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Documents considered by the Committee on 24 October 2018 Contents

3Neighbourhood, Development & International Cooperation Instrument 2021–27

Committee’s assessment

Politically important

Committee’s decision

Not cleared from scrutiny; further information requested; drawn to the attention of the Foreign Affairs Committee and the International Development Committees

Document details

Proposal for a Regulation establishing the Neighbourhood, Development and International Cooperation Instrument

Legal base

Articles 209, 212 and 322(1) TFEU, ordinary legislative procedure; QMV

Department

Foreign and Commonwealth Office

Document Number

(39903), 10148/18 + ADDs 1–2, COM(18) 460

Summary and Committee’s conclusions

3.1In May 2018, the European Commission proposed to consolidate a number of the EU’s existing funding instruments for international development assistance into a single legal framework: the Neighbourhood, Development & International Cooperation Instrument (NDICI).

3.2With a putative budget of €89.2 billion (£78.5 billion) under the 2021–2027 Multiannual Financial Framework, this Instrument would fund EU development assistance worldwide, as well as finance other elements of the Union’s foreign policy (for example, helping accession countries meet the economic, legal and political criteria for becoming EU Member States). Notably, the Commission has proposed to bring the European Development Fund– which provides assistance to 78 countries in Africa, the Caribbean and the Pacific–within the new Instrument, ending the current practice of administering that Fund entirely separately from the general EU budget.36

3.3The Government, as part of its efforts to establish a new security and foreign policy partnership with the EU after Brexit, is actively engaged in the negotiations within the Council on the legal text underpinning the NDIC Instrument. In particular, it is seeking the insertion of a “third country” provision–missing from the European Commission’s original proposal–that would allow the UK to become a contributor to the Instrument as a non-EU Member State. We first considered the NDICI proposal in September 2018,37 and asked the Government to clarify in particular what conditions it would attach to any such financial contribution to the Instrument as a “third country”.38

3.4The Minister for Europe and the Americas (Sir Alan Duncan) replied by letter dated 1 October 2018, in which he explained that any UK contribution to the NDICI—should this become possible under a new ‘third country’ mechanism—would have to come with several levers of influence for the Government. The Minister “envisage[s]” that these would include39 a right for the Government to be consulted about the practical implementation of the Instrument; agreed mechanisms for disbursement of EU funding; and eligibility for UK entities to bid for and receive funding from EU instruments to which the Government contributes.

3.5The Minister also explains that no clear majority view has emerged yet among the Member States about the proposal to “budgetise” the European Development Fund from 2021 onwards, but that the Government has emphasised the need for a sufficient proportion of EU development funding to be channelled towards the Least-Developed Countries (LDCs) irrespective of the precise legal form of the EU’s external instruments.40

3.6We thank the Minister for his helpful update, in particular the clarification of what the UK would expect in terms of influence over the implementation of NDICI funding if the UK were to make a financial contribution. We will use these as a benchmark as and when formal negotiations take place for the framework for the UK’s post-Brexit partnership with the EU on foreign and security policy in due course.

3.7Because of the uncertainties engendered by the process of the UK’s exit from the EU, the exact (financial) implications for UK taxpayers of the NDICI Instrument, and the EU’s next Multiannual Financial Framework from January 2021 more generally, remain ambiguous.

3.8In principle, the UK will cease to be a Member State on 29 March 2019 and leave the EU fully after a subsequent transitional period. This is due to end on 31 December 2020 under the draft Withdrawal Agreement. During the transition, the UK would remain a budgetary contributor as if it were still an EU Member State (albeit with limited representation in the EU institutions and no voting rights over EU policy or funding decisions). However, on 17 October 2018, the Prime Minister told her counterparts at the European Council summit that the UK would be open to considering “an option” in the Withdrawal Agreement to “extend the [transition] period for a matter of months”. That would mean the UK were still in the transitional arrangement when the next Multiannual Financial Framework, and the new NDIC Instrument, become operational. In that case, the UK might have no choice but to contribute to the Instrument until the transitional period ended.

