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Europaudvalget 2001-02 (1. samling)
EUU Alm.del Bilag 188
Offentligt

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 13.11.2001

SEC(2001) 1750

2001

REGULAR REPORT

LITHUANIA’S

PROGRESS TOWARDS ACCESSION

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2001

REGULAR REPORT

LITHUANIA’S

PROGRESS TOWARDS ACCESSION

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

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Table of contents

A. Introduction.................................................................................... 6

Preface

Relations between the European Union and Lithuania................................... 8

Recent developments under the Association Agreement (including bilateral trade)............ 8

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

Community aid .............................................................................................................. 9

Twinning ..................................................................................................................... 13

Negotiations / screening............................................................................................... 14

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

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

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

Recent developments................................................................................................... 17

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

The parliament............................................................................................................. 17

The executive .............................................................................................................. 17

The judicial system...................................................................................................... 18

Anti-corruption measures............................................................................................. 19

1.2. Human rights and the protection of minorities .............................................21

Civil and political rights................................................................................................ 21

Economic, social and cultural rights.............................................................................. 22

Minority rights and protection of minorities................................................................... 23

1.3. General evaluation ...............................................................................................24

2. Economic criteria .......................................................................... 25

2.1. Introduction ...........................................................................................................25

2.2. Economic developments ......................................................................................25

2.3. Assessment in terms of the Copenhagen criteria...........................................28

The existence of a functioning market economy ............................................................ 28

The capacity to cope with competitive pressure and market forces within the Union...... 32

2.4. General evaluation ...............................................................................................34

3. Ability to assume the obligations of membership.......................... 36

Introduction................................................................................................................. 36

3.1. The chapters of the

acquis....................................................................................38

Chapter 1: Free movement of goods....................................................................38

Overall assessment ...................................................................................................... 40

Chapter 2: Free movement of persons ................................................................41

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Overall assessment ...................................................................................................... 42

Chapter 3: Freedom to provide services.............................................................43

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

Chapter 4: Free movement of capital .................................................................45

Overall assessment ...................................................................................................... 46

Chapter 5: Company law.......................................................................................46

Overall assessment ...................................................................................................... 48

Chapter 6: Competition policy..............................................................................49

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

Chapter 7: Agriculture..........................................................................................51

Overall assessment ...................................................................................................... 56

Chapter 8: Fisheries..............................................................................................58

Overall assessment ...................................................................................................... 59

Chapter 9: Transport policy .................................................................................60

Overall assessment ...................................................................................................... 62

Chapter 10: Taxation ............................................................................................63

Overall assessment ...................................................................................................... 64

Chapter 11: Economic and monetary union.......................................................65

Overall assessment ...................................................................................................... 65

Chapter 12: Statistics ............................................................................................66

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

Chapter 13: Social policy and employment ........................................................67

Overall assessment ...................................................................................................... 69

Chapter 14: Energy................................................................................................70

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

Chapter 15: Industrial policy...............................................................................75

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

Chapter 16: Small and medium-sized enterprises...........................................76

Overall assessment ...................................................................................................... 77

Chapter 17: Science and research......................................................................78

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

Chapter 18: Education and training ...................................................................79

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

Chapter 19: Telecommunications and information technologies...................79

Overall assessment ...................................................................................................... 80

Chapter 20: Culture and audio-visual policy.....................................................80

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

Chapter 21: Regional policy and co-ordination of structural instruments...81

Overall assessment ...................................................................................................... 83

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Chapter 22: Environment......................................................................................84

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

Chapter 23: Consumers and health protection..................................................88

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

Chapter 24: Co-operation in the field of justice and home affairs ...............89

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

Chapter 25: Customs union ..................................................................................96

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

Chapter 26: External relations ............................................................................98

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

Chapter 27: Common foreign and security policy...........................................100

Overall assessment .................................................................................................... 100

Chapter 28: Financial control ...........................................................................101

Overall assessment .................................................................................................... 102

Chapter 29: Financial and budgetary provisions ..........................................103

Overall assessment .................................................................................................... 103

3.2. Translation of the acquis into the national languages.................................104

3.3. General evaluation ............................................................................................105

C. Conclusion..................................................................................108

D. Accession Partnership and National Programmes for the

Adoption of the

Acquis:

Global assessment ..........................112

1. Accession Partnership ................................................................. 112

Short-term priorities .................................................................................................. 112

Medium-term priorities.............................................................................................. 115

2. National Programme for the Adoption of the Acquis ................. 118

Annexes.............................................................................................120

Human Rights Conventions ratified by the Candidate Countries, 30

September 2001............................................................................................121

Statistical data......................................................................................................122

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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, a

second series in October 1999, and a third in November 2000. The Commission has prepared

this fourth series of Regular Reports with a view to the Laeken European Council in December

2001.

The structure followed for this Regular Report is the same as that used for the 2000 Regular

Report. In line with previous Regular Reports, the present Report:

describes the relations between Lithuania 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);

assesses Lithuania’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 Lithuania’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 standards, 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 emphasised by the Madrid European Council in

December 1995, and confirmed by the Gothenburg European Council in June 2001. 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 Gothenburg European Council emphasised the vital importance of the

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candidate countries’ capacity to effectively implement and enforce the

acquis,

and added

that this required important efforts by the candidates in strengthening and reforming their

administrative and judicial structures.

This Report takes into consideration progress since the 2000 Regular Report. It covers the

period until 30 September 2001. In some particular cases, however, measures taken after that

date are mentioned. It looks at whether intended reforms referred to in the 2000 Regular

Report have been carried out, and examines new initiatives. In addition, 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 Lithuania in preparing

for accession.

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

acquis

criteria (including Lithuania’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,

provides, besides an assessment of progress made over the reference period, also a dynamic,

forward-looking evaluation of Lithuania’s economic performance.

The Report contains a separate section examining the extent to which Lithuania has addressed

the Accession Partnership priorities.

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 of each country in

terms of its concrete progress in preparing for accession.

The Report draws on numerous sources of information. The candidate countries have been

invited to provide information on progress made in preparations for membership since the

publication of the last Regular Report. The 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.

As in previous years, the Report does not mention any commitments undertaken or requests made in the context of the

accession negotiations.

For the European Parliament the

rapporteur

is Mr Ioannis Souladakis.

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Relations between the European Union and Lithuania

Recent developments under the Association Agreement (including bilateral

trade)

Lithuania has continued to implement the Europe Agreement correctly and contributed to the

smooth functioning of the various joint institutions.

The Association Council met in February 2001 and the Association Committee meeting took

place in June2001. The system of sub-committees continues to function as a forum for technical

discussions.

Since the issuing of the last Regular Report, the Joint Parliamentary Committee comprising

representatives of the Lithuanian and European Parliament met in November 2000 and June

2001.

Lithuania’s trade with the EC has continued to increase in 2000 (exports by 21% and imports

by 5%), although at a slower speed than with other countries In the year 2000, Lithuanian

exports to the EC accounted for 48 % of total exports. The share of imports from the EC

represented 46.5% of total imports. EC exports to Lithuania stood at €2.7588 billion and

imports at € 1.9805 billion during 2000. Looking at trade by sectors, machinery and electrical

goods represent the largest sector for EC exports to Lithuania. The textile sector is the largest

sector for EC imports from Lithuania.

Regarding agricultural products, a new agreement on reciprocal concessions with Lithuania has

been implemented from 1 January 2001 on an autonomous basis, pending the conclusion of an

additional protocol to the Europe Agreement. A second round of bilateral negotiations for trade

liberalisation is presently being prepared and would cover more sensitive sectors, in which

current trade is low in particular due to a high degree of tariff protection.

As regards the negotiations with Lithuania on processed agricultural products, an agreement

was reached at technical level between the two parties. The new agreement shall be extended

to trade in all processed agricultural goods and will envisage the elimination of import duties for

products under quotas, increases in the amount of quotas, and concessions for new products.

The preparatory work for the adoption of an Association Council decision is ongoing.

As regards the negotiations in view of new reciprocal concessions in the field of fish and fishery

products, an agreement was reached at technical level between two parties. The preparatory

work the conclusion of an additional Protocol to the Europe Agreement is ongoing.

As regards anti-dumping proceedings, in January, 2001 an investigation concerning imports of

ammonium nitrate originating in Lithuania was terminated and, in July 2001 provisional measures

were imposed on imports of urea originating, inter alia, in Lithuania.

The Protocol to the Europe Agreement on Conformity assessment and Acceptance of industrial

products (PECA) was initialled with Lithuania in July 2001. The PECAs are mutual recognition

agreements based on the implementation of the acquis.

Current discussions in the institutional framework of the Europe Agreement seek to achieve

progress in areas like protection of intellectual property rights, the restructuring of the

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agricultural sector, the restructuring of the energy sector and on setting up of appropriate

administrative structures in the field of financial control and regional policy. There are no major

trade problems in the relations between Lithuania and the EC.

Accession Partnership / National Programme for the Adoption of the Acquis

A revised Accession Partnership was adopted in December 1999 - its implementation is

reviewed in Part D. This Regular Report is accompanied by a proposal from the Commission to

update the Accession Partnership.

In July 2001, Lithuania presented a revised National Programme for the Adoption of the

acquis

(NPAA), in which it outlines the strategy for accession, including how to achieve the priorities of

the Accession Partnership (see Part D).

Community aid

There are three

pre-accession instruments

financed by the European Community to assist the

applicant countries of Central and Eastern Europe in their pre-accession preparations: the

Phare

programme;

SAPARD,

which provides aid for agricultural and rural development; and

ISPA,

which finances infrastructure 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.

For the years 2000-2002 total financial assistance to Lithuania amounts to around € 126 million

from Phare, € 90 million from SAPARD, and around € 155 million from ISPA.

The

Phare

programme has been providing support to the countries of Central and Eastern

Europe since 1989, helping them through a period of fundamental economic and social

transition 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 present enlargement process.

Phare provides the applicant countries of Central and Eastern Europe with support for

institution building (around one third of the Phare allocation), investment to strengthen the

regulatory infrastructure needed to ensure compliance with the

acquis

(equally around one third

of the allocation), and investment in economic and social cohesion (the remaining one-third of

the Phare allocation). This support comprises co-financing for technical assistance, “twinning”

and investment-support projects, to help these countries in their efforts to adopt the

acquis

and

strengthen the 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

(investment or grant schemes) with a regional or thematic focus.

The Phare programme allocated to Lithuania commitments of € 328 million during the period

1992-1999 and €87 million in 2000

. The

2001 Phare Programme

for Lithuania consists of

an allocation of € 45.5 million for the National Programme, concentrated on the following

priorities:

This includes an allocation of €3 million to Cross-Border Co-operation (CBC) Programmes, and €35 million for nuclear

decommissioning.

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Continuation of social security financing reform (€ 3 million)

Further alignment with the transport acquis and strengthening administrative capacity to

manage the implementation of transport policy (€ 2.4 million)

Strengthening the energy market regulator (€ 1.95 million)

Development of animal tracing and epidemiological surveillance system and modernisation

of phyto-sanitary research and administration (€ 3 million)

Strengthening the capacities to manage public health system in compliance with EC

Regulations (€ 1 million)

In the field of environment two projects were selected a) Strengthening the institutional

capacity to implement EC requirements on management of chemicals, genetically modified

organisms, IPCC and climate change and b) Creation of radiation protection infrastructure

and development of supporting services (€ 4.15 million)

In the field of Justice and Home Affairs an amount of € 4.8 million would be provided to: a)

Strengthening the fight against crime through establishing the national Europol Bureau and

upgrading the Forensic Science Service’s Central Laboratory b) Strengthening the capacity

of Lithuania’s judiciary

In the field of Administrative Capacity three projects were chosen amounting to € 5.16

million: Public external audit, special preparatory program for structural funds and a twinning

light reserve.

A Phare contribution of € 4.43 million was provided for Lithuanian participation in the

community programmes and the 5

framework programme

As regards economic and social cohesion, an amount of €15.57 million is allocated to

support productive sector, human resources development and improvement of business

related infrastructure. Two of the projects aim at building up structures and facilities for

developing and promoting innovation and SME related projects. Such activities are

contributing to the development of projects to be financed under the Structural Funds upon

accession.

An additional € 3 million of the overall Phare national programme was allocated for Lithuania’s

participation in the Baltic Cross Border Cooperation programme. CBC includes a small project

facility supporting co-operation activities in the Baltic region.

At the international Donors’ Conference held in Vilnius in June 200 on the decommissioning of

Unit 1 of the Ignalina Nuclear Power Plant, the Commission, on behalf of the European

Communities, pledged financial assistance amounting to a total of €165 million with the current

Financial Perspectives (i.e. until 2006). This pledge is subject to the annual budgetary

allocations by the budgetary authority. The bulk of this contribution is delivered via the Ignalina

International Decommissioning Support Fund managed by the EBRD. On the basis of a special

national Phare programme to support decommissioning and consequential measures in the

Lithuanian energy sector, the following amounts have been allocated so far: €10 million in 1999,

€35 million in 2000 and €55 million in 2001.

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Lithuania 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, Lithuania participates in Leonardo da Vinci, Socrates, Youth, Raphael, SAVE II,

Health and Social Policy, AIDS Prevention, Drug Dependence, Equal Opportunities, as well as

the Fifth Framework Programme for Research, Technological Development and

Demonstration. Lithuania participated in the third multi-annual programme for SMEs (1997-

2000) from 1 March 2000 until the end of the programme (31 December 2000). Following the

ratification and entry into force of the agreement, the formal participation of Lithuania in the

European Environment Agency will start in January 2002.

In order to streamline Community legal procedures and thereby facilitate future participation of

Lithuania in Community programmes, a decision is in the process of being adopted by the EU-

Lithuania Association Council establishing the general principles of such participation.

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 industrial

restructuring and privatisation, SME development, trade and investment promotion,

environment, energy, and land registration. Phare support to agriculture has succeeded in

developing sector strategies and initiating essential institutional and financial mechanisms

servicing enterprises in this sector.

In Lithuania, Phare played for example a particularly important role in:

−

Strengthening veterinary and phytosanitary control. A project on technical assistance to

veterinary and phytosanitary control (

€695 000) was completed in August 2001. This

project provided training for veterinary and phytosanitary border inspectors on control

procedures applied to the products of the animal and plant origin. In addition, the project

contributed to the development of designs for veterinary and phytosanitary border

inspection posts.

−

Developing an integrated farm register. A project on an integrated farm register and an

agricultural information system (€700 000) helped Lithuania to decide on the methodology

of a land parcel identification system. Two pilot projects were implemented in the districts

of Panevezys and Kaisiadorys.

−

Developing wastewater systems. A project of € 750.000 is aimed at the development of the

Wastewater System in the town of Varena.

The Phare Review of 2000 confirmed the accession-driven approach and emphasised the

importance of helping countries to prepare for the Structural Funds. The Review foresees the

possibility that management of the Phare funds can be fully decentralised from 2002 if the strict

pre-conditions set down in the Co-ordination Regulation 1266/99 are met. Second, Phare

programming can be moved onto a multi-annual basis if supporting strategies are in place. Third,

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

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

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

acquis

and economic and social cohesion.

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The implementation of the Phare programme has recently experienced some difficulties.

Contracting occurs very late, putting projects at risk and reducing implementation periods.

From September 2001, the functions of National Aid Co-ordinators have been transferred from

the Ministry of Foreign Affairs to the Ministry of Finance.

The

SAPARD

programme prepared by the Lithuanian authorities was approved by the

Commission in November 2000. The Community contribution to SAPARD in Lithuania for

2001 is € 30.4 Mio.

The plan foresees a number of priority measures for agriculture and rural development, including

(1) investments in agricultural holdings, (2) improving processing and marketing of agricultural

and fisheries products, (3) improvement of rural infrastructures and (4) development and

diversification of economic activities

providing for multiple activities and alternative income.

The

Multi-annual Financing Agreement,

which sets out the rules for implementing SAPARD,

and the

Annual Financing Agreement,

which sets out the Community financial commitment for

the year 2000 to Lithuania, were both signed in March 2001. The Lithuanian Parliament ratified

both agreements in June 2001. These agreements entered into force at the end of August 2001

when their ratification was notified to the Commission.

The following structure will be used for the implementation of SAPARD:

The National Fund, located within the Ministry of Finance administers SAPARD funds

allocated under the responsibility of the National Authorising Officer (NAO) and is

responsible for the national accreditation of SAPARD Agency.

The Managing Authority is the Ministry of Agriculture.

The National Paying Agency, under the Ministry of Agriculture has been designated as

SAPARD agency responsible for the implementation and financial management of the

programme. The agency is proposed to operate from its seat in Vilnius with 10 regional

offices throughout Lithuania.

The Lithuanian authorities have concluded the accreditation of their national implementing

structures and have notified the Commission on their National Act of Accreditation in July

2001. At the same time a complete package of information was also submitted (procedures'

manuals, policy statements on fraud, rotation of sensitive posts, legal acts and agreements, etc).

The Commission has been examining, also on the spot, the basis for the national accreditation

and the operational capacity to manage the programme. This review work is about to be

successfully completed and a Commission Decision conferring the management of aid to

Lithuania is expected to be taken very soon.

As concerns the

ISPA

programme, the 2001 allocation will be €53 million +/- 20% depending

on the quality and balance of projects submitted.

With regard to project applications, a total of 17 official applications have been submitted to the

European Commission by the National ISPA Co-ordinator , 10 in the environmental sector and

7 in the transport sector. The projects which have been adopted by the Commission include:

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Rehabilitation and extension of the water supply and sewage collection systems in Vilnius

Upgrading and extension of the wastewater treatment system in Druskininkai

Upgrading of the Corridor IXB (Vilnius-Klaipeda)

Improvement of the Via Baltica

Modernisation of telecommunication, signalling and power supply concerning the railway

component of Corridor IXB.

From September 2001, the functions of National ISPA Co-ordinator have been transferred

from the Ministry of Foreign Affairs to the Ministry of Finance. The two line ministries (Ministry

of Transport and Communication and Ministry of Environment) are responsible for technical

programming, project implementation, evaluation and monitoring. Implementing agencies have

been designated within the line ministries. Financial controllers will have to be designated within

each implementing agency.

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 through the

long-term secondment of civil servants and accompanying short-term expert missions and

training.

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.

A total of 372 twinning projects, primarily in the fields of agriculture, environment, public

finance, justice and home affairs and preparation for the management of Structural Funds, have

been funded by the Community between 1998-2000. These represent the principal priority

sectors that have been identified in the Accession Partnerships. But also other important

sectors of the

acquis

have been addressed through twinning, for example, social policy, fight

against drugs, transport, and telecommunications regulation.

Thanks to the strong support and response from EU Member States 103 twinning partnerships,

funded by Phare 1998 and involving all candidate countries and almost all Member States are

coming to an end or have been concluded. Under Phare 1999 a further 124 projects are being

implemented and the programming exercise for Phare 2000 includes a further 145 twinning

projects. The 2001 programming exercise foresees 131 twinning projects in all Phare

beneficiary countries as well as Cyprus and Malta. Furthermore, the candidate countries are

being offered the possibility of drawing on Member States’ expertise through Twinning light

(projects of up to 6 months' duration), to address well-circumscribed subjects of limited scope,

which emerge during the negotiation process as requiring adaptation. It is estimated that around

250 twinning projects are operational throughout the candidate countries at any one time.

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For Lithuania, the total number of projects implemented by twinning over the period 1998-

2000 is 27. Out of these projects, 16 are ongoing (13 from the 1999 programme and 3 from

the 2000 programme). Among the ongoing projects, for instance Germany is providing

assistance towards strengthening the enforcement of border control in the veterinary and

phytosanitary sectors, notably by training the phytosanitary inspectors. Among the twinning

projects financed under the 2000 programme and which are currently being prepared, Lithuania

is going to be assisted in preparing itself for the participation in the European Employment

Strategy and the implementation of the European Social Fund.

A number of areas have been pinpointed for twinning assistance under the Phare 2001

programme, including:

Social security financing reform

Further alignment with the transport acquis and strengthening of the administrative capacity

in the transport policy area

Strengthening the energy market regulator

Development of animal tracing and epidemiological surveillance system and modernisation

of phytosanitary research and administration

Strengthening of the institutional capacity to implement EC requirements on management of

chemicals, genetically modified organisms, IPCC and climate change

Creation of the radiation protection infrastructure

Strengthening the fight against crime through establishing the national Europol Bureau and

upgrading the Forensic Science’s Services Central Laboratory

Strengthening the capacity of the judiciary

Strengthening the capacity to manage the public health system in compliance with the

acquis

Public external audit.

Negotiations / screening

The analytical examination of the

acquis

(screening) has taken place in the context of meetings

of the Association Committee and the sub-committees.

Since the opening of the accession negotiations, substantial discussions on the individual

chapters of the

acquis

started, and by June 2001, negotiations on all chapters (with the

exception of chapter 30 - Institutions and chapter 31 – Other) have been opened.

By the end of September 2001, the following 18 chapters were provisionally closed: Free

Movement of goods; Free movement of services; Free movement of capital; Company law;

Fisheries; EMU; Statistics; Social Policy; Industrial policy; Small and medium-sized

undertakings; Science and research; Education and training; Telecommunication and

Information technology; Culture and audio-visual policy; Environment; Consumers and health

protection; External relations; Common foreign and security policy.

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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 2000 Regular Report on Lithuania’s progress towards accession, the Commission

concluded that:

“Lithuania continues to fulfil the Copenhagen political criteria.

"As regards public administration reform, in line with the relevant medium-term priority of the

Accession Partnership, Lithuania has made progress in implementing the legislation on public

administration and civil service. In continuing this reform, further issues need to be addressed,

namely, the level of remuneration, additional training and improved inter-ministerial co-

ordination.

"The reform of the legal system has significantly progressed with the adoption of the Civil Code

and the Criminal Code. This reform needs to be completed through the adoption and

implementation of new Codes of Civil and Criminal Procedure, which

inter alia

should

contribute to the speeding up of court proceedings. Efforts on judicial reform need to be

stepped up, in particular with regard to training of judges and prosecutors, filling all vacant

positions, and improving the functioning of the courts, especially the administrative courts.

"As regards the fight against corruption, the important measures which have already been taken

need to be completed through the adoption of a National Anti-corruption Strategy.

Enforcement needs to be significantly strengthened by further reinforcing the relevant agencies

and effectively ensuring their co-ordination.”

The section below aims to provide an assessment of developments in Lithuania since the 2000

regular report, as well as of the overall situation in the country, seen from the perspective of the

political Copenhagen criteria, including as regards the overall functioning of the country’s

executive and its judicial system. Developments in this context are in many ways closely linked

to developments regarding Lithuania’s ability to implement the

acquis,

in particular in the

domain of justice and home affairs. Specific information on the development of Lithuania’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.

These principles have been emphasised in the Charter of Fundamental Rights of the European Union, that was

proclaimed at the Nice European Council.

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Recent developments

Following the parliamentary elections of October 2000, the new Government took office in

November 2000. Due to a change in the ruling coalition, the Government resigned in June

2001. A new government took office in July 2001. While the first change entailed a protracted

period when important vice-ministerial posts were not filled, the second change in government

was swift, without any major disruption to the functioning of the civil service. In both cases, the

Government confirmed Lithuania’s commitment to accession to the EU.

1.1.

Democracy and the rule of law

The parliament

The parliament continues to operate smoothly. In January 2001, the Seimas adopted, with the

support of all the political groupings, a resolution stating that Lithuania’s rapid accession to the

EU is the country’s strategic goal and giving priority to the adoption of EU accession-related

legislation.

The executive

During the reference period, Lithuania made some limited progress in the implementation of the

Law on Public Administration and the Law on Civil Service.

In October 2000, a regulation concerning the procedure for imposing disciplinary sanctions

upon civil servants for misconduct in office was adopted. In April 2001, the Seimas amended

the Law on Civil Service in order to simplify the procedures of recruitment and dismissal and

increase their transparency.

A new ranking and remuneration system for civil servants was adopted to meet common

criteria. However, the level of remuneration remains unattractive.

The implementation of the National Strategy of Training of Civil Servants in Preparation for EU

Membership through the Lithuanian Institute of Public Administration continued. The institute

currently runs five international projects and during the period January 2000 – September 2001

organised about 140 training seminars, in which some 2 400 public servants from 70 institutions

took part. While these training efforts are to be welcomed, it is important to give them a more

systematic character.

The reorganisation of the Public Administration continued. In January 2001, the Ministry of

Public Administration Reforms and Local Administration was abolished. Its functions were

transferred to the Ministry of the Interior and the Ministry of Finance. The significantly

expanded responsibilities of the Ministry of Finance require an urgent increase in administrative

capacity in this ministry.

Overall, sustained efforts are required to further advance the process of reforming and

reorganising the public administration, so as to fully ensure its independence, accountability and

transparency, as well as its capacity to implement and enforce the

acquis.

The adoption of the

outstanding secondary legislation should be accelerated and adequate financial resources should

be secured. Inter-departmental co-ordination must be further reinforced. Finally, the reform

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process should cover all the different sectors of the administration while creating the conditions

for the necessary continuity and stability of the administration.

The judicial system

Over the last year, some progress was made in reforming the Lithuanian legal system, and

improving the functioning of the judiciary. However, the continued legal vacuum, resulting from

delays in the adoption of the new Law on Courts, remains a matter of serious concern. The

envisaged new Law should address the issues raised in a 1999 ruling of the Lithuanian

Constitutional Court, to the effect that certain powers of the Ministry of Justice in administering

the courts contradicted the principle of the independence of the judiciary laid down in the

Constitution. Pending the adoption of the new Law on Courts, the Department of Courts,

under the Ministry of Justice, performs

de facto

some administrative tasks regarding the

management of the Courts.

As indicated, the independence of judges is firmly laid down in the Lithuanian constitution, and

protected by the Lithuanian Constitutional Court. In 2001, the Constitutional Court ruled that a

decision taken by the Seimas in September 2000 to significantly reduce judges’ salaries was

unconstitutional, given that this could be a threat to the financial independence of the judges.

Following the adoption of a new Civil Code as reported in the previous Regular Report, in

June 2001 the Seimas passed the relevant amendments to the existing Code of Civil Procedure,

so as to allow for the entry into force of the new Civil Code as of July 2001. A new Code of

Civil Procedure is in preparation, but has still to be adopted.

In January 2001, the new Law on Administrative Courts Proceedings came into force. In

accordance with the new Law, the Higher Administrative Court and the Administrative Division

of the Court of Appeals were merged into the General Administrative Court. As a result, there

is now a two-tier administrative court system that consists of the County Administrative Courts,

which serve as courts of first instance, and the General Administrative Court, which has an

appeals and judicial review function, and is in charge of the formulation of uniform judicial

practice.

Since September 2000, asylum appeal cases are now dealt with by the Vilnius administrative

court. As of June 2001, this court had handled 53 asylum appeal cases. Bankruptcy cases are

dealt with by the Regional Courts.

As regards the number of judges, from July 2000 to September 2001, the number of positions

was increased by 20 to a total of 712. In the same period, 19 judges were appointed. The

number of vacancies is now 68. There is an action plan to fill all the vacancies by the end of

2003. Before being appointed, candidates are undergoing an extensive training and

apprenticeship programme.

As regards the capacities of the Prosecutor’s Office, in the first half of 2001 the county

prosecutor's offices in five major towns were reorganised, with the aim of reducing the number

of internal units and reallocating staff to operational work.

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The number of court cases dealt with slightly increased: in 2000, 17 048 criminal cases and

124 011 civil cases were completed, compared to 16 755 criminal cases and 119 843 civil

cases in 1999.

Despite this increase, the backlog has not substantially grown. At the end of 2000, the number

of criminal cases which had been under consideration for more than 6 months in the district

courts was 6 421 compared to 5 878 at the end of 1999. The number of civil cases under

consideration for more than 6 months in the district courts was 20 467 at end of 2000, which

compares to 20 468 at the end of 1999. At the end of 2000 there were 4 088 administrative

cases unresolved.

Over the past year, efforts to improve the training of judges have continued, notably in

specialised areas and in

acquis-related

matters. The Judicial Training Centre conducted over

sixty courses on various legal subjects in 2000 and 38 seminars in the first half of 2001. In

particular, during the reporting period it provided a training course on the application of the new

Civil Code. Some training is being developed also for the Prosecutor’s Office by its own

Training Centre. These efforts must be sustained. In particular, training should become

systematic, and appropriate attention should be paid not only to Community legislation, but also

to such subjects as good judicial practice, and human rights law. Also, specialised courses in

bankruptcy and asylum matters for judges in regional Civil Courts and Administrative Courts,

respectively, are required. Adequate resources and a stable institutional status should be

secured for the Judicial Training Centre. More incentives should be provided for judges to

participate in the training courses, and the possibilities for traineeships abroad should be further

developed.

Overall, Lithuania is still in the process of reforming its judicial system. The reorganisation of the

court system is gradually being implemented, however, much remains to be done. First and

foremost, the New Law on Courts needs urgently to be adopted. Adequate budgetary

resources and the managerial competencies which are necessary for the administration of the

court system need to be secured. Furthermore, the functioning of Courts, and chiefly of the

Administrative and Regional Courts, requires further improvement, in particular as concerns

working conditions of their staff. Additional training efforts have to be made to improve the

qualifications of specialised judges and prosecutors. Recruitment of skilled judges should be

encouraged so as to fill all vacant posts in district and administrative courts, as well as in the

Regional Civil Courts. Additional staff needs to be recruited for the Organised Crime and

Corruption division of the General Prosecutor's Office, and county prosecutors' offices should

be further reinforced. Since the entry into force of the Criminal Code will take place at the same

time as the entry into force of the Code of Criminal Procedure which is still in preparation,

Lithuania needs to take urgent action to ensure that the Code of Criminal Procedure is adopted

as soon as possible. Also the Code of Civil Procedure needs to be adopted.

Anti-corruption measures

Progress has been made in the fight against corruption. Although there are still problems, there

is evidence that Lithuania has improved its capacity in this domain. Administrative corruption,

however, remains an area of concern. Quick adoption by the Seimas of the National

Anticorruption Strategy and its Implementation Plan is a pre-requisite for effective sectoral

actions in the various institutions concerned.

