ࡱ> q Ebjbjt+t+ a>='2$<<<<Pd<dhb:TTTTTThbjbjbjbjbjbjb$egbTTTTTb.*TT02.*.*.*T TThb<<Thb.*j.*/N\hbTt We<<#LbNtrade policies by sector Introduction The difficulties involved in the transition process affected all sectors of the Bulgarian economy. Agriculture and food processing possibly saw the most severe disruption as a chaotic process of land reform and restitution, involving de-collectivization and restoration of land rights to their original owners or descendants, proceeded slowly through the system. This process has been completed only recently and a market structure in land, giving rights to collateral and associated credit, is being rebuilt. Mining and manufacturing output suffered from the collapse of the CMEA and the inability to compete in new markets; some areas of mining output have recovered in recent years, although the efficiency of the sector overall remains low. Industrial output in 2001 was 45% of its 1991 level and the structure of industry today is very different from before the transition. Privatization has made big inroads in industry and in services. Legal and institutional reforms have been widespread both in manufacturing and services. Results of these reforms are beginning to feed through into economic figures; as noted in Chapter I, the most rapidly growing sectors in 2002 were agriculture and services, and industrial output in the early months of 2003 showed major increases over the same period of 2002. Agriculture Background Almost 56% of Bulgarias land is agricultural; a further 35% is covered by forest and about 5% by water. Of the agricultural land, 69% is arable, 27% permanent pastures and meadows, and about 4% vineyards and orchards. The principal cultivated lands are in the Danube and Thracian Plains and the hinterland of the Black Sea. Agriculture accounted for 12.5% of gross value added in 2002. Crops produced in Bulgaria include: cereals and pulses, principally wheat, barley, maize, oats, and legumes; industrial and oil-bearing crops, of which sunflower, sugar beet, cotton, and tobacco dominate; grapes and wine; and vegetables and fruit, mainly tomatoes, green and red peppers, cucumbers, apples, plums, cherries, peaches, apricots, and berries. The main livestock production involves the breeding of cattle and water buffalo, sheep and goats, pigs, poultry, rabbits, horses, bees, and silkworms. Before the transition, Bulgaria was a major exporter of food and agricultural products to the CMEA market. During the first years of transition, the rural economy suffered a considerable decline. Between 1990 and 1996, when overall GDP fell by one third, grain production was reduced by nearly 60% in quantity, cattle stocks declined by 60%, and pig numbers by over 50%, while the total area sown with crops fell by nearly one quarter. Between 1997 and 1999, there was a moderate recovery in gross agricultural output overall; trends of principal crops and livestock varied. However, 2000 was a drought year, leading to a fall in production of most crops. In 2001, there was a general increase in grain production, with wheat output increasing by 19.7% and barley (principally for export) by 46%. The main increase was in spring crops, due to the influence of dry summer conditions on autumn cropping: hence maize area and production both fell in 2001. In 2002, gross agricultural production and value added increased by 4.1% and 5.1% respectively. However, overall production levels remain well below those of the early 1990s. In contrast to the decline in earlier years in agricultural production, the share of farm in total employment is recorded to have risen from 21% in 1992 to 26% in 2001. Over the transition period, the agriculture sector played an important role in the labour market by absorbing redundant labour from other sectors, notably manufacturing; while overall employment declined by 10% in 1992-2001, employment in agriculture increased by 14% over the same period. After peaking in 1998, at 825,000employment in the sector has declined in recent years; in 2001, agriculture employed 766,796persons. According to preliminary estimates, the number of the employed in agriculture rose slightly in 2002 to 767,134. Since 1991, Bulgaria has undergone a complex and disruptive process of land restitution (BoxIV.1). This has resulted in a fragmented structure of land ownership and had adverse effects on farm production. Currently, there are four principal forms of farm ownership in Bulgaria: state ownership, municipal ownership, private ownership, and co-operatives. In 2000, there were 13,419 registered agricultural entities, of which 68.3% (9,170) belonged to private local individuals (8,843) and local legal entities (327); 28.8% (3,861) belonged to private farm co-operatives; 1.9% to state and municipal-owned entities; and about 1% (122) were owned by private foreign individuals, foreign individuals in cooperatives, and foreign legal entities. Of these entities, 8,604 were registered for crops and 2,067 for livestock; a further 779 were for combined crops and livestock production. Enterprises providing agriculture and agri-business-related services (veterinary services excluded) accounted for 1,830 entities, and the remaining 139 operated in land management and zoning. Food and agriculture have historically been major components of Bulgaria's foreign trade, contributing up to a quarter of total exports. The value of agricultural exports fell between 1990 and 1997 by two thirds and continued to decline up to 2000. In 2001, Bulgarias agricultural and food exports were estimated at US$504 million, an increase of 3% over 2000 but still only one-quarter of their 1990 value. The balance of agri-food trade in 2001 was estimated to be positive, at US$100million. The main agricultural export products were cereals; tobacco and processed tobacco substitutes; non-alcoholic and alcoholic beverages (mainly wine) and vinegar; meat and offals for consumption; oilseeds and fruits, and animal feed. In 2002, there is estimated to have been an upturn in farm production and an increase in agricultural exports. The decline and subsequent slow recovery in Bulgaria's agriculture sector stem from a number of interlinked factors. Some are common to the economy as a whole; others are specific to the sector. Common factors include the loss of the CMEA market as an export outlet (for raw and processed agricultural goods) and the severe contractionary effect of the decline in Bulgaria's domestic market, particularly up to 1997. Specific factors include the disruptive process of land restitution, which led to a lack of clearly enforceable property rights for several years, with consequent effects on access to credit and on investment: many farms were left in the hands of small owners without the capacity, in finance and machinery, to develop or even maintain production; and the dramatic change in structure, and reduction in levels, of domestic support for the sector (TableIV.4). One major deterioration is that irrigation, which was widely used, has become largely unserviceable and Bulgarian agriculture has thus become increasingly weatherdependent. Box IV.1: Land reform in Bulgaria An essential element in the transformation of agriculture in Bulgaria to a market-based system was the restitution of lands taken over by the State in 1945. To this effect, since 1991, new laws have been passed to provide the framework for private-sector development in agriculture. The Law for Agricultural Land Ownership and Land Use (LALOLU) of 1991, as amended, re-establishes private land property rights; since 1998, Bulgarian legal entities with foreign capital may also acquire agricultural land. The National Land Council and around 300 Municipal Land Commissions (MLCs), operating under the Ministry of Agriculture, were established to implement the regulations governing farmland restitution. The process began with the registration of claims, followed by a decision by the MLC regarding the recognition of ownership claims; re-establishment of ownership could be based on old boundaries or through agreement on a reallocation plan, after which a certificate was issued for use in registering ownership. The LALOLU also made provision for the non-land assets (including farm equipment, crops, and livestock) of collective farms and other organizations to be divided among eligible owners. Half of the assets were distributed according to the size, quality, and period of use of the land in the collective or cooperative, and the other half according to the labour contribution of members. The experience of land reform was difficult and painful. Restoring former ownership rights to the status of fifty years earlier, when neither the corresponding structures of production, nor proper records of the previous boundaries existed, was costly, labour-intensive, and complicated. The restoration of old boundaries was generally impossible and attempts to provide acceptable replacements for claimants often ended in court. The task was further complicated because land was initially restored to the original owners: if they had died, this often led to time-consuming inheritance cases. Furthermore, frequent amendments to the law created an atmosphere of uncertainty; implementation was not carried out skilfully; and the operating budget during the initial transition period was inadequate. The process accelerated in the latter half of the transition period, when the Government placed a high priority on completing land restitution. By the end of 2000, over 99% of land subject to restitution had been returned to the original owners or their heirs, and this process was considered to be completed in 2001. The outcome was a very fragmented ownership structure in the sector, with a large number of small family farms. Individual legal titles to land have still not been assigned in many instances, hindering development of a land market. Fragmentation of land ownership contributed to the deterioration in Bulgaria's agricultural performance, as many farmers lack the necessary capital and other inputs to increase production. This in turn had an adverse impact on the agri-processing sector. Land restitution is considered to be the first stage of land reform. In the second stage, the authorities seek to stimulate the land market and facilitate land consolidation. To this end, some laws and regulations have been amended to enhance the possibilities of leasing and selling arrangements: since 1999, for example, the Ministry of Agriculture has made it possible, on the basis of the provisions of the LALOLU, to substitute privately owned plots for identical parcels released by the State Land Fund; under the Land Lease Law, as amended, there is now no ceiling on the area of land that can be leased, and the long-term lease of state-owned land has become an exceptionally active component of the Bulgarian land market; the Law on Cooperatives, as amended, provides for the creation of private cooperatives, which can now lease land by written contract; and the Ministry of Agriculture, in cooperation with a specially assigned expert team, has prepared a draft Land Consolidation Act. An information system for facilitating the land market is also under preparation. Sources: OECD (2000); World Bank (2000); and MAF (2002a). Policy objectives for the sector General objectives Bulgaria seeks to address the decline and boost growth in the agriculture sector through the establishment of secure, clear, and transferable land tenure rights, and an efficient farm ownership and management structure based on private ownership of land and other means of production. Five priority areas are identified in the Governments programme for the sector over 2001-05. These are: (i) efficient management of agriculture and forestry resources and the development of market structures; (ii) increasing the competitiveness of primary and secondary agriculture and creating conditions for the development of an export-oriented agriculture; (iii) preparing for the implementation of the requirements of the EU single market and CAP mechanisms, as well as adherence to international agreements; (iv) improving living and working conditions of those employed in agriculture and forestry as well as of other rural inhabitants; and (v) eco-friendly and sustainable management of forestry resources, game, and protected natural areas. Pricing and trade policies In contrast to the pre-transition and early transition period, Bulgaria's current pricing regime in agricultural product markets has been liberalized (see Box IV.2). The current price regime is based on avoiding direct intervention in input and output markets. The general policy objective is to promote the development of market mechanisms, and for government to intervene only in the event of market failure. In 2003, price interventions remained for tobacco (minimum farm gate prices) and cereals (system of warehouse receipts for grains). BoxIV.2: Evolution of domestic farm support in Bulgaria before and during the transition Up to 1989, all agriculture and food prices were centrally fixed, established in the framework of the five-year plan. Three principal prices were determined: farm procurement prices (purchase prices), processor prices (producer prices), and retail prices. In order to keep fixed retail prices of main food products low, the purchase prices of milk, meat, and bread were fixed well below the costs of production; farmers were compensated for losses by output subsidies and bonuses. Budget support for mountainous and semi-mountainous regions was given mainly to livestock and feedgrain producers. Exports to CMEA markets were made at subsidized prices. In 1989, in addition to these provisions, extra payments were made to cattle and sheep farmers as an incentive to increase livestock numbers. Between 1989 and 1991, the previous price and margin controls were maintained; however, prices of certain products (some fruit and vegetables, some crops, and livestock products) were freed to some extent. The state budget covered the difference between fixed retail prices and freed farm prices. Trade measures were used to encourage imports and discourage exports. Between 1991 and 1995, prices for farm and food products were somewhat liberalized, but remained subject to close monitoring, initially through a "projected price" system and, for basic foods, fixed profit margins. Minimum producer prices (prices below which goods could not be sold) were also introduced in 1991/92, but high inflation during this period reduced their relevance over time. In 1993, the system was tightened by the introduction of ceiling prices determined on a specified profitability level. Generally, the aim was still to keep retail prices of food below the market level. Between May 1995 and 1997, three types of intervention prices were established under the Price Law: fixed prices for electricity and fuel, minimum prices for wheat, and projected retail prices for food and non-food products, replacing the ceiling prices but still on the basis of profit margins. Guaranteed farm prices were introduced under the Law for the Protection of Agricultural Producers. In addition, intervention by the State Fund for Agriculture (in the shape of compulsory purchasing of surpluses) was to occur if current market prices fell below 95% of the guaranteed floor price for any product. Sugar beet was, in practice, the only product for which the intervention system was brought into existence and, because of the significant depreciation of the lev, no contracts were signed. After July 1997, all controls on profit margins were abolished. New "contract prices" (fixed retail prices) were introduced on a limited range of 15 basic food products. The minimum price system was also maintained. Both contract and minimum prices were abolished in mid-1998. It must be borne in mind that the period up to 1997 (when the currency board was introduced) was one of notable macroeconomic instability and very high inflation in Bulgaria. As seen in Chapter I, the introduction of the currency board system reduced inflation to levels comparable with western Europe and the need was no longer seen for administrative control of prices; nor would this have been compatible with the new market-based economic policies followed from 1997 onward. Source: OECD (2000) and (2002). The trade regime affecting agriculture has also undergone considerable transformation. After the fall of the central planning system, with its system of controls, trade policy was initially used for short-term interventions aimed at micro-managing domestic supplies and prices. Instruments for the implementation of these policies included automatic and non-automatic licences on both imports and exports; export quotas, taxes, and bans; minimum import and export prices; and duty-free import quotas. For instance, basic regulations governing licensing exemptions were changed no fewer than 25 times prior to 1997. In this earlier period, export taxes were applied to products such as sunflower seeds and oil, hides and skins, timber, firewood, wood in rough, wool, and grain flour, to prevent or relieve critical shortages of foodstuffs and other essential products. Since acceding to the ϲʹ in 1996, Bulgaria has made considerable progress in liberalizing its agricultural trading regime. Since 1997, licensing requirements for import and export of agricultural products have been removed; currently, there are no automatic or non-automatic licensing provisions or export taxes on agricultural products and livestock. The only import protection on agricultural goods is now through tariffs. In 2003, the simple average applied MFN rate for agricultural products (ϲʹ definition) was 22.6%, with a maximum applied rate of 80% and a maximum bound rate of 200%. Tariffs applied to the different agricultural subsectors are discussed in section (iii). A number of tariff quotas are implemented, under both preferential and non-preferential trading regimes. As noted in Chapter III, currently 45 of the agricultural MFN tariff quotas notified by Bulgaria to the ϲʹ remain in effect (Table AIII.1) and tariffs are suspended for the whole or part of the year on a variety of other food and agricultural products (Table III.5). Preferential tariff quotas at duty-free or reduced rates are also applied under the agreements between Bulgaria and the EU, EFTA, CEFTA, and other countries (Box III.1). In addition, as noted in Chapter III (xi)(b), substantial new laws and amendments on animal health and phytosanitary provisions have been adopted during 2001 and 2002 adapting these provisions to EU directives and other international rules. Domestic support The main institution through which government support is provided to farmers is the State Fund on Agriculture (SFA). According to the provisions of the Law on Promotion of Agricultural Producers, the SFA provides resources for financial support to market-oriented producers of primary agricultural products. Support to the tobacco sector is provided through Fund Tobacco., The pattern of domestic support to Bulgarian agriculture has evolved considerably over the transition period (Box IV.2). Since Bulgaria's accession to the ϲʹ in 1996, the main instruments for agricultural support have been input subsidies, interest rate subsidies, provision of guarantees and collateral to financial institutions, premium and buying-up, future deals, stock credits and bonuses on prices. The main products to have benefited from the subsidies are wheat, maize, sunflower seed, sugar beet, potato, rice, tobacco, and milk. Other support measures