Select Committee on European Scrutiny Nineteenth Report


EUROPEAN COMMUNITIES INVESTMENT PARTNERS REGULATION


(a)
(21002)
6047/00
COM(99) 726


(b)
(21145)
7080/00
COM(00) 135


Draft Regulation regarding the closure and liquidation of projects
adopted by the Commission under Council Regulation No. 213/96 on
the implementation of the EC investment partners financial instrument
for the countries of Latin America, Asia, the Mediterranean region and
South Africa.

Commission Report: European Community Investment Partners
(ECIP) Progress Report 1998.
Legal base: (a) Article 179(1); co-decision; qualified majority voting
(b) None
Document originated: (b) 13 March 2000
Forwarded to the Council: (b) 13 March 2000
Deposited in Parliament: (b) 19 April 2000
Department: International Development 
Basis of consideration: (a) Minister's letter of 17 May
(b) EM of 27 April
Previous Committee Report: (a) HC 23-xiii (1999-2000), paragraph 11 (5 April 2000)
(b) None
To be discussed in Council: (a) No date set
(b) None planned
Committee's assessment: Politically important
Committee's decision: (a) Not cleared; awaiting further information
(b) Cleared

Background

The draft Regulation (document (a))

  3.1  The financial instrument known as the European Community Investment Partners (ECIP) was established in 1988 to assist European industry wishing to set up in Asia, Latin America, the Mediterranean and, subsequently, South Africa by encouraging the creation of joint ventures between European and local partners.

  3.2  The Commission intends to carry out a reassessment of the purpose of the instrument and its operational design, with a view to introducing a substantially revised and improved ECIP. The proposal we consider here is to provide finance up to the end of 2001, before the new programme is introduced, to cover the winding down and closure of projects adopted by the Commission.

  3.3  In her Explanatory Memorandum of 13 March, which we considered on 5 April, the Secretary of State for International Development (The Rt. Hon. Clare Short) drew attention to the plight of a number of companies, some British, which had spent money on ECIP projects without a formal contract, but on the basis of the Commission's preliminary approval. In this they were following a practice which had become established as a result of the inability of the Commission to process contracts promptly. The practice was even encouraged in the ECIP Manual issued by the Commission. The Commission had now indicated, she said, that it did not intend to make provision to refund them.

  3.4  We did not clear the document but asked the Government what line it and the other Member States would be taking on this issue.

The Minister's letter

  3.5  The Minister says that the issue was raised at the 7 April Development Co-operation Working Party (DCWP). The UK expressed its concern and the Presidency asked the Commission to look again at the issue of the pipeline applicants, and report on its findings at a subsequent meeting, the date of which has yet to be fixed. She comments:

    "I understand that the issue of provision for work undertaken in advance of a contract raises issues of both European Community and Belgian company law since the latter apparently governs Commission contracts. The Commission's legal service have said that it would be illegal to make provision for the pipeline applicants. I am asking our own legal advisers for their view. Should they reach the same conclusion, then it would be wrong for the UK to support a proposal for action which would be unlawful. Other Member States are likely to take a similar position.

    "There are several British companies likely to be affected by the regulation.

    "This regulation is subject to co-decision, and is likely to make very slow progress. When the legal issues are resolved, I will inform you of the outcome, and of course of action I intend to take."

The 1998 progress report (document (b))

  3.6  The report is divided into four parts:

  3.7  Part One is an introduction which describes how the instrument works and the general policies adopted by the Commission in operating the programme. It notes that proposals submitted for ECIP support are expected to be financially viable and should contribute to local economic development. The report describes five financing facilities, the purpose of each being dependent on the type of joint venture proposed.

  3.8  Part Two describes major developments in ECIP in 1998 and analyses actions in 1998, and over the period 1988-1998, by sector, geographical region, facility and financial institution. It comments that the management of ECIP was intended to be as business-friendly as possible, with rapid decisions and payments, transparency and flexibility. This approach, the Commission says, was specific to ECIP and gave the scheme a good reputation with financial institutions. This approach prevailed until 1996, since when the management of ECIP has become progressively more bureaucratic and heavier for three reasons:

  • because it is principally directed at small and medium-sized enterprises, ECIP is very labour intensive. The rapid growth in the number of projects came up against the limited personnel resources available to the Commission to manage them;

  • the Commission's financial procedures were tightened up, following comments by the Court of Auditors. This led to delays, for instance because of requirements for full Commission Written Procedures, and to an internal separation of functions which left too few qualified personnel available;

  • the financial closures and recoveries required under the Regulation demanded precise, careful administrative work and, again, there was a lack of staff.

  3.9  The result was a backlog of payments, new activities were put on hold and there was increasing discontent among financial institutions and businesses. The Commission decided that, in 1999, "exclusive priority" should be given by the financial staff to the completion and closure of existing ECIP contractual files and the recovery of unused and reimbursed ECIP funds.

  3.10  However, during 1998, the Commission reports that 264 funding requests were approved, including 117 (44% of proposals) for joint ventures in Asian countries and 93 (35% of proposals) for joint ventures in Latin America.

  3.11  Part three provides estimates and analyses of the economic impact of ECIP. On the basis of a detailed analysis of 1,312 final reports, the report states that for each euro of ECIP funding, there had been over 16 million euro of investment, that over 34,000 EU and local firms were involved and that 42,000 jobs had been created. During the year, the Commission completed inspections in eight eligible countries. The findings were made available to independent appraisers who will make recommendations on the future of the scheme.

  3.12  Part four describes measures introduced by the Commission in 1998 to reinforce the financial management of the scheme.

The Government's view

  3.13  The Minister says that the UK supports the objectives of the programme and agrees that the Commission should use the findings of this report, and in particular the recommendations of the independent appraisers on which it draws, to formulate an effective successor programme to ECIP.

Conclusion

  3.14  We thank the Secretary of State for her preliminary response to the questions we raised on the proposal for the draft Regulation, and look forward to receiving a further letter from her on the issues raised. It would be helpful to us if, in it, she could provide us with an account of the legal arguments on which the advice she receives is based. Meanwhile, we shall not clear the draft Regulation (document (a)).

  3.15  We note the comments by the Commission in the progress report on the difficulties they faced with managing the programme and expect the Commission and the Government to ensure that the new programme takes the lessons learnt fully into account. We now clear that document (b).


 
previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2000
Prepared 16 June 2000