2 Financing EU external action: 11th
European Development Fund
| (35334)
14081/13
COM(13) 660
| Draft Council Regulation on the financial regulation applicable to the 11th European Development Fund
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| Legal base | Article 10(2) of the Internal Agreement of 17th July 2006; QMV
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| Department | International Development
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| Basis of consideration | EM of 17 October 2013
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| Previous Committee Report | None; but see (35144) 11672/13: HC 83-xiv (2013-14), chapter 6 (11 September 2013); also see (34961) 10212/13: HC 83-vi (2013-14), chapter 9 (19 June 2013); also see (33530) 18431/11 and (33533) 18480/11: HC 83-iii (2013-14), chapter 20 (21 May 2013) and HC 83-i (2013-14), chapter 8 (8 May 2013); also see HC 428-xlviii (2010-12), chapter 12 (25 January 2012), HC 86-v (2012-13), chapter 6 (20 June 2012) and HC 86-xxxiv (2012-13), chapter 2 (6 March 2013); also see (33244) 15560/11 + ADDs 1-2: HC 428-xli (2010-12), chapter 6 (9 November 2011)
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| Discussion in Council | To be determined
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| Committee's assessment | Politically important
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| Committee's decision | Not cleared; further information requested
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Background
2.1 The European Development Fund (EDF) is the main instrument
for delivering EU assistance for development cooperation under
the Cotonou Agreement with ACP States and for financing EU cooperation
with the Overseas Countries and Territories (OCT). Each EDF is
concluded for a multi-annual period. The EDF is funded outside
the EU budget by the Member States on the basis of specific contribution
keys. The UK's share is 14.68%.
2.2 The Multi-Annual Financial Framework (MFF) agreed
at the February 2013 European Council included an overall figure
of €30.5 billion for the EDF for the period 2014-20. This
is part of a total package covering Heading 4 of the EU budget,
on External Action, involving a range of other financial instruments
(pre-accession finance, European Neighbourhood Partnership, Stability
Instrument, etc.). The UK's contribution to EDF11 is €4.478
billion, equating to 14.68% of the total EDF.
2.3 The full background thus far is set out in our
reports under reference.[1]
In essence, the EDF element was de-coupled from the rest of the
Heading 4 process. Several parts of the EDF agreement —
the Internal Agreement; the Implementing Regulation; and the Financial
Regulation — specify the allocation and management of the
fund.
The EDF11 Internal Agreement
2.4 The Committee cleared the Commission Communication
and Council Decision dealing with the "top line" elements
of the EDF11 Internal Agreement at its meeting on 19 June, prior
to the June EU/ACP Council of Ministers; having now been agreed
with the ACP, it will form a new annex to the Cotonou Agreement..
The Internal Agreement will only enter into force once all 27
Member States have ratified it, which is expected to take 18 months
or more. The Commission Communication accordingly proposed the
provisional application of a number of articles of the EDF11 Internal
Agreement, so as to ensure all appropriate decision making procedures
and modalities for the implementation and programming of EDF11
are put in place whilst Member States ratify the agreement —
thereby minimising any delay to the disbursement of funds once
full ratification has been completed. The articles to be provisionally
applied include the adoption of an Implementing Regulation and
a Financial Regulation. No commitment of any EDF11 funds can
be made until ratification is completed by all Member States.
(The same approach was followed for the transition from EDF9
to EDF10: to ensure some continuity and on-going predictability
of aid flows to beneficiary countries, balances from EDF8 and
EDF9 and de-committed funds from EDF10 are expected to be made
available during the period before EDF11 enters into force).[2]
The Implementing Regulation
2.5 The draft Implementing Regulation sets out the
programming process and monitoring framework for all EDF11 funds
that will be spent on country and regional programmes, intra-ACP
programmes such as the Africa Peace Facility, and the Cotonou
Investment Facility.