specific to particular agricultural products include futures deals for wheat production, bonuses on prices for sugar beet production, and premium and buying-up of tobacco and supply of seeds for tobacco production. Bulgaria's total aggregate measure of support (AMS) increased from ECU 4.64 million in 1997 to 26.03 million in 2001, however this is significantly below its total bound AMS level of 520 million in 2001, thusindicating the possibility for significant increases to domestic support (Table IV.1). These could occur when Bulgaria accedes to the EU, when it will have to adopt the EU's Common Agricultural Policy, which currently provides higher levels of support in Bulgaria (Table IV.3 and Box IV.2). In 2002, support to agriculture included both short-term and long-term financial instruments. The short-term instruments include direct-targeted subsidies, preferential short-term credits and dedicated credit lines, which for 2002 amounted to 21 million levs ( 10.7 million). Long-term instruments are used for support and stimulating investment in agriculture. Between January and June 2002, investment projects amounted to 2.2 million levs ( 1 million) and dedicated finance lines including credit and subsidies for the spring campaign amounted to 13.4 million levs ( 6.8 million). Assistance to the tobacco industry amounted to 85.6 million levs ( 43.8 million). Table IV.1 Aggregate measure of support, current and bound (million ecu and euros) 19971998199920002001Total AMS 4.6413.69.5413.926.03AMS bound commitment635520520520520Source: ϲʹ documents G/AG/N/BGR/7 and G/AG/N/BGR/3. Box IV.3: Aligning Bulgaria's Agriculture Sector with the CAP: options and implications The World Bank recently conducted a major study on food and agriculture in Bulgaria. Among other things, it recognizes that a critical decision for the Government is how to move to the EU Common Agricultural Policy (CAP). Since the likely shape of the CAP by the time of Bulgaria's accession is not clear, the study simulates the possible impact on Bulgaria of six policy options. These are: Scenario A- maintaining the status quo in Bulgaria's agricultural trade measures (using 1999/2000 regulations); Scenario B1- partial adoption of the CAP (using 1999/2000 regulations) without introducing compensatory payment schemes; Scenario B2 complete adoption of CAP, i.e including compensatory payments; Scenario C1- partial adoption of CAP Agenda 2000, without compensatory payments; Scenario C2 complete adoption of Agenda 2000, including compensatory payments; and Scenario D removal of divergences and application of world prices. The results of theses scenarios are illustrated in Table IV.2. Current protection in Bulgaria's agriculture sector is low, with nominal and effective rates of protection (NRP and ERP) both below 4%. Under either the CAP or Agenda 2000 options, the simulations show a sharp rise in protection. The adoption of "Agenda 2000" policies, without direct subsidies, would have relatively small effects for Bulgarian producers; however, for both the CAP and Agenda 2000 options, effective rates of protection increase significantly when compensatory direct payments to farmers are included. Value added at domestic prices in the farm sector would, in principle, increase most under full adoption of the CAP (including direct payments), where the study estimates that effective protection could rise from 4% to 107%. The study states that cereal producers could benefit most; dairy and livestock producers would need to make substantial additional investments to reap the benefits. While farmers may gain from implementation of CAP-type policies, consumers clearly lose. The study notes that increases in value added at domestic prices reflect artificial increases in prices, representing transfers from consumers and taxpayers to producers. Household expenditures on food are estimated to increase by 5% and 10% respectively under the Agenda 2000 and CAP options, leading to declines in household real incomes of 2.7% and 5.1% respectively. This would impact more severely on the poor; the study estimates that the share of Bulgaria's population living in poverty (defined as 50% average per capita consumption in 1997) may grow from 20% to 24.8% under the CAP option and to 22.3% under "Agenda 2000". The study contrasts the CAP/Agenda 2000 estimates with a "non-interventionist" option, where all existing restrictions and distortions are removed. This is estimated to lead to a small decline in value added at domestic prices (producer income), but to a positive effect on food expenditure, consumer incomes, and poverty, particularly if an elastic demand response by households is assumed. Source: World Bank (2000). Green box measures provided in support of agriculture in Bulgaria include: general services such as pest and disease control, training services, inspection services, extension and advisory services, research and infrastructural services; environmental programmes and regional assistance programmes. Total funds allocated to these measures amounted to 27.2 million in 2001. The OECD regularly provides estimates of aggregate producer and consumer support equivalents for the Bulgaria's agriculture sector (Table IV.3). While the estimates fluctuate widely from year to year, in general they indicate that in the pre-transition period agricultural producers were heavily subsidized and consumers taxed (positive PSEs, negative CSEs), whereas for most transition years up to 1996 agricultural producers were taxed and consumers implicitly subsidized (negative PSEs, positive CSEs). The high figures for support during the pre-transition period reflected the levels of market price support and consumption subsidies (Table IV.3 and Box IV.2). The liberalization of domestic prices, trade policies, and the exchange rate regime meant that prices received by agricultural producers first fell far below and subsequently approached the market equilibrium, although retail prices were still (at least in principle) controlled. Since 1997, both PSE and CSE levels have been extremely low, reflecting the current liberalization and low levels of support in the farm sector. Though the overall PSE estimates show a decline in total support for agriculture, specific elements of support have increased during the transition period. These include the payments based on input use and production mentioned in the previous paragraphs. Table IV.2 Summary of simulation of effects under policy scenarios ( million and per cent) ScenarioAB1B2C1C2DCurrent policiesCAP, excluding direct paymentsCAP, including direct paymentsA2000, excluding direct paymentsA2000, including direct paymentsNon-interventionEU agricultural policy effects on agricultural producersNRP, main products (%)a, b2.138.238.222.822.80.0ERP (%)a, b3.931.8107.011.7100.80.0Gross output value ( million)a1,6872,2422,6522,0062,4911,575VA at domestic prices ( million)a5657171,1276081,093544VA at border equivalent prices ( million)a544544544544544544Change in VA at domestic prices ( million)..15256143528-21EU agricultural policy effects on householdsExpenditure on food ( million)c2,1052,312..2,210..2,067Change in food expenditure ( million)c..-207..-105..+38Change in real income (%)0.0-5.1..-2.7..1.0EU agricultural policy effects on taxpayersChange in expenditures ( million)..-32..-22....Direct payments ( million)....409..484..Population living in poverty(%)Inelastic demand2024.824.822.322.319.6Elastic demand2023.523.521.721.710.4a Nominal rate of protection aggregate measurement for all analysed products (including direct payments where applicable). b Effective rate of protection: weighted average of product indicators. c Including non-alcoholic beverages. Source: World Bank (2000). The development of Bulgaria's farm sector is also constrained by lack of credit. Commercial banks consider lending to agriculture as high risk due to a lack of collateral and low profitability. Agricultural land has not been accepted as collateral for banks, due to the lack of clear property and ownership rights, and even since restitution of land rights, farmers use of land for collateral has been hindered by the absence of a functioning land market. Measures being prepared by the authorities, as noted in Box IV.1, seek to improve the land market and credit accessibility. The sector benefits from various EU pre-accession schemes. Between 1992 and 1999, the main EU pre-accession support to Bulgaria (as well as other acceding central and eastern European countries) was through the PHARE programme. The aims of the programme are to help the administration of the partner countries acquire the capacity to implement the acquis communautaire,and to assist candidate countries bring their industries and major infrastructure up to Community standards by mobilizing investment. Under the current PHARE programme, which runs till November 2003, Bulgaria is receiving EU assistance in the following agriculture-related areas: phytosanitary and plant protection, veterinary control, fisheries and aquaculture, and agricultural statistics. Since 2000, Bulgaria has also benefited from SAPARD (the Special Accession Programme for Agriculture and Rural Development). SAPARD funds support the structural adjustment of Bulgarian agriculture and rural development as well as enabling Bulgaria to implement the acquis communautaire concerning the Common Agricultural Policy (CAP) and related matters. Up to 50% of the initial cost is refunded for qualifying investment in agricultural holdings, processing and marketing of agricultural and fishery products, as well as in diversification and alternative income generation. Table IV.3 Producer and consumer support estimates, 1986-2001 (per cent) 1986-901991-961997-20011997199819992000a2001bWheat54-50-70-19-143-4Maize69-19-5-5-7-2328Other grains58-33-8410-21-11-21Oilseeds64-75-27-51-29-38-13-2Sugar8914584656646459Crops61-42-14-5-15-22Milk78121654013119Beef and veal66-64-24-55-18-55-1524Pigmeat74-48-9-19-92-14-4Poultry 58-1621517392716Eggs64516316351414Livestock......-121111Aggregate PSE72.4-32.7..-10+2-2+1+3Aggregate CSE-67.636..10-1+10-3a Provisional. b Estimate. Note: PSE indicates the total annual monetary value of gross transfers from consumers and taxpayers to support agricultural producers, measured at farm gate level, arising from policy measures regardless of their nature, objectives or impacts on farm production or income. Percentage PSE measures the ratio of PSE to the gross values of farm receipts (farm gate production value plus budgetary support). Positive values imply support to agricultural output and negative value imply taxation of agricultural output. CSE indicates the annual monetary value of gross transfers to consumers of agricultural commodities, measured at farm gate level, arising from policy measures which support agriculture, regardless of their nature, objectives or impact on consumption of farm products. Percentage CSE is the ratio of the CSE to the total value of consumption expenditure on commodities domestically produced, measured by the value of total consumption at farm gate prices minus any consumer subsidies. Positive values indicate explicit or implicit subsidization of consumers; negative values show implicit taxation of consumption associated with support for the agriculture sector. Source: OECD (2000); OECD (2002). As part of the eligibility requirements for the SAPARD funds, Bulgaria has developed a National Agriculture and Rural Development Plan (NARDP). Financial support under NARDP is envisaged to support two major objectives: (i) "the development of an effective and competitive agrarian sector complying with EU's economic criteria"; and (ii) harmonization of Bulgarian legislation in the field of agriculture, veterinary, and phytosanitary controls with the acquis, and preparation for systematic introduction and implementation of the mechanisms of the CAP. Specific measures being implemented to achieve these objectives include investment in agricultural holdings, improving the processing and marketing of fruit and vegetables, setting up producer groups and water resource management; development and improvement of rural infrastructure, development and diversification of economic activities, providing for multiple activities and alternative incomes; investment in human resources, and provision of technical assistance. Bulgaria was the first EU candidate country to benefit from funds from SAPARD. Three areas were given priority: investments in agricultural holdings, improving the processing and marketing of fish products, and development and diversification of economic activities. Since its establishment (until May 2003), a total of 450 projects amounting to 311.9 million have been approvedfor support under the measures: for the period July 2002 to May 2003, 294 projects were approved. For the whole period, 150 projects have been completed and reimbursed, amounting to 83.1 million; 126 of these were completed and paid in the period July 2002 to May 2003. Main subsectors Crops In terms of area planted the main crops in Bulgaria are wheat, maize, barley, sunflower, and fruits. In 2001, the total area planted with crops was 2.6 million ha; this represents a 22% decline since 1991, especially for wheat, barley, and maize. Cereals and pulses In 2000, the area under cereals and pulses totalled 1.8 million ha (36.4% of total arable land), and output amounted to 4.4 million tonnes, 19% lower than the 1999 output level. Cereal yields have fluctuated between 2.5 to 3 tonnes per hectare since 1992. The average MFN applied tariff rate for cereals in 2003 is 11.6%; the bound rate is 29.6%. As part of its accession process, Bulgaria is harmonizing its legislation in this subsector with that of the EU's cereals CMO, and establishing the necessary institutions and administrative procedures to enable it implement EU regulations. This requires the establishment of a paying agency, intervention agency, systems of land registration, an integrated administration and control system, and the trade regime. Preliminary studies on the basis of "Agenda 2000" estimate a 15% increase in incomes from cereal production after EU accession. However, this is only indicative as the extent to which Bulgarian farmers would benefit from the cereals CMO would depend on the outcome of the EU internal discussion process and the negotiations on the terms of EU entry for Bulgaria. Wheat Wheat is Bulgaria's main cereal crop. Over the period 1989-91, average wheat production was 5.1 million tonnes, declining to 3.8 million tonnes in 2001 or 63% of the total output of cereals and pulses. During the pre-transition period, wheat production was supported by a PSE averaging some 54% between 1986 and 1990; during the transition period, by contrast, PSE levels show substantial taxation of wheat, although with considerable fluctuations, averaging around -50% between 1991 and 1996, rising to around -7% in 1997-2001. The trade regime affecting wheat has undergone several changes since the beginning of the transition reforms. The early transition period saw widespread use of minimum farm prices, export taxes and bans on wheat, and various price subsidies. With the acceleration of transition reforms since 1997 various restrictions on wheat imports have been abolished, and export taxes and bans were removed in mid-1997. In 2003 imports of wheat were scheduled to enter duty free under the applied autonomous quota, however the bound rate was 15% on durum wheat and 50% on other wheat. Maize Production of maize, the second largest grain crop, has also fallen significantly. From an average of 2.1 million tonnes in 1989-91, output declined to 937,000 tonnes in 2000. This decline is related to the contraction in the intensive livestock sector, adverse climatic conditions in the maize growing areas (exacerbated by irrigation difficulties), and a decline in the overall support to producers. The PSE for maize fell from an average of 69% in 1986-90 to average -19% (with considerable fluctuations) in 1991-96 and -5% in 1997-2001. Maize trade was also subject to a range of border measures in the early transition period including export taxes and bans, and tariff quotas. However, since 1998, the trade regime for maize has been further rationalized, with the abolition of export restrictions. In 2003, seasonal tariffs were applied to maize: during January-September, imports were scheduled to enter duty free on an MFN basis, under the applied autonomous quota; however outside this period a quota of 100,000 tonnes applies to imports of maize for forage at an in-quota rate of 5% and an out-of-quota rate of 15%. In-quota tariffs were bound at an ad valorem rate of 5% and out-of-quota tariffs were bound at a specific rate of 125/tonne in 2003. Other cereals Other cereals produced in significant quantities in Bulgaria include barley and coarse grains, both of which have suffered significant declines in production relative to the pre-transition era. Barley production fell from an average of 1.5 million tonnes in 1989-91 to 684,000 tonnes in 2000. An increase in production was registered for 2001, to 930,918 tonnes. Coarse grain production declined from 3.8 million to 1.7 million tonnes over the same period. Price interventions in both the barley and coarse grain markets during the transition period were lower than those in the wheat market. OECD (2000) reports that the average PSE for barley was some -33% during 1991-96, rising to -3% in 1997-2000. Currently, the main form of domestic intervention is the system of warehouse receipts. This acts as an alternative approach to short-term lending to grain producers and processors, using grain as collateral. The system gives grain producers and processors greater flexibility to dispose of their grains at a time when prices are most favourable. On the trade front, all coarse grains were also subject to export taxes and bans during the early transition years; however the trading regime has been rationalized. In 2003, seasonal tariffs were applied to imports of barley. Between January and June barley imports entered Bulgaria duty free under the applied autonomous quota; outside this period a quota of 10,000 tonnes applied to imports of barley for brewing at an in-quota ad valorem rate of 15% and an out-of-quota rate of 20%. Bound tariffs were: 3% for seeds; a mixed rate of 80% or 93/tonne (whichever is higher) on barley for the brewing industry or for forage; and 25% for other barley. At present, no permission or licensing is required for export or import of grain, and there are no customs registration requirements. Oilseeds Sunflowers are the main oilseed crop. Unlike other crops, production levels, though fluctuating, have not declined from their pre-transition levels. In the period 1989-91, average output was 427,000 tonnes, rising to 610,000 in 1999 before a decline to 438,000 tonnes in 2000. The relatively better performance of sunflowers compared with that of the other crops occurs against the backdrop of a similar decline in producer support for the crops subsector overall during the transition reforms; as average support levels (measured by PSE) declined from pre-transition positive levels of between 51% and 73% (average 64%) in 1986-90 to negative levels of support (implicit taxation) averaging -75% between 1991and 1996, and rising to an average of -27% in 1997-2001. This relatively brighter performance of the sunflower sector is attributed to increased acreage in the sector due to higher profitability (and higher support) compared to grains production. Export taxes or bans were