EUROPEAN PARLIAMENT

Directorate-General for Research Directorate A Division for International and Constitutional Affairs RFM/rfm

Brussels, 28 February 2002

NOTE on 'S POLITICAL AND ECONOMIC SITUATION AND ITS RELATIONS WITH THE EUROPEAN UNION WITH A VIEW TO ACCESSION

This note has been prepared for the information of Members of the European Parliament. The opinions expressed in this document are the author's and do not necessarily reflect the position of the European Parliament.

WIP/2002/02/0052-53

[FdR 463073] PE 313.120 CONTENTS 1 POLITICAL SITUATION...... 4

1.1 HISTORICAL BACKGROUND ...... 4 1.2 INSTITUTIONS...... 5 1.3 CURRENT ISSUES AND RECENT DEVELOPMENTS...... 6 1.3.1 The results of the September 2001 general election and the party political landscape...... 6 1.3.2 The new government ...... 7 1.3.3 External relations ...... 8 2 ECONOMIC SITUATION ...... 9

2.1 ECONOMIC PERFORMANCE AND OUTLOOK ...... 10 2.1.1 GDP growth ...... 10 2.1.2 Prices and wages...... 10 2.1.3 Employment...... 10 2.1.4 External sector ...... 11 2.2 ECONOMIC POLICY...... 11 2.2.1 Policy background and framework ...... 11 2.2.2 Fiscal policy...... 12 2.2.3 Monetary and exchange rate policy...... 13 2.2.4 Privatisation and inward investment ...... 13 3 RELATIONS WITH THE EUROPEAN UNION...... 14

3.1 INTRODUCTION...... 14 3.2 THE EU INSTITUTIONS' APPROACH TO ENLARGEMENT ...... 15 3.2.1 European Commission...... 15 3.2.2 European Parliament...... 17 3.2.3 The Council and the European Council...... 18 3.2.4 Negotiations with Poland...... 19 3.3 POSITION OF THE POLISH GOVERNMENT ...... 20 3.4 PRE-ACCESSION ASSISTANCE, THE ASSOCIATION AGREEMENT AND ACCESSION PARTNERSHIP ...... 21 3.4.1 Pre-accession aid ...... 21 3.4.2 Association Agreement...... 22 3.4.3 Accession Partnership ...... 22 ANNEX 1 ...... 23

ANNEX 2 ...... 24

ANNEX 3 ...... 25

ANNEX 4 ...... 26

ANNEX 5 ...... 27

ANNEX 6 ...... 29

ANNEX 7 ...... 30

ANNEX 8 ...... 31

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[FdR 463073] PE 313.120 For further information contact: Frank McAvoy, European Parliament, Directorate-General for Research 1047 Brussels e-mail: [email protected] Tel. 0032 2 2842130

General sources: Economist Intelligence Unit, ISI Emerging Markets, Oxford Analytica, Reuters Business Briefing, European Commission, European Parliament.

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[FdR 463073] PE 313.120 SUMMARY Poland is the largest and most populous (38.7 m inhabitants) of the EU candidate countries. It submitted its membership application on 5 April 1994. Negotiations opened in March 1998 and, by the end of December 2001, Poland and the EU had provisionally closed discussions on 20 chapters following a change in strategy whereby concessions were made on some outstanding chapters in order to focus on the agricultural, structural funds and budgetary chapters due for negotiation later in 2002. This has not been without its consequences in domestic political terms, as both junior coalition member, the PSL, and the radical opposition parties have reacted critically to the change in approach. However, the strongest feeling has been aroused by the European Commission's recent proposals for paying direct subsidies to farmers after enlargement.

Domestic political events have been dominated by the parliamentary elections held on 23 September 2001 and the initial actions of the new coalition government of the (SLD) - Polish Peasants' Party (PSL). The new government is headed by of the SLD. The main losers of the election were the ruling Solidarity Election Action - Right (AWS) and its former coalition partner, the Freedom Union, which failed to win any seats in the , as their vote slumped below the threshold for representation. Populist and eurosceptic parties gained more than a quarter of the votes in the election.

GDP growth slowed in 2001 to only 1.1% for the year as a whole, while unemployment has risen from what was already a relatively high level to reach 18%. As domestic demand faltered, import growth was sluggish, helping to narrow the current account deficit. Inflation has also been falling since the highs reached in 2000 ending the year 2001 at 3.6% year on year and thus increasing the pressure on the central bank to cut interest rates further. Fiscal policy remains an area of great concern after the high deficit in 2001 and the likelihood of high deficits for some time to come. The new government faces the problem of boost flagging revenues and cutting spending while attempting to revive the economy. A new economic plan was unveiled at the beginning of 2002.

1 POLITICAL SITUATION

1.1 HISTORICAL BACKGROUND

The Polish state is over 1000 years old. In the XVIth century, under the Jagellionian dynasty, Poland was one of the richest and most powerful states in Europe. On 3 May 1791, Poland ratified its first constitution. However, soon after, Poland ceased to exist as state for 123 years following its partition by Russia, Austria and Prussia. The country regained independence in 1918 but was overrun, first by Germany and then by the Soviet Union, in World War II. It regained independence within the Soviet sphere of influence and new borders after the war. Labour turmoil in 1980 led to the formation of the the independent 'Solidarity' trade union that over time became a political force and by 1990 had swept to victory in parliamentary and presidential elections. Complete independence came in 1991. Throughout the 1990s the Polish political scene was dominated by two broad forces: one centred on a fragmenting Solidarity grouping and the other on a well-organised and disciplined post-communist movement. Poland became a member of NATO in 1999.

The transition to democracy, initiated after the Round Table negotiations in 1989 and the elections of June the same year, has continued steadily in the intervening years and this has done much to support the view that Poland fulfils the political criteria laid down by EU leaders at Copenhagen and that its institutions are functioning properly. The new constitution, which has been in force

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[FdR 463073] PE 313.120 since October 1997, has created greater transparency as regards the functioning of the State, the division of power between State bodies and the rights and obligations of its citizens.

1.2 INSTITUTIONS The present constitution came into force on 17 October 1997. It provides for a bicameral legislature, consisting of the 460 member Sejm (lower house) and 100 member Senat (upper house), elected for a four-year term. A proportional system governs elections to the Sejm, with a first-past-the-post system for the Senate. Members of the Council of Ministers (Cabinet) are nominated by the Prime Minister (currently Leszek Miller - appointed October 2001) and must be endorsed by parliament.

The President, elected for a maximum of two five-year terms, is head of state and supreme commander of the armed forces (current President, Aleksander Kwasniewski - elected October 2000). He can dissolve parliament in certain circumstances e.g. if the Sejm fails to agree a state budget within four months of its first reading. The President can also veto parliamentary legislation, although the veto can be overturned by a three-fifths majority.

The judiciary is a separate and independent power under the constitution. The Supreme Court exercises supervision over a system of common and military courts. It acts as ultimate instance of appeal and interprets legal provisions. There is also a Constitutional Tribunal and a Supreme Administrative Court.

The reform of local government started in January 1999 reduced the number of regions (voivodships) from 49 to 16. The changes have resulted in the reorganisation and decentralisation both of public authorities and public finances, as the regions are now responsible for their own development and for implementing regional economic policies, which will help them become more effective after accession. The regions therefore now have an elected council (sejmik), presided by a Marshal, and a representative of central government, the voivod, who is responsible for ensuring that State services operate properly. The sejmik is responsible for regional economic development, universities and colleges, specialised hospitals, key cultural facilities (museums, theatres, etc.), and regional roads. The voivod, a sort of governor with a deliberately political profile, is responsible for ensuring the legality of local authority acts. The next local elections will take place in the autumn of 2002.

The reform also instituted an additional tier of government between the region and the municipality (gmina), namely the district (powiat), which is responsible for secondary schools, hospitals, action to combat unemployment, inter-urban roads, etc. There are 373 districts. The municipalities, of which there are 2 489, were instituted in the early 1990s. They have had their powers confirmed with regard to public registers, roads, cemeteries and public transport. They are also now responsible for financing and supervising local medical dispensaries and primary schools. Aid from the State budget is provided to cover these new costs.

