17 Financing EU external action: 11th
European Development Fund
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14081/13
+ ADD 1
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
| Minister's letter of 20 January 2014
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| Previous Committee Report
| HC 83-xix (2013-14), chapter 2 (30 October 2013); also see (35144) 11672/13: HC 83-xiv (2013-14), chapter 6 (11 September 2013)
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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
| Cleared |
Background
17.1 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%.
17.2 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 EDF 11 is €4.478 billion, equating to 14.68% of the total
EDF.
17.3 The full background thus far is
set out in the reports under reference in our previous Report.[86]
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 EDF 11 Internal Agreement
17.4 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 now forms 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 from last June.[87]
The Implementing Regulation
17.5 The draft Implementing Regulation
sets out the programming process and monitoring framework for
all EDF 11 funds that will be spent on country and regional programmes,
intra-ACP programmes such as the Africa Peace Facility, and the
Cotonou Investment Facility. We consider the latest update from
the Parliamentary Under-Secretary of State at the Department for
International Development (Lynne Featherstone) elsewhere in this
Report.[88]
The Financial Regulation
17.6 The draft Council Regulation contains
the Commission's proposal for the Financial Regulation, which
provides the detailed rules for the financial management of EDF
11.
17.7 In her Explanatory Memorandum of
17 October 2013, the Minister said that:
· the Commission's main aim
with the Financial Regulation had 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 had additionally
been sought with the relevant provisions of Common Implementing
Regulation (CIR);
· these had been transposed
to this 11th EDF Financial Regulation where they were relevant;
and
· by so doing, the Commission
hoped to reduce the diversity of Union external action funding
rules, which created a burden for recipients, the Commission and
other actors; although the Regulation also noted that the EDF
had its own distinct framework for financial implementation, including
the Cotonou partnership agreement and so could not be fully aligned.
17.8 The Minister's helpful detailed
analysis is set out in our previous Report (see paragraphs 2.8-2.15).
She noted that the Financial Regulation would be negotiated by
Member States in the ACP Working Group from the end of October,
with the aim of agreement by unanimity by the end of the year.
Our assessment
17.9 As with the Implementing Regulation,
the direction of travel with the draft Financial Regulation appeared
to be satisfactory, but some important aspects had yet to be finalised
— in this case, ensuring that:
· Member States retained access
to the necessary information to provide a strong oversight role;
· the commitments in the EDF
Internal Agreement requiring the Commission to report on efficiency
savings, implement a comprehensive results framework and improve
financial management and forecasting, were put into practice;
and
· any further Trust Funds were
well-managed and that the Commission did not overlap, or set itself
up in competition with, the work already done by the EIB, but
instead concentrated its work where it had the necessary skills,
expertise, and comparative advantage over other organisations.
17.10 We therefore asked the Minister
to write to us again when the negotiations had progressed further
and, when she did so, to explain how the issues outlined above
had been addressed.
17.11 In the meantime, we retained the
document under scrutiny.
17.12 We also drew this chapter of our
Report to the attention of the International Development Committee.
The Minister's letter of 20 January 2014
17.13 The Minister writes as follows:
"I am pleased to inform you
that the Regulation has been amended to strengthen Member States'
oversight of financial forecasting. The Commission will now provide
a forecast of the Member States' annual contributions for three
and four years ahead. Currently the Commission does not provide
a forecast further than two years ahead. This revision will give
Member States a clearer picture of, and more time to prepare for,
future contributions to the EDF thereby minimising the potential
for underspend and improving financial management. The text also
explicitly states that the Commission must avoid significant variations
between contributions for different years and minimise the possibility
of unused funds remaining in the Commission's account each year.
This latter point ensures that funds, and any interest earned,
remain in Member States' accounts until they are needed.
"The UK has also proposed an
amendment which reinforces the commitment to improving the impact
of EDF programmes, as agreed in the EDF Internal Agreement. This
highlights that there is a specific amount ring-fenced within
the Commission's support costs which should be dedicated to a
range of actions to improve the efficiency and results of the
EDF. For the Financial Regulation this means improvements to the
Commission's processes for financial management and forecasting.
We expect this amendment will be agreed imminently in working
group.
"On trust funds, the regulation
is consistent with other EU external action instruments in enabling
the Commission to create trust funds for emergency, post-emergency
and thematic actions only. In addition, the regulation specifies
that there must be added-value to the EU's intervention and that
trust funds should not be created if they merely duplicate other
existing funding channels or similar instruments. I am satisfied
that trust funds should remain a possibility for the EDF and that
in the right circumstances these could be a useful instrument.
However, we will review these as and when they are proposed during
EDF 11 to ensure their effective use.
"The European Court of Auditors
provided its opinion on the Commission's proposal for the EDF
financial regulation in November 2013 and a number of amendments
have been made as a result.[89]
The Commission has accepted three of the six suggestions in the
Court's report: clarifying procurement procedures; identifying
the Court of Auditors' responsibilities for external audit; and
outlining conditions for sub-delegating tasks and EDF funds to
other organisations. The UK agrees with the changes proposed and
is pleased that the Commission has accepted these recommendations.
"The Commission has not taken
on board three of the Court's suggestions covering: the clarity
of the drafting of the regulation; the strength of provisions
determining conditionality on budget support; and whether the
Commission should take into account the specific context in partner
countries when using grants.
"On the first, the EDF regulation
contains significant cross-referencing to the general Financial
Regulation of the EU budget which makes it difficult to read.
The Commission has explained that a guidance paper will be provided
to help navigate the document and that the provisions of the regulation
have been translated through internal guidelines, public guidelines
for beneficiaries of EU funds and contract templates. We remain
somewhat concerned that the regulation is overly complex. However,
the Court of Auditors' annual report on the EDF accounts and underlying
processes should provide a regular check on whether the regulation
is being correctly applied.
"On budget support the Court
noted that regulations also contained general statements of policy
and that the text could be strengthened with respect to conditionality
of budget support payments. The Commission has not amended these
provisions as they are aligned with the recently adopted Common
Implementing Rules governing the other EU aid instruments. The
UK is satisfied that this is the case and the proposal for budget
support is sufficiently balanced on the use of conditionality,
providing appropriate flexibility and taking into account progress
made by partner governments.
"As regards to grants, the
Court noted that the regulation is not in line with the general
Financial Regulation of the Budget as it emphasises a need for
the Commission to take into account specific needs and contexts
when considering types of aid. The Commission has not amended
this as it is aligned with the Common Implementing Rules. We are
satisfied that this is consistent with the other EU aid instruments
and with the underlying principles of the Cotonou agreement."
17.14 The Minister concludes by noting
that "there are still a small number of outstanding articles"
to be negotiated over the coming weeks in the ACP Working Group,
which she envisages will be concluded by February 2014, at which
point the draft Regulation will be passed to the Council for adoption.
Conclusion
17.15 We are grateful to the Minister
for this helpful and comprehensive update. All the main issues
appear to have been satisfactorily resolved.
17.16 We therefore now clear the
draft Regulation.
17.17 We are also drawing this chapter
of our Report to the attention of the International Development
Committee.
86 See headnote: HC 83-xix (2013-14), chapter 2 (30
October 2013). Back
87
See (34961) 10212/13: HC 83-vi (2013-14) at chapter 9. Back
88
Ditto. Back
89
For the Committee's consideration of this ECA Opinion, see (35597)
-: HC 83-xxvii (2013-14), chapter 14 (8 January 2014). Back
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