COMMON FINANCIAL FRAMEWORK 2004-2006 FOR
Commission Communication: Information Note: Common Financial
Framework 2004-2006 for the Accession Negotiations.
|Document originated:||30 January 2002
|Forwarded to the Council:
||31 January 2002|
|Deposited in Parliament:
||31 January 2002|
|Department:||Foreign and Commonwealth Office
|Basis of consideration:
||EM of 18 February 2002|
|Previous Committee Report:
|Discussed in Council:
||Foreign Ministers' Informal Meeting on 8-9 February 2002 and ECOFIN on 12 February 2002
|Committee's assessment:||Politically important
|Committee's decision:||For debate in European Standing Committee B (together with the Commission's Strategy Paper on enlargement and Reports on progress by individual candidate countries)
5.1 According to the EU's 'road map' on enlargement,
the chapter on Financial and Budgetary Provisions and two others
with important budgetary elements Regional Policy covering
structural and cohesion funds and Agriculture are due
to be negotiated during the Spanish Presidency (January to June
2002). The Commission has prepared this framework document, on
the financing of enlargement between 2004 and 2006, as an Information
Note in order to allow the Council to assess the financial implications
of these chapters early in the Presidency. After discussions in
Council, it is intended to form the basis for the Commission's
proposals for the Common Positions on the three chapters.
5.2 The Note takes as its basis the agreement reached
at the Berlin European Council in 1999 on the financing of enlargement
up to 2006. Its proposals respect the ceilings for overall annual
expenditure agreed at that Council. A table annexed to the Note
shows at a glance that the commitment and payment appropriations
proposed are for lower totals than those agreed in Berlin.
5.3 Because of the complex nature of the underlying calculations
for agriculture, the Commission has issued an accompanying agriculture
issues paper containing more detailed calculations.
It has also provided the Council with a classified negotiating
paper on structural policy which will not be made available to
5.4 The Berlin agreement envisaged an enlargement of
six in 2002. The working assumption in this Commission document
is of an enlargement of ten countries in 2004. It therefore takes
as its point of departure 2004, rather than 2002 and proposes
a package which it believes "responds to the legitimate expectations
and needs of the candidate countries".
5.5 For some categories of expenditure, the Commission
proposes that the resources needed to finance ten instead of six
new Member States can be found by not taking as a point of departure
the amounts envisaged for the six between 2004 and 2006, but instead
to set them closer to the levels originally foreseen for the first
three years of accession of those candidates. For other categories,
the Commission has provided new estimates based on the latest
data. For instance, for market-related expenditure under the Common
Agricultural Policy (CAP), the calculations are based on updated
5.6 The proposals also include spending additional to
that envisaged in Berlin in a number of areas, including the Structural
and Cohesion Funds, and the extension of agriculture direct payments
to the new Member States, on a phased-in basis.
5.7 In his Explanatory Memorandum of 18 February, the
Minister for Europe (Mr Peter Hain) summarises the key points
of the Common Financial Framework proposed as follows:
"CAP market policy / direct payments
"The Commission proposes a phasing-in of agricultural direct
payments to the new Member States at a rate of 25% of the level
of direct payments available to current Member States in 2004,
increasing to 30% in 2005 and 35% in 2006. During the first three
years, new Member States may opt for a simplified direct payments
procedure based on a flat per hectare payment, irrespective of
what is produced on the land, providing the land is for agricultural
use. The Commission proposes to continue the phasing-in of direct
payments from 2007, in line with the existing scheme, in such
a way as to ensure that in 2013 the new Member States reach the
support level generally then applicable across the EU. The Commission
document says that this would be achieved by expressing entitlements
in percentage terms rather than absolute amounts, and by indicating
that the transitional regime 'does not prejudge any changes in
the nature of the regime.' The Commission estimates that this
would cost £1173 million in 2005 and £1418 million in
2006. There would be
no cost to the budget for 2004, as reimbursements of direct payments
are made a year in arrears.
"Rural Development Policy
"The Commission also proposes to increase the Berlin rural
development figures for the first three years of enlargement both
to allow for ten new Member States and to provide additional amounts
to cover further rural development expenditure to support restructuring
of the agriculture sectors in the new Member States. The Commission
estimates that the adjusted costs for rural development policy
would amount to £1532 million in 2004, £1674 million
in 2005, and £1781 million in 2006.
