Select Committee on European Union Twenty-Sixth Report



Letter from the Chairman to Rt Hon Douglas Alexander MP, Minister for Europe, Foreign and Commonwealth Office

Thank you for your EM dated 25 October 2005 which Sub-Committee C considered at its meeting on 3 November. The Sub-Committee decided to hold this document under scrutiny.

The Committee considers this Communication on EU-Palestinian co-operation beyond disengagement to be very important. We are disappointed that the Government did not provide a fuller account of HMGs view of the Commission's proposals, particularly the suggestions directed specifically to the Council.

The Committee would accordingly like to know the Government's view on the Commission's proposals that the Council:

    —agree a better mechanism for co-ordination of EU actions, reflecting the Commission proposal to act as a "clearing house";

    —confirm the objective of the negotiation of an Association Agreement with the Palestinian Authority, as well as a number of intermediate steps; and

    —consider the creation of an EU Agency for Reconstruction in Palestine, along the lines of the EU Agency for Reconstruction in Kosovo?

In general, the Commission also invited the Council to endorse the objectives and priorities set out in the Communication. Does the Government have a view on priorities in what is a long list of desirable actions in support of the economic and political viability of the Palestinian Authority? Should the Member States co-ordinate their aid according to agreed priorities?

Finally, the Sub-Committee discussed the considerable problems of corruption plaguing the Palestinian Authority. Could the Government give a fuller explanation of the conditionality that will be applied to the aid? In this Communication the Commission has proposed a very considerable increase in aid to the Palestinian Authority. Is the Government fully satisfied that there will be sufficient control on the use of this money?

3 November 2005

Letter from Rt Hon Douglas Alexander MP to the Chairman

Thank you for your letter of 3 November requesting further details about the Government's position on the above-mentioned Commission Communication. I hope this response, which has been agreed with the Department for International Development, provides you with a fuller account of the points that you have raised.


We strongly support enhanced donor co-ordination within the Palestinian territories. DFID has seconded a senior official to James Wolfensohn's team to work on strengthening donor co-ordination systems. Donors and the Palestinian Authority (PA) are now close to finalising simplified local aid co-ordination structures. These new arrangements will focus on the four key areas of infrastructure, governance, economic and social/humanitarian issues. The EU will act as lead donor on governance issues.

A good mechanism to co-ordinate donor assistance is essential. In our view, the recently established joint PA-donor Local Aid Co-ordination Committee should undertake this clearing house role.


An Interim Association Agreement on Trade and Co-operation between the European Commission and the Palestinian Authority came into force on 1 July 1997. We believe that this is an important framework to contribute to the social and economic development of the West Bank and Gaza Strip as well as to foster closer relations between the EU and the PA, in particular in the field of economic co-operation. We therefore welcome the Commission's renewed efforts to ensure the full implementation of the Agreement. We also support the Commission's proposals to overcome difficulties faced by Palestinian and EU producers in gaining access to their respective markets as well as to press for full recognition of the Interim Association Agreement by Israel.

Alongside the Interim Association Agreement; the EU and the Palestinian Authority have agreed a European Neighbourhood Policy (ENP) Action Plan. The inclusion of the Palestinian Authority in the ENP reflects the political importance of the EU's relationship with the Palestinians. The Action Plan defines the way ahead for the next three years and covers a number of key areas for specific action. It also builds on and reflects the existing state of relations with the Palestinian Authority and includes commitments on the fight against terrorism and the proliferation of weapons of mass destruction. We believe that the approach in the Action Plan rightly combines opportunities for closer co-operation in areas of common interest, with a stronger desire from the EU to establish a set of shared common values. We hope that the Action Plan will provide support and impetus to the Palestinian Authority's own reform programme aimed at improving governance and services for the Palestinians. In setting out jointly agreed areas for reform, the Action Plan will also serve as an effective tool for targeting technical assistance.

Looking towards the longer-term, we support the Commission's ambition that upon the establishment of an independent Palestinian State, the EU should commence negotiations on a full Association Agreement, similar to those that have been agreed with other third countries in the region.


We think the idea of creating an EU Agency for Reconstruction in the Palestinian territories a good one, on the basis that it may well increase the effectiveness of development assistance. There are risks of extra bureaucracy and duplication, which would need to be addressed. It is particularly important that such an Agency complements existing and proposed donor structures, works closely with the Wolfensohn team and contains staff who are skilled in civil policing, governance, institutional development and donor co-ordination. It is also important that the Agency is fully in touch with diplomatic efforts on the Middle East Peace Process and that its structure is relatively light. Once the Commission decides to take forward its planning for the Agency we will liaise with it on its plans to help to ensure that our concerns are addressed.