2.6 The EDF11 Implementing Regulation complies with
the provisions of the Cotonou Agreement and aligns, where appropriate,
with the main provisions of other development instruments, particularly
the Development Cooperation Instrument (DCI) and the common rules
and procedures for the implementation of the Union's instruments
for external action, the Common Implementation Regulation (CIR).
This alignment would allow for the inclusion of the EDF in the
EU budget post 2020, if Member States wanted this. We considered
the Commission's proposal at our meeting on 11 September 2013.
2.7 It was helpfully summarised, and broadly supported,
by the Parliamentary Under-Secretary of State at the Department
for International Development (Lynne Featherstone): this was unsurprising,
since no major changes are proposed, and the improvements are
all in the right direction.[3]
The fundamentals appeared to be sound —
more differentiation; increased focus on poverty and fragile states;
measures to increase effectiveness; a results-based approach.
Unsurprisingly, the Commission was seemingly determined to carry
its dogged pursuit of "budgetising" the EDF into the
next financial perspective. However, as the Minister noted, there
were some important elements in which the details had yet to be
finalised — ensuring sufficient EDF Management Committee
oversight of resource allocation; the right sort of EU coordination
at country level; appropriate Member States' oversight of the
new unallocated reserve; embedding the agreement on dedicated
funding for monitoring and evaluation.
2.8 We therefore asked the Minister to write to us
again when the negotiations have progressed further, and in good
time for the outcome to be debated prior to adoption by the Council
(as the Minister was aware, this is the Committee's position with
regard to the negotiations on the CIR, which, as noted above,
performs a similar role with regard to all the other external
action financial instruments).
2.9 In the meantime, we retained the draft Regulation
under scrutiny.[4]
The Financial Regulation
2.10 The draft Council Regulation contains the Commission's
proposal for the Financial Regulation, which provides the detailed
rules for the financial management of EDF11.
2.11 In her Explanatory Memorandum of 17 October
2013, the Parliamentary Under-Secretary of State at the Department
for International Development (Lynne Featherstone) says that:
·
the Commission's main aim with the Financial Regulation has been
to simplify and to align where possible with the EU budget Financial
Regulation and its Rules of Application, agreed by Member States
in 2012;
· alignment
has additionally been sought with the relevant provisions of
Common Implementing Regulation (CIR);
· these
have been transposed to this 11th EDF Financial Regulation where
they are relevant; and
· by so
doing, the Commission hopes to reduce the diversity of Union external
action funding rules, which create a burden for recipients, the
Commission and other actors; although the Regulation also notes
that the EDF has its own distinct framework for financial implementation,
including the Cotonou partnership agreement and so cannot be fully
aligned.
2.12 The Minister then provides the following helpful
detailed analysis:
"Part One of the proposed Financial Regulation
covers Main Provisions and is subdivided into ten Titles: Subject
matter, scope and general provisions; Financial principles; 11th
EDF resources and its implementation; Financial actors; Revenue
operations; Expenditure operations; Various implementation provisions;
Funding instruments; Presentation of the accounts and accounting;
and External audit and discharge. Part Two describes the management
of 11th EDF resources under the Investment Facility (IF) managed
by the European Investment Bank (EIB). Part Three looks at transitional
and final provisions, including the rules pertaining to previous
EDFs such as the transfer of any balance remaining to EDF11, and
the corresponding reduction in Member State contributions.
"Of these, articles covering basic financial
oversight are aligned with the EU budget financial regulation,
whilst articles specific to development funding are largely aligned
with the CIR or are specific to the EDF. Those articles aligned
with the EU budget include Title I on subject matter scope and
general provisions; Title II on financial
principles; Title IV financial actors; Title VI on expenditure
operations; Title VII on implementation provisions; Title IX on
accounts and Accounting, save articles related to the EIB; and
Title X on audit and discharge. Those where alignment is largely
with the CIR, or where most articles are EDF-specific, include:
Title III on EDF resources and implementation; Title V on revenue
operations; and Title VIII on funding instruments, save the articles
dealing with procurement, grants and budget support which are
aligned with the EU budget regulation where possible; as well
as Part Two on the EIB Investment Facility and Part Three on the
specific transitional measures for the EDF.
