-1 in July 2000. The activation of

the first block took place in October 2000. The modernisation of the Dukovany

nuclear power plant is ongoing. The Czech authorities continue to provide regular

information to the Commission regarding nuclear safety.

During the past year there has been public concern in certain parts of the EU

concerning the activation of the Temelin NPP and current Czech environmental

impact legislation.

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Overall Assessment

Significant further efforts are needed for alignment with the

acquis,

but the recently

adopted Energy Policy creates a basis for further preparation.

The Energy Act, which should provide the legislative structures for a liberalised

internal market, is currently before Parliament. It is important that this Act allow

progress to be made on the delayed process of liberalisation in the field of energy as

well as the establishment of a fully independent regulatory authority. The present

regulatory body is part of the Ministry of Trade and Industry whilst the Czech Energy

Agency (CEA) needs additional financial and human resources.

Energy efficiency still needs further improvement in order to meet EC standards. Low

efficiency in production and conservation of energy coupled with lack of public

awareness regarding energy saving means that energy consumption continues to be

high. Thus the consumption of primary energy resources per unit of GDP (energy

intensity) is on average twice as high in the Czech Republic as in EU Member States.

As regards the issue of nuclear energy, the EU has repeatedly emphasised, most lately

at the European Council in Helsinki, the importance of a high level of nuclear safety

in candidate countries in the context of the Union's enlargement. As in all candidate

countries, the final responsibility for nuclear safety lies with the operator of the

Temelin and Dukovany nuclear power plants, under the authority of the SUJB that has

to provide or recall the necessary licenses as the competent nuclear safety regulator of

the Czech Republic. The Commission notes that the Atomic Act of January 1997

provides the legal basis for the SUJB's authority and compares well with respective

modern legislation in the EU. The Czech Republic needs to ensure that the SUJB's

capacity and competence to supervise the operations of the Dukovany NPP and the

completion of the Temelin NPP remain strong and that the SUJB enjoys the necessary

institutional independence to exercise its responsibilities. The Czech Republic is

encouraged to ensure that both the operator and the regulator pay their utmost

attention to reaching and maintaining the high level of nuclear safety demanded by the

European Council. The Czech Republic is further expected to continue to provide the

Union with regular information on the situation at the Temelin and Dukovany NPPs.

The Commission will also continue to follow closely the question of the availability of

storage capacity for spent fuel from the Czech nuclear power plants and the process of

selection of a final repository for radioactive waste and spent fuel. Due attention

should be given to preparing the implementation of Euratom safeguards.

Chapter 15 : Industrial policy

The 1999 Regular Report highlighted in particular the need to overcome the cycle of

dependency between state-owned banks, bank-owned funds and only nominally

privatised companies. Since then, progress has been made in this area.

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

policy (see

Chapter 16 – Small and medium sized enterprises).

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In terms of

industrial strategy,

the Czech Government approved the ‘Industrial

Policy Concept of the Czech Republic’ and a related action programme in January

2000. These documents reflect the requirements of the 1996 Community Action Plan

for strengthening industrial competitiveness. The Industrial Policy Concept sets out

short, medium and long-term objectives as well as the steps required to reach these

goals.

The action programme mentioned above provides the institutional and financial

framework for the implementation of individual initiatives within the industrial

policy. The main priority is to set up a support system to boost the competitiveness

and performance of Czech industry. This seeks to apply standard tools of industrial

policy, as used in Member States. In addition, a pilot Sectoral Operation Programme

has been developed for the industrial sector, to increase experience in industry in

preparation for making use of EC Structural Funds and the Cohesion Fund.

As regards administrative capacity few developments have taken place although the

number of staff of the Department of Industrial Policy in the Ministry of Trade and

Industry was slightly increased.

As regards the

privatisation and restructuring process,

a Government regulation in

October 1999 modified the eligibility criteria under the Government Revitalisation

Plan for Industry to bring them closer in line with the

acquis.

In May 1999, the

Revitalisation Agency was established as a joint-stock company to manage the process

of revitalising large industrial companies and it began implementing the Plan in

November. So far nine companies have been identified as eligible under the Plan.

Out of the total 1721 undertakings which have been identified for privatisation, 1279

were completely privatised by March 2000. State shares in a number of strategic

companies (such as Mostecká uhelná společnost, a.s. and Chemické závody Sokolov,

a.s.) were sold off in July 1999. The privatisation of the PARAMO Pardubice a.s. was

also launched in January 2000. Furthermore, the remaining 30% of Skoda Auto was

sold to Volkswagen in spring 2000.

Responsibility for the monitoring of state aid has been transferred from the Ministry

of Finance to the Office for the Protection of Economic Competition, following the

adoption of the State Aid Act.

Moderate progress has occurred in the

restructuring of the steel industry

which is a

short term priority of the Accession Partnership. In October 1999 the Government

decided to formulate its Programme of Restructuring of the Czech Steel Industry on

the basis of the outcome of a Phare Study.

As far as

investment promotion

is concerned, the Act on Investment Incentives

entered into force in May 2000. This sets out the legal framework for investment

incentives and is aimed at attracting FDI participation in privatisation and

restructuring.

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Overall assessment

Overall Czech progress in the field of industrial policy has been positive. The Czech

Republic is making efforts to align its industrial strategy with the concepts and

principles of EC industrial policy, based on a system of open and competitive markets.

This is underlined by the adoption of the Industrial Policy Concept and related action

plan.

As far as privatisation and the restructuring process is concerned, most of the

privatisations within the competence of the Ministry of Trade and Industry have been

completed. State interests in around 40 strategic companies remain to be sold off,

most of which are in the energy distribution sector (this is covered further in chapter 14

on energy). The work of the Revitalisation Agency has started. It is critically

important that strategic investors for the revitalised companies are found. Also, it is

not completely clear on what basis the companies on the list for revitalisation have

been selected. The future viability of enterprises is now a compulsory criterion which

the Revitalisation Agency must apply when assessing the final list of participants in the

revitalisation programme but the agency should provide detailed information on the

calculations that have been carried out.

A crucial task for the Government is to overcome the cycle of dependency among

state-owned banks, bank-owned funds and only nominally-privatised companies

owing large sums to the banking sector. From this point of view, the progress in this

sector noted above is a promising indication of the Government’s effort to complete

the restructuring process. A more speedy privatisation and de-monopolisation of the

telecoms and energy sectors would significantly improve the business environment for

Czech companies.

On investment promotion, the system of investment incentives set up in 1998-99 to

improve the competitiveness of Czech industry has been underpinned by the legal

framework set out in the Act on Investment Incentives. The Government has already

approved more than 20 investment projects.

An important dimension of industrial policy is the control of state aids

(see also

Chapter 6 – Competition).

The institutional structures operating in the area of industrial policy work well. In

October 1998, a Department of Industrial Policy was established within the Ministry

of Trade and Industry. In terms of conceptual work, the Ministry of Trade and Industry

worked effectively in drawing up the necessary concepts for Czech Republic’s

industrial policy.

Furthermore, the Ministry of Trade and Industry has successfully harnessed the

Government agencies engaged in promoting commercial activities (ie Development

Enterprise Agency, CzechTrade and CzechInvest) to the overall effort to attract FDI

and to speed up restructuring. The Ministry also co-operates with the Czech Chamber

of Commerce at national and local level as well as with various business associations.

Their performance is positive and contributes to attracting investment in the Czech

Republic and to the promotion of Czech business abroad.

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However, the success of the restructuring process in the Czech Republic is also

dependent on effective implementation of the law and on the overall performance of

the courts in handling commercial cases.

Overall the Ministry of Trade and Industry operates in a professional manner and

manages its portfolio relatively well. There have been no major political, structural or

expert staff changes since mid 1998, which has contributed to its stability. Expertise

in EU affairs is generally high.

Chapter 16 : Small and medium-enterprises

Since the last Regular Report, further progress has been made in the Czech Republic’s

policy towards SMEs, including on policy implementation.

SME policy,

in line with the 1999 Accession Partnership, 17 SME support

programmes for 2000 were approved by the Government in December 1999. The

programmes enable SMEs to receive state support for projects relating to industrial

manufacturing, construction, services, trading, or regional passenger transport. The

subsidies are in the form of credit guarantees, guarantees extended to the investors of

development capital, credit at reduced interest rates, subsidies for repayment of

interest, and general subsidies. The funding available for SME support in 2000 is

EUR 65.8 million, one third higher than in 1999.

The action plan for strengthening the competitiveness of Czech industry approved in

January 2000 includes many stimuli applicable to SMEs.

A National Discussion Group was created in October 1999 to advise the Government

on SME services. It seeks to involve businesses more actively in helping to create

favourable conditions for SME growth.

As regards

SME definition,

the Czech Republic has further progressed in aligning

with the

acquis

by adopting the criterion which sets up economic limits of supported

SMEs.

Overall assessment

On SME policy, the Czech Republic is already aligned with Community measures to a

considerable degree. SMEs play a very important role in the economy, producing

approximately 53% of the Czech Republic’s GDP.

Czech SME instruments and support systems should be further brought in line with

the rules applied in EU countries. Law enforcement by the judiciary and the state

should be improved, in particular as regards the position of creditors. Furthermore,

Developments in policy towards small and medium sized enterprises should be seen in relation to

developments in the context of industrial policy (see

Chapter 15 – Industrial policy).

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the

overall business environment

needs to be improved. Access to capital should be

improved through increasing the scope of programme support, including ensuring the

provision of the necessary finances. The Czech Republic should also make

preparations for supporting SMEs as regards research and development in the

framework of EC structural funds. The support programmes for SME industrial

research and development should continue. Support should also be expanded to cover

technology transfer. In this context it should be noted that there is a network of 7

Euro-Info Centres which is able to provide Czech entrepreneurs with useful

information about the EC internal market, access to finance and links to EC

initiatives.

