Examination of Witness (Questions 60-78)
MR ALAN
SEATTER
16 SEPTEMBER 2003
Q60 Alistair Burt: EC financial assistance
to Palestinians has reduced from 2002 to 2003 by some 80 million
euros, what is behind that and is it as obvious as considering
that with enlargement the Union simply has many more projects
to support? Would this betray a long-term sense of moving money
away from the Middle East to other areas?
Mr Seatter: It is not the latter.
This is not part of any strategy to switch expenditure priorities.
There are two factors behind this. The first is that in 2002 the
figure that you have in your tables here is 50 million euros higher
than originally planned. And the reason for that is that towards
the end of 2002, in the light of the severe damage and dislocation
that there had been during the course of the year, we asked the
European Parliament and Member States to approve an additional
package of 50 million for emergency aid. So if you like 2002 was
higher than it should have been because we brought forward expenditure
under the emergency aid package. The second element in this is
that you will see some of the humanitarian aid and the food aid,
food security aid, is shown in the tables slightly lower than
last year, and that is simply because this aid is given several
times throughout the year and my colleagues who are dealing with
that are currently looking to see whether they can allocate additional
resources for humanitarian aid later this year. So the expenditure
will roughly even out. At the end of the day when you smooth out
the effect of this 50 million being brought forward the level
of the aid will remain roughly the same.
Q61 Alistair Burt: How does it look
for 2004?
Mr Seatter: That is one of our
problems. Because we tried to keep a margin for flexibly responding
to new situations, we do not plan more than one year ahead. Usually
we have a three year rolling programme but in the case of the
West Bank and Gaza we decided that it would not be appropriate
to do that. So we come forward each year with proposals for the
following year and we consult Member States and other donors about
this but we do not yet have any plans for 2004.
Q62 Alistair Burt: Despite the flexibility
which one can understand, that must make it terribly difficult
for grassroots recipients on the ground?
Mr Seatter: Yes, it does. I think
they have many more problems than the level of the aid they get
from the European Union actually, but what we do try to do is
discuss when people are making their budget plans, which is from
about now onwards, what might be available for the following year.
So the Palestinian Authority is working with the World Bank and
other donors on an emergency recovery strategy, and we are talking
to them at the moment about this to see how our contribution might
support that. Obviously it is extremely difficult to look very
far ahead at all in this region.
Q63 Alistair Burt: Of course. Could
I move on to a slightly different tack and that is the budget
support to the Palestinian Authority. How do you ensure that that
money is properly spent? How do you track it and ensure transparency?
Mr Seatter: There are three levels
to this. The first one is that we implement this under the control
of the International Monetary Fund, so that the IMF controls the
broad aggregates of expenditure by the Palestinian Authority,
in particular the total level of expenditure, the level of expenditure
in health, education and social services, which we are trying
to protect, and thirdly the total size of the payroll. These aggregates
are supervised by the IMF. The second level is we are trying to
create conditions for the Palestinian Ministry of Finance itself
to control the funds in a better way, so strengthening the internal
financial control capacity of the Ministry of Finance. We have
a programme to do that and there are now 54 internal auditors
in place as a result of our programme to make sure this expenditure
is subject to proper control. The third way in which we do it
is the following—and this year we have introduced a targeting
of the support on meeting the arrears owed to private sector firms
and arrears to the social security system operated by the Palestinian
Authority—we make payments conditional on checking the bills
which are presented to us in terms of arrears owed to private
sector firms. Once those have been checked we then continue with
our payments. So that provides some additional security as to
the control of this expenditure, although I have to say it does
impose quite a heavy administrative burden on the Commission as
well as on the Palestinian Authority.
Q64 Alistair Burt: You will be aware
during the course of the year there was significant criticism
of the expenditure in Palestine raised by a number of Members
of the European Parliament and by outside sources as well. Firstly,
is the Commission now completely satisfied as to the security
of expenditure for Palestine? Secondly, was any inquiry actually
instigated and, if so, what is the current status of any inquiry
into previous expenditure?
Mr Seatter: When these allegations
were made, they were made in various different forms and there
was no direct allegation against the European Commission itself,
it was a general allegation against all donors to the Palestinian
Authority. We have done a number of things in response to this.
If I can say what the nature of the allegation amounted to, it
amounted to documents which were shown to us which were claimed
to be payments that went to terrorists or terrorist organisations.
We have looked at every one of the documents presented to us and
we have looked at it from basically three points of view. First
of all, was the cheque actually signed by anybody? Secondly, who
was the beneficiary of this cheque, was it actually ever paid?
