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Briefing No 1
Cyprus and the Enlargement of the European Union

The views expressed in this document are not necessarily those held by the European Parliament as an institution.


IV. RELATIONS WITH THE EUROPEAN UNION
AND ENLARGEMENT

a) Association agreement, Financial protocols and the institutional framework

Association agreement

Trade relations between the EU and Cyprus are governed by the association agreement signed on 19 December 1972. The signing of this agreement was followed by that of four technical and financial co-operation protocols bringing the agreement into line with recent developments. The protocol signed on 19 October 1978 defining the conditions and procedures necessary for the implementation of the second phase of the agreement, which provides for the establishment of a customs union in two stages, is particularly important. Since 1 January 1998, only a few industrial and agricultural products have been excluded from the system of free movement of goods. That date brought the dismantling of the last obstacles to free trade, with a view to the establishment of a customs union to be finalised by the year 2002.

Since the illegal occupation of the northern part of Cyprus by Turkey, Community policy vis-à-vis Cyprus has been subject to two principles:

However, since the Court of Justice ruling of 5 July 1994 (following the dispute between the British agriculture ministry and Greek Cypriot exporters), EU Member States have been called upon not to recognise the movement certificates and plant health certificates of citrus fruit and potatoes from northern Cyprus. This decision therefore showed the attitude of the United Kingdom and the Commission, who until then had adopted a free-trade approach devoid of any political considerations, to have been wrong. Although the ruling represented a success for the Republic of Cyprus, the only internationally recognised authority for the whole island of Cyprus, it was strongly criticised by the northern part of the island which believes it will widen the gap between the two communities and consolidate separation. It could also increase the north's economic and political dependence on Turkey.

Trade

The European Union (EU) is Cyprus' number one trading partner. However, the island has a considerable trade deficit vis-à-vis the Union, amounting to 1.559 billion ecu in 1997. Cyprus' imports from the EU have risen to ECU 1.932 billion and exports to the EU amount to ECU 373 million. It should be noted (cf. Commission report - November 1998) that the percentage of total exports to Union markets has fallen since the beginning of the 1990s to the benefit of Eastern European markets.

An analysis of foreign trade by region shows some significant changes in January-February 2000 compared with the same period in 1999. Higher oil prices caused imports from oil-exporting countries to rise as a percentage of total imports, while the recovery in re-export activity boosted trade with Russia and Arab countries. Imports from Arab countries increased in value by 213%, bringing their share of total imports to 7.4%, up from 3% in the same period in the previous year. Despite an increase of 28.5% in value, exports to the EU remained unchanged as a percentage of the total. Imports from the EU were up by 13.3% compared with the same period in the previous year. However, the EU accounted for a smaller share of total imports, which fell to 51.4% from 56.8% in the same period in 1999.

Among the EU Member States, the United Kingdom is traditionally Cyprus' main trading partner.

EU exports to Cyprus consist mainly of machinery and transport equipment. The European Union imports mainly foodstuffs, particularly vegetables, fruit and drinks, and tobacco.

Financial Protocols

Under the terms of the association agreement and the three financial protocols, the EU has granted Cyprus financial aid amounting to a total of ECU 136 million in the form of grants and EIB loans. However, a major part of the funds allotted to Cyprus under the third financial protocol has not been used because of the problems arising from the virtual partition of the island. The fourth financial protocol (1996-1998: extended until 31 December 1999) allocating ECU 22 m in grants and ECU 52 m in loans (total: ECU 74 m) was signed on 30 October 1995. Its aim was to provide partial funding for projects and measures designed to contribute to Cyprus' economic and social development in preparation for its membership of the European Union and to support the efforts being made to find a solution to the political dispute. As this Protocol expired at the end of 1999, the financial co-operation will continue with a specific financial Regulation for Cyprus and Malta (see below).

Cyprus also benefits from regional and horizontal measures under the MEDA programme, which is an important aspect of the Euro-Mediterranean partnership inaugurated at the Barcelona Conference in November 1995. With the eleven other non-EU Mediterranean countries and the Member States, it is taking part in the dialogue on political and security questions, the projected Euro-Mediterranean free trade area and the social, cultural and human aspects of the partnership.