The implementation of SME policy is monitored by the Ministry of Trade and

Industry and by the Ministry of Regional Development for tourism. There is sufficient

administrative capacity for this purpose although the 17 SME support programmes

need to be assessed and reviewed on a regular basis. Participation in the Multiannual

Programme for SMEs is serving to further strengthen this capacity, in addition to

helping prepare enterprises themselves for accession. Collaboration with the Ministry

for Regional Development is necessary to ensure effective regional approaches in

implementing SME legislation. It is also important to co-ordinate activities with other

regional institutions focusing on enterprise development. The supply and accessibility

of information and advice services must be improved,

inter alia

as regards the EU,

including the relevant infrastructure, by increasing funds towards making these

services cheaper. The administrative capacity of the Enterprise Development Agency

should be also strengthened.

Chapter 17: Science and research

Compared to the situation in 1999, the Czech Republic has taken steps to ensure

implementation of the

acquis

and to build up appropriate capacities in the field of

research and development.

In January 2000, the Government approved the National Science & Technology and

Research & Development Policy, which is in line with the existing Community

legislation. The policy document contains a proposal regarding the establishment of

national programmes, especially in the field of oriented research.

Since the Czech Republic became fully associated with the Fifth Framework

programme as well as the Euratom Framework Programme in 1999, the necessary

administrative structures as well as the National Contact Point (NCP) system have

been created and are fully operational. The responsible authority is the Department of

International Co-operation in Research and Development in the Ministry of

Education, Youth and Sport. The approved state budget for the year 2000 fully covers

the Czech contribution to the programme.

Overall assessment

The Czech Republic should have little difficulty in taking over the

acquis

in this area.

Measures have been taken to gradually increase the financial support for science and

development, which is currently relatively low. For the further development of the

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sector it is essential to have an increase in the gross domestic expenditure in research

and development as percentage of GDP which is relatively low (budget for 2000:

0.6% of GDP).

Legislation on Research and Development should be adopted to harmonise the

conditions for state support of research and technological development with those of

the EU. Legislation on Public Research Institutions should specify the legal status of

these institutions and regulate their creation and liquidation. This legislation should

also address the issue of organisations partly or fully funded by the state budget.

Support for the transfer of technologies should be strengthened, particularly towards

small and medium-sized enterprises (SMEs).

Chapter 18: Education and training

Little progress has been achieved in legislative alignment while there has been some

progress on implementation.

In the past year, the Czech Republic has continued to participate in a number of

Community programmes

(see bilateral part A). Adequate management structures for

the implementation of these programmes have been set up. The responsibility for the

implementation of the programmes rests with the Co-ordination Committee for EC

Educational Programmes and further by the management committees of the individual

programmes and working groups or commissions for sub-programmes. Czech

universities participate in the Jean Monnet project, enabling new activities and

research in areas related to European integration and representing “European” subjects

in their curricula.

No new developments can be reported concerning legislative alignment in the field of

education of children of migrant workers.

As regards the national system of education and training, the Government approved

the state information policy in education in April 2000, which is in line with the

approved State Information Policy and the Lisbon agreement. In the field of

vocational education and training, no changes in legislation of financing occurred over

the past year.

In January 2000, the Government approved the state programme for the development

of sport for all. The programme aims to change the social and economic conditions to

support a life-long active approach to efficient, safe and environmentally friendly

forms of sport, on the basis of the recommendations of the Council of Europe.

Overall assessment

On the whole, the Czech Republic has achieved good progress in the field of

education and training, but further legislative alignment is needed.

There are no discriminatory provisions against EU citizens in the field of education.

The Higher Education Act is in line with the Council Recommendation on European

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co-operation in quality assurance in higher education. The Act strengthened the

internal democracy at universities and enabled diversification of higher education

establishments. The Act also deals with the quality of university management.

It is necessary for the Czech Republic to specify conditions for recognising the

qualification of foreign workers in education and to harmonise mutual recognition of

professional qualifications for exercising a regulated profession. Also, the full

transposition and implementation of the

acquis

on the education of children of

migrant workers should be ensured.

The

acquis

on the promotion of European pathways in work-linked training, including

apprenticeship, should be transposed in a new School Act. The new School Act

should also be compatible with the EC general principles for implementing a common

vocational training policy.

The system of school-leaving examinations should be reformed, introducing the

establishment and regular updating of databases of tests, examination catalogues, tests

and test versions for disabled pupils.

Progress has been made as regards improving educational opportunities for children

from socially and culturally disadvantaged backgrounds, of which many are Roma

children.

(See Chapter 1.2. Human Rights and protection of minorities).

In the field of education and training, an appropriate institutional framework is in

place. It includes the Ministry of Education, Youth and Sports (MoEYS), national

institutions providing services related to education directly managed by the MoEYS,

local education authorities, district and local authorities, autonomous school councils,

the Czech Conference of Rectors and the Council of Higher Education

Establishments. The Research Institute of Technical and Vocational Education in

Prague, run by the MoEYS, is involved in programmes and projects within the

framework of bilateral and multilateral international co-operation.

Chapter 19 : Telecommunications and information technologies

A great deal of progress in transposing the

acquis

has been made since the last report.

Concerning the

liberalisation of the telecommunications market,

a new act on

telecommunications came into force in July 2000. This law is intended to be the basis

for transposition of the current package of EC telecommunications directives. It re-

establishes the Czech Telecommunications Office as a separate legal body with wider

powers and greater independence to regulate the sector. It also abolishes, as from 1

January 2001, the exclusive rights presently enjoyed by

Česk�½

Telecom and it sets up

a new regime for authorisation/licensing pursuant to the Licensing Directive and for

interconnection pursuant to the Interconnection directive. There are also major

changes in the way prices are to be regulated and there are new provisions for securing

the availability of universal service in a competitive environment.

There are some concerns as to the degree of alignment of the new law with the

acquis

in view of the degree of separation between regulatory functions with regard to

telecommunications and operational functions in respect of the state’s shareholdings

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in operating companies. The new act assigns to the MTC responsibility for

telecommunications policy and for establishing the principles and main regulations for

the sector. The government has announced its intention of disposing of the state’s

remaining shareholdings and, when this happens, the question of separation will be of

diminished importance. However, until it happens, the presence of senior officials

from the MTC on the supervisory boards of operating companies, appears to prejudice

the separation of functions required by the

acquis.

The second aspect is that the new law does not compel the provision of carrier

selection facilities as soon as new entrants will be allowed to enter the market. These

facilities, which are required by the

acquis,

are indispensable to achieving the

objective of full liberalisation and any delay in providing them would be damaging to

the market. The law appears not to prevent the provision of such facilities and

measures should now be taken to ensure that they are in fact made available as soon as

possible. Thirdly, the new law does not make obligatory the cost-orientation of tariffs

for some operators, which is a fundamental feature of current EC provisions.

As regards the

postal services,

The Act on Postal Services entered into force in July

2000 as did the related implementing decrees. The Act and procedural regulations

were created on the basis of the

acquis

for postal services. In terms of accessibility

and the quality of basic postal services, service is provided on a level comparable to

that in EU Member States. However the Act extends the State’s monopoly on the

delivery of mailings up to 350g until the end of 2003. The Act does not make

provisions for the creation of an independent regulator and the licensing process

continues to be managed by the Ministry of Transport and Communication. However

all state or semi-state monopolies and public undertakings are subject to the

legislation on the protection of economic competition.

(See Chapter 6 Competition)

Overall assessment

From 1994 to the present, Czech telecommunications policy has developed strongly

along the lines of EC practice. The date of 1 January 2001 for full liberalisation was

fixed in 1994 and, despite some earlier delays in enacting the required new legislation,

the government is now on course to achieve this ambition. The government’s belief in

clear policy measures and in liberalisation has been rewarded by strong private

investment in the sector as a whole which has experienced dramatic growth in both

size and quality.

Much progress has been made in the telecommunications sector over the last few

years. However, the foundations laid by the new telecommunications Act need to be

built on to resolve the remaining problems regarding the harmonisation with the

acquis,

particularly regarding cost-orientation. Wherever possible, call-by-call carrier

selection needs to be made available by the time the market is opened on 1 January

2001.

Rapid progress is now needed with the remaining pieces of secondary legislation that

are needed for the market to be opened.

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An independent regulatory body for the Postal services needs to be established, with

its legal basis in line with the Postal Directive.

Chapter 20: Culture and audio-visual policy

Compared to the situation in 1999, the Czech Republic has made some limited

progress in aligning with the Community

audio-visual

acquis,

which is a short term

priority of the Accession Partnership. This was achieved with the adoption of a new

Press Act, which entered into force in March 2000. It lays down the right to reply for

both the printed and audio-visual media. The proposal for an Act on the Operation of

Radio and Television Broadcasting and Re-broadcasting was withdrawn by the

government in September 2000.

In the field of

culture,

a new Act on the Protection of Museums and Similar

Collections entered into force in July 2000.

Overall assessment

In recent years the Czech Republic has made some limited progress in aligning with

Community requirements in the audio-visual sector, but existing legislation is still not

in line with the Television without Frontiers Directive. Major efforts are still needed

in order to achieve full alignment with the

acquis.

Thus the short-term priority of the

1999 Accession Partnership for completion of legislative alignment has not been

adequately met.

The Czech Republic has signed, but not yet ratified the Council of Europe Convention

on Transfrontier Television or its Protocol.