Thirdly, what was it paid for? We have examined each of the documents
presented to us. Many of them were not signed, none of them but
four were actually paid, and for the ones which were paid there
was no evidence as to what the expenditure went on, but we do
not believe there is any foundation to the cases which were put
to us of misuse. We have pursued this also with the Israeli Defence
Forces and we have had meetings with them to go over these precise
points, and we have not found yet—I have to say "yet"
because we are continuing to look at these things—a case
of money being diverted to terrorist purposes. There is an investigation
by the European Anti-Fraud Office under way but I can give you
no results from that yet. There is also a Committee of the European
Parliament which is looking into this, which meets every month,
and they have not yet produced their report, but we are obviously
co-operating with all these inquiries as well as the ones we have
launched ourselves.
Q65 Chairman: I think I must be slightly
slow, I do not think I fully understood that, so could we go through
that once more?
Mr Seatter: Yes.
Q66 Chairman: Prima facie
suggestions were made to you there had been effectively improper
payments. Had there been payments? You said there had been cheques
drawn but not signed. Why would cheques be drawn and not signed?
I do not understand.
Mr Seatter: What I am talking
about is the evidence presented to us as evidence of misuse of
funds. In some cases they were cheques—
Q67 Chairman: Do you mean "checks"
or "cheques"?
Mr Seatter: "Cheques"—issued
with the name of Yasser Arafat or somebody else in the Palestinian
Authority.
Q68 Chairman: Who would issue those
cheques?
Mr Seatter: The Palestinian Authority.
In a number of cases these cheques were not even signed so the
evidence presented to us, in other words, showed nothing. In the
other cases, where the cheques were signed—
Q69 Chairman: I do not understand,
I am sorry, I am being very stupid. Why should anyone want to
issue a cheque and not sign it? Who is it suggesting in those
circumstances issue a cheque and not sign it? Who has possession
of the cheque books, to begin with?
Mr Seatter: These are documents
recovered by the Israeli Defence Forces and the Israelis are presenting
them to us as evidence of misuse of funds.
Q70 Chairman: These are documents
presented to you by the Israeli Defence Forces, cheques purporting
to be made but where no one has ever signed them?
Mr Seatter: That is correct. There
are some cases where cheques were never signed. With the ones
which were signed, we tried to check whether they were actually
paid, and we have gone through all the records to check this,
and in most cases they were never paid; there is no evidence of
any payment. In the cases where we did find evidence of payment,
and there were a very small number of these, there was no evidence
of what the payments were for. So we conclude from that that the
evidence which was presented to us was not substantive at all
in support of the claim that there were funds diverted for terrorist
purposes.
Chairman: I understand. Thank you for
that clarification.
Q71 John Barrett: You mentioned on
a few occasions the Palestinian Authority's reform programme and
audit trails, financial controls, legal reforms and so on. What
I want to ask is about the impact these reforms have had both
on the Palestinian people and whether this has increased the Palestinian
Authority's legitimacy and, also, has it altered the Government
of Israel's position? Has their confidence, if possible, increased
in the Authority?
Mr Seatter: To take the second
question first, the Israeli Government have told us, because we
do discuss these things regularly with them, that they believe
these reforms have been beneficial. The evidence for that is that
they are making payments of the arrears and payments of the tax
revenue into what we call the single treasury account, the account
we set up with the Palestinian Ministry of Finance. So we conclude
that if they are making these payments, they obviously believe
there is sufficient confidence in the system for them to make
payments without diversion of funds. As to the evidence of whether
there is Palestinian support for these, there is anecdotal evidence
that people are beginning to have greater confidence in the financial
capacity of the Palestinian Authority. For example, all these
documents are now published on the website of the Palestinian
Authority Ministry of Finance, the budget is there in great detail
and every quarter there is a budget execution report presented
by the Minister of Finance. There is some evidence that people
are beginning to have greater confidence that public money cannot
just disappear within the system of the Palestinian Authority.
Q72 John Barrett: Do you think the
people's view of the Palestinian Authority is also influenced
by their perception of the Authority's service delivery and dealing
with emergency aid?
Mr Seatter: There have been many
criticisms of the Palestinian Authority's ability to deliver services.
I think it is fair to say their capacity to deliver services has
been very severely affected by the closures and the destruction
of projects which has occurred over the last three years. But
there is, for example, an initiative of the Palestinian Ministry
of Social Affairs, to target the very, very poorest parts of the
population, and they have put this in place with the World Bank,
and the initial evidence is that this programme seems to be working
quite effectively and we are considering whether we might contribute
towards this programme for next year.
