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POSITION PAPER OF THE REPUBLIC OF LATVIA
Chapter 21: "REGIONAL POLICY AND STRUCTURAL INSTRUMENTS"

Setting the time frame for the process of adoption and implementation of the European Union's acquis communautaire, the Latvian Government adopted 1 January 2003 as the data on which Latvia will be prepared for accession to the European Union.

Setting the time frame for the process of adoption and implementation of the European Union's acquis communautaire, the Latvian Government has determined 1 January 2003 as the date on which Latvia will be prepared for accession to the European Union.

Latvia recognises and is ready, by the time of its accession to the European Union, to fully implement the acquis communautaire in the sector of regional development and structural instruments' co-ordination, including the acquis communautaire adopted during the year 1999. Where it is possible, Latvia is ready to adopt and fully implement the Community legislation as soon as possible and before the date of accession to the EU. Certain provisions of acquis communautaire applicable exclusively to the Member States will be fully implemented as from the date of accession.

Latvia will be ready to participate in the Community policy of economic and social cohesion and to work with the EU Structural Funds and Cohesion Fund from the date of accession. Latvia is ready to fulfil the requirements of EC Regulations No 1685/2000 and No 11 59/2000 adopted in 2000.

1. Main Characteristics of the Republic of Latvia.

1.1. A Short Description of the Country.

The Republic of Latvia is situated in the North-East of Europe, on the shores of the Baltic Sea. In the North Latvia borders with Estonia, in the East âÀ” with Russia, in the South East âÀ” with Belarus, but in the South âÀ” with Lithuania. The western border of Latvia is formed by the Baltic Sea of which Latvia's coastline constitutes 531 km. Latvia consists of four historical regions: Kurzeme (the western region), Zemgale (the southern region), Vidzeme (the northern region) and Latgale (the eastern region). In accordance with this historical division in Latvia, four planning regions have been established, with the Riga Metropolitan Area constituting the fifth planning region. The planning regions correspond to NUTS III classification, although their precise borders and status are to be specified yet. According to the administrative division, the territory of the country is divided into 547 local governments (towns and pagasts) and 26 regional local governments (districts). Along with this division, there are 7 city local governments (municipalities), which fulfill the functions of both levels âÀ” of local governments and of regional governments (districts). According to the population census carried out this year, the population of Latvia is 2.37 million, of which almost one third (784 thousand) live in the capital city Riga.

The territory of Latvia is 64 589 km2. A significant part of it - 40% of the state - is covered by forests.

The location of Latvia on the shores of the Baltic Sea, where historically ports and trading centres have been located and which geographically is rather close (and easily accessible) to important development centres of the Baltic Sea region and Russia, has played a significant role in placing this territory at all times in the focus of economic and political interests. Latvia is situated at the crossroads of important communication routes between Western Europe and Russia.

1.2. Statistics and Macro-indicators.

A comparative advantage of Latvia's economy is the above-mentioned geographical location, good infrastructure of ports, rather highly qualified labour force open to acquiring new skills and a stable macro-economic environment.

During the last decade since the restoration of its independent statehood, radical changes have taken place in Latvia's economy. As a result of the consistent economic policy in Latvia in a relatively short time the basis for market economy has been laid and good macro-economic preconditions have been created for the growth of restructured economy. In the recent years, the GDP has been growing, and the level of the material welfare of the population has been improving. Particularly successful was the development in the period from 1996 to the middle of 1998 when the average growth rate of the GDP was 6%. The economic growth of Latvia and, consequently, the growth of the GDP, like in other countries of Central and Eastern Europe, was seriously affected by the 1998 financial and economic crisis in the world. However, today it can be said that the country has managed to cope with the consequences of the crisis, the GDP indicator remains positive, and there is a tendency for this positive indicator to grow.

GDP, % as against the same period of the previous year (in comparable prices*)

* According to the data of the Republic of Latvia Central Statistics Board of 30.10.2000.

The level of unemployment remains high in Latvia. According to the statistical data of the third quarter of 2000, the level of the registered unemployment in the country was 7.9%. (The indicator of the registered unemployment is calculated according to the  number of the unemployed as against the total number of economically active population). The territorial differentiation of the unemployment level is considerable. As an illustration for the same reporting period, the following unemployment figures can be given: in Riga âÀ” 3.8%, in the Rezekne District âÀ” 29.5%. The dynamics of the unemployment level can be shown in the following graph:

*According to the data of the State Employment Service.