As regards administrative capacity, the current competence and powers of the

regulatory authority should be extended and its resources reinforced in view of the full

implementation of the Community requirements. The Department of Mass Media in

the Ministry of Culture administers broadcasting, film, video and periodical press. The

number of permanent staff in the department (10) is adequate for the current

workload, but should be increased in order to cover new responsibilities in the audio-

visual field. The Czech Council for Radio and Television Broadcasting should be

reinforced with both human and technical resources in order to implement legislation

currently under preparation. Particular importance should be attached to the

establishment and strong supervision of a transparent and predictable regulatory

framework in this field.

In April 1999, the Government took note of a new “Concept for Cultural Policy in the

Czech Republic – Strategy for More Effective State Support for Culture”, taking into

account European principles and aiming at further involvement of the Czech Republic

in European culture structures.

Further steps are necessary in the area of import and export of movable cultural

heritage (related to the free movement of goods). As regards administrative capacity,

the existing network, including museums, galleries and other state administrative

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authorities, operating under the Ministry of Culture needs to be expanded on the

regional level in connection with the reform of public administration.

Chapter 21: Regional policy and co-ordination of structural instruments

Some progress has been made since the previous Regular Report which concluded

that although many reforms had been completed, issues relating to administrative

capacity continued to require particular attention.

A regards

territorial organisation,

the Czech Republic has completed the

establishment of territorial units in accordance with NUTS classification. There are

14 regions corresponding to NUTS III level

(kraj),

and 8 regions similar to NUTS II.

The classification is effective for statistical purposes as from 1 January 2000, and for

legislative purposes as from 1 January 2001.

Concerning the

legislative framework,

an act was adopted in June 2000 on support

for regional development. The act provides the legal basis for Czech regional

development as well as the institutional structure. The act covers the competencies in

terms of development support at national, regional and local level, and defines the

areas and conditions for the support of regional development, both with and without

EC assistance. The act defines 8 NUTS II regions as “cohesion regions”.

The Czech Republic also made progress on other important and related legislation. In

addition to the regional development support act, the Act on the Regions (NUTS III)

was adopted. The act establishes the legal status, organisational structure and

competencies of the 14

kraj,

and extends delegation of state administration to NUTS

III regions. The act on municipalities, which defines their specific competencies, was

adopted as was the act on municipal budgetary rules. The latter provides for an

overhaul of regional budget management and allows for National Fund financial

resources to be used for implementing joint EC and Czech programmes.

Some progress has been made in strengthening the administrative capacity of the

Ministry of Regional Development (MRD). Staffing levels have increased and

advances have been made in the design of a human resources concept. Co-ordination

and co-operation between relevant ministries and levels of administration have

improved, in particular as concerns the preparation for Structural Funds

implementation. The recent re-organisation at the MRD should build on these

improvements.

As regards

planning,

the Government adopted and formally submitted its National

Development Plan 2000-2006 (NDP) to the Commission in January 2000. The NDP

provides for 6 Sectoral Operational Programmes (SOPs) and 8 Regional Operational

Programmes (ROPs) at NUTS II level. The NDP is being examined by the

Commission in particular as regards the selection criteria. The Government has also

drawn up programming documents for SAPARD (Rural Development Plan) and ISPA

(strategy documents for transport and the environment). Details are included in the

section on Community assistance.

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The

evaluation and monitoring system

procedures are to be tested by means of pilot

programmes. A steering committee has been set up by the relevant ministries in order

to prepare a unified monitoring system; a test version should be ready by December

2000. The system is to provide financial and technical monitoring of the preparatory,

implementation and post-implementation phases of programme life cycles.

Management and monitoring functions at NUTS II level are separate, in accordance

with Structural Funds rules.

As regards

administrative co-operation, distribution of competencies and the

application of the partnership principle,

the Action Regional Development Support

confirms that co-ordination in the area of economic and social cohesion is the

responsibility of the MRD. However, the Ministry of Finance is responsible for the

co-ordination through the National Programming and Monitoring Committee for

Economic and Social Cohesion. The National Aid Co-ordinator located within the

Ministry of Finance has the final responsibility for the co-ordination, implementation,

monitoring and assessment of EC-assistance. The National Fund has the final

responsibility for the financial management of all EC assistance. In March 2000, the

Government issued guidelines for the management of EC pre-accession assistance,

defining the organisational structure for its implementation, including the relationship

between the different actors involved.

In terms

of financial management,

the national budget currently only allows for

annual commitments. The new act on budgetary rules should harmonise financial

control procedures with those of the EC, introduce provisions allowing for multi-

annual programming of budgetary expenditure, and the obligation to prepare a

medium-term budgetary perspective (see also under chapter 29).

As to regional

statistics,

data for the determination of eligibility are available for

Objective 1 and INTERREG criteria.

Overall assessment

Over the last three years the Czech Republic has made significant progress, notably

through boosting its administrative capacity and increasing its co-ordination and

programming capability, by means of the NDP in particular. The Czech Republic has

recently formalised this progress by updating and adopting the relevant legislation,

notably the act on regional development support. Any new act on the competencies of

ministries should confirm the MRD’s key responsibilities for economic and social

cohesion. The Czech Republic should ensure that the administrative capacity in the

relevant institutions both at central and regional level is strengthened on a sustainable

basis, in particular through skills training and increased levels of staff. Particularly

important in this respect will be intra-ministerial agreement on the relevant

Implementing Agencies, prior to preparations for their accreditation.

The Ministry for Regional Development (MRD) has improved steadily since it was set

up in 1996. It has a staff of some 364 people. The Ministry is fully aware of its

important role in managing pre-accession assistance and the preparations for the

Structural Funds, and has devoted its resources to these issues accordingly. However,

the MRD’s performance can be negatively affected by the absence of a civil service

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law and competitive remuneration, problems that affect other institutions of

government as well. A recent change of minister (June 2000), for instance, resulted in

subsequent personnel changes at lower levels, which could be interpreted as evidence

that political criteria can prevail over questions of policy. MRD should demonstrate its

capacity to maintain the high performance level reached up to June 2000. Equally, the

MRD’s position vis-à-vis other key ministries involved in its area of competence,

notably the co-ordination and administration of pre-accession assistance (economic

and social cohesion), is under discussion. It remains to be seen what strategy the

ministry adopts to solve this issue satisfactorily. Preparation for Structural Funds by

the ministry is satisfactory, especially with regard to investment projects and

establishment of the organisations required by Structural Funds, through with regard

to grants and loans improvements are necessary. Communications between the central

and regional levels could be improved.

As regards statistics, the availability of data allowing for the determination of

Objective 2 and the URBAN initiative has yet to be confirmed. More importantly, the

provision of data necessary to meet the ex-ante evaluation requirements has yet to be

assured. For instance, at NUTS 2 level, no data exists concerning social indicators

and structural business statistics. Data is available for employment statistics and

infrastructure. Investments statistics should be improved.

Overall, full capacity to implement structural policies remains subject to the

confirmation of MRD’s performance and clarification of the role of the newly elected

regional councils, which will start operating from January 2001.

Chapter 22: Environment

Compared to the situation in 1999, some progress has been achieved as regards the

transposition of the environmental

acquis.

However, important framework legislation

is still under preparation and has yet to be put in place.

As required by the 1999 Accession Partnership as a short-term priority, the Czech

Republic has prepared directive-specific implementation plans, which were approved

by the government in July 2000.

In the field of

horizontal legislation,

the transposition of the Environmental Impact

Assessment Directive, which is a short-term priority in the Accession Partnership, is

not yet achieved as it is currently before Parliament.

Even though great efforts have been made in the area of

air quality,

with a substantial

reduction of emission levels, the Czech legislation on air pollution is only to a limited

extent in line with the

acquis.

In April 2000, secondary legislation related to emission

limits and the protection of the ozone layer were adopted. The transposition and

enforcement of framework legislation in this field is a short-term priority of the

Accession Partnership which still needs to be put in place.

In the area of

waste management,

in November 1999 an amendment to the Basel

Convention on the Control of Transboundery Movements of Hazardous Wastes and

their Disposal was approved.

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water quality,

limited progress has been achieved in the transposition and

enforcement of framework legislation, which is a short-term priority of the Accession

Partnership. Some progress has been achieved with the adoption of the Act on Public

Health in July 2000 and the amendment to the Act on Foodstuffs and Tobacco

Products in August 2000, which relates to the water quality standards for food

production. Also, a Government Order on specification of indicators and values of

acceptable degrees of water pollution, which partly transposes Community Directives

was adopted. However, important framework legislation still needs to be adopted.

Little progress has been achieved over the past year in the field of

nature protection.

The Act on Nature Protection needs to be amended to be in line with the

acquis.

The

transposition and enforcement of framework legislation in this area is a short-term

priority of the 1999 Accession Partnership.

As regards

industrial pollution control and risk management,

the Act on

Prevention of Major Industrial Accidents as well as secondary legislation entered into

force in February 2000 and transposes the Seveso II directive. There is still a need for

legislation in the field of industrial pollution prevention and control, which takes

account of environmental protection in an integrated way. It is also necessary to set up

the administrative structures in this field and decide which institution will be

responsible. The transposition and enforcement of framework legislation in this field

is a short-term priority of the 1999 Accession Partnership.

Transposition of legislation in the field of

chemicals and genetically modified

organisms

is generally well advanced. The Act on Treatment of Genetically Modified

Organisms entered into force in July 2000, and transposes the relevant Community

legislation.

An advanced level of compliance has also been achieved in the field of

noise.

governmental order setting up the requirements on Protection of health from Noise

Emmissions entered into force in June 2000.

In the field of

nuclear safety and radiation protection,

the Acts on Crisis

Management and Integrated Rescue System, partly transposes Community legislation.

However, full transposition has not been ensured. Three new Decrees from the State

Office for Nuclear Safety and a Government Order have been issued in this field (see

Chapter 14 – Energy).