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Over the past year, the Special Investigation Service (SIS) consolidated its role as the co-

ordinating anti-corruption agency. The organisational structure of the Special Investigation

Service was improved, and 63 SIS officers received specialised training, including abroad. A

Code of Honour of the SIS officers was adopted.

In terms of its activities, SIS achieved considerable results in fighting corruption in budgetary,

municipal, credit and financial institutions, as well as among civil servants in public tendering,

privatisation, local authorities, foreign investment, customs and law enforcement. In 2000, 108

criminal cases were initiated (as compared to 125 in 1999), 56 crimes against the civil service

were detected (as compared to 98 in 1999), and 98 civil servants and public officials were

charged with offences against the civil service (as compared to 168 in 1999). In the first half of

2001, the SIS uncovered 124 crimes, and 98 persons, including 58 civil servants, were

charged.

In its annual report for 2000, SIS reported that corruption occurs mainly in the field of public

procurement and customs. The most frequent type of corruption (in terms of number of

incidents) is administrative corruption.

In February 2001, SIS, the Police Department, the Tax Police Department, the Border Guard

Service (former Border Police Department), the State Security Department, the Ministry of

Defence, the Customs Department and the Prosecutor General’s Office signed an inter-

institutional Co-operation Agreement on Anti-Corruption Operations. Under this agreement,

these agencies will implement common actions and exchange information. In addition, the SIS

actively co-operates with international agencies through the National Bureau of Interpol.

SIS has been involved in the preparation of a National Anti-Corruption Strategy which was

approved by the Government in September 2001. The Strategy, along with its Implementation

Plan , still needs to be adopted by the Parliament.

In May 2001, the Seimas adopted a Resolution on the Fight against Corruption, which put

forward a number of anti-corruption measures to be implemented by the relevant Seimas

committees, the Government, and SIS.

In July 2001, a new Division for Investigations in Office, investigating violations made by

customs officials, was established in the Customs Department.

Lithuania has ratified the Council of Europe Convention on Laundering, Search, Seizure and

Confiscation of proceeds from crime and has signed the Council of Europe Criminal Law

Convention on Corruption in December 2000. It has not yet signed the Council of Europe Civil

Law Convention on Corruption. Lithuania participates in the Council of Europe Group of States

against Corruption (GRECO), and is, jointly with Estonia and Latvia, developing the Baltic

Anti-Corruption Initiative with the support of the OECD Secretariat. This initiative focuses on

legislative improvements, capacity building and community involvement in order to tackle

corruption.

The welcome efforts made over the past year should be sustained and reinforced. Progress

should be made with the adoption of the National Anti-Corruption Strategy and its

Implementation Plan by the Parliament, and with the adoption of a new Law on Corruption

Prevention. As regards the continued problem of administrative corruption, further progress in

strengthening the public administration and ensuring the transparency of administrative

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procedures is required. The finalisation and adoption of the envisaged Code of Ethics for

Public Servants would be an important step in this regard. The administrative capacity of SIS,

together with other key players, in combating corruption needs to be further strengthened in

terms of staff training. Qualified staff has to be recruited to fill in remaining vacancies. Inter-

agency co-ordination should be further strengthened in order to avoid overlap of operations and

ensure efficient exchange of information. Finally, greater involvement of civil society in the fight

against corruption should be encouraged.

1.2.

Human rights and the protection of minorities

As mentioned in the previous Regular Reports, Lithuania continues to respect human rights and

freedoms. The following section focuses on subsequent major developments.

Over the past year, Lithuania has made further progress in acceding to the major human rights

conventions (see

Annex).

The principle of non-discrimination, which is enshrined in the Constitution, is at the basis of

various laws. The new Criminal Code, which has not yet entered into force, contains provisions

prohibiting discrimination on a wide range of grounds. No other new developments are to be

reported with regard to the transposition of the EC anti-discrimination

acquis

(see

Chapter 13

- Social policy and employment).

The Ombudsman system continues to function satisfactorily.

Civil and political rights

Lithuania has addressed the issues identified in this area in the 2000 Regular Report, and

positive developments can be reported in several domains. However, some problems persist.

Isolated cases of

degrading treatment

by law enforcement officials continue to be reported.

One investigation is being carried out by the Prosecutor’s Office.

Lithuania remains a country of origin with regard to

trafficking of human beings.

Trafficking

of women continues to be a problem and greater efforts to prevent it and vigorous measures to

combat the criminal organisations involved are required. Adequate protection and support for

the victims need to be ensured. Greater involvement of NGOs against trafficking in women

should be encouraged. The implementation of the Programme on Control and Prevention of

Prostitution and Trafficking is ongoing.

Concerns remain about

pre-trial detention.

While pre-trial detention period is on average five

months, in accordance with the law it may reach 18 months, and can in practice last longer.

Recent rulings by the European Court of Human Rights underline the need for Lithuania to

change its detention practices. In October 2000, the European Court of Human Rights

delivered two judgements relating to events that occurred in the 1990s, establishing in both

cases a violation by Lithuania of Art. 5 of the European Convention on Human Rights. In the

meantime, measures to prevent these violations from reoccurring had already been taken. The

new Criminal Code, which has not yet entered into force, provides for a reduction of pre-trial

detention time.

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As far as the institutional structure of the Penitentiary System is concerned, in January 2001, the

Department of Prisons was transferred from the Ministry of Interior to the Ministry of Justice.

As regards

prison conditions,

in 2001 the Seimas passed a law amending the Code of

Correctional Labour, expanding the rights of sentenced persons. In particular, the possibilities

for long-term family visits were expanded, and the restriction of phone calls to family members

and other relatives was repealed. Following the amnesty of mid-2000, the total prison

population decreased from 14 412 in January 2000 to 10 750 (of whom 1 766 are pre-trail

detainees) in September 2001. However, overcrowding remains a problem. Lack of medical

care is also a concern. Considerable investment is needed to bring prisons up to acceptable

standards.

As regards legal aid, the Law on State Guaranteed Legal Aid, aimed at ensuring the provision

of state-guaranteed

legal aid

in civil, administrative and criminal cases, for citizens of Lithuania,

as well as foreign nationals and stateless persons residing in Lithuania, who cannot afford legal

fees, entered into force on 1 January 2001. In 2000, the Government disbursed € 763 000and

€ 694 000in the first half of 2001 in remuneration for attorneys providing legal assistance in

criminal cases on the assignment of the investigator, prosecutor or the courts.

While Lithuania has achieved a good level of alignment with the European and international

standards on

asylum,

a number of issues remain to be addressed, including the definitions for

determination of safe third countries and safe countries of origin. Co-operation and co-

ordination among the various institutions involved in refugee matters need to be improved, in

particular through the establishment of a comprehensive registration system.

As regards

crimes against humanity,

a Lithuanian court found guilty a person charged with

genocide committed during World War II.

During the reporting period, as concerns the fight against

racism,

xenophobia, anti-Semitism

and ethnic intolerance, actions were taken by the General Prosecutor and the courts against the

chief editor of a newspaper for publication of articles of anti-Semitic character and against the

publisher of a calendar inciting ethnic intolerance.

The new Criminal Code, which has not yet entered into force, eliminates the difference in age as

regards consent depending on

sexual orientation,

and includes provisions banning

discrimination on that basis.

Freedom of expression

and

freedom of religion

are enshrined in the Lithuanian constitution,

and continue to be respected.

Economic, social and cultural rights

Further progress was made in this area since the last Regular Report.

In June 2001, Lithuania ratified the

revised Council of Europe Social Charter.

As regards

equal opportunities,

the Ombudsman of Equal Opportunities has continued to take

decisive action. As a result, public awareness on equal rights, particularly at work, has

increased. Upon the Ombudsman’s recommendation, in January 2001, the Seimas amended

the legislation on parental benefits in order to ensure equal treatment as regards the bringing-up

of children. The Ombudsman handled 25 complaints, which is the same number as in 1999. Out

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of these, 6 related to sexual harassment and sexual abuse; the others concerned gender

discrimination at work or in seeking employment, or related to discrimination in education.

About half of all the complaints were judged by the Ombudsman to be grounded and

infringements of equal opportunities were established.

The work of the inter-departmental Commission for Equal Opportunities continued in order to

ensure that the state authorities implement effectively the provisions of the law concerning equal

opportunities. In the meantime, the number of women in the Lithuanian parliament decreased,

and stands now at 14, compared to 24 in the previous legislature.

The

Children's rights

Ombudsman, established in November 2000, has been particularly

active. In April 2001, the Ombudsman submitted her first report to the Seimas. In 2001, the

Office received 75 written and 230 oral complaints. Most complaints refer to violations by

children's care institutions, litigation over alimony and parental custody of a child. The report

notes growing minor delinquency and spreading drug addiction as the two main problems and

recommends streamlining the children's rights protection system. In addition, the report

highlights the inactivity of local government institutions.

In order to guarantee the rights of

disabled persons,

in February 2001, the Government

adopted the Policy Paper on Reform of Diagnosis of Disability and Social Security Measures

for Persons with Disability.

As regards

trade unions,

the unionisation level has slightly increased: in September 2001, it had

reached 13 per cent of the working force. Trade union rights are generally respected. There

are certain restrictions on the right to join trade unions for limited categories of civil servants.

Minority rights and protection of minorities

Since the 2000 Regular Report, the overall situation with regards to protection of minorities

continues to be satisfactory, and some progress was made in implementing integration

programmes.

The Government continues to support programmes promoting economic, social and cultural

development of Lithuania’s minority communities. The Government allocated € 131 000for

implementation of the Programme for Social and Cultural Integration of National Minorities in

2001. The Programme on State Language Use and Promotion for 1996-2005, which serves to

assist minorities in learning or improving their knowledge of Lithuanian, continues to be

adequately financed.

The Roma community counts around 3 000 people, who live in difficult conditions. In 2001,

the Government started the implementation of the new Roma Integration Programme allocating

€ 244 000 from the state budget, of which € 152 000is earmarked for the construction of the

Roma Public Centre (started in 2000), and € 91 000for education, health care, and cultural

needs of the Roma minority. Ongoing efforts to increase the integration of Roma in Lithuanian

society need to be sustained. Much more attention should be paid to the issue of housing.

To ensure the effective implementation of these welcome integration programmes, funding will

need to be increased, and the capacity of the Department of National Minorities and Emigration

should be upgraded.

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1.3.

General evaluation

In its 1997 Opinion, the Commission concluded that Lithuania fulfilled the political criteria. Since

that time, the country has made considerable progress in further consolidating and deepening the

stability of its institutions guaranteeing democracy, the rule of law, human rights and respect for

and protection of minorities. Over the past year, further efforts have been made in this

direction. Lithuania continues to fulfil the political criteria.

Lithuania has made some progress in reforming the public administration and the judiciary,

where the administrative court system has been re-organised. The legal system has improved

with the entry into force of the new Civil Code. The capacity to fight corruption has been

strengthened. The active role of the ombudsman in the field of equal opportunities and, more

recently, children’s right is noteworthy.

Sustained efforts are required to further advance the process of reform of the public

administration, covering all different sectors of the administration, while creating the conditions

for the necessary continuity and stability of the administration. Adequate financial resources

should be secured, inter-departmental co-ordination must be further reinforced and training

should become more systematic. As regards the judicial system, the new Law on Courts

urgently needs to be adopted. Adequate budgetary resources and the managerial competencies

which are necessary for the administration of the court system need to be secured. The

adoption of the Code of Criminal Procedure must be speeded up in order to allow for the

implementation of the new Criminal Code.

In the field of the fight against corruption, the efforts made over the past year should be

sustained and reinforced, through the adoption of the National Anti-Corruption Strategy and its

Implementation Programme by the Parliament, and with the adoption of a new Law on

Corruption Prevention. As regards the continued concern over administrative corruption,

further progress in ensuring the transparent application of administrative procedures is required,

and the co-ordination among the agencies combating corruption should be further strengthened.

Lithuania has made progress towards meeting the accession priorities related to the political

criteria. It has made limited progress in implementing the public administration law and the civil

service law. The Government has approved the National Anti-Corruption Strategy which now

needs to be adopted by the Parliament and implemented. A training programme for judges,

covering various aspects of EC law and

acquis

enforcement, has started and needs to be

continued.

See "Making a success of enlargement: Strategy Paper and Report of the European Commission on the progress towards

accession by each of the candidate countries", COM (2001) 700.

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2. Economic criteria

2.1.

Introduction

In its 1997 Opinion on Lithuania’s application for EU membership, the Commission concluded:

“Lithuania has made considerable progress in the creation of a market economy”; it “would face

serious difficulties in coping with competitive pressure and market forces within the Union in the

medium term”.

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

Commission found that

“Lithuania has continued to make progress in establishing a functioning market economy and is

on the way to being able to cope with competitive pressure and market forces within the Union

in the medium term, provided it completes the remaining reform agenda.”

In its 2000 Regular Report the Commission found that:

“Lithuania 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 medium term, provided that it

continues with the implementation of the current structural reform programme and undertakes

further necessary reforms.”

In examining the economic developments in Lithuania since the Opinion, the Commission’s

approach was guided by the conclusions of the European Council in Copenhagen in June 1993,

which stated that membership of the Union requires:

the existence of a functioning market economy;

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

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

the previous annual Regular Reports.

2.2.

Economic developments

Lithuania's economic situation has further improved since the Regular Report 2000.

The

economy has been experiencing an export driven recovery, which is starting to spill over into the

domestic economy. However, private and public investments are still relatively sluggish. As a

result of strong export growth and low imports supported by fiscal restraint, the external

balance has significantly improved. Inflationary pressures remained particularly low, reflecting

weak domestic demand and the strength of the Litas. The currency board arrangement with its

peg to the USD has provided a credible external nominal anchor, supported by economic

consolidation. Fiscal discipline has been maintained and the sustainability of public finances has

improved.

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Main economic trends

Lithuania

1996

1997

1998

1999

2000

2001

latest

5.1 H1

Real GDP growth rate

Inflation rate

- annual average

per cent

4.7

7.3

5.1

-3.9

3.9

per cent

24.7

8.8

5.0

0.7

0.9

1.1

(Sept)

2.1

(Sept)

- December-on-December

per cent

13.1

8.2

2.4

0.3

1.3

Unemployment rate, end-year

- ILO definition

General government budget

balance

Current account balance

per cent

per cent of GDP

16.4

-2.8

14.1

-1.1

13.3

-3.1

14.1

-5.7

16.0

-3.3

16.6 P Q2

per cent of GDP

million ECU/euro

-9.2

-569

-10.2

-865

-12.1

-1,158

-11.2

-1,120

-6.0

-725

- 315

Jan-July

Foreign debt

- debt export ratio

- gross foreign debt

Foreign direct investment in

flow

- balance of payments data

per cent

million ECU/euro

25.9

860

27.6

1,273

37.1

1,677

66.7

2,651

62.7

3,470

per cent of GDP

2.0

million ECU/euro

123

3.8

321

8.3

793

4.8

484

3.4

410

355

Jan-

July

Structural reforms have proceeded along the lines set out in the last Regular Report.

The

privatisation of the financial sector is close to completion. The legal framework for market entry

and exit has been improved. Labour market regulations have been liberalised. The role of the

state has been further reduced and trade liberalisation has been increased. The restructuring and

privatisation of the electricity and gas sector is under way. Measures to improve the human and

physical capital have been hampered by budgetary constraints. The pension reform has been

discussed in the parliament, but no decision has been taken.

PROXY HICP since 1996 (see methodological notes)

Moving 12 month average rate of change, national CPI

National CPI

Source: Website of National Bank

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Main Indicators of Economic Structure in 2000

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

3,696

6,600

per cent

Million Euro

Euro per head

7.6

19.6

18.8

28.5

45.5

2,524

683

P: provisional data

Lithuania has been catching up with the EU, although from low levels.

GDP per capita in

terms of purchasing power standards reached 29.3% of the EU average in 2000, slightly up

from about 27% in 1995, but down from levels enjoyed in 1998. Regional differences in income

levels are moderate. 1998 data show relative regional income levels ranging from 32.4% in %

of the EU in the capital, Vilnius, to around 20% in other regions of the country. The economic

activity rate (at around 60% in 2000) and the employment rate (at 60.1%) have shown a slight

decline over the past years, reflecting the rising unemployment, driven by enterprise restructuring

and the economic slump in 1999. Also last year, despite strong economic growth in that period,

the situation on the labour market deteriorated: the unemployment rate rose from 14.1 % to

16.0 % (18.4% among men and 13.4% among women), including 53.0% long-term

unemployed.

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.

Estimated.

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

demographic statistics.

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2.3.

Assessment in terms of the Copenhagen criteria

The existence of a functioning market economy

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.

There is broad consensus about the main direction of economic policy.

Despite changing

coalition governments, the Lithuanian authorities maintained the policy approach adopted in the

anti-crisis programme of December 1999 and enshrined in medium-term plans, such as the Joint

Assessment of Economic Policy Priorities signed in May 2000 or the renewed pre-cautionary

IMF agreement of April 2001. In line with the commitments in the Accession Partnership,

Lithuania is participating in the Fiscal Surveillance Exercise and submitted its first Fiscal

Notification in April and the Pre- accession Economic Programme (PEP) in October 2001.

Drawing up the PEP involved most of the ministries and some other institutions, and the

programme was approved by the government. The new government, appointed in July, has

declared that it will maintain the policy orientation of its predecessor, aiming at EU membership.

It has also pledged to fulfil the IMF stand-by arrangement drawn up by the former government.

The arrangement, signed in August, commits Lithuania to continue with structural reforms,

utilities privatisation, and fiscal discipline.

In 2000, Lithuania returned to growth from a decline in GDP.

On average, real GDP grew

by 3.3 % in 2000 and even by 5.1 % year-on-year in the first half 2001. Growth was mainly

driven by exports, but private consumption contributed significantly. Exports and private

consumption increased by 12.9 % and 3.8 %, respectively, in 2000, and by 18.4 % and 4.6 %

in the first half 2001. Except for private consumption, domestic demand was very weak in

2000. Public consumption and total fixed investments both decreased for the second year in a

row. However, the decreases were smaller in 2000 than in 1999, amounting to 0.8 % and

3.8 % for public consumption and investments respectively. In the first half of 2001, investments

increased by 5.1 %. As a result of several years of low investment growth, the share of

investment in GDP has been declining recently, reaching 20.7 % of GDP in 2000.

The labour market situation continued to deteriorate, despite the economic growth of last

year.

Employment fell from the second quarter 2000 to the second quarter 2001 by almost 7%,

and thus even faster than the year before with a decline by 5.5%. As a result of economic

restructuring, but also increased unemployment registration, the already high unemployment rate

increased by 1.9 percentage points to 16.0 % between 1999 and 2000, according to ILO

definitions. While the registered average unemployment rate was 11.5 % in 2000, in some

regions it reached significantly higher, values of between 20 and 30 %. The economic activity

rate fell from last year’s 61.9 % to 60.4 % in 2000.

Inflationary pressures remained particularly low in Lithuania.

The main factors contributing

to the low inflation have been weak domestic demand and the appreciation of the Litas against

the Euro in 2000. Furthermore, wage settlements have remained moderate. The average CPI

increase was only 1.0 % according to the national definition. The harmonised CPI (HCPI)

increase was even lower, 0.9 %. Although general inflation was low with prices falling for

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several items, prices for housing, water, electricity, gas and other fuels, and communication rose

considerably. This was a necessary consequence of the stronger cost recovery achieved by

those providers. In contrast to the development of consumer prices, producer prices rose

sharply by 18.0 % on average in 2000, partly reflecting increasing energy prices. During 2001,

inflation has risen slightly, but still remained low at 2.1 % in September. The upturn in inflation

was mainly induced by price rises for food and beverages, and communications.

The currency board arrangement remains, although the currency peg will switch from the

US dollar to the Euro.

The Litas has been pegged to the US dollar, and the main goal for the

central bank has been to maintain this exchange rate. After some unsuccessful attempts, the

central bank announced 6 months in advance, in a way that was both transparent and timely,

that on 2 February 2002 it would change the peg of the Litas from the USD to the Euro,

maintaining the external value of the currency at the switchover. The change in the peg is

intended to reflect changes in trade orientation and to prepare for post-accession EMU

participation. This measure will further accelerate and deepen Lithuania's integration with the EU

economy by eliminating the exchange rate risk for investment and trade with the EU, as long as

the currency board arrangement remains credible. The Lithuanian Central Bank reduced the

reserve requirements from 10% to 8% with little apparent impact on credit expansion.

Public finances were characterised by fiscal discipline, and the sustainability of public

finances has been improved.

In 2000, the budget deficit fell from 7.8 % of GDP to 2.8 %.

Using harmonised EU accounting standards (ESA 95), the budget deficit decreased from 5.7 %

of GDP in 1999 to 3.3 % in 2000

. The stand-by arrangement with the IMF foresees a further

reduction of the deficit to 1.4 % of GDP in 2001, and 1.3 % of GDP in 2002 (GFS

accounting). However, in order to achieve fiscal targets, public expenditures, and in particular

public investment, have had to be reduced drastically. In order to restore the level of

investment, the government plans to increase investments this year. One burden on public

finances is the accumulation of tax arrears. Improvements have been made at central level, but

the municipalities have still to tackle this issue. A new pension reform, including a mandatory

funded pillar, is in preparation. The introduction of the new pension system is expected to

generate an annual deficit in the State Social Insurance Fund equivalent to 0.9 % of GDP. It has

not yet been decided how the deficit will be financed. The government approved guidelines for

a tax reform in May 2001. Its main goal is to streamline the tax system functioning and to

stimulate the supply side of the economy. The reform includes a gradual reduction of both

company income tax and personal income tax, as well as raising the minimum untaxed income

level.

The current account deficit is still high, but has improved.

In the year 2000, the deficit

decreased to 6% of GDP, compared to 11.2 % in 1999. In the first half of 2001, the current

account deficit decreased by 0.9 percentage points to 5.0, compared to the first half of 2000.

The improvement in 2000 was mostly the result of a rapid increase in merchandise exports. In

2000, exports increased by approximately 29% in current prices, and in the first half of 2001 by

25%. The main contribution to this improvement came from machinery, electrical equipment and

vehicles and prepared foodstuffs. The strong increase in the export of mineral products was

more than offset by increased imports of mineral products, in particular oil. The pattern was the

Two figures are given for the government balance. One is based on the most commonly used national concept, and the

other is calculated according to the European System of Accounts (ESA 95), which was reported by the candidate

countries for the first time this year.

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same in the first half of 2001, with the exception that total imports began to increase more

rapidly. The balance of services recorded a somewhat increased surplus in 2000. The financial

accounts showed a surplus, and foreign direct investments covered about 56 % of the current

account deficit.

The macroeconomic policy mix has been broadly appropriate.

The currency board

arrangement has maintained both currency and price stability, and at the same time allowed

interest rates on loans to fall slowly. The conduct of fiscal policy has succeeded cutting both the

current account deficit and the budget deficit. However, the reduction of the budget deficit was

largely dependent on a reduction in public investment.

The share of the private sector has increased.

The private sector contribution to GDP

increased in 2000, from 70 % to 72 %. The share of employees in the private sector was 68 %

in 1999, and rose to 69 % in 2000. Restitution of land is close to completion, and the land

market has started to function. However, the restitution process has slowed down. By 1

September 2001, ownership rights had been established for 79 % of the rural land area claimed

in citizens’ applications, just 1 percentage point more than a year earlier. This should, however,

not hide the fact that the amount of decisions taken increased by 10% during the period

September 2000 – September 2001. Nevertheless, in August 2001, the parliament adopted

amendments to the law on restitution, with a view to speeding up the process. Regulated prices

account for about 20.5 % in the CPI. Last year they accounted for 18 %. However, this

increase in the share of administered prices only reflects price increases for these goods and

services, and not an increase in the amount of goods and services whose prices are regulated. A

real increase in the amount of regulated prices, however, represents the minimum prices for

grains, which were introduced in August 2001.

Privatisation is approaching completion.

In 2000 privatisation slowed down, but at the end

of the year the Lithuanian Development Bank was sold, and in early 2001 both the Lithuanian

Shipping Company and the Lithuanian Savings Bank were sold. The only remaining state-

owned bank, the Agricultural Bank, is being prepared for sale later this year. This will be the

third attempt to sell the bank. Several other companies are also prepared for future privatisation:

the Lithuanian Gas Company, the Klaipeda Transport Fleet, the Lithuanian Electricity

Company, and the Lithuanian Airlines. However, no firm dates have yet been announced.

Besides these large holdings, the state also holds minority stakes in a number of enterprises. A

new regulation is being prepared so as to speed up the sale of these minority stakes.

Conditions for market exit have been improved, although the implementation of the

existing legislation needs to be strengthened.

In July 2001 a new bankruptcy law and an

enterprise restructuring law came into force. Following the Russian crisis, the amount of

bankruptcy procedures launched rose rapidly in 1999 and 2000. In 2000, 415 bankruptcy

cases were initiated, but only 7 of them were completed. In total, 102 cases were completed

last year. The new laws are expected to simplify and speed up the liquidation process as well as

the restructuring process. The implementation of the laws may be hampered by the lack of

competent judges – however, this problem is recognised by the authorities and the training of

judges is ongoing. Thus, although the laws represent a crucial step forward, setting up properly

functioning bankruptcy and restructuring procedures is still a key challenge. Market entry is still

hampered by too much bureaucracy in connection with company registration and licensing. In

2000, 10392 new enterprises were registered, and 9362 were unregistered, resulting in a total

of 112442 enterprises on 1 January 2001.

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Property rights are well established, and land restitution is close to completion.

By 1 May

2001, 81 % of privately-owned agricultural land had been legally registered and was ready to

enter the market. However, foreigners still face restrictions as regards acquisition of land (see

chapter 4, free movement of capital).

Privatisation of banks is nearly finished.

Since the last Regular Report, two of the three

remaining state banks have been privatised and there are plans to sell the third, the Agricultural

Bank, representing 13.6 % of total assets in the banking sector, at the end of 2001. All in all, 10

commercial banks and 3 foreign bank branches are currently operating in Lithuania. On 1

January 2001 the share of foreign investment in bank capital amounted to 57.7 %.

The financial sector has slowly continued to stabilise.

Profitability in the banking sector

grew last year. Pre-tax profits increased from 0.21% of total bank assets in 1999 to 0.46% in

2000. The proportion of non-performing loans continued to decline, from 11.9% in 1999 to

10.8 % in 2000. At the end of 2000 the capital adequacy ratio of the banking system was 16.3

%, well above the 10 % requirement of the Bank of Lithuania.

Efficiency has increased, but the interest rate spread is still wide.

The average long- and

short-term spread between interest rates on loans and deposits declined during 2000, from

10.4 percentage points in the first quarter of 2000, to 8.6 in the fourth quarter, and 7.5 in the

second quarter of 2001. However, despite the decline, the level is still very high.

The financial sector has not been very active in channelling funds to the private sector.

Between the end of 1999 and the end of 2000, lending to the private sector stagnated - on

average it accounted for 12.8 % of GDP in 1999 and for 11.7 % in 2000. However, a small

upturn in lending occurred in the first half of 2001. The securities market is still underdeveloped.

It is very difficult for companies to raise funds through securities issues. On 1 January 2001

shares of only 6 companies were listed on the Official List and 48 on the Current List of the

National Stock Exchange. This is a decline from 1 January 1999 when 6 companies were

represented on the Official list and 56 on the Current List. On 1 January 2001, a united Baltic

list comprising stocks of the largest companies listed on the Riga Stock Exchange, the Tallinn

Stock Exchange, and the Lithuanian National Stock Exchange was established. The

capitalisation of the stock market represented 28 % of GDP in 1999, and 27 % in 2000; bond

market capitalisation (incl. T-bills) was 4 % in 1999, and 3 % in 2000. The intended

establishment of a funded pension system should in the long run have a positive impact on the

deepening of the capital market.

Financial market supervision has further strengthened.

The Law on Commercial Banks has

been amended in several stages so as to bring the legislation closer to the standards in the EU.

The parliament has, inter alia, adopted amendments that will improve the bankruptcy

procedures and speed up the liquidation process. The Bank of Lithuania, the Securities

Commission, and the State Insurance Supervisory Authority have signed a trilateral agreement

on co-operation. The Bank of Lithuania has also signed several agreements on international co-

operation.

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

Union

The ability to fulfil this criterion depends on the existence of 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 before accession. Both the

volume and the range of products traded with EU Member States provide evidence of this.

Macroeconomic stability has been maintained, including price stability and sound public

finances, allowing economic agents to take decisions in a climate of stability and

credibility.

After the economic decline caused by the Russian crisis and the delayed but

successful redirection of economic policy towards sustainability, the principles of a market

economy are more firmly established in the Lithuanian economy.

Lithuania's human capital stock provides a good base for growth.

The qualifications of

Lithuania's labour force have been comparatively high, in particular with respect to technical

know-how. In some specialised fields, such as semiconductor, biotechnology, electromagnetic

and laser technology, the amount of R&D has been very high. However, while a decline in

young peoples' participation in education has been partially reversed in recent years, a

significant proportion of children continues to leave school without basic qualifications.

Compulsory schooling lasts for 10 years in Lithuania, and enrolment ratios are very high. The

ratio between pupils and teachers is relatively favourable with 9 pupils per teacher. During

recent years, this rate has even improved. However, the major issue is to adjust the educational

system to the new challenges of a rapidly changing market economy. The content of education,

training and research is sometimes outdated and not sufficiently suited to these new

requirements.

Labour market policy is increasingly focused on liberalising labour market regulations

and on active labour market measures.

In order to increase the flexibility of Lithuania's

labour markets, lay-off benefits have been reduced and the potential for part-time employment

and service contracts has been improved. In addition, the recently amended bankruptcy and

restructuring procedures foresee improved possibilities for reducing excess labour.

Furthermore, a programme to promote employment has been adopted by Parliament. It

contains measures to support job creation and labour mobility. The programme puts special

emphasis on regions with high unemployment. For the first time in several years, in 2000 wage

settlements have been fairly low, despite high productivity gains. This was mainly due to the

drastic rise in unemployment since 1999, relatively low growth and subdued inflationary

pressures.