Although in the past years significant economic changes have taken place (structural changes are taking place in the sectors of industry, agriculture and fisheries), and there are indicators showing constant economic growth, positive trends are prevailingly observed in the development of entrepreneurial activities and in the sphere of employment in larger cities, such as Riga and Ventspils. As a result of the uneven pace of development, the difference between the development of the above cities and the rest of the territory of the country has drastically increased, at the same time the backwardness of the social and economic infrastructure in regions has increased, too. Consequently, regardless of the relatively positive tendencies of growth in larger cities of Latvia, according to the calculated development indices at the level of the whole country and in comparison with other EU candidate states, from the point of view of economic development Latvia is one of the poorest countries in the region of Central and Eastern Europe. According to the data of the Republic of Latvia Central Statistics Board published in 2000, the GDP per capita in Latvia constitutes only 27% of the average GDP per capita in EU member states.

1.3. Utilising EU Pre-accession Financial Instruments, Impact of Training.

Latvia has started work with EU Pre-accession Financial Instruments which in their principles of operation are close to the EU Structural Funds (Phare investments in economic and social cohesion; ISPA âÀ” the pre-accession structural instrument for the infrastructure of the environment and transport, SAPARD âÀ” the pre-accession support measure for the development of agriculture and for rural development). The aim of the Pre-accession Financial Instruments is to facilitate the creation of an adequate institutional basis and its capacity in the country, so that after joining the EU, Latvia could be ready to work with the EU financing allocated for the purposes of economic and social cohesion. Being aware of the fact that financing from the EU Pre-accession Instruments will give a significant contribution to the development of Latvia as an EU candidate state, in working with these instruments the state proceeds from the principles used in the utilisation of EU Structural Funds, namely, programming, concentration, additionally, partnership and transparency.

In the preparatory process for utilising the EU Structural Funds in Latvia, currently support is given also within the framework of the EU Phare multi-country programme "Special Preparatory Programme for the European Social Fund" and the Phare National Programme Project "Special Preparatory Programme for Structural Funds". Measures for strengthening the administrative capacity are being carried out both at the level of central state administration and at the level of the planning regions. Practical knowledge of the procedures for administrating EU financial instruments is acquired in practical work with the Phare Decentralised Implementation System.

2. Legal Basis.

In Latvia in the sphere of regional development the following legal documents are currently in force:

• the Law "On the Assisted Regions" (adopted by the RL Saeima on 22.05.1997). The law sets basic principles for defining assisted regions, regional development assistance, and establishing the Regional Development Council and the Regional Fund;

The system of development planning is regulated by:

• the Law "On Planning Territorial Development" (adopted by the Saeima on 15.10.1998);

•  the Cabinet of Ministers Regulation no.62 "On Territorial Planning" (adopted by the Cabinet of Ministers on 24.02.1998).

In order to work out legislation in the sphere of regional development, the following conceptual documents have been adopted:

• "The Concept of the Regional Development Policy of Latvia" (approved by the Cabinet of Ministers on 03.12.1996).

The Concept defines the aims and objectives of the regional policy, as well as the framework for developing and implementing the policy of regional development;

• the Concept of the National Planning of Latvia (approved by the Cabinet of Ministers on 27.01.1998).

The process of the budget planning, its approval and implementation in the Republic of Latvia is regulated by:

• the Law "On the Management of the Budget and Finances" (adopted by the Saeima on 24.03.1994);

• the Law "On Local Government Budgets" (adopted by the Saeima on 24.03.1994).

• The public procurement system is regulated by:

• the Law "On Public and Municipal Procurement" (adopted by the Saeima on 24.10.1996, in force from 01.01.1999)

By the time of Latvia's joining the EU, the institutions necessary for working with the EU Structural Funds will be established and all relevant legislation adopted. In accordance with the Decision of the Cabinet of Ministers on 05.12.2000 "On changes in the legislation necessary to implement structural adjustments for Regional policy and coordination of EU Structural Funds", the legal framework to put in place the Ministry of Regional Development and Structural Policies (preliminary title of the Managing Authority for EU Structural Funds in Latvia) will be elaborated by 1 April 2001.

