               EUROPEAN COMMISSION
            Brussels,4.1.2018
            COM(2017) 812 final
            Recommendation for a
            COUNCIL DECISION
            authorising the opening of negotiations on an international legally-binding instrument under the United Nations Convention on the Law of the Sea on the conservation and sustainable use of marine biological diversity of areas beyond national jurisdiction

               EXPLANATORY MEMORANDUM

               1.CONTEXT OF THE RECOMMENDATION

               •Reasons for and objectives of the recommendation

                  The UN General Assembly, in its Resolution 68/70, paragraph 198, requested the UN Ad-Hoc Open-ended Informal Working Group to study issues relating to the conservation and sustainable use of marine biological diversity beyond areas of national jurisdiction (hereinafter "the UN BBNJ Working Group") to make recommendations on the scope, parameters and feasibility of an international instrument under the United Nations Convention on the Law of the Sea (hereinafter, "UNCLOS").

                  Building on its work since 2006, the UN BBNJ Working Group adopted recommendations at its final meeting in January 2015, which stressed the need for a comprehensive global regime to better address the conservation and sustainable use of marine biological diversity beyond areas of national jurisdiction through the development of an international legally-binding instrument under the UNCLOS on the conservation and sustainable use of marine biological diversity in areas beyond national jurisdiction (hereinafter, "the Instrument").

                  Resolution 69/292 of the UN General Assembly, adopted on 19 June 2015, established a Preparatory Committee (hereinafter, "PrepCom"), open to all States Members of the United Nations, members of specialised agencies and parties to the UNCLOS, to make substantive recommendations to the General Assembly on the elements of a draft text of the Instrument. It also set out that the UN General Assembly should further decide on the convening of an intergovernmental conference (hereinafter, "IGC") for the negotiation of such Instrument as well as its starting date, taking into account the report of the PrepCom, before the end of its seventy-second session.

                  The Council, in March 2016, decided to authorise the Commission to negotiate, on behalf of the Union (Decision 6862/16 of 15 March 2016), as regards matters falling within the Union's competence and in respect of which the Union has adopted rules, on the elements of a draft text of the Instrument. This negotiating authorisation and the directives were explicitly limited to the meetings of the PrepCom.

                  The PrepCom held four sessions in 2016 and 2017, the last one between 10th and 21st July 2017. The negotiations in the four sessions of the PrepCom addressed the topics identified in the recommendations from the 2011 meeting of the BBNJ Working Group, namely: marine genetic resources, including questions on the sharing of benefits; measures such as area-based management tools, including marine protected areas; environmental impact assessments; capacity building and the transfer of marine technology; as well as more general cross-cutting issues including principles, decision making and dispute-settlement procedures, relationship with other instruments, participation, etc. Final recommendations were adopted by consensus on 21st July 2017 (and are included in the Report of the PrepCom –

                     http://www.un.org/depts/los/biodiversity/prepcom_files/Procedural_report_of_BBNJ_PrepCom.pdf

                   ). Among other things, the PrepCom recommended that the UN General Assembly take a decision on the convening of the IGC as soon as possible to elaborate the text of the Instrument.

                  It is likely that the decision to convene the IGC will be taken by the UN General Assembly by the end of 2017. The IGC could then begin its work and hold its first meeting during the first semester of 2018.

                  As a Party to the UNCLOS and one of the main proponents for the need for such an Instrument since the commencement of discussions at the UN in 2006, the EU should continue to actively participate in this process at the UN, thereby contributing to better conservation and sustainable use of marine biological resources of areas beyond national jurisdiction within the legal framework constituted by the UNCLOS. The EU should also ensure that provisions are included enabling it to become a Party to this Instrument.

               •Consistency with existing policy provisions in the policy area

                  The Commission should ensure that the negotiations on the text of the future Instrument are fully consistent with relevant Union rules and policies in the areas which will be covered by it (environment policy, maritime transport policy, common fisheries policy, internal market policy, common commercial policy, research and technological development policy, climate policy and other relevant policies) and with relevant bilateral and multilateral agreements to which the Union is already a party.

                  Since the Instrument will be an implementing agreement to the UNCLOS and the UNCLOS is already part of the Union acquis, the Commission will have to ensure that the provisions and the balance of rights and obligations enshrined in the UNCLOS and reflected in the Union acquis are fully respected and that the outcome of the negotiations is fully consistent with the UNCLOS.

               2.LEGAL ELEMENTS OF THE RECOMMENDATION

                  The objective of this recommendation is to obtain from the Council the authorisation for the Commission to negotiate the future Instrument on behalf of the EU. The legal basis for the Council to authorise the opening of negotiations is Article 218(3) and (4) TFEU.

               3.RESULTS OF CONSULTATIONS WITH INTERESTED THIRD PARTIES

                  Stakeholders have not been consulted for the elaboration of the drat recommendation.

                  In accordance with the provisions of UNGA resolution 69/292, the decision on the convening of the intergovernmental conference was to be taken by the UN General Assembly by September 2018. However, it was decided to accelerate the work of the UN in order to convene the intergovernmental conference as soon as possible, with a first meeting already in 2018, thereby maintaining the momentum of the discussions. It is necessary to adopt the negotiating directives before the commencement of the conference and thus, it was not possible to undertake a public consultation, nor publication of a roadmap for feed-back by stakeholders and citizens in line with established practice.

                  In actual fact, the EU has been politically committed to this process for many years and regular consultations with relevant stakeholders, in particular civil society organisations and other organisations represented in the UN context, have taken place.

                  Involvement of and feed-back from stakeholders will also be sought during the negotiating process when more concrete (substantive) negotiating positions will be required and it will be necessary to ensure that the negotiating positions are informed by stakeholders' views.

               Recommendation for a

               COUNCIL DECISION

               authorising the opening of negotiations on an international legally-binding instrument under the United Nations Convention on the Law of the Sea on the conservation and sustainable use of marine biological diversity of areas beyond national jurisdiction

               THE COUNCIL OF THE EUROPEAN UNION,

               Having regard to the Treaty on the Functioning of the European Union, and, in particular, Article 218 (3) and (4) thereof,

               Having regard to the recommendation from the European Commission

               Whereas:

               (1) The Union ratified the United Nations Convention on the Law of the Sea (hereinafter referred as "UNCLOS") by Council Decision 98/392/EC of 23.03.1998
                  1
               , being the only international organisation which is a party to that Convention within the meaning of Article 305(1)(f) and Article 1 of Annex IX of the UNCLOS to date.

               (2) As a party to the UNCLOS, the Union has participated in the UN Ad Hoc Open-ended Informal Working Group to study issues relating to the conservation and sustainable use of marine biological diversity of areas beyond national jurisdiction that met from 2006 to 2015; the Union also participated in the four sessions, in 2016 and 2017, of the Preparatory Committee which was mandated to make substantive recommendations to the General Assembly on the elements of a future international legally-binding instrument under the UNCLOS on the conservation and sustainable use of marine biological diversity of areas beyond national jurisdiction (hereinafter referred to as "the Instrument").