Under a new law passed by the Sejm on 15 February 2002, will become a single commune equivalent to a district and divided into 17 boroughs. At present Warsaw is a union of 11 urban communes and is administered by several levels of local government. The number of councillors will be reduced by about 300 from the present total of 787.

Church and State relations have sometimes been volatile. In 1998, a concordat (church-state agreement) drawn up in 1993 was ratified by the Sejm. WIP/2002/02/0052-53 5

[FdR 463073] PE 313.120 1.3 CURRENT ISSUES AND RECENT DEVELOPMENTS

1.3.1 The results of the September 2001 general election and the party political landscape Elections took place to the two houses of the Polish legislature on 23 September 2001. Voter turnout was 46.29%. Six political groupings obtained seats in the 460 seat lower house (Sejm). In the senate, five groups are represented, along with two independents. In the Sejm, the SLD-UP list won 41.04% of the vote and 216 seats, 15 short of an absolute majority. The more left-wing UP has formed its own parliamentary club. The recently-formed Civic Platform (PO) came second with 12.68% and 65 seats. Samoobrona (Self Defence), the radical farmers' union, unexpectedly came third with 10.2% and 53 seats. The populist Law and Justice Party (PiS) won 9.5% and 44 seats, while the Polish Peasants' Party (PSL) secured 8.98 % and 42 seats. The newly-formed conservative League of Polish Families (LPR) also did well, winning 7.87% of the vote and 38 seats. The parties of the outgoing government, Solidarity Electoral Action Right (AWSP) on 5.6% and Freedom Union (UW) on 3.1%, failed to pass the electoral thresholds and did not win any seats in the Sejm. In the Senate, 75 of the 100 seats were won by the SLD-UP, while 15 were taken by an electoral alliance of the centre-right (AWSP, PO, PiS and UW). The PSL won 4 seats and Samoobrona 2, while LPR and independents each won 2 seats (see Annex 2 for the full results).

Overall, the election produced not only significant gains for the left-wing SLD-UP coalition and a crushing defeat for the outgoing government, but also an unexpectedly large protest vote, resulting in a swing towards populist and eurosceptic parties, which gained more than a quarter of the seats in the Sejm. Three parties entered parliament for the first time and around 63% of the members of the Sejm are new to parliament. The performance of Samoobrona ('Self-defence') is particularly striking, as opinion polls conducted six weeks before the elections put its support at only 3% compared to the 10.2% it actually polled. Although Samoobrona presented itself as a radical peasant party, it seems to have gained more support from disaffected urban voters. Its controversial leader, Andrzej Lepper, who has led direct protest actions in the past, scored a high personal vote in the Koszalin constituency.

Most analysts see the results as marking the end of the bi-partisan political landscape which has been characteristic of Polish politics since 1989. Two broad forces were dominant throughout the 1990s and alternated in government: one based on the Solidarity movement, the other on post- communist forces of the left. However, as the SLD became a more consolidated political party with a more centralised structure in the 1990s, the AWS became a looser alliance, and its coalition partner, the UW, withdrew from the government in June 2000. Some foreign observers initially expressed fears for the pace of adoption of EU accession-related legislation in a Parliament with so many members from eurosceptic parties, although parties which support EU membership represent a substantial majority. President Kwasniewski is also a strong supporter of Poland's accession. In his address to parliament on 19 October, the President, referring to the presence of parliamentarians critical of Poland's EU membership, stated that, 'thanks to the makeup of the new parliament, the debate on Poland's place in Europe will be more controversial - but I believe it will also be deeper'1.

The defeated government of Jerzy Buzek had carried out three major reforms during its four-year term (1997-2001): local government, health care and education. This was an ambitious programme to decentralise power and improve failing public services. However, the speed and manner of their introduction provoked considerable resentment among wide sections of the population and the

1 Speech reported by Reuter News Service, 19/10/2001. WIP/2002/02/0052-53 6

[FdR 463073] PE 313.120 government's unpopularity was increased by the looming fiscal crisis of 2001. Infighting within the Solidarity Electoral Action (AWS) diverted much of the leadership's energy and further undermined its standing with the voters. However, it is clear that voters were also disenchanted by rising unemployment and the corruption scandals that dogged the government in its final months in power. Defections and ministerial resignations in the final months did not help matters nor did the August floods in parts of the country. Following the election defeat, Mr Buzek resigned as leader of the AWS at a party congress held on 21 October and was replaced by Mieczyslaw Janowski. Its future is now uncertain, as it failed to win any seats in the Sejm, although it won a handful in the Senate, and has seen many of its traditional supporters defect to the new right of centre parties, Law and Justice (PiS) and the League of Polish Families (LPR). The former coalition partner the Freedom Union (UW) has also suffered a major setback. Its popularity waned with that of the AWS-led coalition government, which it left in June 2000, and the party split after its leader Leszek Balcerowicz left to become central bank governor. The neo-liberal wing joined the newly-formed Civic Platform (PO) and the UW failed to reach the 5% threshold to win any seats in the Sejm. The PO has now become the main moderate centre-right force, winning 65 seats in the Sejm to make it the second largest grouping.

A recent opinion poll conducted by PBS in January 2002 for the daily newspaper Rzeczpospolita shows a decline in support for the SLD/UP at 44% (45%), the PSL 7% (10%) and Samoobrona 9% (13%) compared with December 2001 (figures in brackets), and gains for the PO at 14% (11%), LPR 10% (8%) and PiS 8% (7%).

1.3.2 The new government

Following the election, the SLD-UP, led by Leszek Miller, held talks with other parties in an attempt to form a coalition, although there was also initial speculation about a possible minority government or even fresh elections, if no coalition could be formed.. On 9 October 2001, the SLD, UP and PSL signed a coalition agreement and, on 10 October, Mr Miller announced a list of ministerial nominations. The coalition parties between them have 258 seats. The government was sworn in on 19 October and confirmed by the Sejm on 26 October. The new Prime Minister, Mr Miller, was Minister of Labour and Social Policy in the years 1993-96, Minister-Head of the Office of the Council of Ministers in 1996, and Minister of Internal Affairs and Administration in 1997. His cabinet appointees include (SLD) as finance minister, UP leader Marek Pol as infrastructure minister and PSL leader Jaroslaw Kalinowski as agriculture minister. All three will also hold the office of deputy prime minister. Other ministerial nominations are former prime minister Wlodzimierz Cimoszewicz as foreign minister and Wieslaw Kaczmarek who again becomes treasury minister with responsibility for privatisation. The former Finance Minister during the final months of the previous government, Halina Wasilewska-Trenkner, has been appointed deputy Finance Minister. The Minister for European Integration is Danuta Huebner.

On taking office, the government had to act quickly to redress the serious fiscal situation left by the outgoing administration. It reacted by imposing higher taxes and spending cuts (for further details, see section 3 below). Other major policy challenges facing the government are long-term fiscal reform, high unemployment, the lowest economic growth since 1992 and the completion of the negotiations for EU membership (see sections 3 and 4 for more details).

The rapid and smooth process of selection and confirmation of the new cabinet impressed observers. The coalition agreement sets out as permanent principles: the just distribution of sacrifices, together with the consistent protection of the poorest; respect for democracy and self limitation of state activity to those actions that cannot be effectively implemented by citizens WIP/2002/02/0052-53 7

[FdR 463073] PE 313.120 themselves and by non-state bodies; openness to social dialogue, notably with civil society and trade unions, and inclusion of parliamentary opposition parties in bodies concerned with strategic planning in the areas of national security, foreign policy and EU integration. In policy terms, the agreement includes the following priorities: reducing unemployment; strengthening the growth potential of the economy; equal opportunities for access to education, health care, social welfare etc.; making the state more efficient and cost effective; guaranteeing the security of citizens; guaranteeing the economic and political security of Poland, including completing EU accession negotiations and preparations. As well as seeking to place public finances on a sounder footing, the coalition is also committed to improving the situation of rural areas.

