EUROPEAN COMMUNITIES INVESTMENT PARTNERS
REGULATION
(a)
(21002)
6047/00
COM(99) 726
(b)
(21145)
7080/00
COM(00) 135
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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.
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| Legal base:
| (a) Article 179(1); co-decision; qualified majority voting
(b) None
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| |
| Document originated:
| (b) 13 March 2000
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| Forwarded to the Council:
| (b) 13 March 2000
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| Deposited in Parliament:
| (b) 19 April 2000
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| Department: |
International Development
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| Basis of consideration:
| (a) Minister's letter of 17 May
(b) EM of 27 April
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| Previous Committee Report:
| (a) HC 23-xiii (1999-2000), paragraph 11 (5 April 2000)
(b) None
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| To be discussed in Council:
| (a) No date set
(b) None planned
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| Committee's assessment:
| Politically important
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| Committee's decision:
| (a) Not cleared; awaiting further information
(b) Cleared
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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).
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