In the field of

civil protection,

the Act on Crisis Management and the Act on

Integrated Rescue System were adopted in January 2000 and take account of EC

provisions in this field.

In May 2000, it has been reconfirmed that the Ministry of Agriculture is the authority

responsible for water management including urban wastewater, whereas the Ministry

of Environment is the responsible authority for the protection of waters and the

Ministry of Health is the responsible authority for drinking water. A new section for

water management was established at the Ministry of Agriculture in April 2000. This

year approval was given to increase the staff in the Ministry of the Environment and in

the Czech Environmental Inspectorate. It is planned to gradually employ an additional

number of 36 people within the Ministry and an additional number of 76 people

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within the Inspectorate for approximation related issues during the course of the year

2000.

Overall assessment

The Czech Republic has achieved some progress in aligning with the

acquis

and

overall it is estimated that a quarter of EC environmental provisions have been

transposed into national legislation. However, transposition of important framework

legislation, which is a short term priority of the Accession Partnership, remains to be

achieved in areas such as air, water and waste, together with nature protection and

some industry related legislation. Nonetheless, preparation has started. Furthermore,

there are gaps in secondary legislation governing economic instruments,

implementation and enforcement. Whilst government policy is based on the principles

of the EC’s Fifth Environmental Action Programme, efforts need to be stepped up to

achieve full compliance with the environmental

acquis

by accession.

In the fields of

horizontal legislation

and legislation relating to

chemicals and

genetically modified organisms, nuclear safety, radiation protection,

and

noise,

it is

estimated that around half of Community provisions have been transposed. Around

one third of legislation relating to

industrial pollution control and risk management

has been transposed and in the fields of

nature protection

and

waste management

the

level of transposition equals around one fifth of Community provisions. In the

air

quality

sector, one tenth of the obligations deriving from EC legislation have been

transposed. The

water quality

sector has the lowest level of compliance with

Community requirements.

The Czech Republic has defined directive-specific implementation plans for

alignment with Community requirements, which will be the basis of an environmental

investment strategy. Since 1994, the Czech Republic's environmental investment has

amounted to some

€

1 bn per year, corresponding to 2.4% of GDP. The Czech

Republic needs to maintain or increase this high level of investment in order to

implement the

acquis

by accession. Particular attention should be given to the

establishment of financing strategies for legislation in the water, air and waste sectors,

which require major investments. Overall the technical infrastructure for

implementing environmental legislation is of a relatively high standard, but needs to

be upgraded to ensure full enforcement of the

acquis.

The Czech Republic has organised its environmental administration with a largely

centralised Ministry of Environment. The Ministry has been reinforced within the past

years, reaching a total of 397 people; including the regional departments the staff

amounts to a total of 545 people.

Institutional arrangements for environmental protection and enforcement have long

been in place, especially in areas such as nature protection and water resource

management. The system of licensing and permitting facilities that emit pollutants is

well defined. A high level of compliance has been achieved for monitoring of air

emissions, control of radiation protection resources, nature conservation, in relation to

limiting noise. In other areas such as water and waste management further

modifications are required, especially in the framework of evolving EC policies. The

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labelling and control of chemicals, and the control of genetically modified organisms,

also require further efforts to develop the institutional mechanisms. The most

significant changes to current Czech practices will be in the implementation of the

industry-related directives, in particular the IPPC directive.

Enforcement in the field of environment is to a great extent carried out by the Czech

Environmental Inspectorate. It has a national office and nine regional offices. The

Inspectorate has been reinforced in recent years, reaching a total of 491 people.

The main concern regarding administrative capacity relates to quality, due to lack of

trained staff and adequate financial resources, consistency and clear division of

competencies within and between institutions. In addition, uncertainties are linked to

the administrative reform, which will have major implications on the environmental

sector.

Chapter 23: Consumers and health protection

In comparison with the previous Regular Report, which concluded that legislation

remained insufficiently aligned in important areas, progress has been achieved.

regards safety related measures,

in May 2000, the amended Act on the Liability

for Damage Caused by Defective Products was adopted, ensuring transposition of the

relevant part of the

acquis.

The amended Consumer Protection Act was adopted in

February 2000 and has entered into force. It is in line with the

acquis

concerning

products which, by appearing to be other than what they really are, endanger the

health and safety of the consumer.

Concerning non-safety related measures,

the Act concerning package travel,

package holidays and package tours has been adopted and is in line with the

acquis.

May 2000 an amendment was introduced to the commercial code introducing

comparative advertising on the basis of an expert study. Moreover, certain

amendments to the civil code strengthen the position of consumers in line with the

acquis

in respect of contracts negotiated away from business premises, distance

contracts and on unfair terms in consumer contracts. Amendments to the Act on

Pharmaceuticals aim to solve problems encountered in the implementation of the Act

and aim to ensure a higher level of compatibility with the

acquis.

Concerning the

market surveillance mechanism,

Czech market surveillance services

consist of four institutions, which report to three different ministries. The division of

responsibilities and co-operation among these inspection institutions was decided in

October 1999, when the Government confirmed the central co-ordinating role of the

Ministry of Industry and Trade (MIT) in the area of consumer policy. The amended

Act on Czech Trade Inspection extending the control rights of inspectors has been

adopted. This Act also strengthens food inspection. A consumer advisory committee

was set up in April 2000.

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Overall assessment

Over the last three years, progress has been made; the concept of consumer legislation

has been adopted, the relevant Ministry has been confirmed in its key role, and the rate

of transposition of legislation has improved. Important work still needs to be

undertaken, however. Legislation on general product safety, misleading advertising,

comparative advertising and guarantees, consumer credit, time-share and price

indications, should be adopted and made compatible with the

acquis.

Legislation

should also be drafted to set up the infrastructure required to identify dangerous

products at external borders, and on payments and credits provided across internal

borders. Integration into EC structures such as the Consumer Committee should

continue as far as possible.

Overall competence in the area of consumer protection is allocated to the MIT by the

Competence Act. The ministry has some 500 staff and is relatively stable. The

ministry’s consumer protection department has been strengthened and funding for

independent consumer organisations is expected to be almost doubled in 2000

compared with 1999. Two additional organisations have been created and have seen

their membership increase substantially.

The concept of consumer policy should be updated for the period 2001-2005.

Administrative structures should be strengthened so as to ensure proper application of

the

acquis,

the system of market surveillance should be rationalised, and the role of

relevant non-governmental organisations should be boosted.

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

Since the 1999 Regular Report, significant progress has been made in the Czech

Republic in the fields of data protection, visas and migration. However, little progress

can be reported on border controls, police co-operation and the fight against fraud and

corruption.

The Personal

Data Protection

Act came into force in June 2000 and an independent

supervisory authority, the Office for Personal Data Protection, became operational in

September 2000, in line with the short-term priorities of the Accession Partnership.

Furthermore, the 1981 Council of Europe Convention on the Protection of Individuals

with regard to the Automatic Processing of Personal Data was signed in September

2000.

As far as

visa policy

is concerned, the new Act on the Residence of Aliens entered into

force in January 2000. It includes new provisions on the issuing, validity and types of

visas, as well as on uniform format. Visas are no longer granted at borders, except in

certain specified extraordinary circumstances. Airport transit visas have been required

for 11 countries since May 2000. Visa-free agreements with Cuba, Russia, Belarus,

Ukraine, Cambodia and North Korea, as well as with China for holders of certain

passports, were terminated during 2000. Visa requirements were formally confirmed

by the government in respect of Georgia and Tajikistan. In May, the Government also

decided to introduce visas for citizens of Kazakhstan, Kyrgyzstan, Moldova and

Turkmenistan.

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As regards administrative capacity, visa matters are overseen by the newly established

Department for Immigration and Border Control in co-operation with the Alien and

Border Police. An on-line system for issuing visas is currently operating in the Ministry

of Foreign Affairs and in 59 diplomatic missions out of 107. The on-line connection

between border crossing points and the central database of visa applicants is being

tested.

The strengthening of

border control

is one of the short term priorities of the 1999

Accession Partnership. Little actual progress has been registered in alignment with,

and implementation of, the acquis in this field. The first step in reforming

organisational structures was taken in July 2000, when responsibility for the Border

Police was transferred from the District Police to the Regional Police. The Alien

Police at the border crossing points and the Border Police at the green border will thus

be supervised by the same regional police office, making the organisation of policing

more coherent.

As regards administrative capacity, a Department for Immigration and State Border

Protection was established in January 2000 within the Ministry of the Interior. The 26-

strong Department merged in July 2000 with the Department for Refugees and

Integration of Foreigners to become a new Department for Asylum and Migration

Policies. In May 2000 the Ministry of the Interior began training 280 staff to be

deployed in May 2001 as mobile Police units at the Czech Slovak border. These posts

will be filled from other police services and the mobile units, will be under the

authority of the District Police. Careful attention should therefore be paid to ensuring

that they are used to combat illegal immigration and not for general policing.

The on-line connection between headquarters and the border crossing points is

improving. Regarding the preparation for participation in the Schengen Information

System, software is being developed and relevant police departments are being

equipped with information technology. A document information system has been

created, containing data on stolen, misused or lost travel documents, identity cards and

firearms licences. This system was introduced in 2000 in all districts and regions. The

issuing of machine-readable passports was launched in 2000.

As regards

migration,

the Act on the Residence of Aliens, entered into force in January

2000, bringing Czech policy further into line with the

acquis

and meeting one of the

short term priorities of the Accession Partnership. Persons who wish to obtain long

terms visas or residence permits must now apply at the relevant embassy abroad and

applicants have to obtain working permits in the Czech Republic before asking for a

long term visa. However, the implementation of the new Act has been hampered by the

lack of preparation of the institutions involved and the time consuming application

procedures initially caused some confusion in the business community. The

Government is therefore preparing an amendment to this Act. In September 2000 a

detention centre for illegal migrants was opened in Postorna.