However, there have been some tensions within the coalition, notably over the economic austerity package introduced in November 2001 and the concessions in the negotiations with the EU on the sale of land to foreigners, as well as on policy towards the monetary policy committee (RPP). However, such disagreements between the PSL and the SLD were to be expected given their differences in outlook. Many observers have drawn parallels with the SLD-PSL coalition government of 1993-1997 but this time the balance within the coalition is different: the PSL has a much smaller number of seats (42) than the 131 it had after the 1993 elections, while the SLD achieved its highest ever score of 200 seats. However, the PSL is under pressure for the rural vote from the more radical Samoobrona. The unexpected success of more extreme parties in the elections may pose a threat to the cohesion of the coalition, if the popularity of parties such as Samoobrona, Law and Justice and the League of Families is maintained or grows and if they can mobilise public opinion on thorny issues such as economic policy and EU accession.

The EU accession negotiations were again in the forefront of the political scene in Poland at the beginning of 2002 when the European Commission published its proposals on financing enlargement and agricultural payments. The issue of EU subsidies to Polish farmers revealed differences within the coalition. PSL party leader and Deputy Prime Minister Jaroslaw Kalinowski called for better terms for Polish farmers, failing which, duties should be maintained on agricultural imports from the EU. He warned that Poland might suspend negotiations on further liberalisation of agricultural trade and also criticised the proposed quotas for Polish agricultural production after accession, as the reference period of 1995-1999 had been particularly bad for Polish agriculture. The European Integration Minister Danuta Huebner called these warnings premature and not in line with the official government position, in response to which Mr Kalinowski reaffirmed his remarks which he said had been made in his capacity as Agriculture Minister. However, Mr Kalinowski has also criticised other PSL politicians for their more extreme reactions in questioning his authority and the party's participation in the coalition government. The PSL has recently called for a coalition of interests to negotiate the best membership terms with the EU. Samoobrona has responded positively to this call indicating it would drop its proposed motion of censure against Mr Kalinowski (see also section 4 on EU relations).

1.3.3 External relations

Poland's chief foreign policy objectives since the 1990s have been membership of NATO and the EU. It achieved the first of these in March 1999 when it joined NATO despite Russian objections. Poland hopes to be able to join the EU in 2004. Poland has regularly aligned its positions with those of the EU and associated itself with a number of joint actions and common positions. It has also earmarked a brigade of up to 2500 troops to be part of the EU Rapid Intervention Force. Poland particiaptes actively in regional cooperation initiatives such as the Council of the Baltic Sea States, the Visegrad Group, the Northern Dimension and the Central European Initiative. Through the 14 Euroregions established along its borders, Poland has developed contacts at regional authority WIP/2002/02/0052-53 8

[FdR 463073] PE 313.120 level. It has also particularly developed its contacts with Lithuania and Ukraine. Poland supports the Stability Pact for South-East Europe. It has taken part in a number of UN and OSCE peacekeeping and observer operations, including those in the Balkans, where it has 1500 troops on peacekeeping duties.

Given its size and strategic location, relations with its eastern neighbours and the future of East- West relations have also been important to Poland. relations with Russia were generally difficult during the 1990s with episodes such as the tit-for-tat expulsion of spies in 1999. However, some improvement in relations was discernible by 2000 a trend which developed further in 2001, culminating in the visit to Poland by President Putin in January 2002. This was the first visit to Poland by a Russian President for nine years and follows a visit to Russia by President Kwasniewski in 2000. The visit was marked by a number of highly symbolic gestures which were seen as significant in terms of Polish-Russian reconciliation. These included the handing over to Poland of the Russian files on General Sikorski and the laying of flowers at the memorial to the World War II Polish State and the monument to the victims of the 1956 Poznan workers' protest.

The issues covered in the talks held during the visit were economic and political. The Polish Prime Minister and Mr Putin agreed to set up a Committee for Polish-Russian Cooperation to monitor economic and political relations and that the Prime Ministers of both countries would meet at least twice a year. Poland is still heavily dependent on Russia for gas and to a certain extent for oil. The gas supply issue has sometimes been highly politicised as in 2000 when Poland reacted angrily at the discovery of a high capacity fibre optic cable running along a Gazprom pipeline passing through Poland to Berlin. Linked to this is the Polish trade deficit with Russia. Other issues include Kaliningrad, on which the Polish President proposed a meeting of Polish, Lithuanian and Russian leaders to be held in Kaliningrad. An urgent question is that of visas which Poland is required to introduce for Russian, Ukrainian and Belarussian citizens when it joins the EU. Poland needs to reach agreement on this with the EU in order to conclude the justice and home affairs chapter of the negotiations but it is keen to defer the introduction of visas until the last possible moment and to secure the easiest entry conditions. The Polish government announced that it would start to introduce visas from 1 July 2003.

2 ECONOMIC SITUATION Summary

The new government formed in October 2001 was confronted with a crisis in Poland's public finances as lower than forecast economic growth and rising unemployment reduced revenues, provoking a fiscal deficit twice as high as that in 2000. The government of Leszek Miller has broadly achieved its short-term objective of stabilising state finances in its first 100 days. The longer-term issues of reforming public finances remain. In January 2002, the government announced its medium-term economic plans aimed at raising growth to 5% by 2004 by a package of measures aimed at promoting enterprise, employment and infrastructure. As well as the problems of lower growth and rising unemployment, 2001 also saw the more positive features of falling inflation and a narrowing of the current account deficit as imports grew only slightly while exports remained quite buoyant, at least in the first half of the year. However, foreign direct investment flows and privatisation receipts were also down compared to 2000.

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[FdR 463073] PE 313.120 2.1 ECONOMIC PERFORMANCE AND OUTLOOK

2.1.1 GDP growth Towards the end of 2000, economic growth in Poland began to lose momentum. In 2001, the economy remained weak and GDP grew by only 1.1% year on year, compared with 4% in 2000, as consumer spending and investment declined. After being the most dynamic component of the growth in demand for the previous three years, investment in the corporate sector fell by 10.2% in 2001, reflecting low profitability and high real interest rates.1 Analysts feel that domestic demand is likely to remain constrained by sluggish real wage growth, high real interest rates, poor corporate profitability and higher than expected unemployment. On the external side, export growth was more robust than expected in 2001, but weakened later in the year as EU growth rates declined and the impact of the appreciating zloty began to be felt. For 2002 and 2003, some recovery in growth rates is expected: the European Commission predicts 1.9% in 2002 and 3.4% in 20032 but with significant downside risks related to the degree and length of the recession in the main OECD economies and the scope for interest rate cuts. The Polish Government's economic plan aims to raise growth from an estimated low of 1% in 2002 to 3% in 2003 and 5% in 2004 (see below, section 3.2).

2.1.2 Prices and wages

Inflation has fallen rapidly since peaking at 11.6% year on year in July 2000. The year on year inflation figure fell to 3.6% in December 2001. Factors contributing to this fall include declining consumer spending, falling food and oil prices and the appreciation of the zloty. Producer price inflation also fell sharply in 2001 and industrial production was 0.2% lower than the previous year. Subject to the policies of the new government and downside risks such as higher food and oil prices, inflation is expected to moderate further in 2002-2003 before picking up slightly towards the end of the period as growth recovers.

Industrial productivity growth slowed markedly from 8.5% in Q1/2001 to 3,7% in Q2. As nominal wage growth slowed only slightly over the same period, unit costs actually started to rise in the second quarter and competitiveness was further weakened by the appreciation of the zloty. Although Polish unit labour costs are low by international standards, they are higher than in the rest of Eastern Europe as long-term real wage growth has been strong. Non-wage costs, especially social security costs, are also high.1 The average gross monthly wage in the enterprise sector reached PLN 2 203 in 2001 (US$ 537), 7.1% higher than in 2000. Purchasing power of the average wage rose by 1.7% compared to 2000.

