European Commission: Strategy Paper and Report 2003

Cyprus

The Commission has repeatedly concluded that Cyprus fulfils the political criteria. This was the conclusion of previous Regular Reports, and has been confirmed over the past year. Cyprus continues to fulfil the Copenhagen political criteria.

The state public administration has been considerably strengthened by the creation of new posts and the promotion of regular training.

Cyprus continues to respect human rights and freedoms. Cyprus has improved the procedure for the protection of refugees. It has abolished restrictions on the right to marry for Turkish Cypriots living in the south.

Cyprus is a functioning market economy and it should be able to cope with competitive pressure and market forces within the Union.

The first 1998 Regular Report already acknowledged the economic reform efforts undertaken by the Cypriot authorities to prepare for EU accession. Since then, the Cypriot authorities' commitment to the economic requirements of EU accession has been sustained.

Further improvements can be made to the functioning of markets by keeping to plans to liberalise the telecom, energy, air transport and postal services sectors. Adherence to the fiscal consolidation programme will contribute to reducing the current account deficit. Care must be taken to improve co-ordination of the supervision of co-operative financial institutions and banks.

Since the 1998 Regular Report, Cyprus has made substantial progress in the different areas of the acquis. The legislative alignment process has accelerated in recent years. Cyprus has continued to pay attention to implementation and enforcement structures.

Over the past year, Cyprus has further advanced with legislative alignment and has improved its position in relation to administrative capacity, in particular in the fields of social insurance, veterinary and phytosanitary inspections, pharmaceutical services, combating money laundering, ship inspection, inland revenue, planning, environmental services, consumer and health protection, and customs.

Overall, Cyprus has achieved a good degree of alignment with the acquis in most areas and is advanced towards reaching adequate administrative capacity to implement the acquis in a considerable number of fields, although further efforts remain to be made. Detailed plans have been agreed, in particular in the negotiations and in the Action Plan, to cover the remaining gaps.

There has been significant progress in the different areas of the internal market. As regards free movement of goods approximation has been completed in a number of sector-specific areas. The adoption of the framework legislation on the New and Global Approach principle, following an initial delay, has allowed substantial legislative progress and constituted an important step towards further alignment with the acquis. In the field of public procurement full alignment has not yet been achieved. Furthermore, efforts are still required for transposition of the acquis relating to the notification procedure, market surveillance and product safety. The newly established Company for Certification has reinforced the infrastructure for standardisation and certification, whereas Cyprus has to continue efforts to enhance its market surveillance systems. In the field of free movement of persons Cyprus has taken a major step by adopting the framework legislation on the recognition of professional qualifications. It has abolished inconsistencies as regards the co-ordination of social security systems and has reached a good level of administrative capacity. On freedom to provide services good progress can be reported in terms of harmonisation, in particular with legislation on insurance companies and banks, including offshore banks. Enhancement of administrative capacity should particularly continue as regards supervisory authorities in the field of financial services. The liberalisation of capital movement is on course to achieve full alignment by accession. Although the administrative capacity for combating money laundering has been further enhanced through the recruitment of additional personnel, Cyprus must continue sustained efforts in this domain.

As regards company law, Cyprus's legislative alignment with the acquis is at an advanced stage. With respect to intellectual and industrial property rights, further efforts are required to strengthen enforcement capacity in relation to border controls, combating piracy and counterfeiting. In the field of competition steady progress has been made in adopting anti-trust and state aid legislation. A substantial improvement in state-aid and in anti-trust enforcement is evident after years of standstill. The State aid monitoring authority and the fully independent authority for the protection of competition function well, but should be developed further.

Cyprus has reached a good level of legislative alignment in the field of agriculture and has taken significant steps as regards the establishment of the Common Market Organisations. However, the administrative capacity to implement and enforce the acquis needs to be further strengthened in this field. Due priority should be given to the preparation of the Integrated Administration and Control System. In the area of fisheries, legislation has been aligned to a reasonable extent. Administrative capacity is in place but needs to be further reinforced. Cyprus has continued its efforts to further reduce the number of fishing vessels under its flag, but its Fishing Vessel Register has not yet become fully operational. However, the relevant infrastructure for the establishment of the register has been introduced and the implementation mechanisms are under way.