" Regional Policy
"The Paper proposes to increase the Berlin figures for Structural
and Cohesion Funds (SCF) for the first three years of enlargement
both to allow for ten new Member States and to allow for a faster
phasing-in of structural expenditure to compensate for a later
enlargement than foreseen at Berlin. The Commission proposals
would also increase the proportion of SCF allocated to the Cohesion
Fund to one third of the total available, on the grounds that
this would be more suited to the candidates' needs and absorption
capacity. According to the proposals, the expenditure in the new
Member States would reach around 2.5% of GDP (or £137 in
per capita terms) in 2006.
" Internal Policies
"The Commission proposals would allocate funds under the
Phare programme for decommissioning of nuclear power plants in
Slovakia (£60 million in total) and Lithuania (£245
million in total) until 2006.
"The Commission proposes additional spending on institution
building (i.e. strengthening administrative capacity) until 2006.
This would cover projects that fall outside the scope of the Structural
and Cohesion Funds, such as border controls or the internal market,
and would cost £200 million in 2004, £120 million in
2005, and £60 million in 2006.
"The Commission proposes that, as Berlin did not fully take
into account the northern part of Cyprus, and in the context of
a political settlement, followed by accession of a reunited island,
there should be expenditure of £39 million in 2004, £67
million in 2005, and £100 million in 2006 for Northern Cyprus,
to be distributed between agriculture, structural support and
" Budgetary Compensation
"The Commission proposes transitional arrangements under
which new Member States would receive refunds to offset any deterioration
in their net budgetary position compared to the situation in the
year before accession".
5.8 To expand a little on this summary, it may be worth
noting that the Commission comments that:
- " in the Berlin framework, the assumptions underlying
the calculations for 2002-2006 did not cater for direct payments
in favour of the farmers in the new Member States. In their position
papers, however, all Candidate Countries demand to be fully integrated
into this aspect of the Common Agricultural Policy upon accession.
The Commission considers that immediate full integration into
the system of direct payments would not give the right incentives
to farmers in the new Member States to engage in, or continue,
the necessary restructuring. On the other hand, the new Member
States should obtain an assurance about the moment when they will
be fully integrated into the CAP, whatever its nature may be".
It is for this reason that the Commission proposes two steps leading
up to the full application of direct payments;
- it would increase the EU co-financing rate for rural development
measures up to 80%, the maximum level for structural programmes
in Objective 1 regions in the Member States which benefit from
- average aid per capita for structural expenditure in
the four Cohesion States is £231, which represents 1.6% of
their total GDP. The Commission says that the candidates are acquiring
substantial experience in the development and implementation of
environmental and infrastructure projects under the ISPA pre-accession
instrument and that increased expenditure in favour of the Cohesion
Fund would continue to satisfy the high investment needs of the
new Member States in these two sectors;
- the adjustments proposed for nuclear safety and the
transition facility for certain institution building actions
would ensure their continuation when they will no longer be covered
by the pre-accession strategy but will also not be eligible under
existing programmes and structural funds actions;
- the financial elements proposed for Northern Cyprus can
be integrated into the negotiations at a later stage in the context
of a political settlement in time for the conclusion of the Accession
Treaty; and that
- whilst the own resources decision is expected to be fully
applied by the new Member States from the first year of accession,
at each previous enlargement all new Member States have benefited
from transitional arrangements for budgetary compensation.
It provides examples of two ways in which a new Member State could
suffer a deterioration in its net budgetary position at this time:
5.9 So as to ensure that no new Member State finds itself
in a worse position than in the year before enlargement, the Commission
proposes allowing for a margin for commitments of £816 million
in 2004, £800 million in 2005 and £814 million in 2006.
It provides details of arrangements made for earlier enlargements
with, for instance, Greece being granted a 5-year diminishing
reduction (70% to 10%) in its payments on the VAT resource, Spain
and Portugal obtaining a similar reduction and Austria, Finland
and Sweden receiving decreasing 4-year lump sum payments from
the general budget.
5.10 As the sum will depend on the final outcome of the
negotiations on the other chapters, the Commission says that it
will propose an appropriate amount for budgetary compensation
payments only when negotiations have been concluded.
The Government's view
5.11 The Minister comments as follows:
"The Government welcomes the fact that the Commission
has presented proposals on financing enlargement, and notes that
they mark the beginning of a crucial stage in the negotiations.
The Government also welcomes the Commission's conclusion that
an enlargement of up to ten new Member States can be managed within
the sums provided for at Berlin. The Government reiterates the
importance of keeping to the financial agreement reached at Berlin
and to the timeframe for enlargement agreed at the Gothenburg
and Laeken European Councils: ending negotiations this year with
those candidates that are ready, so that they can participate
in the 2004 European Parliament elections as Member States. The
objective should be that, in the medium term, all Member States
in an enlarged EU should participate on an equal footing.