Q73 John Barrett: On a slightly different
issue, DfID have highlighted the need for institutional reform
of the UN Relief and Works Agency. What is the EU view on this?
Mr Seatter: We think all donors
should work together, that no donor is isolated. We have regular
meetings and in fact there is a meeting next week in Amman of
all the donors. We are very grateful for the support DfID has
given to this. We have not been happy about some aspects of UNRWA's
management and we carried out some audits in 1999 and 2002, and
earlier this year we did a follow-up audit. The sorts of problems
there were, were the lack of a central budget reporting system,
the lack of job descriptions for the staff, no internal audit
capacity that was regularly done and effectively done. We think
the reforms which have been put in place address these issues
and we are happy to the extent we are continuing to make our payments,
and we keep in very close touch with DfID on this, and we share
their view the reforms are becoming effective now.
Q74 Chairman: Can I just ask two
questions about trade. As I understand it, there are two mechanisms
whereby the European Union has been seeking to help the Palestinian
economy. One is the Association Agreement on Trade and Co-operation,
originally signed in 1997. Is that working? Is it doing anything?
Is it achieving anything? Or is the situation of the Occupied
Territories such that effectively it is incapable of doing anything?
Mr Seatter: Let us say that it
was pretty dormant but we are trying to revive it. The last meeting
of the Joint Committee (of the Association Agreement), where we
come with Member States to discuss with the Palestinian Authority,
took place in Ramallah on 26 June. We have two measures relating
to trade which resulted from that. One of them is some work which
is going on in the Ministry of Economy and Trade about the future
trading relations of the Palestinian Authority, in other words,
should they have a free trade agreement or a customs union with
Israel, and this kind of work we are supporting and that is of
a longer term nature. More immediately, we have offered to look
at the question of liberalising agricultural trade. We believe
it is very important that the European Union is more generous
in freeing agricultural trade, imports from the Palestinian Territories
into the European Union, and though the impact would be limited
it would nevertheless be important to increase the quotas which
are allowed for their products and generally open a greater liberalisation.
So we have offered to seek a mandate from Member States to conduct
a negotiation to liberalise agricultural trade. That is another
specific measure of that meeting.
Q75 Chairman: On that last point,
it would be useful to have some further and better particulars,
because if you are a strawberry producer in Gaza or somewhere
else that may well be of some significance. Although I have to
say for those of us who were at Cancun, the idea of the European
Union liberalising agricultural trade for anyone at the moment
we will take with a pinch of salt. You heard officials from DfID
talking about MEDA which I think stands for a Euro-Med free trade
area. Just how does that work? What, if any, impact do you see
that having on trade with the Occupied Territories?
Mr Seatter: What the European
Union agreed to at Barcelona six years ago was to set the objective
of having a free trade area between the European Union and all
our Mediterranean partners by the year 2010. That objective guides
a lot of our financial assistance to all our partner countries
in the region, including the Palestinian Authority in the way
I have just described, but also with neighbouring countries. We
are discussing with Jordan and Israel measures to facilitate trade
between Israel, Jordan, including the Palestinian Territories,
and the European Union. The United States has several arrangements
in industrial zones in Jordan involving Israeli products, and
we are looking at the possibility of applying this system to the
European Union trade rules and incorporating the Palestinian Authority
in those talks. So we have had some initial talks with Israel
and Jordan already and we hope to include the Palestinians in
that later this year, and we will see how far we can go with that.
Q76 Hugh Bayley: To what extent is
it possible to quantify the value to Israel of the MEDA arrangements?
Are there any other special relationships which exist between
the State of Israel and the European Union? Given that we do not
see eye-to-eye on the destruction of infrastructure, for instance,
is that special relationship the EU has with Israel something
which can be brought into play in relation to our claims against
the State of Israel for the destruction of infrastructure? Or
is that something the EU would want to avoid, perhaps because
of economic development benefits following the Jordanian model?
How does the EU look at it?
Mr Seatter: We have free trade
with Israel and that has been going on for quite a number of years
and there are further measures which have been taken. Recently
we have concluded an agricultural agreement with Israel also to
liberalise agricultural trade, which we believe is in the economic
interest of the European Community more than the economic interest
of Israel. The trade balance with Israel is very, very heavily
in our favour. So when you say, "What is the benefit or impact
on Israel of these arrangements", at the moment the European
Union is doing quite well out of them both in terms of industrial
trade and agricultural trade. Israel is certainly complaining
to us about this. There are other agreements we have with them,
like the science and technology co-operation, which is of benefit
to Israel but is also of benefit to the European Union, and there
are many projects that we have with Israeli scientists, researchers
and businesses which are of mutual benefit. So I am not sure what
would be the result of disrupting these or interrupting these.