               (3) The Preparatory Committee adopted its report on 21 July 2017 and recommended to the General Assembly to consider the elements contained in its recommendation and to take a decision, as soon as possible, on the convening of an intergovernmental conference, under the auspices of the United Nations, to consider the recommendations of the Preparatory Committee and to elaborate the text of an international legally-binding instrument under the UNCLOS.

               (4) On the basis of these recommendations, the United Nations General Assembly decided on [...] to convene an intergovernmental conference to elaborate the text of an international legally-binding instrument under the UNCLOS on the conservation and sustainable use of marine biological diversity of areas beyond national jurisdiction.

               (5) The Union, as a Party to the UNCLOS, should fully participate in the negotiations of the Instrument.

               HAS ADOPTED THIS DECISION:

               Article 1

               The Commission is hereby authorised to negotiate, on behalf of the Union, an international legally-binding instrument under the United Nations Convention on the Law of the Sea on the conservation and sustainable use of marine biological diversity of areas beyond national jurisdiction.

               Article 2

               The negotiating directives are set out in the Annex.

               Article 3

               These negotiations shall be conducted in consultation with the special committee to be designated by the Council.

               Article 4

               This Decision is addressed to the Commission.

               Done at Brussels,

                     For the Council

                     The President

                     (1)

                        OJ L 179, 23.06.1998

    ---documentbreak---

               EUROPEAN COMMISSION
            Brussels,4.1.2018
            COM(2017) 812 final
            ANNEX
            to the
            Recommendation for a COUNCIL DECISION
            authorising the opening of negotiations on an international legally-binding instrument under the United Nations Convention on the Law of the Sea on the conservation and sustainable use of marine biologica diversity of areas beyond national jurisdiction

               ANNEX

               NEGOTIATING DIRECTIVES

               1. Principles

               In the framework of the negotiation of an international legally-binding instrument under the United Nations Convention on the Law of the Sea on the conservation and sustainable use of marine biodiversity of areas beyond national jurisdiction (hereinafter the "Instrument"), the Commission shall seek to ensure:

               -
                     that the provisions of the Instrument are fully consistent with international law and in particular with the provisions of the UNCLOS and that the balance of rights and obligations enshrined in the UNCLOS is not undermined by the future Instrument;

               -
                     that the provisions of the Instrument are consistent with relevant Union law and with relevant bilateral and multilateral agreements to which the Union is a party.

               The Commission shall ensure that the negotiations are conducted in consultation with the special committee, meeting in Brussels or sur place. The Commission shall report regularly to the Council on the outcome of the negotiations.

               2. Orientations

               2.1. The Commission shall seek to ensure that:

               ·The scope of the negotiations covers, as a package, the elements specified in Resolution [...];

               ·The rules of procedure for the conducting of the negotiations in the intergovernmental conference allow for full participation of the EU in the negotiations and are consistent with past practice for the negotiation of implementing agreements to the UNCLOS;

               ·The Instrument provides for an effective framework for the conservation and sustainable use of marine biological diversity of areas beyond national jurisdiction;

               ·The Instrument is designed to implement, strengthen and elaborate a number of obligations already embodied in the UNCLOS while giving due regard to the rights and the freedoms set out in the UNCLOS;

               ·The Instrument provides for an express obligation on States to cooperate, individually and through competent international and regional organisations and arrangements, for the conservation and sustainable use of marine biological diversity of areas beyond national jurisdiction;

               ·The Instrument does not undermine existing legal instruments and frameworks and competent global, regional and sectoral bodies or prejudice the rights and obligations thereunder.

               ·The Instrument respects the mandates of competent global, regional and sectoral bodies, aims at synergies and avoids duplication of their activities;

               ·The Instrument is without prejudice to the rights and obligations of Parties to the UNCLOS including their entitlement to maritime zones under UNCLOS.

               ·The Instrument contains appropriate provisions enabling the Union to become a Party and to fully participate within the decision-making processes to be established in the Instrument, consistent with Article 305 and Annex IX of the UNCLOS.

               2.2. More in particular, the Commission shall seek to ensure that the Instrument includes or reflects, inter alia, the following:

               a) Cross-cutting issues

               ·General principles for good governance, such as: the protection and preservation of the marine environment, international cooperation, the use of science-based approach, the ecosystem approach, the precautionary principle, the polluter-pays principle, sustainable and equitable use of marine resources, public availability of information, transparent and open decision making processes and the responsibility of States as stewards of the global marine environment;

               ·An appropriate and cost-effective framework and mechanisms, whether new or already existing, including for the purpose of enhancing cooperation and co-ordination with and between existing competent global, regional, and sectoral bodies, in particular those mandated to regulate activities in areas beyond national jurisdiction or to protect the marine environment in those areas;

               ·Appropriate mechanisms to ensure compliance with the substantive provisions of the Instrument;

               ·Appropriate mechanisms for dispute settlement consistent with the UNCLOS.

               b) Marine genetic resources (MGRs), including questions on the sharing of benefits

               The Commission shall seek to ensure that the Instrument furthers the conservation and sustainable use of MGRs originating in areas beyond national jurisdiction. In particular, the Instrument should:

               ·Promote environmentally sound access to genetic resources in a manner consistent with their conservation and sustainable use, and not unduly restrict the freedom of marine scientific research as enshrined in the UNCLOS;

               ·Be designed so as not to regulate matters relating to intellectual property rights or other associated matters;

               ·Ensure legal certainty for users of MGRs and encourage biotechnological innovations which are not detrimental for biodiversity;

               ·Improve the transparency and the availability of information on genetic resources originating in areas beyond national jurisdiction;

               ·Address questions on the sharing of benefits arising from the use of MGRs from areas beyond national jurisdiction.

               c) Measures such as area-based management tools, including marine protected areas (MPAs)

               The Commission shall seek to ensure that the Instrument provides, inter alia, procedures/mechanisms for:

               ·The identification, designation and establishment of globally recognised MPAs, including relevant criteria based on the best available scientific information; the establishment of comprehensive conservation and management objectives for the designated areas; the monitoring and surveillance of activities aimed at achieving the conservation and management objectives;

               ·The global recognition of area-based management tools established by relevant regional organisations and conventions which meet adopted criteria;

               Thereby, the Commission shall seek to ensure that the Instrument contributes to the implementation of the Union's international commitments related to the creation of a global network of effectively and equitably managed, ecologically representative and well-connected systems of protected areas and other effective area-based conservation measures.

               d) Environmental impact assessments (EIAs)

               The Commission shall seek to ensure that the Instrument facilitates the evaluation of the cumulative impacts of different activities taking place in the same area, with a view to preventing adverse effects on marine biodiversity, including from new and emerging activities, and also taking due account of the current state of the environment as well as the cumulative effects of other threats such as climate change. In particular, the Commission shall seek to ensure that the Instrument clarifies, strengthens and elaborates the obligations under Article 206 of the UNCLOS so that:

               ·Individual and cumulative environmental impacts of activities under the jurisdiction or control of States Parties which may cause substantial pollution of or significant and harmful changes to the marine environment ("harmful effects"), including marine biodiversity, in areas beyond national jurisdiction are properly assessed through environmental impact assessments and strategic environmental assessments, as appropriate; and

               ·Any such harmful effects are identified and taken into account in any decision making process and such activities are consistent with States' obligations under the UNCLOS to protect and preserve the marine environment, including through the adoption of suitable measures to prevent and mitigate any such harmful effects.

               e) Capacity-building and transfer of marine technology

               The Commission shall seek to ensure that the Instrument:

               ·Includes provisions, in line with the UNCLOS, for capacity-building and transfer of marine technology for the conservation and sustainable use of marine biodiversity of areas beyond national jurisdiction;

               ·Facilitates international cooperation on capacity building and the transfer of marine technology to achieve the objectives and requirements of the UNCLOS for the conservation and sustainable use of marine biodiversity of areas beyond national jurisdiction.


