# EUR-Lex - 52001SA0013 - EN

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# 52001SA0013

**Special Report No 13/2001 on the management of the common foreign and security policy (CFSP), together with the Council's replies and the Commission's replies **

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Official Journal C 338 , 30/11/2001 P. 0001 - 0040 *

Special Report No 13/2001

on the management of the common foreign and security policy (CFSP), together with the Council's replies and the Commission's replies

(pursuant to Article 248(4), second subparagraph, EC)

(2001/C 338/01)

CONTENTS

>TABLE>

GLOSSARY OF ABBREVIATIONS

BiH - Bosnia and Herzegovina

CARDS Regulation - Community assistance for reconstruction, development and stabilisation, Council Regulation (EC) No 2666/2000 of 5 December 2000 on assistance for Albania, Bosnia and Herzegovina, Croatia, the former Yugoslav Republic of Macedonia and the Federal Republic of Yugoslavia (OJ L 306, 7.12.2000).

CFSP - Common foreign and security policy

Coreper - Permanent Representatives Committee

ECMM - European Communities Monitoring Mission (= EUMM: European Union Monitoring Mission)

EDF - European Development Fund

EUSR - European Union special representative

GFAP - General framework agreement for peace (Bosnia and Herzegovina)

ICRC - International Committee of the Red Cross

JA - Joint action

MAPE - Multinational advisory police element

NATO - North Atlantic Treaty Organisation

NSG - Nuclear Suppliers Group

OHR - Office of the High Representative to Bosnia and Herzegovina

PDB - Preliminary draft budget

PESC - Politique étrangère et de sécurité commune

Phare - Poland-Hungary: aid for economic restructuring (Community aid programme for central and east European countries)

PIC - Peace Implementation Council (Bosnia and Herzegovina)

SADC - Southern African Development Community

SG/HR - Secretary-General of the Council/High Representative

TEU - Treaty on European Union

UNMIK - United Nations Interim Mission in Kosovo

WEU - Western European Union

Weudam - Western European Union Demining Assistance Mission to the Republic of Croatia

SUMMARY

I. The Court of Auditors has assessed the evolution of the conditions governing the implementation of expenditure under the common foreign and security policy (CFSP) for the period 1997 to 1999, following the Court's Opinion No 1/97 on the same subject (see paragraphs 10 and 16 to 18).

II. Title V of the Treaty on European Union lays down the provisions establishing and governing the CFSP (see paragraphs 1 to 6 and 11 to 15). An important change of the Treaty of Amsterdam was the creation of the function of High Representative for the CFSP, fulfilled by the Secretary-General of the Council.

III. The instrument on which this report is focused is the one on joint actions, which "shall address specific situations where operational action by the Union is deemed to be required" as well as the implementing decisions of common positions which "shall define the approach of the Union to a particular matter of a geographical or thematic nature". The average amount committed was 35 million euro per year during the period 1997 to 2000 (see paragraphs 7 to 9).

IV. Despite a number of changes in the Treaty on European Union, the Commission's role in determining the financial, legal and operational arrangements is still not clear. Depending on the action, either the Commission or the Council defines the arrangements for its implementation. In practice, this complicates day-to-day management both in the field and at headquarters level (see paragraphs 19 to 30).

V. Criteria were laid down by the end of 1999 on the sourcing of Community-funding for CFSP actions but exceptions were left open for so-called "borderline cases". Furthermore, only limited information is available on contributions in kind made available by the institutions and on the amounts contributed by different Member States. The basis for the sharing costs between other donors and the Union has not been adequately laid down (see paragraphs 31 to 40).

VI. In 2000, about 40 % of the commitment appropriations used reflected decisions taken by the Council before 31 December 1999. In 1999, the equivalent percentage was 19 %. In the years 1997 to 1999, the total amount of Council decisions in respect of the CFSP operations exceeded the appropriations available by about 24 % (see paragraphs 41 to 43).