3. Institutional Framework.

According to the Decision of the Cabinet of Ministers on 5 December 2000 "On changes in the legislation necessary to implement structural adjustments for Regional policy and co-ordination of EU Structural Funds" the Managing Authority for co-ordination of EU Structural Instruments in the Republic of Latvia will be set up after 1 April 2001 on the basis of the Secretariat of the Minister for Special Assignment for Co-operation with International Financial Agencies. To ensure the adequate capacity of the new Managing Authority, additional resources from other institutions presently in charge for the issues of regional development in the country will be reallocated to the new institution.

The Managing Authority will be responsible for working out the National Development Plan. The Managing Authority in co-operation with the Ministry of Finance will work for the preparation, and negotiating with the European Commission, of the EU Structural Funds programming and operational documents. The Managing Authority will be also responsible for the monitoring and assessment of implementation of National Development Plan and programming documents of EU Structural Funds.

The Latvian Government in its decision on 5 December 2000 agreed to establish a National Council of Regional Development (NCRD) to ensure co-ordination of programming and implementation activities of EU Structural Funds and regional and structural policies in the country. The Council will be established based on existing Regional Development Council and the Steering Committee of the National Development Plan. The Monitoring Committee of the EU Structural Funds will be established on the basis of the NCRD involving the representatives of the European Commission. The Council will comprise representatives from all key institutions involved in management of structural and regional policies in the country and will be chaired by the minister responsible for regional development and structural policies. The Managing Authority will function as the secretariat of NCRD as well as a secretariat of the monitoring Committee of the EU Structural Funds.

The Managing Authority will act in close co-operation with the Ministry of Finance to carry out indicative planning of financing from EU Structural Funds and national cofinancing. The Ministry of Finance is the authority responsible for co-ordination of financial commitments of Structural Funds programming document with the national budget. The Ministry of Finance is the responsible authority for sound financial management of all public funding (national and European Union funds) in accordance with the requirements of the European Commission and the national legislation.

It is planned that the Managing Authority will assume the responsibility also for the utilisation of the resources of the European Regional Development Fund (ERDF) and the Cohesion Fund. The institution responsible for the utilisation of the resources of the European Agricultural Guidance and Guarantee Fund (EAGGF) and the Financial Instrument for Fisheries Guidance (FIFG) will be the Ministry of Agriculture (the Rural Support Service). The Ministry of Transport will be responsible for the transport sector of the Cohesion Fund, while the Ministry of Environmental Protection and Regional Development* will assume the responsibility for the environmental sector of the said Fund. The Ministry of Welfare in co-operation with the Ministry of Economy and the Ministry of Education and Science will ensure preparation of the institutional system and capacity development necessary for implementation of ESF. It is envisaged to divide the competencies for the implementation of the measures of the ESF programme, placing the spheres of preserving working capacity, reducing unemployment and social exclusion in the competence of the Ministry of Welfare; the sphere of  entrepreneurship development and new working places creating âÀ” in the competence of the Ministry of Economy, and the sphere of training and education  âÀ” in the competence of the Ministry of Education and Science.

4. The Principle of Concentration.

Latvia presumes that the state will be able to receive support as the region of Objective I of the EU regional policy from the moment of its accession. It is also admitted that the whole territory of the state will be classified as one region of the EU NUTS II level.

Work with particular EU Pre-accession Instruments and with Community Initiatives from the moment of accession will proceed in five regions of NUTS III level.

The principle of concentration is being implemented in the country when preparing the National Development Plan, which sets a limited number of most important priorities of economic and social development. The support of the EU Structural Funds will be concentrated on three most important priority trends of support âÀ” support for entrepreneurial activities, the development of human resources and the strengthening of economic infrastructure with the aim of influencing such development indicators, important for the country, as the reduction of the level of unemployment, the increase of economic activity (particularly in the sphere of small an medium enterprises), the flow of investments into the country, the improvement of living conditions and the increase of the mobility of the population.

Within the framework of the Community Initiative INTERREG, Latvia envisages to pay special attention to the border territories, which in the future will be in close proximity of the EU external border. The EU cross-border co-operation initiatives, upon co-ordination with the EU external assistance initiatives in Russia and Belarus, could promote economic and social activities in these territories.

