Select Committee on European Scrutiny First Report


COM(99) 726

Draft Regulation regarding the closure and liquidation of projects
adopted by the Commission under Council Regulation No. 213/96 on
the implementation of the EC Investment Partners financial
instrument for the countries of Latin America, Asia, the
Mediterranean region and South Africa.

Legal base: Article 179(1); co-decision; qualified majority voting
Department: International Development
Basis of consideration: Minister's letter of 24 October 2000
Previous Committee Report: HC 23-xiii (1999-2000), paragraph 11 (5 April 2000); and HC 23-xix (1999-2000), paragraph 3 (24 May 2000)
Discussed in Council: 10 November 2000
Committee's assessment: Politically important
Committee's decision: Cleared


  8.1  The financial instrument known as the European Community Investment Partners (ECIP) was established in 1988 to assist European industry wishing to set up in Asia, Latin America, the Mediterranean and, subsequently, South Africa by encouraging the creation of joint ventures between European and local partners.

  8.2  The Commission intends to introduce a substantially revised and improved ECIP, after carrying out a reassessment of the programme. This was covered by a Regulation which expired on 31 December 1999. The proposal considered here extends the funding to the end of 2001.


  8.3  In her Explanatory Memorandum of 13 March, which we considered on 5 April, the Secretary of State for International Development (the Rt. Hon. Clare Short) drew our attention to the Commission's intention in the new Regulation not to honour commitments in cases where the Commission had given preliminary approval but there was no formal contract. We put a number of questions to her, to which she gave us a preliminary response in a letter dated 17 May, which we considered on 24 May.

  8.4  The Minister said that the Commission had still not made any provision for the companies which did not have contracts. The UK had expressed its concern at this situation and the Presidency had asked the Commission to look again at the issue. The Minister said that the Commission's legal service had said that it would be illegal to make provision for them. She undertook to inform us of the outcome, when the legal issues had been resolved, and of the course of action she intended to take. She said that the Regulation, which the Government supported in principle, was likely to make very slow progress.

The Minister's letter

  8.5  On 24 October, the Minister wrote to say that the Presidency had pushed forward with work on the ECIP Interim Regulation while the House was in recess and the Government believed that the measure would be agreed at COREPER on 25 October. The Department has since informed us that a Common Position was agreed on it at the 10 November Development Council. The Minister regrets that she was unable to consult the Committee before she felt it necessary to lift the Scrutiny Reserve, but she hopes that we will agree that all the issues which caused us concern have been fully considered. She then responds to the concerns we raised.

  8.6  The Minister says:

    "I have now received advice which supports the Commission's view that it does not, at present, have legal authority to reimburse or enter into a contract with the affected companies. The Commission's legal basis for entering into ECIP contracts, and disbursing money in connection with these, was the last ECIP Regulation (No. 213/96), which expired at the end of last year. It does not therefore have the authority to effect new financing decisions.

    "I am also informed that the proposed Interim Regulation (No. 6047/00) could, in principle, cover provisions authorising the Commission to reimburse companies who had already spent money in the expectation of a contract. However, drafting such a power would be extremely difficult, not least because it would be difficult for the Commission to sift between those companies which did have a legitimate expectation of a contract, and those which did not.

    "We have discussed the position with other Member States at a series of meetings of the Development Co-operation Working Party (DCWP). Some concern with regards to the pipeline applicants was expressed by the other Member States, but there was no indication that they would actually block the Regulation and the Presidency therefore decided to push for agreement during October. The position of other Member States was probably influenced by the fact that Commission officials will not start work on a successor for ECIP until the Interim Regulation has been adopted by the Council.

    "I therefore concluded that the legal arguments were against making provision for the pipeline applicants in the Interim Regulation, and that there was no prospect of the UK blocking the Regulation. Given the Presidency's strong pressure to reach agreement in October, I decided to lift the UK's reserve.

    "It is my understanding that most, if not all, affected companies have either found alternative funding, abandoned their projects, or gone bankrupt. However my legal advisers have informed me that Article 288 imposes an obligation on the EC to make good any damage caused by its institutions (e.g. the Commission) or its servants in the performance of their duties, in accordance with the general principles common to the laws of the Member States, such as fairness and legitimate expectation. It is therefore possible that the affected companies will be able to seek compensation through the European Court of Justice, and I will ensure that they are aware of this".


  8.7  We thank the Minister and accept that she was not in a position to consult us before the proposal was put to COREPER. We note the legal advice that she received and the view taken by the other Member States and understand her decision.

  8.8  We are, nevertheless, concerned that the Commission allowed such a situation to arise and we ask the Government to seek to ensure that the Commission does not in future make apparent commitments which may not in practice be honoured.

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