in place at various periods during 1994-98. The applied MFN rate for oilseeds ranges from zero to 40% with an average of 5%. Sunflowers attract an average applied MFN rate of 3.8%; the tariff is bound at 50% (2003). Sugar beet Sugar beet production plummeted over the early transition period, recovering somewhat in 1997-99. The decline in output can be attributed to a number of factors including the process of land restitution, the lack of mechanization on the new private farms, and the weak financial situation of newly privatized sugar-processing factories. Support levels for sugar, though positive, were relatively low; between 1991 and 1996 PSE levels averaged 14% (compared with 89% during 1986-90), rising to 57% in 1997-2000. In 2003, the applied MFN rate for sugar beet is 10% and the bound rate is 40%. Tobacco In 2000, tobacco was Bulgaria's largest export crop, accounting for 15% of total agricultural export revenues. However, as with other crops, tobacco production and exports have fallen significantly. From an average level of 77,000 tonnes in 1989-91, output declined to 18,802 tonnes in 1995, but recovered to 41,001 tonnes in 2001, and 58,448 in 2002. While acreage fell from 60,000ha to 42,000 ha during the transition period, productivity in the tobacco sector has increased, which contrasts with the overall decline in productivity in Bulgaria's crop subsector. This is mainly due to an increase in the average yield of tobacco per hectare. The tobacco subsector is subject to the strictest market and trade regulations. All government actions in this area are based on the provisions of the Law for Tobacco. Pursuant to the provisions of the Law on Tobacco and Tobacco Products, tobacco production is subject to predetermined output quotas by region, type, origin and variety of tobacco, set out in a special ordinance by the Minister of Agriculture. To enable tobacco producers to fulfil the predetermined output quotas, the Council of Ministers, on the basis of a proposal by the Minister of Agriculture and Forests, adopts a minimum farm-gate price for each year. In 2001, increases in minimum farm-gate prices ranged between 6% and 11.5%, depending on the variety of tobacco. The cumulative increase in minimum farm-gate prices over the period 1997-03 is between 30% and 40%. In addition, through the Tobacco Fund, the tobacco subsector benefits from: grants of seeds, cash premiums for quality, differentiated by variety and type of tobacco, dedicated financial support, and payments for unpurchased tobacco, and storage. In 2002, total support granted for tobacco amounted to 85.6 million levs ( 43.8 million) of which 81% was used for cash premiums, 17.8% as direct financial assistance, and 1.1% on tobacco seeds. The remainder was for storage costs. Applied MFN tariffs applied to tobacco and tobacco-related products range from 5% (HS240130001) to 74.9% (HS 240310). A mixed rate of 50% or 9.6/1,000 pieces (whichever is higher) was applicable to some tobacco products. The simple average MFN applied rate is 30% for both stemmed and unstemmed tobacco and 22.5% for tobacco refuse. The bound rates for most tobacco and tobacco related products were mixed rates ranging from 100% ad valorem or 2.4/kg. for certain types of tobacco to 200% ad valorem or 36/1,000 pieces on cigarettes. Fruit and vegetables Fruit and vegetables are an important component of Bulgaria's agricultural production and exports. In 2001, they jointly accounted for 24.6% of agricultural output and 14.6% of agricultural exports. In total, 11,000 tonnes of fresh vegetables (13% increase over 2000) and 2,000 tonnes of fruit (13% decrease) were exported in 2001. Fruit production declined significantly from an average of 1.6million tonnes in 1989-91 to 743,000 tonnes in 2000 (with periodic fluctuations). This fall is attributed to the dramatic drop in production of perennial fruits arising from the slow pace of land restitution and subsequent fragmentation, which in many cases placed orchards in the hands of small owners without the ability to invest significantly; this reduced productivity and, in some cases, orchards were abandoned as they became unfit for food growing. The fruit subsector has also suffered from the collapse of the CMEA as, prior to 1989, Bulgaria's fruits were primarily exported to CMEA. Bulgaria is however seeking new markets. Though there is no trend decline in vegetable production, its output fluctuated greatly during the 1990s. In 2000, total production of vegetables was 1.7 million tonnes. No price or export controls were applied to fruit and vegetables during the transition period. Border measures currently applied include tariff quotas for some fruit and vegetables, as well as seasonal, ad valorem, mixed, and compound rates. In 2003, 84% of the tariff lines were expressed as ad valorem rates, and the remainder either mixed (i.e including specific and ad valorem rates) or compound rates. Seasonal tariffs were also applied to a wide range of vegetables and fruit. The average applied MFN rate for fruit and vegetables in 2003 is 27.5%, with a wide dispersion of tariffs amongst individual products as the ad valorem component of the applied MFN tariffs for fruits and vegetables ranges from zero to 80%. The advalorem component of the duties on many vegetables is between 20%-55%, for example: tomatoes(34%), onions and shallots (41.7%), garlic (46.5%), carrots and turnips (40%), cucumbers and gherkins (55%), and aubergines (35%). Vegetables attracting seasonal duties include onions, shallots, garlic, potatoes, tomatoes, cucumbers, gherkins and sweet peppers. Imports of lentils were duty free between January and July 2003. Fruits bearing seasonal duties included grapes, watermelons, apples and nectarines, many of which also bore compound duties. Duties applied to fruit in 2003 include: 5% plus 45/tonnes for apricots; 5% plus 20/tonnefor oranges, 5% plus 22/tonne for mandarins, 5% plus 60/tonne for cherries, and 10% plus 170/tonne for nectarines. Relatively high ad valorem rates are applicable to imports of watermelons (57%), strawberries (40%), and raspberries, blackberries, and mulberries (40%). Bulgaria is harmonizing its legislation in this sector with that of the EU's CMO for processed fruit and vegetables. The legislative reforms as well as the accompanying institutional and administrative reforms in this sector address amongst other things provisions on producer organizations, quality requirements, data collection, and its trade regime. Preliminary studies suggest that under the current EU market prices the value of fruit and vegetable production could go up by 30% with the highest increases generated by vegetable production. However, this outcome is contingent on Bulgaria's ability to improve quality and develop markets. Livestock Milk and milk products Milk, Bulgarias principal livestock product, is estimated to have accounted for 10-15% of total agricultural output in the 1990s. Its share was 12.8% in 2001. Milk is produced from cows, water-buffaloes, sheep, and goats; cow's milk is significantly the most dominant with 82.5% in 2001.Production of cow's milk fell from an average of 2 million tonnes in 1989-91 to 1.41 million tonnes in 1996. In 2001, the volume of cow's milk production declined by 10.4% compared with production in 2000; however, a moderate increase is expected in 2003. The changing fortunes of the milk sector can be attributed to the initial decline in the cow herds and their subsequent recovery as well as changes to productivity in the sector. Unlike several other agricultural products, the PSE equivalent in the milk sector was generally positive for a greater part of the transition period, though lower than during the pre-transition period: it averaged 20.7% during 1991-96 and 19.25% during 1997-2000. The relatively favourable producer support levels maintained over the transition period can be attributed to sustained increases in the domestic price of milk. There have not been any export bans or taxes on milk exports. In 2003, milk and milk products attract a wide range of tariff rates. Milk and cream, not concentrated nor containing added sugar or other sweetening matter (HS 0401) attract an ad valorem rate of 25%. Tariff quotas of 200tonnes apply to milk and cream in powder, granules or other solid forms, of fat content by weight not exceeding 1.5% (HS 040210); the applied in-quota rate is 15% and applied out-of-quota rate 64%. A higher MFN rate, of 68%, applies to milk and cream not containing added sugar or other sweetening matter (HS 040221). Imports of yoghurt (HS 040310) attract an applied MFN tariff of 40%. Quota levels are also bound for butter and other fats and oils derived from milk (HS 040510 and HS 040590) at 1,500 tonnes and attract an in-quota rate of 30% and an out-of-quota mixed rate not higher than an ad valorem rate of 60% or a specific rate of 1,547/tonne. For 2003, quota levels for fresh cheeses and curd (HS 040610, 040620, 040630390) are bound at 3,000 tonnes at in-quota rate of 17.5%, of which 2,000 tonnes are allocated for the EU. As part of its preparations for EU accession, Bulgaria is harmonizing its legislation and institutions in accordance with the EU's Common Market organization for milk and diary products. Beef and veal Production of beef and veal has dropped by more than half over the transition period. From an average of 116,000 tonnes in 1989-91, it fell to an estimated 63,000 tonnes in 2001. The sharp drop in production can be attributed partly to the fall in demand for meat due to severe reduction in incomes in Bulgaria in the transition period, but also to the inefficient ownership structure of cattle breeding, where 90% is by small-scale farmers with fewer than five animals and without the necessary investment resources to increase stocks and adopt efficient technologies. Difficulties faced by Bulgarian meat exporters in meeting the EU's hygiene and quality standards have reduced the potential demand for their exports. As with most agricultural products, the producer support equivalent for beef and veal has declined over the transition period, from an average of 66% in 1986-90 to -132% in 1996, averaging -64% between 1991 and 1996; the average was still negative at -24% between 1997 and 2001, implying that on average throughout this period the sector was being implicitly taxed. However, a positive PSE of 24% is recorded for 2001. Between 1990 and 1998, various measures, including export quotas or bans, export taxes, and minimum export prices were applied to beef and veal at different periods, with a view to controlling domestic supply. All export restrictions on live cattle were removed at the end of 1998. The trade regime has been liberalized and currently import tariffs are the main trade measures; however both advalorem and compound rates are applied. Tariff quotas were also applied in 2003 to a range of products including: meat of bovine animals (1,000 tonnes), frozen carcasses of bone-in beef cuts (2,000 tonnes), frozen forequarters and hindquarters (10,200 tonnes of which 8,149 tonnes is allocated to the EU), frozen bone-in beef cuts (1,000 tonnes) and frozen boneless beef cuts (4,100tonnes). For most of these products the in-quota rates were 10% and below, and the out-of-quota rates were compound rates ranging from 5% plus 97/tonne to 5% plus 244/tonne. Bulgaria is also harmonizing its legislation in beef and veal, as well as other meat products with that of the EC's Common Market Organization for meat. Areas included in the legislative reforms include its trade regime, a class grading and classification system, price notification, direct payments, public intervention, and private storage, as well as an animal identification and registration system. In this regard, the necessary institutions (including a proposed intervention and paying agency) and administrative procedures are being established. Upon accession Bulgaria will adopt the EC meat CMO. Pigmeat Pigmeat accounts for half of total meat production in Bulgaria. In 2000, total production was 230,000 tonnes. Current trends represent a recovery from the initial period of decline in production post 1991. The fall in pig production is attributed to the low purchasing power of the country's population, limited access to export markets, high prices of fodder, and the inefficiencies involved in the restructuring and liquidation of the large state-owned pig complexes. Levels of producer support to the pig subsector also declined rapidly in the initial transition period, as observed in the fall of the PSE rates for pigmeat (from average 74% in 1986-90 to average -48% over 1991-96, rising to -9% in 1997-2001). Imports of meat of swine, both fresh and chilled, are subject to mixed duties; the highest is 25% ad valorem with a specific rate of 664/tonne. However, cuts of domestic swine (HS0203.29.55.0) attract a seasonal tariff quota (between April and June) of 3,000 tonnes in 2003, during which in-quota rates were 250/tonne. Out-of-quota seasonal MFN rates are the same as MFN tariff applied throughout the year (non-seasonal) period using a mixed rate of either an ad valorem rate of 40% or a specific rate of 622/tonne (whichever is higher). Poultry Poultry ranks second in terms of meat production and consumption in Bulgaria. As with most agricultural products, production of poultry declined from an average of 157,000 tonnes in 1989-91 to 100,000 tonnes in 2000. This may be explained by the effects of liquidation, privatization and restructuring of the agri-industrial complexes, which accounted for over 90% of poultry production at the beginning of the transition period. PSE levels, which fell markedly in the early transition period from 58% in 1986-90, to an average of -16% in 1991-96 turned positive during the 1990s, to 21% in 1997-2000. Performance in the subsector is expected to improve over the long-run. Modern poultry breeding in Bulgaria is based on imports of highly productive breeding specimens of domestic fowl, limited imports of breeding specimens of waterfowl, and an insignificant number of imports of elite turkey specimens. Poultry meat and eggs are subject to a tariff quota of 200 tonnes in 2003, applied to imports of frozen meats of fowl, not cut (HS 0207.12.10.0 and HS 0207.12.90.0), on which the bound and applied in-quota rate is 55% or 650/tonne (whichever is higher), and the out-of-quota rate is 68% or 260/tonne (whichever is higher). Cuts of frozen offal of fowl are also subject to an import quota of 1,300 tonnes, with an in-quota rate of 55% or 650/tonne and an out-of-quota rates of 74% or 500/tonne (whichever is higher). Forests (see also section on wood, paper, publishing, and printing in part (4) below) About 36% of Bulgaria's total land area is covered by forests and forest land. Forest policy priorities for Bulgaria include the sustainable management and use of resources; restoration of habitats; support of international initiatives; and legislative improvements. The main laws governing the forestry sector are the Forestry Act, and the Restitution of Forests Act, both of which were adopted in 1997. Among other things, the former establishes the legal basis for the restitution of forests and implementation of structural reforms, whereas the latter defines the procedures for the restitution process. Until the commencement of the restitution process in 1999 all forests were state-owned. It is expected that after the restitution process, 33% of forests will be owned by the State, 50% by municipal authorities, and 17% by the private sector. Wood from the forests is used to meet local demand for sawnwood, panels, pulp, and paper. Non-wood forest products and services include hunting, mushrooms, medicinal herbs, and wild fruits. Most raw timber and lightly processed wood products products (HS 4401-4407) enter duty free. The average applied MFN rate (2003) is 0.3% and the maximum applied rate is 5%.. A ban on exports of burned timber and lumber was established to protect against wasting natural assets endangered by the mass illegal cutting and burning of forests. Permits are required for import, export, and re-export of mushrooms, mussels, snails, frogs, and game animals, based on protection of endangered species and natural resources in compliance with the Washington Convention for International Trade in Endangered Species and the Bulgarian Law on Biological Diversity and Law on Environmental Protection. Since 2001, the National Forest Body has been responsible for keeping the register of certificates for exports of unprocessed round logs and wood, as well as the register of certificates for exports of wild mushrooms, live game and genetic material, shed horn, and other game products. Fishing Fishing in Bulgaria is carried out mainly on the Black Sea but also in fresh water fish- breeding farms. In 2000, the fishery subsector accounted for 0.05% of GDP; about 12,000 people were directly employed in fishing and aquaculture; and total catches and production amounted to 17,531 tonnes. This represents an almost 36% increase in the catches and production of fish over the previous year. Compared with the pre-transition period, however, catches and production have declined; in 1989 the fish catch was 102,966 tonnes. This decline is mainly because many fish- breeding farms went bankrupt during the restructuring process and others produced at minimum production capacities, despite good facilities. Furthermore, the liquidation of "Ocean Fishing" plc, Burgas (a state-owned enterprise), led to the decline in catches from long-distance fishing. There is currently no market intervention or state aid in Bulgaria's fisheries subsector. The average applied MFN rate for fish is 10% (2003), with a maximum rate of 20%; the corresponding average and maximum bound rates are 32.2% and 35% respectively. A draft convention for fishing and protection of live resources in the Black Sea is under discussion among the member countries of the Organization for Black Sea Economic Cooperation. As part of its preparations for EU accession, Bulgaria is aligning its fisheries and aquaculture legislation with that of the EU's Common Fisheries Policy (CFP); the implementation of the CFP requires Bulgaria to establish the necessary institutions (including an accredited intervention agency) and administrative procedures in accordance with the EU Common Market Organization in Fisheries. Currently, no Bulgarian fish species are eligible for intervention under the Annexes of EC Regulation 104/2000. As a result of the introduction of the EU CMO in fishery products and, in particular, the enforcement of the trade regime with third countries, import duties for a large number of fish products included in Annex VI of ECR/04/2000 would be suspended or significantly reduced; this is expected to impact favourably on prices of fishery products for consumers. Furthermore, the lifting of the veterinary ban for the import of Bulgarian fishery products into the EU, which was in effect from December 1999 until mid 2002, is expected to impact favourably on Bulgaria's fishing production and exports. Mining and Energy Background Bulgaria's mineral output comprises ferrous and non-ferrous metals, mineral fuels (mainly coal), and industrial minerals such as clays, gypsum, and rock salt. Total mineral and ore deposits were some 1.6 billion tonnes as of 1 January 2003; there are 133 ores and minerals, including 12types of mineral ores, 61 types of industrial minerals, and 60 types of raw materials for the building industry. Although most of Bulgaria's mineral requirements are met through domestic