3.9After the end of any transitional period, the UK could voluntarily choose to seek participation in the EU’s external action instruments like the NDICI. It is unclear, however, how the UK’s demands for levers of influence would be met in practice and set down in a legal agreement with the EU. We remain concerned that, as a ‘third country’, the UK will find it more difficult to influence the way in which any development assistance channelled via the EU would be spent and managed. However, conversely, it would be easier for the Government to cease any such financial contributions if UK demands were not being met. (As a Member State, and during the transition, the UK does not have the option to withhold its budgetary contributions.) More generally, the impact of the UK’s exit from the EU for the effectiveness of both UK and EU development policy will only become clear over time, but it is likely to be adversely affected unless there is mechanism for continuous cooperation, whether informally or via a legal agreement to participate in the relevant EU instruments.

3.10We note in this respect that the negotiations on the UK’s orderly withdrawal from the EU have become severely strained, in particular over the issue of the ‘backstop’ to keep the border with Ireland free of customs and regulatory infrastructure. The prospect of a UK exit from the Union without a Withdrawal Agreement therefore remains realistic.

3.11As we recently set out, the repercussions of a “no deal” Brexit would be wide-ranging and extremely serious. While not an immediate priority, it would also disrupt the establishment of a new UK-EU foreign policy partnership and, in the interim, even day-to-day cooperation on development policy. In particular, the political acrimony following a breakdown in the Article 50 negotiations would abruptly end the Government’s ability to influence the legislative deliberations on the NDICI proposal, and therefore reduce the odds that beneficial “third country” provisions are inserted into the final Regulation. In any event, until the UK had settled its outstanding financial commitments vis-à-vis the EU’s 2014–2020 Multiannual Financial Framework (which the Government has accepted exist), it is unlikely the remaining Member States or the European Parliament would countenance an agreement with the UK for participation in any future EU programmes, including the NDIC Instrument. In summary, many significant political hurdles to post-Brexit UK participation in the EU’s development assistance programmes remain.

3.12As we have noted previously, the implications of the UK’s withdrawal are likely to be particularly significant for developing countries in the Commonwealth and among the British Overseas Territories.41 These will lose the UK’s voice of support at the EU’s negotiating table when future EU development assistance under the NDICI is allocated, but it remains unclear what—if anything—the Government proposes to do mitigate any lost EU funding for these countries over the short- and medium-term. In his latest letter, the Minister only refers to the Government’s ambiguous objective of “seeking specific arrangements for the [British] Overseas Territories on areas of common interest with EU Member States”.

3.13In light of the above, and in particular the possible extension of the post-Brexit transitional period, we will continue to monitor the legislative negotiations within the Council and the European Parliament on the NDIC Instrument closely. We also draw the Minister’s latest letter to the attention of the Foreign Affairs and International Development Committees, and retain the proposal under scrutiny in anticipation of further updates from the Government in the coming months.

Full details of the documents:

Proposal for a Regulation establishing the Neighbourhood, Development and International Cooperation Instrument: (39903), 10148/18 + ADDs 1–2, COM(18) 460.

Background

EU development assistance

3.14The European Union has a long history of providing financial support for lower-income countries, both in its immediate “Neighbourhood”—Eastern Europe, the Near East and North Africa—and further afield, in particular developing countries in Africa, the Caribbean and the Pacific (the ACP states) with former colonial ties to EU Member States. This support is currently channelled via a variety of funding instruments, the cost of which is ultimately borne by the EU’s Member States. These ‘external action’ programmes principally provide funding for economic development, as well as supporting political and governance reforms.

3.15The EU’s next long-term budgetary cycle, the Multiannual Financial Framework (MFF), begins in 2021 and will run until the end of 2027. The EU’s existing funding instruments for external support and development assistance will therefore expire at the end of 2020, meaning the Member States—and the European Parliament—have to agree on a new generation of funding instruments in this area.