It is important that EU Member States co-ordinate their aid according to agreed priorities. Pooled and harmonised funding arrangements within the Palestinian territories are already beginning to develop momentum. These include the World Bank's Reform Trust Fund, through which a number of donors including the UK provide budget support to the PA. The EU Coordinating Office for Palestinian Police Support (EU COPPS) brings together policing expertise from across the EU to support the capacity development on security. The new Infrastructure Facility should do the same for infrastructure. It is particularly important that future donor assistance is focused on responding to the various priorities identified within the PA's forthcoming three-year Medium Term Development Plan (MTDP).

We support the various economic priorities identified in the Commission's Communication through both our provision of budget support to the Palestinian Authority and of technical assistance: The Government's approach is particularly centred on support for four of the Commission's economic priorities:

    —In providing specialist assistance to the building up of Palestinian capacity in customs administration and border controls. In particular, we are contributing to the EU's "third party" monitoring role at the Rafah checkpoint that will enable the direct export of Palestinian goods. The Government fully recognises the importance of improved access, trade and movement to Palestinian economic viability and the possibility of successful future peace negotiations;

    —To improve the management of public finances by providing budget support (both directly through bilateral funding and indirectly through our 18% contribution to EC funding) in response to the Palestinian Authority's attainment of agreed financial reform benchmarks. The purpose of the existing budget support instrument is to support Public Financial Management reforms and better planning and budgeting. Future European donor efforts centred around a redesigned budget support instrument will rightly ensure a greater focus on Palestinian identified priorities and increased aid predictability;

    —In providing support to the private sector through supporting the domestic enabling environment for investment and various initiatives to support domestic enterprise (for example, the establishment of loan guarantee schemes); and

    —In developing bilateral and regional trade relations at the point of final status negotiations. In the meantime, we along with other EU Member States will work closely with the Commission in supporting James Wolfensohn's efforts on improving movement, access and trade.

We will also continue to ensure that all-important needs are covered through the Ad Hoc Liaison Committee. The Commission's political priorities that the UK Government focuses on are:

    —Improving security, as progress on Palestinian delivery of their security commitments is crucial. The EU should continue to work closely with the US Security Co-ordinator (General Dayton has been appointed as successor to General Ward to lead on the enhanced mission) and the Palestinians on this. The EU is committed to continued and enhanced support for Palestinian civil policing (eg through EU COPPS) in order to help build the necessary security environment in Gaza following Israeli disengagement;

    —Making public administration more effective as it is vital that the Palestinians develop credible and effective institutions in order to develop effective control of Gaza and the northern West Bank. Only then will the Palestinians in these areas enjoy a greater quality of life and the Israelis benefit from greater security. This in turn should create an environment where both sides can make progress on their Roadmap commitments; and

    —Addressing the refugee issue beyond immediate humanitarian needs through our support for the current UNRWA external review.


Much of the Commission's support to the PA has been through providing budget support through the multi-donor Reform Trust Fund. Disbursement of funding is conditional on the achievement of benchmarks for reform, progress against which is carefully monitored. These conditions have helped the PA improve its financial control and management and reflect the EU's commitment that aid should be properly accounted for, used for the intended purposes and represent value for money. Donors also agree that there is a need to refocus a future Trust Fund. In order to address structural change, the new programme will need a set of broader conditions encompassing development planning, recurrent expenditures and reforms that address the size and efficiency of the civil and security services.

The European Anti-Fraud Office (OLAF) has recently completed an investigation into alleged irregularities concerning EC budget assistance to the PA. This investigation found no conclusive evidence of support of armed attacks or unlawful activities financed by EC contributions to the PA budget. However, primarily due to the fact that audit capacity in the PA was still underdeveloped, OLAF felt that the possibility of misuse of its budget could not be excluded. Strengthening audit is one of the requirements under the Reform Trust Fund.

29 November 2005

34   Communication from the Commission to the Council and the European Parliament: EU-Palestinian cooperation beyond disengagement-towards a two-state solution, Ref. COM (2005) 458 final, Brussels 5.10.2005. Back

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