The new Act on

asylum

entered into force in January 2000, in line with one of the

short-term priorities of the 1999 Accession Partnership. The new Act makes significant

progress in meeting international norms and European standards. It provides adequate

access to refugee status and appeal procedures. A number of welcome additions are

being introduced, including the notion of humanitarian asylum and the suspensive

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effect of judicial appeal against all negative decisions, including in cases of manifestly

unfounded claims. Social assistance for asylum seekers whose application are rejected

is also being introduced. However, the new Act lacks an independent second instance

for rejected asylum applications.

In the field of

police co-operation and the fight against organised crime,

the need to

combat organised crime and economic crime has been widely recognised as a priority

in the Czech Republic in the course of the past year. The implementation of policy in

these areas is a short-term priority of the 1999 Accession Partnership. The Czech

authorities have introduced several modifications in the central administrative

structures which aim to improve international police co-operation, the fight against

computer crime and cybercrime and the fight against smuggling and trafficking in

humans. Specialised units for the fight against economic and financial crime have also

been created in the Regional Public Prosecutor’s Offices to allow state prosecutors,

investigators and detectives to work together on individual cases from the outset. (see

Part 1.1 Democracy and the rule of law).

As far as the

fight against fraud and corruption

is concerned, the 1997 OECD

Convention on Combating Bribery of Foreign Public Officials in International Business

Transactions entered into force in March 2000 and the 1999 Council of Europe

Criminal Law Convention on Corruption was ratified in September 2000, thereby

fulfilling short-term priorities of the 1999 Accession Partnership. The Council of

Europe Civil Law Convention has not been signed yet. A further short-term priority is

the implementation of policy on corruption (legislation, implementing structures,

sufficient qualified staff, better co-operation between institutions), but little progress

can be reported in this area. (see

Part 1.1 Democracy and the rule of law).

The National Drug Commission has launched a study to monitor the impact of the

January 1999 legislative amendments which penalised the possession of

drugs

for

personal use. In November 1999 the National Drug Commission set up a Task Force of

drug co-ordinators to improve communication between central and local units. The

allocation in 2000 to be used for financing drug control projects and policy amounts to

€

3.3

million and while this represents a slight decrease from last year (€ 4.2), it is approximately

three times more than that allocated in 1998. In 1999, 182 posts were created to implement

the anti-drugs policy.

One of the short-term priorities of the 1999 Accession Partnership was to strengthen

capacities to deal with

money laundering.

An amendment to the Money Laundering

Act entered into force in August 2000 which brings Czech legislation more into line

with the

acquis

(see

also Chapter 4 - “Free movement of capital”)

The Financial

Analytical Unit has been steadily reinforced and is well resourced.

With regard to

customs cooperation,

no new developments can be reported.

judicial co-operation,

progress was made as regards the reform of civil and

commercial procedure, including the abolition of the three Regional Commercial

Courts as part of a move from the present four-tier, to a three-tier judicial system. (see

also 1.1)

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Overall assessment

With the exception of asylum and alien legislation, insufficient progress has been made

in addressing this field, in particular as regards implementation and administrative

capacity.

The Personal

Data Protection

Act has made progress in aligning with the

acquis.

However, due to delays in the adoption of the new Police Act, the treatment of personal

data by the police is not yet covered. Despite efforts undertaken following accession to

NATO, the Czech Republic still has to close gaps related to access and security of

personal data from Member States’ citizens, especially with a view to alignment with

Europol and Schengen

acquis.

As regards customs cooperation, there is also a lack of

adequate data protection as required for full participation in the Customs Information

System and Naples II.

The Czech Republic has made significant progress in aligning its

visa policy

with the

European Union, terminating existing visa-free regimes with a large number of

countries, and preparing the imposition of visas with all countries necessary to ensure

full alignment before accession. The new Aliens Act sets the basic legal framework to

introduce measures aimed against the misuse of visas.

The medium-term priority of the Accession Partnership regarding the alignment of visa

policy has therefore been successfully addressed.

In order to improve identity checks and detection of attempts to misuse visas it is still

necessary to develop a Schengen-type visa sticker, introduce the electronically-

supported system for issuing visas to all its diplomatic missions, and connect the on-

line query system at border crossings to a central database of visa applicants. Visa

offices throughout the country will also gradually have to be equipped with a similar

system.

In the field of

border controls,

delays in the parliamentary approval of certain judicial

reform have further postponed the introduction of the new Police Act, which would

secure the autonomy of the border guards. They remain understaffed, badly equipped

and bound by inefficient communication procedures with national police headquarters.

Officers earn slightly less than the average monthly wage. Further attention needs to be

given to training, as not all Border Police guards have passed through the one-year

training at the special School for Alien and Border Police. The Border Police does not

yet have direct access to the on-line database of suspects at headquarters.

Technical controls at official border crossing points work without major difficulties but

controls along the green borders are clearly inadequate to deal with illegal immigration.

Some 30 border crossings have equipment for machine readable documents and several

border crossings on the Slovak border are linked to the Ministry of the Interior's data

network. There has been no progress in separating passenger flows at airports.

The establishment of a comprehensive strategy is still required. Further progress in this

direction could be made through the implementation of a "conceptual document"

produced by the Ministry of the Interior which aims within 3 years to transform the

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Aliens and Border Police into one centrally managed police body competent for the

whole territory and with reinforced staff numbers. The adoption of the draft Police Act

is also a priority as it would introduce border control rules compatible with the

acquis.

The Czech Republic has still to establish its participation in the False and Authentic

Documents (FADO) system and therefore has to ensure the full co-operation of all

involved institutions.

There are now readmission agreements with Slovakia, Hungary, Poland, Austria,

Germany, Bulgaria, Romania and Canada but agreements with France, Slovenia and

Croatia have not entered into force yet. The Czech Republic is currently renegotiating

the readmission agreement with Slovakia in order to bring it in line with the

acquis

requirements. It should ratify its outstanding readmission agreements and sign further

agreements with Member States, candidate countries and third countries like Belarus,

Russia and Ukraine.

As regards implementation, although some progress has been registered (2,985

expulsions in 1999 up from 2,246 in 1998) there is still room for improvement

especially in preventing “readmitted” third-country nationals who are ordered to leave

Czech territory (but not deported under escort) from again trying to enter the Union

illegally.

The new Act on

Asylum

makes progress in meeting international norms and European

standards but lacks an independent second instance for rejected asylum applications.

Both administrative instances are at present under the discretion of the Ministry of the

Interior. The Czech Republic provides good integration opportunities for recognized

refugees, including a government-subsidised housing programme.

The Czech Republic should also prepare for application of the Dublin Convention. As

far as administrative capacity is concerned, both the number and training of staff should

be increased in order to maintain a reasonable average length of procedure.

In 1999, 80 persons were granted refugee status out of 7,219 applicants. In the first half

of 2000, 58 persons were granted refugee status out of 2,591 applicants. The main

countries of origin are: Afghanistan, India, Sri Lanka and Russia, particularly from

Chechnya. The asylum reception centres work under good conditions but their capacity

will have to be increased. Practice towards asylum seekers entering the Czech Republic

via safe third country remains to be established.

In the field of

police co-operation and the fight against organised crime,

the draft

law on the protection of witnesses and other persons in connection with criminal

proceedings still has to be adopted, as well as the draft Police Act which aims to

achieve alignment with the

acquis,

including the Europol Convention. As regards

implementation, police efficiency and relations between the police and the public need

to be improved. Police structures are too weak to effectively combat illegal

immigration, corruption and organised and economic crime. Training in these areas, as

well as general management, is necessary. Although the selection process is quite

rigorous (over 40% of the applicants each year fail the tests), the recruitment of

qualified staff is hampered by low salaries and poor working conditions.

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Almost all police stations have access to the national police databases which will be

used for the national Schengen Information System, but there is a lack of modern

technical equipment and suitable premises.

Regarding the

fight against fraud and corruption,

some progress on

corruption

issues were achieved through an amendment to the Criminal Code in 1999, however

the law is not yet aligned with the

acquis

on criminalisation of corruption in the private

sector. Greater efforts are needed to create an efficient implementing capacity to fight

corruption, and there is still a lack of qualified staff and inter-institutional co-operation

in this area.

As regards

fraud,

the 1995 Convention on the Protection of the European

Communities’ Financial Interests is not fully covered by Czech law. In 1997 the Czech

Republic extended the general provisions against fraud to also cover subsidy fraud.

The Czech Republic should prepare for full co-operation with OLAF upon accession.

The Czech Republic is party to all the international conventions listed under theacquis

in the field of

drugs,

with the exception of the 1995 Agreement on Illicit Traffic by

Sea. In addition, the Czech Republic has a national drug strategy for 1998-2000

covering both drug demand and drug supply reduction. However, drug-related crime

remains a significant problem in the Czech Republic: according to a Europol report of

August 1999, the Czech Republic continues to be a transit country for heroin, cannabis

and increasingly cocaine. The number of drug users has increased consistently over the

last five years.

Further efforts are required to improve the collection and availability of information on

drug-related issues and to set out a supply reduction strategy with clear priorities and

performance indicators. The creation of the National Drug Information Focal Point, in

accordance with EMCDDA (European Monitoring Centre for Drugs and Drug

Addiction) requirements, should be completed.

As regards

money laundering,

the enforcement of current legislation needs to be

improved considerably. Indeed, current control and repression of fiscal fraud,

bankruptcy, money laundering, corruption and common economic crimes is largely

ineffective.

The Financial Analytical Unit (FAU) in the Ministry of Finance plays a central role.