"The main elements of the regulation are:
· "Payment
of Member States' contributions to the fund
· "The
transfer of balances from previous EDFs
· "The
financial actors entrusted with budget-implementation and the
funding instruments available, including procurement, grants,
financial instruments and Union trust funds
· "Roles
and responsibilities of national and Commission authorising and
accounting officers
· "Internal
and external auditing, including the Court of Auditors and the
annual discharge (approval) of accounts by the European Parliament
· "Procurement
procedures
· "Procedures
concerning EDF resources managed by the EIB
"Key changes that the Commission has highlighted
from EDF10 include:
· "The
use of Union Trust Funds and the funding of interest-rate subsidies
· "Fixed
dates for Member States to pay their contributions
· "Abolishing
overlapping reporting where possible
· "Alignment
with CIR rules on the sub-delegation of implementation and contributions
to international, regional or national funds, including new rules
for co-financing and the visibility of EU funds
· "Alignment
with the EU Budget Financial Regulations to strengthen recovery
of amounts due from recipients if necessary"
2.13 With regard to the Legal and Procedural
aspects, the Minister explains that:
· the
legal basis for this proposal is Article 10(2) of the Internal
Agreement of 17th July 2006 (the Internal Agreement) between the
Representatives of the Governments of the Member States of the
European Union, meeting within the Council, on the financing of
European Union aid under the multiannual financial framework for
the period 2014 to 2020, in accordance with the ACP-EU Agreement
between the African, Caribbean and Pacific States and the European
Community (as was) and its Member States signed in Cotonou, Benin
on 23 June 2000 and revised on 25 June 2005 (the Cotonou Agreement).
· Article
10(2) of the Internal Agreement provides for a Financial Regulation
to be adopted by the Council before the ACP-EC Agreement enters
into force;
· the
procedure for adoption of the Financial Regulation is the Council
acting by the qualified majority laid down in Article 8 of the
Internal Agreement, after an opinion from the European Investment
Bank and the Court of Auditors.
2.14 The Minister goes on to describe alignment of
the text with the EU budget Financial Regulation as the "overarching
policy implication of the proposed EDF11 Financial Regulation",
which she says "should make it easier for partner countries
to receive funds from multiple sources, for example where ACP
countries also benefit from other on-budget global thematic instruments."
2.15 The objective of aligning with the CIR is:
"to improve overall EU aid effectiveness,
as well as allowing for the possibility of incorporating the EDF
into the EU budget post 2020 if desired. However, the EDF is a
separate legal instrument outside the EU budget, with strong Member
State oversight and working under the unique partnership model
provided by Cotonou. Full alignment with the EU budget Financial
Regulation is not therefore possible and should only be an objective
where it improves and streamlines oversight of the EDF."
2.16 The Minister then notes that, in Part One:
"many of the differences between this EDF11
Financial Regulation and the former EDF10 Financial Regulation
are technical changes in accordance with efforts to harmonise
and simplify. However, these will need to be carefully reviewed
to ensure that the current level of Member State control over
EDF finances is not reduced."
2.17 The Minister then says:
"A key policy implication is the establishment
of Union trust funds and the funding of interest-rate subsidies.
Trust funds are separate funds created for a limited duration
for emergency, post emergency or thematic actions. They allow
other donors to contribute resources, with the Commission providing
financial management, and are therefore a means to pool resources
and coordinate actions. The Financial Regulation of the EU Budget
regulates when and how the Trust Funds may be used, but Member
States have not yet been provided with specific details of what
they will be used for under the EDF. We expect that they will
be used to increase the amount of resources available for blending
loans with EU grant money. They can be used to pool different
types of aid modalities, resulting in the leveraging of additional
development finance and achieving better value for money with
scarce grant resources. They can be used in a wide variety of
sectors. At present, two blending funds exist in the ACPs, the
EIB Investment Facility and the EU-Africa Infrastructure Trust
Fund."