VII. The time lapse between the Council decision and the first payment increased considerably from 1998 to 1999, and was then even higher than in 1997, when the procedure to transfer appropriations from the reserve to the operational budget lines was used (see paragraphs 44 to 47).

VIII. Contracting was very complex in a number of actions as a result of an accumulation of extensions and other adjustments, to the extent that a proper follow-up to the financial situation was made very difficult (see paragraphs 48 to 54).

IX. Arrangements for remuneration and salary-related costs and allowances for special representatives and office staff are not laid down or not applied unambiguously (see paragraphs 55 to 58).

X. Reporting is often late and irregular, and reports in some cases present insufficient information. This forms a weak basis for any evaluation. The limited frequency of financial reports in particular forms a serious constraint to the Commission in supervising projects on a systematic basis (see paragraphs 59 to 61).

XI. The question of the definition of administrative versus operating expenditure is still not resolved: although a budget line was introduced from 1998 under subsection B8 to cover preparatory costs (which were previously regarded as administrative costs), the Council decided on 30 March 2000 that the costs of EUSRs should be considered to be administrative expenditure, to be covered by the budget of the Council's General Secretariat (see paragraphs 35 and 62 to 64).

XII. On the basis of its audit conclusions, the Court makes the following recommendations:

- the European Parliament, the Council and the Commission should adopt at an interinstitutional level clear operational principles and arrangements with regard to the Commission's role in the implementation of the CFSP,

- the financing of the CFSP actions should be managed in a more transparent manner,

- the Commission should launch an enquiry on the causes of long delays and reassess the action as well as the partner for the management of the action,

- the Commission should amend contracts retroactively or extend them only in cases of force majeure. Certain practical measures facilitating the smooth implementation of actions should be sought,

- the Council and the Commission should establish clear rules on remuneration and salary-related costs,

- arrangements should be laid down for adequate reporting, audit and evaluation.

INTRODUCTION

The common foreign and security policy

1. Title V of the Treaty on European Union (TEU) lays down the provisions establishing and governing the CFSP. Its objectives, as set out in Article 11(1) of the Treaty, are:

- to safeguard the common values, fundamental interests, independence and integrity of the Union in conformity with the principles of the United Nations Charter,

- to strengthen the security of the Union in all ways,

- to preserve peace and strengthen international security, in accordance with the principles of the United Nations Charter, as well as the principles of the Helsinki Final Act and the objectives of the Paris Charter, including those on external borders,

- to promote international cooperation,

- to develop and consolidate democracy and the rule of law, and respect for human rights and fundamental freedoms.'

2. Article 12 defines the type of action to be taken:

'The Union shall pursue the objectives set out in Article 11 by:

- defining the principles of and general guidelines for the CFSP,

- deciding on common strategies,

- adopting joint actions(1),

- adopting common positions(2),

- strengthening systematic cooperation between Member States in the conduct of policy.'

3. Institutional responsibilities for the approval and implementation of these common measures as set out in the TEU are outlined in Annex 1. It does not include the role of the Secretary-General of the Council in his capacity as High Representative for the CFSP, who, according to Article 26 of the TEU, "shall assist the Council in matters coming within the scope of the common foreign and security policy, in particular through contributing to the formulation, preparation and implementation of policy decisions, and, when appropriate and acting on behalf of the Council at the request of the Presidency, through conducting political dialogue with third parties". The common measures decided by the Council in the period 1997 to 1999 are listed in Annex 2, showing their financial impact on the budget of the European Union.

4. Article 28(2) and (3) of the TEU contains the following basic provisions for financing the CFSP under two categories of expenditure:

(a) "Administrative expenditure which the provisions relating to the areas referred to in this title entail for the institutions shall be charged to the budget of the European Communities."

(b) "Operating expenditure to which the implementation of those provisions gives rise shall also be charged to the budget of the European Communities, except (...) cases where the Council acting unanimously decides otherwise."