2.1.3 Employment

High unemployment is one of the main problem areas of the Polish economy. After a slight respite at the beginning of 2001, the number of job losses accelerated, particularly in construction as well as in manufacturing and transport. This, combined with a low level of job vacancies, resulted in a renewed rise in the registered unemployment rate, which stood at 15.7% in January 2001 but had reached 18% by January 2002.2 Unemployment is set to continue to rise in 2002, though more

1 Economist Intelligence Unit, Country Report Poland, February 2002. 2 European Commission, DG EcoFin, Autumn 2001 Forecast, November 2001. 1 EIU, Country Forecast Poland, February 2002. 2 Polish Central Statistical Office, GUS, February 2002. WIP/2002/02/0052-53 10

[FdR 463073] PE 313.120 slowly, and some analysts expect it to reach 19-20% by the end of the year. The regional spread of unemployment is uneven, with the worst-hit areas traditionally in the north-west and east, although the most rapid recent growth has been in areas where the problem has traditionally been less severe. This is the case in Silesia, which saw the fastest growth of unemployment over the period December 2000 to September 2001 (14.8%), no doubt due in part to the restructuring of the coal industry.

2.1.4 External sector The current account deficit fell to US$ 6.4 billion for the first eleven months of 2001 compared to US$ 9.1 billion in the same period in 2000. The deficit for 2001 as a whole is estimated at just under US $ 7 billion (4% of GDP), with a deficit of US $ 6.1 billion (3% of GDP) now forecast by the EIU for 2002.1 This is well below the near crisis level of over 8% of GDP reached in 1999 and the 6.3% in 2000. Import growth in 2001 was weak at 1.3%, as domestic demand contracted and consumer confidence remained low. At the same time, exports held up better than expected, despite the downturn in Poland's key EU markets and the appreciation of the zloty, recording an overall 7.2% growth over the 2000 figure. However, the situation deteriorated in the final quarter, as the worsening situation in the EU economies began to make itself felt, and Polish exports in December 2001 fell by 8.3% year on year. Overall, Poland's terms of trade improved in 2001, especially in the first quarter.

Germany alone accounts for 35% of Polish exports. Despite some weakening in exports to the EU as a whole, exports to Germany and France, two of Poland's biggest customers, remained relatively robust as did those to the UK. Exports to other CEFTA member countries and the CIS also continued to expand.

2.2 ECONOMIC POLICY

2.2.1 Policy background and framework

In the early years of transition, from 1989 until the mid-1990s, Polish economic policy was dominated by the goal of stabilisation. Under IMF guidance, a tough stabilisation plan was implemented with cuts in public spending, a sharp devaluatiojn of the zloty and wage controls. Underpinning this was a commitment to a fixed nominal exchange rate to control inflation and a tight tax-based incomes policy. The so-called 'Balcerowicz plan' brought inflation under control but also provoked a deep recession. Even after this period of 'exceptional politics' was over, macroeconomic policy remained fairly consistent through most of the 1990s despite the breakdown of the initial political concensus. Thus, government deficits were relatively stable, the commitment to the market economy was maintained, banking and tax reforms were introduced and privatisation proceeded. In 1995, the currency was reformed and, in 1998, the Central Bank (NBP) was made more independent. Economic policymaking in Poland has two main poles, the finance ministry and the central bank and independent monetary policy committee (RPP).

On 11 February 2000, the European Commission and the Polish Government published a Joint Assessment of the medium-term economic policy priorities of Poland in accordance with the recommendations of the Accession Partnership.

1 Economist Intelligence Unit op cit. WIP/2002/02/0052-53 11

[FdR 463073] PE 313.120 On 9 October 2001, the newly-formed SLD/UP-PSL government coalition signed a policy agreement. Among other provisions, this foresees a maximum 2002 budget deficit of PLN 40 billion or 5.3% of GDP. The new government pledged to stabilise public finances, complete EU accession negotiations in 2002 and create a sound basis for economic development, boosting GDP growth to 5% by 2004. At the end of January 2002, the government announced details of its new economic programme. This includes a package of medium-term measures to promote enterprise, especially SMEs, employment-creation schemes and infrastructure investment, notably in housing and road-building.

2.2.2 Fiscal policy Fiscal policy has been one of the main concerns of economic policy-makers in both the previous and present governments. A sharp fall in revenues in the first half of 2001 forced the previous government to rebalance the budget in July 2001, raising the state budget deficit from PLN 20.5 billion to PLN 29.5 billion (the state budget accounts for around half of total public expenditure). Another readjustment had to be made before the end of the year. The original 2001 budget was based on an over-optimistic growth assumption of 4.5%. In fact, the final budget deficit, at 4.5% of GDP, was just within the revised scenario but was nevertheless double the 2.2% deficit recorded in 2000. Revenues were particularly weak and reached only 93.2% of the revised target. Privatisation revenues were much lower than planned at almost three times lower than the previous government's assumptions.

The new government acted quickly on the taxation side of public finances with measures announced in November 2001 to freeze tax thresholds, to tax benefits in kind and revoke various allowances. The most controversial measure was the introduction of a tax on unearned income. Other measures included a freeze on the salaries of ministers and senior officials, a commitment to streamline and rationalise administrative structures and a package of immediate spending cuts for the 2001 budget.

The 2002 budget, currently going through parliament (Febraury-March 2002), foresees overall spending of PLN 185.079 billion and revenue of PLN 145.079 billion giving a deficit of PLN 40 billion in accordance with the government's stated target. The budget is based on GDP growth of 1% and an average annual inflation rate of 4.5%. Privatisation revenues are set at only PLN 7 billion to reflect the government's more cautious approach to the privatisation process.

Public finance reform will inevitably remain high on the agenda over the next few years as privatisation inflows will begin to decline at the same time as higher principal repayments fall due on the country's external debt. The new government has indicated that its programme will focus on putting public finances on a healthier footing by increasing revenues and rationalising expenditure, supporting agriculture to make it more competitive, maintaining state control over strategic branches of the economy, cutting the cost of government and reducing unemployment and regional and social inequalities. However, the fiscal outlook is not encouraging. Finance Ministry forecasts assume that, with falling privatisation revenues, an increasing proportion of the budget deficit will have to be funded mainly by debt issues. This may in turn push up market interest rates. The forecasts put public debt at 48% of GDP in 2004.1

1 Intellinews report, Poland Today, 9 October 2001. WIP/2002/02/0052-53 12

[FdR 463073] PE 313.120 2.2.3 Monetary and exchange rate policy Poland has operated a free-floating exchange rate regime for the zloty, with occasional smoothing interventions by the central bank (NBP), since the crawling band system was abandoned in April 2000. There are no controls on long-term capital flows. The medium-term inflation target is to reduce inflation to under 4% by the end of 2003. The zloty recovered most of its summer losses aginst the US Dollar in the last quarter of 2001 but weakened towards the end of January 2002. Demand for Polish bonds was still buoyant at the beginning of 2002

The central bank, which is headed by the former finance minister, Mr Balcerowicz, is responsible, under the terms of the constitution, for safeguarding the value of the currency, while monetary policy is a matter for the monetary policy committee (RPP), chaired by the central bank governor. In 2001, the RPP cut interest rates by a total of 750 basis points and, in January 2002, it made further cuts of 150 to 200 bps bringing the key intervention rate down to 10%. However, real rates remain high at about 6 to 7% and there is scope for a further cut, especially given that the RPP's inflation target of 5% for 2002 is likely to be undershot, as was its 2001 target of 6-8%. Concerns about future fiscal policy have made the RPP cautious about further relaxation of rates despite falling inflation and weakening economic growth.The RPP's medium-term strategy is to bring inflation down to below 4% by the end of 2003. Before the elections, the PSL and to a lesser extent the SLD had attacked the monetary policy committee over what was seen as its failure to take into account the situation of the real economy when setting interest rates and inflation targets. Some had even suggested that certain aspects of the independence of the RPP might have to be reconsidered, if it did not show more willingness to respond to the plight of the Polish economy. Although the January 2002 rate cut was not as much as the government had hoped for, the reaction of the SLD ministers was a little more cautious than that of PSL leader Mr Kalinowski, who again mentioned the need for legislation to curb the RPP's independence and widen its terms of reference to include reducing unemployment and promoting growth.