2.18 The Minister then also says:
"Part Two, on the EIB Investment Facility,
is substantially the same in content to the text in EDF10 text.
The Commission does not highlight any significant changes to Part
Three, which deals with transitional and final arrangements. As
for EDF10, any remaining balances from previous EDFs will be transferred
to EDF11, with a corresponding reduction in Member State contributions."
The Government's view
2.19 The Minister then comments thus:
"We support the Commission's drive to simplify
the Financial Regulation, and for coherent procedures between
the EDF and the EC budget where this leads to more effective management
and implementation of programmes, particularly for cross-regional
programmes which draw financial resources from both budget lines.
Alignment of rules on the sub-delegation of implementation and
contributions to international, regional and national funds should
improve efforts at cooperation with a range of other partners.
"However, the UK will carefully review the
changes to ensure that the current level of Member State control
over EDF finances is not reduced. In Part One, we will seek clarification
about the innovations from EDF10, particularly those which seek
fixed dates for Member State contributions and those which look
to abolish overlapping reporting by the Commission. Here, we would
support simplification, but want to ensure that Member States
retain access to the necessary information to provide a strong
oversight role.
"Although forecasting and underspend of
the EDF have improved over time, the UK is committed to improving
Member State oversight and financial management of the EDF and
we continue to work closely with the Commission to achieve this.
The UK lobbied successfully for a technical seminar on financial
forecasting in July 2013, where the Commission outlined changes
they are making to their forecasting processes. We are working
to further strengthen EDF financial management as part of negotiations
of the new 11th EDF, with the Financial Regulation key to this.
This includes ensuring that language secured in the recently signed
EDF Internal Agreement — committing the Commission to reporting
on efficiency savings; implementing a comprehensive results framework;
and improvement of financial management and forecasting —
is operationalized.
"In principle we welcome the use of Union
Trust Funds, particularly where they will be used appropriately
to expand blending. However, we will need to ensure that that
they are well-managed and that the Commission does not overlap,
or set itself up in competition with, the work already done by
the EIB. We will want to see the Commission concentrate its work
where it has the necessary skills, expertise, and comparative
advantage over other organisations.
"Overall, we welcome attempts at greater
financial transparency, through the publication of recipients
of financial support under the EIB's Investment Facility and the
strengthening of rules on recovery and penalties where contracts
have been breached according to rules set out in the EU budget
Financial Regulation."
2.20 Finally, the Minister says that the Financial
Regulation will be negotiated by Member States in ACP Working
Group from the end of October, with the aim of agreement by unanimity
by the end of the year.
Conclusion
2.21 As with the Implementing Regulation, the
direction of travel with the draft Financial Regulation would
appear to be satisfactory, but some important aspects have yet
to be finalised; in this case, ensuring that:
· Member
States retain access to the necessary information to provide a
strong oversight role;
· the
commitments in the recently signed EDF Internal Agreement requiring
the Commission to report on efficiency savings, to implement
a comprehensive results framework and to improve financial management
and forecasting, are put into practice; and
· any
further Trust Funds are well-managed and that the Commission does
not overlap, or set itself up in competition with, the work already
done by the EIB, but instead concentrates its work where it has
the necessary skills, expertise, and comparative advantage over
other organisations.
2.22 We would therefore also be grateful if in
this case, too, the Minister would write to us again when the
negotiations have progressed further, and in good time for the
outcome to be debated prior to adoption by the Council, should
we so decide. When she does so, we would like her to explain
how the important issues outlined above have been addressed.
2.23 In the meantime, we shall retain the document
under scrutiny.
2.24 We are also drawing this chapter of our Report
to the attention of the International Development Committee.
1 See headnote. Back
2
See (34961) 10212/13: HC 83-vi (2013-14), chapter 9 (19 June 2013). Back
3
See our Report at (35144) 11672/13: HC 83-xiv (2013-14), chapter
6 (11 September 2013) for full details. Back
4
Ibid. Back
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