Documents considered by the Committee on 19 January 2011 - European Scrutiny Committee Contents

6 Financial instruments for EU external action




COM(09) 196




SEC(09) 530




+ ADD 1




COM(10) 786

Commission Communication: Mid-term review of the financial instruments for external actions

Commission Staff Working Document: Report evaluating the implementation of the financial instruments for external action

Council Regulation amending Regulation (EC) No.1934/2006 establishing a financing instrument for cooperation with industrialised and other high-income countries and territories

Commission Communication concerning the position of the Council on the adoption of a Regulation of the European Parliament and of the Council amending Regulation (EC) No.1934/2006 establishing a financing instrument for cooperation with industrialised and other high-income countries and territories

Legal base(a) and (b) —

(c) and (d) Article 207(2) and 209(1) TFEU; QMV; ordinary legislative procedure

Documents originated(d) 13 December 2011
Deposited in Parliament
DepartmentForeign and Commonwealth
Basis of consideration(a)  and (b)Minister's letter or 10 January 2011

(c) and (d) EM of 10 January 2011

Previous Committee Report(a) and (b) (30572) (30573) (30612) (30639): HC 19-xxiv (2008-09), chapter 5 (15 July 2009)

(c) and (d) None; but see (32201) and (32175): HC 428-xi (2010-11), chapters 8 and 9 (15 December 2010)

Discussed in Council

To be discussed in Council

(a) and (b) July 2009

(c) and (d) To be determined

Committee's assessmentPolitically important
Committee's decision(a) and (b) Cleared; further information requested

(c) and (d) Not cleared; further information awaited


6.1 In preparation for the 2007-13 financial perspective, the Commission, Council and the European Parliament simplified a plethora of different financial regulations, or Instruments. The main elements are as follows:


The ENPI provides EU assistance to 17 countries: Algeria, Armenia, Azerbaijan, Belarus, Egypt, Georgia, Israel, Jordan, Lebanon, Libya, Moldova, Morocco, the Palestinian Authority, Russia, Syria, Tunisia and Ukraine. It comprises a specific cross-border co-operation component covering border regions in the European Union Member States.


The DCI covers three main components. The first is to provide assistance to South Africa and 47 developing countries in Latin America, Asia and Central Asia, and the Middle East (only those countries not covered by the European Neighbourhood and Partnership Instrument or the European Development Fund).[31] Secondly, it supports the restructuring of sugar production in 18 ACP countries. Thirdly, it runs five thematic programmes: investing in people; environment and sustainable management of natural resources including energy; non-state actors and local authorities in development; food security; as well as migration and asylum.

The five DCI thematic programmes support actions in all developing countries (including those covered by ENPI and the EDF), global actions and external projections of as well as the fleshing out of Commission internal policies.


The EIDHR contributes to the development of democracy, the rule of law, respect for human rights and fundamental freedoms. It was designed to complement the various other tools for implementation of EU policies in this area, which range from political dialogue and diplomatic demarches to various instruments of financial and technical co-operation, including both geographic and thematic programmes. It also complements the more crisis-related interventions of the new Stability Instrument.


The IfS aims to contribute to stability in countries in crisis by providing an effective response to help preserve, establish or re-establish the conditions essential to the proper implementation of the EU's development and co-operation policies.


NSCI finances measures to support a higher level of nuclear safety, radiation protection and the application of efficient and effective safeguards of nuclear materials in third countries.


The ICI promotes cooperation between the European Union and seventeen industrialised and other high-income countries and territories in North America, the Asia-Pacific region and the Gulf region


This is the vehicle by which pre-accession technical assistance is delivered to candidate countries.


The extant Humanitarian Aid Regulation was not amended. [32]

6.2 The Committee considered these on several occasions during the gestation process, culminating in a debate in the European Standing Committee on 10 November 2005,[33] and subsequently, particularly during the formulation of the thematic programmes.