2.2.4 Privatisation and inward investment The cumulative value of inward investments in Poland now amounts to US$ 52.27 billion, the highest in central and eastern Europe. However, according to figures released by the State Foreign Investment Agency (PAIZ), inward investment proceeds are likely to have been lower in 2001 than the optimistic target set by the outgoing government. PIAZ estimates the inflows of foreign direct investment (FDI) in 2001 at US$ 6.4 billion compared with US$ 9.3 billion in 2000. However, this is still close to the average figure for FDI inflows to Poland over the last five years, and the growth of FDI flows worldwide and to central and eastern Europe as a whole was lower in 2001. In per capita terms, Poland has performed somewhat less well in attracting FDI than some of its neighbours, notably the Czech Republic and Estonia, but, as a percentage of GDP, FDI inflows to Poland in 1996-2000 at 4.3% were nevertheless close to the central European average of 4.4%. The foreign investment agency PAIZ announced in January 2002 that a new act on state assistance for foreign investors would come into force in June providing a range of incentives for qualifying projects.

Although FDI inflows are likely to continue at a respectable rate over the next few years, the peak in terms of privatisation proceeds seems to have passed. While in opposition the SLD criticised the previous government's privatisation programme, claiming much of it was motivated by the need to make up budgetary shortfalls rather than by a concern to promote economic development, so-called 'fiscal privatisation'. The new Treasury Minister, Wieslaw Kacmarek, has indicated that his priority WIP/2002/02/0052-53 13

[FdR 463073] PE 313.120 will be to focus on enterprise development, suggesting a more cautious approach with the likelihood of more consolidation in some sectors.1 Both coalition parties have pledged to ensure that any privatisation of the two remaining large banks still under state control PKO BP (savings bank) and BGZ (agricultural bank) would respect their 'national character'. The share of foreign capital represents over 70% of the total assets of the domestic banking sector. Consolidation is most likely in the sensitive steel, chemicals, energy, telecoms and defence equipment sectors where privatisation has proved increasingly difficult.

The agreed sale of a further 21% stake in PZU, the largest insurance company in Poland, to the Netherlands-based Eureko group, which already holds 20%, has been delayed by the government which wants to have more say in the company prior to its flotation on the stock exchange. The sale would give Eureko, along with BIG Bank Gdanski, a controlling 51% stake. Eureko announced in late February 2002 that it might seek assistance from the European Commission, in addition to its approaches to the Dutch and Polish governments, in its bid to force through the deal. In another development, the chairman, Zygmunt Kostkiewicz, and two other board members of PZU were replaced in February 2002 in the latest of a series of changes to the composition of boards of state- controlled concerns. Mr Kostkiewicz was appointed in April 2001 by the previous Treasury Minister.

The bill amending the organisation of central administrative bodies, which is due to be passed by parliament in early March 2002, provides for the winding-up of the Privatisation Agency. The remaining projects being dealt with by the agency will be transferred to the Treasury Ministry as will the agency's staff.

3 RELATIONS WITH THE EUROPEAN UNION

3.1 INTRODUCTION

The basis for current political and economic relations between Poland and the European Union is the Europe Agreement, which was signed in December 1991 and came into force, after a transitional period of two years, on 1 February 1994. The Europe Agreement improves the conditions for effective economic and political reform and provides the institutional framework and legal basis for relations between Poland and the EU. It covers all areas of common interest: political dialogue, trade in industrial and agricultural products, the right of establishment and freedom of movement of workers, services and movement of capital, alignment of legislation, economic, cultural and financial cooperation, etc. Ultimately, the Agreement is aimed at bringing Poland closer to EU membership.

Poland's application for membership of the European Union was submitted on 5 April 1994. Following the positive opinion given by the Commission in Agenda 2000, the Luxembourg European Council of December 1997 endorsed its conclusions and the accession negotiations began in March 1998. By the end of December 2001, 20 chapters had been provisionally closed.

1 Economist Intelligence Unit, Country Report Poland, December 2001. WIP/2002/02/0052-53 14

[FdR 463073] PE 313.120 3.2 THE EU INSTITUTIONS' APPROACH TO ENLARGEMENT

3.2.1 European Commission In a mid-term review of the implementation of the enlargement strategy adopted on 2 October 2001, in the run-up to the Ghent European Council meeting, the Commission concluded that the 'road map' had proved a valuable guide to the candidate countries and the EU for a realistic timetable of the enlargement process. In the strategy paper and report accompanying the 2001 progress reports, ' Making a Success of Enlargement', the Commission concluded that the roadmap presented in 2000 should be followed as foreseen and that it should be able to make recommendations on those candidates ready for accession on the basis of its 2002 Regular Reports. The Union should therefore be prepared to conclude accession negotiations by the end of the Danish Presidency in 2002, in view of accession in 2004, with all the countries meeting the necessary conditions. The Commission also announced an action plan to assist candidate countries in their on-going efforts at institution building to ensure an adequate level of administrative and judicial capacity. Additional funding is to be allocated from the Phare programme and enhanced monitoring, notably by the establishment of peer reviews, where appropriate, to complement existing monitoring. On 30 January 2002, the Commission published its approach to financing enlargement up to 20061 and its strategy for dealing with the enlargement negotiations on agriculture.2

In keeping with the Treaty, Poland's membership application is subject to an assessment and decision-making procedure involving the Member States and all the Community institutions. The Commission, which has an important role in this procedure, delivered its opinion on Poland's application and the applications submitted by the other countries seeking accession in a key document published in July 1997 on the development of the European Union and the conditions governing the accession of new Member States, Agenda 2000. This was followed by a special report on the each applicant country, focusing on its ability to meet the 1993 Copenhagen criteria. The Commission's report confirmed that Poland displayed the characteristics of a democracy with stable institutions guaranteeing the rule of law, respect for human rights and respect for, and the protection of, minorities. In the medium term full participation by Poland in the internal market would be possible, provided that extra efforts were made to meet the criteria of the acquis in the areas of agriculture, the environment and transport. The Commission therefore recommended that accession negotiations be opened with Poland, and undertook to report regularly on the progress made. The most recent of these reports was published on 13 November 2001.

In its 2001 Regular Report3, the Commission notes that the Copenhagen political criterion continues to be fulfilled by Poland, which has made considerable progress since 1997 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. More specifically, progress in implementing the Civil Service Law continues, but further efforts are required to speed up the pace of implementation and ensure an independent, well-trained and motivated civil service is in place

1 European Commission Press Release, IP/02/170: http://europa.eu.int/rapid/start/cgi/guesten.ksh?p_action.gettxt=gt&doc=IP/02/170|0|RAPID&lg=EN&display= 2 European Comission Press Release, IP/02/176: http://europa.eu.int/rapid/start/cgi/guesten.ksh?p_action.gettxt=gt&doc=IP/02/176|0|RAPID&lg=EN&display= 3 For the full text of this and earlier reports, as well as other key documents, see the European Commission, DG Enlargement Website: http://europa.eu.int/comm/enlargement/poland/index.htm WIP/2002/02/0052-53 15

[FdR 463073] PE 313.120 by accession. Further progress is noted in reforming the judiciary but the pace needs to be accelerated and further attention given to issues relating to judicial immunity. In the fight against corruption, which remains a serious source of concern, additional steps have been taken. The Commission indicates that the focus must now be on ensuring a coherent approach, on implementing legislation and on developing an administrative and business culture that is resistant to corruption.