5. Additional financial provisions are specified in the Council decisions adopting common measures. When adopting joint actions, the Council lays down their objectives and scope, the means to be made available to the Union, and, if necessary their duration, and the conditions for their implementation(3).

6. The range of common measures is broad from the point of view of geography, subject matter and duration. Furthermore, the implementing body may be an international organisation or agency, a non-governmental organisation, a national, provincial or local government department, agency or institute, private sector company or person. In 1999, the amount of Community financial resources(4) allocated to joint measures varied between 0,2 million euro and 16,2 million euro. In some cases the Commission has to perform the measures very quickly. In the period 1993 to1996, there were 18 Council decisions for joint measures financed from subsection B8, whereas there were 40 actions in the period 1997 to 1999 (see Annex 2).

Common measures: financial and budgetary data

7. The total amount allocated to common measures in 1997 to 2000 under subsection B8 of the general budget of the European Union was 141,2 million euro. Annex 3 gives more detailed information about the budgetary implementation of budget headings under subsection B8(5) in 1997 to 1999, the years primarily covered by the Court's audit (see paragraphs 17 and 18). However, this does not reflect completely the total costs of CFSP actions. Member States and other donors co-finance some of the common measures and the Council or the Commission may also finance such measures using other financial resources (see paragraphs 32 to 40). Moreover, the Council uses budget item A-1 1 1 3 for the preparatory costs of common measures. The amounts committed under this heading were 0,2 million ECU in 1997, 0,5 million ECU in 1998, 0,6 million euro in 1999 and 1,2 million euro in 2000. However, this budget heading covers the expenditure for all the Council's special advisers, including activities outside the CFSP, so that the cost of the preparation of CFSP actions cannot be derived directly from that budget heading.

Table 1

Common foreign and security policy

Budgetary execution 1997 to 1999

>TABLE>

Source:

General budget of the European Union 1997 to 1999. Compte de Gestion 1997 to 1999. Sincom.

8. The operating budget of the CFSP under subsection B8 was approximately 179 Mio ECU for the period 1993 to 1996, which was an average of 45 Mio ECU per year. However, it is to be noted that the joint action concerning the European Union administration in Mostar with an operating budget of 122 Mio ECU occurred during that period. It was by far the largest CFSP action. Without this action the average amount committed would have been 14 Mio ECU per year. For 1997 to 2000, the average amount per year was 35 million euro and the largest amount for a single action was 16,2 million euro.

9. From 1999 onwards the financing of operations contributing to developing and consolidating democracy and the rule of law, and respect for human rights and fundamental freedoms, and support for elections and election-monitoring was transferred from subsection B8 (CFSP) to subsection B7 (External actions).

The Court's Opinion No 1/97 on the common foreign and security policy

10. In 1996 to 1997, in response to a request from the European Parliament(6) the Court audited the conditions governing the implementation of expenditure under the CFSP. The Court's Opinion No 1/97 on 10 April 1997(7) made the following main points:

(a) there was a lack of clear criteria for determining the source of Community funding;

(b) little or no information was available on the amounts disbursed by different Member States or by other donors;

(c) preparatory work was considered by the Council as administrative expenditure and therefore charged to Section II - Council - of the general budget, leading to a loss of transparency in the management of the budget;

(d) financial resources were not made available in time to permit efficient implementation or to carry out the preliminary work required before a common measure is decided upon;

(e) in the absence of clear definitions, the Commission's role in determining the financial, legal and operational arrangements needed for the implementation of the CFSP measures involving expenditure was not clearly established.

Some implications for the CFSP of the Treaty on European Union

11. The Amsterdam Treaty on European Union entered into force in May 1999. The text concerning the CFSP was partly modified and restructured.

12. Article 17 of the TEU extends the CFSP to "all questions relating to the security of the Union, including the progressive framing of a common defence policy, which might lead to a common defence, should the European Council so decide". However, on the basis of Article 28(3) of the TEU, the budget of the European Communities does not include operating expenditure arising from operations having military or defence implications.