Investment was relatively low last year, reflecting low growth and fiscal adjustment.

Gross fixed capital investment amounted to 21% of GDP in 2000. This was relatively low

compared to the years before the Russian crisis, when the investment share was in the range of

24-27% of GDP. The main reason for this drop was the sharp decline in public sector

investment, reflecting Lithuania's attempts to reduce the deficit through cuts in public sector

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expenditures. Despite this curb on public sector investment, maintaining infrastructure investment

has been declared as a priority. According to first quarter data, investment is picking up in

Lithuania, in particular private sector investment. Public investment is supposed to be

significantly higher in 2001. Nevertheless, given Lithuania's need to accelerate its economic

dynamics and to improve its attractiveness for foreign direct investment, the present level of

public sector investment is rather low. Infrastructure is in general sufficiently developed.

However, the railway network would need additional investment, in particular given Lithuania's

role as transit country between the CIS and the Baltic Sea.

Foreign direct investment inflows are still at a relatively low level.

In 2000, net FDI

inflows accounted for 2.5% of GDP, compared with 4.5% of GDP in 1999. Danish and

Swedish enterprises are still the main investors in Lithuania, accounting for about one third of

FDI inflows. The third biggest source of FDI inflows are US companies, accounting for about

10% of FDI. About 30% of FDI goes to the manufacturing sector, while the trading sector

accounts for about 23%. This indicates that Lithuania is not so much seen as an export market,

but as a favourable place for production. A relatively large part of FDI inflows is still related to

privatisation. However, since the 2000 Regular Report, the significance of green-field

investment has improved. The most prominent examples are related to the food processing

industry, telecommunication and biotechnology, accounting for about 16% of total FDI inflows.

The restructuring of the economy has gained additional momentum.

While Lithuania's

initial response to the Russian crisis had been to dampen the negative impact and to postpone

structural adjustment, in November 1999 Lithuania adopted a liberal approach and has since

kept to this course. As a result, economic restructuring has accelerated in 2000. The

amendments to the bankruptcy and restructuring legislation facilitate the closing down of non-

viable companies and the re-orientation and reorganisation of troubled but in principle viable

companies. Labour market regulations have become more flexible. State aid to troubled

enterprises has been significantly reduced and general support for enterprise start-ups and in

particular SME's has increased, both at state and municipal level. Special commissions

consisting of the social partners (the Sunset and Sunrise commissions) are advising the

government on ways to improve the business environment and simplify administrative

procedures. Trade protection has been removed. The ongoing structural change is documented

by labour market developments. The biggest job losses in 2000 took place in agriculture and

construction, while trade, education and tourism have been the most important employment-

generating sectors. A similar pattern appears from output statistics of the different sectors.

Given the high share of employment in agriculture, this sector will surely face further pressure to

restructure.

State interference has been declining further.

Lithuania has further reduced state aid to

enterprises from 1.3% of GDP in 1996 to 0.2% of GDP in 2000. Furthermore, the privatisation

of state enterprises is close to completion. In the banking sector, only one bank remains under

state control so far. Financial support to private enterprises has declined sharply. Market

regulations have been liberalised and regulatory barriers reduced. On 31 May 2001, Lithuania

became a member of the WTO and of the Baltic Free Trade Zone. Furthermore it has

concluded Free Trade Agreements with Bulgaria and is in the final stage of signing a Free Trade

Agreement with Romania.

Lithuania has proceeded with privatising its state enterprises.

All banks but one are now

privatised and the state shipping company

LISCO

has been sold. Preparations for the

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privatisation of most remaining state enterprises, like the

Lithuanian Airlines, the Klaipeda

Transport Fleet

and the Lithuanian Electricity company

Lietuvos Energija

and

Lithuanian

Gas,

are under way.

The share of SMEs accounts for around 96% of all registered companies.

The government

supports the creation of SMEs through various programmes, like business incubators and

through simplified administrative procedures. Municipalities too are supporting the establishment

of new companies. However, according to independent research institutes, small enterprises still

face difficulties with unclear regulations and red tape. In addition, private enterprises face

difficulties getting access to credit financing, as banks are rather cautious and interest rates are

relatively high.

Trade integration with the EU has increased further.

Trade openness is fairly high and

increased from 89.8% of GDP in 1999 to 97.4% in 2000. This increase reflects the export-

driven recovery, which took place in that year. The volume of trade with the EU further

increased in 2000 (exports by 21%, imports by 5%), although at a slower speed than with

other countries. Thus, the EU's share in total merchandise exports declined from 50% in 1999

to 48% in 2000. The second most important trading partners are the other members of the

CEC10-group, accounting for 22% of exports. Given the substantial trade links between the

CEC10-group and the EU, Lithuania's direct and indirect exposure to EU trade dynamics is

therefore quite high. The share of exports to the CIS has declined from 46% before the Russian

crisis to 16% in 2000. Lithuania's export performance on EU markets was very favourable, in

particular when taking into account the continued appreciation of the Litas against the Euro by

around 11% on average in 2000. The real effective exchange rate also appreciated by about

7% during this period.

Energy products are an important element in the commodity structure of Lithuania's

exports.

Industrial commodities in total (SITC 5-9) account for about two thirds of Lithuania's

exports. The three most important commodity groups for export are mineral products, in

particular oil, accounting for about 20% of total exports; textiles, accounting for 18%, and

electrical machinery, accounting for about 10%. Exports of mineral products are rather volatile,

while the shares of textiles and electrical machinery have been steadily increasing. Exports to the

EU are dominated by textiles and clothing, accounting for about one third of total exports to the

EU, and electrical machinery and chemical commodities, each accounting for about 10%.

2.4.

General evaluation

Lithuania is a functioning market economy. Provided that it makes further substantial efforts to

continue with the vigorous implementation of its structural reform programme, it should be able

to cope with the competitive pressure and market forces within the Union in the near term.

Lithuania has preserved macroeconomic stability, improved the fiscal and external imbalances

and reduced state interference. The privatisation of banking, other sectors and land is nearing

completion. New bankruptcy and enterprise restructuring laws finally came into force.

See "Making a success of enlargement: Strategy Paper and Report of the European Commission on the progress towards

accession by each of the candidate countries", COM (2001) 700.

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However, unemployment remains high and the structural problems on the labour markets will

have to be addressed. While important laws to restructure and liberalise the energy market

were adopted, further acts need to be adopted and effective implementation needs to be

ensured. Financial intermediation continues to be low and inefficient. Domestic and foreign

investment remains at relatively low levels. The authorities need to properly implement the new

legal framework for business, specifically the bankruptcy laws. The planned pension reform

must be advanced and implemented. Fiscal discipline must continue and the sustainability of

public finances in the medium-term must be ensured, also to keep the current account deficit

under control in the context of currency board.

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3. Ability to assume the obligations of membership

Introduction

This section aims to update the Commission’s 2000 Regular Report on Lithuania’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 2000 Regular Report, this section seeks to provide an overall

assessment of Lithuania’s ability to assume the obligations of membership, and of what remains

to be done. This section is structured to follow the list of twenty-nine negotiating chapters, and

incorporates an assessment of Lithuania’s administrative capacity to implement the

acquis

in its

various aspects. Lithuania’s progress in translating the

acquis

into its official language is

assessed in a separate section.

The European Council in Madrid in December 1995 referred to the need to create the

conditions for the gradual, harmonious integration of the candidates, particularly through the

adjustment of their administrative structures. Taking up this theme, in Agenda 2000 the

Commission underlined the importance of effectively incorporating Community legislation into

national legislation, 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.

The European Council in Santa Maria da Feira and in Gothenburg in June 2000 and June 2001

respectively recalled the vital importance of the applicant countries’ capacity to implement and

enforce the

acquis,

and added that this required important efforts by the applicants in

strengthening and reforming their administrative and judicial structures.

Building on the

assessment of Lithuania’s administrative capacity provided in the 2000 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 2000 Regular Report, the Commission concluded that :

“Lithuania has made significant overall progress in terms of transposition and, to a lesser extent,

implementation of the

acquis.

Additional progress is required notably in areas such as taxation,

agriculture, regional policy and financial control. The strengthening of administrative capacity,

which has, in part, been limited by the budgetary constraints, should be continued in a sustained

and more coherent manner.

In the field of the

internal market,

Lithuania has made progress in particular as regards the

free

movement of goods

(standardisation and market surveillance), although the adoption of

European harmonised standards should be accelerated. The implementation of

public

procurement

legislation has continued but the administrative capacity and the independence of

the Public Procurement Office need to be further strengthened. Significant progress has taken

place in the area of

competition

with the adoption of the State aid law, while effective

enforcement and strengthening of the relevant administrative structures need to be ensured.

Further progress towards complete alignment in the area of

free movement of capital

has

been registered but some remaining restrictions need to be abolished Alignment concerning

intellectual property rights has proceeded; however, proper enforcement remains very weak.

While progress has been made as regards the strengthening of the administrative capacity in the

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area of

taxation,

very limited progress can be reported on alignment. Lithuania has made

progress in the field of

customs,

however further efforts are needed as regards implementation

and administrative capacity.

Significant progress has taken place in aligning with the

audiovisual

acquis. Developments have

taken place in the

telecommunication

sector with the decision to establish an independent

regulatory authority. This authority needs to become fully operational.

Lithuania has made some progress in laying the legal and administrative basis to prepare

participation in the

Common Agricultural Policy,

but much progress is still needed in terms of

both alignment and administrative capacity. Alignment on veterinary and phytosanitary matters

has moved forward, and the veterinary administration has been re-organised. Lithuania has

started aligning its legislation with the acquis on

fishing

resources management, and has partly

streamlined the relevant institutional set-up. The legal framework for market regulation and

structural assistance should be developed.

Lithuania has continued to make progress in the field of the

environment,

and has now

achieved a fair level of alignment, although there are still major differences across sectors.

Implementation is still a major concern in particular concerning water, waste and industrial

pollution and risk management, due to the heavy investments required.

In the area of

transport,

Lithuania has continued to align its legislation and achieved significant

progress in particular in the fields of road transport safety, air transport and maritime safety.

However, implementation will still require considerable resources. As regards the

energy

sector, Lithuania has made significant progress in implementing the national energy strategy,

notably through the adoption of the law on the decommissioning of Unit 1 of Ignalina NPP and

other important laws; this provides a basis for the restructuring of the sector and market

liberalisation.

There has been some progress in transposition and implementation of the

social

acquis, notably

in the field of health and safety at the workplace. Further efforts are required as regards labour

law and social dialogue. Implementation and enforcement remain a cause for concern. The

active role played by the Ombudsman for equal opportunities has to be noted. In the area of

industrial policy,

Lithuania has developed further the political and legal framework for the in-

depth restructuring of its industry. Efforts have, however, focused on conceptual aspects and

little has been done in terms of implementation. The adoption of the new legislation on

bankruptcy and enterprise restructuring is still outstanding.

In the field of

regional policy,

progress has taken place in establishing the legal framework,

although administrative capacity presents serious weaknesses. Despite considerable efforts,

financial control

in Lithuania is not yet in line with internationally accepted practices, in

particular with regard to internal audit. Progress has taken place as regards the reform of the

budget

system, which needs to be pursued.

Progress has been made in most areas of

justice and home affairs,

both in terms of legislative

alignment and administrative capacity. A general, and serious, weakness in most areas of justice

and home affairs remains, however, the inability to ensure effective co-ordination among

relevant institutions and bodies.

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As Lithuania reaches a more advanced level of alignment, greater attention needs to be paid to

strengthening administrative capacity, so as to ensure effective implementation and enforcement

of the acquis. Some efforts have been made in this regard. In particular, certain existing

institutions have been reformed, such as veterinary and market surveillance bodies, and the legal

basis for the establishment of new institutions has been laid down, for example in the case of the

Consumer Protection Council. However, the budgetary constraints Lithuania has experienced

during the reporting period have limited the effective operational capacity of new institutions as

well as the required reinforcement of existing structures.

Overall, Lithuania has made satisfactory progress in meeting the short-term priorities of the

Accession Partnership, especially as regards economic reform. However, in some areas such as

agriculture, taxation, administrative capacity (including management and control of EU funds),

further progress is still required. Lithuania has already started to address a number of medium-

term Accession Partnership priorities.”

3.1.

The chapters of the

acquis

As indicated, the review of Lithuania’s ability to assume the obligations of membership that is

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, including

sectoral policies, economic and fiscal affairs, regional policy, environment, justice and home

affairs, external policies, and financial questions.

Chapter 1: Free movement of goods

Since the last Regular Report, Lithuania has made good progress in aligning its legislation with

the

acquis

and in strengthening its administrative capacities.

As concerns

horizontal and procedural measures,

progress has continued in upgrading the

general framework for the

New and Global Approach Principles.

In February 2001, the

Lithuanian Government approved the Programme on Conformity Assessment Infrastructure

Development. The Programme evaluates the need for testing laboratories and certification

bodies in Lithuania which can provide testing and certification as laid down in New Approach

Directives as well as that required by Old Approach Directives. An amount of approximately

€1.7 million was allocated for 2001 to cover expenses for equipment and accreditation. In the

field of standardisation, Lithuania has accelerated the adoption of standards. As of October

2001, 45% of all European standards have been adopted as Lithuanian standards. In the area

of market surveillance, the National Consumer Protection Council was established during the

reporting period and its statute approved by a Government Resolution of January 2001.

(See

also Chapter 23 - Consumers and health protection).

Progress can also be reported regarding the adoption of

sector specific legislation.

During

the reporting period, Lithuania achieved further alignment with the

New Approach Directives

as regards machine safety, personal protective equipment, lifts, safety of electrical equipment,

electromagnetic compatibility, pressure vessels (gas cylinders, pressure equipment), and medical

devices. A technical regulation on design, construction and placing on the market and putting

into service of recreational crafts entered into force in January 2001, and in June 2001

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provisions transposing the

acquis

on legal metrology regarding non-automatic weighting

equipment entered into force.

As regards sectors covered by the

Old Approach Directives,

further progress has been made

in aligning the

acquis

in the areas of cosmetics, chemical substances (testing methods of

chemicals, classification and labelling of dangerous chemicals), pharmaceuticals, and motor

vehicles (road vehicles and their part type approval). As concerns the latter, in January 2001,

Lithuania ratified the UN/ECE Agreement. The State Road Transport Inspectorate under the

Ministry of Transport and Communications has been charged with the task of implementing

provisions of the above mentioned Agreement.

In the field of food safety

(see also Chapter 7 – Agriculture),

Lithuania made progress in the

transposition and implementation of the

acquis

by way of the adoption of provisions on chicory

extracts and entry into force of provisions on frozen convenience food and food additives.

Lithuania also reformed its control institutions and established a single State Food and

Veterinary Service, responsible for the control of the whole food chain (from animal feed to

food for the final consumer) and started the accreditation process of control laboratories.

No significant developments are to be reported as regards the transposition of the

acquis

on the

control of weapons and the return of cultural goods.

As concerns the development of Lithuania’s administrative capacity for the implementation of

horizontal and procedural measures and sector specific legislation, progress has been made in

strengthening the framework institutions.

Since January 2001 the Lithuanian Accreditation Bureau (LA), which is the key institution for

implementation conformity assessment legislation, has been operating as an independent

institution, in accordance with a Governmental Resolution of December 2000. The Lithuanian

Accreditation Bureau was evaluated by European Accreditation in February 2001. The

evaluation covered LA’s assessment regarding accreditation of testing and calibration

laboratories and product certification bodies. As of January 2001, 37 accredited testing

laboratories and certification systems for homogenous product groups are operating in

Lithuania. They cover household electrical equipment, household electronic equipment,

telecommunications equipment and IT products, agricultural machinery, construction materials

and products, medical devices and furniture.

The Lithuanian Standards Board has, in preparation for membership of CEN/CENELEC,

established two standardisation divisions that reflect the CEN, CENELEC and ETSI sectors.

Since the overhaul of the market surveillance systems in 2000, the State Non-Food Product

Inspectorate has conducted 4107 checks of non-food products. Out of this number, 1091

checks were performed at service rendering entities, and 452 checks were performed following

public requests. In order to effectively perform market surveillance the State Non-Food

Product Inspectorate co-operates and exchanges the information on unsafe products with all

relevant institutions. The Inspectorate is also involved in the system of the transitional Rapid

Exchange of Information (TRAPEX) and is its network contact point.

As regards the free movement of goods in the

non-harmonised sector,

Lithuania adopted an

Action Programme in June 2001. The Action Programme provides for the elimination of import

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licensing obligations for alcohol, tobacco and oil products by the second quarter of 2003; and

the transposition of the principle of mutual recognition by the fourth quarter of 2003.

In the field of

public procurement,

there are no legislative developments to report since the last

Regular Report. As regards administrative capacity, increased funding has been allocated to the

Public Procurement Office and the list of approved specialists for the purposes of the

Independent Dispute Settlement Commission was extended. There also has been increased

participation of foreign contractors (13.6 % of contract value in 2000 compared to 7.6% in

1999) and increasing number of open tenders (80.6% of contract value in 2000 compared to

70.4% in 1999) has been reported.

Overall assessment

Lithuania has already transposed a substantial part of the

acquis

in the area of free movement of

goods. In order to ensure full alignment, however and more effective enforcement of the

acquis,

these efforts need to continue. Considerable progress has been made regarding transposition of

horizontal and procedural measures. Further progress has also been made in strengthening the

necessary framework institutions in particular for standardisation and accreditation with a view

to ensuring their independence and the quality of their functioning.

However, progress towards full membership of the European standardisation bodies

(CEN/CENELEC) is dependent upon the establishment of a non-governmental standards

organisation, which is foreseen for 2003. In order for the Lithuanian Standard Association to be

fully operational by 2003, the Lithuanian Standards Board will have to speed up the drafting of

its future statutes and secure more involvement by industry in the standards preparation process.

The co-operation with economic operators should be one of the key activities of the Lithuanian

Standards Board.

The raising of economic operators’ awareness of the Lithuanian Standards Board, as the

National Standard Organisation, is also linked to the need for an increase in funding. The

Lithuanian Standards Board needs to establish tools which will allow the Lithuanian Standards

Association to raise its own financial resources by providing services, selling standards, and

promoting the adoption of standards on a voluntary basis.

Finally, the momentum for adoption of new standards should be maintained, and the ambitious

timetable for adoption of European standards should be closely adhered to.

In the field of metrology some progress has been made in improving calibration equipment and

in strengthening operational capacities and know-how. Much more progress is needed to

improve the administrative and operational capacities of the accredited calibration laboratories.

Lithuania has advanced well with alignment in the area of market surveillance although there is

need to further strengthen administrative capacities, including drawing up plans and determining

priorities, staff training, development of inter-institutional and international co-operation and

exchange of information, replacing pre-marketing registration with market surveillance, and

dialogue with market players.

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The transposition of the New Approach Directives has progressed well and for the remaining

sectors the transposition is under development. A number of the legal provisions that were

adopted have not yet entered into force. The infrastructure has reached a reasonable level.

As regards the sectors covered by the

Old Approach Directives,

the legal and administrative

frameworks on fertilisers, drug precursors, glass, textiles and footwear were already in place

and the transposition and implementation of remaining Old Approach Directives is progressing

steadily. The Lithuanian authorities should also concentrate their efforts on gradually replacing

old market authorisations for medicinal products with new ones complying with the transposed

legislation.

As regards food safety legislation, transposition work is quite advanced and efforts are being

devoted to preparing both the administration and the food operators. However, considerable

progress still needs to be achieved to complete the co-ordination of the control activities, and

ensure full implementation and full compatibility with the

acquis.

The pre-marketing

authorisation of foodstuffs, in particular, will need to be abolished before accession, so as to

prepare in a timely manner both the administration and the food operators for the principles

underlying the EC food safety system and particularly those concerning the EC general hygiene

rules.

As regards safety checks on products at external borders, Lithuania still needs to establish

appropriate customs and market surveillance infrastructure as well as effective administrative

cooperation between competent authorities.

Much remains to be done as regards the non-harmonised sector. Lithuania has adopted an

Action Programme in this area, however it is not clear whether this will be sufficient to ensure

full alignment. Concrete action to ensure the implementation of mutual recognition has not yet

been undertaken. The Lithuanian authorities also need to screen their national legislation in

respect of other barriers to trade as well as licensing.

Current public procurement legislation presents a number of important shortcomings which will

need to be amended, to ensure full alignment with the

acquis.

These include,

inter alia,

provisions on thresholds, contract value, technical specifications, registration requirements for

joint ventures and a number of other procedural issues. Changes are also necessary in the

utilities sector in order to make the relevant provisions of the legislation compatible with the

acquis.

As far as the remedies system is concerned, conciliation and attestation procedures

must be introduced. There has nonetheless been progress in the implementation of existing

legislation and further improvement of administrative structures. As concerns administrative

capacity, the Public Procurement Office needs to be further strengthened and further specialist

training should be foreseen.

Chapter 2: Free movement of persons

Since last year’s Regular Report, Lithuania has made a reasonable degree of progress in the

area of free movement of persons.

As concerns

mutual recognition of professional qualifications

, from October 2000 to June

2001, several regulations were adopted in the area of health care specialists, bringing Lithuanian

legislation further in line with the

acquis.

In particular, legislation was adopted regarding the

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professional qualifications of doctors, dental practitioners, general practice nurses, midwifes,

and pharmacists. Rules were also adopted in June 2001 regulating professional qualifications

and mutual recognition for veterinary surgeons. Lithuania has continued to develop its

administrative structures with the establishment, in February 2001, of a Co-ordinating

Commission in the Field of Professional Qualification Assessment and Recognition, and the

approval of the structure of the Appeals Commission.

In the areas of

citizen’s rights

and

free movement of workers

, legislation on the status of

foreign nationals was amended in June 2001. The amendments grant EU citizens the right to

temporarily reside in Lithuania, to undertake economic and business activities, to provide

services and to study. Detailed provisions required for obtaining a temporary residence permit

in Lithuania are laid down in the law.

As regards

co-ordination of social security systems

, a bilateral agreement with Finland on

social protection was ratified in May 2001.

Overall assessment

In the area of free movement of persons, Lithuania has achieved a reasonable level of legislative

alignment. Efforts will need to be maintained to ensure complete alignment and the necessary

administrative capacity to implement the

acquis.

In the area of mutual recognition of professional qualifications, primary legislation is largely in

place, and the process of adopting secondary legislation has started. Further measures will need

to be taken to ensure that all professionals can meet the requirements set out in the sectoral

Directives. Outstanding issues relate in particular to legislation on lawyers and architects.

Further efforts are needed to introduce all the necessary administrative structures as well as

sufficient education and training programmes. Existing administrative structures also need to be

reinforced. It will need to be ensured that, by accession, there are no provisions in Lithuanian

legislation which contradict Community rules, in particular with respect to nationality, residence

or language requirements. Legislation will need to include simpler procedures to allow the

provision of services.

In respect of professional qualifications obtained before harmonisation, Lithuania should

introduce measures to ensure that all its professionals can, as of accession, meet the

requirements laid down by the directives.

As concerns citizens’ rights, legislation is largely in line with the

acquis,

but some further efforts

will be needed to ensure full alignment by accession.

In the area of free movement of workers, key institutions in this sector are in place and

performing relatively well, and preparatory measures for future participation in the European

Employment Service (EURES) should continue, especially with regard to language training.

However further legislation on the employment and residence of migrant workers will be

required to ensure full alignment with the

acquis.

With a view to the future co-ordination of social security systems, Lithuania is encouraged to

intensify its contacts with present and future EU Member States, which will facilitate Lithuania’s

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compliance with the

acquis

upon accession. Close attention should be paid to ensuring that

sufficient administrative structures are in place.

Chapter 3: Freedom to provide services

Since last year’s Regular Report, Lithuania has made steady progress in the area of freedom to

provide services.

As concerns

freedom of establishment and freedom to provide non-financial services,

some progress has been made in terms of alignment. The legislation on the legal status of

foreigners was amended in June 2001 ensuring the freedom to provide services in Lithuania,

including for self-employed persons.

Considerable progress has been made in the field of financial services, and especially with

regard to the

banking sector.

In December 2000, the Board of the Bank of Lithuania adopted

a resolution on capital adequacy calculation rules. The resolution lays down the procedures for

the measurement of assumed market risks (interest rates, equity, foreign exchange, counterpart

and commodity risks) and the additional capital requirements to cover such risks. Additional

rules on consolidation of financial statements and on consolidated supervision were adopted by

the Bank of Lithuania in March 2001.

In January 2001, the Law on Commercial Banks was further amended providing the possibility

for foreign natural and legal persons other than existing foreign credit institutions to set up new

banks in Lithuania without any restrictions. The changes in the law are additional to existing

requirements regarding large exposures and annual financial statements; they specifically make

the owner of credit institutions responsible for internal controls and aim at guaranteeing the

independence of internal auditing.

In February 2001, the Deposits Insurance Law was amended, providing for the insurance and

compensation of deposits kept in Lithuanian commercial banks, in branches of foreign banks, in

the Central Credit Union and in credit unions.

In March 2001, a new law setting out the supervisory role of the Bank of Lithuania was

adopted. The law provides,

inter alia,

for the independence of the Bank of Lithuania

(see

chapter 11 – Economic and monetary union).

During the reporting period, the Bank of Lithuania concluded co-operation agreements in the

field of prudential supervision with the Commission for Banking Supervision of Poland and the

Bank of Estonia.

The Credit Institutions Supervision Department of the Central Bank performed on-site

inspections of all licensed banks in 2000. Provisioning against substandard and doubtful loans of

20% and 40% respectively has been set, while such loans have decreased as a proportion of

the banks’ portfolios. An early warning system has also been set up.

Concerning the

Insurance sector,

the Lithuanian Government adopted, in November 2000, a

Resolution on Annual Financial Accounts of Insurance Companies. This Resolution brings the

accounting requirements for insurance companies further in line with the

acquis.

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In May 2001, the Insurance Act was further amended, liberalising the investment of insurance

assets abroad, regulating the acquisition of qualifying holdings in insurance companies as

provided for by the “third generation” Directives and opening up, for WTO countries, the

freedom of services in certain classes of transport insurance.

In June 2001, Lithuania adopted legislation on compulsory third-party liability motor insurance,

which is due to enter into force as of April 2002. According to the law, the provisions shall be

phased in gradually with the objective of implementing all the requirements of the

acquis

January 2004.

The Supervisory Authority (SISA) issued 4 new insurance licenses between January 2000 and

June 2001, while 2 licenses were revoked and 2 bankruptcy procedures opened (the Authority

has also given out 99 permits for new products and 112 permits for changes in product terms;

such supervisory measures concerning product standards will have to be abandoned on

accession). In 2000 and the first quarter of 2001, 21 on-site inspections were carried out and

10 administrative sanctions imposed. The Authority also licensed and inspected a number of

insurance brokerage companies. SISA is a member of the International Association of

Insurance Supervisors (IAIS).

In the field of

investment services and securities markets,

there have been no significant

legislative developments. In 2000, the Lithuanian Securities Commission carried out over 60

on-site inspections. 24 full-scope and 37 targeted examinations of financial brokers were

carried out. In 2000, licences were suspended in 3 cases and withdrawn in 9 cases. Financial

sanctions were applied in 17 cases, mainly for failure to provide information in a timely manner

and for violations of securities accounting management.

In the area of

protection of personal data and the free movement of such data,

some

progress can be noted, in particular as regards entry into force of legislation. The revised law on

the Legal Protection of Personal Data came into force in January 2001.

In February 2001, the Convention of the Council of Europe for the Protection of Individuals

with regard to Automatic Processing of Personal Data was ratified by the Lithuanian Parliament.

In 2000 the State Data Protection Inspectorate carried out 4 inspections on the processing of

personal data in the public sector and 1 inspection in the private sector. During 2000, the

Inspectorate registered 5 complaints on the processing of personal data but no violations were

identified. In 1999 two complaints were investigated. In 2000 the number of consultations

increased up to 600 compared to 100 consultations on the processing of personal data carried

out in 1999.

The number of data controllers has increased significantly during the reporting period. In 2001,

to date, the State Data Protection Inspectorate has recorded 702 registered data controllers

(534 data controllers were registered in 2000, and112 in 1999).

In the field of

information society services,

some progress has been made. The Civil Code

and the amendments to the Code of Civil Procedure which entered into force in July 2001 are

intended to cover some basic elements of the

acquis

concerning electronic commerce. In

December 2000 a Government Resolution was adopted which partly transposes the

acquis

the provision of information in the field of technical standards and regulations concerning

information society services.

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Overall assessment

Lithuania is advanced in this area, especially with regard to legislative alignment. Concerted

efforts have been made to strengthen administrative capacity, particularly in the financial services

sector.

In the area of freedom of establishment and freedom to provide non-financial services, a

number of obstacles still need to be abolished. Lithuania has identified the remaining nationality

restrictions and plans to abolish these by accession.

In the field of financial services, Lithuanian legislation is now largely in line with the

acquis

regards banking. In the field of insurance, a positive development has been the adoption of

legislation on compulsory third-party liability motor insurance with the aim of implementing in full

the requirements of the acquis by January 2004. Due attention should be paid to ensuring timely

implementation of this legislation. Further efforts are required to ensure legislative alignment in

the areas of tourist assistance and legal expenses, as well as the Third Generation Directives.

Legislation in the investment service and securities sector needs to be brought further into line

with the acquis.

Administrative capacity has been strengthened in all the institutions (Bank of Lithuania,

Securities Commission, State Insurance Supervisory Authority), which have also benefited from

specialised training. Moreover, an inter-institutional co-operation agreement of December 2000

between the aforementioned bodies on financial supervision has contributed to increased co-

ordination, strengthening of supervision and quality improvement.

More work still needs to be done to improve the supervision of insurance services.

As regards data protection, legislation still needs some fine-tuning, the Data Protection

Inspectorate needs to be strengthened and further training on the enforcement of data protection

legislation is necessary. The insufficient degree of independence of the Data Protection

Inspectorate continues to be a major shortcoming. Further efforts are needed to ensure that the

scope and relevance of data protection is fully understood by the judiciary and the Lithuanian

administration.