The Commission Communication

6.3 The Communication and accompanying Staff Working Document were published by the Commission on 21 April 2009, and considered by the previous Committee on 15 July 2009.

6.4 The Commission noted that the new instruments were being implemented through Country Strategy Papers, Regional Strategy Papers, Thematic Strategy Papers and, for the IPA, Multi-annual Indicative Planning Documents.

6.5 The Commission further noted that:

—   they are required under these regulations to submit a report on their implementation by 31 December 2010, and to propose any necessary amendments;

—  in final negotiations before the instruments were adopted, the Commission agreed—at the European Parliament's request—to carry out the review before the 2009 European Parliament elections and to take Parliament's reports and recommendations into account;

—  this mid-term review (MTR) would cover the legal instruments only;

—  European Parliament recommendations not affecting the legal texts would be considered in the mid-term review of the strategy and programming documents;

—  that latter review would assess performance so far and update the strategies in the light of developments in partner countries, when "particular attention" would be paid at that point to civil society participation and aid effectiveness;

—  the review process and updated strategy papers, together with multi-annual indicative programmes allocating the budget for 2011-13 by sector, was expected to be completed by the end of 2009;

—  the IPA was governed by a different strategy and programming framework covering a rolling three-year period updated annually in line with the Enlargement Strategy Paper.

6.6 This present MTR aimed "to verify that the instruments are meeting the objectives set for the reform, partly through major simplification". Thereafter, "simplification being an ongoing process, the Commission will also consider the scope for further improvements, including amendments to the Financial Regulation, in particular as regards the control environment."

6.7 The Commission Staff Working Paper reported in more detail on the individual instruments; and outlined two legislative proposals, where the Commission had concluded from the review that certain amendments were necessary.

6.8 The previous Committee's earlier Report contains the helpful and extensive analysis and comments of the then Minister for Europe at the Foreign and Commonwealth Office (Baroness Kinnock of Holyhead, as set out in her EM of 7 July 2009).

6.9 The then Minister strongly supported the need for reviews of Instruments funded from the EC Budget, to ensure sound financial management and that objectives were being met, professed herself generally satisfied with progress to date, and looked forward to the mid term performance reviews of each Instrument.

6.10 She noted that the European Parliament had taken the view that some activities programmed by the Commission under the DCI were not sufficiently geared to poverty eradication and the Millennium Development Goals or did not fulfil the criteria for Official Development Assistance (ODA). The Commission propose to address this by amending the ICI regulation to extend its geographical scope to include DCI countries. How the activities were funded under the revised ICI needed to be closely monitored. The UK would be opposed to any reduction in the financial allocation for the DCI, so any proposed amendment to the ICI would need to be framed within the ICI's current financial ceiling.

6.11 Looking ahead, the Minister said that discussion of the overview Communication was expected to begin in July 2009, with discussions on the individual proposals to amend the various instruments expected to commence that autumn.

The previous Committee's assessment

6.12 The previous Committee noted that, as the Commission had made clear, the Mid-Term Review that was to be completed by the end of 2009 was perhaps the more important of these two exercises. Even so, the Minister had indicated that the proposed amendments to the regulations were not entirely straightforward. They therefore asked the Minister to write after the "overview" Communication had been considered by the Council; and also to keep it informed about discussions with the European Parliament.

6.13 In the meantime, the documents were retained under scrutiny.

The Minister's letter of 10 January 2011

6.14 The Minister for Europe (Mr David Lidington) begins his letter by saying that "it has come to my attention" that the questions asked by the previous Committee have not been answered; apologises for their having remained unanswered for so long; and says that he continues to take his scrutiny obligations seriously, and that measures the FCO has put in place recently should prevent such oversights in future.

6.15 The Minister continues as follows:

    "The 'overview' Communication was not considered again by the Council after July 2009. The changes to the regulations governing each of the instruments were considered by the relevant Council working groups during the course autumn 2009 and early 2010 with proposals put to the European Parliament. The European Parliament considered all of the proposed changes to the instruments and set out its first reading opinion on 21 October 2010. The Competitiveness Council considered the EP's changes on 10 December 2010.