Banks have to report every suspicious operation to the FAU, which in turn co-operates

with and provides information to the police. Over the period 1996 to 1999, 97

complaints were filed and 52 were investigated. In 1999, 5 persons were sentenced with

money laundering and in the first half of 2000 4 persons were sentenced. This indicates

that police and judicial efforts in money laundering cases need to be improved. There

are many different government institutions involved in anti-money laundering, and

insufficient co-ordination between them.

The Czech Republic is, to a large extent, aligned with the

acquis

in the field of

customs

co-operation,

but there are still some matters of concern. No formal, comprehensive

programme exists in this field. Corruption is still a problem, and the customs service

intends to tackle this through the adoption of a formal code of ethics. Risk analysis is

not sufficiently developed. Co-operation between Customs Administration and Alien

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and Border Police should be further improved. There is still no common integrated

database used by Alien and Border Police and Customs authorities. Customs authorities

need further training on combating illegal migration in order to assist the detection

work of the Alien and Border Police.

As far as

judicial co-operation

is concerned, the Czech Republic has ratified nearly all

international conventions included in the

acquis.

On civil matters, the Convention on

International Access to Justice still has to be ratified (signed in April 2000). On

criminal matters,

the Czech Republic has not yet acceded to the European Convention

on the International Validity of Criminal Judgements. The definition of a criminal

organisation will have to be reviewed in order to comply with the December 1998 EU

Joint Action making it a criminal offence to participate in a criminal organisation. New

legislation is still awaited as regards protection of witnesses, combating trafficking in

human beings and sexual exploitation of children, and criminal liability of legal

persons. Improvement is still needed in judicial co-operation. This suffers from

insufficient manpower and bureaucratic obstacles.

All the

human rights

legal instrument parts of the Justice and Home Affairs

acquis

have been ratified by the Czech Republic, with the exception of the 1981 Council of

Europe Convention on the Protection of Individuals with regard to Automatic

Processing of Personal Data.

Chapter 25 : Customs union

Since the previous Regular Report further progress has been made on legislative

transposition and a number of initiatives have been taken to strengthen administrative

and operational capacity.

No particular developments are to be reported regarding the

EC Customs Code and

its implementing provisions.

As regards alignment with the

customs

acquis

outside the Customs Code,

further

progress has been made in completing legislative alignment in the field of counterfeit

and pirate goods. The Act on “Measures Pertaining to Import, Export and Reexport of

Goods Infringing Upon Some Intellectual Property Rights” has come into force. The

implementing decree for this Act, “Setting the Flat Rate Amount for Adopting a

Measure by the Customs Office”, came into force at the same time.

Regarding the pan-European system of origin, the Czech Republic has agreed to the

amendments to the system which will come into force in January 2001.

Concerning

administrative and operational capacity

to implement the

acquis,

the

Czech Republic has taken a number of initiatives. In April 2000 the Agreement in the

form of an Exchange of Letters between the European Community and the Czech

Republic concerning the extension of the common communication network/common

system interface (CCN/CSI) within the framework of the Convention on a common

transit procedure entered into force. The Czech Republic is the first candidate country

to enter such an agreement with the EC and to participate in the New Computerised

Transit System (NCTS). Also, work on the technical and organisational aspects of the

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adoption of TARIC and its implementation in the Czech Customs Administration is

being carried out.

The computerisation of the customs administration is being developed and an analysis

of the interconnectivity requirements is being carried out. A computerised customs

declaration processing system, including EDI facilities for electronic customs

clearance, and a computerised revenue collection and accounting system are in

operation. In June 2000 a computerised system for the administration of quota became

operational. A pilot project on the information system for enforcement purposes,

which will be able to communicate with the EC systems, is in the phase of

development and testing.

A Consultative Committee was established in 1999 as a forum for consultation with

exporting and importing companies. Specialised units (“Inspectorates of Customs and

Financial Guards”) have been created to enhance the fight against commercial fraud as

well as to protect financial

interests (this is also referred to in chapter 24 under

customs cooperation).

The Ministry of Finance adopted a decision ordering legislative changes to be made to

the organisational and institutional aspects of the administration of excise taxes: the

Customs Directorate will be responsible for excise taxes once these changes are made.

A twinning project started in the autumn 1999 will deal with this issue.

Overall assessment

A high level of compatibility has been achieved between the customs legislation of the

Czech Republic and the Community

acquis.

In order to complete full alignment with

EC legislation, a further set of amendments to the Czech Customs Code is required.

As regards administrative and operational capacity to implement the

acquis,

the Czech

Republic has made good progress. For the future, it should implement the Action

Integrity Plan with a view to reinforcing customs ethics, develop and implement an

efficient training system and guarantee a smooth transfer of responsibilities on excise

duties to the Customs Administration. Moreover, the Czech Republic should continue

to install and implement the relevant customs-related IT applications necessary for

smooth implementation of the

acquis.

With respect to border control and enforcement,

particular attention should be paid to the implementation of measures to reduce

waiting times at the border.

Chapter 26: External relations

Since the previous Regular Report the Czech Republic has continued to align with the

acquis

with regard to the common commercial policy and to coordinate positions and

policies within the World Trade Organisation.

As regards the common commercial policy, upon accession the Czech Republic will

be required to align its tariffs with those of the EC. The Czech Republic’s applied

tariffs currently average 6.4% on all products, 14.0% on agricultural products, 0.1%

on fishery products and 4.6% on industrial products. By comparison the EC tariffs

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currently stand at 5.3% on all products, 9.4% on agricultural products, 12.4% on

fishery products and 4.2% on industrial products. Thus since 1999 there has been

some progress in alignment of Czech tariffs with those of the EC.

A step forward was taken in this context when the Czech Parliament adopted the “Act

on some measures on export or import of goods and on licensing procedures”. By

adopting this Act, which is based on the agreements reached in the Uruguay Round

multilateral negotiations, the Czech Republic has indicated that it has fulfilled its

WTO commitments.

Likewise, the Parliament adopted the “Act on protection against subsidised imports”

which will be applied until the date of the Czech Republic’s accession to the EU. The

Act is based on Article VI of the GATT, the agreements reached in the Uruguay

Round multilateral negotiations namely the Agreement on Subsidies and

Countervailing Measures and the Agreement on Agriculture, the relevant articles of

the Europe Agreement and EC legislation.

Concerning bilateral agreements with third countries, the Czech Republic is

monitoring the present evolution in the Republic of Croatia with the aim to restart, at

the proper occasion, the negotiations on a Free Trade Agreement. The Czech

Republic has held consultations with Morocco on the possibility of a Free Trade

Agreement. In February 2000 a non-preferential trade agreement entered into force

with Ecuador.

Within CEFTA, the member countries, including the Czech Republic, signed the

Additional Protocol No. 8 on the updated version of the Pan-European cumulation of

origin of goods

(please refer to chapter 25 – Customs Union).

As regards the fields of development policy and humanitarian aid, cooperation and

assistance, the Czech Republic is an active member of the OECD and it is adapting

its development practices to the principles laid down by the Development Assistance

Committee.

Overall assessment

Where alignment with the Community

acquis

on commercial policy is necessary,

good progress has been made, for example covering rules of origin and dual use

goods.

Some progress has been made in the field of export credits. The Czech system is in

line with the OECD consensus, but where medium and long term export credits are

granted, further alignment with the

acquis

is necessary.

The EU and the Czech Republic have established a framework for co-operation

regarding WTO issues both at ministerial and at departmental level. The Czech

Republic has been supportive of EU policies and positions within the WTO

framework. As regards the new round, the Czech Republic concurs with the EU on the

need to launch a comprehensive trade round as soon as possible and shares the view

that the results of work under the built-in-agenda would be less substantial in its

absence.

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The Czech Republic has become a party to the Information technology agreement

(ITA). The Czech Republic still needs to join the plurilateral Agreement on Trade in

Civil Aircraft and the Agreement on Government Procurement (although further

alignment with Community legislation is required). Also, further coordination is

necessary in order to consolidate the adjustment of the Czech list of commitments in

GATS with the EC commitments and MFN exemptions. As regards the WTO

Agreement on Trade in Textiles and Clothing, the Czech Republic needs to use the

third stage of integration under the ATC to align its integration programmes on those

of the EC, while notably avoiding the integration of products not yet integrated by the

EC.

In addition to FTAs concluded recently with Slovakia, Estonia, Latvia, Lithuania,

Turkey, EFTA (Norway, Switzerland, Lichtenstein) and Israel, the Czech Republic is

a member of CEFTA. In this area further progress is necessary in aligning with the EC

international trade obligations; the Czech Republic should continue to keep the Union

fully informed about existing trade agreements or negotiations aimed at the conclusion

of any new trade agreements with a third country.

The Czech Republic’s alignment with and future participation in the common

commercial policy is administered by the Ministry of Industry and Trade. The

administrative infrastructure which needs to be in place as regards customs services is

addressed under chapter 25. Development and humanitarian aid are administered by

the Ministry of Foreign Affairs. At this stage no specific issues are to be highlighted

in terms of administrative capacity in addition to the analysis presented in section 1.1.

of this Report.

Chapter 27: Common foreign and security policy

Since the previous Regular Report the Czech Republic has continued to align its

foreign policy with that of the European Union and has participated constructively in

the framework of the Common Foreign and Security Policy, in particular as regards

the Kosovo crisis.

The regular

political dialogue

established by the Association Agreement with the

Czech Republic is proceeding smoothly and the Czech Republic continues to orient its

foreign and security policy towards the Union. It continues to participate actively in

the framework of the Common Foreign and Security Policy (CFSP), including the

meetings at the level of Political Directors, European Correspondents and Working

Groups.