production, it is dependent on imports of iron ore, steel, and fuels to satisfy domestic consumption. Mining production declined between 1990 and 1995; more recently, trends in output have increased according to the type of mineral, with increases for copper, gold, quartz feldspar sands, and fire clay (Table IV.4). Many deposits remain underdeveloped and the efficiency of the sector remains low. The sector would benefit from increased investment and improved technologies. Table IV.4 Production of ores and minerals ('000 tonnes) Production19981999200020012002Ferrous ores822895588324373Copper ores21,84720,72522,82924,87826,029Golden ores608593624692659Lead-zinc ores1,4171,158531661753Limestone for chemical industry1,0219111,3872,0241,136Quartz sands for glass production762592689703588Quartz feldspar sands9-131618Kaolin raw material9299271,0109591,025Bentonite166176295256211Fire clay4430343738 Source: Information provided by Bulgarian authorities. During the pre-transition period, the State controlled mineral production fully. However, as part of the privatization reforms in the sector, the new Subsurface Resources Act of 1999 seeks to promote private enterprise and foreign investment. Under Bulgarias Constitution and the Act, underground resources are the exclusive property of the State. Prospecting and exploration require authorization, while extraction requires concessions. Authorizations for prospecting and or exploration are normally granted for a term of up to three years, which may be extended for up to two successive two-year periods. The area granted under an authorization for prospecting and/or exploration may not exceed: 5,000 km2 for inland oil and gas; 20,000 km2 for the parts of the continental shelf in the exclusive economic zone in the Black Sea; and 200 km2 for other groups of subsurface resources. Concessions for extraction are granted for claims by both domestic and foreign companies for terms of up to 35 years, which may be extended by up to 15 years. In recent years the competent authorities have granted over 110 concessions and over 294 authorizations for prospecting and exploration. Currently, almost all mining companies have been privatized, with the exception of one for promotion of gypsum. Other mining enterprises that are considered to be ineffective are subject to restructuring or closure and technical liquidation. In 2000 a US$47 million loan from the World Bank was earmarked for environmental cleanup and support of privatization of the highly polluting enterprises by reforming environmental legislation, establishing a consistent framework for integrating environmental issues into the privatization process, and accelerating the harmonization with EU environmental requirements and practices. In 2003, all imports in the metal ore mining sector (ISIC 23) enter duty free and the average applied MFN tariff is 1% for other mining products (ISIC 29), with a maximum dutiable rate of 2.3%. Energy Bulgaria is heavily dependent on energy. In 2001, Bulgaria's total primary energy consumption and production were 19.5 million tons of oil equivalent (t.o.e.) and 10.5 million t.o.e. respectively. The country depends on imports, mostly from Russia, for about 70% of its energy supplies. Relative to GDP, Bulgaria's energy consumption is high; in 2000, it was 1.84 t.o.e. per US$1,000, considerably higher than that of the EU (0.15 t.o.e. per US$1,000) and other central and eastern European countries. This is a legacy of the emphasis, during the centrally planned period, of under-pricing energy resources, and concentrating on energy-intensive industry without paying due attention to energy efficiency. In contrast to the significant progress in other sectors of Bulgaria's privatization process, energy production remains largely state-controlled. In recognition of the role of an efficiently functioning energy sector in improving competitiveness of the economy, the Government's first detailed legislative reforms in the sector were introduced in 1998, with the publication of "The National Strategy for Developing of Energy and Energy Efficiency till 2010". This document has been subsequently revised and updated. An Energy and Efficiency Act was promulgated in July 1999. This Act was modelled after European Union requirements, set out in the Electricity and Gas Directives and is oriented towards achieving competitive markets, improving efficiency, unbundling monopoly structures, promoting privatization, and attracting foreign investors. Under the provisions of the Act, an independent body, the State Energy Regulatory Commission (SERC) was set up. The commission has authority to issue licences and regulate prices for electricity, natural gas, and district heating. A new Energy Strategy was adopted by the National Assembly in June 2002. The main policy objectives in the sector include: the introduction of market relations based on cost-reflecting tariffs and free contracting; strengthening the autonomy and influence of the SERC; and an active role for the State in the creation of a clear and stable legal framework for investments, commercial activity, and the protection of public interests. A new Energy Bill is currently under consideration in the National Assembly. This seeks to replace the previous "single buyer" market for electricity and gas by a regulated open-access model under the supervision of the SERC. According to the authorities, this bill, when passed, will make Bulgaria's energy market fully consistent with EU principles. In total there are over 100 state-owned energy companies in Bulgaria. The updated strategy envisages the privatization of about three-quarters of all the state-owned energy companies. With the exception of the National Electricity Company (NEK) and Bulgargaz, which are to be restructured before privatization, all Bulgarian state-owned energy companies are available for privatization. Other reforms currently being implemented include the phasing out of subsidies on energy prices and the increase of prices in the energy sector towards market levels and to reflect production costs. Coal Bulgaria has large deposits of low quality brown coal, with an estimated reserve of 2.7billiontonnes of lignite and 200 million tonnes of sub-bituminous coal. Total coal production in 2002 was26.4 million short tons, of which 23.2 million short tons consisted of lignite; 82% of the total coal output is produced from the Maritsa coal fields, by the Maritsa East Mines Company. Difficulties in the coal mining sector include obsolete machinery, prolonged inadequate maintenance of equipment and facilities, low productivity, and lack of modern management capacity. The Government's goals in the sector are: generation of revenues for the central budget through privatization; provision of local supplies at competitive prices for electricity generation and district heating companies; and addressing the balance between secure energy supply and environmental protection. Coal prices for both industrial and household consumption were generally liberalized between 1998 and 2000. Moreover, some state-owned mines still sell their products at contracted prices; the largest of these are Bobov Dol, Pirin, and Cherno More mines. Activities implemented in 2000-01 include the transformation of companies through their unbundling into separate 100% state-owned joint-stock or limited-liability companies, for subsequent privatization. A joint venture for privatization was set up by the Maritza East mine and a company from Germany in 2000. In 2001-02, major mines privatized included Stanyantsi, Beli Breg, and Chukurono Mines. Key actions and expected results over the 2002-07 period include the reduction and gradual cessation of subsidies, comprehensive privatization of viable companies, attracting strategic expertise in the sector, and a step-by-step introduction of commercial relations with customers in the electricity sector based on cost-based dispatching. In 2001 Bulgaria imported 2.5 million t.o.e. of bituminous coal. These were mainly sourced from the United States, Poland, Ukraine, and Russia. Most coal imports are contracted by private companies. The average MFN applied rate for coal in 2003 was 0.6%, with a maximum rate of 3.8%. Natural gas Gas accounts for about 12% of total energy supplies. Bulgaria has limited confirmed reserves of gas resources, estimated at about 6 billion cubic metres (bcm). In 2002, gas demand was 2.74 bcm, satisfied largely through imports, particularly from Russia. Domestic production of natural gas is negligible. Gas penetration is low in Bulgaria: there are very limited low pressure or household supplies of gas. Unlike in many other European countries, the use of gas for household purposes is negligible. Large industries and district heating companies constitute the main customer groups. Apart from meeting domestic supplies, the natural gas sector in Bulgaria transits gas from Russia through pipelines to Greece, FYROM and Turkey. In 2002, the total amount transported through Bulgaria was around 13 bcm, with the bulk going to Turkey (around 11 bcm). There are plans for the construction of gas pipelines from the Caspian region and Iran to Europe. The state-owned enterprise, Bulgargaz, has responsibility for transportation, production, marketing, engineering, investment, and service activities for the gas industry. To achieve the objective of improved security of the energy supply of the country through an increase in the natural gas share of the primary energy balance, reforms planned over the 2002-05 period include completion of the restructuring of Bulgargas, development of low pressure gas supply and introduction of a liberal trading model allowing free choice of suppliers. Some private investors are already operating in the natural gas sector (e.g.Overgas in distribution, and Petreco, of the United Kingdom, in exploration and production); the most advanced development by the private sector in Bulgaria's gas industry is in the Galata field of theBlack Sea, near Varna. Applied MFN tariffs on the importation of crude petroleum and natural gas range from duty free to 17%; the average MFN applied rate is 10.3% (2003). Gas imports are duty free. Electricity As of January 2003, Bulgaria had an installed electricity generating capacity of 13,019megawatt equivalent (Mwe) from hydroelectric, nuclear, and thermal sources; up from about 11,150MWe in 1990. Net generation of electricity in 2000 was 38.8 billion kilowatts hours (kWh), of which 47.9% was generated from thermal, 44.6% from nuclear and the remainder from hydroelectric sources. Hydroelectric generating facilities in Bulgaria are located in the highest mountain ranges, from large complexes of six cascading dams each having with at least three hydroelectric power plants. The total generating capacity is 4,571 million kWh, however due to decreased rainfall in recent years hydroelectric power generation is operating at less than 70% of installed capacity. Bulgaria has one nuclear power plant, at Kozloduy. It is the largest such plant in the Balkan peninsula and consists of six units. The Kozloduy plant provides around 45% of Bulgaria's electricity. Due to safety concerns, units 1 and 2 of the Kozloduy plant were closed in December 2002. All the nuclear power facilities, pumped power plants, and part of thermal power plants and hydro power plants (HPP) are owned by the State, represented by the Ministry of Energy and Energy Resources. The State controls about 86% of the total electricity generated; the remaining 14% is produced by a small number of independent producers, such as municipally owned district heating plants and thermal stations at industrial complexes. Natsionala Elektrichesha Kompania (NEK) was established as a joint-stock company in 1992 with responsibility for the generation, transmission, distribution, import and export of energy, as well as construction and maintenance in the electric energy sector. During 2001, NEK controlled about 19% of total electricity generated, but in April 2003 this share fell to 13% as NEK controls only the hydro and pumped power plants. The energy sector and electricity generation in particular remain key elements in the social and economic development of Bulgaria and the region. Legislationunder consideration envisages gradual liberalization of the internal electricity market; a competitive market will be created by gradually granting electricity generators free access to the transmission and distribution networks at regulated prices. Restructuring in the electricity sector has begun. In 2000, generation, transmission, and distribution were unbundled into legally separate entities. The vertically integrated NEK was divided into 15companies: sevenelectricity distribution companies, one private electricity distribution company, sixindependent electricity generators and one co-generator. The privatization of the sector is expected to be completed by 2007. NEK has been transformed into a transmission company, which continues to operate as a regulated monopoly undertaking transmission, management, and dispatch of high voltage electricity. Household electricity prices were increased by 20% in 2002; in 2003 and 2004, they are scheduled to increase by 15% and 10%, and from 2005 pricing will be determined under the "cost-plus" method. Bulgaria is a major exporter of electricity, supplying power to Turkey, Greece, Serbia and Montenegro, Former Yugoslav Republic of Macedonia, and Albania. In 2001, exports to these countries were estimated at 7 billion kWh, with the largest part going to Turkey. Net electricity export earnings of NEK were 22 million in 2001. Bulgaria enjoys duty-free treatment for the export of electricity to Turkey, Former Yugoslav Republic of Macedonia (under the relevant FTAs with these countries), and to Greece (within the EU Association Agreement). Manufacturing Background Bulgaria's manufacturing performance has been shaped by its heavy industrialization during the centrally planned era and the major changes that have taken place during the transition period. In the 1980s Bulgaria was the second most industrialized country in the CMEA, with 60% of its GDP generated by industry and a pattern of specialization geared to satisfying CMEA markets. Main industrial subsectors included chemical and oil processing, food processing, machine building, ferrous metallurgy, and electronics. In 1989, machinery and equipment accounted for 65% of exports to the CMEA; food and related products, and consumer goods accounted for 13% and 12% respectively. Virtually all of Bulgaria's imports from CMEA were in fuels and minerals (36%) and machinery and equipment (65%). Since the beginning of the transition process, output of industry has contracted considerably. According to UNECE data, the level of real gross industrial output fell by 51% between 1989 and 2003: it rose briefly to 56% of the 1989 level in 1996, and has fallen continuously since 1997; in 2002 it was estimated at only 44.5% of its 1989 level. Employment in industry has fallen even further: industrial employment in 2001 was estimated at 41.7 of its 1999 level. The contraction in industrial output and employment can be attributed to a number of factors, including the fall in domestic demand; the decline in external demand following the collapse of the CMEA; the inability of manufacturing to compete in alternative international markets; opening up of the Bulgarian economy to competitive pressures and consequent erosion of the previously secure domestic market of the state-owned manufacturing enterprises; and the uncompetitive nature of an industrial sector dominated by obsolete capital. In 2002 and the first months of 2003, manufacturing output showed an upturn. Industrial output increased by 1.3% in 2002 and, on a year-on-year basis, by 17.7% in January and 15.5% in February 2003. Export performance of the manufacturing sector has picked up in recent years. From decreases of over 10% in both 1998 and 1999, exports of manufactured products increased by 6.6% in 2000, and contributed 54% of total export earnings. The main manufactured exports include clothing, basic metals, man-made fibres, metal products, and machinery and equipment. In 2001, exports of manufactures (SITC Sections 4-9) increased by US$483 million or 13% over 2000, according to Bulgarian sources. Policy objectives for the sector The National Economic Development Plan 2000-2006 outlines a strategy for building a dynamic and competitive industrial sector and encouraging vigorous enterprises able to function in a market economy and capable of achieving sustainable growth. The strategy attaches special importance to the role of small and medium-sized enterprises (SMEs) in achieving these objectives, since these account for 99% of the operating companies (Box IV.4). Measures to achieve the objectives include: finalization of the privatization programme; deregulation of "natural monopoly" markets; improving procedures and regulations on privatization and post-privatization control; attracting foreign investment; encouraging the introduction of European and international quality standards; and simplification of the regime for the start-up and development of SMEs. In recent years, privatization of the manufacturing sector has progressed rapidly; since 1993 4,872 enterprises have been privatized, covering the greater part of enterprises in the manufacturing sector, including chemicals, metallurgy, mechanical engineering, and defence industries. In general privatization in manufacturing has been finalized, except for some enterprises with specific functions. Box IV.4: Small and medium-sized enterprises Encouragement of small and medium-sized enterprises (SMEs) is vital to the continued growth and development of the Bulgarian economy. In 2000, 99% of registered enterprises were SMEs; they accounted for 30% of GVA and 51% of total employment. However only 6% of SMEs, were export oriented (i.e. with over 70% of sales going to foreign clients or local exporters). Although a small proportion of SMEs are engaged in exporting, they accounted for about 20% of merchandise exports in 2000. Export-oriented SMEs appear to be concentrated mainly in the textiles and apparel sectors. Given Bulgaria's labour competitiveness and stable macroeconomic environment, there is greater potential for SMEs to be engaged in exporting; this would boost Bulgaria's trade performance. According to a report by the Agency for Small and Medium-Sized Enterprises, SMEs in Bulgaria face numerous constraints. Some are general to all Bulgarian SMEs; others are specific to Bulgarian SMEs that trade on international markets. Amongst the general problems are: shrinkage of the domestic market during the transition years (however, domestic consumption has started to recover, though still below 1989 levels); high level of taxes and other employment charges (however, the Government's policy is to reduce corporate and personal income taxes); lack of working capital and capital for investment; administrative barriers, including the need for numerous licences and certificates (however, a new programme to reduce such impediments has been introduced in 2003); bureaucracy; weak infrastructural facilities in certain parts of the country (particularly the north-west and north-east); and a rapidly changing legal framework. Problems specific to SMEs in breaking through and competing on international markets include: poor quality of products, poor marketing, lack of reliable trading partners, the inability to meet various requirements, including that of marking and