In the area of information society services, further efforts are needed in order to complete

alignment with the

acquis

and establish the requisite administrative bodies. Domestic Lithuanian

legislation is still not fully in line with the

acquis

on transparency, conditional access and

electronic commerce.

Chapter 4: Free movement of capital

Lithuania has continued making progress in terms of alignment with the

acquis

in this area since

the last Regular Report. Some progress has also been made with strengthening and modernising

the relevant institutions.

As regards

capital movement and payments,

in May 2001 the Seimas amended the Law on

Insurance. The Law abolishes the authorisation procedure for insurance companies investing

authorised capital funds and technical reserve funds abroad. It also allows foreign companies

(established in the Member States of the WTO) to provide insurance relating to aircraft and

ships (and goods transported by these means) without being established in Lithuania.

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In April 2001, the Securities Commission adopted a resolution which further harmonises the

provisions relating to investments made by pension funds with the

acquis.

With the entry into force of the new Company Law in July 2001, no new special rights are

allowed to be granted to the shares owed by the state or municipalities.

As regards payment systems, no progress has been made in terms of transposition of the

acquis, while some progress has been made in the design of the payment infrastructure.

Overall assessment

Overall, Lithuania has achieved a high degree of liberalisation of capital movements and there

are no restrictions on the inflow and expatriation of capital by investment companies. Legislation

on direct investment and on the operation of foreign insurance companies has been substantially

aligned. However, as regards payment systems, the level of alignment with the

acquis

achieved

to date is very limited.

There is still a need to abolish the constitutional restrictions in the acquisition of agricultural land

by foreigners and foreign legal persons and the authorisation procedures restricting the

acquisition of non-agricultural land by foreigners. The other remaining restrictions are in the

opening of accounts abroad and physical cross-border transfer of currency, investment in the

banking and lotteries sector, the application of special rights for the State in three privatised

companies, cross-border operations of EU insurance companies, investment in foreign assets by

Lithuanian pension funds and insurance companies and capital adequacy provisions for financial

brokers concerning investments in EU markets.

Restrictions on inward direct investment in national security and defence appear to be

compatible with the

acquis.

Security companies with foreign capital are operating freely in

Lithuania.

Substantial efforts are required to transpose and implement the

acquis

on payment systems

(including the introduction of adequate and effective redress procedures) and to improve the

payment infrastructure.

In the field of

money laundering,

the implementation of anti-money laundering measures

should be improved and the independence of the Financial Intelligence Unit in the Tax Police

should be ensured. The institutions responsible for the enforcement of the prevention of money

laundering and the co-ordination of their activities require strengthening.

Compliance with the Recommendations of the Financial Action Task Force should be ensured.

Chapter 5: Company law

Since last year’s Regular Report, Lithuania has made good progress as regards company law

and protection of intellectual and industrial property rights.

In the field of

company law

progress can be reported in terms of legislative alignment. The new

version of the Law on Companies entered into force in July 2001. The new law puts greater

emphasis on the rights of shareholders, especially concerning access to information. It also

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contains more extensive provisions in respect of mergers and divisions, the change of the legal

form of companies, and the protection of creditors’ rights.

The new Civil Code also entered into force in July 2001, providing detailed but simplified rules

for the registration of legal persons, including companies. In June 2001 the Law on

Establishment of Register of Legal Entities was adopted under which the task of managing the

legal entities will be accessible in future.

There were no legislative particular developments in the area of

accounting law.

As regards

protection of intellectual and industrial property rights,

progress can be

reported since the last Regular Report. In January 2001, new legislation on trademarks

(adopted in October 2000) entered into force. These changes bring legal provisions in Lithuania

further in line with the

acquis,

and with the requirements of the TRIPs Agreement (Trade-

Related Aspects of Intellectual Property Rights), the Madrid Protocol, the Trademark Law

Treaty and the recommendations of WIPO concerning well-known marks and license

agreements. The legislation also provides for a dispute settlement mechanism.

In December 2000, the State Patent Bureau signed a Memorandum of Understanding with the

Office for Harmonisation of the Internal Market (OHIM), with the objective of assisting the

State Patent Bureau in the preparation and introduction of the Community Trademarks system

in Lithuania (by way of training, seminars etc.). In June 2001, Lithuania was invited to become a

member of the European Patent Organisation (EPO) as of July 2002.

In January 2001, legislation on the protection of intellectual property rights in the sphere of

import and export of goods took effect. This law aims at transposing the

acquis

on the

application of measures to prohibit import, export and re-export of counterfeit and pirated

goods and the requirements of the TRIPs Agreement. For the implementation of this Law, 11

officers responsible for the protection of intellectual property rights in the field of import and

export of goods have been appointed to various customs posts, and one co-ordinating officer

has been appointed in the Customs Department.

Lithuania ratified the WIPO Copyright Treaty (Geneva, 1996) in April 2001. Lithuania has also

ratified the WIPO Performances and Phonograms Treaty.

A total of 24 prosecutors, specialising in the field of intellectual property rights, have been

appointed at the Prosecutor General’s Office, and at county and district prosecutors offices.

Currently, the Prosecutor Office in Lithuania is conducting preliminary investigations in 11

criminal cases.

In 2000, 126 patent applications were filed with the State Patent Bureau (compared to 157 in

1999) and 148 patents were granted (compared to 160 in 1999). In 2000, 3666 European

patent applications were extended into Lithuania (compared to 2882 in 1999). In 2000, 2583

trademarks applications were filed in Lithuania and 4780 trademarks were registered, whilst, in

the same period, 4304 international trademark registrations were extended into Lithuania, in

accordance with the Madrid Protocol. As concerns industrial design, 106 applications were

filed in 2000 and 112 industrial designs registered (compared to 145 and 160, respectively, in

1999).

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Disputes regarding the registration and use of industrial property items, arising before the

documents of legal protection are issued, are settled by the Division of Appeals of the State

Patent Bureau. In 2000 the Division of Appeals received 343 objections and appeals out of

which 117 were settled. All subsequent appeals are settled by the Vilnius District Court.

In line with the Government Strategy for the protection of copyright and related rights and the

Action Plan for 2000-2003, a number of training courses have been carried out for judges,

customs officials and police officers.

Overall assessment

Lithuania has made further improvements as concerns legislative alignment, however effective

enforcement needs to be strengthened.

As regards Company law, the new Law on Companies is largely in line with

acquis

requirements. Legal provisions governing the Enterprise Register would need to be further

revised in order to guarantee the effective management of information. Further improvements

are needed in developing a modern IT system and ensuring the availability of trained personnel

in local and central registration offices. Further specialised training shall be required in view of

the establishment of the new Central Register of Legal Entities.

Current legislation on

auditing

will have to be revised in order to ensure conformity with the

provisions of the new Civil Code. Legislation on

accounting

and consolidated annual

accountability also needs to be amended. The institutional set up in the field of accounting needs

to be strengthened and the existing supervision mechanism for auditors and audit firms is not

adequate. Lithuania needs to clarify which institution shall exercise the formal power of setting

accounting standards.

At present company registration in Lithuania is the responsibility of 56 municipalities, each of

which maintains a local register. The Ministry of Economy registers enterprises with foreign

capital and the Bank of Lithuania administers the register of commercial banks. The

Department of Statistics is responsible for the database of registered enterprises. The new Civil

Code envisages 15-18 locations for company registration at court mortgage offices and a

Central Register giving methodological advice and co-ordinating the general database.

As regards industrial property rights, Lithuanian law is in principle largely in line with the

acquis

on trademarks and only minor adjustments will be necessary to reach full compliance. Some

adjustments will also be required prior to accession to the Community trademark system.

Legislation on patents, including protection for biotechnological inventions, and industrial

designs, should be amended to bring it in line with the

acquis

and the European Patent

Convention and to ensure full compliance with the TRIPs Agreement. Further efforts are

required with ensuring proper coordination and cooperation among the various enforcement

bodies (police, customs, and judiciary) in order to improve the fight against piracy and

counterfeiting.

Serious efforts have been made to modernise the State Patent Bureau. Efforts to strengthen

administrative capacity should continue, with emphasis on the enforcement of rights. Staff should

receive additional training in the field of trademark protection that would ensure adequate

enforcement of the Law on Trademarks.

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With respect to the Rome Convention on the law applicable to contractual obligations, the main

provisions are contained in the Civil Code, which entered into force in July 2001. Lithuania has

started the preparatory work, which needs to be completed to ensure a swift implementation of

the Regulation replacing the Brussels Convention on jurisdiction and enforcement of judgements

in civil and commercial matters

In the field of intellectual property rights, the main legal acts in this sector have already been

adopted and are largely in line with the

acquis,

however secondary legislation still needs to be

adopted, notably in order to align with the

acquis

on information society and resale rights. The

Strategy on Enforcement of Copyright and Related Rights (adopted by the Government in

September 2000) is a positive development and its implementation should be speeded up.

Despite the efforts that have been made, enforcement remains a source of concern. The

institution responsible for the horizontal enforcement of copyright and related rights, the

obligations on international and national levels. Administrative capacity of collective

administration associations must be further developed in order to prevent infringements of

Practical skills of the Division of Copyright and Related Rights and of collective administration

associations should also be improved as regards the implementation of international

conventions. Protection of intellectual property in a digital environment and the fight against

counterfeiting must be strengthened.

Particular attention should be paid in the future to improving enforcement of criminal law and

strengthening the Customs authorities, in view of their role in fighting piracy

(see also Chapter

25 – Customs Union).

Moreover, appropriate enforcement of border control legislation must

be ensured. Also the Intellectual Property Unit in the Tax Police Department needs more

training although some progress in enforcement of legislation by Tax Police can be noted (mainly

in relation to pirated CDs and videos).

Chapter 6: Competition policy

Since last year’s report, Lithuania has made considerable progress as regards competition

policy.

In the field of

anti-trust,

Lithuania has made good progress during the reporting period. The

Lithuanian Competition Council adopted three Resolutions dealing with procedural issues as

well as with substantive rules in the transport sector.

In the year 2000, the Competition Council issued 63 decisions (6 on horizontal agreements, 7

on abuse cases and 50 on mergers), some of which carried serious fines. Figures for the first

months of 2001 indicate a similar level of activity.

In the

state aid

field, substantial progress has been made. The Competition Council has

complemented the basic Law on the Control of State Aid with several pieces of secondary

legislation, namely on procedure as well as on regional aid. In May 2001 the Competition

Council also adopted rules on aid for the rescuing and restructuring of enterprises. In addition,

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the legislation of March 2001 on enterprise restructuring and bankruptcy requires the

Competition Council to approve aid measures foreseen in the course of such proceedings.

The scope of state aid monitoring has been widened to cover aid granted under new laws.

Further to an Instruction of the Prime Minister of April 2001, the Competition Council shall vet

all draft laws that may lead to the granting of state aids. It is expected that this mandatory

consultation mechanism will also soon be integrated into the Government’s Working

Regulations.

Lithuania also provided, during the reporting period, a proposal for a regional aid map, for joint

adoption in the Association Committee.

As regards administrative capacity, the enforcement practice of the state aid division of the

Competition Council is developing. It issued 3 decisions during the first 6 months of its

operation in 2000 (the amount of aid granted in Lithuania in 2000 was very low). The number

of assessed cases has risen significantly during the first months of 2001.

Overall assessment

Overall, Lithuania has set out the main conditions necessary for a competition policy which is

largely compatible with

acquis

requirements.

Lithuania’s legislation in the anti-trust field contains the main principles of Community anti-trust

rules, as regards restrictive agreements, abuse of dominant position and merger control. As

regards secondary legislation, Lithuania has already started to introduce the Community block

exemptions. Further alignment with the modernisation of the Community’s competition policy is

required, in particular relating to vertical restraints and to horizontal cooperation agreements.

As concerns administrative capacity, the Competition Council may need further strengthening

and specialised training in the medium term in order to ensure a full and effective enforcement of

the rules. The Competition Council has 26 staff engaged in anti-trust enforcement activities. In

addition, the capacity of the judiciary to deal with competition issues should be improved

through specialised training.

The enforcement record of the Lithuanian Competition Council has so far been reasonably

successful. The increasing number of fines which were imposed during the reporting period may

be viewed as further evidence of the development of a solid enforcement practice. Continuous

strengthening of the enforcement is needed, however, as well as a more deterrent sanctioning

policy. Priority should continue to be given to such cases that concern the most serious

distortions of competition. The investigation procedures of the Competition Council should be

simplified and the rules for attributing fines should be revised.

In the area of state aid control, Lithuania’s primary legislation contains the basic principles of the

acquis.

A systematic

ex ante

control of all new legislation and aid proposals is ensured. As

regards secondary legislation, Lithuania has already implemented most of the key substantive

rules of the state aid

acquis.

Legislation on the free economic zones has also been brought in

line with the

acquis.

As regards transparency, state aid reports have been submitted for the years up until 2000 and

the quality is satisfactory. A state aid inventory is being prepared and constantly updated.

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The State aid Division of the Competition Council currently has 6 staff members. Further staff

increases are necessary, especially as the new legislation on enterprise restructuring, as well as

on bankruptcy procedures, is expected to lead to a significant increase in such cases. Further

training especially in the judiciary field is necessary.

The State aid Division of the Competition Council has a reasonable enforcement record.

However, more attention will have to be devoted in the future to the monitoring of the

privatisation process. It is essential that all bodies involved in state aid matters cooperate closely

with the Competition Council.

Chapter 7: Agriculture

Agriculture in Lithuania accounted for 7.6 % of the gross value added in 2000, as opposed to

8.4% in 1999

. Employment in agriculture has declined over recent years, accounting for 18 %

of total employment in 2000

as opposed to 20.2 % in 1999.

While the live animal sector saw a decrease of 5.7% crop production increased by 26.6%.

Total production of milk decreased by 13.3 %. This was the result of low productivity and a

decline in the number of cows. In meat production, beef is the most important product. Prices

of pigmeat in the first half of 2001 were, on average, 20 % higher than compared to the same

period in 2000.

In 2000, EC imports

of agricultural products originating in Lithuania increased by 32 % to

€132.2 million. EC exports to Lithuania increased by 4 % to €263.1 million. The trade balance

in favour of the Community amounted to €130.9 million compared to €151.8 million in 1999.

The most important product groups in terms of EC imports from Lithuania are prepared feed

(39 %) with an increase of 101 %, dairy products (14 %) with an increase of 15 % and

vegetables (7 %) with an increase of 17 %. As far as EC exports to Lithuania are concerned,

the most important sectors are miscellaneous preparations (13 %) with an increase of 15 %,

fruit (8 %) with an increase of 25 %, coffee, tea and spices (8 %) with an increase of 11 %,

cereals (5 %) with a strong increase as a consequence of bad climatic conditions, and meat (5

%) with an increase of 64 %.

In 2001, the state budget for agriculture, forestry and veterinary amounts to approximately

€180 million. Out of the total agriculture budget, € 22 million will finance direct support schemes

for farmers, €17.6 million input support, €16 million investment support and €109 million

general and other support measures. State support for agriculture, including rural development,

and fisheries represents 7.7% of the 2001 state budget.

Direct payments were introduced in 2001 for flax and rapeseed. Rye and buckwheat have

already benefited from direct payment (in LFA areas) since last year. Compensatory payments

for storage of cereals were set for the 2001 yield.

The source for all agricultural statistics is EUROSTAT unless otherwise specified.

Eurostat Labour Force Survey (LFS). Agricultural employment is defined in LFS terms as economically active persons

who gain a significant part of their income from agriculture.

Source of trade figures: Uruguay Round definition of agricultural products, figures taken from EUROSTAT COMEXT

(see U.E. 12/15: Commerce des Produits Agricoles 1988-2000, 1 Partie D.G. AGRI/A.2 Analyses quantitatives,

préventions, statistiques, études, 2001, p. 10-57 et 86-89)

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Lithuanian agricultural and food product trade policy is implemented by way of application of

such regulatory measures as the system of autonomous, conventional and preferential customs

duties, tariff quotas, export refunds, and licensing for imports. Agricultural and food products in

Lithuania are mostly subject to

ad valorem

customs tariffs, while some goods (alcohol, sugar,

and cigarettes) are subject to compound customs tariffs.

With regard to land reform, progress has been slow since last year. The number of claims filed

by the citizens increased over the reporting period. Therefore, while the amount of decisions

taken increased by 10% during the period September 2000 – September 2001,restitution

figures amount to 79 % of ownership rights, just 1 percentage point more than a year earlier. As

concerns the remaining part, the necessary supporting documents are missing for about 16 % of

land indicated in the applications. In order to speed up the restitution process, amendments to

the law on procedures and preconditions for the restitution of citizens’ rights were adopted by

the Seimas in August 2001. The deadline for applications for restitution has been set at 31

December 2001 and the deadline for submitting all the necessary documentation proving the

right to land ownership was set at 1 July 2002.The average farm size has slightly increased to

12.6 hectares. Legal titles have so far been issued for 2.46 million hectares, which have thus

been registered in the land cadastre. This compares to 2.1 million hectares reported in the 2000

Regular Report. Private land transactions have increased. In the period of July 2000 to June

2001, total land transactions (including leases) reached 264 700 hectares, representing around

10,8% of registered land.

Horizontal issues

As regards implementation of measures related to the

European Agricultural Guidance and

Guarantee Fund (EAGGF)

Lithuania has made some progress since last year’s Regular

Report.

The National Paying Agency, under the Ministry of Agriculture has been designated as the

SAPARD agency responsible for the implementation and financial management of the

programme. Lithuania has expanded its administrative capacities both at the national and

regional levels. At the regional level 10 Rural Development Programme Departments have been

established. As of May 2001 there were 45 staff at headquarters and 60 employees in the

regional units The process of accreditation is close to finalisation (see

section A.b - Relations

between the European Union and Lithuania).

There has been some progress in implementing the

Integrated Administration and Control

System

(IACS) over the past year. Animal identification and registration is operational for

bovine animals. In parallel with the identification of animals, the development of a system for the

identification and registration of land parcels has been initiated but has suffered from delays.

Based on results from two pilot areas a final decision was taken by the Ministry of Agriculture

to use a “block” system to implement the Land Parcel Register. On the basis of the existing

registers (animal registers), the Rural Business Development and Information Centre has

developed a prototype agricultural producers’ register which is intended to cover all agricultural

producers in the country. The existing farm register does not cover all agricultural holdings in the

country.

Concerning the

Farm Accountancy Data Network,

a Government Resolution on the Surveys

of Results of Agricultural Producers’ Activities and the establishment of the Farm Accountancy

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Data Network (FADN) was adopted in April 2001. The National FADN Committee was

established at the beginning of 2001 and is composed of representatives from the Ministry of

Agriculture, Department of Statistics, relevant institutions and interest groups.

The development of the market information system and further collection and processing of data

is being carried out by the Lithuanian Agriculture and Food Product Market Regulation Agency,

the Lithuanian Chamber of Agriculture and the Lithuanian Institute of Agrarian Economics.

Rules for

Organic Agriculture

were reviewed and adopted in December 2000 and entered

into force in January 2001. These rules define requirements for a national certification system for

production, processing, transportation, storage and marketing of organic agricultural products.

There are currently 230 certified organic farms in Lithuania. The total area certified is 4 700

hectares. A support programme for organic farmers has been launched. The Organic

Agriculture Financial Order has been reviewed and adopted.

Common market organisations

Since last year’s Regular Report, Lithuania has made progress by introducing quality

requirements for certain products and by adopting a new Sugar Regime.

In January 2001 the Ministry of Agriculture approved the work plan for 2001-2004 for the

Market Regulation Agency.

The Market Regulation Agency merged with the Lithuanian

Agricultural International Trade Agency in August 2001 to become the Agriculture and Food

Product Market Regulation Agency. Its functions will also include price reporting.

The programme for a

cereals

quality assessment network has been improved during the

reporting period. Direct payments were introduced for some cereals (buckwheat and rye).

Compensatory payments for storage of cereals were set for the 2001 yield.

As regards

milk and dairy products

mandatory requirements for milk quality, methods for

quality analysis of milk and nine reference analysis methods for raw milk were adopted in

March 2001 and are in force. The new rules for purchase of milk were approved in May

2001. One of the provisions of the new rules is that in order to motivate production of extra

quality raw milk the difference in price between extra and first grade raw milk should be at least

10 per cent.

In the field of

Meat and Meat Products,

identification and registration of cattle was completed

in 2000 and the mandatory quality requirements for the carcasses of bovine and pigs are now

partly implemented. Rules for the classification and value-based payment system (according to

the weight and quality of carcasses) for bovine animals were adopted in June 2001 with entry

into force in May 2002. At the end of 2000, measurement and evaluation units for assessing the

quantity of lean meat in pig carcasses were installed in three meat-processing enterprises. A

special institution for training of carcass classifiers was established in the Veterinary Academy in

November 2000. The prospective classifiers have received executive training abroad.

With regard to

fruit and vegetables,

the State Plant Protection Service was authorised to

inspect imported production of fresh fruit, vegetables, other plants and plant crop production by

rules adopted in April 2001. In order to further improve the quality and competitiveness of fruit

and vegetables a number of mandatory quality requirements were approved in June 2001. In

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addition, a methodology for inspection for certain categories of fruit and vegetables was

adopted at the end of 2000.

A new

Sugar Regime

in line with the EC requirements was approved by the Government at the

beginning of March 2001. It regulates sugar beet production, importation and processing of

sugar raw materials, control of production and stocks, as well as statistical data supply and

balance making system, foreign trade, and relations with beet growers.

As regards

processed agricultural products,

legal acts establishing quality requirements

(methods of analyses of wines and ethyl alcohol) were adopted and are in force as of June

2001. A technical regulation on the terms, definitions and description of processes in the sector

of alcoholic beverages was adopted at the end of June 2001 and will be in force as of January

2002.

Secondary legislation was approved on the mandatory quality and technical production

requirements for

dried fodder.

Rural development and forestry

Some progress can be noted both in the legislative field and in strengthening administrative

capacity.

The

Agri-environmental measures

are included in the National Agriculture and Rural

Development Programme covering two pilot areas. In January 2001 the Rural Support Fund

was reorganised into a Special Rural Support Programme. For the year 2001 the Special Rural

Support Programme allocated 48 per cent of the budget for the financing of rural development

measures (to co-finance priority investment programmes, to finance agricultural research,

training and consulting programmes as well as for the operation of Agricultural Credit Guarantee

Fund).

In April 2001 the Seimas adopted the Law on Forests. This law sets management and

economic regulation in forestry and ensures fair competition in the forestry sector. The State

Forest Inventory and Management Institute is responsible for state and private forest inventory

and national accounting for forests.

Veterinary and phytosanitary issues, including food safety

Lithuania has continued to make progress as regards the veterinary and phytosanitary sectors,

notably by continuing alignment. The framework legislation in the veterinary sector is in place

and transposition of the implementing rules has started. Limited progress can be noted as

regards upgrading inspection arrangements at external borders.

The State Food and Veterinary Service (SFVS) has taken over all functions of the former State

Veterinary Service and subordinate veterinary institutions. Compared to its predecessor the

new institution has an extended scope of responsibility and covers the whole food production

chain, including quality control of feedingstuffs. The SFVS and its subordinate institutions have

1360 employees. The central office has 67 employees and the Food Control Inspectorate of

the Food and Veterinary Service has established territorial divisions in all 10 counties. The Staff

has undergone training on different food safety and veterinary issues in many EC laboratories

and institutions. During the first quarter of 2001 the State Food and Veterinary Service has

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conducted 1917 checks. After these inspections 8 establishments were closed, 276 warnings

were issued and activities of 290 entities were temporarily stopped.

The National Veterinary Laboratory accredited in April 2000 carries out physical, chemical

and microbiological checks on foodstuffs of animal origin, and certain checks on foodstuffs and

fodder of non-animal origin. It also implements the Monitoring Programme for Hazardous

Residues which was adopted in 2001. As regards

border inspection posts (BIPs),

progress

has been slow in the implementation of the Strategy for Reinforcement of Veterinary Border

Posts. Lithuania has selected 9 border posts for upgrading. Construction has been carried out

only in Medininkai at the border post with Belarus. Technical specifications for four BIPS:

Salcininkai, Lavoriskes, Kybartai and Klaipeda seaport have been prepared.

As for

animal breeding,

secondary legislation was adopted in May 2001 on the organisation of

productivity control of dairy cattle and obligations for the keeping and maintenance of herd

books.

The

identification and registration

of cattle was completed in 2000. The identification and

registration of pigs, sheep and goats remains to be completed.

In the context of the Geographical BSE Risk Assessment, Lithuania has been classified in group

III.

In the

phytosanitary

area Lithuania has made further progress in the legislative field. New lists

of harmful organisms came into force on 1 January 2001. Control measures against potato wart

disease were adopted in March 2001 and uniform principles for the evaluation of plant

protection products were issued. A number of laboratory specialists from the Phytosanitary

Research Laboratory has acquired training in Member States in performing tests in accordance

with EC requirements.

Several mandatory requirements on the quality of

seeds and propagating material

have been

approved since the last Regular Report.

A Resolution was adopted in April 2001 to establish the

phytosanitary register.

The register

includes plant growers, as well as producers and importers of plants and plant products, which

are subject to on-the-spot phytosanitary checks or import inspections. The State Plant

Protection Service is responsible for keeping it up-dated.

At the end of 2000 secondary legislation was adopted concerning regulation of the production,

use and market organisation of compound

feedingstuffs

as well as on the calculation of energy

value. This legislation will enter into force in January 2002. Legislation was also adopted on

rules on storage conditions, veterinary and hygiene requirements for premises producing and

storing feedingstuffs. In June 2001 safety requirements for the marketing of feedingstuff were

adopted.

The State Plant Protection Service under the Ministry of Agriculture implements national

phytosanitary and plant protection policy, performs phytosanitary control of imported plants and

products of plant origin, and phytosanitary certification of exported plants and products of plant

origin. The Service also performs control tests to determine the spread of non-quarantine plant

diseases, pests and weeds in the country. In 2000, the State Commission for the Registration of

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Plant Protection Products registered 19 new plant protection products and renewed registration

for 24. The list now contains 172 products.

The State Seed and Grain Inspectorate implements quality control and certification of

agricultural plant propagating material. The central office of the institution employs 37

employees, 19 of whom are in charge of the administration of propagating material certification.

Phytosanitary control of

imported plants and plant products

is carried out in accordance with

the rules adopted in November 2000.

In April 2001 the

Food Safety

Strategy was adopted. Its main objective is to accelerate the

transposition of EC legal requirements into Lithuanian law and ensure effective implementation.

This Strategy outlines the systems for co-ordination between the various official bodies

involved, their competencies, organisation and staffing. Reorganisation of food control

institutions is currently under way to reduce the costs and increase the efficiency of the activities

of such institutions.

The analysis of risk factors and system of

Hazard Analysis and Critical Control Points

have

been further introduced in food processing enterprises. At present, 18 milk processing

enterprises, 3 meat processing enterprises, 8 fish processing enterprises and 11 fishing vessels

have been granted a veterinary approval number which allows export of their production to EU

countries.

In order to implement the food quality and safety assurance systems, a Good Manufacture

Practice manual for cheese, fresh dairy products and laboratories (microbiological) has been

issued by the Lithuanian Food Institute and submitted to dairy companies and laboratories for

implementation. As regards accreditation, at the end of 2000 the Central Raw Milk Quality

Analysis Laboratory was approved and the Accreditation Certificate was granted in January

2001 confirming that the laboratory meets the requirements.

Lithuania has recently adopted most of the EC measures to prevent and control BSE. The main

problem remains the rendering of animal waste, where legislation has been fully approximated

with EC requirements but implementation will require major investments.

Overall assessment

Overall, Lithuania has continued reforming its structures in the agriculture field in order to be

able to implement the

acquis.

However, important measures remain to be taken.

As regards land reform, further progress is needed to complete the restitution process. Lithuania

needs to adopt the necessary constitutional amendment, currently under discussion in the

Seimas, to abolish the restriction on the sale of agricultural land to foreigners.

With regard to

horizontal issues

the paying agency needs further strengthening. As regards the

development of the Integrated Administration and Control System, some progress can be

noted. The identification and registration system for bovine animals has been completed and a

decision has been taken to use a block basis for the land parcel register. However, further work

is necessary. Considerable efforts are necessary to implement the land parcel identification

system, especially as regards digitalisation of land parcels according to EC requirements. The

quality of the farm register should be improved and it should be made operational. Training of

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staff in order to improve administrative capacity remains an important task. A precise date for

the agriculture census planned for 2002 remains to be set.

As regards

Common Market Organisations

a Market Regulation Agency for Agriculture

and Food Products has been set up with the objective of preparing CAP administrative

structures. Concerning the administration of general CAP requirements, training is still needed

for the Market Regulation Agency. The current national support schemes differ considerably

from the CAP mechanisms. New administrative structures will therefore need to be established

for the CAP measures. So far little attention has been paid to, and few actions taken, to

develop these structures.

Steps have been taken todevelop the Farm Accountancy Data Network, but further efforts are

needed to improve data quality.

In the area of organic farming, the rules recently adopted now need to be implemented.

As far as

rural development and forestry

are concerned, Lithuania needs to make further

efforts to introduce agri-environmental measures.

Further advancement has been made in establishing the necessary administrative structures for

the design and implementation of rural development programmes. Additional budgetary and

staff resources allocated to the operations have enabled further institutional development.

Considerable attention has been paid to the training of staff, as well as development of systems,

procedures, control and audit measures in accordance with EC rules. Despite the progress

achieved, further efforts are required for the establishment of proper monitoring procedures to

ensure suitable functioning of a certifying body. As in the previous period, training of staff should

be carried out.

The institutional framework for forestry is in place to implement the Community

acquis.

The framework legislation in the

veterinary

sector is in place and advancement can be noted

in transposing implementation rules. However, in most areas these have not yet been

implemented. Positive steps have been taken in the transposition of EC requirements in the

phytosanitary

area. A resolution for the establishment of a phytosanitary register and several

mandatory requirements for quality of seeds and propagating material have been adopted.

Limited advancement can be noted in strengthening the administrative structures for border

control.

The identification and registration of animals (pigs, sheep, goats) needs to be completed.