               EUROPEAN COMMISSION
            Brussels, 25.4.2018
            COM(2018) 240 final
            Recommendation for a
            COUNCIL DECISION
            authorising the opening of negotiations on behalf of the European Union for the conclusion of a  Sustainable Fisheries Partnership Agreement and a protocol with the Republic of Madagascar
            {SWD(2018) 143 final}{SWD(2018) 144 final}

               EXPLANATORY MEMORANDUM

               1.CONTEXT OF THE RECOMMENDATION

               •Reasons for and objectives of the proposal

               The Commission proposes to negotiate a new Sustainable Fisheries Partnership Agreement and a protocol with Republic of Madagascar which meets the needs of the Union fleet and is in line with Regulation (EU) No1380/2013 on the Common Fisheries Policy (CFP) and the 19 March 2012 Council Conclusions on a Communication from the Commission on the External dimension of the Common Fisheries Policy.

               •Consistency with existing policy provisions in the policy area

                  The current Fisheries Partnership Agreement (FPA) between European Union and Madagascar was concluded on 1st January 2007
                     1
                  . It is hereby proposed to negotiate a new Sustainable Fisheries Partnership Agreement in order to integrate some provisions included in  Regulation (EU) No1380/2013
                     2
                  , which are not covered by the current FPA. The current 4-year Protocol
                     3
                   to the FPA entered into application on 1st January 2015 and will expire on 31th December 2018. It fixes the fishing opportunities provided to the Union fleet and the corresponding financial contribution paid by the Union and the ship-owners. The annual EU public financial contribution due to Madagascar amounts to 1 487 500 EUR
                     4
                  , out of which 700 000 EUR are earmarked for sectoral support.

               The FPA with Madagascar provides fishing opportunities targeting tuna and highly migratory species for EU vessels from 4 Member States (Spain, France, Portugal and Italy). The European Union already has a developed network of bilateral Sustainable Fisheries Partnership Agreements (SFPAs) in the Indian Ocean, namely with Seychelles and Mauritius.

                  SFPAs contribute to promote the objectives of the CFP internationally, ensuring that Union fishing activities outside Union waters are based on the same principles and standards as those applicable under Union law. In addition, SFPAs foster scientific cooperation between the EU and its partner, promote transparency and sustainability for a better management of fishing resources and encourage governance by supporting monitoring, control and surveillance of national and foreign fleets' activities and providing funding to fight against illegal, unreported and unregulated (IUU) fishing and to contribute to the sustainable development of local fishing industry. SFPAs strengthen the European Union’s position in international and regional fishing organisations, in particular in the Indian Ocean Tuna Commission (IOTC), the body set up under international law for conserving and managing highly migratory species in the region.

               •Consistency with other Union policies

                  The negotiation of a new Agreement and protocol  with Madagascar is in line with the EU’s external action towards African, Caribbean and Pacific (ACP) countries, and in particular with the Union objectives regarding the respect of democratic principles, human rights.

                  .

               2.LEGAL ELEMENTS OF THE RECOMMENDATION

               •Legal basis

                  The legal basis for the decision is provided by Article 218 of the Treaty on the Functioning of the European Union (TFEU), in Part Five on the Union’s external action, Title V on international agreements, which sets out the procedure for negotiating and concluding agreements between the EU and third countries.

               •Subsidiarity (for non-exclusive competence)

                  Not applicable, exclusive competence.

               •Proportionality

                  The decision is proportional to the objective.

               •Choice of the instrument

                  The instrument is provided for under Article 218(3) and Article 218(4) of the TFEU.

               3.RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER CONSULTATIONS AND IMPACT ASSESSMENTS

               •Ex-post evaluations/fitness checks of existing legislation

                  The Commission carried out in 2017 - 2018 an ex-post evaluation of the current protocol to the FPA Madagascar as well as an ex-ante evaluation of a possible renewal of the protocol. The conclusions of the evaluation are set out in a separate Staff Working Document.

                  The evaluation concluded that the EU tuna fishing sectors are firmly interested in fishing in Madagascar and that a renewal of the Protocol would help strengthen monitoring, control and surveillance and contribute to improved governance of the fisheries in the region. For the EU, it is important to maintain an instrument allowing a deep sectoral cooperation with a major player in ocean governance at the sub-regional level because of the extent of its fishing area under its jurisdiction. Furthermore, for the EU fishing fleet, particularly tuna seiners and long-liners based in Reunion Island, this means maintaining access to an important fishing area for the deployment of harvesting strategies under a multi-year international legal framework.  For the Malagasy authorities, the aim is to continue relations with the EU for strengthening ocean governance, benefiting from dedicated sectoral support that provides for multi-year funding opportunities

               •Stakeholder consultations

                  Member States, industry representatives, international civil society organisations, as well as Madagascar's fisheries administration and civil society were consulted as part of the evaluation. Consultations have also taken place in the framework of the Long Distance Advisory Council.

               •Collection and use of expertise

                  Not applicable

               •Impact assessment

                  Not applicable

               •Regulatory fitness and simplification

                  Not applicable

               •Fundamental rights

                  The negotiating directives proposed as an annex to the decision recommend authorising the opening of negotiations including a clause on the consequences of violations of human rights and democratic principles.

               4.BUDGETARY IMPLICATIONS

                  A new protocol will require the payment of a financial contribution to Madagascar which is compatible with the 2014-2020 Multiannual Financial Framework (MFF), in particular as regards allocations to the budget line for Sustainable Fisheries Partnership Agreements. The annual amounts for commitments and payments are established in the yearly budgetary procedure, including the reserve line for proposals not entered into force at the beginning of the year.

               5.OTHER ELEMENTS

               •Implementation plans and monitoring, evaluation and reporting arrangements

                  Negotiations are expected to open in the second quarter of 2017.

               •Detailed explanation of the specific provisions of the proposal

                  The Commission recommends that:

                  - The Council should authorise the Commission to open and conduct negotiations for the conclusion of a new Sustainable Fisheries Partnership Agreement and a protocol with the Republic of Madagascar;

                  - The Commission should be nominated as the EU negotiator on this subject;

                  - The Commission should conduct the negotiations in consultation with the special committee, as set out in the Treaty on the Functioning of the European Union;

                  - The Council should approve the negotiating directives annexed to this recommendation.