    "I regret that the FCO did not submit the Common Position on the ICI for scrutiny before it was considered by the Council on 10 December 2010. The UK made clear at the Council that it had not received policy or scrutiny clearance for the dossier and so voted against the Common Position. It was, nonetheless, agreed. I have included with this letter an Explanatory Memorandum that sets out the Government's view on the Council's Common Position.

    "On 17 December the Commission issued a supportive response to the Council's Common Position. I enclose the relevant document. We will keep the Committees informed on the progress of this dossier through the remaining stages."

The Council Regulation and the Commission Communication

6.16 As noted earlier, the proposal to extend its geographical scope to include a number of countries covered by the DCI and to fund certain activities in those countries using the ICI was first made in the Commission's Mid Term Review of the financial instruments for external action, following the European Parliament opinion that a number of proposed DCI activities were not sufficiently geared to poverty eradication or did not fulfil the criteria for ODA.

6.17 The documents set out the Council's and Commission's position, after consideration of the European Parliament's first reading opinion, on proposed amendments to the regulation for the ICI (the financial instrument for cooperation with industrialised and other high-income countries and territories).

6.18 The Commission sees the Council position as the outcome of constructive negotiations between the three institutions and as being in line with the essential objectives and the underlying approach of the Commission's initial proposal.

6.19 The Commission notes two specific amendments by the European Parliament that are not acceptable to the Council:

Delegated acts (Article 290 TFEU): the Commission says that the EP seeks by its first reading amendments to apply this procedure to the adoption of multiannual strategy papers by the Commission; and that, despite what it describes as long and intensive negotiations, it was not possible to reach agreement on this issue. It notes that the Council has not accepted these amendments in its positions at first reading, and says that it is ready to continue efforts to reconcile the positions of the institutions and to find ways to meet the substantive concerns behind Parliament's amendments, in particular in ensuring that Parliament can exercise appropriate oversight over the formulation of external cooperation strategies and the proper implementation of external financial instruments;

Article 16 on the financial reference amount: The Commission notes that the Council has not accepted the proposed EP amendment, preferring to retain the text proposed initially by the Commission. The Commission says it supports the Council position since it reflects the standard text on financial reference amounts which is included in every financial instrument; but that, in order to facilitate agreement and re-assure the institutions, the Commission is ready to make the Declaration concerning Article 16 attached to the Communication.

6.20 All in all, the Commission says the Council position incorporates a negotiated compromise text which reflects to a very large extent the European Parliament's requests and amendments at first reading, and that the Commission can therefore accept the Council position.

6.21 In his Explanatory Memorandum of 10 January 2011, the Minister for Europe (David Lidington) explains that the relevant changes to the ICI regulation are effected by modifying and replacing several articles and annexes: articles 1 to 4 are replaced; articles 5(2) and 6(1) are replaced; article 7 is amended with additional paragraphs 7(2) and 7(3) added; article 8(3) is replaced; article 9 paragraphs (1) and (3) are replaced; article 12 is amended and paragraphs (1) and (2) replaced; articles 13, 14 and 16 are replaced; the title of Annex I is amended, and a new annex II is added listing those developing countries to be covered by the instrument.

The Government's view

6.22 The Minister goes on to say that the Government continues to support the policy of widening the geographical scope of the ICI in order to ensure that the activities funded under the DCI remain focused on poverty reduction and are eligible as ODA, and of opposing any reduction in funding for the DCI as a result of changes to the ICI regulation, as set out by the then Minister in her Explanatory Memorandum of 7 July 2009. He continues as follows:

    "In the subsequent Council working group discussions the UK took a strong line to this effect. The Commission eventually proposed funding the additional uplift of €176 million to the end of the current Financial Perspective from savings elsewhere in Heading 4 of the EU Budget ("EU as a Global Player"). The Commission also made a declaration that funding for ICI would come from dedicated non-ODA budget lines and that the amount foreseen for DCI would not be reduced as a result."