The comprehensive tax reform, concerning both indirect and direct taxation, has moved Cyprus significantly forward in the field of taxation. Cyprus has also made important progress with developing the necessary administrative capacity and has reached an adequate level in this respect. Cyprus can also rely on a well-organised and well functioning customs administration. Further legislative alignment is needed concerning inward and outward processing, temporary importation, cultural goods, and procedural aspects. The adoption of the pending and outstanding legislation in this area is urgently required in order to achieve this alignment.

Cyprus needs to focus on full liberalisation of the telecommunications markets, speeding up the implementation of the acquis, and the establishment of the regulator's office

As regards Economic and Monetary Union good progress can be reported, as the Central Bank has now become independent.

Legislation in the transport sector is largely in line with the acquis, but some legislation, in particular regarding aviation, remains to be transposed. Safety matters have been particularly improved by legislative alignment and strengthened administrative capacities. Efforts in the area of maritime transport need to be continued.

As regards social policy and employment, Cyprus has achieved substantial progress. Alignment with the legislative acquis needs to be completed in a few areas. There is still a strong need to enhance administrative capacity.

Progress has been made at a moderate pace in the field of energy. As regards alignment with the internal energy market acquis and the security of supplies and oil stocks, Cyprus has advanced only in a limited manner. Cyprus is strongly encouraged to ensure the progressive building up of oil stocks and the relevant authority according to the agreed timetable. Ongoing legislative work in order to align with the internal energy market acquis and to establish the oil stocks authority should be continued without delay, as should efforts to ensure the necessary oil stocks storage capacity.

Cyprus has continued the integration of the environment into other policies and has achieved a considerable alignment with the acquis in the various sectors of environmental and nature protection. However, measures need to be adopted in the important fields of air and water quality, industrial pollution control, chemicals, and genetically modified organisms. Particular attention should be paid to waste management and to enhancing administrative capacity. Investment needs to be secured in the medium term to ensure implementation of the environmental acquis.

Concerning justice and home affairs good progress in the fields of visa policy, asylum, the fight against organised crime and corruption can be reported. On asylum, alignment has been accelerated and an independent review authority has been established. Concerning the Schengen acquis, Cyprus is continuing its preparations by fully implementing the existing Schengen Action Plan and by developing the National information system. Cyprus has ratified various conventions with respect to data protection, the fight against terrorism, and proceeds from crime. In general, administrative capacity has still to be further strengthened in this area.

As regards regional policy, Cyprus has continued to make important progress in aligning with the acquis preparing for participation in structural instruments. Cyprus is also well advanced with respect to administrative structures.

Cyprus has achieved further progress in the field of financial control. Its Public Internal Financial Control system is well developed and international audit standards are largely met. Efforts should be undertaken as to strengthening the administrative capacity of the Treasury.

Cyprus has further strengthened its administrative capacity. Additional staff has been recruited in key areas and has been included in the Supplementary Budget for 2002, which is not yet approved. In important areas such as capital movement, competition, agriculture, taxation, customs, environment, and justice and home affairs enforcement structures have been reinforced. Close attention is required as regards the structures which are necessary to implement the acquis which will be applicable only upon accession, in particular as regards sound and efficient management of EC funds.

In the accession negotiations, 28 chapters have been provisionally closed. Cyprus is generally meeting the commitments it has made in the negotiations. However, delays have occurred with regard to the establishment of the fishing vessel register, and in the legal alignment as regards oil stocks and with the electricity Directive. These issues need to be addressed.

Bearing in mind the progress achieved since the 1998 Regular Report, the level of alignment that Cyprus has achieved at this point in time, and its track record in implementing the commitments it has made in the negotiations, the Commission considers that Cyprus will be able to assume the obligations of membership in accordance with the envisaged timeframe. In the period leading to accession, Cyprus needs to continue its preparations, in line with the commitments it has made in the accession negotiations.

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