               Recommendation for a

               COUNCIL DECISION

               authorising the opening of negotiations on behalf of the European Union for the conclusion of a  Sustainable Fisheries Partnership Agreement and a protocol with the Republic of Madagascar

               THE COUNCIL OF THE EUROPEAN UNION,

               Having regard to the Treaty on the Functioning of the European Union, and in particular Article 218 paragraphs 3 and 4,

               Having regard to the recommendation from the European Commission,

               Whereas negotiations should be opened with a view to concluding a new Sustainable Fisheries Partnership Agreement and a protocol with Madagascar,

               HAS ADOPTED THIS DECISION:

               Article 1

               The Commission is hereby authorised to open negotiations with Madagascar, with a view to conclude a new Sustainable Fisheries Partnership Agreement and a protocol with Madagascar.

               Article 2

               The negotiations shall be conducted in consultation with the Council Working Party on External Fisheries Policy and on the basis of the negotiating directives set out in the annex to this Decision.

               Article 3

               This Decision is addressed to the Commission.

               Done at Brussels,

                     For the Council

                     The President

                     (1)

                        OJ L 331 of 17.12.2007, p.3

                     (2)

                        Ref. Reg. (EU) No 1380/2013, Part IV, Title II.

                     (3)

                        For the last 2 years of the Protocol.  For the two previous years it was 1 566 250 EUR.

                     (4)

                        Cf Chapter 40 (reserve line 40 02 41) in line with the MFF interinstitutional agreement (2013/C373/01).

    ---documentbreak---

               EUROPEAN COMMISSION
            Brussels,25.4.2018
            COM(2018) 240 final
            ANNEX
            to the
            Recommendation for a Council Decision
            authorising the opening of negotiations on behalf of the European Union for the conclusion of a Sustainable Fisheries Partnership Agreement and a protocol with the Republic of Madagascar
            {SWD(2018) 143 final}{SWD(2018) 144 final}

               ANNEX

               Negotiating directives for the conclusion of a new Sustainable Fisheries Partnership Agreement and a protocol between the European Union and the Republic of Madagascar

               –The objective of the negotiations is the conclusion of a new Sustainable Fisheries Partnership Agreement and a protocol between the European Union and Madagascar in line with Regulation (EU) N° 1380/2013 on the Common Fisheries Policy and with the Council Conclusions of 19 March 2012 on the Commission Communication of 13 July 2011 on the external dimension of the Common Fisheries Policy.

               –To promote sustainable and responsible fishing while ensuring mutual benefits for the EU and Madagascar through a new protocol, the Commission's negotiation objectives shall seek to:

               ·Ensure access to the fishing zone of Madagascar and the necessary authorisations for vessels of the EU fleet to fish in that zone, thereby inter alia maintaining the network of Sustainable Fisheries Partnership Agreements available to EU operators;

               ·Take into account the best available scientific advice and relevant management plans adopted by Regional Fisheries Management Organisations (RFMO), in order to ensure sustainable fishing activities and to promote ocean governance at the international scale. The fishing activities should be directed exclusively at available surplus resources, taking into account the local fleet's fishing capacity, while paying special attention to the highly migratory nature of some of the stocks concerned;

               ·Obtain an appropriate share of the fisheries resources, commensurate with the EU fleets' interests, when they also interest other foreign fleets; taking into account the activity of the EU fleet in the region, in the light of the most updated and best available scientific assessments;

               ·Establish a dialogue to reinforce the sectoral policy with a view to encouraging the implementation of a responsible fisheries policy, in connection with the country's development objectives, in particular as regards the fisheries governance, the fight against illegal, unreported and unregulated fishing, control, monitoring and surveillance of fishing activities and provision of scientific advice, and foster employment generation contributing to inter alia addressing the socio-economic development of Madagascar;

               ·Include a clause on the consequences of violations of human rights and democratic principles;

               ·Include a clause for the preferential access of the EU fleet to available surpluses and for the application of the same technical conditions to all foreign fleets;

               ·Include an exclusivity clause.

               –In order to avoid interruption of fishing activities, the new Agreement and protocol should include a clause of provisional application.

               –In particular, the protocol should define:

               ·the fishing opportunities, by category, to be granted to European Union vessels;

               ·the financial compensation and the conditions for its payment; and

               ·the priorities and the mechanisms for an effective implementation of sectoral support and its regular monitoring.


               EUROPEAN COMMISSION
            Brussels, 5.6.2019
            COM(2019) 521 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            on the 2019 National Reform Programme of Poland and delivering a Council opinion on the 2019 Convergence Programme of Poland

               Recommendation for a

               COUNCIL RECOMMENDATION

               on the 2019 National Reform Programme of Poland and delivering a Council opinion on the 2019 Convergence Programme of Poland

               THE COUNCIL OF THE EUROPEAN UNION,

               Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 121(2) and 148(4) thereof,

               Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies
                  1
               , and in particular Article 9(2) thereof,

               Having regard to the recommendation of the European Commission,

               Having regard to the resolutions of the European Parliament,

               Having regard to the conclusions of the European Council,

               Having regard to the opinion of the Employment Committee,

               Having regard to the opinion of the Economic and Financial Committee,

               Having regard to the opinion of the Social Protection Committee,

               Having regard to the opinion of the Economic Policy Committee,

               Whereas:

               (1)On 21 November 2018, the Commission adopted the Annual Growth Survey, marking the start of the 2019 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. The priorities of the Annual Growth Survey were endorsed by the European Council on 21 March 2019. On 21 November 2018, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the Alert Mechanism Report, in which it did not identify Poland as one of the Member States for which an in-depth review would be carried out.

               (2)The 2019 country report for Poland
                  2
                was published on 27 February 2019. It assessed Poland’s progress in addressing the country-specific recommendations adopted by the Council on 13 July 2018, the follow-up given to the recommendations adopted in previous years and Poland's progress towards its national Europe 2020 targets.

               (3)On 26 April 2019, Poland submitted its 2019 National Reform Programme and, on 29 April 2019, its 2019 Convergence Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

               (4)Relevant country-specific recommendations have been addressed in the programming of the European Structural and Investment Funds ('ESI Funds') for the 2014-2020 period. As provided for in Article 23 of Regulation (EU) No 1303/2013 of the European Parliament and of the Council
                  3
               , where it is necessary to support the implementation of relevant Council recommendations, the Commission may request a Member State to review and propose amendments to its Partnership Agreement and relevant programmes. The Commission has provided further details on how it would make use of that provision in guidelines on the application of the measures linking the effectiveness of the ESI Funds to sound economic governance
                  4
               .

               (5)Poland is currently in the preventive arm of the Stability and Growth Pact. In its 2019 Convergence Programme, the government plans a slight deterioration of the headline balance from a deficit of 0.4% of GDP in 2018 to 0.6% of GDP in 2022, with a deficit of 1.7% of GDP in 2019 and a surplus of 0.2% of GDP in 2020. The recalculated structural balance, at a deficit of 1.1% of GDP will come close to the medium-term budgetary objective, set at a structural deficit of 1.0% of GDP, in 2022. According to the 2019 Convergence Programme, the general government debt-to-GDP ratio is expected to decrease from 48.9% of GDP in 2018 to 40.6% by 2022. The macroeconomic scenario underpinning those budgetary projections is plausible. At the same time, the operational details of some of the measures needed to support the planned deficit targets from 2020 onwards have not been sufficiently specified.