The Commission considers that Poland has a functioning market economy, should be able to cope with competitive pressure and market forces within the Union in the near term, provided it continues and intensifies its present reform efforts in a consistent policy environment. The Commission notes the continuing proces of privatisation and restructuring in sensitive sectors such as coal and power. Also noted are the new bankruptcy law and commercial code. The recent sharp decline in economic growth is attributed largely to problems in the macroeconmic policy mix and fiscal adjustment is considered necessary to contribute to a more suitable mix which would not endanger the medium-term sustainibility of public finances. The Commission also calls for more rapid privatisation and restructuring in key industries and agriculture. The authorities are urged to proceed with clear plans to remove obstacles to market exit and indirect state aid which hinder market forces. The implementation of bankrutcy procedures must be improved and further measures are needed to improve Poland's infrastructure and labour market flexibility.

As regard the third condition, namely the transposition and implementation of the acquis, the Commission notes intensive work on the adoption of legislation. Notable breakthroughs have been achieved in adopting primary legislation in some areas, while consolidation has continued in others. Further efforts to strengthen administrative capacity to implement the acquis are particulary important despite the progress in this area. The Commission notes a disparity between progress in the adoption of legislation and the reinforcement of administrative capacity.

As regards the specific areas of the acquis, the Commission makes the following observations:

· Internal Market: Efforts have focused on secondary legislation, in particular standards and certification, where considerable efforts are needed to develop administrative capacity, and state aid, where the capacity exists but implementation has been limited. · Free movement of services and capital: Poland's track record continues to be good but furtherefforts will be necessary to ensure Poland's smooth integration into the internal market. · Telecommunications: Implementation of existing legislation has been gradual. Limited progress in further aligning rates of indirect taxation. Further work necessary to ensure IT systems are in place to allow for data exchanges with the EC. · EMU: No legislative developments towards strengthening central bank independence. · Industrial policy: Some progress, notably necessary steps to resolve outstanding issues in the steel sector, but vigorous follow-up necessary. · Agriculture and Fisheries: Still no coherent strategy for agriculture. The necessary substantial transformation in terms of policy, legislation and structures has not yet taken place in either agriculture or fisheries sectors. Some progress in both with regard to primary legislation, notably veterinary legislation. Extremely weak administrative capacity in fisheries and some weaknesses in agriculture. · Environment: Significant progress on primary legislation. Regional and national administrative structures need to be reinforced. · Energy and Transport: Some progress but considerable work needed to strengthen administrative capacity. WIP/2002/02/0052-53 16

[FdR 463073] PE 313.120 · Regional policy: Few developments noted. · Social policy: Progress has focused on public health legislation, while enforcement remains a matter of concern, especially in the area of occupational health and safety, where additional efforts are required. · Justice and Home Affairs and Customs: Progress continues, especially with regard to border guards and management, where the customs business strategy is being implemented. Efforts to improve police services combating organised crime need to be intensified. Further efforts needed to align with the customs acquis and ensure effective implementation capacity. · Financial control: Significant legislative progress on internal financial control.

In terms of the short-term accession partnership priorities there has been further progress in meeting the acquis-based elements, while continued efforts are necessary to establish or strengthen administrative capacities across the board. Poland has started to make progress in meeting all the medium-term priorities, particularly in terms of the legislative elements, which provide the basis for the development of the necessary administrative capacity. These efforts will need to be intensified.

3.2.2 European Parliament Although, formally, its main role is to give its assent to the final agreement reached after the conclusion of the intergovernmental negotiations with the candidate countries, the European Parliament has been involved in the enlargement process since the beginning. Parliament has on numerous occasions expressed its opinion on the unfavourable conditions for enlargement, i.e. the unsuitability of the current institutional framework for dealing with an increase in the number of Member States. It has adopted resolutions on the preparation and on the conclusions of the major European Council meetings dealing with enlargement, particularly the Luxembourg summit of December 1997, the Helsinki summit of December 1999, the Nice summit of December 2000, the Gothenburg summit of June 2001 and the Laeken summit of December 2001.1 In giving its opinion on the Commission's Agenda 2000 document (Resolution on the Communication from the Commission 'Agenda 2000 - for a stronger and wider Union' , C4-0371/97), Parliament stressed that the enlargement process should be as inclusive as possible and that each country should be judged according to the progress of its negotiations, which should proceed at an appropriate pace. The resolution also notes that Poland is by far the most important candidate for accession and that the enormous progress recorded since 1989 merits recognition.

An EP resolution (A4-0148/99 - rapporteur for the Foreign Affairs Committee: Magdalena Hoff) on the Commission report on Poland’s progress towards accession was adopted on 15 April 1999. A further resolution (A5-0246/2000 - rapporteur for the Foreign Affairs Committee: Jas Gawronski) on Poland's progress towards accession was adopted by the European Parliament on 4 October 2000 on the occasion of the first of what are now annual debates on enlargement. It stressed the importance of Poland's joining the EU as soon as possible and urged the Member States in particular to determine as soon as possible detailed negotiating positions enabling rapid progress to be made especially with the negotiations on the agricultural chapter. The European Parliament welcomed the progress made by Warsaw in implementing the acquis communautaire and called on the Polish authorities to continue their work on improving the institutional conditions for effective implementation of regional development programmes.

1 The texts of these and other resolutions on enlargement issues are available on the European Parliament's website pages on enlargement: http://www.europarl.ep.ec/enlargement/default_en.htm WIP/2002/02/0052-53 17

[FdR 463073] PE 313.120 On 5 September 2001, Parliament adopted its latest resolution on Poland's application for membership and the state of negotiations (A5-0254/2001 - rapporteur for the Foreign Affairs Committee: Jas Gawronski). While welcoming the remarkable efforts made by the Polish Parliament to swiftly adapt national legislation, it calls on Poland to speed up effective and verifiable implementation of the acquis. The resolution also welcomes the proposals to amend the labour laws with the aim of developing a programme to combat unemployment. With regard to agriculture, it acknowledges the need to restructure Polish agriculture to meet demands for quality and cost-effectiveness and calls on the Commission and Polish authorities to reach a compromise on participation in the CAP based on Commissioner Fischler's proposal for phasing in direct payments. It reminds the Polish authorities of the need to continue industrial restructuring and invites the Polish authorities to reconsider their demand for a transition period until 2017 for special economic zones and to bring the tax privileges into line with the acquis. Among other points, the resolution also calls for more funds to be allocated for EU information campaigns in Poland.

Parliament also follows developments in the candidate countries closely through the Joint Parliamentary Committees (JPCs). These bring together delegations of members of the European Parliament and the respective national parliaments of the candidate countries in meetings which take place twice a year. The 16th EU - Poland JPC meeting was held in Brussels on 3 and 4 December 2001.

Another forum for discussion of enlargement issues as a whole is the meeting of the President of the European Parliament with the Presidents of the Parliaments of the Countries Participating in the Enlargement Process. The latest of these twice-yearly meetings was held in Brussels on 5 and 6 December 2001.

3.2.3 The Council and the European Council Following from the commitments made at the Copenhagen European Council in 1993 and at Madrid in 1995, the conclusion of the Intergovernmental Conference at Amsterdam in June 1997 cleared the way for the accession process to start with the candidate countries within six months. The European Council, meeting in Luxembourg in December 1997, decided to "launch an accession process comprising the ten central and eastern European applicant states and Cyprus". It also "decided to convene bilateral intergovernmental conferences in the spring of 1998 to begin negotiations with Cyprus, Hungary, Poland, Estonia, the Czech Republic and Slovenia on the conditions for their entry into the Union and the ensuing Treaty adjustments". It mandated the Commission to carry out the screening process and conduct the negotiations and to present to it regularly an assessment report on progress towards accession, taking account of short- and medium- term priorities set by the Council in the Accession Partnership.