5. The Principle of Programming.

5.1. The Preparation of the National Development Plan.

The National Development Plan (NDP) will be the most significant programming document for working with the EU regional policy and with the Structural Funds.

Currently, the NDP is being prepared as one of the basic documents of strategic planning in the country. The main aims of the NDP are as follows:

1) to promote the social and economic development of the whole country by setting realistic, mutually co-ordinated aims (in close connection with the long-term economic strategy of the state) and priorities for reaching these aims, thereby initiating changes that in the medium term would promote the welfare of the state and of its population. The NDP will outline practical and planned trend of action, and will set an indicative financial planning for the period of six years;

2) to ensure the allocation of public investments;

3) to attract financial assistance from the EU Pre-accession Instruments PHARE, ISPA, SAPARD;

4) from the moment of accession, to serve as the reference document on the basis of which programming and operational documents will be prepared for the approval by the European Commission, setting the action priorities of the state, its aims, actions and expected results, with a view to ensuring the receiving of financing from the EU Structural Funds.

The Managing Authority will be responsible for the preparation of the NDP, while the monitoring and co-ordination of the preparation process will be performed by the National Council of Regional Development (NCRD).

In accordance with the NDP relevant sectoral planning documents will be worked out. The NCRD must ensure the co-ordination of the NDP with line ministries and regions.

It is planned to submit the final version of the Pre-accession NDP to the European Commission by July 2001. But in order to ensure the preparation of the programming documents for the EU Structural Funds and the receiving of financing from the Structural Funds, the NDP will be prepared and submitted to the European Commission not later than six months before joining the European Union.

5.2. Investment Planning in the State Budget.

The process of the budget planning, its approval and implementation in the Republic of Latvia is regulated by the Law "On the Management of the Budget and Finances" the Law "On Local Government Budgets", by the annual state budget law, and by other legislative acts. The Ministry of Finance is responsible for ensuring the preparation of the state budget.

Based on the NDP indicative financial plan, the multi-annual investment programming will be performed. In the NDP indicative financial plan, summarised information will be included about the costs of the implementation of development priorities, and the necessary financing resources will be organised. The planning of the national financing will be performed in accordance with the macroeconomic forecasts made in the state and with the fiscal policy in the medium term.

Already now, the budget legislation makes it possible for the country to take long-term obligations connected with the implementation of multi-annual measures. In continuing the improvement of the budget process, it is decided to plan the state budget for the medium term, which is the process where the available resources are set for a longer term and which ensures the utilisation of these resources in accordance with the priorities defined by the Government, including the priorities set by the NDP and the measures for their implementation, as well as long-term obligations of the state are planned for co-financing the activities, supported by the EU Structural Funds, from the state budget resources.

6. The Principle of Partnership.

In working out any EU Structural Funds' programming document the principles of partnership are observed, as a result of which co-operation is carried out between the national and the regional levels, as well as between the economic and social partners, and other competent institutions. The principles of partnership are taken into consideration in the process of preparing different development documents, such as the National Development Plan, in tackling issues of regional development and in organising regional development-related planning activities. Each EU Structural Funds' programming document will have partners' opinions attached to it.

In the EU Structural Funds' programming and implementation activities partnership will be ensured via National Council of Regional Development where the key actors form sectoral institutions and regional partners will be involved. Thus, the partners will participate both in the process of the NDP preparation and in the work with particular EU Structural Funds.

Besides these, in the process of the preparation of the NDP, consultations with NGOs and economic partners from the public will be organised.

A co-ordinated representation of the interests of the Government, employers and employees in tackling issues of the social and economic development of the state is being implemented through the activities of the National Trilateral Co-operation Council. This institution is established on the principle of parity and is composed of the representatives nominated by the Cabinet of Ministers, the Latvian Employers' Confederation and the Latvian Association of Free Trade Unions.

For the co-ordination of sectoral policies, at the Ministry of Economy 19 sectoral expert councils are functioning. A Co-operation Council of Agricultural Producers Organisations has been established as a consultancy institution for tackling important issues of different agricultural sectors.