labelling, and SPS and TBT difficulties. Further attention to these constraints will help in enabling Bulgarian SMEs to be more engaged in exporting, thereby boosting Bulgaria's trade performance. Source: ϲʹ Secretariat, based on ASME (2002). As noted, Bulgaria's manufacturing sector benefits from reciprocal duty-free trade for virtually all products (market access to other markets, and free entry for manufactures into Bulgaria) under regional preferential agreements with its major trading partners. MFN tariffs cover a minority share of Bulgaria's trade in manufactures, whether exports or imports. This factor should be taken into account when reading MFN tariff information below. Key subsectors Food, drink, and tobacco Food, drink, and tobacco is the largest sub-sector, contributing 27.5% of gross manufacturing output in 2001. The main products in this area are beverages, tobacco products, meat products, grain mill and starch products, dairy products, processed fruits and vegetables, vegetables, and animal oils and fats. In 2001, the subsector employed 94,932 persons, or 17% of manufacturing employment. Over the period 1997-2000, productivity levels (measured by GVA per employee) decreased by 18.2%. Similarly, profitability declined, though less rapidly. Due to the lack of international competitiveness, the share of exports to turnover declined from 29.3% in 1997 to 13.7% in 2000. According to an industrial survey carried out by the Japanese International Cooperation Agency (JICA), covering 162 enterprises in this subsector, the major obstacles to the development of this sector (in order of importance) are the shrinkage of the domestic market, "unfair competition" (circumvention or under-invoicing on importation), lack of working capital, lack of investment capital and strong competition. Out of a total of 15 significant obstacles, high tariffs and high standards in foreign markets were ranked ninth and eleventh, respectively. Most enterprises considered the value-added tax to be the most important amongst taxes and tariffs hindering businesses. Import tariffs were ranked seventh and export taxes and tariffs eighth of the ten taxes and tariffs hindering business. Applied MFN tariff rates on processed food, beverages, and tobacco range from zero to 74%, with an average applied MFN rate of 24.5% (2003). There is evidence of tariff escalation in this subsector as the first stage processing attracts an average MFN tariff of 11.8%, whilst the average for the semi-processed and fully-processed stages are 22.7% and 27.4% respectively. MFN bound rates range from zero to 200%, with an average of 53.5%. Products attracting the highest applied rates include bakery products (48.5%); cocoa and chocolate confectionery (43.9%); tobacco products (35.7%); distillation of spirits and alcohol production (34.9%); and sugar products (26.9%). Textiles, clothing, leather, and footwear In 2001, output in this subsector amounted to US$651 million, contributing 10.7% of total manufacturing output, and 29.1% of employment in manufacturing. Textiles and apparel account for 97% of the gross output of the subsector and have emerged as two of the most competitive industries. The increase of the subsector's share in manufactured exports from 16.1% (US$493 million) in 1997 to 28.6% (US$1,013 million) in 2001 was largely driven by the growth in apparel exports, which increased by over 75% between 1998 and 2001, including significant outward processing. It is estimated that about 90% of apparel production is destined for export markets. The major investors in the apparel subsector are from Greece, Turkey, Italy, and Germany; the major export markets are Germany, Greece, Italy, and France; the United States is the main non-EU export market. Identified weaknesses in this sub-sector include the lack of cash flow and working capital, middle-level management, marketing capabilities and knowledge of foreign language, and relatively low productivity compared with other competitors. The JICA industrial survey, covering 206enterprises from this subsector and the leather and footwear industry combined, states that businesses do not consider tariffs as an important obstacle; tariffs were ranked twelfth amongst 15 obstacles to business. Applied MFN tariff rates for textiles, wearing apparel, and leather industries range from zero to 26.8% (with average of 15.8%), and MFN bound rates range from zero to 35% (2003). Tariff escalation is observed: the average applied tariff in the first stage of processing is 3.1%; the rates for semi-processed and fully-processed stages are 12.7% and 19.7% respectively. All tariffs are ad valorem rates. Products attracting relatively high applied MFN rates include knitted and crocheted fabrics (12.9%) and carpets and rugs (20.6%). Wood, paper, publishing, and printing The wood, paper, publishing, and printing subsector accounted for nearly 7% of gross manufacturing output in 2000, up from 5.7% in 1997. The main products of the subsector are: veneer sheets, saw milling and planing of wood, pulp, paper, and paperboard, publishing and printing, and service-related activities. In 2000 the subsector employed 35,860 persons. Though productivity levels (measured by gross value added per employee) are estimated to have increased by 18.6% over 1997-2000, profitability (as measured by gross operating rate) declined from 15.9% to 11.6%. The share of exports in turnover remained relatively stable, ranging between 21% and 23%. According to the JICA industrial survey in this subsector businesses believed that unfair competition, lack of working capital, high prices of raw materials, shrinkage of domestic market, and strong competition were the major obstacles to the development of the subsector; only 3.5% of businesses surveyed considered high tariffs to be an obstacle. MFN applied tariff rates on wood and wood products, paper, publishing, and printing range from zero to 21.9% (2003). Bound rates range from zero to 39%. The average applied MFN rate is 9% for wood and wood products and 8.3% for the paper, publishing, and printing industry. All tariffs are ad valorem rates. There is MFN tariff escalation in these subsectors: at the first stage of manufacturing, wood and wood products entered duty free; at the semi-processed and fullyprocessed stage average tariffs are 5% and 13.8%, respectively. Similarly paper, paper products, printing, and publishing entered duty free at the first stage of processing and attracted average rates of 8.9% and 9.4% at the semi-processed and fully-processed stages. Products attracting the highest applied MFN rates in 2003 include manufacture of furniture and fixtures, except primarily of metal (15.8%), wooden case containers and cane ware (12.7%) and containers, paper boxes, and paperboard (14.1%). Chemicals, rubber, and plastics The chemicals, rubber and plastics industry is the third largest manufacturing subsector. Its share of gross manufacturing output in 2001 was 15.4%. Though output in this industry has fallen by one fifth since 1998, recent trends show a recovery as growth rates of 12% and 17.6% were recorded for 2000 and 2001. Production is focused on basic chemicals, such as industrial gases, dyes, pigments, fertilizers, nitrogen compounds, and plastic and rubber in primary forms; nonetheless other products such as pharmaceuticals, soap and detergents, man-made fibres, rubber products, and plastic products are also significant. In 2001 the industry employed 45,622 persons, or 8.6% of manufacturing employment; total exports were US$476 million, a 37% increase over the previous year. As with other sectors, the 2001 JICA industrial survey revealed the major perceived obstacles to business development in this sector to be unfair competition, strong competition, lack of working capital, and the shrinkage of the domestic market. High tariffs were rated the ninth most important business barrier out of 15. MFN applied tariffs in the chemicals, rubber and plastics industry range from zero to 40%, with the bound rates ranging from zero to 128%. The average applied MFN rate is 7.8% (2003); 99% of tariffs are ad valorem rates. The average applied MFN tariff on the first stage of processing is 4.5%; semi-processed and fully-processed products attract average tariffs of 7.3% and 9.3% respectively. Products attracting the highest rates in 2003 include the manufacture of plastic products (14.6%), soaps (14.5%), petroleum refineries (13.8%), and rubber products (12.1%). As noted in Chapter III, Bulgaria has applied a safeguard action in the form of a tariff quota on ammonium nitrate since December 2002. In October 2002, a safeguard investigation on urea resulted in a finding of insufficient evidence of serious injury and, consequently, no action was taken (Chapter III (2)(ix)). Non-metallic mineral products The non-metallic minerals industry benefits from the availability of favourable natural conditions, including local raw materials such as clay, kaolin, gypsum, rock-salt, lime, granite, and sand (see section (3) above). Its contribution to gross output in manufacturing stabilized at between 5.3% and 6.0% in 1997-2001. The main products are glass and glass products, cement, lime and plaster, articles of concrete, plaster, and non-refractory ceramic goods. In 2001, the sector employed 21,480 persons, some 4% of total manufacturing employment. Exports dropped by 29.7% in 1998 and 22.8% in 2000; however they picked up in 2001. Export earnings increased by 38.4% in 2001 to reach US$118.6 million, or 3.3% of manufactured exports. The share of FDI flowing to the non-metallic minerals sector annually was between 15% and 18% of overall inflows over the period 1998-2000 according to the JICA Survey. The JICA 2001 industrial survey revealed that 91.7% of surveyed enterprises believed shrinkage of the domestic market to be by far the most important business obstacle. Other obstacles identified in this subsector were high prices of raw materials, lack of production demand, and "incorrect" clients. High tariffs were acknowledged by only 2% of surveyed enterprises to be a business barrier. Applied tariff rates for non-metallic mineral products, except for petrol and coal, range from zero to 25.5%, with an average of 12.5% (2003); bound MFN rates range from zero to 40%. All rates are ad valorem. The first stage of processing attracts zero duty rates; average applied MFN tariff on semiprocessed and fully-processed products are 9.7% and 13.4%. The highest tariffs in 2003 are on: pottery and china of porcelain or china (24.3%) and tableware and kitchenware (25.5%); glass ceramics (25.3%), glass lead crystal (25.3%), glass cubes, and glass small wares (24.5%); and structural clay products such as tiles, cubes, and similar articles (25%). Basic metal processing and metal products The share of basic metal processing and metal products in manufacturing output was 16.4% in 2001. Production increased in 2001 by 4.4%, showing signs of recovery from the annual declines of over 15% in 1997 and 1998. The main products in this sector are basic iron and steel of ferro-alloys, basic precious and non-ferrous metals, structural metal products, cutlery, tools and general hardware, treatment and coating of metals, tanks, reservoirs, and containers of metal. Total employment was 55,302 in 2001, or 10.5% of manufacturing employment. Export earnings amounted to US$955million in 2001 (27% of manufacturing export earnings). From the JICA industrial survey, shrinkage of domestic demand, incorrect clients, and unfair competition were identified as the major barriers to business. High tariffs were not considered an important business barrier. Applied tariffs on basic metals and fabricated metal products (except machinery and equipment) range from zero to 20% (2003). The average rate is 4.5% in the basic metal industries, and 6.7% on fabricated metal products. Tariffs are all ad valorem. Bound rates range from zero to 35%. There is no evidence of tariff escalation in this subsector as tariffs in the semi-processed stage of processing are higher than in the fully processed stage. Products attracting applied MFN tariff rates of above 10% include: iron and steel products of thickness less than 4.75mm, not in coils, not further worked than hot rolled with patterns in relief; non-ferrous metal basics of aluminium; metal furniture; and cans closed by soldering. Machinery and equipment Production of machinery and equipment sector amounted to US$523 million in 2001, or 8.6% of manufacturing output. Output recovered by 4.5% after declined by 5.1% in 2000. The main products in the subsector are: machinery for production and use of mechanical power, such as engines, turbines, pumps etc; chemical power; weapons and ammunitions, machine tools and other general purpose machinery such as furnace burners, handling and lifting equipment, and cooling and ventilation equipment. The sector employed 60,681 persons in 2001, a fall of 28% on the previous year. Exports amounted to US$204.5 million (5.8% of manufactured exports), an increase of 4.4% over the previous year. The JICA industrial survey shows shrinkage of the domestic market, lack of working capital, and the lack of investment capital to be the main perceived business obstacles. High tariffs, on the other hand, are observed to be the least important obstacle to business. Applied tariffs for "non-electrical machinery including computers" range from zero to 23.6%, with an average rate of 6% (2003). Bound rates range from zero to 40%, with an average of 21.8%. All tariffs in 2003 are expressed as ad valorem rates. Pedestrian controlled tractors and trucks (both self-propelled and others) attracted the highest applied MFN tariff levels of 23.6% and 23.5% respectively. Electrical machinery and electronics and instrument engineering Gross output in this subsector amounted to US$327.3 million in 2001. Growth rates of 7.9% and 2.0% were recorded for 2000 and 2001, respectively. Main products include electric motors, generators, and transformers; instruments for measuring, checking, navigating, and other purposes; medical and surgical equipment; and photographic equipment. This subsector contributed to 5.8% of total manufacturing employment. In 2001, exports amounted to US$146.5 million. Shrinkage of the domestic markets, unfair competition, strong competition, and incorrect clients were noted by enterprises to be the most important business obstacles, according to the JICA 2001 industrial survey. High trade barriers were ranked eighth (jointly with high prices of raw materials) out of 15 obstacles. Applied MFN rates for electrical machinery apparatus, appliances and supplies range from zero to 23.2%, with an average of 7.3% (2003). Bound rates range from zero to 40%, with an average of 19.7%. All tariffs are expressed as ad valorem rates. Products attracting relatively high applied MFN tariffs include: electric blankets (20.5%), electric instantaneous or storage water heaters and immersion heaters (19.4%), storage heating radiators (19.4%), tungsten halogen lamps (21.9%), fluorescent lamps and cathode ray tubes (23.2%), and mercury or sodium vapour lamps (23.2%). Transport equipment Production of transport equipment amounted to US$95 million (about 1.6% of gross manufacturing output) in 2001. Output declined by 11.1% and 22.5% in 2000 and 2001 respectively. Building and repair of ships and boats accounts for 79% of output in this subsector. Other important products are railway and tramway locomotives and rolling stock (17% of output) and motorcycles and bicycles (2% of output). The industry employs 12,779 persons (2.4% of manufacturing employment). Exports amounted to US$56.8 million in 2001, representing an increase of 163.9% over the previous year. Businesses surveyed by the JICA revealed that the lack of working capital, shrinkage of domestic markets, "incorrect" clients, unfair competition, and strong competition were seen as the most significant business obstacles. High tariff barriers were not seen as an important business obstacle by any of the surveyed enterprises in this subsector. Applied MFN tariff rates in 2003 range from 0% to 22.8%, with an average of 6%. Bound rates range from zero to 40%, with an average of 26%. All tariffs are expressed as ad valorem rates. Products attracting the highest rates include: motor vehicles with compression-ignition (diesel) internal combustion piston engines (15.9%), road tractors for semi-trailers (17.5%) and bicycles and other cycles (22.5%). (5) Services Background In 2002, services accounted for 59.7% of gross value added (GVA) in Bulgaria. The most important service subsectors (in value terms) were transport and communication, real estate, trade, and construction. Over the period 1998-2001 average annual growth in the sector was 4.2%; the fastest growing elements were communications; finance, credit and insurance; and wholesale and retail trade. Services GVA increased by 5.1% in 2002. Growth was spurred largely by privatization activity. The services sector is also a significant employer, with 1.4 million employees in 2001. Bulgaria has recorded a positive balance on its services account since 1994; in 2002, this amounted to US$598million. Commitments under the General Agreement on Trade in Services A consolidated version of Bulgaria's GATS Schedule, including its list of MFN exceptions, is contained in ϲʹ document S/DCS/W/BGR (see Table AIV.1). Bulgaria has made horizontal commitments, as well as commitments across all broad service sectors with the exception of: audiovisual services; passenger and freight transportation on internal waterways; road passenger and freight transportation; maritime transport; sales and marketing services for air transport; cargo-handling services, and storage and warehouse services in sea and river harbours; and legal services. Horizontal commitments mention limitations on market access relating to capital payments, services relating to the use of nuclear energy for peaceful purposes, real estate, privatization, commercial presence and entry and temporary stay of foreign natural persons; horizontal limitations on national treatment relate to eligibility for subsidies, ownership of land, privatization, and commercial presence. MFN exceptions relate to certain areas of audiovisual services, internal waterway, rail, road and maritime transportation, sales and marketing services for air transport, legal services, and medical and dental insurance programmes. As in virtually all other ϲʹ Members, the level and coverage of specific commitments varies considerably across service activities within each sector. Broadly speaking, market access and national treatment are bound without limitation in Modes 1, 2 and 3 (cross-border supply, consumption abroad and commercial presence) for advisory services on international law and home country law, computer and related services, most "other business services", telecommunications equipment rental, sales and consulting services, and air transport sales and marketing; in other sectors, varying levels of limitation exist (see sectoral discussion below). Generally, Mode 4 (presence of natural persons) is subject to the horizontal limitation mentioned above. Since its accession in 1996, Bulgaria has made additional commitments to its GATS Schedule in the context of the extended negotiations on basic telecommunications (Fourth Protocol to GATS) and financial services (Fifth Protocol). Commitments in the former involved the extension to voice telephone, packet and circuit-switched data transmission, telex, telegraph, facsimile, leased