Cyprus: preparations to join the EU

Cyprus signed the Accession Treaty to the EU in April 2003 in Athens and is set to become a member from 1 May 2004. As part of our occasional series examining the industrial relations background in EU candidate and accession countries, we examine Cyprus's progress towards fulfilling the requirements of the existing body of EU legislation - the acquis communautaire - and the challenges facing the country.

Industrial relations background

The European Union and Cyprus signed an association agreement in December 1972 that was complemented by a protocol, concluded in 1987. Cyprus applied for membership of the EU in July 1990 and substantial accession negotiations began in November 1998. They were concluded at the summit of EU heads of state and government held at Copenhagen in December 2002. The Accession Treaty, allowing the admission of 10 new member states, including Cyprus, to the EU was signed on 16 April 2003 (EU: Accession Treaty signed with 10 candidate countries). Thus, Cyprus will become a member state of the EU on 1 May 2004.

Cyprus is, however, a divided island, of which the northern part is Turkish and the southern part is Greek, and a specific protocol on Cyprus is attached to the Accession Treaty which foresees that, in the absence of settlement, the application of the acquis communautaire (the body of EU law) to the northern part of the island will be suspended until such time as the European Commission recommends to the Council to integrate the Turkish citizens of Cyprus living in the north. This stems from the de facto partition of the island that took place in 1974, when Turkish troops landed on the northern part of the island; 30,000 soldiers remain stationed there. Currently, roughly 200,000 Turkish Cypriots and Turks originating from mainland Turkey live in the north, and the remaining population (roughly 505,000) live in the south. Although the European Council would have preferred accession of a united Cyprus - the application was made in the name of the entire island - all efforts to find a comprehensive settlement, carried out under the auspices of the United Nations Secretary General, have so far failed, although the ban on crossing to and from the south was lifted on 23 April 2003.

Despite the division of the island, Cyprus operates as a successful market economy. Its GDP per head of population amounts to €18,500, which represents 80% of the EU average and thus places it at the head of all the accession countries.

Labour market and social policy

The island's main economic activities are banking, tourism, craft exports and merchant shipping. The services sector - and, in particular, tourism - has been the principal source of this impressive economic performance, employing 65% of the population. Although 30% of the workforce is employed in industry and agriculture, their contribution to GDP is only 21% and 4% respectively, and is declining further every year. In 2001, almost three million tourists visited the southern part of the island and direct receipts from tourism accounted for 9.2% of GDP, while the share for trade and tourism amounted to 22%.

The northern part of the island suffers from a weak economic situation. Real output growth of its population declined by 3.6% in 2001, following a fall of 0.6% in 2000, and per capita income has continued to fall, further aggravating the income gap with the southern part of the island. In 2002, GDP per head of population was estimated at €4,500. In 1994, the European Court of Justice ruled to exclude administrative cooperation with the authorities of "an entity such as that established in the northern part of Cyprus, which is recognised neither by the Community nor by member states".

The labour market in Cyprus is characterised by a dynamic and flexible entrepreneurship and a highly educated labour force. Unemployment is low, registering 3.4% in 2002. The economy has benefited from close cooperation between the public sector and the social partners.

Overall, Cyprus has achieved a good degree of alignment with the acquis communautaire as regards social policy and employment and has advanced towards reaching adequate administrative capacity to implement the acquis. The process of harmonising national legislation with the acquis has been facilitated by the pre-existing legal framework for the regulation of industrial relations, in particular by the established operation of the Industrial Relations Code (see box below). This provides a sound basis for developing information, consultation, collective bargaining and social dialogue activities. It is noteworthy that the Code, which dates back to 1977, is not part of the national legal framework but is based on the agreement of the social partners.

In the field of the free movement of persons, Cyprus has taken a major step in adopting framework legislation on the recognition of professional qualifications - one of the European Commission's observations in its assessment of employment in candidate countries (International: Employment in the European Union candidate countries ) was that Cyprus needed to develop a policy frame that created conditions for a more balanced contribution of foreign labour to the economy and to employment.

As regards the coordination of social security systems, Cyprus has abolished inconsistencies and has reached a good level of administrative capacity.

Further legislative alignment with the acquis communautaire has also been necessary in the areas of labour law, equal treatment and health and safety. New legislation transposing Directive 96/71 on the posting of workers has been necessary, as has legislation transposing the equal treatment Directive 2000/43 outlawing discrimination on account of racial or ethnic origin and Directive 2000/78 (EC: New equal treatment Directive opens up EU anti-discrimination framework) on equal treatment in employment and occupation. New legislation has also been adopted in the area of European works councils and in that of equal treatment for women and men in employment and vocational training, covering issues of positive action, gender-based job advertising, indirect discrimination and sexual harassment.

As regards working conditions, new legislation has been adopted on parental leave. In the area of health and safety, the framework Directive (89/391/EEC) and subsequent Directives dealing with the management of health and safety at work, including the obligation to carry out risk assessments and the provision of preventive and protective services, have been transposed into national law.

Challenges ahead

Once Cyprus joins the EU, it will need to focus on the liberalisation of markets, including telecommunications, energy, air transport and postal services so as to maintain its implementation of the acquis communautaire.

The banking sector

This sector in particular presents a set of problems related to its internal organisation that came to a head in a dispute over outsourcing. The sector, which remains in private hands, requires improved coordination of the supervision of cooperative financial institutions and banks. As regards union representation, this sector is dominated by the bank employees' union, the ETYK, which claims 100% density and which also maintains a leading position in the trade union movement as a whole. The likely pressure for restructuring in the sector that will come with EU accession and the need for further deregulation may well challenge the traditional job security and the social dialogue between the ETYK and the employers. The existing labour market within the banking sector is highly restrictive: no external part-time workers are recruited and the recruitment of external candidates to middle-level and upper-level management positions is not permitted, except in special cases when there is a need to hire experienced external personnel, when the written agreement of the ETYK is required.

During the negotiations for the 2002-2004 banking sector collective agreement, the issue of outsourcing proved to be a sticking point, although consensus was eventually reached. In the end, the ETYK and the banking employers' association, the KEST, signed an accord in September 2002.

During the bargaining process, a major conflict developed in the Laiki Trapeza bank, where the ETYK called on its members to refuse to work overtime at the information and communications technology (ICT) centre of the bank. This was in protest at the enforcement of prior agreed provisions on subcontracting out ICT work. The employers implemented a one-day lockout on 8 September 2002 that severely affected the international business units and the dealing rooms; in response, the ETYK threatened to call an indefinite general strike.

The director of industrial relations at the labour ministry intervened personally to settle the dispute. Neither side had adhered to the rules in the prosecution of the dispute, with the union not following the 10-day cooling-off period in regard to the overtime ban at the ICT centre, and management not following the collectively agreed procedures for outsourcing and employing external personnel in that department.

Although the dispute was eventually settled, the employers are continuing to demand that the ETYK allows them to exercise their managerial prerogatives in relation to managing new technology issues, especially as they relate to ITC corporate policy. The union continues to assert that the internal development of IT applications remains cost-effective, and that it is not creating any difficulties or barriers to progress in this area.

It seems likely that this experience in the banking sector will be indicative of the difficulties lying ahead for Cyprus as it seeks to overcome such procedural challenges.

Table 1: Main economic and labour market indicators

Source: Eurostat and national sources.

Table 2: The composition of parliament since May 2001 elections