Although progress has been made with regard to upgrading laboratories, further efforts both in

terms of financial and human resources, need to be pursued for the development of suitable

laboratory infrastructure to ensure accreditation in order to implement HACCP requirements.

In the field of control of

animal diseases and animal health,

Lithuania still needs to establish

contingency plans and to create a reserve fund covering expenses for compensation in the case

of an outbreak of an infectious disease. Lithuania should align itself with the requirements

concerning notification and continue preparations for participating in the animal disease

notification system.

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Lithuania has adopted most of the EC legislation concerning

animal welfare,

but further

progress is needed with regard to the restructuring of the animal production sector.

Implementation of

inspection arrangements and upgrading of facilities,

particularly at the

future external borders needs to be stepped up for both veterinary and phytosanitary

inspections.

Further legislative alignment has taken place as regards plant health, animal nutrition and quality

of seeds and propagating material. The decision to set up a phytosanitary register is an

important step towards alignment with the acquis in this area. Adequate attention should be paid

to completing the establishment of the register and to start issuing plant passports to be used to

check the movement of plants and plant products within the EC. The system of import permits

will have to be abolished as part of the process of approximation of Lithuanian legislation with

the

acquis.

While the progress in the legislative field is welcome, substantial efforts are needed in the

phytosanitary area both in the transposition process and in the strengthening of the

implementation and control structures. Adequate resources are required to establish an

appropriate laboratory infrastructure in line with EC requirements.

Lithuania has adopted a

Food Safety

Strategy and streamlined its administration with regard to

food safety, and the veterinary services appear to be well structured. Particular attention is still

needed to enhance the capacity to enforce legislation.

As regards the agri-food industry, meeting EC quality standards remains a major challenge. In

particular, many small establishments do not fulfil EC requirements. More efforts should be put

into the restructuring process for food processing establishments including those for meat,

canned fruit and vegetables and upgrading them so that they are in a position to comply with EC

food safety standards. An initial strategy has been introduced to tackle the problem but a

detailed action plan for upgrading remains to be drawn up.

Lithuania has recently adopted most of the EC measures to prevent and control BSE (total feed

ban, removal of Specified Risk Material, routine testing of cattle). The main problem related to

the prevention and control of TSE legislation concerns rendering. Plans have been introduced to

upgrade one of the existing rendering plants to meet the EC requirements. In this context it is

important to pay particular attention to the collection, storage and recovery of dead animals and

animal waste, in particular Specified Risk Material.

Chapter 8: Fisheries

Since the last Regular Report, some progress can be noted on the legislative side, and

restructuring of the Fisheries Department in the Ministry of Agriculture has been completed.

The Department of Fish Resources of the Ministry of Environment was abolished in January

2001. The Ministry of Agriculture is responsible for fisheries policy preparation and

implementation. The Fisheries Department employs 25 civil servants.

As regards

resource management, inspection and control,

some progress has been

achieved in setting up a Vessel Monitoring System in line with the requirements of the

acquis.

Satellite tracking devices were purchased in December 2000 and installed in 59 fishing vessels

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of a length of 24 meters and above which are operating in the open Baltic Sea. The Sea Fishing

Division of the Department of Fisheries and the Marine Environment Protection Agency co-

operate in the field of satellite-based fishing vessels monitoring, collection and transmitting of

data. However, there is still no Integrated Information System. The Ministry of Agriculture

adopted the regulations on first sale in June 2001.

In the field of

structural actions,

in August 2001 the Government adopted a resolution

providing for the establishment of the Fishing Vessels Register.

Concerning

market policy,

the Ministry of Agriculture adopted the regulations on producer

organisations in September 2001.

As concerns State aid to the fisheries sector, no development can be reported.

Concerning

international fisheries agreements,

the bilateral agreement with the Faeroe

Islands (Denmark) ceased to apply in April.

Overall assessment

Lithuania's fisheries policy is partly aligned to the

acquis

in this area. Significant further work

will be necessary, especially in terms of implementation and enforcement.

Lithuania has completed the restructuring of the Fisheries Department in the Ministry of

Agriculture responsible for policy formation and assigned the resource management and

inspection and control functions to an institution under the Ministry of Environment. It remains

important to improve co-ordination between the central and regional levels and between the

Ministries of Environment and Agriculture. The restructuring of the administration has to be

accompanied by training or recruitment of qualified staff.

Generally, the process of adoption of legislation should be speeded up. In the field of resources

management, inspection and control, the legislation needs to be expanded so as to allow for

comprehensive data collection, and to provide for appropriate penalties in case of infringements.

The functions related to resources management, inspection and control are mainly based on the

controls carried out by the Marine Environment Protection Agency of the Klaipeda Regional

Environment Protection Department of the Ministry of Environment. The Agency has 20

employees, of whom seven are inspectors. Lithuania’s inspection capacity still needs to be

strengthened, in particular by upgrading and intensifying inspections and controls and improving

capacity for controls on the high seas. At present, the inspectors also carry out a number of

additional tasks. A refocusing of their activities in favour of fisheries activities would be

desirable, as well as better guidance from the central level.

There is also a need to reinforce the technical means for inspection and control, particularly by

taking further steps to provide satellite-based vessel monitoring. Lithuania needs to implement

first sales notes and introduce in practice the computerised retrieval of data, otherwise there is

no possibility of performing cross-checks on the information received from logbooks. For a full-

scale satellite monitoring in line with the requirements of the

acquis,

substantial further work is

needed for the establishment of a fisheries monitoring centre and for completion of the

equipment of all vessels. The allocation of funds for the new facilities in Klapeida is a good step

towards expanding capacity and improving infrastructure in the field of control and inspection.

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Lithuania should continue its efforts to implement inspections at the 14 landing places and for

the fishing industry as a whole.

As regards structural actions, these are currently based on the 1999 Agricultural and Rural

Support Strategy approved by the Government, which includes a Strategy on Integration with

the EU in aquaculture, fish handling and processing in the fisheries sector. Regarding the

administrative capacity in the area of structural funds, the SAPARD Paying Agency in the

Ministry of Agriculture is meant to become the platform for financial management of the

Financial Instrument for Fisheries Guidance (FIFG). The establishment of the institutional set-up

required for programming, implementation, financial control, monitoring and evaluation of

structural funds measures should be accelerated. Early establishment of the said division would

facilitate the smooth implementation of the SAPARD program, as far as fisheries actions are

concerned, and subsequently that of FIFG. Further attention should also be paid to the

restructuring of the processing industry.

On vessel registration, Lithuania still needs to commence the re-measurement of fishing vessels

and then finalise the separate and exhaustive fishing vessel register required by the

acquis.

Lithuania’s decision not to proceed with the re-measurement of vessels before the Fishing

Vessels Register is in place may further delay the process in the short term. These actions are a

pre-condition for the future management of the fleet capacity and related EC structural aid. It is

equally important for Lithuania to define fleet capacity objectives that aim at achieving a

sustainable balance between resources and their exploitation. The plans to set up a Division of

the Department of Fisheries in Klaipeda to take charge of the maintenance of the Vessels

Monitoring System, the Fishing Vessels Register, the re-measuring of vessels and the system of

fisheries data and information should not be delayed any further.

As regards market policy, no market intervention mechanism for fish products has been

established. Effectively controlling the common marketing standards in ports and on wholesale

markets, and collecting and transmitting data concerning the price reference regime and data on

markets, also require efforts.

State aid to the fisheries sector is limited to the financing of the fisheries research programmes

and restocking of natural lakes.

Lithuania is a member of several regional fisheries organisations, in particular, the International

Baltic Sea Fisheries Commission and the North Eeastern Atlantic Fisheries Commission, and

has bilateral fisheries agreements with Russia, the United States, and Canada.

Chapter 9: Transport policy

During the last year, Lithuania continued to align its legislation with the

acquis

and achieved

good progress in particular in the fields of road transport safety, railway restructuring and civil

aviation, including strenghtening the relevant administrative capacity.

As regards

Trans-European Transport Networks,

further emphasis has been given to the

modernisation of the main transport infrastructure of Corridors I and IX with investments of

more than €63 million since July 2000.

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In the area of

land transport,

progress was achieved in the field of

road transport

with regard

to social rules, technology and safety. The rules on Licensing of Road Transport Activities were

amended by a Government Resolution at the end of 2000 with the aim of gradually increasing

the financial standing requirements for access to the profession of international transport

operator. Further legislative activities concerned the installation and use of speed limiting devices

and, through the new law on Road Traffic Safety, rights and responsibilities of authorities and

road users as well as the technical standing, control and registration of vehicles. In April 2001

the Government amended the rules on working time and rest periods. Some functions related to

the enforcement of the road transport

acquis

are carried out by the Ministry of the Interior, in

particular in relation to driver examination, issuing driver licences, vehicle registration,

compilation of a data base on motor accidents and road traffic control. Amendments to the

Road Traffic Rules are considered by an inter-ministerial Road Traffic Safety Committee before

formal approval.

railways,

the Government has recently approved some basic legally binding guidelines on

the railway sector reform, which should stimulate the legal and economic restructuring of

Lithuanian Railways and ensure further alignment with the

acquis,

including the new EC

legislation of 2001 to accelerate the liberalisation of railways.

inland waterways

transport more secondary legislation has been issued during 2001 to

support the Inland Water Transport Code, in particular concerning documents for vessels and

crew members, including issuing diplomas of competency.

As concerns

air transport,

the civil aviation institutions have been reorganised according to the

provisions of the Law on Aviation which was adopted in October 2000. A new Civil Aviation

Authority (CAA) was set up in July 2001, succeeding the former Directorate of Civil Aviation

as regards commercial air navigation services and regulatory issues and the Inspectorate of Civil

Aviation for flight safety oversight. The Air Navigation Services are now a separate commercial

entity. A total of 50 positions are allocated to CAA. Staff has been transferred from the Civil

Aviation Directorate for this purpose, with certain changes to the organisational structure. In

April 2001 the Joint Aviation Authorities Board accepted the Lithuanian CAA as a Candidate

Member.

As foreseen under the Law on Aviation, an independent “Civil Aviation Accidents and Incidents

Investigation Commission” chaired by a Permanent Head vested with appropriate powers and

resources has been established on 1 July 2001. The Chairman, who is directly accountable to

the Minister of Transport and Communications, will on a case-by-case basis assemble a team

of experts.

In February 2001, the Government approved the privatisation guidelines for the national carrier,

Lithuanian Airlines (LAL) and subsequently started to select privatisation advisors through an

international tender. The advisors will have to carry out an economic and financial analysis of the

company and assist in choosing a strategic investor.

As regards

maritime transport,

following an Order of the Minister of Transport and

Communications, the Safe Shipping Administration (SSA) was established in July 2001.

However, although the Director is directly accountable to the Minister of Transport and

Communications, from an organisational and financial resources point of view SSA remains a

branch of Klaipeda State Seaport Authority pending further reorganisation in future years. Staff

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(136 employees, of which more than 40% are working as crew members on board of 7

auxiliary fleet vessels) and tasks are almost identical with the preceding institutional set-up,

under which parts of the Klaipeda State Seaport Authority and of the Harbour Master’s Office

were responsible for both Flag and Port State related functions. Inspections of Lithuanian flag

vessels as well as port State control inspections are at present carried out by 5 qualified

inspectors. The Klaipeda State Seaport Directorate (now 158 staff members) and the Harbour

Master’s Office (37 staff members) still co-ordinate the public and commercial operations and

developments in the seaport.

In January 2001, the 1979 International Convention on Maritime Search and Rescue (SAR 79)

was ratified by the Seimas. The Order of the Minister of Transport and Communications on

Amendments to the Order on Lithuanian Safe Shipping Management Documentation was

approved on 1 February 2001. Rules on Port State control and Flag Sate control were

approved and entered into force on 2 April 2001.

According to 2000 statistics under the Paris Memorandum of Understanding, the percentage of

Lithuania flag vessels detained following port state control was 8.3%, a decrease compared to

1999 (9.8%) and 1998 (18.8%). This compares to an average for EU-flagged vessels of 3.9%

in 2000.

Overall assessment

Lithuania is partly aligned to the

acquis

in this area, but some issues still require particular

attention.

A general concern in the Ministry of Transport and Communications is the lack of funds for

specialised training and technical office equipment. The Ministry follows the Governmental

Institutional Strengthening Plan of October 2000. This contains an assessment of the

implications of European Integration, particularly transposition of transport

acquis,

for

institutional development and analysis of human resources needs, and is intended for budget

planning.

As regards Trans-European Transport Networks, the Lithuanian authorities place the main

emphasis on the further modernisation and development of the priority transport infrastructure

along transit corridors I (Via Baltica) and IX, which is of particular importance for a transit

country like Lithuania.

As regards road transport, no further progress has yet been achieved in the area of

harmonisation of vehicle taxation and road user charges. Administrative capacity should be

strengthened, in particular through specialised training of staff on important supervisory and

control functions in the fields of access to the profession, social rules (particularly driving times

and rest periods), vehicle taxation and road user charges, as well as technical and safety

standards.

In the railways sector, the government is encouraged to pursue the restructuring of Lithuanian

Railways, taking into account the requirements of the new

acquis

in force since early 2001.

Particular attention should be paid to ensure the independence of the management of railway

undertakings, the separation of infrastructure management from transportation operations and

strengthening of the railway administration. The capacity of the State Railway Inspectorate

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should be further strengthened through an increase in staff numbers (at present 11) so as to be

able to make progress with harmonisation of legislation and to handle upcoming regulatory

tasks, such as supervising the management of railway infrastructure and traffic safety following

full restructuring of the railways. Regulatory mechanisms need to be in place concerning

infrastructure charging and financing, cross-subsidies, the maintenance system and infrastructure

capacities. Lithuania still needs to implement the acquis regarding interoperability of railways.

Concerning the inland waterways sector, it should be noted that this type of transport is not

developed extensively in Lithuania. Therefore, the existing State Inspectorate (30 staff) seems to

be adequately staffed.

As regards air transport, the progress is tangible in the field of administrative capacity, in

particular with the effective functioning of the Civil Aviation Authority. Lithuania is committed to

follow closely the submitted indicative timetable for progressively incorporating the Joint

Aviation Requirements (JARs) into its legal system.

As regards maritime transport, the progress made through the recent setting up of the Safe

Shipping Administration must be judged to be limited. Despite a certain legal independence, its

functioning depends on the budget, administrative resources and equipment of the (partially

commercial) Klaipeda State Seaport Authority. This situation may possibly lead to a conflict of

interests, for example in times of decreasing traffic flow through the port of Klaipeda. It is

therefore of particular importance that Lithuania strengthen its efforts with regard to the

envisaged further restructuring of its maritime safety authorities.

Despite a constant decrease since 1998, the Lithuania flag vessel detention rates as a result of

port State control inspections under the Paris Memorandum of Understanding are still well

above the average for EU-flagged vessels. Lithuania is aware that it needs to continue

strengthening its flag state implementation policy and resources.

Chapter 10: Taxation

Since the last Regular Report, Lithuania has made a moderate degree of progress in the area of

taxation.

In the field of

indirect taxation

a number of important legislative measures entered into force

during the reporting period.

In January 2001 amendments to the Law on VAT entered into force. The amendments

harmonised principles for determining the place of supply of services with the relevant

provisions of the

acquis.

The amendments also clearly defined the concept of services rendered

outside the territory of Lithuania and the application of the zero-rate to them. In June 2001

further amendments to the Law on VAT entered into force, introducing the special scheme for

travel agents.

In March 2001 amendments to the Law on Excise Duties entered into force and expanded the

range of mineral oils subject to excise duty by including liquid petroleum gas (LPG) when used

as motor fuel.

Additional amendments to the Law on Excise Duties came into force in June 2001, which, in

principle, harmonise the structure and rates applied to alcohol and alcoholic beverages. The

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amendments divided alcohol and alcoholic beverages into groups provided for in the

acquis

and

the basis of calculation was harmonised, i.e. wine, fermented beverages and intermediate

products are taxed according to the number of hectolitres and beer is taxed according to the

actual alcoholic strength.

There are no particular developments to report in the field of

direct taxation.

As regards

administrative co-operation and mutual assistance,

the Lithuanian Parliament

ratified the Conventions for the Avoidance of Double Taxation of Income and the Prevention of

Fiscal Evasion with Russia, the Netherlands, Croatia, Slovenia and Armenia. In June 2001 the

agreement between Lithuania’s State Tax Inspectorate and National Tax Board of Sweden on

mutual administrative assistance, in order to ensure more effective application of the double

taxation agreement, came into force.

A number of measures were taken to improve the overall administrative capacity of the tax

administration.

During the second half of 2000, improvements were made to the Taxpayers’ Register, as a

result of which, information is collected and stored on domestic and foreign legal and natural

persons having liability to pay taxes or to withhold taxes for other persons. The data are stored

in the State Tax Inspectorate’s central register’s database.

In April 2001 a new division dealing with the administration of excise duties was established.

During the past year, all local tax offices were connected to the central computer network of the

State Tax Inspectorate.

The system of data exchange with the Customs Department was improved by revising the

agreement with the Customs Department. Data on taxes and duties provided by the Customs

Department are stored in the central database and may be accessed from the local tax offices of

the State Tax Inspectorate.

Finally, in September 2001, amendments to the Law on Tax Administration entered into force.

These amendments introduce a number of changes in tax administration procedures in respect

of tax audit performance, application of sanctions, examination of tax disputes and enforcement

and postponement of debts.

Overall assessment

Lithuania has, on the whole, achieved a reasonable degree of alignment in the area of taxation.

Further efforts still have to be made to ensure full compliance of Lithuanian tax legislation with

the

acquis,

and so that the tax administration is fully prepared for EU accession.

In particular, the list of VAT exemptions is too broad and the excise duty rates for alcohol and

alcoholic beverages, tobacco products and mineral oils are lower than the EC minimum rates. In

addition, the range of mineral oil products is still too narrow and the combined rate has to be

introduced for cigarettes.

It will be important to ensure that existing and future legislation complies with the principles of

the Code of Conduct for Business Taxation.

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On administrative capacity, further modernisation of the IT systems of the State Tax

Inspectorate is needed, in particular in relation to the interconnection with EC systems. The

State Tax Inspectorate, for instance, has not yet put in place an integrated tax IT system

capable of interfacing with VIES (VAT Information Exchange System) and SEED (System for

Exchange of Excise Data). The process of strengthening and modernising the State Tax

Inspectorate needs to be continued, including further specialised training. Further efforts should

be made in conducting simultaneous audits and strengthening administrative co-operation.

Chapter 11: Economic and monetary union

A detailed assessment of Lithuania’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 before accession, i.e. the prohibition of direct public sector financing by the

central bank, the prohibition of privileged access of the public sector to financial institutions, and

independence of the national central bank. As to the process of liberalisation of capital

movements, upon the completion of which compliance with the EMU

acquis

is conditional, this

aspect has been covered above, in the section on

Chapter 4 – Free movement of capital.

Since the last Regular Report, Lithuania has made significant progress in the adoption of EMU-

acquis.

In March 2001, the Seimas amended the Law on the Bank of Lithuania with a view to aligning it

with the

acquis.

This law also confirms the

prohibition of direct public sector financing by

the central bank.

As regards the prohibition of privileged access of public authorities to financial institutions, some

progress has taken place with the abolition of the authorisation by the Supervision Authority to

insurance companies to invest capital funds and technical reserve funds abroad.

Concerning the

independence of the central bank,

the new law ensures significant progress

towards full alignment with the acquis in the area of financial, personal and institutional

independence. The new law also ensures that the primary objective of the central bank is

defined as price stability.

Overall assessment

Lithuania will participate in EMU upon accession with the status of a country with a derogation

under 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, Lithuania has achieved a high level of alignment with the EMU-related

acquis.

In the area of central bank independence, further alignment is needed in order to safeguard

against possible conflicts of interest relating to the duties of Members of the Board.

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Lithuania also needs to further align its legislation with the provisions of the

acquis

prohibiting

privileged access of public sector authorities to financial institutions, notably as regards the

remaining restrictions on insurance companies and on investment of pension scheme assets.

Chapter 12: Statistics

Lithuania has made substantial progress over the past year in this area.

As regards

statistical infrastructure

, in March 2001 a government Resolution approved the

new statute of the Department of Statistics and established a new composition of the Statistics

Council of Lithuania. The Council’s main function is to analyse organisational and

methodological issues. The administrative capacity of the Department was strengthened in terms

of staff, equipment and training.

Concerning

classification,

a national version of NACE classification has been applied since

November 2000.

Concerning

demographic and social statistics,

the total housing and population census was

carried out in April 2001. Processing of data is well underway. A labour cost survey is being

introduced successfully.

As regards availability of statistics at

regional

level, a list of regional indicators including

indicators of economic and social development has been drawn up and put into a central

database. More sectoral statistics have become available at regional level, e.g. local units of

large enterprises.

In the field of

macro-economic statistics,

in March 2001 the calculation of the Harmonised

Consumer Price Index was brought in line with the

acquis.

In May 2001, the government

passed a Resolution on the implementation of the European System of Accounts (ESA 95),

which gives the Department of Statistics the task of coordinating all institutions involved in

implementation. A development plan for national accounts is being drawn up.

For

business statistics,

the statistical register of economic actors has been updated for 2001

leading to substantial quality improvements, e.g. the registration of local kind of activity units. As

of 2001 data on the production of industrial enterprises is now collected and processed using a

national version of the PRODCOM classification.

No particular progress has taken place during the reporting period in the field of

transport

statistics.

Where

external trade

is concerned, statistics continued to be of good quality.

For

agricultural statistics,

preparations for the total agricultural census are under way. In

March 2001, the Questionnaire and Methodology of the Total Agricultural Census were

approved. Co-ordination with other bodies involved in agricultural statistics is visibly improved.

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Overall assessment

Lithuania is quite well advanced in the field of statistics. The administrative capacity of the

Department of Statistics is very high, with a highly qualified, motivated and well trained staff.

These capacities need to be maintained.

Co-operation between the Department of Statistics and related institutions, including the

Ministry of Agriculture, is already good, but needs to be further strengthened

A number of statistics, e.g. external trade statistics, are already in line with

acquis.

As regards

availability of statistics at the regional level, NUTS III has been defined. The European System

of Accounts (ESA 95) has to be fully implemented and quality of results must be improved. As

regards demographic and social statistics, the frequency of the labour force survey needs to be

increased and preparations for a structure of earnings survey need to be finalised. Business

statistics have made good progress, but still need to be further improved, e.g. in the use of

supplementary units for products. The requirements regarding tourism statistics need to be

implemented. For transport statistics, an accounting system for expenditure on infrastructure in

respect of transport by rail, road and inland waterway needs to be introduced. It is of particular

importance to secure adequate resources for the preparation and conduct of the total

agricultural census, to be carried out in 2002. A precise timing needs to be set.

Chapter 13: Social policy and employment

During the reporting period Lithuania has made steady progress in transposition and

implementation of the social acquis. A new Law on Health and Safety of Workers was

adopted, as well as new legislation in the fields of social protection and labour law. As regards

employment, the Government has approved a programme for promotion of employment

opportunities. Nevertheless, there are important legislative instruments that have still to be

adopted.

In the area of

Labour Law,

the new Labour Code still needs to be adopted. In February 2001

the Law on Guarantee Fund of September 2000 was amended to bring it into line with the

corresponding acquis, by abolishing the requirement of a minimum period of employment. In

June 2001, the Government approved the regulations of the Guarantee Fund and set up the

Guarantee Fund Council. In March 2001 amendments were adopted to the Law on

Employment Contract, Law on Wages, Law on Holidays and Law on Trade Unions.

As regards

equal treatment for women and men,

the new Law on Health and Safety of

Workers, which is intended to fully transpose the provisions of the directive concerning

pregnant workers and workers who have recently given birth or are breast-feeding, was

adopted in October 2000. In January 2001, the amendments to the Law on State Benefits for

Families Bringing up Children were adopted. Through these amendments equal conditions for

both parents when it comes to obtaining family benefits are guaranteed.

Legal approximation continued concerning

health and safety.

The new Law on Health and

Safety of Workers was adopted in October and entered into force in November 2000. The

Law transposes the framework directive and the main provisions concerning working time,

preventive measures for health and safety for young persons, and pregnant workers

(see

above).

In October 2000 the Law on the Supervision of Potentially Hazardous Equipment was

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adopted. According to this law the technical control of compliance of the equipment with safety

requirements must be carried out by authorised public institutions. In this respect, the Technical

Supervision Service was reorganised into a public office in January 2001. In December 2000

the Regulation on Safety of Workers Potentially at Risk from Explosive Atmospheres was

adopted. The number of inspectors in the State Labour Inspectorate has increased by 10 since

the last reporting period. The staff has received training in various areas such as labour law,

labour hygiene and investigation of accidents at work.

From July 2000 to July 2001 the State Labour Inspectorate inspected 16 877 enterprises. It

detected 47 694 infringements of safety and health and labour law in enterprises and imposed

fines in the sum of about €155 000.

As regards

public health,

not much progress can be reported since last year. Lithuanian

authorities and institutes are participating in specific projects under the Network for the

epidemiological surveillance and control of communicable diseases in the Community. The

further development of measures in this area should be undertaken against the background of

the principles and methodology of the Community network. With reference to the tobacco

acquis,

the Law on Tobacco Control has been amended: the maximum tar yield of 12 mg is to

become applicable as from 1 January 2003.

No particular developments can be reported with regard to

social dialogue

Concerning

employment

labour market developments were negative in the year 2000. The

level of employment (Labour Force Survey basis) fell by 5% as compared with 1999, to 1.52

million, the lowest level of employment seen during the whole period since the beginning of

transition. Lithuania and the Commission have launched the Employment Policy Review with a

view to examining progress made by Lithuania in adapting its employment system so as to be

able to implement the European Employment Strategy in line with the Employment Title. Work

on a Joint Assessment of Employment Priorities started in November 2000.

In May the Government approved a programme for promotion of employment opportunities for

2001-2004. Implementation by the Lithuanian Labour Exchange began in July. The main

objectives are to halt the increase in unemployment by the end of 2001 and to reduce the

registered unemployment rate to 7-8 percent in the first half of 2002. The measures for

implementation of the programme were adopted in February 2001 and the National Action Plan

in May 2001. Through this Action Plan Lithuania intends to reform and strengthen the policy

structures and delivery systems needed to implement new employment policy tasks. A

Regulation on the Implementation of Local Employment Initiatives intended to promote new

jobs, improve of the local economy, increase employment and reorganise local communities

was also approved.

In the area of

social protection,

new rules were approved for forming the State Social

Insurance Budget and its implementation stipulating that financial statements of the State Social

Insurance Fund Board be drawn up in accordance with International Accounting Standards. In

October 2000 the Government approved the Concept of Reform of the State Social Insurance

Contributions’ administration. Another legislative act, the Law of State Social Insurance

Pensions, was adopted in December 2000 accelerating the rise of the retirement age by

introducing an increase of 6 months annually. Certain provisions were changed concerning

payments to old age and disabled pensioners. Also in December, the Law on Sickness and

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Maternity Social Insurance was passed. The law determines categories of persons covered and

rights to benefits as well as conditions for their granting, calculation and payment. As regards

Pension Reform, is pace slowed down during the reporting period. In May 2001 the parliament

ratified the European Social Charter.

In order to guarantee the rights of disabled persons, in February 2001, the Government

adopted the Policy Paper on Reform of Diagnosis of Disability and Social Security Measures

for Persons with Disability.

As regards Structural Funds and the

European Social Fund

(ESF), the Government took a

decision in May concerning the institutional structure and various paying agencies. According to

this decision the Ministry of Social Security and Labour will be the paying agency for ESF.

No particular developments are to be reported as regards the transposition of the anti-

discrimination

acquis.

Overall assessment

Overall, while Lithuania has advanced in aligning with the acquis, some key legislation such as

the new Labour Code and the Public Health Law remain to be adopted, and implementation

and enforcement need to be further addressed. The necessary institutional structure is in place in

most areas, but it has still to be strengthened.

As regards Labour Law, good progress has been made as regards the transposition of the

insolvency Directive. However, the new Labour Code and the Law on the establishment of the

European Works Council remain to be adopted.

The sharp deterioration in the labour market over the last two years has heightened the

challenges faced by employment policy in Lithuania. With regard to employment important steps

have been taken, but the Joint Assessment Paper is to be finalised only in the near future. It will

be important to ensure an effective monitoring of the phasing in of the priorities and

commitments contained in the Joint Assessment Paper.

The capacity of the Public Employment Services needs to be further strengthened.

In general, the alignment with the acquis has been particularly good in the area of equal

treatment for women and men, and the Ombudsman Office has proved to be effective in

enhancing the implementation of equal treatment. However, a number of provisions of EC law

concerning, in particular, the shift in the burden of proof in cases of discrimination based on sex

and a definition of indirect discrimination are still to be transposed.

As regards health and safety, administrative capacity needs to be strengthened in order to

ensure effective operation of the Labour Inspection institutions. Provisions for protection of

workers from chemical agents and their preparations need to be adopted.

In the field of public health, there is a need to adopt the Law on Public Health and to improve

the legislation on communicable disease surveillance and control. The further development of

measures in the area of communicable diseases should be undertaken against the background of

the principles and methodology of the Community network. In addition, Lithuania should

continue its efforts to develop a health monitoring system in order to obtain health data and

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indicators comparable with the Community health monitoring system. Work on the

transposition, implementation and enforcement of the tobacco acquis should be continued.

Efforts are required to make the existing social dialogue structures more efficient. Tripartite

mechanisms should lead social partners to be consulted on major economic and social areas.

Efforts are also required to promote and strengthen bi-partite social dialogue structures

especially at sectoral level. The Government must also assist the social partners to prepare them

for the active role they will be called on to play in the EU context, and to reinforce their

necessary structures and capacities for collective bargaining and social dialogue at all levels.

As regards social protection, Lithuania has set up the legal and institutional framework for

reforming its social security system and the institutions are in place. However, sustained efforts

are needed to implement the reforms that have been introduced. The systems to be established

should be capable of co-ordinating with systems in the EU.