circuit, mobile, satellite, and VSAT services. Under the Fifth Protocol, Bulgaria undertook commitments on insurance intermediation and services auxiliary to insurance, as well as further commitments in financial leasing. These commitments were scheduled in accordance with the Understanding on Commitments in Financial Services. (ii) Banking and insurance Banking The financial sector is small relative to the size of Bulgaria's economy, with assets of 41% of GDP in March 2002; the banking sector held 93% of total assets. At the end of 2002, foreign-owned banks held 72% of assets in the banking sector and the State owned 14.2% of total assets. The three largest banks held 43.4% of the banking sectors assets, and the next seven biggest held 30.5%. Until 1996, all Bulgaria's large banks were state-owned and continued the practices of the centrally planned era. Large loans were made by the state banks to loss-making state-owned enterprises, and, in the private sector, collusive relations between banks and entrepreneurs resulted in the granting of large loans with little or no collateral, leading to the accumulation of large non-performing loans. This situation was allowed to deteriorate further as banking supervision was lax and the Bulgarian National Bank (BNB) refinanced the sector's bad loans. This led to a severe banking crisis in 1996-97, when about a third of the banking system was found to be insolvent. Since the crisis, Bulgaria's banking sector has undergone rapid restructuring, including the setting up of the currency board arrangement, improvements to the regulatory framework and the privatization of state-owned banks. New laws relating to the banking sector have been introduced progressively since 1997. The 1997 Law on BNB established a new basis for the BNB to operate as a central bank responsible for the currency board arrangement. The law enhanced the autonomy and power of the BNB and strengthened its supervisory powers. The Law on Banks sets out activities that banks may carry out, including their licensing requirements and the conditions for licence revocation. According to the law, the BNB's decision to revoke a bank's licence may not be appealed in court. It also specifies the capital, liquidity, foreign currency position, and other requirements determined by BNB. Regulations adopted by the BNB under the above laws concern the evaluation of risk exposures and allocation of provisions; foreign currency positions of banks; supervision on a consolidated basis and the setting up of a credit register. These regulations are stated by the authorities to be in compliance with the Basle Core Principles for Effective Banking Supervision and European Standards. Through the latest amendments to the Law on Banks (September 2002) transparency of shareholder ownership and the structure of banks has been improved (following the recommendations noted in Box IV.5). Shareholders who hold 3% or more of the voting shares in a bank must provide information to the Central Bank concerning the legal status, owners, origin of funds, business plan, and related persons. Such information may be required from shareholders with less than 3% of the voting shares only in case of motivated need. A new Law on Bank Insolvency was adopted in September 2002, which provides basic and detailed regulation of banks' bankruptcy procedures. In January 2003, the Financial Supervision Commission was established; thus financial market supervision, except for the banking sector, was unified. The Commission is a specialized state body for regulation and supervision in the field of securities, insurance, and pension. The Consultative Council on Financial Stability (CCFS) was also established as a consultative body with the participation of the Minister of Finance, the Financial Supervision Commission, and the Bulgarian National Bank. The FSC and the BNB work closely together on supervision of financial institutions combining banking and other areas such as insurance and securities trading. This has been established through a memorandum of understanding (MOU) between the two institutions, and through the CCFS. In relation to foreign-owned banks whose supervisory jurisdiction is in their home country, MOUs have been signed with all relevant foreign supervisory authorities. Under the bank privatization programme, six of the seven large state-owned banks were sold by 2002. The United Bulgarian Bank was sold in 1997; Post Bank in 1998; Express Bank in 1999; Hebros Bank of Plodiv and Bulbank (Bulgaria's largest bank) in 2000; and Biochim Commercial Bank in 2002. The privatization of these banks attracted a significant amount of foreign investment, which helped to recapitalize the system as well as provide a much-needed infusion of foreign expertise. At mid 2003, two state-owned banks remained: the State Saving Bank (DSK), which holds about 12.7% of banking-sector assets, and the Encouragement Bank, a special purpose bank, established to promote loans to small and medium-sized enterprises, and largely donor financed. In May 2003 the contract for sale of DSK was signed; the sale was expected to be finalized by the beginning of September 2003. Bulgaria's GATS commitments on financial services are made in accordance with the provisions of the Understanding on Commitments in Financial Services. Market access commitments in respect of cross-border supply and consumption abroad apply only to the transactions indicated in paragraph B.3 and B.4 of the market access section of the Understanding. Admission to the market of new financial services or products may be subject to the existence of, and consistency with, a regulatory framework aimed at achieving the prudential objectives indicated in Article 2(a) of the Financial Services Annex. Insurance or banking activities, as well as securities trading and activities related thereto, must be carried out separately by companies that are licensed for the supply of such services. As a general rule, and in a non-discriminatory manner, financial institutions that incorporate in the Republic of Bulgaria must adopt the legal form of joint-stock companies. In addition, the specific commitments on financial services are subject to the general "horizontal" limitations contained in Bulgaria's services schedule which, as noted above, cover capital payments; commercial presence; and entry and temporary stay of foreign natural persons. Under Bulgaria's specific commitments under GATS, cross-border supply and consumption abroad in banking and other financial services (excluding insurance) remain unbound. With regard to the establishment of commercial presence, the direct or indirect acquisition of shares by a local or foreign person enabling those persons to control 5% or higher of all voting shares in a local bank, is subject to permission by the BNB. The direct or indirect acquisition by a bank of more than 10% of the capital of a non-financial enterprises is subject to the permission of the BNB. Presence of natural persons is unbound, subject to the general limitation noted above. Insurance During the central-planning era, there were two insurance companies, both owned by the State: Bulstrad and the State Insurance Institute (SII). Progress is currently being made due to new provisions contained in the sector's main regulatory framework, the Law on Insurance and the Law on the Financial Supervision Commission. These include the opening up of Bulgaria's insurance and reinsurance markets to foreigners through licences granted by the Financial Supervision Commission; no restrictions on foreign firms' life and non-life insurance activities; and the provision of an identical legislative framework for Bulgarian and foreign insurers on the basis of equality and reciprocity. In 1999, a majority stake in Bulstrad was sold to TBI Holding (Netherlands) and the European Bank for Reconstruction and Development (EBRD). In September 2002, SII was also privatized; 80% was sold to the local investor Contract Sofia. As of December 2002, there existed 32 insurers; 20 in non-life insurance and 12 in life insurance. Fifteen foreign shareholders own stakes in Bulgarian insurance companies and one foreign company has a branch office. Six insurance and reinsurance companies are licensed to conduct reinsurance business in Bulgaria. The Bulgarian Export Insurance Agency (BAEZ) is the only one owned by the Government (ChapterIII(3)(v)). The Government owns shares in five other insurance companies, with majority ownership in only one company besides BAEZ. Thus, in 2002 the insurance market became predominantly private. Specific limitations on market access under Bulgaria's GATS commitments include prohibitions on the establishment of combined life- and non-life insurance companies, and on underwriting of transport insurance directly by foreign companies. Branches of foreign insurance companies must be licensed by the Financial Supervision Commission (superseding the National Insurance Council). Insurance funds raised by virtue of insurance contracts, as well as own capital, must be invested in Bulgaria and can only be transferred abroad subject to permission of the Financial Supervision Commission. Box IV.5: IMF/World Bank observations on Bulgaria's financial system stability In August 2002, the IMF and World Bank published an assessment of the stability of the Bulgarian financial system, including the observance of standards and codes on monetary and financial policy transparency, banking supervision, securities regulation, insurance regulation, and payment systems. The report was based on missions carried out in autumn 2001 and June 2002. The report praised the "intense and successful" efforts of the authorities to restore financial stability after the economic crisis of 1996/97. It stated that "The Bulgarian banking system is generally well supervised, highly capitalized, profitable, and risk averseis very resilient to foreign exchange and interest rate risks, and can also absorb considerable credit risk." It noted the process of consolidation, privatization, and restructuring in the sector since 1996 and that "with a growing real sector and competitive pressure on margins, banks are beginning to expand their credit portfolios, which will entail new risks and require vigilance from banks and supervisory authorities". It emphasized that improper design and implementation of pension reform could hinder financial system development and entail future fiscal costs, and that further development of the financial sector would require improvements in the legal, judicial, and corporate governance areas. Regarding the structure, ownership, and performance of the financial sector, the report noted that the financial sector was small relative to the size of the economy, and dominated by the banking sector. Low bank intermediation was broadly accounted for by supply and demand factors, legal problems, unreliable corporate financial accounts, and weak corporate governance. SMEs in Bulgaria (the vast majority of enterprises) relied largely on cash and informal credit sources, much liquidity is still retained outside the banking sector, and only one third of the population had a bank account. Bank lending to the commercial sector accounts for roughly a third of total assets: maturities of both assets and liabilities were very short (a few months). Although foreign-currency loans and deposits were increasing, the proportion of foreign to local currency loans was still relatively low. The banking sector operated in an environment of "fundamentally good" rules and regulations, good banking supervision, and high capital and liquidity levels. However, vulnerabilities could arise when risks increased as a result of higher competition, shrinking margins, continued high overheads, and greater credit risk from increased lending. The banking supervisory system was, or largely compliant with the Basle Core Principles (BasleI) and the authorities had agreed to the report's recommendations for strengthening the system. The report also noted that capital markets had an "extremely limited" role in savings and productive investment, and that relevant laws required amendment to enhance investor confidence, while accounting standards were not, at the time, fully consistent with international standards. The insurance industry was well diversified, with foreign insurance companies well represented, and was not a source of instability; by contrast, there were serious shortcomings in the regulatory and supervisory framework for private pension plans. The report recommended that, in the short term, the BNB should carefully monitor and control the quality of banks' expanding credit portfolios and investigate the identity and suitability of direct and indirect shareholders of banks. In addition, the authorities must develop a system-wide perspective of financial sector vulnerabilities, finalize a public debt management strategy, and enact the Public Debt Law; strengthen the supervisory capacity of the State Insurance Supervision Agency and the governance of pension insurance companies and pension funds, and set a realistic date for the introduction of a rapid-transfer interbank payment system. In the medium term, the authorities were recommended to continue programmes to build expertise in supervising IT risk in banks and to build capacity to assess internal ratings-based risk-management systems, obtain more knowledge on cross-sectoral ownership relations in the financial sector, strengthen the legal and judicial framework, corporate governance and financial transparency, and strengthen supervision of the non-bank financial sector. Source IMF (2002b). The IMF/World Bank financial system stability assessment of 2002 remarks that the insurance industry is well diversified, with foreign insurance companies well represented, and is not a source of financial instability. Capital market An equity market was established in Bulgaria in 1991, after the introduction of the Commercial Act. This led to over 20 regional exchanges springing up between 1992 and 1994. However, the market functioned in a completely unregulated environment until the adoption of the Securities, Stock Exchanges and Investment Companies Act in July 1995, which provided the legal basis for the creation of the Securities and Stock Exchanges Commission in 1995. By the end of 1995 most regional exchanges had merged and the Bulgarian Stock Exchange (BSE) remained the only operational exchange in the country. BSE's operations commenced in October 1997, after receipt of its licence from the SSEC. Market capitalization of companies listed on the BSE amounted to 3.8% of GDP at end 2001 and 4.3% of GDP at end 2002, down from 4.8% at end 2000. In spite of the progress made, Bulgaria's capital market remains underdeveloped and unable to attract free funds of either local or foreign investors. However, the Government has indicated its intentions to continue to improve the regulatory environment in its bid to enable the further development of the capital market. In 1999, the Law on Public Offering of Securities was adopted. This law and its 2002 amendments, together with the Law on Financial Supervision Commission, seek to improve the level of investors protection and create a framework for EU-compliant corporate governance. The laws do not envisage limitations on market access (either for local or foreign natural persons or entities), transfer of ownership, or withdrawal. Bulgaria's GATS Schedule of Specific Commitments binds market access through commercial presence for investment intermediaries, investment companies, and stock exchanges established as joint-stock companies (JSCs) licensed by the Securities and Stock Exchange Commission (SSEC). Minimum and maximum capital conditions are laid down for stock exchange JSCs. Investment intermediaries must be members of a (and only one) Bulgarian stock exchange. Investment companies must not conduct activities of a bank, insurance company or investment intermediary. (iii) Telecommunications and postal services Telecommunications Recognizing the vital role of the development of the telecommunications sector as a basic driver in improving the competitiveness of the Bulgarian economy, the Government has set out in its Telecommunications Sector Policy, the strategic goal of providing "opportunities for access to a wide spectrum of modern, quality and effective telecommunications services, provided at reasonable prices, under conditions of fair competition, taking into account the requirements for Bulgaria's accession to the EU and NATO". Measures to help achieve this strategic goal include improvements to the regulatory framework, telecommunications infrastructure, and privatization of BTC. Specific measures to improve the regulatory framework include: the passing of a new Telecommunications Act, as noted above, to establish a legal framework that ensures predictability of the behaviour of the executive bodies and independent regulatory body; abolition of BTC's monopoly, allowing for full market liberalization and introduction of regulatory instruments forcing operators with significant market power to stick to the requirements of a competitive environment; separation of regulatory functions from ownership; and the relaxation of licensing regimes and procedures, ensuring predictability and transparency of the licensing policy. Licences are expected to be awarded to a third GSM operator, third-generation mobile cellular networks operator, and a telecommunications operator for satellite radio and television broadcasting. Improvements to telecommunications infrastructure are expected to occur via modernization of the fixed network by further digitalization, in accordance with Bulgaria's commitments under Chapter 19 of the EU acquis. As at July 2003, a new Telecommunications Bill was in Parliament and had been adopted on first reading. This provides for a regulatory framework harmonized with the EU acquis of 1998. Obligations are imposed on the public telecommunications operators with significant market power determined by the Communications Regulatory Commission, the national independent regulatory authority. The Communications Regulations Commission (CRC) was established under an amendment of the Telecommunications Act in December 2001; it is an independent specialized state authority with regulatory functions in the fields of both post and telecommunications. The CRC replaced the State Telecommunications Commission (STC) and differs from it significantly in terms of its independence, composition, and mandate. The CRC is an independent regulatory body while the STC was subordinate to the Council of Ministers. The members of CRC have a five-year mandate and are appointed and elected by the National Assembly, the President, and the Prime Minister. The CRC can grant, amend, suspend, terminate, and revoke licences for telecommunication activities. New functions of CRC include regulation and control over the provision of postal services, registration and control over the activities on the provision of certification of services related to electronic signatures. Regarding pricing policy, in 1998, the Council of Ministers adopted a methodology for regulation of the prices of ordinary telephone services provided via the fixed telephone network of BTC, and for the provision of leased lines. According to the authorities, in 2001, the fees were further adapted by the Council of Ministers to the dynamics of the telecommunications market. With regard to privatization reforms, a new strategy for the privatization of BTC was adopted