It may actually harm the European Union more than it harms Israel.
There is one issue where we are in very clear dispute with Israel
on trade, and that is the question of the products from Israeli
settlements being imported into the European Union. The action
we have taken jointly with Member States' customs administrations
is to impose duties unilaterally on these products to prevent
them from having preferential access to the market.
Q77 Hugh Bayley: Generally I am a
free trader, but if you have a free trade agreement there are
obligations on both parties, are there not, not to interfere with
trade? It does strike me as curious that we accept that Israel
is a free trade partner and we seek to make the Palestinian Territories
a free trade partner but we do not as part of that agreement insist
that the barriers to trade—the barriers that either add
to costs or create delays or make it impossible for goods from
the Palestinian Territories to pass through the State of Israel
and out to customers abroad—are lifted. Surely it is a contradiction
in terms to say there is a free trade arrangement there when there
is a very clear series of barriers to trade on one side of that
three-way triangle?
Mr Seatter: We have free trade
with Israel and we have free trade, to the extent it is possible
to talk sensibly about that, with the West Bank and Gaza Strip.
The problem is between Israel and the West Bank and Gaza Strip
because of the conflict. There is a conflict going on and this
is completely disruptive of normal relations between Israel and
the Palestinians. We have raised cases with Israel of Palestinian
products which are being prevented from or delayed for export
and we are pursuing that with the Israelis. We are also trying
to draw the Palestinians into the talks we are having with Israel
and Jordan about liberalising trade as well, so we are hopeful
that might lead somewhere. More generally, the agreement we have
with Israel, the Association Agreement, contains a number of clauses,
including a very important one on human rights, and we keep this
under review. I think if we felt the situation were to deteriorate
to a very great extent we would come back to Member States with
our analysis and ask them what they wish to do with the Association
Agreement with Israel. I think there comes a point where one does
have to make that assessment. We did raise this with Member States
last year when the European Parliament voted a resolution on the
Israeli Association Agreement, and the view of Member States at
that time was they did not want to have suspension the Association
Agreement, but I think we would come back to that issue if the
situation deteriorated further and go back to Member States and
seek their views as to what they wish to do.
Q78 Hugh Bayley: I do not wish to
penalise Israeli businesses which want to export to Europe, but
I feel equally passionate about not wanting Palestinian businessmen
and women who want to export to Europe having barriers put in
the way of their businesses, because you cannot have development
in the Palestinian Territories unless they are able to trade.
Earlier on you said because of the destruction of the port and
airport in Gaza the EU had taken a policy decision, following
consultation with the Palestinians, not to rebuild that infrastructure
because of the fear it would be destroyed once again, but is that
not simply allowing Israel to dictate policy on the terms of trade
for Palestinians in an area where we are committed to free trade?
Should we not rebuild the infrastructure and try and build into
our relationship with Israel some sort of payment from the Israelis,
who are part of that three-way trading relationship, if they were
to once again destroy or undermine—destroy in the case of
the port's facilities—the ability of Palestinians to export?
Otherwise we simply accept Israel de facto has the right
to deny Palestinian businesses the rights which we in the EU believe
they should have.
Mr Seatter: On the question of
the choice of infrastructure projects, we are guided by the Palestinians
on this. We would not try to secondguess them. They are saying
their priorities are for budget support, and we would very much
like to support that, so I do not think we would want to override
what they say. Having said that, there is an old project for the
warehouse at Gaza Airport which is supposed to help refrigerate
agricultural goods and make it easier to export. The funds for
this are still available and we had planned to proceed with these
works at the warehouse on the assumption that the Roadmap was
going to go somewhere. Whether this is a realistic thing to do
now, I do not know, but we are guided by the Palestinians on this
and they do not want to proceed on this at the current stage.
Even before you get to this stage there is the problem of the
internal closures and the effect this has on the Palestinian economy
before goods can get to market for export. There is a primary
problem here as well and the analysis of the World Bank is that
these closures have the effect of reducing the GDP of the Palestinian
economy by 21 per cent, so that is a primary problem which is
linked to the conflict.
Chairman: Thank you very much and thank
you for helping set the scene for us. We are very grateful.
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