At the Helsinki summit on 10-11 December 1999, the European Council discussed progress on enlargement and decided to launch negotiations with a further six countries. In particular, the EU leaders stressed that "in the negotiations, each candidate State will be judged on its own merits. This principle will apply both to opening of the various negotiating chapters and to the conduct of the negotiations. In order to maintain momentum in the negotiations, cumbersome procedures should be avoided. Candidate states which have now been brought into the negotiating process will have the possibility to catch up within a reasonable period of time with those already in negotiations if they have made sufficient progress in their preparations. Progress in negotiations must go hand in hand with progress in incorporating the acquis into legislation and actually implementing and enforcing it."

WIP/2002/02/0052-53 18

[FdR 463073] PE 313.120 At Nice, in December 2000, the European Council reaffirmed the Union's earlier commitment that the EU would be in a position to welcome those candidate countries which are ready to join from 2002, the target for the countries which have achieved most progress being membership by 2004, in time for the next European Parliament elections. It insisted that no further obstacles should be put in the way of the enlargement process and further endorsed the differentiation and catch-up principles. A 'road map' setting out the priorities for the next 18 months was adopted.1

At Göteborg , in June 2001, the European Council declared the enlargement process to be irreversible and expressed the view that the road map should make it possible to complete negotiations by the end of 2002 for those candidate countries that are ready, the objective being their participation in the EP elections of 2004. At Laeken, in December 2001, the European Council stressed that the roadmap drawn up at Nice remains fully applicable and agreed with the Commission's latest report and assessment of those countries which could be ready for accession in 2004.

3.2.4 Negotiations with Poland By the end of December 2001, Poland and the EU had provisionally closed negotiations on 20 chapters. During the Belgian Presidency the chapters on company law, energy, environment and free movement of persons were closed, as was the re-opened chapter on free movement of goods. In the area of environment Poland was granted nine transitional periods in respect of various directives and other rules. Poland closed the energy chapter after dropping its request for a transitional provision for liberalisation of the gas market and agreeing to cut its transition period request for achieving the EU level of energy stocks from 8 to 6 years. Under the company law chapter, Poland agreed to amend its Law on Industrial Property rights in order to introduce SPCs for medicinal and plant protection products on the date of accession. It will also introduce the SPC regime for products which, on the date of accession, are protected by a valid basic patent and for which market authorisation was obtained after 1 January 2000. Poland also accepted the EU proposal on a specific mechanism for the trade in pharmaceutical products. Poland completed negotiations on the free movement of persons chapter during the final round of talks in December 2001on similar terms to several other coutries, namely that the current Member States will have the right to restrict the access of Polish workers to their labour markets for up to seven years after enlargement. However, it does not share the view that a transition mechanism is an economic necessity and the EU side agreed to add a statement underlining that Member States would endeavour to grant increased labour market access to Polish nationals under national law.

As regards other chapters still open, Poland hopes to close soon justice and home affairs and taxation. In the field of competition policy Poland is preparing proposals on a number of outstanding aspects. Agreement has to be reached about the status of the Special Economic Zones and the restructuring plans for iron and steel mills. Poland also hopes to close the fisheries chapter by June 2002 and is seeking EU approval for the designation of out-of-bounds breeding areas. On transport Poland has indicated that it is willing to accept a transition period for Polish carriers wishing to operate in other EU countries, provided it is less than five years and that reciprocal arrangements apply to EU carriers wishing to operate in Poland. On free movement of capital,

1 For the texts of the conclusions of the European Council and Council meetings dealing with enlargement see the European Parliament website pages on enlargement: http://www.europarl.ep.ec/enlargement/positionothers/default_en.htm .

WIP/2002/02/0052-53 19

[FdR 463073] PE 313.120 Poland is still insisting on a general 12-year ban on non-Poles acquiring agricultural and forestry land and a five-year ban on second homes, but, in a revised offer submitted in December 2001, it dropped the call for a five-year ban on acquiring land for investment and eased its position on land purchases by self-employed farmers, subject to a qualifying period as leaseholder from the date of accession. The period would be three years (seven years for northern and western regions). A two- tier system allowing the period to be calculated from the date of signing the lease for deals concluded before accession, and from the date of accession for those signed afterwards has been put forward unofficially by the Polish Prime Minister as a compromise proposal, but press reports at the end of February suggested the PSL would leave the coalition if this were accepted 1(see also section 4.3 below).

3.3 POSITION OF THE POLISH GOVERNMENT In 2001, there had been much criticism of Poland's apparently slow progress on negotiations as it found itself overtaken by countries which had started negotiating later. This was due in part to the increasing difficulties which the Buzek government faced in terms of public opinion and in getting legislation through parliament but also to its tactic of trying to include issues such as free movement of workers and capital in the final negotiation package. The new government not only changed the structure of the departments and agencies dealing with EU integration but also adopted a different strategy. On 15 November 2001, the government decided on a new strategy for the negotiations on the basis of the proposal of the Committee for European Integration (KIE). The objective is to complete the negotiations by the end of 2002 with the aim of membership as of January 2004, following a referendum to be held in the autumn of 2003. The government aims to complete the negotiations on all the chapters not directly linked to financial questions by mid 2002, so as to focus on the key agriculture, regional aid and budget issues. The strategy also foresees an acceleration of the work of implementing legislation to align with the acquis:75 laws and 867 executive acts will have be adopted by the end of 2002. The practical effects of the strategy were immediately apparent in the more flexible stance adopted by the Polish negotiators in the final rounds of talks held in November 2001, at which chapters such as the free movement of persons were closed and progress was made on others, notably sales of land (see above, section 4.2.4). However, the Foreign Minister, Wlodzimierz Cimoszewicz, faced strong criticism in the Polish Parliament when he failed to notify it in advance of the change in Poland's negotiating position on these sensitive issues. A subsequent motion of censure against him brought by opposition MPs failed to win enough support.

The Prime Minister, Leszek Miller, expressed his satisfaction with the inclusion of Poland in the ten candidate countries mentioned in the Laeken summit conclusions as having a chance of joining the EU in 2004.

As in other candidate countries, the announcement by the European Commission at the end of January 2002 of its proposals for financing enlargement and for an integration strategy for agriculture provoked widespread criticism in political and agricultural circles in Poland. The Member States have yet to adopt a common negotiating position on these issues. The Polish government's official reaction has been more measured than that of some party leaders, notably the opposition Samoobrona and LPR parties. Deputy Prime Minister and Agriculture Minister Jaroslaw Kalinowski, whose party, the PSL, depends largely on the rural vote, claimed that many farmers would be worse off if the proposals were accepted as such and that this would undermine support for EU membership among farmers and rural communities. The governments of the Visegrad group of countries (Czech Republic, Hungary, Poland and Slovakia) have agreed to adopt a joint position

1 Polish News Bulletin, 27 February 2002 WIP/2002/02/0052-53 20

[FdR 463073] PE 313.120 on direct subsidies to farmers as a framework for the individual accession negotiations. A joint statement signed by the Prime Ministers of the four countries says that the transition periods are not justified nor in keeping with the principle of fair and equal conditions of competition. The Poles are likely to press for such a joint position to include proposals to raise the starting level of subsidies from the 25% proposed and reduce the period of transition to 100% subsidies.

Poland has named its representatives to the European Convention. The government will be represented by European Integration Minister Danuta Hübner (deputy Janusz Trzcinski), while the Polish Parliament has nominated Jozef Oleksy , chairman of the Sejm European Affairs Committee, (deputy Marta Vogler) and former Education Minister Edmund Wittbrodt (deputy Genowefa Grabowska).

3.4 PRE-ACCESSION ASSISTANCE, THE ASSOCIATION AGREEMENT AND ACCESSION

PARTNERSHIP

3.4.1 Pre-accession aid

Since January 2000, three pre-accession instruments financed by the European Community have been available to assist the applicant countries of Central European in their pre-accession preparations: the existing 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

In the years 2000-2002, total financial assistance to Poland will amount annually to €398 million from Phare, €168.6 million from SAPARD, and between €312 and 385 million from ISPA. None of the SAPARD funds for Poland have yet been released, as the Commission has still to give final approval for the structures put in place by Poland to administer this form of assistance.