The fight against exclusion, as laid down in art. 136 of the Treaty establishing the European

Community, is part of the objectives of EU social policy. As decided at the Lisbon and Nice

European Councils, policies to combat social exclusion combine commonly agreed objectives at

the EU level, and national action plans. The Gothenburg European Council in June 2001 invited

candidate countries to translate the Union's objectives of promoting social inclusion into their

national policies

The Government has recently taken important decisions concerning the distribution of

responsibilities with regard to the Structural Funds and designated the paying agency for ESF.

These decisions need to be translated into practice and preparations for future participation in

ESF should continue, particularly as regards the development of administrative capacity in the

relevant Ministries and local authorities. Further efforts are required to improve both

administrative capacity and the mechanisms for co-ordination of ESF interventions in the

context of the European Employment Strategy and the Inclusion Process.

Further efforts are needed to ensure alignment with the acquis on anti-discrimination based on

Art. 13 of the Treaty.

Chapter 14: Energy

Since the last Regular Report, Lithuania has continued to make progress in the energy sector,

although the restructuring and privatisation of the utilities are suffering delays. Progress in the

sector, based on the 1999 National Energy Strategy, was enhanced through the (delayed)

adoption, in May, of the Action Plan implementing the National Energy Strategy. The energy

sector developments remain closely linked to the closure of the Ignalina Nuclear Power Plant

(INPP).

Concerning

security of supply,

and in particular oil stocks, little progress has been made.

Current emergency oil stocks are approximately at 40 days, nearly half of the required 90 days.

The Ministry of Economy’s State Reserves Division and Fuel Strategy Division take care of

managing oil stocks matters (4 persons). Reflections are ongoing regarding strengthening the

institutional set-up.

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The Lithuanian energy sector (oil, gas and nuclear fuels notably) remains heavily dependent on

Russian supplies, despite plans for diversification throughout the energy sector. In the oil sector,

the recent deal ensuring a second (Russian) source for supplies to the Maizeikai refinery and

aiming at complementary privatisation, improves the supply situation of the refinery and is to be

welcomed. The recent modernisation of the Klaipeda oil terminal aiming at a smooth

transhipment of light oil products also contributes to improving the security of supply.

Lithuania has made important steps as regards

competitiveness and the internal energy

market

(notably the Electricity and Gas Directives ), despite delays in the restructuring and the

privatisation of the Lithuanian electricity and gas companies. Electricity and gas prices

increasingly cover costs, although distortions remain.

Progress in the

gas

sector seems most marked with the adoption in October 2000, amendment

in June and entering into force in July of the Law on Natural Gas. This Law allows a

considerable market opening of approximately 80 %. Part of the secondary legislation required

to implement this law has been adopted recently. Despite the market opening, the origin of

supplies remains Russia. The Government decided in October on the privatisation model for the

gas company. As part of the restructuring process and in preparation for unbundling

according to the Gas Directive, non-core activities were separated from the Lithuanian Gas

Company.

In the

electricity

sector, Lithuania decided in June, through an amendment of the Electricity

Law, to postpone its entry into force (and therewith the start of market opening) by six months,

until 1 January 2002. In view of this situation, Lithuania developed a “Transitional Market

Model” for the period until January 2002, in order to make a swift start on market opening.

The steps for market opening have been defined as follows: 21 % of the market as from 2002;

26% as from 2003; 33% as from 2004; and full market opening as from 2010.

Progress with the restructuring of the Lithuanian Electricity Company has been achieved

through, inter alia, the unbundling of accounts for its activities (generation, transmission,

distribution and non-core activities) since December 2000. In June Lithuania adopted a law

amending the Law on the Reorganisation of the Lithuanian Electricity Company (entry into force

in July) with the aim of, inter alia, simplifying the reorganisation process. In August the

Government adopted the reorganisation plan for the company, which is to be divided by the end

of 2001 into one transmission, two distribution and two generation companies.

With the aim of physically joining the internal energy market Lithuania and Poland continued

preparations for an electricity link between the two countries. The National Control

Commission for Prices and Energy is the regulatory authority in the electricity, gas, heat and

water sectors and it is responsible, inter alia, for pricing, licensing and dispute settlement.

Elements that confirm the independence of this authority are the nomination of the chairman by

the President for a fixed period of five years and its reporting duty directly to the Seimas. The

entry into force of the Law on Natural Gas has increased the powers and independence of the

Control Commission. The Control Commission employs more than 40 persons.

Lithuania continued to improve

energy efficiency

over the past year, although no particular

legislative development can be reported. In September the Government adopted an updated

National Energy Efficiency Program 2001-2005. During 2001 an amount of € 0.4 million was

made available for the implementation of the Programme. The Energy Agency, an independent

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entity but fully owned by the Ministry of Economy, is the main body in this area and deals, inter

alia, with energy efficiency and the enhancement of renewable energy sources. It employs 30

persons and had a budget of € 0.3 million in 2001. The State Energy Inspectorate is in charge

of state supervision and control of state-owned energy entities, with the aim of ensuring safe,

efficient and reliable use of energy resources and energy supply. Its budget for 2001 is €700

000 and it has 100 employees.

It is recalled, regarding

nuclear energy,

that at the Ignalina Nuclear Power Plant (INPP)

Lithuania operates two RBMK-type reactors with a nominal capacity of 1500 MW

each.Lithuania continued the preparations for the closure and decommissioning of Unit 1 of

INPP, through the adoption in February of a Decommissioning programme for Unit 1. A list of

detailed measures, timetables, competent organisations and financing sources had been laid

down in the above-mentioned Action Plan implementing the National Energy Strategy.

Furthermore the Minister of Economy adopted in April a List of Implementation Measures of

the Decommissioning Programme for Unit-1 in which technical/environmental measures and

social/economic measures are listed. The Seimas adopted in July a Law on a Decommissioning

Fund for Ignalina NPP that will enter into force in 2002.The Seimas furthermore ratified in July

a Framework Agreement with the EBRD, paving the way for the formal implementation of the

Ignalina International Decommissioning Support Fund (IIDSF), to which the European

Community is the major donor. In January, a commission to deal with problems of the INPP

region was established in the Seimas, while the municipalities of Visaginas, Ignalina and Zarasai

have agreed to form an INPP Regional Development Committee to deal with issues linked to

the decommissioning process.

VATESI, the nuclear regulatory body in Lithuania, reports directly, on an annual basis, to the

Prime Minister. After a recent restructuring, it is organised in nine departments (such as public

relations, nuclear material control, licensing, decommissioning and radiation protection and

safety assessment). In April the Government decided to increase staff levels by 10 persons, with

the aim of reaching 48 employees by the end of the year and 58 by the end of 2002. The

introduction of a quality assurance system is proceeding, while the regulatory body continues to

strengthen its capacities including those related to decommissioning.

The Lithuanian Electricity Company continued the re-payment of arrears to the INPP, reaching

a level of € 37.5 million in May, and a schedule has been developed for the remaining amounts.

With regard to nuclear safety, INPP continued the implementation of its second nuclear safety

improvement programme 1997-2005 (SIP-2). Between January and September 2001, the

INPP implemented 13 measures costing €12.5 million (LTL 45 million). Since 1997, a total of

144 (out of 193) measures, with a budget of €9.3 million (LTL 334 million), have been

implemented. Ignalina advanced with the preparation of a Safety Assessment Report for Unit-2

(SAR-2), in view of the further licensing of Unit-2. In mid-2001, INPP submitted revised

technical specifications for the installation of a diverse second shutdown system in Unit 2 that

received a favourable preliminary consideration from the regulatory authority, thus moving this

difficult safety-related project forward.

As part of the implementation of the Law on the Treatment of Radioactive Waste, the

Radioactive Waste Management Agency was established in May 2001. Once it is operational,

it will deal with the treatment and disposal of radioactive waste. The Agency's budget allocation

is approximately € 0.13 million for 2001 and currently it is staffed with six persons. In February,

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regulations on the 'Management of Radioactive waste' and on 'Radiation Protection at the

Nuclear Power Plant' were issued.

Overall assessment

Lithuania has achieved a reasonable level of alignment with the energy acquis, but needs to

maintain its efforts - notably in the area of the Internal Energy Market, oil stocks and nuclear

energy - if it is to be in a position to comply with the Union's requirements in the energy sector.

Lithuania has continued to take steps to reform the energy sector. The restructuring of the

electricity and gas sectors continued, despite delay in the privatisation process. The adoption of

the privatisation model for the gas company is to be welcomed. Steps to prepare the closure

and decommissioning of the Ignalina NPP have been taken.

Particular attention should be given to the preparation for the Internal Energy Market (electricity

and gas directives). In this respect, an expedient completion of the reorganisation and

privatisation of the electricity and gas sectors is needed. Furthermore, the drafting of secondary

legislation, particularly in the electricity sector should be enhanced. The market opening plans in

the electricity sector appear to satisfy the current requirements of the Electricity Directive.

Establishment of a Common Baltic Electricity Market in 2002 will be useful with a view to

preparing for the Electricity Directive. The National Control Commission for Prices and Energy

should be strengthened in order to prepare it for its regulatory functions as defined in the internal

energy market directives. Despite the fact that the Control Commission has a separate budget

line, negotiations on budget may be a strain on its independence. Removal of price distortions in

the energy sector should continue while "stranded costs" also need attention.

Also in need of particular attention is the legislative alignment as regards emergency oil stocks,

the establishment of a financing plan for the required investments in this area and the

strengthening of the administrative structure.

Energy efficiency and the use of renewable energy should continue to be improved, while

Lithuania should continue to give due attention to alignment with the energy efficiency acquis.

Full implementation of the updated National Energy Efficiency Programme 2001-2005 and a

rapid adoption of the draft Law on Energy Saving will be instrumental in this respect. The

Energy Agency should be strengthened.

As regards nuclear energy, the European Union has repeatedly emphasised the importance of a

high level of nuclear safety in candidate countries, including the need to respect closure

commitments and to set a precise date for the closure of INPP Unit-2. In June 2001, the

Council of the European Union took note of a Report on Nuclear Safety in the Context of

Enlargement. This report contains findings on the situation and perspective of nuclear safety in

each candidate country as well as recommendations for specific improvements. In July, the

Commission conveyed this report to the candidate countries.

General recommendations of the Council Report call for all candidate countries with nuclear

power plants to complete their plant-specific safety improvement programmes, and to ensure

that their programmes include measures considered good practices within the European Union,

particularly regarding various specified safety measures such as assessment practices,

emergency procedures, feedback of experience, resources of the regulatory authority and other

aspects.

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The report recommends all candidate countries to continue their national programmes regarding

the safe management of spent fuel and radioactive waste, and regarding the safety of their

research reactors.

With regard to Lithuania, the Council Report recommends twelve specific measures to ensure

the safe operation of the Ignalina NPP until final closure, and of other nuclear installations,

including measures to ensure adequate resources for the regulatory authority, full responsibility

and improvement of the financial situation of the operator of the Ignalina NPP, information

agreements with Latvia and Belarus and other specified technical aspects, such as a diverse shut

down system for Ignalina Unit 2.

It is recalled that the future of the Lithuanian energy sector is closely linked to the closure of the

Ignalina NPP. It is also recalled that the Seimas, in the context of the adoption in 1999 of the

National Energy Strategy decided, inter alia that Unit 1 of the Ignalina NPP will be closed

before the year 2005 and that the precise final date for the decommissioning of Unit 2 shall be

solved in the updated National Energy Strategy to be prepared in the year 2004. In this regard,

the Commission underlines that the timetable for adoption of the definite decision on the date for

closure of Unit 2 should be compatible with Lithuania's timetable for accession. Furthermore,

the Commission recalls that the EU considers that the definitive closure of Unit 2 should take

place at the latest by 2009. With this in view, Lithuania should continue to address nuclear

safety issues at the Ignalina NPP and should continue to prepare its closure and

decommissioning. Preparation of decommissioning should include also due attention to the

regional consequences and the development of an adequate regional policy.

Lithuania should continue to address the independence, staffing levels and competence of the

regulatory body that all need to be strengthened. Its human resources of VATESI should be

increased in view of the tasks related to the safety improvement programme and the

intensification of the decommissioning process. The safety improvement programmes (SIP-2)

should be fully and timely implemented, including the installation of the Diverse Second

Shutdown System at Unit 2 of Ignalina NPP as a matter of high priority. The new safety analysis

report for Unit 2 of Ignalina NPP (SAR-2) has to be produced by INPP and completely

reviewed by the regulatory body by the end of 2002. Adequate levels of nuclear safety have to

be maintained during all phases of the operation and decommissioning of the Ignalina NPP inter

alia by maintaining a high level of technical and staff quality.

Lithuania should specifically ensure adequate capacity (inter alia at Ministry of Economy and

INPP level) to prepare and implement projects related to decommissioning, including those to

be funded under the Ignalina International Decommissioning Support Fund.

The Radioactive Waste Management Agency should rapidly become fully operational, while

sufficient funding needs to be ensured for its functioning including specific training. In general,

radioactive waste and spent fuel management need continued attention. Lithuania will need to

ensure compliance with Euratom requirements and procedures. In this respect, continued

attention should be given to preparing the implementation of Euratom Safeguards, in particular

regarding the reporting of nuclear material flows and inventories directly by the persons or

undertakings operating nuclear installations or storing nuclear material. It is to be noted that

Lithuania has concluded a Full Scope Safeguards Agreement with the IAEA. An Additional

Protocol to this Agreement is in force since July 2000.

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Chapter 15: Industrial policy

Since the last Regular Report, the most notable step forward has been the adoption of the

legislation on enterprise restructuring and bankruptcy. Only limited progress has been made in

the promotion of competitiveness.

There has been no progress in defining delivery mechanisms for implementing the medium-term

industrial strategy,

or the Business Innovation Programme adopted in 2000. The Ministry of

Economic Affairs has continued to put the emphasis on quality and export promotion, through

e.g. subsidising costs for ISO certification and participation in trade fairs. It should be noted

that Lithuania has started implementing new procedures on state aid that are in line with the

acquis

through a systematic notification of support schemes to the Competition Council (see

Chapter 6

Competition policy).

The Business Development Council, the Ministry’s advisory body in the area of enterprise

policy, has recently been reorganised. The policy-making role of the Council, which includes

representatives from public institutions and leading business associations, has been reinforced.

It will be consulted on the priorities and instruments of industrial policy, as well as on any draft

legislation having a bearing on enterprise development, and will monitor and evaluate the

implementation of strategies. In doing so, it will be assisted by permanent committees,

composed mainly of representatives of governmental agencies, large industrial firms and

research institutions, and in particular, by one dealing with industrial competitiveness and one

dealing with export promotion. It is too early to judge the impact of this reorganisation.

The Government still considers that the improvement of the business environment is central to its

investment promotion

policy. This strategy is proving successful, but further progress is still

needed in this area (see

Chapter 16 – Small and Medium- sized Enterprises).

Over the

reference period the manufacturing sector has continued to attract the highest proportion of FDI

(almost 30% of all inflows in 2000), though not to the same level as in previous years. The

positive trend in reinvested earnings from foreign investors has been confirmed and greenfield

investment has increased.

Privatisation

has progressed further. (See

Section 2

Economic criteria).

In terms of industrial

restructuring,

the major breakthrough was the adoption in March 2001

of new legislation on bankruptcy and enterprise restructuring. This new legislation has been

developed on the basis of international good practice in the field of insolvency. The bankruptcy

law defines more flexible and rapid procedures for bankruptcy initiation. The restructuring law

provides for the rehabilitation of companies which have inherited debts but are still economically

viable. Most of the secondary legislation needed to implement the laws has now been adopted.

Only two restructuring cases have been initiated since the entry into force of the laws in July

2001. However, there has been a steady progression in the initiation and completion of

bankruptcy cases. The Enterprise Bankruptcy Management Department at the Ministry of

Economic Affairs continues to operate effectively, despite some difficulties in filling vacancies.

As of September 2001, some 1 300 enterprises had gone through bankruptcy procedures and

Developments concerning Industrial policy should be seen in relation to the overall enterprise policy, including the SME

policy (see

Chapter 16 – Small and medium-sized enterprises).

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nearly one fourth of cases had been completed. In 2000 the majority of bankruptcy cases

initiated were in the food and construction sectors.

Overall assessment

The political, legal and administrative framework for facilitating in-depth restructuring and

improving the competitiveness of Lithuania’s industry is now in place and is being aligned with

the principles of EC industrial policy. The challenge now lies in implementation. The Ministry of

Economic Affairs needs to better define its role and strengthen its capacity, including in the

preparation for structural funds. There is still scope for improving co-ordination between

activities of the various institutions, e.g., in the area of investment promotion, between the

Ministry of Economic Affairs and the Lithuanian Development Agency. It can in this respect be

noted that some key institutions, such as the Ministry of Education and Science, are not part of

the consultation process of the reorganised Business Development Council.

There are several mechanisms in place to consult the business community. However, although

their functioning has improved over the years, they still tend to favour particular interests groups

and individual companies. The Confederation of Lithuanian Industrialists, which represents the

interests of most large industrial enterprises, subsidiaries of foreign companies, and research

institutions, is a key player. In order to further remove regulatory and administrative barriers to

investment, more attention should be paid at the political level to the consultation of foreign

investors.

Privatisation of the industrial sector is virtually complete and restructuring has progressed

further, although unevenly between consumer goods industries, such as foodstuffs and textiles,

and traditional sectors, such as mechanical engineering. The strengthening of the banking sector,

notably through further privatisation and consolidation could help increase investment levels in

the industrial sector. It is crucial to continue efforts to implement quickly the long awaited

legislation on bankruptcy and restructuring, and in particular to further develop the appropriate

institutional set up and competencies for enforcement. The adoption of secondary legislation

needs to be completed through the adoption of a by-law enabling public creditors to transfer

their rights to

Turto Bankas,

the asset management institution in charge of the sale of non-

performing loans. There is still a lot to do to ensure proper implementation. The challenge is to

create a new culture among public institutions and the business community. Because of the

general lack of skills in the fields of risk assessment and the evaluation of enterprise restructuring

plans, intensive training of administrators, as well as of key actors in the public and private

sectors, is needed. The capacity of Regional Courts that are responsible for bankruptcy

procedures should be further strengthened.

Chapter 16: Small and medium-sized enterprises

Since the last Regular Report, Lithuania has made some further progress in developing its

enterprise policy. There have been positive developments in terms of an increase in the budget

for SME promotion and a progressive rationalisation of business support schemes. However,

Developments concerning SME policy should be seen in relation to the overall enterprise policy, including Industrial

policy (see

chapter 15 - Industrial policy).

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capacity constraints at the Ministry of Economic Affairs continue to hinder a consistent

implementation of measures in support of SMEs.

During the reporting period the budget for implementing SME policy has increased fourfold and

is now secured through a direct allocation from the state budget. However, only limited

progress can be recorded in the implementation of the measures included in the “Small and

Medium-sized Business Development Strategy until 2003,” the

SME strategy

adopted at the

end of 2000.

The government has adopted and has started to implement several regulations to facilitate

access to finance for SMEs, aimed at improving the loan guarantee system implemented through

the Lithuanian Export and Import Insurance Company as well as promoting micro-credits and

venture capital.

The network of business centres has further expanded and several initiatives such as subsidised

advisory and training services and a pilot supplier linkage programme were successfully

implemented by the SME Development Agency (SMEDA) at the end of 2000. These latter

activities were, however, discontinued at the beginning of 2001 because of uncertainties about a

merger of SMEDA with the Regional Development Agency. This is now resolved, but affected

negatively the credibility of state-sponsored programmes.

A new trend in Lithuanian SME policy is decentralisation. Municipalities have received specific

budgetary allocations, the majority of which is provided to business in the form of preferential

loans, partial or full interest-rate subsidies for commercial loans, direct financial support for

small investments and subsidies for training and counselling as well as for marketing activities.

The entry into force of the New Commercial Code in January 2001

(see Chapter 5 –

Company law)

as well as an easier access to information about regulations and administrative

procedures through Internet are positive steps towards the improvement of the

business

environment.

The Sunrise initiative launched in 2000 to streamline the procedures dealing with

business resulted in some changes in the legislation and in the administrative procedures.

However, this initiative lost momentum over the reporting period. The government is currently

reactivating the process.

No progress has been made since the last Regular Report in relation to the

SME definition

applied by Lithuania, which is more restrictive than the EC definition.

Overall assessment

Lithuania’s policy towards SMEs follows the approach promoted at EC level. However, the

adoption of a dedicated strategy and the increase in the budget for SME promotion has not so

far created the expected momentum. This is mainly due to lack of strong co-ordination and

continuity in action. As a result, despite some recent efforts to rationalise business support

schemes and improve the consultation with the business community, there has been no

convincing attempt to solve globally issues that are critical for raising the level of entrepreneurial

activity. In particular, there is a need to define a clear line on the measures available to support

start-ups and the role of government bodies in the preparation of projects that could be funded

through pre-structural aid instruments.

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Complex administrative procedures remain a major obstacle to SME creation and

development. It is crucial that the government at the highest level steps up measures to simplify

the business environment. A systematic analysis of legal and administrative barriers for SMEs

should be made and an action plan to eliminate unnecessary bureaucracy should be

implemented. The impact of measures should be assessed in close collaboration with business

associations. The trend of increasingly involving business associations in law-making should be

continued.

There is still a need to align the SME definition, in particular as regards the size and

independence criteria.

While the basic administrative capacity is already in place at both national and regional levels,

significant rationalisation in the functioning of the institutions is still necessary in order to prepare

Lithuania’s SME sector for integration into the European Union. The SME Division at the

Ministry of Economic Affairs needs some strengthening. SMEDA should be enabled to fully

play its role in strengthening the business support infrastructure and improving the quality of

business support services. The Ministry of Economic Affairs is in the process of improving

consultation mechanisms through a reform of the Business Development Council and the setting

up of a committee on SME and tourism promotion.

Chapter 17: Science and research

Further progress has been made in this area since the last Regular Report.

In December 2000, the Law on Long-Term Financing of Science and Education was approved

by the Seimas. The Law aims at reforming the system of research, higher education and

education in 2001. In February 2001, the government approved the provisions of the Structural

Reform of the Science and Higher Education system. These plan to adopt principles and

methods for the State Higher Education Institutions' research and teaching activities, and

prepare a Restructuring Plan for the State Research and Higher Education Institutions.

In July 2001 the White Paper on Science and Technology was approved. This White Paper will

serve as a basis for the development of a strategy for science and technologies.

Some progress has been made concerning research and technological development in business

enterprises and non-profit organisations. In order to enhance the effectiveness of the system of

research and technological development, the new procedure for allocation of state support for

research institutes for 2001-2004 was established in December 2000. Lithuania continued to be

fully associated with the Fifth Framework Programme. For the first time the State Budget

provided funding for state research institutes, taking into a consideration effectiveness and

quality of research, competitiveness as well as participation in the Fifth Framework Programme.

The Commission for co-ordination of Lithuanian participation in the the Fifth Framework

Programme, established in 1999, has been renewed, bringing into the Commission

representatives of the Confederation of Industrialists, the Ministry of Economy and the

Lithuanian Academy of Sciences,

n order to promote links between research institutions,

industry and SMEs.

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As for other candidate countries associated with the Fifth Framework Programme, Lithuania

has been granted observer status in CREST (

Comité pour la Recherche Scientifique et

Technique).

Overall assessment

Although the overall institutional set up that Lithuania needs to participate in Community

Programmes is in place, the reinforcement of research-related administration capabilities as well

as strengthening of the research infrastructure is necessary to ensure successful participation of

Lithuania in the Framework Programme.

The co-operation between Research and Development institutions and SME and industry has

been strengthened, but further progress is needed.

Further concrete measures are required to increase the financial support for research and

development, and particularly to stimulate business enterprise expenditure on research, and

favour fresh capital investment. Priority should be given to the development of a national

strategy and programme for the development of science and technology policy. Funding

mechanisms should be aligned with the redefined priorities. Measures are needed to promote

and enhance the rate of research and development, to further encourage research that supplies

relevant technology to small and medium-sized enterprises, and to increase European co-

operation in this field. Legislation to facilitate the creation of high tech industries is necessary, in

particular to attract foreign investment.

Chapter 18: Education and training

Some further progress has been made in this area.

In the past year Lithuania has continued to participate in the

Community programmes

(see

section A.b – Relations between the European Union and Lithuania).

National policy in the

field of education and studies is implemented by the Department of Science and Studies of the

Ministry of Education and Science.

As regards the

Directive concerning education of children of migrant workers

, no

progress has taken place.

As regards reforming its

education and training system,

in December, 2000, the Law on

Long-term Science and Education Funding was adopted.

Overall assessment

Participation in the relevant Community programmes is satisfactory and the established national

agencies are functioning. Lithuania still needs to bring the legislation concerning the education of

children of migrant workers fully in line with the

acquis.

Lithuania has advanced in reforming its

education and training system.

Chapter 19: Telecommunications and information technologies

Some progress has been made since the last Regular Report in this area.

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Concerning the

liberalisation of the telecommunications market,

no development can be

reported as regards the liberalisation of fixed telephony. In this sector, the incumbent operator,

Lietuvos Telekomas, enjoys a

de jure

monopoly regime until 31 December 2002. Excluding

fixed telephony, competition has been strengthened by the issuing of a third GSM licence.

As regards the

regulatory framework,

a number of important items of secondary legislation

have been issued, relating in particular to licensing and numbering. The rules on licensing of

telecommunications activities were adopted in October 2000. The licence is issued through a

tendering procedure only for those activities which require scarce resources, namely, radio

frequencies and telecommunications numbering. These rules do not determine the licensing

procedure for UMTS.

In February 2001, the Communication Regulatory Authority became operational, following the

appointment of its director by the President of the Republic.

As regards the

postal services,

no progress has taken place.

Overall assessment

Lithuania has achieved a fair level of alignment in this area, but important efforts remain to done

as regards the alignment in particular on fixed-line telephony and postal services as well as

administrative capacity.

The telecommunications market in Lithuania has been liberalised, except for fixed line telephony

communications. Work has begun building on the foundations laid by the 1998

telecommunications law to resolve the remaining problems regarding alignment with the

acquis.

However, further rapid progress is now required. Properly regulated interconnection should be

a priority. Price re-balancing and affordability remain crucial issues. As concerns the status of

Voice Over Internet Protocol as a liberalised service, efforts are being made to regularise it.

As regards administrative capacity, the recently established Communication Regulatory

Authority is understaffed (13 vacancies out of 111 available positions) and its present staff have

almost no experience in non-radio areas. Moreover, the Authority lacks the appropriate

equipment to be able to monitor the communication and radio spectrum, as well as assume its

market surveillance functions. Therefore, strengthening the administrative capacity of this

Authority is a matter of priority.

As for the postal services, further alignment with the

acquis

is required. The administrative

structure in charge of postal services within the Communications Regulatory Authority will need

to be allocated qualified staff and appropriate financing.

Chapter 20: Culture and audio-visual policy

During the reporting period, significant progress has been made by Lithuania in terms of

legislative alignment.

Concerning

audio-visual

policy, in October and December 2000 the Parliament adopted

amendments to the Law on National Radio and Television which, together with the Law on

Provision of Information to the Public, makes up Lithuania’s legal corpus in this domain. The

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amendments addressed brought Lithuania’s legislation largely into line with the

acquis,

including

measures on jurisdiction, public access to major events, promotion of European and

independent works, the protection of minors and the duration and content of advertising.

Three institutions are now involved in the administration and implementation of the

acquis.

December 2000 the Government designated the Ministry of Culture as the institution

responsible for the implementation of the provisions of the European Convention on

Transfrontier Television and the Protocol amending this Convention. The Council of National

Radio and Television is responsible for the regulation of the activities of the national radio and

television. The Radio and Television Commission (RTC) is responsible for the regulation of the

activities of commercial radio and TV stations, cable networks and microwave multi-channel

systems. The Commission can impose sanctions for violations of the law or license conditions.

From May 2000 to May 2001, the RTC renewed licenses for about 70 terrestrial television and

radio broadcasters. The new licenses contain obligatory provisions on programme structure and

content, including rules on advertising and teleshopping, as well as on respect for human dignity

and protection of minors and social interests.

No particular developments are to be reported in the field of

culture.

Overall assessment

Lithuania’s legislation concerning the audio-visual field is largely in line with the

acquis.

Therefore, efforts should now be concentrated on implementation, including the adoption of

secondary legislation concerning licence renewal for cable operators and codes of conduct on

programming and advertising. Public awareness should be raised on such general principles as

non-discrimination, proportionality and protection of minors and public morals.

Lithuania has signed and ratified the Council of Europe Convention on Transfrontier Television

and its Protocol.

It is important that the Radio and TV Commission (RTC) now start drafting and publicising

codes of Ethics and involve professional organisations such as the “Ethics Commission of

Journalists and Publishers” and the “Commission on the Protection of Minors”. Furthermore,

due to the length of judicial procedures in Lithuania as well as the specificity of media law, the

RTC should set up administrative tools to impose sanctions on those breaching broadcasting

legislation. The RTC also needs to improve the existing administrative licensing processes (in

particular for cable licenses). Finally, monitoring instruments should be established so that the

RTC is able better to manage the large volume of data it must process and can develop a

database on the audio-visual market/industry. The RTC seems to require increased human

resources given the range of its responsibilities.

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

Since the 2000 Regular Report, Lithuania has made some progress in preparing for the

implementation of structural policies.

As regards

territorial organisation,

no changes have been made with regard to the proposed

provisional NUTS classification. A Government Resolution ”on implementation of the European

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National Account System” was adopted in May 2001; it aims at enforcing the application of

the NUTS classification.

As regards the

legislative and institutional framework,

since the last Regular Report

Lithuania has adopted a number of Government decisions with the purpose of defining the

responsibilities in terms of programming and managing the Structural and Cohesion Funds.

These decisions provide for the designation of the future Structural Funds managing authority

and paying authorities. Furthermore, regional policy has been defined as a part of the State’s

economic investment policy and integrated into the budget and investment planning.

Accordingly, the process of drafting the National Development Plan has been integrated into the

State budget preparation. In order to ensure control of the state budget and EC funds, a

Government Resolution on the Approval of the Programme of Internal Control and Internal

Audit System Set Up in the Public Sector was adopted in October 2000.