in 2002 during which 65% of the company's capital was immediately offered for sale, while another 20% of its shares were to be publicly offered on the Bulgarian Stock Exchange after completion of BTCs privatization. In mobile telecommunications, a schedule for a phased release of frequency bands for the Universal Mobile Telecommunication System (UMTS) is currently under preparation. The first frequency bands are expected to be available by mid 2003. The issuing of licenses for 3G operators is expected to take place in mid 2004. Regarding infrastructural development, BTC plans to reach 46% digitalization by 2005, hence projects for the extension of digital switching have been included in its investment plans. BTC remains the only fixed-line telephone operator in the field of telecommunications. In 2002, the fixed-line telephone density was 36.5%. This has risen from an initial density of 25% since 1991, however, telephone density has remained static over the past five years. There are three mobile phone operators: one analogue, NMT-450i (Mobikum), and two GSM operators (Mobitel and Globul). As of May 2002, Mobitel had 79.3% of the market share, and Mobikum and Globul (commenced operations in September 2001) had 9.5% and 11.3%, respectively. The level of mobile penetration in 2002 was 16%. Until 31 December 2002, mobile phone services (both analogue and digital cellular voice services) were to be provided only through the use of the international network of BTC. According to CRC data, mobile penetration in 2002 was 33%. Much of the equipment in the sector is of an obsolete electro-mechanical design needing replacement. At present, it takes about one month to obtain a telephone line. Investment in digitalization of the telecommunications infrastructure is progressing slowly. The digitalization rate by December 2002 was 20.5%. Under its commitments on accession to the European Union, Bulgaria is obliged to achieve a digitalization rate of 75-81% by 2008. Under Bulgaria's GATS commitments, the state-owned Bulgarian Telecommunications Company (BTC) retained exclusive rights until 31 December 2002 for public voice telephony, telegraph and telex services, mobile services, and public VSAT services, and until 31 December 2004 for facilities-based services and connection of non-public services to the public network. Fax services could only be provided through BTC's international network. The legal framework for telecommunications in Bulgaria is the Telecommunications Act 1998, as amended. Under the Act, telecommunications services and activities other than fixed-line voice services, provision of leased lines, and real-time trans-border voice transmission was liberalized. The State monopoly over the latter activities was liberalized as from 1 January 2003. BTC is also undergoing a process of privatization, and as of September 2002 two offers had been made for the purchase of 65% of its capital. Postal services The basic legislation governing postal services in Bulgaria is the Postal Services Act of 2000, as amended up to 2003; under the Act, Bulgarian Posts remains the only entity allowed to provide universal postal services in the "reserved sector" up to 31 December 2005. There are currently no limitations with regard to the number of operators that can provide postal services outside the reserved sector. Each postal operator may provide a universal postal service or part thereof on the grounds of an individual licence or non-universal services on the grounds of registration followed by the issuance of a certificate. In 2002, the Council of Ministers adopted the new Sector Postal Policy (SPP). The policy traces out the trends and priorities in the development of the postal services and their further liberalization. The strategic aim of the SPP is ".development of the national postal sector to provide postal services of a high quality and at an accessible price in conformity with world and European requirements". The main priorities and tasks envisaged by the SPP include: fulfillment of state governing and independent regulation of postal services through the independent regulatory body, the Communications Regulation Commission; improvement of the legal basis for postal services; provision of a universal postal service (UPS), maintained through a limited state monopoly up to 2005; and gradual liberalization of the postal services. The Communications Regulation Commission (CRC) is the regulatory authority in the area of postal services, as with telecommunications. CRC regulates and controls the observance of postal legislation, licensing and registration regimes, quality of universal postal service, and monitors the requirements for accomplishment of the non-universal service. (iv) Transport The importance of an efficient transport sector in facilitating productive activities and improving competitiveness in the Bulgarian economy is recognized as a key priority of the Government, particularly given Bulgaria's strategic geographic situation as a transit link between western and central European states and middle and far eastern countries. In this regard, a National Strategy for the Transport Sector was drawn up by the Government in June 2000. The primary aims of this strategy are gaining EU and NATO membership and the development of free market relations. The strategy has three main elements: (i) harmonization of national legislation and transport regulations with those of the EU Member States; (ii) development of transport infrastructure; and (iii) implementation of structural reform and privatization in transport. Several new acts have been passed in Bulgaria's bid to align its transport legislation with the EU acquis. Progress is also being made in developing infrastructure and carrying out structural reforms in the various transport subsectors. A new transport strategy is under preparation and was expected to be proposed for approval in June 2003. Road transport The road system in Bulgaria consists of some 90,000 km, of which 37,288 km belong to the national road network: others are classed as regional roads. Approximately 90% of the national road network is asphalted. There are 324 km of motorways; 3,011 km of first grade roads, of which 2,500 are part of the European road network; 3,818 km of second grade roads; and 29,937 km of third and fourth grade roads. Bulgaria's road infrastructure deteriorated in the early transition years due to lack of finance. The Bulgarian Government, through the newly created Executive Agency for Road Transport Administration, and the municipalities, is currently implementing measures to improve road transport. The Agency is responsible for the development, management, and maintenance of motorways, first, second, and third grade roads, and interchanges. Road building in Bulgaria is generally difficult and costly, as over 30% of Bulgaria's territory is mountainous. Under Bulgaria's Transit I, II, and III programmes, 2000 km of Bulgaria's main road network was reconstructed or rehabilitated between 1992 and 2002. Further construction and rehabilitation works are envisaged under the pan-European corridor IV, which links Sofia to both the Greek and Turkish borders; the pan-European corridor VIII, which links Gjuesevo to Varna; and the pan-European corridor IX, which links Ruse to Svilengrad. Bulgaria is assisted in these efforts under the ISPA (Investment for Structural Policies for Pre-Accession) programme of the European Union. The main structural reform in road transport services, especially since 1997, has been through privatization of transport firms. In 1997, there were 233 state-owned enterprises providing road transport services; by 2000, 100% of passenger operations were in the private sector and 89% of the companies for freight and mixed transport had been restructured and privatized. Entry into the road transport services market in Bulgaria requires a licence. Bulgaria has made no commitments on road passenger and freight transportation services under GATS. Indefinite MFN exemptions cover measures, taken under existing or future agreements, which reserve and/or restrict the supply of such transportation services and specify the terms and conditions of supply, including transit permits and/or preferential road taxes, in Bulgaria or across its borders. Vehicle tax and exemption from VAT are also granted to road transporters from Austria and other European countries on the grounds of conventions or de facto reciprocity. Rail transport Railway services in Bulgaria are operated by the Bulgarian State Railways (BDZ) The network consists of about 4,300 km; 4,055 km is standard gauge and the rest is narrow gauge. About 61.4% of the network is electrified and 22% is double track. Total traffic on the line has dropped significantly: from 77 million tonnes in 1989 to 18.5 million in 2002. Factors responsible for the decline in rail traffic, particularly international traffic, include increased competition from road transport, reduced demand from industries, the war in the Balkans, the crisis in Russia, and the fall in metal prices. Reforms in the rail transport sector include the adoption of the Railway Transport Act 2002. This Act has taken into account key requirements of EU legislation, including the legal and functional separation of rail-track infrastructure maintenance from operations, and the abolition of cross-subsidization of passenger services by freight charges. According to the BDZ Action Plan, an increase in cost-recovery level for intercity passenger services, to at least 80%, is envisaged by June 2004. A long-term strategy has also been drawn up for the development of the railway sector in the next ten years. It is hoped to improve the financial results of the rail system by 2005. The railway company, BDZ, has been split into two state-owned companies, one for infrastructure, the State Railway Infrastructure Company and the other being the operator, BDZ-SMSH. This is expected to stimulate the legal and economic restructuring of Bulgaria's railways, and in particular to reduce the company's debts. During the restructuring of BDZ, activities connected with passenger services, railway manufacturing enterprises, and construction activities were also separated. To date 12 of the 13 railway enterprises have been privatized. The privatization of BDZ-SMSH is envisaged in 2006-07. Current works under the pan-European transport corridors IV, VIII, IX and X, include the reconstruction and electrification of various lines, including between Vidin and Svilengrad, Sofia and Kulata, Mezdra and Ruse, Macedonia border and Varna port, and Kaltina and Sofia. In some cases the lines are expected to be upgraded to cruising speeds of up to 160km/h. Under Bulgaria's GATS Schedule, maintenance and repair of rail transport equipment is unbound as regards cross-border supply, both for market access and national treatment; and no commitments have been made in respect of consumption abroad or commercial presence. Indefinite MFN exemptions cover measures taken under any existing or future agreements that govern access and/or traffic rights and the terms of conduct of such economic activity in Bulgaria or between the countries that are parties to the corresponding agreements. No such agreements currently exist. Inland waterways and maritime transport The main inland waterway is the River Danube. The two major ports on this waterway are the port complexes of Lom and Ruse. Lom is 1,335 metres long, on 5 quays, with 13 ship berths for general and bulk load cargoes. Ruse has a total length of 2,640m, 25 berths, 15,000 sq.m open and 24,000 sq. m of indoor warehouse facilities, and 28 cranes. It incorporates one passenger and two cargo ports. 95% of the river fleet is owned by Bulgarian River Shipping. Bulgaria has two major sea ports; Varna and Burgas. Together, they handle over 60% of the national, foreign-trade freight turnover. These ports have container terminals, Ro-Ro equipment, and berths for bulk and liquid freight. Varna has a total wharf length of 5,765m and a maximum depth of 36 feet. The east port of Burgas has a wharf length of 1,965m. Other ports include Pomorie, Nesebar, Sozopol, and Tzarevo. The state-owned shipping company, Navigation Maritime Bulgare (NMB), is the biggest Bulgarian shipping company. Calculated on the basis of gross tonnage, its share of shipping trade is 99%. It is a joint-stock company owned by the Ministry of Transport. The privatization of NMB's commercial fleet is expected to begin in 2003. As part of the Bulgarian Government's bid to improve maritime infrastructure it seeks to attract private operators in port activities in order to increase the efficiency of port services and foster investments. In order to bring Bulgaria's legislation into line with that of the EU acquis, legislative improvements are expected to maritime transport take into account safety and environmental concerns. A new Law on Sea Spaces, Inland Waterways and Ports of the Republic of Bulgaria is currently being discussed (as of July 2003) in Parliament. The main regulatory amendments include: liberalization of conditions for access to the market for port services; creation of a national company "Ports", which will be charged with building, restructuring, rehabilitation, and maintenance of ports used for public transport of national importance, controlling the requirements for exploitation of ports, and ensuring access to ports used for public transport of national importance. Bulgaria has not undertaken specific GATS commitments with regard to maritime services, and has listed several MFN exemptions regarding passenger and freight transportation on internal waterways; liner conference shipping (under the UN Convention on a Code of Conduct on Liner Conferences) and cargo sharing; cargo-handling services and storage and warehouse services in sea and river harbours (see ϲʹ document S/DCS/W/BGR). Bulgaria has not entered into any cargo-sharing agreements. Air transport Bulgaria has ten civil airports, five of which have international status and the other five are used for agricultural aviation. International air transport activity is concentrated in Sofia, Burgas, and Varna. According to the Civil Aviation Act, the Ministry of Transport and Communications is vested with the administrative and supervisory authority for civil air navigation, civil aircraft, and aeronautical facilities; an activity it performs through the Civil Aviation Administration. Air carriers set airfares and rates as well as schedules; however when provided for under bilateral air services agreements, the CAA approves airfares, schedules and frequencies. The Government's strategy on air transport seeks to attract private operators as concessionaires of Bulgarian airports. This is expected to attract investment and improve the overall efficiency and quality of services. The programme for granting concessions on Varna and Burgas airports was launched in 2002. Bulgaria's former national carrier, Balkan Airlines was declared bankrupt in December 2002, following its privatization. A new national air carrier Balkan Airtour was established in November 2002. The company is expected to be privatized within 6-9 months. Bulgaria has undertaken commitments under GATS with regard to the three ancillary air transport services falling under the Agreement (aircraft repair and maintenance, selling and marketing of air transport services, and computer reservation systems). For air transport sales and marketing, Bulgaria's MFN exemption list specifies that obligations shall not apply where equivalent treatment of Bulgarian suppliers of like services is not accorded in the country of origin of the foreign service supplier. Tourism The development of Bulgaria's tourism sector is one of the Government's main priorities. Bulgaria has impressive natural resources including beaches on the Black Sea, several locations suitable for skiing, the potential for eco and heritage tourism and a moderate continental climate. Under the central-planning era, it was a popular tourist destination for holidaymakers from other CMEA countries, however this has since declined. In recent years there has been a marked increase in the share of tourists coming from EU countries; in 1996, these accounted for 10.8% of tourist inflows; by 2002 this had increased to 42%. The tourism sector has been a beneficiary of the accelerated privatization programme since 1996; by the end of 2001, 99% of tourism assets were in private hands. The remaining 1% is slated for privatization in 2004. Over the 1992-2001 period, the sector attracted US$188.8 million of FDI (4.2% of total FDI). Its contribution to the economy increased to 4.6% of GDP in 2001 from 0.5% in 1993. The growth of the tourism sector is constrained by insufficient investment to modernize tourism infrastructure, weak organization, under-qualified staff, competition from similar locations (e.g. Greece, Turkey), and insufficient international advertising. The Government has resolved to transform Bulgaria into a modern and developed tourist country. It has undertaken to do so via improvements to the regulatory framework. A National Tourist Development Strategy (NTDS) is in the pipeline. The major thrust is to improve the quality of services, upgrade qualifications of staff, promote better advertising, and strike a balance between the quality and the price of services. The new Tourism Act was voted and promulgated on 7 June 2002 and came into effect in October 2002. Under the Act, the Minister of Economy is to develop a strategy and short-term programmes for tourism development; coordinate the activities of ministries and institutions in the field; establish new institutions for licensing of operators; and other central activities. Under the Ministry, the National Tourist Board was established in December 2002 and the Executive Agency for National Tourist Advertising and Information in January 2003. Amongst other first-time provisions, the strategy seeks to clarify contractual relations between the tourist and his/her tour operator or travel agent; tasks and responsibilities of local governments; nullify licensing requirements for hotels and restaurant management; and provide indirect means for promoting the development of tourism at the national and regional levels. The NTDS also seeks to define the authority of the Government in the tourism industry, to ensure improved management of tourist enterprises, and to improve the advertising strategy. Under Bulgaria's GATS commitments, commercial presence in hotels, restaurants, travel agents, and tour operators must be provided by companies incorporated in Bulgaria. There is no ceiling on foreign investment. Where the public sector holds equity capital of over 50% in a Bulgarian company, the number of foreign managers may not exceed the number who are Bulgarian citizens. references AEAF (2000), The Bulgarian Economy in 1999, Agency for Economic Analysis and Forecasting, Business Survey Series, Sofia AEAF (2001), The Bulgarian Economy in 2000, Agency for Economic Analysis and Forecasting, Business Survey Series, Sofia. AEAF (2002a), The Bulgarian Economy in 2001, Agency for Economic Analysis and Forecasting, Business Survey Series, Sofia. AEAF (2002b), Pre-Accession Economic Programme (20022005), Agency for Economic Analysis and Forecasting, Sofia. AEAF (2003), The Bulgarian Economy in 2002, Agency for Economic Analysis and Forecasting, Business Survey Series, Sofia. ASME (2002), Report on Small and Medium-Sized Enterprises, 2000-2002, Association for Small and Medium Sized Enterprises, Sofia. Bulgarian