Institutional framework

Political dialogue

Following the decision by the European Council in Rhodes, political dialogue between the European Union and Cyprus was established in 1989.

The scope was extended on 12 June 1995 to meetings of political leaders and experts on human rights issues, disarmament, security, the OSCE, terrorism and the United Nations.

There has also been regular contact between EU and Cypriot diplomatic missions in third countries.

Cypriot sources say that Cyprus has associated itself with most of the EU's foreign policy statements (e.g. 88.5% of votes in the UN General Assembly in 1995 and 98% in 1996).

Structured dialogue

This was initiated in June 1995 and has revealed areas where Cyprus must make efforts to adapt to the EU's legal system and policies.

On 17 July 1995, the Council of General Affairs Ministers defined the framework for the various subjects and levels of representation:

b) Cyprus' application for membership

The application for membership submitted on 4 July 1990 by the Republic of Cyprus applies to the whole island. As stated in Agenda 2000, membership should benefit the whole island and representatives of the northern population should be involved in the membership negotiations. The illegally occupied zone refuses to allow the membership application to be submitted on behalf of the island as a whole. Its leader has let it be known that the start of EU membership negotiations would trigger partition of the island and union of the northern zone with Turkey. An association agreement between northern Cyprus and Turkey - with no international legal force - was signed in August 1997 by the leader of the northern zone and Turkey. According to the former, the Turkish Cypriots would only participate in the negotiations on condition that the TRNC was 'recognised' as an entity.

Commission position

On 30 June 1993, the Commission delivered a favourable opinion on Cyprus' eligibility and scheduled a reconsideration of the application for membership and re-evaluation of the situation for 1 January 1995.

On 26 January 1995, the Commission presented its reconsideration of the application for membership and confirmed Cyprus' suitability for membership of the Union.

In Agenda 2000, presented on 15 July 1997, the Commission confirmed the opening of negotiations with Cyprus six months after the end of the IGC. "Agreement on a political settlement would permit a faster conclusion to the negotiations. If progress towards a settlement is not made before the negotiations are due to begin, they should be opened with the government of the Republic of Cyprus, as the only authority recognised by international law".

On 17 November 1998, the Commission submitted a new report on the general situation to the European Council as requested by the European Council in Cardiff.

A second regular report on the progress of Cyprus towards accession was submitted by the Commission in October 1999. The next regular report is expected to be presented in November 2000.

The Commissioner in charge of enlargement, Günter Verheugen, visited Cyprus from 23 to 25 March 2000. He had talks with the Cypriot authorities on the enlargement process but also met the Turkish Cypriot leader, representatives of different political parties and other representatives of the Turkish Cypriot community. The meeting with the Turkish Cypriot leader was the first since December 1997 and since the decision taken at that time to suspend contacts with the European Commission. The meeting resulted in an agreement to return to pre-Luxembourg European Council arrangements, namely that the EU delegation in Cyprus can have access to the northern part of the island. The Commissioner encouraged a two-way flow of information on EU matters including the establishment of projects involving both communities.

Position of the European Parliament

The EP adopted a resolution on 12 July 1995 supporting the decision of the General Affairs Council of 6 March 1995 that membership negotiations with Cyprus would begin 6 months after the Intergovernmental Conference, taking the outcome of this conference into account (A4-0156/95). This position was reiterated in its resolution of 19 September 1996.

On 4 December 1997, in its resolution on the Commission Communication 'Agenda 2000 - For a stronger and wider Union', the European Parliament called on the Council and the Commission to do all that they could to promote a peaceful settlement to the Cyprus question in accordance with United Nations resolutions. It took the view that the negotiations on membership to be carried out with the Government of Cyprus should not be linked to the resolution of the dispute and called on the Commission to persuade the two communities living on the island of the advantages of membership of the European Union and to associate the two communities in the enlargement process.

The EP also called on the Commission and Council to recognise the excellent economic and financial situation of the Republic of Cyprus which would enable the island to meet the criteria for EMU immediately thus facilitating negotiations for membership. These negotiations should under no circumstances be dependent upon the state of relations with Turkey and should be concluded as quickly as possible.