               (6)The 2019 Convergence Programme indicates that Poland implemented drought-related compensatory measures and that their budgetary impact in 2018 was significant. The Convergence Programme provides adequate evidence of the scope and nature of these additional budgetary costs. The specific treatment of drought related expenditure could be considered in application of the ‘unusual event clause’. According to the Commission, the related eligible additional expenditure in 2018 amounted to 0.07% of GDP. The provisions set out in Articles 9(1) and 10(3) of Regulation (EC) No 1466/97 cater for this additional expenditure, in that the exceptionality of the drought is considered an unusual event, its impact on Poland's public finances is significant and sustainability would not be compromised by allowing for a temporary deviation from the adjustment path towards the medium-term budgetary objective. Therefore, the required adjustment towards the medium-term budgetary objective for 2018 has been reduced to take into account these additional costs.

               (7)On 13 July 2018, the Council recommended Poland to ensure that the nominal growth rate of net primary government expenditure
                  5
                does not exceed 4.2% in 2019, corresponding to an annual structural adjustment of 0.6% of GDP. Based on the Commission 2019 spring forecast, there is a risk of a significant deviation from that recommended adjustment in 2019.

               (8)In 2020, in view of Poland's projected output gap of 2.0% of GDP, the nominal growth rate of net primary government expenditure should not exceed 4.4%, in line with the structural adjustment of 0.6% of GDP stemming from the commonly agreed adjustment matrix of requirements under the Stability and Growth Pact. Based on the Commission 2019 spring forecast under unchanged policies, there is a risk of a significant deviation from that requirement in 2020. Overall, the Council is of the opinion that the necessary measures should be taken as of 2019 to comply with the provisions of the Stability and Growth Pact.

               (9)Poland achieved significant progress in increasing tax compliance. At the same time, the country enjoyed strong economic growth, the labour market was buoyant and the share of labour contracts being subject to social security contributions has been gradually increasing. All those factors contributed to an increase in public revenue. A part of the increased revenue is of cyclical nature and may fade when the macroeconomic environment worsens. At the same time, over recent years, public spending increased as a share of GDP. Several new categories of expenditure are of a permanent nature and may not be easy to change in the near future. Moreover, going forward Poland’s public finances will face pressures for higher spending, in particular due to population ageing. These factors amplify the need for new tools to strengthen expenditure management, including a regular assessment of the effectiveness and efficiency of spending. While in 2018 Poland continued to work to improve the budgetary process, the overall reform is complex and will be applied in stages over several years. Whereas overall the fiscal framework is strong and independent institutions cover some of the functions typically fulfilled by fiscal councils, Poland remains the only Member State without an independent fiscal council. While Poland made no progress in limiting the extensive use of reduced Value Added Tax rates, the government launched a reform which has the potential to make the rates less complex and less error-prone.

               (10)Until 2017, the average age of retirement was increasing, reflecting past reforms such as the withdrawal of early retirement options and a gradual increase of the statutory retirement age. In 2018, the average retirement age decreased both for men and for women, reflecting lowering of the statutory retirement age in late 2017. A continued increase in the effective retirement age is crucial for labour market participation and thus economic growth, given the decline in the working age population. It is also crucial to ensure the adequacy of future pensions, prevent poverty at old age and hence also to improve the fiscal sustainability of the pension system. The lowering of the statutory retirement age to 60 for women and to 65 for men in autumn 2017 will have a significant negative impact on future pension benefit levels and introduces a significant gap between men and women in this regard. Existing preferential pension schemes imply fiscal costs and reduce the mobility of workers between sectors. The special social insurance system for farmers, subsidised at a cost of around 0.8% of GDP, is hampering labour mobility and contributing to hidden unemployment in agriculture.

               (11)The favourable macroeconomic environment has helped the strong performance of the Polish labour market in recent years. Employment rates have continued to increase, while the unemployment rates, after several years of decline, stabilised at a historical low of below 4% in 2018. However, the participation of some groups in the labour force, especially the low-skilled, persons with disabilities and their carers and older people, has remained low in comparison to other Member States. The Polish social benefit system provides insufficient incentives to take up work. The child benefit has reduced poverty and inequality, but it has had a negative effect on the participation of parents, mostly women, in the labour market due to its size and design. The enrolment rate for children under the age of three in formal childcare remains among the lowest in the EU. In addition, long-term care is mostly provided by family members without almost any institutional support, which prevents carers from working. The lowered statutory retirement age has encouraged some older workers to exit the labour force. Migration from non-EU countries has been helping to meet the increase in demand for labour, but there are signs that a continued inflow of migrant workers may be difficult to achieve.

               (12)Between 2015 and 2017, Poland took measures to tackle labour market segmentation by limiting the possibility to abuse temporary employment, increasing social security contributions on some non-standard labour contracts and introducing a minimum hourly wage for some of these contracts. While the share of temporary contracts has been declining since 2015, thanks to the measures taken and due to the shortages of workers, and this process accelerated during 2018, it still remains among the highest in the EU. Further legislative changes addressing this issue were not pursued as the reform of the labour code was finally not implemented. The adequacy of future pensions of workers who are self-employed and those who have certain non-standard contracts emerges as a potential issue.

               (13)A quality education and training system that takes the life-long perspective, supported by sufficient investment, could be one crucial factor supporting future growth prospects in Poland. Equipping people with skills and competences that are needed to find employment in a rapidly changing labour market is of crucial importance to encourage both participation in the labour force and the innovative capacity of the economy. The rate of the participation of adults in education and training is much lower than the EU average and vocational training in enterprises is underutilised. This, combined with certain weaknesses in digital skills, as well as in literacy and numeracy skills, particularly among adults with no higher education, is hampering their employability. The insufficient quality of teacher training and gaps in their skills are likely to have a negative impact on the quality of education. There are also weaknesses in the quality assurance system of the higher education. Despite recent reforms in vocational education and in higher education, the effective coordination of adult learning is still lacking and the impact of different policy measures on the quality of the education and training provided and the skill levels is not clear.

               (14)Poland’s long-term economic prospects depend on developing the economy’s capacity to innovate. However, Poland still ranks low in terms of innovation, with low-tech sectors representing an important share in the country’s economic structure and with an important regional disparities in innovation performance. While some measures have been taken to improve science-business cooperation, a number of financial and non-financial obstacles persist. In particular, complex administrative procedures and limited skills of academics in managing joint public-private research and development projects remain key barriers. The clusters and formalised corporate networks, especially between small and medium-sized enterprises and large firms, play a limited role in diffusing innovative solutions. The 2018 higher education reform improves some aspects of the Polish scientific landscape, but only partially addresses important issues such as the fragmentation of the research sector, researchers’ wages or the internationalisation of Polish science. Gross domestic expenditure on research and development remained at about half of the Union average in 2017, with important regional disparities.