"The Government regards investment in rural development as
the most effective way to help new Member States restructure their
agriculture sectors, improve productivity and undertake diversification
of the rural economy. It therefore welcomes the Commission's emphasis
on rural development measures. It notes the arguments provided
in the Commission's issues paper about the damaging effects of
high direct payments in the new Member States.
"The Government welcomes the emphasis that the overall financing
package places on the Structural and Cohesion Funds, to help tackle
the new Member States' restructuring and developmental needs.
The sums provided for the Structural and Cohesion Funds will need
to respect the agreement at Berlin, the needs and the absorption
capacity of the new Member States. The Government welcomes the
Commission's proposal to tilt the balance of structural expenditure
more towards the Cohesion Fund which, given its concentration
on infrastructure and its simpler management procedures, should
be better suited to the new Member States.
"The Government agrees with the Commission on the importance
of continuing to build administrative capacity in the candidate
countries after their accession. It therefore welcomes, in principle,
the Commission's proposal to allocate further funds for institution
building. The Government also supports continued support for the
decommissioning of non-upgradeable nuclear power plants. All additional
funds will need to be fully explained and justified.
"In relation to Cyprus, the Helsinki European Council stated
that a settlement to the Cyprus problem would facilitate Cyprus'
accession to the EU, but that it was not a pre-condition. The
Commission's proposals on post-accession funding for Northern
Cyprus, in the context of a political settlement, are a positive
step. The Government supports the Commission's objective of finding
ways to help Northern Cyprus.
"The Government considers that addressing the possibility
of budgetary compensation to the new Member States is premature
at this stage of the enlargement negotiations. This possibility
should be assessed, on a case-by-case basis, once the likely contributions
and receipts of the new Member States in relation to the Community
budget are more apparent. This should be the case after progress
in the negotiations on the main budgetary related chapters, in
particular relating to the CAP and structural policies.
"The Government looks forward to further discussion of the
proposals and the assumptions and principles which underpin them".
5.12 Addressing the financial implications of the document,
the Minister notes that the Berlin European Council in 1999 agreed
the Financial Perspective and Enlargement Financial Framework
covering the EU budget from 2000-2006. The Financial Perspective
was then incorporated into a legally binding inter-institutional
agreement (IIA) between the European Council, the Commission and
the European Parliament. In this Framework Paper, the Commission
proposes enlargement expenditure of £40,200 million between
2004 and 2006, compared with the £42,600 set aside for these
years at Berlin.
5.13 On the timetable, the Minister says simply that
the Commission presented its document on 30 January and that it
was discussed at the Foreign Ministers' Informal meeting at Caceres
on 8-9 February and at ECOFIN on 12 February.
5.14 The press has reported that, at the 12 February
ECOFIN Council, Germany, UK, Austria, the Netherlands and Sweden
opposed direct aid payments to farmers in new Member States, arguing
that no such expenditure was foreseen in 1999 in Berlin, that
the proposals would have the effect of cementing direct payments
until 2013 and that the cost would be too high. They are said
to believe that the payment of direct aid would hamper the much-needed
process of agricultural restructuring in the Central and Eastern
European Countries (CEECs). Ireland, Greece, Denmark, Belgium,
Luxembourg, Finland and Portugal are said to have supported the
proposals. France is reported to be opposed to the Commission
paper as being too generous and costly.
5.15 On 31 January, the Spanish Prime Minister, José
Maria Aznar, is reported to have said, referring to the introduction
of direct aid to agriculture in candidate countries, that "Agenda
2000 does not say that direct aid may be continued after 2006/2007,
but it does not say the contrary either".
On 2 February, the Spanish Foreign Minister, Josep Piqué,
is quoted as saying that there must not be any "intrusion"
between the drawing up of the negotiating Common Position on agricultural
policy and the mid-term review of agricultural policy that is
due to begin in June.
5.16 The Commission is reported to have come to the conclusion
that it would have been politically impossible to exclude the
candidate countries completely from direct payments. The Director
General for Enlargement and chief EU negotiator, Eneko Landaburu,
is quoted in the 15 February issue of the weekly Agra Europe
as having said that the Commission had decided on a proposal which
had a "real chance" of being accepted by the candidates.
To have offered anything less would have been an "affront"
to the candidates.