During the April 1999 part-session, the EP adopted the Bertens report concerning the Commission's report of November 1998 on Cyprus (PE 229.878/fin.) in which it welcomed the progress made in Cyprus in adopting the 'acquis communautaire' and reiterated its position that accession should not be conditional upon a peace settlement.

On 17 February 2000, the EP adopted a resolution (in the Brok report) on the proposal for a Council regulation on the implementation of operations in the framework of the pre-accession strategy for Cyprus and Malta . In its resolution, the EP considered the EUR 95 million allocated for the implementation of the regulation to be "inadequate".

The EP and, in particular, its delegation to the EU/Cyprus JPC had often criticised the fact that Cyprus did not receive financial pre-accession aid like the other candidate countries.

The Committee on Foreign Affairs, Human Rights, Common Security and Defence Policy of the European Parliament will soon consider the draft report on the application by Cyprus for membership of the European Union and progress made with negotiations (rapporteur: Mr. Jacques F. Poos). The report is expected to be presented to the first part-session of October 2000, together with another 11 reports, one for each candidate country and a general report on the Enlargement of the European Union.

Position of the Council and European Council

On 6 March 1995, the General Affairs Council announced, in a 'package' decision that included a customs union agreement with Turkey, that accession negotiations with Cyprus would begin 6 months after the end of the work of the IGC, taking its results into account.

The Council has reiterated that position on many occasions.

The Council Presidency confirmed in July 1997 that accession negotiations with Cyprus would begin at the start of 1998 and stressed that there was no link between the negotiations and a peaceful settlement of the Cyprus question.

On 12-13 December 1997, the European Council in Luxembourg decided that the enlargement process would be launched on 30 March 1998 with a meeting in Brussels of the Foreign Affairs Ministers of the fifteen European Union Member States, the ten Central and Eastern European applicant countries and Cyprus, through the establishment of a single framework system for these applicant countries.

The Council decided to set up a European conference bringing together European Union Member States and other European states wishing to join the Union and sharing its internal and external values and objectives. This was done on 12 March 1998.

The official opening of enlargement negotiations took place on 30 March for all applicant countries.

A bilateral intergovernmental conference was convened on 31 March 1998 to begin negotiations with Cyprus on the conditions of its admission to the Union and the amendments to the Treaties that this admission will entail. These negotiations will be based on the general framework for negotiation noted by the Council on 8 December 1997.

Cyprus' membership should benefit all the communities and contribute to civil peace and reconciliation. The membership negotiations will make a positive contribution to the search for a political solution to the Cyprus problem through talks to be held under the auspices of the United Nations with a view to setting up a bicommunal, bizonal federation. In this context, the European Council calls for the willingness of the Government of Cyprus to include representatives of the Turkish Cypriot community in the accession negotiations delegation to be acted upon. The necessary contacts to ensure that this happens will be made by the Presidency and the Commission.

* * *

The European Institutions expressed regret that the offer by President Clerides, on the day following his re-election, to include a representative of the Turkish Cypriot Community in the negotiating team had been rejected by Mr Denktash. The offer still remains open. The present obstacle should have no influence on the negotiating process that had been opened with the Republic of Cyprus as one entity.

As indicated by the authorities of Cyprus, the northern part of the island is being kept informed of the progress of the negotiations by means of the 'accession negotiations' Internet site maintained by the Government of the Republic of Cyprus.

Position of Cyprus and of the Member States

Foreign Minister Kasoulides stated on 17 July 1997 that Cyprus wanted reunification and reconciliation of all Cypriots, if possible before accession.

In his statement at the Third Intergovernmental Conference for Cyprus' Accession to the European Union in Luxembourg on 21 June 1999, the Cyprus Foreign Minister Kasoulides said that "as repeatedly stated by the Cyprus Government, our wish is that our Turkish Cypriot compatriots work and share with us the task and responsibility of preparing Cyprus for accession and enjoy the benefits of membership with all other Cypriots".

Reservations had been expressed by some Member States at the inclusion of Cyprus in the European Union while the status quo was maintained (i.e. while it was still divided). However, at the Edinburgh summit following the European Conference of 12 March, the Member States registered their agreement on keeping accession negotiations separate from efforts to find a solution to the Cypriot problem. France again expressed reservations at the European Summit in Cardiff (June 1998). However, the Council's conclusions endorse the previous position: no preconditions for accession.