6.23 The Minister then notes that the European Parliament adopted its first reading opinion on 21 October 2010. He describes most of the EP's amendments as either technical or textual in nature, such as references to the EU's values and labour standards, and references to support to SMEs, and says that there was a good deal of cooperation between the Council and the EP early in the legislative process and that the Council was able to incorporate in its first reading position many of the proposed amendments from the EP's first reading. He then says:

    "However, the Council did not agree with the EP's interpretation that Geographic Strategy Papers, Multi-Annual Indicative Programmes and Strategy Papers for thematic programmes constitute "delegated acts". The definition of "delegated acts" is intended to cover only the Commission's legislative proposals. Strategy and Multi-Annual Papers simply implement the relevant Instruments, rather than amending them; we therefore do not consider them to be legislative proposals.

    "The EP's attempt to interpret Strategy and Multi-Annual Papers as delegated acts which fall under Article 290 would give it increased powers of scrutiny before the implementation of programmes and risk considerably delaying the programming of EU instruments, reversing recent progress in speeding up disbursement. We do not accept the EP's interpretation of "delegated acts" in this context, which in our view would constitute "competency creep" by the European Parliament. The Council rejected the EP's tabled amendments at the Competiveness Council on 10 December. The EP is pursuing a similar strategy in relation to a number of EU Financial Instruments as described in two Explanatory Memoranda submitted by DFID on 9 December 2010."

6.24 With regard to the EP proposal to amend Article 16 of the regulation, the Minister says:

    "Article 16 on Financial Provisions contained standard text on the financial reference amount and the annual budget procedure used in all external instruments' regulations. The EP's amendments would have deviated from this standard text, and pre-judged the annual budget process by specifying that the source of funding could not be the DCI. We agree with the Council's position to block the changes to the standard text and we did not wish to set a precedent which could undermine the annual budget procedure."

6.25 The Minister again notes that, although the UK voted against the proposal at the Competitiveness Council on 10 December 2010 because it had not yet received Scrutiny clearance, the Council's first reading position was nonetheless adopted; and that the European Parliament will now consider it.


6.26 The situation having moved on from the 2009 mid-term review, we now clear the Commission Communication and Commission Staff Working Document (documents (a) and (b)). In so doing, however, we note the Minister's assurances about the measures he has taken to avoid such lapses in future, and ask that he writes to the Committee in six months' time with a report on how well the new system has worked.

6.27 As the Minister also notes, the Committee has already considered similar Explanatory Memoranda on the Development Co-operation Instrument (DCI) and the European Instrument for Democracy & Human Rights (EIDHR).[34] Now, as then, we endorse the Government's position.

6.28 Once the EP responds, the Council will need to adopt a further agreed position; in which case we shall expect a further Explanatory Memorandum from the Minister, outlining the nature of the EP response and the Council position, and the Government's views thereon. If it is still proposed to include some sort of Commission Declaration about Article 16—about which the Minister makes no comment on this occasion—we ask him to ensure that his Explanatory Memorandum covers it. We shall also be interested in his views on the extent to which the outcome with regard to the Commission goal of providing the EP with "appropriate oversight over the formulation of external cooperation strategies and the proper implementation of external financial instruments" safeguards, or changes, the status quo.

6.29 In the meantime, we shall retain documents (c) and (d) under scrutiny.

31   European Development Fund (EDF); based on the Cotonou agreement, which provides the bedrock of EU co-operation with African, Caribbean and Pacific countries, the EDF supports assistance to the Union's 78 ACP partner countries and the overseas countries and territories of Member States. The 10th EDF entered into force in January 2008.


32   See for full details.  Back

33   See for the record of this debate. Back

34   See headnote: (32201) and (32175): HC 428-xi (2010-11), chapters 8 and 9 (15 December 2010). Back

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