               (15)Health outcomes have continued to improve but remain below the EU average with males faring worse in life expectancy than females by 8.2 years, while the gap between the highest and lowest educated Poles is 10 years. Access to and the effectiveness of the healthcare system is affected by low spending and staff shortages. The number of practising doctors and nurses relative to population size is among the lowest in the Union with quarter of the medical staff above retirement age. Unmet needs for medical services declined in 2017, but remain among the highest in the EU and the waiting times for certain procedures have increased substantially since 2010. Poland has developed maps of healthcare needs, but they have not yet become tools for supporting decisions on the purchasing of health services and investments. The health care system remains overly hospital-based and primary and ambulatory care remain underdeveloped. Long-term care system is weak, lacking standardised services and a coherent strategic approach. Most long-term care is provided by informal carers, often family members with little institutional support. In 2017, Poland’s public healthcare expenditure totalled 4.7% of GDP, well below the EU average of 7% of GDP. Poland plans to gradually increase this expenditure in the coming years. However, this may be difficult to achieve, given that the recently announced plans to increase social transfers to medium- and high-income households will limit fiscal space in the future.

               (16)While infrastructure in Poland has improved significantly, some sectors still exhibit important connectivity gaps. Road investments that are to be completed by 2024 according to the national road construction programme will be concentrated mainly in the eastern part of Poland, leaving some northern regions less connected. There are still important gaps in the Trans-European Transport Network Railways, and investment in rail is proceeding slower than investment in roads. The road fatality rate is still among the highest in the Union. Cities face growing mobility challenges, such as congestion and air pollution created by the increasing passenger car fleet and the large share of old cars. Greenhouse gas emissions from road transport have increased strongly for the last 5 years. The current incentives to use collective, low emission and active transport modes are insufficient to tackle these challenges. Fixed internet connectivity in Poland remains one of the lowest in the Union, with ultra-fast broadband available mainly in big cities.

               (17)The Polish economy is among the least carbon-efficient in the Union. Poor insulation of public and private buildings contributes to higher energy consumption and energy poverty. Poland also has the most air-polluted cities in the Union, especially in the southern and central regions. Investing in higher energy efficiency, in particular in the buildings sector, increasing the share of low-carbon intensive and cleaner energy production, and supporting lower emissions from transport, would reduce the dependency on fossil fuels and limit air pollution, while reducing social costs and improving the quality of life. The current legislative environment, including the gas stock-piling act, the electricity price freeze act and on-shore wind farms regulations, may hamper investments in electricity and gas markets and affect the competitiveness of Poland’s energy sector and energy-intensive industries in the long-term.

               (18)The quality of new and revised legislation, and a stable and predictable business environment are of high importance for sustaining favourable economic conditions and supporting the increase in private investment. The unstable regulatory framework and other barriers to the expansion of firms are negatively affecting investment activity and productivity. Establishing an effective dialogue with all stakeholders would help improve the quality of legislation and – by limiting the number of revisions needed – would contribute positively to the stability of the business environment. Therefore, strengthening the role of consultations of social partners and public consultations – by ensuring a sufficient length of time for consultations, improving the uptake of the stakeholders’ opinions gathered in the process, and minimising the number of laws exempted from consultations – would substantially help to minimise the administrative burden resulting from frequent changes in the law, increase investment and promote sustainable economic growth in the long term. The Commission considers that the risk of a serious breach of rule of law in Poland persists and that the situation is deteriorating as many of the contested measures are being implemented and consolidated. These concerns are the subject of on-going procedures which are pending before the European Court of Justice and in the context of Article 7 TEU. Legal certainty and trust in the quality and predictability of regulatory, tax and other policies and institutions are important factors for the investment environment.

               (19)The programming of EU funds for the period 2021-2027 could help address some of the gaps identified in the recommendations, in particular in the areas covered by Annex D to the country report
                  6
               . This would allow Poland to make the best use of those funds in respect of the identified sectors, taking into account regional disparities.

               (20)In recent years, the state role strongly expanded in banking, insurance and energy sectors. Increased state ownership presents a new challenge to competition and the regulatory and governance framework. The quality of governance and the independence of regulators and supervision is therefore becoming increasingly important given potentially conflicting interests and stronger financial-sovereign links.

               (21)In the light of this assessment, the Council has examined the 2019 Convergence Programme and its opinion
                  7
                is reflected in particular in recommendation (1) below.

               HEREBY RECOMMENDS that Poland take action in 2019 and 2020 to:

               1.Ensure that the nominal growth rate of net primary government expenditure does not exceed 4.4% in 2020, corresponding to an annual structural adjustment of 0.6% of GDP. Take further steps to improve the efficiency of public spending, including by improving the budgetary process.

               2.Ensure the adequacy of future pension benefits and the sustainability of the pension system by taking measures to increase the effective retirement age and by reforming the preferential pension schemes. Take steps to increase labour market participation, including by improving access to childcare and long-term care, and remove remaining obstacles to more permanent types of employment. Foster quality education and skills relevant to the labour market, especially through adult learning.

               3.Strengthen the innovative capacity of the economy, including by supporting research institutions and their closer collaboration with business. Focus investment-related economic policy on innovation, transport, notably on its sustainability, digital and energy infrastructure, healthcare and cleaner energy, taking into account regional disparities. Improve the regulatory environment, in particular by strengthening the role of consultations of social partners and public consultations in the legislative process.

               Done at Brussels,

                     For the Council

                     The President

                     (1)

                        OJ L 209, 2.8.1997, p. 1.

                     (2)

                        SWD(2019) 1020 final.

                     (3)

                        Regulation (EU) No 1303/2013 of the European Parliament and of the Council of 17 December 2013 laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund and repealing Council Regulation (EC) No 1083/2006 (OJ L 347, 20.12.2013, p. 320).

                     (4)

                        COM(2014) 494 final.

                     (5)

                        Net primary government expenditure comprises total government expenditure excluding interest expenditure, expenditure on Union programmes fully matched by Union funds revenue and non-discretionary changes in unemployment benefit expenditure. Nationally financed gross fixed capital formation is smoothed over a 4-year period. Discretionary revenue measures or revenue increases mandated by law are factored in. One-off measures on both the revenue and expenditure sides are netted out.

                     (6)

                        SWD(2019) 1020 final.

                     (7)

                        Under Article 9(2) of Regulation (EC) No 1466/97.


               EUROPEAN COMMISSION
            Brussels, 5.6.2019
            COM(2019) 524 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            on the 2019 National Reform Programme of Slovenia and delivering a Council opinion on the 2019 Stability Programme of Slovenia

               Recommendation for a

               COUNCIL RECOMMENDATION

               on the 2019 National Reform Programme of Slovenia and delivering a Council opinion on the 2019 Stability Programme of Slovenia

               THE COUNCIL OF THE EUROPEAN UNION,

               Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 121(2) and 148(4) thereof,

               Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies
                  1
               , and in particular Article 5(2) thereof,

               Having regard to the recommendation of the European Commission,

               Having regard to the resolutions of the European Parliament,

               Having regard to the conclusions of the European Council,

               Having regard to the opinion of the Employment Committee,

               Having regard to the opinion of the Economic and Financial Committee,

               Having regard to the opinion of the Social Protection Committee,

               Having regard to the opinion of the Economic Policy Committee,

               Whereas:

               (1)On 21 November 2018, the Commission adopted the Annual Growth Survey, marking the start of the 2019 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. The priorities of the Annual Growth Survey were endorsed by the European Council on 21 March 2019. On 21 November 2018, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the Alert Mechanism Report, in which it did not identify Slovenia as one of the Member States for which an in-depth review would be carried out. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area, which was endorsed by the European Council on 21 March 2019. On 9 April 2019, the Council adopted the recommendation on the economic policy of the euro area (‘Recommendation for the euro area’).