The Czech Republic has shown a keen interest in the development of European

Security and Defence Policy (ESDP) as part of CFSP and has actively participated in

the exchanges in this context with the EU, in EU + 15 format (ie non-EU European

NATO members and candidates for accession to the EU) and in EU + 6 format (ie non

EU European Members of NATO).

As regards alignment with

EU statements and declarations,

the Czech Republic has

regularly aligned its positions with those of the Union and when invited to do so has

associated itself with the Union’s

joint actions and common positions.

During the

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course of 1999 the Czech Republic associated itself, together with the other CEECs,

with a common action of the EU concerning the contribution of the EU to the fight

against accumulation and the destabilising proliferation of lightweight and small

calibre firearms. It also associated itself with 11 EU common positions, including 3

on the Federal Republic of Yugoslavia. A rather unique case was the EU statement on

UNIDO which the Czech Republic did not support since, unlike the EU, it criticised

the work of UNIDO on the basis of experience gained in co-operation with UNIDO.

Since the Regular Report of 1999 progress has been made in adopting the necessary

legislative framework for effective participation in the CFSP. A new Act on Joining

International Sanctions for maintaining International Peace and Security entered into

force in June 2000, thus allowing the Czech Republic to quickly align itself with the

Union’s decisions on the imposition of international sanctions. This Act introduces a

new procedure under which the Czech Government may join sanctions imposed by the

Security Council of the United Nations or the Council of the European Union, after

discussion by the relevant Chamber of Deputies' committee. The Act also provides for

recourses in the event of non-observance of sanctions.

The Czech Republic has improved its co-operation with Slovakia. In May 2000 the

Czech government settled with Slovakia the issue of division of former Czechoslovak

Federation property (as discussed under section B.1 of this report). The Czech

Republic supported actively the continuation of the ‘Visegrad’ four co-operation in

particular by holding the meeting of the ‘Visegrad’ Prime Ministers in Prague in

November 1999.

To further strengthen coherence of Czech foreign policy with the CFSP of the EU, a

reorganisation of the structures in the Ministry of Foreign Affairs has been

undertaken. Thus the Political Director is now directly responsible to the State

Secretary for Foreign Affairs and First deputy Minister. Also, the Department for

Political Relations with the European Union within the Ministry of Foreign Affairs is

primarily responsible for the Common Foreign and Security Policy issues, and its

staff allocation has been increased. Finally, an Associated European correspondent

unit has been constituted within this department to ensure communication within the

Associated Correspondents’ Network system and the participation of the Czech

Republic in the EU political dialogue with the candidate countries, in which the Czech

Republic took an active part in 1999.

Overall assessment

The overall progress achieved since 1997 in alignment with the

acquis

in the CFSP is

fully satisfactory. As the

acquis

in the field of foreign policy and security develops

further, so the Czech Republic should maintain the orientation of its foreign policy in

line with that of the Union.

The Czech Republic participates actively as an observer in the Western European

Union.

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Following the Kosovo crisis, the Czech Republic showed active support for and

interest in the Stability Pact. It participated in the SFOR peacekeeping operations in

Bosnia-Herzegovina with 558 troops and in KFOR in Kosovo with 126 troops.

The Czech Republic’s relations with its neighbours have in general improved as the

Czech Republic has taken a more proactive role in promoting enhanced bilateral

cooperation and regional integration. However, relations with Austria have

encountered difficulties concerning, in particular, nuclear safety.

The Czech Republic has adhered to the EU Code of Conduct on Arms Exports, but

there is concern that more efforts are necessary to ensure implementation of its

criteria.

Concerning the administrative capacity to implement the provisions relating to CFSP,

the Czech Republic has a well staffed and functioning Ministry of Foreign Affairs. It

has the capacity to effectively participate in the Associated Correspondents’ Network

both in terms of staffing allocations and in terms of the appropriate information

systems.

Chapter 28: Financial control

Some progress has been achieved in this field.

The Accession Partnership includes a short term priority in this regard, notably on

legislation and organisational set up.

As regards public internal

financial control,

the Act on Financial Control is currently

before Parliament. A new methodological and coordinating unit within the Control

Department of the Ministry of Finance was set up in March 2000.

External financial control is the responsibility of the Supreme Audit Office (SAO), a

fully independent institution. Strengthening of the financial independence of the SAO

should be one of the results of the new Act on Budgetary Rules, which was adopted in

June 2000. Although the intention of strengthening the relevant administrative

capacity has been highlighted by the Czech authorities, no clear timetable has been put

forward as to future activities in this area.

Regarding

control measures relating to Own Resources,

a special unit has been set

up within the Ministry of Finance. It is to ensure appropriate management and control

of Own Resources, taking into account the control modules developed by Member

States in co-ordination with the Commission services within the framework of the

Joint Audit Initiative. An amendment to the act on district financial authorities to

combat tax evasion entered into force in January 2000. In terms of administrative

capacity, VAT controls have been strengthened by the provision of additional

purpose-built IT equipment.

No new development can be reported regarding

structural

action expenditure.

As to the

protection of financial interests of the EC,

there is no compatibility with

the ‘Convention on the Protection of Financial Interests of the European Communities

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as yet. The Czech Republic should strengthen its co-operation with the EC bodies

competent for the protection of the EC financial interests, in particular with OLAF.

Overall assessment

The Czech Republic has made some progress.

The relevant primary legislation is currently before Parliament and secondary

legislation as regards implementation is still required. Significant further efforts are

also necessary as regards the strengthening of administrative capacity, notably skills

training, sufficient staff and resources, so as to be able to carry out financial control

functions according to EC standards at all levels. It is essential that the Czech control

authorities start developing financial management and control manuals in all line

ministries and other government spending centres at all levels of government, and

audit manuals for the internal audit service(s). Completion of systems and procedures

for controlling EC funds through the National Fund and for monitoring and verifying

the use of EC and state funds through the relevant implementing agencies should be a

priority.

As far as external financial control is concerned, the SAO’s independence should be

improved by specific rules concerning the appointment, remuneration and dismissal of

staff. Also, the SAO Strategic Development Plan should be adopted and its timetable

should confirm internationally recognised auditing standards.

Chapter 29 : Financial and budgetary provisions

Important steps forward have been taken in this field in terms of legislative alignment

whereas progress on implementation and administrative capacity has been more

modest.

As regards the

national budget and EC co-financed measures,

as from 2000, the

State budget includes a list of expenditure to be incurred in connection with

preparations for EU membership. A new Act on Budgetary Rules, adopted in June

2000, will establish the legislative framework for the management of budgetary

relations with the EC. It is expected to deliver the modifications necessary for the

proper collection and control of own resources and the efficient handling of financial

flows to and from the EC budget. As a result of the new Act, budgetary legislation

will be in line with EU Member States’ standards. The new Act should also ensure a

better balance between the Parliament and executive in relation to the budget. A

special unit for the overall co-ordination of budgetary relations with the EC has been

set up within the Ministry of Finance to ensure co-ordination of budgetary relations

with the EC; it employs 5 staff.

As far as the budgetary process in general is concerned, budget preparation

methodology and analytical techniques have been improved, notably as regards a new

budget expenditure classification methodology and the evaluation of the efficiency

and effectiveness of government programmes. These improvements should be made

sustainable and developed further.

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Concerning

own resources and administrative infrastructure,

in August 2000, the

state agricultural intervention fund was adopted, which allows the Government to

adopt rules for the collection of agricultural levies.

Within the Ministry of Finance a so-called Own Resources unit has been set up, which

has the task of co-ordinating and preparing for and practicing the procedures necessary

for the proper calculation of Own Resources. VAT calculations and fine-tuning of the

existing institutional framework are part of the unit’s responsibilities. The Czech

Statistical Office collects data and carries out GNP calculations. A new account

system (ESA 95) has been introduced, which includes financial accounts.

Overall assessment

While progress has been made, further efforts are required in this area.

As concerns budgetary issues, the current Treasury system would need to be

redesigned and reinforced by means of a system based on a single account. The new

budget legislation should be implemented, budget transparency should be assured and

the medium-term expenditure framework should be made fully operational. As an

immediate priority, the Czech Republic should complete work on the design and

implementation of the operating procedures for the National Fund so as to provide a

solid basis for the management of EC pre-accession funds.

With regard to the overall financial management of EC pre-accession funds by the

National Fund, implementation has been poor. The National Fund has been very slow

in submitting requests for funds and distributing received funds; applications

submitted have been subject to shortcomings that have resulted in some cases in loss

of funds. The central financing and contracting unit should be more active in seeking

to improve implementation.

As for administrative capacity, the Ministry of Finance is responsible for the co-

ordination of all foreign assistance received by the Czech Republic. Problems that

affect the Czech public administration at large are magnified in this institution by both

the nature of its activities and their importance. Despite recent improvements within

the ministry, notable weaknesses continue to affect important issues such as tax

collection, where there is a serious deficit in human resources. An additional

difficulty for the ministry is the lack of adequate information and analysis from the

line ministries, notably as concerns capital investment programmes.

It is necessary in particular to harmonise the VAT system, and improve national

accounts and statistics. As regards accounts and statistics, the new Act on Budgetary

Rules will consolidate, supplement and improve existing provisions and practices.

However, it is crucial that the Czech Republic strengthens its ability to mobilise the

human and administrative resources required to follow the Commission’s operations

and instructions concerning payments to the EC budget (Own Resources).

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3.2.

Translation of the

acquis

into the national language

Applicant countries are to translate the various legal texts constituting the

acquis

into

their national languages by the time of their accession. The

acquis,

consisting of

primary and secondary binding legislation, represents at present a considerable

volume of acts, roughly estimated at 60.000-70.000 pages of the Official Journal. To

help the candidate countries in this process, assistance is being provided under the

Phare programme. With the help of TAIEX, a centralised Translation Co-ordination

Unit has been created in each of the ten candidate countries of Central Europe.