Chamber of Commerce and Industry (2000), Panorama of Bulgarian Industry, Sofia. BFIA (2002), Bulgaria 2002, Business Guide, Legal, Tax and Accounting Aspects, Bulgaria Foreign Investment Agency, Sofia. Bowen, P.H, Hollander, A. and J. Viane (1998), Applied International Trade Analysis, Macmillan Press, Basingstoke and London. Bristow, J.A. (1996), The Bulgarian Economy in Transition, Edward Elgar, Cheltenham and Brookfield. CSD (2002), Corruption, Trafficking and Institutional Reform, Center for the Study of Democracy Report, Sofia. EC (1997), Commission Opinion on Bulgaria's Application for Membership of the European Union, European Commission, Brussels EC (2000), Guide to the Implementation of Directives Based on New Approach and Global Approach [online]. Available at:  HYPERLINK "http://europa.eu.int/comm/enterprise/newapproach/legislation/guide/legislation.htm" http://europa.eu.int/comm/enterprise/newapproach/legislation/guide/legislation.htm . EC (2001), 2001 Regular Report on Bulgaria's Progress Towards Accession, European Commission, Brussels EC (2002), 2002 Regular Report on Bulgaria's Progress Towards Accession, European Commission, Brussels EIU (2002), Bulgaria: Country Profile, 2002, Economist Intelligence Unit, London. FAO (2000), Production Yearbook, Volume 54. UN Food and Agriculture Organization, Rome. Greenaway, D. and C. Milner (1993), Trade and Industrial Policy for Developing Countries: A Manual for Policy Analysis, Macmillan, London; Michigan University Press, NewYork. IIPA(2002), International Intellectual Property Alliance Special 301 Report Bulgaria, Washington D.C [Online]. Available at:  HYPERLINK "http://www.iipa.com/rbc/2002/2002SPEC301BULGARIA.pdf" http://www.iipa.com/rbc/2002/2002SPEC301BULGARIA.pdf . IIPA(2003), International Intellectual Property Alliance Special 301 Report Bulgaria, Washington D.C [Online]. Available at:  HYPERLINK "http://www.iipa.com/rbc/2003/2003SPEC301BULGARIA.pdf" http://www.iipa.com/rbc/2003/2003SPEC301BULGARIA.pdf . IMF (2002a), Bulgaria: Request for Stand-By Arrangement-Staff Report; Staff Statement; and Press Release on the Executive Board Discussions, International Monetary Fund, Country Report No. 02/49 Washington D.C. IMF (2002b), Bulgaria: Financial System Stability Assessment, including Reports on the Observance of Standards and Codes on the following topics: Monetary and Financial Policy Transparency, Banking Supervision, Securities Regulation, Insurance Regulation, and Payment Systems, International Monetary Fund Country Report No. 02/188, Washington D.C. IMF (2002c), International Financial Statistics Year Book 2002, International Monetary Fund, Washington D.C. IMF (2003a), Bulgaria: Second Review Under the Stand-By Arrangement, International Monetary Fund, Washington D.C. IMF (2003b), Bulgaria: Third Review Under the Stand-By Arrangement and Request for Waiver of Applicability of Performance Criteria, International Monetary Fund, Washington D.C. MAF (1999), Ministry of Agriculture and Forestry, Annual Report 1998, Sofia. MAF (2001a), Feasibility Study for the Introduction of the Common Agricultural Policy of EU in Bulgaria: Cereals, A Study prepared by ASA Institut fuer Sectoranalyse und Politikberatung GmbH for the Ministry of Agriculture and Forestry, Sofia. MAF (2001b), Feasibility Study for the Introduction of the Common Agricultural Policy of EU in Bulgaria: Fruit and Vegetables, A Study prepared by ASA Institut fuer Sectoranalyse und Politikberatung GmbH for the Ministry of Agriculture and Forestry, Sofia. MAF (2002a), Ministry of Agriculture and Forestry, Annual Report 2001, Sofia. MAF (2002b), Feasibility Study for the Introduction of the Common Agricultural Policy of EU in Bulgaria: Fish, A Study prepared by ASA Institut fuer Sectoranalyse und Politikberatung GmbH for the Ministry of Agriculture and Forestry, Sofia. MAF (2003), Ministry of Agriculture and Forestry, Annual Report 2002, Sofia. MOE (2001), Panorama of Bulgarian Manufacturing Industry, 2001, Ministry of Economy, Sofia. MOEE (undated), Energy Strategy of Bulgaria, Ministry of Energy and Energy Resources, Sofia [Online]. Available at:  HYPERLINK "http://www.doe.bg/download/energiina_strategia/Energy_strategy-Eng2.doc" http://www.doe.bg/download/energiina_strategia/Energy_strategy-Eng2.doc. MOTC (2000), National Strategy, Transport Sector, Ministry of Transport and Communications, Sofia [Online]. Available at:  HYPERLINK "http://www.mtc.government.bg/en/transport/Politics/national_strategy.htm" http://www.mtc.government.bg/en/transport/Politics/national_strategy.htm. MOTC (2002), Telecommunications Sector Policy, Ministry of Transport and Communications Information NewsLetter, Special Issue 2, Volume III, Sofia. Noncheva, T. (1997), Poverty In Bulgaria: Researches And Debates, Centre for Comparative Labour Studies, University of Warwick [Online]. Available at:  HYPERLINK "http://www.warwick.ac.uk/fac/soc/complabstuds/russia/BGREP.DOC" http://www.warwick.ac.uk/fac/soc/complabstuds/russia/BGREP.DOC . NSI (undated), CD-ROM Statistical YearBook, 1998-2001, National Statistical Institute, Sofia. OECD (1999), 1998-1999 Economic Review Bulgaria, Draft Economic Survey by the Secratariat, Paris. OECD (2000), Review of Agricultural Policies, Bulgaria, Paris. OECD (2001), Agricultural Policies in Emerging and Transition Economies 2001, Paris. OECD (2002), Agricultural Policies in Transition Economies: Trends in Policies and Support, Paris. Sahn, D., S. Younger, and C. Meyerhofer (2002), Rural Poverty in Bulgaria, Characteristics and Trends, Cornell Working paper 132 [Online]. Available at: http://www.he.cornell.edu/cfnpp/images/wp132.pdf. Steblez. W, (2000), "The Mineral Industries of Bulgaria and Romania", United States Geological Survey Minerals Year Book, Vol. III [Online]. Available at :  HYPERLINK "http://minerals.usgs.gov/minerals/pubs/country/2000/9408000.pdf" http://minerals.usgs.gov/minerals/pubs/country/2000/9408000.pdf . UNECE (2003), United Nations Commission for Europe, Economic Survey of Europe, No.1 [Online]. Available at : http://www.unece.org/ead/survey.htm USDE (undated), An Energy Overview of the Republic of Bulgaria, United States Department of Energy, Washington D.C [Online]. Available at:  HYPERLINK "http://fossil.energy.gov/international/bulgover.html" http://fossil.energy.gov/international/bulgover.html . USITC (1998), GATS: Examination of the Schedules of Commitments Submitted by Eastern Europe, European Free Trade Association (EFTA), and Turkey, United States International Trade Commission, Investigation No. 332-385, Washington, D.C. USTR (2001), National Trade Estimate Report on Foreign Trade Barriers, United States Trade Representative, Washington D.C. [Online]. Available at:  HYPERLINK "http://www.ustr.gov/html/2001_bulgaria.pdf" http://www.ustr.gov/html/2001_bulgaria.pdf USTR (2002), National Trade Estimate Report on Foreign Trade Barriers, United States Trade Representative, Washington D.C. [Online]. Available at:  HYPERLINK "http://www.ustr.gov/reports/nte/2002/bulgaria.PDF" http://www.ustr.gov/reports/nte/2002/bulgaria.PDF . World Bank (1991), Bulgaria: Crisis and Transition to a Market Economy, The World Bank, Washington D.C. World Bank (2000), Food and Agriculture in Bulgaria: The Challenge of Preparing for EU Accession, World Bank Technical Paper No. 481, Washington D.C. World Bank (2001a), Bulgaria: The Dual Challenge of Transition and Accession, The World Bank, Washington D.C. World Bank (2001b), The Current Regulatory Framework Governing Business in Bulgaria, World Bank Technical Paper No. 513, Washington D.C. World Bank (2002), Bulgaria, 2001 Poverty Assessment. World Bank, Washington D.C. Yonkova, A., S. Alexandrova, G. Stoev, D. Kopeva, Y. Gancheva, L. Bogdanov, T. Dimitrova G. Ganev, K.Stanchev, and Z. Blagoeva (1999), In Search of Growth: Bulgaria's Lessons and Policy Options. A Report by the Institute of Market Economics, Sofia, 19 October.  OECD (2000).  OECD (2002).  OECD (2000),, Graphs 1.7 and 1.8.  OECD (2000) and other studies note the importance of family subsistence farming as a safety valve in the transition.  Information from the Bulgarian authorities. An agricultural census is to begin in September 2003.  World Bank (2000).  MAF (1999)..  MAF (2002a).  OECD (2000).  World Bank (2000).  ϲʹ document WT/ACC/BGR/5.  State Gazette No. 58/1998, last amended in No. 96/2002.  Fund Tobacco was established within the Ministry of Agriculture according to the law on tobacco and tobacco products as a legal entity working under an extra-budgetary account for regulating the growing, buying out, and trade in tobacco.  Despite the existing possibilities under the ϲʹ commitments for providing subsidies for export of tobacco, no such premiums have ever been offered.  Input subsidies are used for the provision of fertilizers, plant protection, storage of grains, land cultivation and sowing, and fuel.  1 ECU = 1.  See MAF online information. Available at: http://www.mzgar.government.bg/mz_eng/Begin/ AnaliziOSPEng.htm.  See EU online information. Available at: http://europa.eu.int/comm/enlargement/pas/phare.  Detailed information on the eligibility conditions of the SAPARD programme is available online at: http://www.mzgar.government.bg/MZ_eng/Sapard/Iziskv.htm.  This section uses data on production taken from FAO, Production Yearbook 2000, supplemented by 2001 data from OECD (2002) and 2003 tariff data supplied to ϲʹ by Bulgaria. Tariff rates are based on analysis at HS 6-digit level. All tariff rates referred to mentioned use the HS nomenclature unless otherwise stated.  The past few years have witnessed a continuous increase in areas under autumn crops, whereas areas under spring crops have been declining steadily due to adverse weather conditions in winter and spring. [.] Sharp temperature variations in spring and the insufficient water content in soil during these last years have had adverse effects on the activities for spring planting, resulting in a reducedtion in the area planted areas.  MAF (2001a).  State Gazette No. 101/1993, last amended in No. 20/2003 to extend the deadlines for raw tobacco purchase.  The proposal is to be prepared by the Tobacco Fund.  The Fund was Eestablished under the Tobacco and Tobacco Products Law as a government agency entitled to distribute budgetary subsidies relative for to raw tobacco growing and buying out.  This is included in the farm-gate price.  OECD (2000).  MAF (2001b).  MAF (2002a).  Cattle numbers declined from an average of 1.6 million over the 1989-91 period to 612,000 in 1998. In 2000, numbers had risen to 639,778, falling again to some 608,000 as of 1 July 2002 (MAF, 2002a).  OECD (2000).  However, preliminary studies suggest that on the basis of Agenda 2000 there would be an immediate increase in incomes of dairy farmers.  OECD (2002).  Carcasses with weight over 240kg and half carcasses with weight over 120 kg; compensated quarters with weight over 120 kg; unsepaerated forequarters with weight over 110 kg and sepearated forequarters with weight over 55kg; unseparated hindquarters with weight over 130 kg and separated hindquarters with weight over 65kg.  With weight over 240kg and half carcasses with weight over 240kg and half-carcasses with weight over 120kg.  Separated or unseparated.  Unseparated forequarters with weight over 110kg and separated forequarters with weight over 55kg, unseparated hind quarters with weight over 130 kg and separated hind quarters with weight over 65kg.  Fresh, chilled or frozen, with or without bone, excluding tenderloin presented separately.  OECD (2000).  Except for livers. The ad valorem duty on livers was 25% in 2003.  Forest land also includes lands different from not classed as arable or urban land, even non afwhether or not forested, and falling within the delimitations of the forest fund (ex.g. meadows, pastures etc).  State Gazette No. 125/1997, last amended in No. 16/2003.  State Gazette No. 110/1997, last amended in No. 16/2003.  Using the ISIC 1 (2).  MAF (2002b).  This section is based mainly on information provided by the Bulgarian authorities (including the Energy Strategy 2002), as well as the European Commission regular reports on Bulgaria and the U.S. Department of Energy "Energy overview of the Republic of Bulgaria". Tariff averages and maxima in the sections on mining and energy and manufacturing are defined in relation to International Standard Industrial Classification (ISIC) two-digit classification.  State Gazette No. 23/1999.  Concessions are granted by the Council of Ministers. Authorizations are granted by four ministries: Ministry of Economy, Ministry of Energy and Energy Resources, Ministry of Regional Development and Public Works, and Ministry of Environment and Waters, after the approval of the Council of Ministers.  Decree No. 140 of 23 July 1992 of the Council of Ministers for restructuring of the mining and phased closure of ineffective production capacities (published in State Gazette No. 61/1992, last amended in No.101/2000).  World Bank (2001a).  The Bulgarian authorities estimate a consumer base of only 1,500 people.  The generating capacity was reduced by 800 MWe after the closure of the two units of Kozloduy nuclear power plant (NPP).  Two units of VVER 440/230 design type (units 1 and 2), two units of advanced VVER 440/230 design type (units 3 and 4) and two units of the VVER 1000/320 design type (units 5 and 6).  Lower prices are charged for day- and night-time consumption of electricity below specified levels, to relieve the burden on poorer consumers.  After the former Czechoslovakia (EIU, (2002)).  UNECE (2003).  National Statistical Institute.  Much of this material is drawn from MOE (2001), supplemented by data and tariff information supplied to the ϲʹ secretariat by Bulgaria. Tariff rates are based on an analysis at ISIC four-digit level, supplemented by tariff line information. Because of the different classifications used, there is some overlap with section (i), particularly on "food, drink and tobacco" and "wood, paper, publishing, and printing".  Tobacco products and beverages have the highest profitability levels.  The Understanding provides a formula approach to scheduling commitments under Part III of the GATS (Articles XVI, XVII, and XVIII) with regard to financial services for the Members that choose to adopt it. Despite being a formula approach, it remains possible for Members scheduling on the basis of the Understanding to make market access and national treatment limitations. Specific commitments undertaken pursuant to the Understanding apply on a most-favoured-nation basis (ϲʹ document S/CSC/W/34).  In 1996, 90% of the state-owned banks had negative capital.  EIU (2002).  State Gazette No. 46/1997.  State Gazette No. 52/1997.  Regulation No. 8.  Regulation No. 4.  Regulation No. 12.  Regulation No. 22.  State Gazette No. 92/2002.  B.3 relates to conditions for supply of transport and transit insurance; reinsurance; retrocession and auxiliary services; provision and transfer of financial information; and other auxiliary services, excluding intermediation. B.4 specifies that each Member shall permit its residents to purchase in the territory of another, a range of banking services as defined in paragraph 5 (v to xvi) of the Annex on Financial Services.  This is Bulgaria's commitment: in practice, permission is to be granted for control of 10% or higher of voting shares.  State Gazette No. 86/1996, in force from 1 January 1997, last amended in No. 8 of 28January2003.  State Gazette No. No. 8/2003, in force from 1 March 2003.  IMF (2002b).  As of 1 of March 2003: the Financial Supervision Commission.  MOTC (2002).  Including the institutional strengthening of the Communications Regulation Commission.  Phased relaxation of the licensing regimes and reduction easing of the terms of issuance of licences issuing so that full compatibility with the EU regimes is expected to be achieved by the end of 2004. Other measures are introducing mechanisms for compensating the operator for the universal service provision under economically unprofitable conditions and in economically poor regions.  The digital transmission network is expected to be completed before the ending of BTC's monopoly.  Until 31 December 2002, it had exclusive rights for the provision of voice telephony services.  Except when BTC was unable to provide the necessary infrastructure in the limited period of time specified in the licence.  Postal Services Act published State Gazette No. 64/2000, last amendment in No. 26 of 21 March 2003, in force as of 1 January 2003.  The reserved sector comprises internal domestic and international correspondence weighing up to 350 grams and with a price not exceeding five times the standard rate of correspondence up to 20 grams (i.e. basic letter and small package post).  Article 19 of PSA.  State Gazette No. 61/2002.  In 2002, a draft Law for Amendment and Supplement of the PSA was prepared and adopted from the Council of Ministers.  MTOC (2000).  Civil Aviation Act 1972, amended up to December 2001; Act on Maritime Spaces, Inland Waterways, and Ports 2000, amended up to December 2001; Merchant Shipping Code 1970, amended up to December 2002), Road Traffic Act 1999; Road Transport Act 1999, amended up to April 2002; Railway Transport Act, January 2002.  This replaced the General Directorate of the Ministry of Regional Development and Public Works.  ISPA focuses on environment investment and development in three areas: environment (water supply, waste management, and air pollution); transport infrastructure (major road and rail corridors); and preparatory studies and technical assistance. Over the period 2003-06, ISPA envisages 840 million for basic infrastructure projects in Bulgaria.  Their activities are mainly in the field of railway repairs and construction.  These figures relate to border statistics on tourist arrivals with a purpose of "leisure and recreation".  Official Gazette No. 56, and Presidential Decree No.170. WT/TPR/S/121 Trade Policy Review Page  PAGE 96 Bulgaria WT/TPR/S/121 Page  PAGE 95 Page IV. 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A!"#n$%nDyK Shttp://europa.eu.int/comm/enterprise/newapproach/legislation/guide/legislation.htmyK http://europa.eu.int/comm/enterprise/newapproach/legislation/guide/legislation.htmIDyK 5http://www.iipa.com/rbc/2002/2002SPEC301BULGARIA.pdfyK jhttp://www.iipa.com/rbc/2002/2002SPEC301BULGARIA.pdfIDyK 5http://www.iipa.com/rbc/2003/2003SPEC301BULGARIA.pdfyK jhttp://www.iipa.com/rbc/2003/2003SPEC301BULGARIA.pdfDyK Hhttp://www.doe.bg/download/energiina_strategia/Energy_strategy-Eng2.docyK http://www.doe.bg/download/energiina_strategia/Energy_strategy-Eng2.docDyK Ihttp://www.mtc.government.bg/en/transport/Politics/national_strategy.htmyK http://www.mtc.government.bg/en/transport/Politics/national_strategy.htmqDyK ?http://www.warwick.ac.uk/fac/soc/complabstuds/russia/BGREP.DOCyK ~http://www.warwick.ac.uk/fac/soc/complabstuds/russia/BGREP.DOCuDyK @http://minerals.usgs.gov/minerals/pubs/country/2000/9408000.pdfyK http://minerals.usgs.gov/minerals/pubs/country/2000/9408000.pdfIDyK 5http://fossil.energy.gov/international/bulgover.htmlyK jhttp://fossil.energy.gov/international/bulgover.html!DyK +http://www.ustr.gov/html/2001_bulgaria.pdfyK Vhttp://www.ustr.gov/html/2001_bulgaria.pdf=DyK 2http://www.ustr.gov/reports/nte/2002/bulgaria.PDFyK dhttp://www.ustr.gov/reports/nte/2002/bulgaria.PDFS [4@4Normal $ CJmH N@"N Heading 1#$ & F80@& 5;N@2N Heading 2#$ & F80@& 5:L@BL Heading 3#$ & F80@& 5H@RH Heading 4#$ & F80@& @@@ Heading 5 & F8@& 6.. 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