With regard to the

institutional framework,

there have been substantial changes since the last

reporting period. The Ministry of Public Administration and Local Authorities was abolished in

January 2001 and subsequently the Department of Regional Development was established in

the Ministry of Interior. The department is responsible for the co-ordination of the preparation

of regional development programmes and for the implementation of the national regional

development policy. The other functions have been transferred to the Ministry of Finance in its

capacity of future managing authority and co-ordinating body of the programming and

implementation of the EC Structural Funds and national co-financing.

Within the Ministry of Finance, the function of planning and co-ordinating the EC support and

national co-financing will be given to the newly established Financial Assistance Department.

Upon accession, the Financial Assistance Department will become the single managing

authority for the Single Programming Document (SPD). Until accession, the main function of this

department will be related to the pre-accession funds. Acting in close co-operation with the

budget department the department will also co-ordinate and facilitate the preparation of the

National Development Plan/Single Programming Document, and ensure inter-ministerial co-

operation throughout the Government.

The following ministries have been designated as future paying authorities for the Single

Programming Document: Ministry of Finance – European Regional Development Fund paying

authority; Ministry of Social Security and Labour – European Social Fund paying authority;

Ministry of Agriculture – European Agricultural Guidance and Guarantee Fund paying authority

and Financial Instrument for Fisheries Guidance paying authority. According to the Government

decisions mentioned above, line ministries will under the overall responsibility of the managing

authority, be involved in the implementation of individual measures or priorities co-financed by

the Structural Funds in their respective areas of competence.

In terms of

programming,

Lithuania has prepared a second preliminary National Development

Plan for 2001-2003, which was used as a reference document for Phare 2001 Economic and

Social Cohesion programming. The preparation and content of this programming document

suffered from a series of structural weaknesses such as insufficient inter-ministerial co-ordination

and involvement of local, regional, economic and social partners. The National Development

Plan also lacks a financial or institutional framework that would allow the priorities and

measures listed in the preliminary National Development Plan to be implemented.

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In February 2001 the Government approved the “Concept Paper for the Preparation of the

National Development Plan”. According to this concept paper the Ministry of Finance shall now

have the overall responsibility for programming the preparation and co-ordination of the

National Development Plan and draft Single Programming Document. The Ministry of Economy

shall prepare the national development strategy and be in charge of co-ordinating sector

strategies while the Ministry of Interior is responsible for shaping the national regional policy and

for co-ordination of the regional contributions to the National Development Plan. The whole

process of preparation of the National Development Plan is co-ordinated by a Working Group,

the members of which were approved by the Prime Minister’s Order of 29 May 2001.

Lithuania has also decided that the assistance to be provided by the Structural Funds is to take

the form of a Single Programming Document.

Very little progress has been made in developing a modern

monitoring, reporting and

evaluation

system in Lithuania. Initial reviews are under way for the development of indicators,

monitoring databases and reporting systems.

Concerning

financial management and control,

the Lithuanian Government adopted a

Resolution in May 2001 with the objective of defining the role and responsibilities of state

institutions as regards the implementation of the EC Structural Funds.

Overall assessment

Overall, while Lithuania has advanced in designing the structures for programming and managing

the Structural and Cohesion Funds and by integrating the process of the National Development

Plan into the State budget and investment planning, substantial efforts are still required in terms

of programming and in order to develop the administrative capacity required for managing the

Structural and Cohesion Funds. More progress and improved capacities are needed in view of

the future responsibilities of Lithuania in terms of public internal financial control of both national

and EC Structural and Cohesion Funds. Furthermore, the availability of national co-financing for

Community funds remains a point of concern. As regards territorial organisation, Lithuania still

needs to formally agree its provisional NUTS classification with the Commission.

As a matter of priority, the administrative capacity of the future managing and paying authorities

needs to be considerably strengthened in order that they will effectively be able to take on the

responsibility for the efficiency and correctness of the management and implementation of

Structural Funds. Furthermore, the role of the line ministries, agencies and other bodies acting

under the responsibility of the future managing and paying authorities needs to be clarified.

Substantial progress is also needed at the level of the technical preparation of projects (project

pipeline) to be co-financed by the Structural and Cohesion Funds.

In terms of programming, the preparation of the draft Single Programming Document should

proceed without further delay, taking into account the National Development Plan which

Lithuania intends to submit until the end of the year. To that end, a structure for ensuring efficient

and effective inter-ministerial co-operation needs to be established without delay. In that

context, the relationship between the Ministry of Finance, the Ministry of Economy and the

Ministry of Interior and their respective responsibilities and tasks should be clarified with a view

to ensuring the coherence and efficiency of the programming process.

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Lithuania is at the moment preparing a three-year National Development Plan with the function

of co-ordinating public investments directed at social and economic development.

Furthermore, a structure for ensuring a wide and effective involvement of all the relevant

partners at the different stages of programming, as well as the financing, monitoring and

evaluation of the assistance needs to be defined.

Significant further work on ensuring compliance with the acquis requirements for monitoring and

evaluation is still necessary, in particular as regards the ex-ante evaluation of the draft Single

Programming Document. The timely availability and functioning of an effective monitoring and

evaluation system will be of crucial importance for the effective and efficient implementation of

the Structural Funds programmes.

With regard to financial management and control, the legal basis for the system of Public

Internal Financial Control has been improved but is far from being fully operational. Substantial

efforts will have to be made in order to introduce internal audit structures and to strengthen

capacity in line with EC requirements in order to ensure sound financial management.

Furthermore, Lithuania needs to ensure that the necessary legislative and budgetary framework

is in place for the co-financing of Structural and Cohesion Funds, including provisions for

transfer of funds during its implementation. Appropriate systems and procedures for financial

management and control need to be established, in particular in relation to the structure of the

managing and paying authorities, in order to fulfil the specific requirements of the Structural

Funds regulations.

As to regional statistics, further efforts are necessary to bring them up to the level required for

regional policy planning and programming, in particular ex-ante evaluation. Lithuania still needs

to improve the system for the collection and processing of relevant statistical information for the

purpose of ex-ante evaluation.

Concerning the European Social Fund Lithuania is developing the necessary structures and

operational arrangements to implement the European Social Fund effectively. Further efforts are

required to improve both administrative capacity and the mechanism for co-ordination of ESF

interventions in the context of the European Employment Strategy and the Inclusion Process.

Chapter 22: Environment

Since the last Regular Report, Lithuania has made further legislative progress through the

adoption of a number of legislative acts related to different areas, including the Law on

Genetically Modified Organisms.

With regard to the

integration of the environment into other policies,

Lithuania established

a national commission for sustainable development in which a range of governmental and non-

governmental organisations participate. The aim of the commission is to achieve a better

integration of environmental policies into sector policies. Local Agenda 21 has been drawn up

for 15 cities. Lithuania participated in various bilateral, regional and international forums on

sustainable development and continues to implement the action programme for sustainable

development adopted by all the Baltic Sea countries in the framework of “Agenda 21 for the

Baltic Sea region”.

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In the field of

horizontal legislation,

a manual for the application of the Environmental impact

assessment (EIA) requirements has been developed and training carried out for the Ministry of

Environment and its Regional Departments to strengthen their capacity. As for the access to

environmental information, an EU Environmental documentation centre has been established at

the Ministry of Environment. Furthermore, in July 2001, the Seimas ratified the Convention on

the Public Access to Information, Public Participation in Decision-making and Access to Justice

in Environmental Matters.

As regards

air quality,

part of the requirements of the Air Framework Directive and the

Directives on limit values in ambient air have been transposed. As of January 2001 the

requirements for

new

installations on Volatile organic compound (VOC) emissions from storage

and distribution of petrol have been transposed. A number of programmes to implement the

Directives in this sector have been defined. In August 2001, the Ministers of Economy,

Environment and Transport issued a joint order aligning with the acquis on environmental

requirements for fuel quality.

In the area of

waste,

the landfill Directive was transposed in October 2000. However, some

provisions may need revision. A Strategic Plan for the Recycling of Municipal Waste and a

Strategic Plan for a Network of Landfills for Non-Hazardous (municipal) waste was developed

and adopted in February 2001 in order to better plan the implementation of the requirements in

the waste area. In September 2001, the Seimas adopted the Law on Packaging and Packaging

Waste.

In the field of

water quality,

Lithuania has decided that the whole territory will be identified as

a sensitive area for the purposes of urban waste water treatment. As concerns the ground water

protection, partial transposition was achieved. A code of good agricultural practice was

adopted in line with the nitrates Directive and the requirements for bathing water were

transposed. In July 2001, the Seimas adopted the Law on Drinking Water which will enter into

force in July 2003.

With regard to the institutional structure, the Ministry has established a new Water Department

based on the former hydrographical service and the former fishing department.

In the field of

nature protection,

further steps were taken by the adoption of ministerial Orders

on selection criteria and identification of special areas of conservation. An action plan for

implementation and transposition has been drawn up. In May Lithuania ratified the CITES

convention. Ministerial orders were adopted on whales in October 2000.

As regards

industrial pollution control and risk management,

Lithuania has approved a

programme for the approximation of the IPPC Directive (February 2001) and adopted a

number of legislative instruments. The Minister issued the programme for implementation of the

IPPC requirements and an Order on permits for industrial pollution. A decision was taken to

reorganise the Register of Dangerous Installations.

Furthermore, in the field of

genetically modified organisms and chemicals,

the general

requirements on contained use of GMOs and on deliberate release of GMOs were transposed

in June 2001 by adoption of the Law on Genetically Modified Organisms. However, secondary

legislation to establish institutions for enforcement of requirements and data collection still needs

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to be introduced. Import and export licensing requirements on ozone depleting substances were

transposed by ministerial Order in August 2000.

Besides this, the Minister of Health Care approved a Hygiene Standard on “Pesticides and their

permitted concentration values in the environment”. During the month of December 2000 the

Ministers of Environment and Health Care approved the procedures on classification and

labelling of dangerous chemical substances, as well as a list of classified dangerous substances

and the procedures for testing properties of chemicals and preparations that may be dangerous

to the public health and the environment. In May 2001 the Government established a Register

of Dangerous Chemical Substances and Preparations and approved the relevant regulations. In

order to manage chemical substances, a separate division has recently been established in the

Non-food Products Control Inspectorate.

As regards

noise,

no progress can be reported.

In the field of

radiation protection

(see

also chapter 14 - Energy),

the Directive on basic

safety standards, and its daughter Directives on medical exposure and on outside workers have

been fully transposed into Lithuanian law. In May 2001 the Ministry of Economy issued the

order on the establishment of the Radioactive Waste Management Agency and approved its

statute. A plan for the protection of the population in the event of a radiological emergency at

the Ignalina NPP in line with the requirements was approved in the year 2000.

While in 2000, environmental public investments in Lithuania were €53.5 million, in 2001 they

have went down by 38% to an amount of around €33 million, corresponding to 0.22% of

national GDP. This decrease has been mainly due to a reduction of loans and grants.

Overall assessment

Lithuania has achieved a good level of alignment with the EC environmental

acquis.

Implementation is a major challenge, in particular for the water and waste sectors, which require

heavy investment or investment by private enterprises, such as for the IPPC, VOCs from

storage and distribution of petrol and fuel quality requirements. Lithuania has done considerable

work in as regards the preparation of implementation, including cost assessments.

With regard to horizontal legislation, transposition has now been completed. However,

enforcement authorities need to be strengthened further and the provision of information to the

public improved. As the necessary EIA legislation has been in place since July 2000, the EIA

requirements are applied.

On air quality, new legislation was adopted, and some gaps in existing legislation closed. As

regards volatile organic compound emissions from storage and distribution of petrol,

requirements on

existing

installations still need to be transposed. Further upgrading of the

monitoring system is needed. The necessary investments for the implementation of the VOCs

from storage and distribution of petrol and quality of fuel requirements need to be ensured.

In the area of waste, the landfill Directive was transposed, but some of the provisions in the

Lithuanian legislation may need revision to bring them into line with the

acquis.

As regards

implementation in the waste sector, local administrative structures need to be strengthened and

the necessary investments ensured. The recycling targets for packaging and packaging waste

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are a challenge. Lithuania needs to ensure timely transposition of the Directive on waste oils and

to implement measures in order to give regeneration of waste oils priority in practice.

Although some new legislation was adopted in the field of water, Lithuania needs to speed up

transposition. Monitoring and implementation should be stepped up, in particular for the

Directives relating to dangerous substances in surface water. Depending on the results of

studies, appropriate measures may need to be taken to bring fluoride levels in drinking water in

line with EC requirements.

With regard to industrial pollution control and risk management, work needs to be done to

ensure that permits issued will be integrated in practice.

Progress was made in the adoption of requirements on the identification of protected areas for

nature protection. The institutions dealing with nature protection need to be reinforced and their

co-ordination strengthened. The necessary scientific expertise for the identification of protected

areas also deserves attention.

In relation to chemicals and GMOs, the major legislation is in place. Considerable efforts are

still needed to prepare the secondary legislation. Moreover, particular and urgent attention

should be paid to building up the necessary institutions for enforcement of requirements and the

collection of data.

Concerning noise, Lithuania needs to transpose the

acquis

in this area, as the existing legislation

has so far not been aligned with the EU requirements.

As regards radiation protection and nuclear safety, Lithuania has transposed the major

Directives on safety standards and medical exposure and outside workers. A plan for a

radiological emergency at Ignalina NPP was developed. Specialised training and staffing levels

at the Radiation Protection Centre should be increased, as should the co-ordination and

preparations for a radiological emergency.

Lithuania should continue to integrate environmental protection requirements into the definition

and implementation of all other sectoral policies with a view to promoting sustainable

development.

As regards

administrative capacity

at central level, the Ministry of Environment employs some

180 persons and its subordinated 109 institutions have more than 10 000 employees. The

Ministry is composed of five Departments: the Departments of Environmental Quality,

Environmental Strategy, Nature Protection, Housing and Technical Standardisation, and

Territorial Planning, along with an independent division for Environment Impact Assessment.

These departments work out strategies, draft programmes and co-ordinate the drafting of

relevant legal acts. An Environment Protection Agency remains to be established.

The monitoring of the implementation of the requirements in the environmental field is ensured

by the State Environmental Protection Inspectorate, 8 regional departments and 54 city and

district agencies. The regional departments’ main responsibilities concern the permitting system,

EIA, laboratory control and enforcement of environmental regulations.

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Another important institution for the implementation of the requirements of environmental

protection is the Joint Research Centre. This institution, together with 8 regional laboratories, is

responsible for state laboratory control and monitoring.

Some environmental requirements are within the competence of other ministries. The Ministry of

Health Care is responsible for drinking water quality issues and shares responsibilities for

chemicals management with the Ministry of Environment. The Ministry of Economy is

responsible for hazardous waste management planning and implementation of the hazardous

waste treatment system.

The Law on Environmental Protection and the Law on Local Government (1995) determine the

responsibility of State institutions and local authorities in environmental protection. According to

the Law on Environmental Protection, local governments shall:

i) organize the implementation of laws and governmental decisions on environmental protection;

and ii) prepare, approve and implement the programmes, plans and projects concerning

environmental protection and use of natural resources within their jurisdictions.

Although overall administrative capacity seems relatively adequate, the administrative capacity

should be maintained and where necessary strengthened to a sufficient level to ensure

implementation and further transposition of environmental legislation according to EC

requirements. In certain areas more staff and training is still needed. The administrative capacity

for the development of EC-funded environmental projects in the Ministry of Environment and

elsewhere should be strengthened. Rationalisation of structures, to avoid duplication of work,

and the establishment of new institutions, are a continuing necessity if the requirements of the

acquis

are to be met.

Considerable investments need to be secured, also in the medium-term, to ensure

implementation of the environmental

acquis.

Chapter 23: Consumers and health protection

Lithuania has made a reasonable degree of progress since the last Regular Report in the area of

consumers and health protection.

There are no legislative developments of note to be reported in the field of

safety related

measures.

In the area of

non-safety related measures,

amendments to the Law on Consumer

Protection entered into force in January 2001. Together with the new Civil Code (which

entered into force in July 2001), the new Law on Consumer Protection aims to transpose the

acquis

on doorstep contracts, consumer credit, unfair terms in consumer contracts, timeshare,

distance contracts, indication of prices, injunctions and guarantees.

The Law on Advertising came into force in January 2001 and partially transposes the

acquis

misleading and comparative advertising.

During the reporting period, the re-organised

market surveillance

institutions took up

activities. The State Food and Veterinary Service is responsible for product safety in the food

sector and performs all food control related functions, while the State Non-Food Product

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Inspectorate under the Ministry of Economy is in charge of non-food control related functions.

In October 2000 the decision was taken to create the National Consumer Rights Protection

Council and its statute was established by a Government Decision of January 2001. This body,

placed under the Ministry of Justice, is responsible for the overall co-ordination of market

surveillance activities and, more generally, for the protection of the economic interests of

consumers and the implementation of the Law on Product Safety. It will take over responsibility

for the enforcement of the Law on Consumer Protection from the Unfair Competition

Investigation Division of the Competition Council.

The State Non-Food Products Inspectorate has been appointed and operates as the national

contact point for the Transitional Rapid Exchange of Information System (TRAPEX).

As regards consumer associations, four new non-governmental organisations have been

created: the Lithuanian Consumer Union, the Lithuanian Institute of Consumers, the Center for

the Protection of Consumers' Rights and the Association for the Protection of Consumers' and

Human Rights. They join the already existing Lithuanian Consumer Association and Lithuanian

National Consumers Federation.

Overall assessment

Lithuania has achieved a reasonable level of alignment in this area, however there are important

shortcomings with regard to the transposing measures. Adjustments of existing laws are

therefore needed to fully comply with EC

acquis,

both in the field of safety and non-safety

related measures.

In the area of market surveillance, an important step forward has been made through the

creation of the National Consumer Rights Protection Council, and the institutional re-

organisation of the market surveillance bodies which is now operational. Nevertheless, it will be

necessary to further strengthen the administrative capacities of the new institutions - the State

Food and Veterinary Service and the State Non-Food Inspectorate - in order to enable them

to carry out appropriate enforcement of the market surveillance system. The National

Consumer Rights Protection Council should also be made fully operational as soon as possible

and specific training should be provided to its staff.

Further efforts are also needed as regards support for activities carried out by consumer

organisations and the development of a programme for the education of consumers.

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

Lithuania has made progress since last year’s Regular Report in the area of justice and home

affairs, with notable improvements being made in strengthening the external border, and

addressing, in part, shortcomings in inter-agency co-ordination.

In the field of

data protection,

some progress has been achieved in terms of legal framework

and in the area of public awareness. in In February 2001, the Lithuanian Parliament ratified the

European Convention for Protection of Individuals with regard to automatic processing of

personal data.

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In October 2000, the new Law on Police Activities was adopted. The Law requires the police

to release to individuals, upon their request, unclassified information about them from the police

information system and prohibits disclosure of personal information to other persons.

The new Law on the Legal Protection of Personal Data entered into force in January 2001. On

the basis of this Law, the State Data Protection Inspectorate is to be reorganised into an

independent government institution.

In the area of

visa policy,

there have been no legislative or administrative developments of note

since last year’s Regular Report.

As concerns

border control,

in November 2000, the new Law on the Border Guard Service

(formerly Border Police Department) entered into force. In May 2001, in line with the new

Law, the reorganisation of the former Border Police Department (Ministry of Justice) into the

Border Guard Service under the Ministry of Interior was completed. The Border Guard Service

is gradually reducing the number of military conscripts and replacing them with professional

officers.

In October 2001, Lithuania presented its

Schengen

Action Plan with a view to the

implementation of the acquis.

Border demarcation with Belarus has continued, primarily on the Lithuanian side. Lithuania has

placed border markers at both regular and provisional central border posts along the whole

length of the border and the construction of a number of surveillance towers has been

completed.

In June 2001, the Lithuanian State Border Guard Service and the Swedish Maritime Border

Protection signed a cooperation agreement on the fight against organised crime.

During the period 2000-2001, the number of staff (including border police officers, frontier

guards and civil servants), along the future EU external borders, has been increased from 504 to

659 staff at the border with Russia, as well as from 1489 to 1679 staff at the border with

Belarus. As of March 2001, the total staff of the Border Guard Service was 4936. The majority

(4016) are border police officers and border guards, 621 – are civilians and 299 – are

conscripts.

In 2000, the border police detained 100 illegal immigrants at the external border (261 and 495

in 1999 and 1998, respectively). The number of offences at the state border has decreased

from 1039 cases in 1999 to 797 in 2000, with 49 percent of offenders being detained at the

border with Belarus. Over the past few years, illegal migration has decreased due to

strengthened border control, stricter penalties for migrant trafficking and stronger international

cooperation,

During 2000, a total of 430 border guards received some degree of professional training.

During the first half of 2001, the figure is up to 600.

In 2000, the new computer-based State Border Guard Service Information System (SBGSIS)

was installed with the network covering central administration, border police districts, stations,

and checkpoints.

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In November 2000, the State Border Guard Service signed a co-operation protocol with the

Customs Department and the Police Department regarding inter-institutional co-operation.

Furthermore, in February 2001, the Police Department, the Tax Police Department, Border

Guard Service, the State Security Department, the Special Investigation Service, the Customs

Department and the General Prosecutors Office signed an agreement on cooperation in

operational activities.

There have been no legislative developments of note in the area of

migration.

Regarding

administrative capacity, a police unit for combating illegal migration was established in

December 2000.

In the field of

asylum,

a Ministerial Order was passed in October 2000 on the determination of

the “safe country of origin” and “safe third country”, bringing legislation further into line with

acquis

provisions. During the reporting period, the staff of the Asylum Division of the Migration

Department have attended a number of training courses and seminars on asylum, organised by

several international organisations. In 2000, the Lithuanian authorities received 199 asylum

applications. During the same time, 15 persons were granted refugee status.

As concerns

police co-operation and the fight against organised crime

, the new Law on

Police Activities, which entered into force in December 2000 lays down provisions to ensure

greater independence of the police service, to allow for its reorganisation and the transfer of

certain functions to the civil service.

In November 2000, in addition to the agreement on cooperation in operational activities already

mentioned, the Police, Border Police and Customs Departments signed a cooperation

agreement on the fight against crime. The agreement also stipulates the exchange of information

on crime and crime prevention, co-operation in carrying out operational activities and joint

training exercises.

In February 2001, an inter-governmental agreement on cooperation in fighting organised crime,

terrorism and other serious crimes was signed between the Ministries of the Interior of Lithuania

and Germany. The agreement allows the Lithuanian Police, Tax Inspectorate and Border

Police to apply directly to the German law-enforcement institutions for information and

assistance in crime investigation. This creates a legal basis for information exchange in

combating organised crime and trafficking in people, and ensuring victims' safety. In June 2001,

the Heads of Police of Lithuania, Latvia, Estonia and Finland signed an agreement on co-

operation in operational activities combating organised crime. Under the agreement, the parties

will exchange relevant information, appoint contact officers, and organise joint seminars and

training.

In 2000, 1,081 police officers (including policemen, police inspectors and commissioners) were

trained. From January to May 2001, a total of 596 police officers enrolled for training. Police

officers are trained at the Lithuanian Law University and Klaipeda Police High School.

Development of professional police skills is provided by the Police Training Centre.

As regards the

fight against fraud and corruption,

in May 2001, the Lithuanian Parliament

adopted a Resolution on the Fight against Corruption, which sets out a number of anti-

corruption measures to be implemented by the Parliament, the Government and the Special

Investigations Service (

see also Section B.1.1. - Democracy and the rule of law).

The

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institutions involved in the fight against corruption have, in general, been strengthened in terms of

staff training. The Code of Ethics for the staff of the Special Investigation Service (SIS) officers

was adopted in 2001.

The National Anti-Corruption Strategy was approved by the Government in September 2001,

but, along with the programme for its implementation, remains to be adopted by the Parliament.

In December 2000, Lithuania signed the Council of Europe Criminal Law Convention on

Corruption.

In January 2001, the Government approved an Action Plan for the implementation of the

National

Drug

Control and Prevention Programme for 1999-2003. Also in January 2001, a

new Inter-Governmental Drugs Control Commission was established, with the objective of co-

ordinating inter-ministerial activities in the field of drug control and drug prevention. The Minister

of Health chairs the Commission, which comprises representatives from various ministries such

as the Ministry of Health, Interior, Social Security and Labour, Defence, Justice, Finance,

Education and Science, and Agriculture as well as the Customs Department, and the AIDS

prevention centre. The Secretariat of the Commission has been established within the Public

Health Care Service and employs 15 people who are responsible for public health policy

implementation, monitoring, public health promotion, health education, hygiene control, and a

Tuberculosis Register.

In November 2000, the Narcotics’ Control Board in the Police Department was set up. The

Board is responsible for coordination of the law-enforcement institutions actions in combating

trafficking and distribution of drugs. The Investigation Department of the Interior Ministry was

incorporated into the Police Department at the end of 2000.

In July 2001 a special division within the customs department for the Control of Drugs and the

Precursors of Narcotic Substances was established at the Fraud Prevention and Investigation

Service of the Customs Department.

In 2000, 926 crimes related to illegal trade in narcotic and psychotropic substances were

registered. This is a 33% increase compared to 1999 (701 crimes). In 2000, six illegal

laboratories for the production of synthetic drugs were discovered.

In the area of

money laundering,

the Financial Unit of the Tax Police received 51 reports on

suspicious transactions in 2000, compared to 66 reports in 1999. A total of 13 criminal

proceedings relating to money laundering were initiated in 2000.

With regard to

customs co-operation,

there are no significant developments to report.

In the area of

judicial co-operation in criminal and civil matters,

a number of international

conventions have been ratified. In November 2000, the Lithuanian Parliament ratified the

International Convention against the Taking of Hostages, and the Additional Protocol to the

Convention on Transfer of Sentenced Persons. The Convention of 2 October 1973 on the Law

Applicable to Maintenance Obligations was ratified by the Parliament in March 2001.

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Overall assessment

Lithuania has reached a reasonable degree of alignment with the

acquis;

however, whilst

concerted efforts have been made regarding administrative capacity, enforcement capabilities

across a number of areas of justice and home affairs continue to be rather weak.

Particularly significant are the efforts that have been undertaken to improve inter-agency

cooperation. Whilst the legal framework for cooperation and coordination between the relevant

bodies has been strengthened, it is too early to assess whether the

de facto

situation has

significantly improved.

As regards data protection, whilst new legislation has entered into force, further secondary

legislation for the implementation of this legislation should be adopted.

Following the ratification of the Convention on the Protection of Individuals with regard to

automatic processing of personal data, relevant legal acts need to be amended accordingly. The

Police Service should be strengthened and ensure proper implementation of data protection

requirements.

In order to ensure proper personal data protection system, reorganisation of the State Data

Protection Inspectorate should be speeded up. This would allow the Inspectorate more

independence in its activities. In addition, the Programme on Data Protection Development,

which would serve as the main policy framework during the coming years, needs to be finalised

and adopted.

Lithuania needs to fully align its

visa policy

with the

acquis

including as regards countries with

which visa-free regime exists, visa sticker, and establishment of a central visa database. The

Lithuanian visa regime in respect of third country citizens, including those from Belarus and

Russia, will need to be brought into line with the

acquis

by the time of EU accession.

Efforts have been made to ensure proper border control and unhampered movement of

legitimate flows through borders via the strengthening of technical capacities and the installation

of the online computerised border information system, which will serve as a part of the future

Schengen Information System. Such efforts need to be sustained and improved. Border

demarcation needs to be completed. An automatic data exchange network needs to be fully

developed and the upgrading of technical equipment and infrastructure continued. Coordination

between the State Border Guard Service and other law-enforcement bodies has improved but

these efforts must be further sustained to ensure a sufficiently high level of border control.

The Schengen Plan needs to be implemented.

Some progress can be noted in the area of migration, particularly with regard to the

implementation of readmission and expulsion procedures. Lithuania has signed 20 readmission

agreements with EU Member States and third countries. Little progress however can be noted

in extending readmission agreements to include Belarus and the Russian Federation. Lithuania

needs to complete alignment with the

acquis.

Preparations should be made for the

implementation of the new Convention on internal readmission of illegal immigrants. Inter-

agency cooperation should be improved so that a coordinated approach to migration issues

can be applied among migration, labour and law-enforcement institutions. Preparations for the

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establishment of a Migration Register System should be stepped up. Further efforts should also

be made in improving cooperation and coordination with neighbouring countries.

Lithuania has already achieved substantial alignment in the area of

asylum,

however there are

still a number of shortcomings that need to be addressed to ensure that legislation is fully in line

with European and international standards. These include, provisions on detention, admissibility

procedures, the definition of “safe third country” and “safe country of origin”, exclusion and

cessation clauses and the principle of ‘non-refoulement’. A Refugees Register has not yet been

completed.

The reorganisation of the Asylum Division of the Migration Department in 2000 is a welcome

development as it ensures a coordinated approach in dealing with asylum matters and decreases

the potential for duplication. However, the Asylum Division lacks basic capacities to handle

country of-origin information. Current staffing levels in the Asylum Division may not be sufficient

to deal with Dublin Convention cases on asylum applications. The judicial capacities to deal

with asylum matters also needs to be considerably strengthened.

As concerns

police co-operation and fight against organised crime

, overall, some progress

can be noted in terms of inter-agency and international cooperation. However, severe

budgetary constraints have had a clear impact on the development of a modern, efficient and

professional police service. The recent efforts for restructuring the police service need to built

upon, and the professional skills of the police force need to be further developed.

Preparations for full participation in the work of Europol should be continued, so that a

cooperation agreement can be signed as soon as possible. In addition, a network of police

liaison officers needs to be established under the common Schengen framework in order to

reinforce bilateral cooperation with other EU countries for cross-border surveillance.

Police training has gone through many changes and adaptations over recent years. However, a

complete and coherent professional training strategy for the police must be developed in the

near future in order to ensure that police officers obtain specialised training, in particular on the

specific types of crime as well as on specific actions needed for police cooperation according to

the Schengen provisions.

An integrated computerised network should be established between the central police

administration and regional commissariats with the aim of developing detailed information and

criminal analysis. Furthermore, a common radio-network system needs to be established for the

common cross-border surveillance purposes.