The 2018 NDICI proposal

3.16In May 2018, the European Commission proposed a Regulation to consolidate many of the existing funding programmes for development assistance into a single legal and financial framework from 2021 onwards: the Neighbourhood, Development & International Cooperation Instrument (NDICI). It would replace, for example, the European Development Fund, the Development Cooperation Instrument and the European Neighbourhood Instrument. Its proposed budget of €89.2 billion (£78.5 billion) over the 2021–2027 period would mark a 10 per cent real-terms increase in EU funding for development assistance compared to the current long-term budget, which runs from 2014 until the end of 2020.

3.17One of the most significant changes the Commission proposal would make is to the set-up of the European Development Fund. This is the assistance facility for countries with former colonial ties to current EU Member States in the Caribbean, Africa and the Pacific, including many Commonwealth countries, under the 2000 Cotonou Agreement. The Commission has recommended that the EDF should be funded directly by the EU budget, rather than via a separate ‘off-budget’ mechanism for the first time.42 This would increase the oversight of the European Parliament over how the funding is spent, and end the existing separation of EU development funding for the Member States’ former colonies on the one hand and for all other developing countries on the other.

3.18The overall implications of the NDICI proposal for the UK are currently unclear, given its decision to leave the EU. As a Member State, the UK has a vote on the annual budgets for the EU’s development funding, and over the long-term and annual work programmes that restrict how the European Commission can spend that money. However, given the UK’s decision to leave the EU, it will by default not be a participant in, or contributor to, the NDICI.

3.19Nevertheless, the Government has been explicit in recent months that, ideally, the UK would like to continue working closely with the EU on development cooperation after Brexit. It has said this could involve a financial contribution to the relevant EU programmes, like the NDICI, in return for the UK being “able to shape [them] and to have a say in [their] performance”. Despite an explicit UK request for “mechanisms that go beyond existing arrangements for third parties”43 in the draft legal framework for the NDIC Instrument, the Commission proposal contained no overarching arrangement for non-EU countries to be comprehensively involved in a capacity as donor.

3.20The NDICI Regulation is still subject to amendments by the European Parliament and the Member States before its formal adoption. However, even if they insert a ‘third country’ mechanism to allow for closer involvement by the UK, it is unclear by what mechanism the Government proposes to keep oversight over how its contribution—and funding from the Instrument more generally—would be spent. The Secretary of State (Penny Mordaunt) has stated that the UK would demand for a “suitable level of oversight” in return for any payments, including the ability to “shape programmes”.44

3.21The European Scrutiny Committee set out the substance of the NDICI proposal, and its assessment of the implications for the UK, in some detail in its Report of 12 September 2018. Given the uncertainty about the UK’s future role in the NDIC Instrument and the EU’s development programmes more generally, the Committee decided to keep the proposed Regulation under scrutiny. Given the substance of the proposal and the Government’s ambitions for post-Brexit cooperation with the EU on development policy, we asked the Minister to provide more clarity about the level of support among Member States for folding the European Development Fund into the new Instrument, and explain the practical implications of the Government’s desired ability “to shape” EU development programmes in return for a financial contribution as a ‘third country’.

The Minister’s letter of 1 October 2018

3.22The Minister for Europe and the Americas at the Foreign & Commonwealth Office (Sir Alan Duncan) provided further information on the NDICI proposal and the UK’s position by letter dated 1 October 2018.

3.23With respect to the proposed ‘budgetisation’ of the European Development Fund, the Minister explains that it is “too early” in the budgetary negotiations for 2021–2027 to assess if there is sufficient majority among Member States for the EDF to be folded into the NDICI, or to remain outside of the future next Multiannual Financial Framework. He also notes that the UK’s position remains that there should be an opportunity for its participation in the Fund, irrespective of its precise legal status under EU law. In the negotiations so far, the Government has also emphasised “the importance of poverty reduction and the [Least Developed Countries], especially in Africa” and requested further information from the Commission about the resource allocation process to ensure a focus on providing assistance to those countries.