               (2)As a Member State whose currency is the euro and in view of the close interlinkages between the economies in the economic and monetary union, Slovenia should ensure the full and timely implementation of the Recommendation for the euro area, as reflected in recommendations (1) to (3) below. In particular, reducing regulatory restrictions will help address the first euro area recommendation as regards resilient product and services markets, and focusing economic policy related to investment in the specified areas will help address the second euro area recommendation as regards supporting investment.

               (3)The 2019 country report for Slovenia
                  2
                was published on 27 February 2019. It assessed Slovenia’s progress in addressing the country-specific recommendations adopted by the Council on 13 July 2018, the follow-up given to the recommendations adopted in previous years and Slovenia's progress towards its national Europe 2020 targets.

               (4)On 15 April 2019, Slovenia submitted its 2019 National Reform Programme and, on 26 April 2019, its 2019 Stability Programme. To take account of their interlinkages, the two programmes have been assessed at the same time.

               (5)Relevant country-specific recommendations have been addressed in the programming of the European Structural and Investment Funds ('ESI Funds') for the 2014-2020 period. As provided for in Article 23 of Regulation (EU) No 1303/2013 of the European Parliament and of the Council
                  3
               , where it is necessary to support the implementation of relevant Council recommendations, the Commission may request a Member State to review and propose amendments to its Partnership Agreement and relevant programmes. The Commission has provided further details on how it would make use of that provision in guidelines on the application of the measures linking the effectiveness of the ESI Funds to sound economic governance
                  4
               .

               (6)Slovenia is currently in the preventive arm of the Stability and Growth Pact and subject to the debt rule. In its 2019 Stability Programme, the government expects that the headline surplus will increase to 0.9% of GDP in 2019 and then reach 1.2% of GDP in 2022. Based on the recalculated structural balance, the medium-term budgetary objective – which has been changed from a structural surplus of 0.25% of GDP in 2019 to a structural deficit of 0.25% of GDP from 2020 – is planned to be achieved by 2021
                  5
               . According to the 2019 Stability Programme, the general government debt-to-GDP ratio is projected to continue to fall to 65.4% of GDP in 2019 and to 54.7% of GDP in 2022. The macroeconomic scenario underpinning those budgetary projections is favourable.

               (7)On 13 July 2018, the Council recommended Slovenia to ensure that the nominal growth rate of net primary government expenditure
                  6
                does not exceed 3.1% in 2019, corresponding to an annual structural adjustment of 0.65% of GDP. Based on the Commission 2019 spring forecast, there is a risk of a significant deviation from the recommended adjustment path towards the medium-term budgetary objective in 2019.

               (8)In 2020, Slovenia should achieve its medium-term budgetary objective. Based on the Commission 2019 spring forecast, this is consistent with a maximum nominal growth rate of net primary government expenditure of 4.0%, corresponding to a structural adjustment of 0.5% of GDP. Based on the Commission 2019 spring forecast under unchanged policies, Slovenia is forecast to be close to its medium-term budgetary objective in 2020. Thus, the current assessment indicates a risk of some deviation in 2020. While the projected nominal growth rate of net primary government expenditure would currently point to a risk of some deviation from the requirement in 2020, it would point to a risk of significant deviation from the requirement over 2019 and 2020 taken together. If the structural balance is no longer projected to be close to the medium-term budgetary objective, in future assessments an overall assessment would need to take into account a possible deviation from the requirement. Slovenia is forecast to comply with the debt rule in 2019 and 2020. Overall, the Council is of the opinion that the necessary measures should be taken in 2019 and that Slovenia needs to stand ready to take further measures as of 2020 to comply with the provisions of the Stability and Growth Pact.

               (9)Population ageing will increasingly strain Slovenia’s healthcare and long-term care systems. The financing for the healthcare system is not adapted to face the expected cost increases from population ageing. To date Slovenia has not proposed comprehensive measures to ensure quality, accessibility and long-term fiscal sustainability of healthcare in Slovenia. A draft long-term care act is being drawn up as part of Slovenia’s active ageing strategy. However, it remains still unclear how the envisaged measures will improve cost-effectiveness, accessibility and quality of care except that public procurement in healthcare is expected to become more cost-efficient through improved coordination. Investments in health and long-term care structures and equipment could help easing future pressure on the care systems.

               (10)Challenges regarding the long-term sustainability and adequacy of the pension system are becoming increasingly pressing as the Slovenian population is ageing faster than the population of most other Member States. In the document “Starting points for the modernisation of the Pension and Disability Insurance System”, adopted in 2017 by the Economic and Social Council, it was foreseen by the social partners and the previous government to adopt a reform by 2020 and the national reform programme 2019-2020 mentions the possibility of an overhaul of the pension system to support the medium to long-term sustainability of the system and appropriate levels of pensions. It also sets the objective of extending working lives and providing better opportunities for exploiting the human resources of older workers, but it does not specify how and when to achieve this objective. Adjusting the statutory pension age in line with increased life expectancy and promoting later retirement would make the system more sustainable. Ensuring adequate pensions remains a challenge, as some pension recipients are still at or below the poverty line. Almost 70% of all self-employed people in Slovenia choose to pay social security contributions at the minimum level entitling them to the minimum old-age pension only. The adequacy of pensions could be further improved by boosting the coverage of the supplementary pension schemes, appropriately addressing changing career paths and by reducing old-age poverty risks.

               (11)Employment continued to rise and unemployment fell further. At the same time, long-term unemployment remains above pre-crisis levels and still represents almost half of all unemployment. Challenges persist in particular for low-skilled and older workers as their activity and employment rates remain among the lowest in the EU. Their participation in adult learning is very low. Evaluation of policies to encourage people into work or training shows that most existing programmes are performing well. However, spending in this field, and the participation rate of low-skilled and older unemployed people in the programmes remain limited. Therefore, investments in efficient measures to increase the employability of low-skilled and older workers, including in digital skills, is of particular importance. Increasing the employment rate of older workers will also help ease pressures on the pension system. While the 2013 labour market reform clearly helped certain vulnerable groups enter employment, temporary employment remains an issue. The rate of people at risk of poverty or social exclusion decreased but remains above the EU average for the elderly.

               (12)Signs of labour shortages are emerging in more and more sectors of the economy. A mismatch between the skills young people acquire during their education and the skills sought by employers appears to contribute to such shortages. Together with deficiencies in the functioning of the ecosystems for innovation, these shortages hinder industrial transformation in the priority areas of the smart specialisation strategy as defined in consultation with stakeholders. Developing digital skills in the future workforce is crucial to meet the needs of the economy.