Trafficking in women continues to be a problem and stronger efforts to combat it should be

made.

Good progress has been achieved at institutional and operational level in the

fight against

corruption.

Since 2000, the Special Investigation Service and its regional offices have achieved

important results in fighting corruption in budgetary, municipal, credit and financial institutions, as

well as in fighting corruption among civil servants in public tendering, privatisation, local

authorities, foreign investment, customs and law enforcement. Since its establishment, the SIS

has improved the administrative capacity to combat corruption.

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A new Law on Corruption Prevention has yet to be adopted. The Code of Ethics for Public

Servants should be finalised in order to improve the fight against corruption within different state

bodies. Furthermore, preparations for the National Anti-Corruption Strategy should be finalised

and co-ordination amongst all bodies responsible for the fight against corruption needs to be

stepped up. Lithuania has has not yet signed the Council of Europe Civil Law Convention on

Corruption.

In order to ensure the protection of the financial interests of the European Communities,

Lithuania should continue to align its legislation with the 1995 Convention on the Protection of

the Financial Interests of the European Communities and its protocols.

In the field of

drugs,

Lithuania is advancing towards a more coherent policy and legal

framework. A national drug policy in the fields of drug control and drug prevention treatment

and an Intergovernmental Drugs Control Commission are now established.

Particular attention should be paid to further strengthening coordination and cooperation

between specialised units on drugs, financial intelligence, and organised crime, and the

investigation services of the law-enforcement authorities. In order to improve cooperation with

EU Member States, the legal framework for international cooperation needs to be completed.

Furthermore, the establishment of an information system, formalising the seting-up of a National

Focal Point and participation in the European Information Network on drugs and drug addiction

(REITOX) at the European Monitoring Centre for Drugs and Drugs Addiction should be

speeded up. In addition, a national strategy on drugs supply reduction and drug demand

reduction needs to be stablished

While the administrative capacity of the police authorities, in terms of

money laundering,

has

improved, cooperation between the Financial Intelligence Unit at the Ministry of the Interior and

Customs, and the Border Police needs to be strengthened, especially in terms of information

exchange and implementation of prevention measures. Due coordination should also be

ensured with the relevant credit and financial institutions dealing with the prevention of money

laundering. The independence of the Financial Intelligence Unit needs to be strengthened and

further legislative measures are still required in order to ensure full alignment with the

acquis

In the field of

customs co-operation,

progress has been made in strengthening the role of the

customs authorities in the fight against fraud. The newly reorganised Fraud Prevention and

Investigation Service should play an important role in customs cooperation and enforcement and

as such will need to be accorded the necessary resources. Inter-agency cooperation has

undoubtedly improved, nonetheless there are still important shortcomings, particularly at border

crossing points.

With a view to future cooperation with Europol, the customs service needs to improve its

intelligence capacity and to be able to participate in joint projects using a multi-agency

approach. Substantial training will be needed to meet these requirements.

Furthermore, with over 90% of all customs officials employed at the regional level and the

border posts, an appropriate training and incentive strategy needs to be developed for Regional

Customs Offices. This is essential for integrated border management, where customs will be

working with veterinary, internal market and law enforcement/visa agencies.

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In the area of

judicial cooperation,

the matter of administrative structures to allow for

cooperation with Member States upon accession on the basis of international conventions, is

gradually being addressed.

As regards judicial cooperation in civil matters, even though the major Hague Convention acts

have already entered into force, awareness within the judiciary of these acts remains limited and

needs to be addressed through appropriate training.

There have also been positive developments with regard to judicial cooperation on criminal

matters. In most cases, requests received are promptly executed. Lithuania, however, needs to

prepare the implementing provisions of the 2000 Mutual Assistance Convention (with regard to

undercover operations and multinational investigative teams). Efficient structures for judicial

cooperation on criminal matters, mainly at the central level, have to be built up by developing an

instructor-training programme for personnel responsible for drafting and applying conventions

both in the Ministry of Justice and in the Prosecutor General’s Office. Adequate staffing also

needs to be ensured so as to avoid delays in the execution of international letters of request.

Training of judges, prosecutors and court personnel in the acquis must be continued

systematically.

In the medium term, a comprehensive plan on administrative restructuring of judicial cooperation

in criminal matters, in line with the acquis requirements, should be developed, including the

establishment of national judicial contact points for the functioning of the European Judicial

Network.

Lithuania is a party to all

human rights

instruments that are part of the Justice and Home

Affairs acquis.

Chapter 25: Customs union

Since last year’s Regular Report, Lithuania has made good progress in the area of customs.

Several pieces of implementing legislation were adopted, ensuring further alignment with the

Customs Code and its implementing provisions

, and the combined nomenclature of goods.

These included measures on the application of simplified customs procedures, destruction,

temporary admission and temporary exportation of goods. In September 2001, the

Government further adopted Resolutions on the export of cultural valuables and on amending

the customs transit procedure.

The Law on Free Warehouses also entered into force in January 2001.

As concerns the

customs

acquis

outside the Customs Code

, legislation governing the

protection of intellectual property rights in the field of import and export of goods entered into

force in January 2001. This new legislation gives the customs authorities the requisite powers to

detain goods which are suspected of being counterfeit or pirated.

(See Chapter 5 - Company

Law)

A number of international agreements on mutual assistance were signed (or renewed) during the

reporting period, notably with Poland, Russia and Uzbekistan. Agreements with Denmark,

Georgia, the Netherlands and Turkey were ratified by the Lithuanian parliament. An agreement

with the USA has been ratified but has not yet entered into force. The International Convention

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on the Mutual administrative assistance for the prevention, investigation and repression of

Customs Offences came into force for Lithuania in February 2001.

In January 2001, the Agreement on the Baltic Common transit procedure entered into force. At

the same time, the central transit control office within the Customs Department was established.

Joint Committees on Common Transit and on Simplification of Formalities granted Lithuania

observer status in working groups as of January 2001.

During the reporting period, a number of important activities were carried out in order to

improve the administrative and operational capacity of Lithuanian Customs.

In January 2001, the new revision of the Statute of Service with the Customs Department

entered into force, with the aim of ensuring better selection and distribution of employees, more

efficient prevention of corruption and reduced waiting times at the border. The new

organisational structure of the Customs Department, based on best practice in EU Member

States, came into force in July 2001.

In October 2000, the Government adopted a Resolution on operational activity. The Resolution

grants the Customs Department and operational units of the territorial customs offices the rights

and powers necessary to conduct operational activity, to investigate and prevent the violations

of the law, and to implement the obligations of the international treaties on co-operation and

mutual assistance.

Following the decision to transfer responsibilities in the fight against smuggling from the Ministry

of Finance to the Customs Department, the Fraud Prevention Service was reorganised into the

Fraud Prevention and Investigation Service, which consists of 4 units: anti-smuggling,

intelligence analysis, procedures and tax control, and investigation. The anti-smuggling division

has established branches in Vilnius, Kaunas, Klaipeda, Šiauliai, Panevežys and Marijampole

regional customs offices. As for border controls, in February 2001, the Government approved

the new rules for the activities of border control posts based on the "one stop – one check"

formula. The border posts with Belarus and Kaliningrad have been continuously strengthened.

The reconstruction of the Nida post was finished in November 2000, while the design of the

Šalcininkai post was completed in May 2001.

In the field of computerisation, the computerised customs information system based upon the

ASYCUDA software package was implemented at several sites of the Kaunas and Vilnius

territorial customs offices. Working groups for the implementation of ASYCUDA were formed

at the Šiauliai, Panevežys and Marijampole territorial customs offices. The ASYCUDA system

has been backed up by the computerised tariff functions which allow users to perform the

automatic calculation of customs duties and taxes.

In January 2001 the IT unit of the Customs Department was reorganised into the independent

customs institution. In February 2001, the Lithuanian Government approved an action plan for

the introduction of the integrated customs information system.

In February 2001, the Customs Department approved the data formats of the electronic version

of the integrated tariff, and in May 2001, the Lithuanian Ministry of Economy published the

printed version of the integrated tariff.

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Overall assessment

Overall, Lithuania has made concerted efforts to bring its legislation into line with the customs

acquis

and to continue the process of modernisation of the customs administration. Far greater

attention, however, needs to be put on ensuring effective enforcement.

The alignment with the

acquis

is progressing at a satisfactory pace, and is near its completion.

Specific measures still need to be taken, chiefly as regards the Single Administrative Document

(SAD) and accession to the Common Transit Conventions.

A considerable amount to of work still however remains to be done with regard to

administrative and operational capacity, and in particular the IT/computerisation aspect, despite

a number of important measures being undertaken. With regard to IT development, it must be

emphasised that flawlessly functioning of EC-compatible IT systems should be in place at least

one year before EU accession in order to allow a sufficient period of time for the test

requirements and to guarantee interconnectivity with the EC customs computerised systems.

Enforcement measures need to be improved, especially as regards the fight against customs

fraud, and greater efficiency is needed to avoid unreasonable waiting times at borders, without

undermining the quality of control. Lithuania must also actively address the problem of

corruption within the customs administration.

Active co-operation with other services (e.g. Border Guard, veterinary and phytosanitary

inspectors etc.) must continue to be strengthened.

Chapter 26: External relations

Since the last Regular Report, Lithuania has continued to make progress in aligning with the

acquis

with regard to the common commercial policy. Lithuania acceded to the World Trade

Organisation in May 2001.

As regards the

common commercial policy,

Lithuania will be required to align its tariffs with

those of the EC on accession. Lithuania’s applied tariffs currently average 5,4% on all

products, 15,2% on agricultural products, 4,1% on fishery products and 2,5% on industrial

products. By comparison the EC tariffs

currently stand at 6.3% on all products, 16.2% on

agricultural products, 12.4% on fishery products and 3.6% on industrial products.

During the reporting period Lithuania acceded to the World Trade Organisation (31 May,

2001). Lithuania has joined all mandatory WTO agreements without transitional periods. The

plurilateral WTO Agreement on Trade in Civil Aircraft was ratified with the WTO accession

package and entered into force for Lithuania in June 2001.

As regards

bilateral agreements with third countries,

a Free Trade Agreement between

Lithuania and Bulgaria was signed in May 2001, and negotiations on a Free Trade Agreement

with Romania have been completed. Changes to the definition of the rules of origin and methods

of administrative cooperation have been made to Lithuania’s Free Trade Agreements with the

WTO bound tariffs after full implementation of all concessions including – where possible – estimated ad valorem

equivalents of specific and compound tariffs.

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European Community, European Free Trade Association (EFTA), Latvia, Estonia, Poland, the

Czech Republic, Slovakia, Slovenia, Turkey and Hungary during the reporting period.

Co-operation among the Baltic States in implementing gradual liberalisation and regional

integration policies is developing and a Baltic Common Economic Area is being introduced. The

Baltic Free Trade Agreement covers industrial and agricultural goods, and negotiations on the

liberalisation of the services market are proceeding.

No particular development can be reported as regards

development policy

and

humanitarian aid.

Overall assessment

Lithuania is advanced in aligning with the

acquis

in this area.

Lithuania is a party to the Information Technology Agreement (ITA). Lithuania has yet to join

the plurilateral WTO Agreement on Government Procurement to which it currently has observer

status. Further cooperation is needed to ensure the alignment of Lithuania’s GATS

commitments with EC commitments and MFN exemptions. With regards to the WTO

Agreement for Textiles and Clothing (ATC), further progress is due. Consultations took place

with Lithuania regarding its proposal for the alignment of its integration programmes for stages

1, 2 and 3 on those of the EC, in order notably to avoid the integration of products not yet

integrated by the EC.

Lithuania currently has FTAs with the Czech Republic, EFTA, Estonia, Hungary, Latvia,

Poland, the Slovak Republic, Slovenia, Turkey and Ukraine. Lithuania has progressed in

aligning its international commitments to those of the EC in respect of Free Trade Agreements.

However, it should continue its review of its bilateral and multilateral trade agreements, including

its bilateral investment treaties with third countries. Any international agreement, which is

incompatible with the obligations of membership, will have to be re-negotiated of renounced

prior to accession. Lithuania should continue to keep the European Union fully informed about

existing trade agreements or negotiations aimed at the conclusion of any new trade agreements

with a third country.

Lithuania needs to keep the European Union informed about its ability to implement the new EC

Regulation on Dual Use Goods.

Where medium and long term Export Credits are granted, further efforts are necessary to align

with the acquis.

Regarding development policy, Lithuania needs to introduce the Generalised System of

Preferences (GSP) in its trade with third countries and to prepare for future participation in the

financing of the European Development Fund.

The institutional infrastructure required for implementation and enforcement of the

acquis

is in

place and is operational. The administrative infrastructure which needs to be in place as regards

customs services is addressed under

Chapter 25 – Customs union.

The Ministry of Foreign

Affairs is responsible for negotiations and supervision of agreements in the fields of trade and

international economic relations, and also administers development and humanitarian aid. The

Ministry of Foreign Affairs has sufficient administrative capacity to ensure coordination with the

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other ministries and departments responsible for external relations. For the purpose of

Lithuania’s future financial contribution to the European Development Fund, Lithuania’s

management of its national budget organisation and management of flow of funds to the EC

budget is addressed under

Chapter 29 – Financial and budgetary provisions.

Chapter 27: Common foreign and security policy

Since the previous Regular Report, Lithuania 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.

The regular

political dialogue

established by the Association Agreement with Lithuania is

proceeding smoothly and the country continues to orient its foreign and security policy towards

the Union.

Lithuania has shown a keen interest in the development of European Security and Defence

Policy (ESDP) as part of the CFSP. It has actively participated in the exchanges in this context

with the EU and, for the ESDP, in the EU+15 format meetings (i.e. with non-EU European

NATO members and candidates for accession to the EU). Lithuania has participated in all

relevant meetings, including those at Political Directors’, European correspondents’ and

working group levels.

Lithuania continued to align itself regularly with

EU statements, declarations, common

positions, joint actions

and other CFSP instruments when invited to do so, including negative

measures. Since October 2000, it associated itself with 8 EU common positions, including 3

on the Federal Republic of Yugoslavia. Lithuania played an active role in the first Capabilities

Commitment Conference in November 2000. It pledged armed forces to the EU Rapid

Intervention Force missions from 2003. A Crisis Management Centre has been set up to

organise civilian contributions to international stability and security enforcement measures.

Lithuanian experts participated in a series of meetings in the framework of OSCE and WEU

peacekeeping and observer activities.

Lithuania's relations with its neighbours continued to be good. In its relations with Russia,

Lithuania has continued to emphasise the development of cross-border co-operation with the

Kaliningrad region.

Overall assessment

The policy pursued by Lithuania is largely in conformity with the CFSP

acquis.

Lithuania is actively aligning itself with declarations and common positions of the EU. As the

acquis

in the field of foreign policy and security develops further, Lithuania should maintain the

orientation of its foreign policy in line with that of the Union.

It has developed good and constructive relations with all the neighbouring states and is an active

proponent of regional co-operation, notably in the framework of the Council of the Baltic Sea

States. Lithuania has aligned itself to the content and principles contained in the EU Code of

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Conduct on Arms Exports. Lithuania needs to pass the Law on International Economic

Sanctions with a view to the obligatory enforcement of EU sanctions applied to third countries.

Concerning the administrative capacity to implement the provisions relating to the CFSP, the

Lithuanian MFA has structures compatible with CFSP requirements. The Ministry is connected

to the Associated Correspondents' Network information system through which the EU

communicates within the CFSP with the associated partners.

Chapter 28: Financial control

Since last year’s Regular Report, progress has been achieved in the area of financial control.

In the field of

Public Internal Financial Control

(PIFC), the Government Resolution on

Internal Audit of State Enterprises and Establishments was amended in October 2000. As a

result, the conditions under which national budget spending institutions (

inter alia

ministries,

state agencies and enterprises) must establish internal audit services were improved. The

Ministry of Finance is responsible for establishing internal audit services in line with international

standards. In January 2001, the Ministry of Finance adopted an Internal Audit Manual and in

September 2001, the Government adopted a Resolution on Internal Audit Standards, aligning

its internal audit standards with international standards.

In October 2001, a Central Harmonising Department was established within the Ministry of

Finance. It is responsible for developing methodology for financial management and control as

well as for internal audit and for providing guidance to budget spending centres. The

Department includes also a unit which is responsible for the assessment of internal audit quality

throughout the government. The department has currently eight posts of which five have been

filled.

For the purpose of monitoring and co-ordinating the development of the internal audit system in

the public sector, the Government set up a Permanent Inter-ministerial Commission (PIC) which

became operational in March 2001. Decisions by the Commission are, however, non-binding.

In September 2001, the Law on Municipal Government was amended to reinforce internal audit

capabilities in local municipalities and ensure that they fall under the methodological guidance of

the Ministry of Finance.

A number of training sessions were organised in the first half of 2001, covering financial

management, control and audit methodology.

By January 2001, internal audit units had been established in all Ministries, 95 percent of state

institutions subordinate to the Ministries, 9 out of 10 administrations of the county governors

and 60 percent of other state institutions. Of the total of 222 internal audit positions established,

141 were filled. The Ministries filled 64 percent of internal audit staff positions, state institutions

subordinate to ministries – filled 71 percent, administrations of the county governors - 50

percent, and other state institutions - filled 66 percent.

There are no particular legislative developments to report in the area of

external audit.

regards administrative capacity, the State Control Office (SCO) established 3 new units: the

Control, Expertise, Prevention and Methodology Unit, the Unit for Control and Operational

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Audit, and the International Relations Unit. In September 2001, the SCO adopted a

Development Plan covering the period 2003-2006.

As regards

control of structural action expenditure

, the Lithuanian Government adopted a

Resolution in July 2001 with the objective of defining the role and responsibilities of state

institutions as regards the implementation of the EC Structural Funds. With regard to EC pre-

accession funding, an audit trail has been prepared for the SAPARD programme. The

SAPARD agency was accredited at the national level.

There are no particular developments to report in the area of

protection of financial interests

of the European Communities.

Overall assessment

Concepts and legislation regarding Public Internal Financial Control are largely in line with the

acquis,

although the present range of Government Resolutions and amendments would require

consolidation into a new global PIFC Act. Since the establishment of the new implementing

structures is very recent, their implementation capacity remains to be tested. A well-defined

strategy plan for the further implementation of public internal financial control systems should be

prepared and implemented.

The efficiency of the financial management and control of national budget income and spending

appears to remain relatively weak; basic accounting systems and practices have not reached

acceptable standards.

A Financial Management Control manual should be finalised, including a control framework,

and measures for reporting, monitoring and accounting of national and EC funds.

The establishment of a single Central Methodology Department within the Ministry of Finance is

a welcome development, even though the Department is not yet fully operational. The Internal

Audit Manual should be revised in accordance with the recently adopted Internal Audit

Standards. More staff needs to be recruited and trained in the internal audit units within the

Ministries and relevant state bodies.

Further progress and improved capacities are still needed with a view to Lithuania’s future

responsibilities in terms of public internal financial control of both national and EC structural and

other funds.

As regards external financial control, the legal framework regarding the mandate and activities

of the State Control Office (SCO) should be adopted in order to meet internationally accepted

and EU-compliant standards of supreme audit institutions within the EU. In particular, its

independent financial status needs to be strengthened. Further improvements are also required

in both the formal and working relationship between the SCO and the Lithuanian Parliament. In

addition, the audit manual should be developed and implemented to assure alignment with

international and EU-compliant standards.

Audit trails need to be prepared for all pre-accession funds, to ensure proper control of

structural action expenditure. Whilst the Government Resolution of July 2001 was a positive

development, the definition of responsibilities throughout the entire management line of

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implementation of EC pre-accession funds remains untested. National Fund and Implementing

Agency staff resources and skills need to be strengthened.

Lithuania should nominate, as soon as possible, in consultation with OLAF, an institution or

administrative structure capable of co-ordinating investigations into cases of fraud and

irregularities affecting the Communities’ financial interests and of acting as a single contact point

in relations with OLAF.

Chapter 29: Financial and budgetary provisions

Since the last Regular Report limited further progress can be reported in this area.

The focus has been on implementation of the new

Budget

Law. For the first time the ministries

have prepared the budget on basis of the new Budget Law and the approved strategic planning

methodology.

In March 2001 the Government approved a Resolution on the Plan for Preparation of the drafts

of the State and Municipal Budgets and financial indicators for 2002. According to this

Resolution the budgetary process is scheduled both in terms of deadlines and a clear distribution

of roles of line ministries. In April 2001 another Resolution on the Procedure for Evaluation of

Programme Implementation by Appropriation Managers of the State Budget was approved. It

establishes evaluation of programme implementation as a constituent part of internal audit.

As regards control of payments and spending, a computerised standard accounting system is

being developed and implemented. However, at present this system covers only around 85 %

of all public institutions. The system does not allow for cost accounting at the program level.

As concerns future

own resources,

a working group has been set up at the Ministry of

Finance to develop the own resources system and to enhance administrative capacity in this

area.

Overall assessment

While the basic principles and provisions for the preparation, the approval, the execution and

the control of the budget are enshrined in the Budget Law, considerable further efforts will be

required.

The notion of a multi-annual budget formally introduced through the Law needs to be made

operational in the process of budget planning and execution. The same is true for the co-

ordination and integration of the Public Investment Programme and the National Development

Plan with the State Budget. The Resolution adopted in March 2001 which specifies the roles of

different line ministries will have to be implemented in practice.

The Budget Law does not specify in detail the concept and system for national co-financing of

EC programmes from the point of view of procedures and availability of funds. Appropriations

for the co-financing of EC structural financial instruments should be approved for inclusion in the

state or municipal budgets or in other state funds, and made available on a multi-annual basis. In

parallel work on improving macro-economic forecasting and drawing up a medium-term budget

strategy should continue.

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The budget planning documents should be further aligned with the standard practice of EC

financial planning and the content of state and municipal budgets and the structures and budget

lines should be further rationalised.

The procedures for selecting, monitoring, evaluating and reporting public investments and

expenditure programmes need to be strengthened in order to improve the process of allocation

of resources. The Resolution concerning evaluation adopted in April 2001 is a step in the right

direction. In order to be able to carry out the necessary tasks, the corresponding analytical

capacity should be increased in the Ministry of Finance and the spending Departments.

Performance indicators should be made more result-oriented than the existing indicators, which

mainly focus on input demand.

The present computerised system (Navision) should be further developed to enable cost

accounting and classification below the programme level, and to handle non-numerical data. The

accounting basis should be improved. Improvements to the Treasury system are required. For

more efficient performance measurement, an open and transparent system for reporting

performance information relating to spending centres should be established urgently.

As regards own resources and administrative infrastructure, considerable progress is still

required. Payments of own resources to the Commission should eventually be handled centrally

to minimise the risk of errors and the need for corrections. VAT- and GNP-based contributions

will have to be processed as new items of expenditure in the State Budget. The capacity to

calculate in a reliable, accurate and transparent way the level of customs duties and VAT

collected by Lithuania needs to be improved to allow calculations to be made in a harmonised

and controllable way. The co-operation between the Ministry of Finance and the Department of

Statistics will have to be enhanced to improve the calculation of VAT- based payments.

Stronger co-ordination will be required between the State Tax Inspectorate, Customs

Department and the Department of Statistics. Adequate staffing levels need to be ensured.

Adequate administrative capacity to duly collect and transfer in a timely manner all own

resources to the Community budget will need to be established prior to accession, as well as the

ability to accurately and regularly report to the Commission on the situation with regard to each

of the types of own resources. Efforts should be made to set up effective instruments to combat

fraud relating to VAT and customs duties so that the protection of the financial interests of the

EC can be assured.

In addition to the need for central co-ordination of the proper collection, monitoring and

payment and control of funds to and from the EC budget, administrative capacity should be

strengthened in the context of the relevant policy areas described elsewhere in this report, such

as Financial Control, Customs, Taxation, Regional Policy and Agriculture.

3.2.

Translation of the acquis into the national languages

Applicant countries are required to translate the various legal texts constituting the

acquis

into

their national languages by the time of their accession. Primary and secondary legislation alone

represents 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 and Eastern Europe.

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The service in charge of translation of the

acquis

into Lithuanian is the Translation,

Documentation and Information Centre. For this task, the centre has received a budget

allocation of €190,000 (LTL 700 000).As of September 2001, the number of pages of the

Official Journal translated into Lithuanian was around 28 500, of which over 20,000 pages had

been fully revised. This compares to January 2000, when the number of pages of the Official

Journal translated into Lithuanian was around 20 000, of which 10% had been fully revised.

Without prejudice to the outcome of the accession negotiations, considerable further efforts are

required in this area.

Due attention must also be given to the training of conference interpreters.

3.3.

General evaluation

Lithuania has made significant progress in terms of transposition and implementation in most

areas of the

acquis.

While the degree of progress varies, the gaps are being reduced and in

some areas Lithuania has achieved a high level of alignment. The areas where considerable

efforts are still required are notably those related to the use of EC funds. Overall, the

administrative capacity has improved, although in some areas where administrative structures

have been changed over the past year it has been challenging to re-build the necessary capacity.

In the field of the

internal market,

Lithuania has continued to make progress as regards the

free movement of goods

in terms of transposition of the

acquis

and strengthening of the

institutions (especially for standardisation and accreditation). While alignment on public

procurement remains to be completed, there has been progress in implementing the existing

legislation. The administrative capacity of the Public Procurement Office has improved,

although it needs further strengthening. As regards

free movement of persons,

the legislation

on citizen’s rights is largely in line with the

acquis

and the progress made concerning the mutual

recognition of professional qualifications needs to be continued. In the area of

freedom to

provide services

advancement of legislative alignment has been accompanied by concerted

efforts to strengthen administrative capacity, particularly in the financial services sector. Further

progress has taken place in the area of

free movement of capital,

where Lithuania had already

achieved a high degree of liberalisation. In the area of

competition policy,

the quality of the

alignment achieved is reflected in an enforcement record of the Lithuanian Competition Council

which has so far been reasonably successful. As regards

company law,

whereas good progress

has been made notably in terms of legislative alignment on the protection of intellectual and

industrial property rights, the effective enforcement of this legislation needs to be considerably

improved.

In the area of

economic and monetary Union,

Lithuania, through the adoption of the new law

on the Central Bank, has achieved a high level of alignment. As regards

taxation,

Lithuania has

made progress in the alignment with the

acquis

on indirect taxation and has improved the

administrative capacity. Further modernisation of the IT systems of the Tax Inspectorate is

needed to allow for the interconnection with the EC systems. Good progress on alignment has

taken place in the area of

Customs union

but this needs to be accompanied by a considerable

See "Making a success of enlargement: Strategy Paper and Report of the European Commission on the progress towards

accession by each of the candidate countries", COM (2001) 700.

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strengthening of administrative and operational capacity, notably as regards the development of

IT systems to allow for the interconnection with the EC customs systems.

As regards

agriculture,

Lithuania has continued to make progress in reforming its structures in

the agricultural field. However important measures remain to be taken in particular regarding the

further strengthening of the land parcel identification system, the enforcement and practical

application of the management mechanisms of the Common Agricultural Policy and the further

preparations for the paying agency. Lithuania has continued to make progress as regards food

safety and the veterinary and phyto-sanitary sectors but still needs to strengthen further the

implementation structures. Limited progress has taken place as regards upgrading inspection

arrangements at the external border. As regards

fisheries,

progress has been made, in

particular in terms of administrative capacity, but significant further work is needed in terms of

preparation for the structural actions and market policy.

In the area of

transport,

Lithuania has made good progress notably as regards road transport

safety, railways restructuring and civil aviation, including strengthening of the relevant

administrative capacity. However, there are still areas where considerable further progress is

required, notably in terms of inspection capacities. As regards the

energy

sector, Lithuania has

achieved a reasonable level of alignment, but needs to sustain its efforts, notably in the area of

the Internal Energy Market. Further work is required also in the field of nuclear energy.

Lithuania must confirm and implement its closure commitments and ensure a high level of nuclear

safety.

In the field of

social policy,

Lithuania has made steady progress in transposition and

implementation of the

acquis.

However, the new Labour Code and Law on Public Health still

need to be adopted. Implementation and enforcement need to be given further attention. The

social dialogue needs to be reinforced.

Lithuania has made further progress in the field of

environment,

where most of the framework

legislation is in place. Implementation remains a major challenge, in particular in areas which

require heavy investments or investments by private enterprises.

In the area of

telecommunications,

some progress has taken place in terms of alignment of the

regulatory framework. The regulatory authority has become operational but needs to be

strengthened.

In the field of

Justice and Home Affairs,

improvements have been made in strengthening the

external border and addressing shortcomings in inter-agency co-ordination. These efforts need

to be sustained. Lithuania has adopted a Schengen Action Plan.

In the field of

regional policy and co-ordination of structural instruments,

important

decisions concerning the institutional structure for the management of Structural Funds have

been recently taken. These decisions need to be implemented urgently through the strengthening

of the administrative capacity, the development of effective inter-ministerial co-ordination and

establishment of the framework for programming and implementing Community support while

respecting the principle of partnership.

While some progress has taken place in the area of

financial control,

Lithuania needs urgently

to strengthen considerably its capacity to implement and enforce the legislation on public internal

financial control. Lithuania has made some limited progress in the area of

financial and

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budgetary provisions,

where the implementation of the 2000 Law on budget needs to be

followed by further considerable efforts.

While continuing to pursue a prudent budgetary policy, Lithuania has made progress as regards

the building of the

administrative capacity

which is necessary to implement and enforce the

acquis.

However, this capacity is still fragile and can easily be reduced if organisational

structures are modified without careful attention. Sustained efforts are required to keep the

administrative capacity acquired and to further develop it.

Overall, Lithuania has made satisfactory progress in meeting the short-term and, to a lesser

extent, the medium term priorities of the

Accession Partnership.

In particular Lithuania has

largely met several short-term priorities concerning economic criteria, internal market, energy

and environment. Some short-term priorities, notably in the field of agriculture, remain to be

addressed in full. Lithuania has partially met most of the medium-term priorities, but further

efforts remain to be made in particular as regards the management and control of EC funds.

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C. Conclusion