At the meeting of the General Affairs Council in Luxembourg on 5 October 1998, it was decided that technical accession negotiations on certain aspects would begin with the first group of countries on 10 November. The Council also reaffirmed the principle whereby progress towards access to the European Union and a just and viable solution to the Cypriot problem would naturally strengthen each other and that accession would help restore civil peace and encourage reconciliation on the island.

On 9 November 1998, four Member States (France, Italy, Germany and the Netherlands) again expressed reservations about the accession of Cyprus while it was divided. This position was denounced in the EP report (PE 229.878) adopted in April 1999.

The Helsinki European Council (11 December 1999) formally declared that the accession of Cyprus to the EU was not conditional upon a settlement of the political situation.

c) Pre-accession Strategy and Cyprus' progress towards accession

Pre-accession strategy

The Council of 12-13 December 1997 decided on a special pre-accession strategy for Cyprus based on:

Under Council Regulation No 555/2000 of 13 March 2000 on the implementation of operations in the framework of the pre-accession strategy for the Republic of Cyprus and the Republic of Malta, the Union's pre-accession strategy for Cyprus shall be based in particular on: the establishment of an Accession Partnership; support for priority operations to prepare for accession as defined within the accession partnerships on the basis of analyses of its economic situation, taking account of the Copenhagen criteria; participation in certain Community programmes and agencies. The financial reference amount for the implementation of the Regulation is EUR 95 million to be shared with Malta for the period expiring on 31 December 2004 (EUR 57 million will be allocated to Cyprus for the period 2000-2004). In addition, EUR 50 million is available from the EIB in the context of the 4th EU-Cyprus Financial Protocol.

Co-operation projects and operations will be in the form of grants and may be financed in the following indicative areas:

The Commission will regularly assess operations financed by the Community to establish whether the objectives have been achieved and to provide guidelines for improving the effectiveness of future operations. Assessment reports shall be sent to any Member States requesting them and to the European Parliament. The Commission will submit to Parliament and Council an annual overall assessment of operations financed by the Community under this Regulation, together with suggestions regarding the future of this Regulation and, where necessary, proposals for amendment.

The first Accession Partnership for Cyprus was adopted by the Council on 20 March 2000 (Council Decision 2000/248/EC on the principles, priorities, intermediate objectives and conditions contained in the Accession Partnership with the Republic of Cyprus). Its purpose is to set out in a single framework the priority areas for further work identified in the Commission's 1999 regular report on the progress made by Cyprus towards membership of the European Union, the financial means available to help Cyprus implement these priorities and the conditions which will apply to that assistance.

The short-term political priorities (end of 2000) mainly concern the deployment of effort in order to arrive at a balanced political solution to the island's problems under the aegis of the UN.

On the economic front, priorities primarily concern ensuring that the budget deficit does not grow and the liberalisation of capital movements; with regard to the internal market, priority will be given to harmonisation in the area of public procurement, intellectual property and competition. Other priorities include agriculture (alignment with the CAP), transport (maritime sector), environment (introduction of framework and sectorial legislation), social affairs and employment, justice and home affairs (right of asylum) and the strengthening of administrative and judiciary capacity (in particular the management and control of EU funds).

In the medium-term, the measures concern the introduction of a programme to liberalise public sector companies and the continuation of the restructuring process. In the single market area, the clause giving preferential treatment to local production will have to be abolished by 2002 and the process of harmonisation in the fields of agriculture, environment, energy (petrol stock requirements) and the administration of justice followed up. With regard to the programming of financial resources, the partnership confirms pre-accession aid provided for in the framework of Regulation 555/2000/EC of 13 March 2000.

Cyprus has been invited to prepare a national programme for the adoption of the acquis (NPAA),setting out a timetable for achieving priorities and intermediate objectives, based on the Accession Partnership, as well as necessary administrative structures and financial resources.