Phare priorities in Poland for the year 2000 included: the reinforcement of institutional and administrative capacity: the internal market, the strengthening of co-operation in the field of justice and home affairs, institution building in agriculture and cross-border co-operation.

Under the PHARE Programme Poland obtained a total of € 2 050 million for the period 1990 to 1999. The programme’s funds are not granted unless the projects identified match up with the priority measures and the technical and institutional conditions laid down by the Commission.

Since 1998, the Commission has also put in place another new instrument, institutional twinning. It is financed by Phare and encourages adoption of the acquis communautaire by providing pre- accession advisers from the Member States’ administrations. These advisers prepare and implement what is required (e.g. training) for adoption of the acquis. For Phare 2000, there are 32 twinning projects with Poland including the preparation for regional policy and the management of future structural funds.

Poland also participates in various EU programmes, notably Leonardo da Vinci II, Socrates II, Youth and Culture 2000 and the Fifth RTD Framework Programme.

WIP/2002/02/0052-53 21

[FdR 463073] PE 313.120 3.4.2 Association Agreement The Association Agreement or 'Europe Agreement' with Poland was signed in December 1991 and entered into force in February 1994. It provides a framework for political dialogue, promotes the expansion of trade and economic relations between the parties, provides a basis for Community technical and financial assistance and an appropriate framework to support Poland's gradual integration into the Union.

An institutional framework was set up under the agreement providing for a discussion forum, an assessment body and also a decision-making body. The decision-making body is the Association Council, which meets once a year to review the candidate's progress in the framework of the pre- accession strategy and set priorities for future work within the framework of the Europe Agreement. The 8th meeting of the EU-Poland Association Council took place on 20 November 2001. The Council reviewed the state of Poland's preparation for accession. It noted the agreement between the EU and Poland on reciprocal trade concessions concerning agricultural products, which has been applied by autonomous measures since January 2001, and looked forward to a new round of negotiations to further liberalise agricultural trade. It also noted the conclusion of negotiations on a trade agreement for fish and fisheries products. The Council welcomed the revision of the steel restructuring plan and adoption of the corresponding law and looked forward to the finalisation of the plan, intended to ensure an economically viable industry in Poland, in the framework of the conditions laid down in protocol 2 of the Europe Agreement.

3.4.3 Accession Partnership

Following the publication of Agenda 2000, the Council decided, with Parliament's agreement on the basis of Article 308 (ex. Article 235) of the Treaty, to establish a consolidated framework setting out the priority objectives to be achieved by the applicant countries and the financial resources to be used for that purpose under specified conditions. In keeping with the Union's objectives, the Accession Partnership with Poland constitutes the main axis of the new enhanced pre-accession strategy involving the three financial instruments already referred to. The first partnerships were adopted in 1998. The Accession Partnership for Poland of 13 October 1999 was revised in February 20001. In November 2001, the Commission published the text of the latest proposal for a Council Decision updating the partnership on the basis of the conclusions of the latest Regular Report.2 Each applicant countries was invited to submit a national programme for the adoption of the acquis (NPAA), laying down a timetable for priority measures, and which is revised and updated annually. The latest revised version of the Polish NPAA was adopted in June 2001.

* *

*

1 For the full text, see the European Commission's Enlargement Website: http://europa.eu.int/comm/enlargement/dwn/ap_02_00/en/ap_pl_99.pdf 2 For the full text, see the European Commission's Enlargement Website: http://europa.eu.int/comm/enlargement/report2001/appl_en.pdf

WIP/2002/02/0052-53 22

[FdR 463073] PE 313.120 ANNEX 1

President of the Republic Aleksander KWASNIEWSKI (Elected: October 2000)

COMPOSITION OF THE POLISH GOVERNMENT (sworn in 19 october 2001)

Prime Minister Leszek MILLER (SLD) Deputy PM and Minister of Jaroslaw KALINOWSKI (PSL) Agriculture Deputy PM and Infrastructure Marek POL (UP) Minister Deputy PM and Finance Minister Marek BELKA (SLD) Interior and Administration Krzysztof JANIK (SLD) Minister Foreign Affairs Minister Wlodzimierz CIMOSZEWICZ (SLD)

Defence Minister Jerzy SZMAJDZINSKI (SLD)

Economics Minister Jacek PIECHOTA (SLD)

Treasury Minister Wieslaw KACZMAREK (SLD)

Justice Minister Barbara PIWNIK (not affiliated)

Education Minister Krystyna LYBACKA (SLD)

Culture Minister Andrzej CELINSKI (SLD)

Health Minister Mariusz LAPINSKI (SLD)

Employment Minister (SLD)

Environment Minister Stanislaw ZELICHOWSKI (PSL)

Science Minister Michal KLEIBER (SLD)

Parliamentary Speaker:

Sejm Marek BOROWSKI

Senate Longin PASTUSIAK

National Central Bank

Governor Leszek BALCEROWICZ

Chief EU negotiator Jan TRUSZCZYNSKI

WIP/2002/02/0052-53 23

[FdR 463073] PE 313.120 ANNEX 2 Results of the general election (23 September 2001)

SEJM Turnout: 13 017 929 votes cast (46.28 % of electorate) (Threshold 5% for parties, 8% for coalitions)

PARTY % VOTES SEATS

Democratic Left Alliance and Labour Union (SLD-UP) 41.04 216 Citizens' Platform (PO) 12.68 65 Samoobrona (Self Defence) 10.20 53 Law and Justice (PiS) 9.50 44 Polish Peasants' Party (PSL) 8.98 42 League of Polish Families (LPR) 7.87 38 German Minority * 0.36 1 German Minority Upper Silesia * 0.06 1 Electoral action Solidarity (AWS) 5.6 0

Freedom Union (UW) 3.1 0

Total 460 * Minimum threshold does not apply.

SENATE

PARTY SEATS

SLD-UW 75 Blok Senat 2001 15 PSL 4 LPR 2 Sambroona 2 HTS* 1 SLK* 1 Total 100 * independent

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[FdR 463073] PE 313.120 ANNEX 3

Source: European Commission, Economic Reform Monitor N° 4-November 2001.

WIP/2002/02/0052-53 ANNEX 4

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[FdR 463073] PE 313.120 ANNEX 5

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[FdR 463073] PE 313.120 ANNEX 6

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WIP/2002/02/0052-53 30 ANNEX 8

WIP/2002/02/0052-53 31 New .eu Domain

Changed Web and E-Mail Addresses The introduction of the .eu domain also required the web and e-mail addresses of the European institutions to be adapted. Below please find a list of addresses found in the document at hand which have been changed after the document was created. The list shows the old and new address, a reference to the page where the address was found and the type of address: http: and https: for web addresses, mailto: for e-mail addresses etc.

Page: 3 Old: mailto:[email protected] Type: mailto New: mailto:[email protected]

Page: 15 Old: http://europa.eu.int/rapid/start/cgi/guesten.ksh?p_action.gettxt=gt&doc=IP/02/170 Type: http: New: http://europa.eu/rapid/start/cgi/guesten.ksh?p_action.gettxt=gt&doc=IP/02/170

Page: 15 Old: http://europa.eu.int/rapid/start/cgi/guesten.ksh?p_action.gettxt=gt&doc=IP/02/176 Type: http: New: http://europa.eu/rapid/start/cgi/guesten.ksh?p_action.gettxt=gt&doc=IP/02/176

Page: 15 Old: http://europa.eu.int/comm/enlargement/poland/index.htm Type: http: New: http://europa.eu/comm/enlargement/poland/index.htm

Page: 22 Old: http://europa.eu.int/comm/enlargement/dwn/ap_02_00/en/ap_pl_99.pdf Type: http: New: http://europa.eu/comm/enlargement/dwn/ap_02_00/en/ap_pl_99.pdf

Page: 22 Old: http://europa.eu.int/comm/enlargement/report2001/appl_en.pdf Type: http: New: http://europa.eu/comm/enlargement/report2001/appl_en.pdf

Addendum: 1