At the regional level, Latvia will follow the principle of partnership of interested ministries with local communities, social partners and other development factors in a region. The structures of planing regions (NUTS III level) will be utilised to ensure the proper functioning of the partnership arrangements at sub-national level.

7. The Principle of Additionality.

7.1. The National Co-financing Capacity.

Realising that during the pre-accession period all the necessary measures will be taken in order to raise the capacity of absorbing financing and thus to ensure the ability of the state to effectively participate in all available EU Structural Funds programmes, from the moment of accession Latvia will be ready to work with the EU structural assistance financing which amounts up to 4% of the GDP level of the state. In order to implement the principle of additionality, the state will ensure an adequate national co-financing including in it both resources from the state budget and financing from local governments and from the private sector.

7.2. Co-financing Mechanisms.

In order to ensure a uniform process of planning the state budget and controlling the expenditure, starting with 2000, the planned resources of the EU assistance programme are included in the annual state budget Law as the respective state budget programmes, including the available resources and the respective expenditures of the budget of the involved institution. Procedures applicable to all the state resources (including the control procedure) likewise refer also to the financial assistance of the EU.

The annual state budget Law also plans long-term obligations of the state, such as loan and bond payments, payments to international institutions, Public Investment Programme and other long-term obligations. Their long-term and continuos planning enables the state to implement specific priority measures in the course of several years, providing a timely planning of the financial resources.

The Ministry of Finance is responsible for the preparation of the state budget according to uniform principles, based on the priorities approved by the Government, as well as taking into account the macroeconomic situation in the country. The Ministry of Finance will also ensure the planning of the national co-financing of the activities, financed from the EU Structural Funds and from the Cohesion Fund, in the state budget for a multi-annual period, in accordance with the EU Structural Funds' programming and operational documents. The Ministry of Finance, during the preparation of the programming and operational documents, will be responsible for the financial and economic evaluation of the said documents, ensuring their linkage to the overall state budget process.

An indicative financial planning for the full programming period will be included in the financial part of the NDP.

8. The Principle of Transparency.

Latvia undertakes to ensure the transparency of the process of decision-making and the allocation of finances, by observing the principle of partnership in the processes of planning, implementing and monitoring EU Structural Funds assistance. The principle of transparency will be observed by realising in practice measures of publicity and information, as well as by ensuring an effective operation of the mechanisms of financial management and control. The EU Public procurement rules are already transferred into Latvian national legislation through the Law "On Public and Municipal Procurement" and are applied in the management of national and EU funding.

8.1. Publicity and Information.

The Latvian side is ready to ensure the necessary publicity for the processes of planning economic and social development and the implementation of the plans, indicating precisely the beneficiaries of the EU Structural Funds' Assistance, explaining the aims of financing and the procedure of receiving the financing. Informing of the public about the role of the Community in the particular cases of financing will be ensured.

The Republic of Latvia is ready to fulfil tasks connected with the preparation of regular reports, as well as with providing information about the results achieved in striving for the social and economic cohesion.

8.2. Monitoring.

For the monitoring of the EU Pre-accession Instruments, a Joint Monitoring Committee System has already been established in the country; it includes a number of sectoral sub-committees. Separate monitoring committees are created for the needs of the ISPA and the SAPARD. The mechanisms of the monitoring of the EU Pre-accession Instruments cannot by fully applied for the monitoring of the implementation of the EU Structural Funds, therefore by the time of the accession the monitoring systems will be harmonised.

In accordance with the new institutional framework, the Monitoring Committee will be established based on the NCRD. The Monitoring Committee will have to ensure the monitoring of the implementation of the programming and operational documents and to ascertain the efficiency and quality of the utilisation of the assistance from the EU Structural Funds.

8.3. Financial Management and Control.

In order to ensure an adequate financial control, the necessary legal basis has been created and relevant institutions have been established in Latvia. The system of financial control (including appropriate requirements for the mechanisms of control of the absorption of the EU financing) is described in detail in Latvia's negotiation position in the Chapter "Financial Control".

Taking into account the aforementioned, Latvia proposes to start negotiations in the Chapter 21: "Regional Policy and Structural Instruments" on the provisions governing its participation in the existing programmes of structural and cohesion policies.

* According to the decision taken by the Cabinet of Ministers after the 1 April 2001 the ministry will be renamed.