The overall responsibility for the translation of the

acquis

lies with the Office of the

Government, namely its Department for Compatibility with EC Law (CODEC).

Founded in September 1998, a specialised Co-ordination and Revision Centre has

been assigned within the CODEC to organise all translation works. In close co-

operation with the line-ministries, the Centre revises all translated documents from the

legal and linguistic point of view and maintains the central database, accessible to all

ministries. The revised translations should meet all criteria to be ready for

authentication

by EC institutions by the time of accession.

As of June 2000, all documents of the primary legislation and about 28,000 pages of

the secondary legislation have been translated, of which 10,000 have been fully

revised. It is estimated that about 8,000 more pages will have been translated by the

end of the year. With the consent of the Office for Official Publications in

Luxembourg, approximately 200 of the revised documents have been displayed as

working documents on the Internet, thus helping their implementation and general

understanding in the public.

To speed up the process of translation and implementation of EC documents, the

Czech and Slovak Governments concluded an agreement on co-operation in the field

of translations, which includes an interchange of translated EC documents for

information.

Further efforts are required in this area.

3.3.

General evaluation

Since the previous Regular Report there has been a significant acceleration in the rate

of legislative alignment with the EC

acquis

although further efforts are needed in a

number of key areas. There has also been some progress in strengthening

administrative capacity although the delays in administrative and judicial reform have

hampered these efforts.

There has been good progress in legislative alignment in key areas of the

internal

market acquis.

Regarding the free movement of goods, legislation has been adopted

covering a wide range of sectors from toys to pharmaceuticals. As regards the free

movement of capital, the law against money laundering has been strengthened

although a clear timetable is needed for the cancelling of existing anonymous bank

accounts. In the area of free movement of services, capital market surveillance needs

to be further strengthened. In the fields of intellectual property significant progress has

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been made in aligning with the

acquis

although the effectiveness of the regulatory

bodies needs to be improved. As regards competition law some gaps remain on anti-

trust but legislation has been further aligned regarding state aids.

Concerning the field of

innovation,

a great deal of progress in transposing the

acquis

has been made concerning the liberalisation of the telecommunications market

through the strengthening of the regulatory body and the abolition of the exclusive

rights of the current operator. On audiovisual policy, further efforts are needed for

alignment with the

acquis

and it is necessary in particular to strengthen the

supervisory authority.

Progress has also been made on sectoral policies. As regards industry, the government

has promoted enterprise restructuring and accelerated privatisation, in particular

through the work of the Revitalisation Agency, with the exception of the steel sector.

For transport, alignment has progressed in all sectors; on high-speed rail systems, road

transport, air transport, inland waterways and maritime transport.

In the area of

economic and social cohesion,

good progress has been registered. In the

field of social policy and employment, employment strategy is in line with EC

principles and policy and social dialogue has been strengthened. On regional policy,

territorial organisation is in line with EC classification, a new Act regulates regional

development and the institutional framework has been clarified.

In the field of

agriculture,

progress has been made to prepare the measures required to

implement the

Common Agricultural Policy,

notably with new legislation on the

establishment of the State Agriculture Intervention Fund. In the field of

veterinary

and phytosanitary

legislation, progress has been made with alignment.

As regards the

environment,

further efforts are needed to transpose the

acquis

in the

areas of air pollution, waste management and water quality and Environmental Impact

Assessment. Furthermore, more coherent medium term financing strategies need to

be established.

In the field of

Justice and Home Affairs,

the effectiveness of border policing continues

to be deficient with co-ordination still needing to be improved between ordinary and

border policing, as well as with customs authorities. There has been no substantial

progress in the fight against corruption and organised crime.

As regards

administrative capacity,

the bodies responsible for standards and

certification of goods generally function well. However, in the field of services, the

Securities Commission should be further reinforced. As regards competition, the state

aid monitoring authority needs to be reinforced whilst the Office for the Protection of

Competition is well established. As regards agriculture, progress has been achieved as

regards the introduction of an administrative structure for common market

organisations, notably with the adoption of the Act on the State Agricultural

Intervention Fund. In regional policy, preparation for the structural funds has been

taken forward with the establishment of territorial units in accordance with the

acquis

classification. For the environment, approval has been given to increase the staff in the

Ministry of Environment and in the Czech Environmental Inspectorate, although

training needs to be improved and financial resources increased. As regards Justice and

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Home Affairs, visa matters are now overseen by the newly established Department for

Immigration and Border Control and a first step in reforming organisational structures

was taken to improve border controls. However, overall, insufficient progress has been

made in this area, which suffers from insufficient staff and poor equipment as well as

organisational weaknesses.

The majority of the priorities of the

Accession Partnership

have been addressed

although the efforts made thus far should be built upon in order to meet more fully the

set objectives. Progress has been particularly satisfactory on free movement of goods,

employment and social affairs and telecommunications. However in some areas the

short-term priorities have not been sufficiently pursued. This is the case as regards

Company law with respect to minority shareholders, and in the area of the free

movement of services where capital market surveillance has not been adequately

strengthened. As regards the audio-visual sector, little alignment has taken place.

Progress on the environment and Justice and Home Affairs has been limited.

The Czech Republic has already started to address a number of the medium-term

Accession Partnership priorities.

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C. Conclusion

The Czech Republic continues to fulfil the Copenhagen political criteria. Recent

significant developments include, in particular, a more effective collaboration between

the government and Parliament.

There has been progress in setting the legal framework for regional government.

However, the reform of the public administration has not advanced significantly and

therefore the short term priority of the Accession Partnership in this field has not been

met. The reform of the judiciary is equally a short term priority of the Accession

Partnership. Whilst progress has been made, it is regrettable that certain key parts of

the reform have not yet been adopted. Administrative and judicial reform are both

essential for effective enforcement of the

acquis

and improved good governance.

Thus efforts must be pursued in these fields, in line with the medium term priorities of

the Accession Partnership.

Furthermore, the fight against corruption and economic crime has so far been

insufficient. Tangible results in this field will respond to public concern and help

ensure a transparent business environment.

The Czech Republic continues to respect human rights and freedoms and has

developed its internal institutional framework in this field. Nevertheless, areas of

concern remain, in particular overcrowding of the prison system and persistence of

trafficking in women and children.

Increased and, in some areas, significant efforts have been made since last year

regarding the situation of the Roma community, notably with regard to the education

system. However, a lasting improvement in the situation of the Roma requires

sustained effort over time. Further progress is needed, as indicated in the medium

term priorities of the Accession Partnership.

The Czech Republic can be regarded as a functioning market economy and should be

able to cope with competitive pressure and market forces within the Union in the near

term, provided that it keeps up and completes the implementation of structural

reforms.

Macroeconomic stability has increased. Growth has resumed, while the favourable

performance on inflation and the external balance has been maintained. Efforts are

being made to increase the transparency of the public accounts. Progress has been

made on further restructuring and privatisation of banks.

However, the strengthening of competition and of supervision in the financial sector is

crucial in order to reinforce macro-economic policies and to foster economic activity.

The sustainability of public finances in the medium-term is not yet assured. The

efforts to privatise and restructure the state owned enterprises must continue and

corporate governance must improve.

The authorities need to concentrate on developing an environment supportive of

business activity – especially in the area of small and medium-sized enterprises.

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Further improvement of the legal framework, the implementation of the prudential

regulations for the financial sector and the continued development of this sector are

essential. The restructuring and privatisation of state-owned enterprises and the

restructuring of other enterprises must go hand in hand with the strengthening of

corporate governance.

Since the previous Regular Report there has been a significant acceleration in the rate

of legislative alignment with the EC

acquis

although further efforts are needed in a

number of key areas. There has also been some progress in strengthening

administrative capacity although the delays in administrative and judicial reform have

hampered these efforts.

There has been good progress in legislative alignment in key areas of the

internal

market acquis.

Regarding the free movement of goods, legislation has been adopted

covering a wide range of sectors from toys to pharmaceuticals. As regards the free

movement of capital, the law against money laundering has been strengthened

although a clear timetable is needed for the cancelling of existing anonymous bank

accounts. In the area of free movement of services, capital market surveillance needs

to be further strengthened. In the fields of intellectual property significant progress

has been made in aligning with the

acquis

although the effectiveness of the regulatory

bodies needs to be improved. As regards competition law some gaps remain on anti-

trust but legislation has been further aligned regarding state aids.

Concerning the field of

innovation,

a great deal of progress in transposing the

acquis

has been made concerning the liberalisation of the telecommunications market

through the strengthening of the regulatory body and the abolition of the exclusive

rights of the current operator. On audiovisual policy, further efforts are needed for

alignment with the

acquis

and it is necessary in particular to strengthen the

supervisory authority.

Progress has also been made on sectoral policies. As regards industry, the government

has promoted enterprise restructuring and accelerated privatisation, in particular

through the work of the Revitalisation Agency, with the exception of the steel sector.

For transport, alignment has progressed in all sectors; on high-speed rail systems, road

transport, air transport, inland waterways and maritime transport.

In the area of

economic and social cohesion,

good progress has been registered. In the

field of social policy and employment, employment strategy is in line with EC

principles and policy and social dialogue has been strengthened. On regional policy,

territorial organisation is in line with EC classification, a new Act regulates regional

development and the institutional framework has been clarified.

In the field of

agriculture,

progress has been made to prepare the measures required to

implement the

Common Agricultural Policy,

notably with new legislation on the

establishment of the State Agriculture Intervention Fund. In the field of

veterinary

and phytosanitary

legislation, progress has been made with alignment.

As regards the

environment,

further efforts are needed to transpose the

acquis

in the

areas of air pollution, waste management and water quality and Environmental Impact

104