5.17 At the same time, the candidate countries are reported
to have protested vigorously at the percentages proposed in the
Commission paper and the rates at which they would rise. Their
agricultural ministers are reported to have told the European
Parliament's Agriculture and Rural Development Committee on 18
February that the starting rate of 25% was too low and that the
transition period was too long. However, some were said to have
admitted that they appreciated the Commission's proposals on rural
development support and the 80% co-financing of support for semi-subsistence
farming, as well as the simplified system for direct aids. The
Polish Agricultural Minister and deputy Prime Minister and the
Commissioner, Franz Fischler, were reported to have appealed for
calm, while, in the same issue of Agra Europe the French
Farm Minister, Jean Glavany, was said to have told the candidates
to "stop ogling" at the CAP budget.
5.18 Agra Europe suggests that:
"the EU is seen as being tactically weakened by the fact
that its own farm and spending programmes (under Agenda 2000)
extend only as far as December 2006, and that insistence on a
ten-year phase-in period would appear to represent a pre-judgement
of the outcome of the renewed negotiations on CAP reform which
will be needed from 2005 onwards".
5.19 Agra Europe also reports that the French
Minister for European Affairs, Pierre Moscovici, said in Warsaw
on 12 February that any attempt to agree fundamental changes to
the CAP in advance of enlargement would inevitably delay the admission
of new Member States beyond the 2004 deadline. Italy is reported
to have moved away from the CAP reform camp.
5.20 Not surprisingly, this document has already attracted
considerable political interest. We consider that it should be
debated in European Standing Committee B, together with the Commission's
Strategy Paper on Enlargement and the Regular Reports on Progress,
already recommended for debate.
5.21 In his Explanatory Memorandum of 18 February,
the Minister does not reveal the Government's position on the
proposals on direct payments to farmers. He simply says that the
Government "notes the arguments provided in the Commission's
issues paper about the damaging effects of high direct payments
in the new Member States". We expect him to submit an Explanatory
Memorandum on the agricultural issues paper and to make a fuller
comment in it on the issue of direct payments.
5.22 In Madrid in November, the most senior official
at the Foreign Ministry, Carlos Basterreche, told us that the
Common Agricultural Policy (CAP) and the Structural Funds would
eventually have to be reformed, but that if this were done before
enlargement, maintaining the present timing of enlargement would
be out of the question. He said that there was general consensus
on this point. The Spanish made it clear to us that they did not
expect proposals on reforming the CAP to be brought forward before
the mid-term review in June, at the end of their Presidency.
5.23 Members may wish to raise with the Minister issues
- the overall costs of enlargement and whether he can confirm
that the press reports on the ECOFIN Council of 12 February are
- whether, in the Government's view, the paper does respond,
as the Commission believes, to the legitimate expectations and
needs of the candidate countries;
- the potential impact of the enlargement negotiations on
reform of the Common Agricultural Policy (both the extent and
timing), as well as on the specific issue of direct payments to
farmers. Commenting on the Commission's Work Programme,
the Minister says that the Government considers it essential to
pursue CAP reform and enlargement "in parallel". Does
the Government believe that the CAP will need to be reformed in
order to meet the expectations of the candidate countries, whilst
respecting the financial perspectives agreed at the Berlin European
- does the Minister consider that the EU is tactically weakened
by the fact that its own programmes under Agenda 2000 extend only
as far as 2006, as suggested by Agra Europe?
- whether the proposals regarding Structural and Cohesion
Funds are too generous, and whether the Minister expects the proposals
to be accepted by the existing Member States;
- at what stage he expects it will be possible to assess
possible budgetary compensation and if he can confirm that the
UK is not opposed in principle to this proposal;
- whether, whilst recognising the Commission's acknowledgement
that building administrative capacity will require a "long-term
effort which has to be continued after accession", he regards
the proposals for further assistance in this area as adequate
to ensure that the new Member States achieve an acceptable level
- whether the Government is satisfied with the take-up of
pre-accession support. (The Poles told the press in November that
Poland had missed a PHARE deadline to provide matching funding
and had definitely lost over 8 million euros, and possibly 12
million.) Do some candidates have real problems with administrative
capacity or with providing matching funds? What more should be
done to help them?
- will Parliament be given an opportunity to scrutinise any
substantial revision of these proposals before they form the basis
of the negotiating Common Positions?
5638/02; deposited on 26 February at our request. Explanatory
Memorandum not yet received. Back
are estimates at 1999 prices. Back
Quotidien Europe No. 8141 of 1 February 2002. Back
Quotidien Europe No. 8142 of 2 February 2002. Back
14117/01; see HC 152-xv (2001-02), paragraph 5 (30 January 2002). Back
15373/01; see paragraph 19 of this Report. Back