Financial assistance for financing projects is conditional on Cyprus respecting its commitments under the Association Agreement, on it taking further steps towards satisfying the Copenhagen criteria and, in particular, on making progress in meeting the specific priorities of this Accession Partnership in 2000. Failure to respect these general conditions could lead to a decision by the Council suspending financial assistance on the basis of Article 4 of Regulation (EC) No 622/98.

The implementation of the Accession Partnership is monitored in the framework of the Association Agreement and in particular the Association Committee.

A bilateral agreement for full participation of Cyprus in Media II, the Community programme for a common audiovisual policy, has been concluded. Cyprus is on the way to complete harmonisation of its legislation with Community acts in the audiovisual field. It has fully incorporated the television without frontiers directive in its legislation.

Cyprus should also soon be receiving assistance under the following programmes:

In May 1999, Cyprus formally agreed to participate in the 5th Framework Programme of Research and Technological Development. Since May 1999, it has also been a full member of COST (co-operation in the field of scientific and technological research). Cyprus has been participating in the last phase of the Education and Training programmes Leonardo, Socrates and Youth. It also intends to participate in the new phase (2000-2006) of Leonardo II, Socrates II and Youth, from 2001 on.

As proposed in the Communication of the Commission of 20 December 1999 (COM (1999)710) on guidelines for the participation of candidate countries in Community programmes, agencies and committees, the participation of Cyprus in Community agencies is also foreseen, in particular the European Environment Agency and the European Monitoring Centre for Drugs and Drug Addiction.

"Screening" and the accession negotiations

A start was made with the group of 5+1 countries (viz: Poland, Hungary, Czech Republic, Slovenia, Estonia and Cyprus), starting in April 1998. The process includes an analytical assessment ("screening") of the situation in certain sectors in the applicant countries in relation to the acquis communautaire. The areas presenting the fewest problems were considered first; the aim was to assess a total of 31 sectors (or chapters) by the end of 1999. As stated above, the General Affairs Council (5 October 1998, Luxembourg) decided to open technical negotiations on subjects where the 'acquis' had already been reviewed.

The "acquis screening" procedure with Cyprus began in April 1998 and was completed in June 1999. In the meantime, substantial negotiations on certain chapters of the "acquis" began in November 1998.

In June 2000, Cyprus closed the EU negotiating chapters on common foreign and security policy (CFSP), social and employment policy, company law, fisheries and financial controls, bringing the number of chapters that have been provisionally closed to 16, more than any other applicant country. These chapters also include economic and monetary union (EMU), statistics, industrial policy, small and medium enterprises, science and research, education and training, telecommunications, audiovisual, consumer protection and health, customs union and external relations.

Furthermore, all the remaining chapters have now been opened for negotiations with Cyprus, except the chapter on "Institutions", which will wait until the end of the Intergovernmental Conference on the reform of the institutions.

Commission reports on Cyprus' progress towards accession

As decided at the Luxembourg European Council, the Commission is to submit to the Council regular reports on each applicant country's progress towards accession in the light of the political and economic criteria for accession and the extent to which the 'acquis' has been incorporated.

In its first report in November 1998, the Commission indicated that in general its assessment, which could not concern the whole island because of the northern part's refusal to participate in the negotiations, was very positive as regards adoption of the acquis communautaire by Cyprus, especially the customs union. The Commission listed the sectors in which efforts must be made, particularly offshore activities, the financial sector, shipping, telecommunications, justice and home affairs. In these sectors,Cyprus' administrative capacities must also be strengthened.

In its second report of 13 October 1999, the Commission observed that Cyprus certainly fulfilled the Copenhagen criteria and that it was a market economy but criticised the lack of progress which had been made in aligning Cyprus' provisions with the internal market since the 1998 report, particularly in the field of standardisation. Progress was still needed with regard to the movement of capital, the environment, veterinary inspections and immigration and asylum policy. Administrative capacities still needed to be expanded in the field of shipping.

Sources: Economist Intelligent Unit
The Legislative Observatory (OEIL)
European Commission
Official Commission, Council and Parliament documents cited
Agence Europe
Le Monde
Oxford Analytica
Website of the Government of Cyprus (http://www.pio.gov.cy)
The Cyprus economy, Government of the Republic of Cyprus, August 1998

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