3.24The remainder of the Minister’s letter focuses on the Committee’s questions in relation to the possibilities for UK involvement in EU development assistance policy via the NDIC Instrument as a ‘third country’.

Opportunities for UK participation in the NDIC Instrument after Brexit

3.25The Minister reiterates that, “as for all discussions on external action instruments under the new Multi-Annual Financial Framework”, the Government is using its representation within the relevant Council working parties to “press for expansive provisions on ‘third country’ participation” (although the legislative deliberations on the final legal text of the NDIC Instrument are expected to last beyond the UK’s withdrawal in March 2019).

3.26As regards the Government’s criterion that any financial contribution to the Instrument should come with the ability to “shape” the way the money is used, the Minister explains that “sufficient oversight arrangements” would be needed to enable a UK contribution to the NDICI after Brexit. As per the Minister’s letter, the Government ‘envisages’ that the UK would require:

3.27As a rule, the Minister states, “any UK financial contribution would require an appropriate level of UK participation and oversight, including a say over how UK funds are used, whether that is at the instrument level, programme level or windows”. How these levers of influence would be translated into precise legal terms under any future legal agreement setting out the parameters of UK participation—should the final NDICI Regulation allow such ‘third country’ involvement—remains unclear.

3.28Finally, with respect to the implications for developing countries with historical or constitutional links to the UK, which have hitherto benefited from the UK’s support when EU development assistance is allocated, the Minister states only that “ the UK will be seeking specific arrangements for the Overseas Territories on areas of common interest with EU Member States, including their overseas countries and territories”. He does not refer to the position of independent Commonwealth countries in this context.

3.29The Committee considers that the UK retains a significant interest in the final legal text underpinning the NDIC Instrument, particularly as regards the possibility—and potential cost—of UK participation as a “third country”. It has therefore retained the proposal under scrutiny in anticipation of further updates from the Minister. The Austrian Presidency of the Council is expected to present a progress report on the negotiations on the NDICI to the Member States in December 2018. The Committee will take stock of developments at that stage and decide in due course whether to report them to the House.

Previous Committee Reports

See (39903), 10148/18 + ADDs 1–2, COM(18) 460: Thirty-eighth Report HC 301–xxxvii (2017–19), chapter 16 (12 September 2018).

36 The European Development Fund is ‘off budget’ because it has historically been funded by Member State contributions directly. Although managed by the European Commission, those contributions are not—in a legal or accounting sense—part of the EU budget. This ringfences money available for the ACP states from the EU’s development assistance for other countries, and reduces the budgetary oversight of the European Parliament.

37 See the Committee’s Report of 12 September 2018.

38 Based on existing EU approach to calculating the contribution of ‘third countries’ for participation in its programmes, we have putatively estimated the potential UK contribution to the NDICI over the 2021–2027 period could amount to €2 billion (see “our Report of 12 September 2018 for more information).

39 See the Minister’s letter of 1 October 2018.

40 Under the Commission proposal, 36%—€32 billion—of the NDICI’s budget would be earmarked for Sub-Saharan Africa. However, it is not ring-fenced in any binding way: due to the consolidation of various funding programmes into one Instrument, it would be easier for resources to be changes between different geographic or thematic priorities.

41 Six British Overseas Territories are currently eligible for financial support from the European Development Fund. They will become in eligible on 29 March 2019, or at the end of any subsequent transitional period.

42 The European Development Fund is ‘off budget’ because it has historically been funded by Member State contributions directly. Although managed by the European Commission, those contributions are not—in a legal or accounting sense—part of the EU budget. This ringfences money available for the ACP states from the EU’s development assistance for other countries, and reduces the budgetary oversight of the European Parliament.

43 Oral evidence by Penny Mordaunt MP to the International Development Committee (17 July 2018), Q4.

44 Oral evidence by Penny Mordaunt MP to the International Development Committee (17 July 2018), Q4.



Published: 30 October 2018