               (13)Some measures have been or will be adopted to improve funding options for firms in Slovenia and to provide them with alternatives to bank loans. However, Slovenia’s businesses still heavily rely on bank loans and cash flow to meet their funding needs. Access to equity from private markets remains low. Venture capital provision is growing, but from a very low level. The market capitalisation of the stock exchange in Ljubljana is low and continues to shrink. The limited and underdeveloped capital market, combined with unfavourable framework conditions including the low financial literacy of smaller firms, hampers the inflow of equity and venture capital into the country. The difficult access to equity presents a growth barrier for innovative companies but also for established businesses which could benefit from a change in funding.

               (14)Slovenian businesses are held back by the country’s still high regulatory and administrative burden. This burden is considered a key problem for doing business in Slovenia. It relates to issues such as permits, reporting requirements, tax procedures and often lengthy commercial court proceedings. Difficulties in prosecuting economic and financial crime also impact the business environment. Slovenia has created tools to reduce administrative burden, including the SPOT portal (‘Slovenska poslovna točka’) and the ‘Single Document’, which address several of the identified burdens. However, many of the burden-reduction measures are still pending and the impact of some that have been implemented has been below expectations. Slovenia has also carried out some reforms to liberalise restrictive professional requirements. Nevertheless, some parts of the country-specific recommendations from 2017 remain unaddressed, in particular as regards lawyers and real estate agents.

               (15)There are weaknesses regarding competition and transparency in public procurement in Slovenia, as indicated notably by the high ratio of contracts arranged through negotiated procedures (without a call). The safeguards against corruption and collusion among bidders, notably in procurement by local administrations and by state-owned enterprises, remain weak. Independent oversight of public procurement lacks sufficient legal safeguards against external pressure or interference, particularly regarding the disciplinary procedures and the proposal for appointing members of the National Review Commission. An action plan to increase the professionalisation of those involved in procurement has been put in place, but professionalisation is still low. While economic crime and corruption are estimated by the authorities to have caused significant damage in the past years, some anti-corruption reforms are still pending.

               (16)Despite the partial privatisation of 65% of the shares of Slovenia’s largest bank, Nova Ljubljanska Banka, state involvement in the economy is still high, including in the financial sector. The previously published plans for privatisation have been implemented slowly. Proceeding with privatisations would increase the viability of companies in the long run and lower the risks for public finances as well as the risk of distorting competition and resource allocation. Further sales of shares in listed companies would also help develop Slovenia’s capital market.

               (17)The research, development and innovation ecosystem requires improvements to become fully functioning and support measures often lack coherence. Limited support for business education and technology transfer, and, more generally, weak cooperation between science and business, hinders the creation and scaling up of innovative companies. Most small and medium-sized enterprises in Slovenia have a low innovation capacity and the share of innovative companies in Slovenia is indeed decreasing and below the EU average. Slovenia’s slow digital transformation limits productivity growth. There are discrepancies in the innovation performance between Slovenia's eastern and western regions, which hinder cooperation and networking. Slovenia is reversing its progress towards the 2020 research and development spending target at the same time as an increase in investment into research, development and innovation would strengthen the country’s growth potential. Slovenia attracts a low share of international students at all levels of post-secondary education, especially at the doctoral level while international mobility of researchers and mobility between academia and industry remain limited.

               (18)For the period until 2030, Slovenia has set out objectives in terms of energy infrastructure, energy efficiency and renewables in its draft national energy and climate plan, which all require appropriate investments. In particular, Slovenia’s economy is more carbon intensive than the EU average, and the share of renewables in total energy production is stagnating. The development of renewable energy sources other than wood and hydropower is particularly slow. Slovenia’s industry, services and residential sector all account for higher shares of total final energy consumption than the EU average. Moreover, existing energy storage capacity is underdeveloped and so fails to address the needs deriving from non-integrated local production of renewable energy sources.

               (19)Transport has become the biggest source of CO2 emissions: its share of total emissions is above the average share of this sector in the EU. Slovenia’s heavy reliance on road transport creates problems of high energy and carbon intensity, as well as air pollution and road accidents. There is significant scope for improvement in rail infrastructure as well as in low carbon energy and sustainable transport in general, which could help reducing these negative effects. Important investment gaps also remain in the area of natural resources to ensure a more sustainable development model. Slovenia’s economy depends on its natural environment, which is deteriorating. High dependence on imported raw materials, coupled with low recycling rates, hinder the transition to a circular economy. The state of the urban wastewater sector system, including collection and treatment infrastructure, does not fully meet EU requirements. Substantial parts of Slovenia’s economy are vulnerable to natural disasters, in particular floods.

               (20)The programming of EU funds for the period 2021-2027 could help address some of the gaps identified in the recommendations, in particular in the areas covered by Annex D to the country report
                  7
               . This would allow Slovenia to make the best use of those funds in respect of the identified sectors, taking into account regional disparities. Strengthening the country’s administrative capacity for the management of these funds is an important factor for the success of this investment.

               (21)In the context of the 2019 European Semester, the Commission has carried out a comprehensive analysis of Slovenia’s economic policy and published it in the 2019 country report. It has also assessed the 2019 Stability Programme and the 2019 national reform programme and the follow-up given to the recommendations addressed to Slovenia in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Slovenia, but also their compliance with Union rules and guidance. This reflects the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions.

               (22)In the light of this assessment, the Council has examined the 2019 Stability Programme and its opinion
                  8
                is reflected in particular in recommendation (1) below.

               HEREBY RECOMMENDS that Slovenia take action in 2019 and 2020 to:

               1.Achieve the medium-term budgetary objective in 2020. Adopt and implement reforms in healthcare and long-term care that ensure quality, accessibility and long-term fiscal sustainability. Ensure the long-term sustainability and adequacy of the pension system, including by adjusting the statutory retirement age and restricting early retirement. Increase the employability of low-skilled and older workers by improving labour market relevance of education and training, lifelong learning and activation measures, including through better digital literacy.

               2.Support the development of equity markets. Improve the business environment by reducing regulatory restrictions and administrative burden. Improve competition, professionalisation and independent oversight in public procurement. Carry out privatisations in line with the existing plans.

               3.Focus investment-related economic policy on research and innovation, low carbon and energy transition, sustainable transport, in particular rail, and environmental infrastructure, taking into account regional disparities.

               Done at Brussels,

                     For the Council

                     The President

                     (1)

                        OJ L 209, 2.8.1997, p. 1.

                     (2)

                        SWD(2019) 1023 final.

                     (3)

                        Regulation (EU) No 1303/2013 of the European Parliament and of the Council of 17 December 2013 laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund and repealing Council Regulation (EC) No 1083/2006 (OJ L 347, 20.12.2013, p. 320).

                     (4)

                        COM(2014) 494 final.

                     (5)

                        Cyclically-adjusted balance net of one-off and temporary measures, recalculated by the Commission using the commonly agreed methodology.

                     (6)

                        Net primary government expenditure comprises total government expenditure excluding interest expenditure, expenditure on Union programmes fully matched by Union funds revenue and non-discretionary changes in unemployment benefit expenditure. Nationally financed gross fixed capital formation is smoothed over a 4-year period. Discretionary revenue measures or revenue increases mandated by law are factored in. One-off measures on both the revenue and expenditure sides are netted out.

                     (7)

                        SWD(2019) 1023 final.

                     (8)

                        Under Article 5(2) of Council Regulation (EC) No 1466/97.