13. The Treaty of Amsterdam is less detailed about the content of CFSP Decisions than the previous Treaty, thereby implicitly allowing the delegation of some implementing authority from the Council to the Commission(8). So far, this possibility has not been used in the context of the CFSP. However, certain activities previously financed under CFSP expenditure (subsection B8) have now been or will be covered by Council regulations, which means that such actions are or will be financed from budget headings under the first pillar. These include activities in the area of human rights and democracy, mine-clearance activities, the costs of the Office of the High Representative (OHR) to Bosnia and Herzegovina and support for the United Nations Interim Mission in Kosovo (UNMIK). Consequently, for these activities, decision-making authority is transferred from the Council to the Commission.

14. The role of the Secretary-General of the Council in his capacity as High Representative is set out in the TEU. However, the TEU neither supplies nor requires a definition, spelling out the respective roles of the Secretary-General of the Council and of the Commission.

15. The possibility of appointing special representatives (EUSR(9)) with a mandate in relation to particular policy issues was also introduced by the Treaty of Amsterdam (Article 18(5)). This was the recognition of a practice which was already in place.

Objectives and scope of the present audit

16. In December 1997, the European Parliament requested the Court of Auditors in its resolution(10) about Opinion No 1/97 "to submit a special report on the implementation of CFSP no later than two years after the entry into force of the Amsterdam Treaty".

17. The objective of the audit was to assess the evolution of the conditions governing the implementation of expenditure under the CFSP in the period 1997 to 1999. Simultaneously the audit examined whether the main shortcomings pointed out by the Court in its earlier opinion had been corrected.

18. The audit covers all operations decided by the Council during the period 1997 to 1999 (partly implemented during 2000 and 2001). The audit also covered actions decided before 1997 but implemented in 1997 or later. It was based on documentation available, mainly at the level of the Commission's departments, but did not include on-the-spot visits to carry out checks on CFSP actions.

PRELIMINARY REMARKS ABOUT SOME CHARACTERISTICS OF CFSP ACTIONS

19. A number of objectives governing the CFSP relate to security of the Union, peace preservation and strengthening of international security, promotion of international cooperation and lead to actions in crisis or post-crisis areas. Consequently, CFSP actions are considered as highly political and in many cases they are intended to be implemented rapidly and within short deadlines.

20. The responsibility for carrying out and monitoring the common measures is shared between the Presidency of the Council, the Secretary-General of the Council in his capacity of High Representative and the Commission. According to Article 18(1) of the TEU, the Presidency of the Council represents the Union in all CFSP matters (see Annex 1, which contains the institutional responsibilities and functions under the CFSP). The Presidency shall be assisted by the Secretary-General of the Council in his capacity as High Representative. The Presidency is also assisted, if necessary, by the next Member State to hold the Presidency (Article 18(4)). According to Article 18(4) "The Commission shall be fully associated in the tasks referred to in paragraphs 1 and 2(11)".

21. The Court pointed out in its Opinion No 1/97 that the meaning of "fully associated" has not been defined either in the TEU or in subsequent regulations and that the lack of definition had resulted in a situation in which the exact responsibilities for making financial, legal, technical and other operational arrangements required for the carrying-out of the measures had not been established and were defined on a case-by-case basis.

22. In its Special Report No 2/96 concerning the accounts of the administrator and the European Union administration, Mostar(12) the Court stated that "the six-monthly rotation in the Council Presidency is, unfortunately ill-adapted to the need of continuity of a joint action such as Mostar. The personnel responsible for the ultimate decisions and their execution changes every six months and, as is normal with the functioning of the Presidency of the Council, the apparatus shifts from one Member State capital to another as the Presidency rotates. The ad hoc Working Party also has not provided a suitable permanent structure for overall supervision of the joint action. The officials that make up the Working Party have this amongst many other responsibilities.... This slows up decision-making..." In this respect, the situation has not changed and it does not create the best conditions for a coherent, balanced and responsive Community CFSP. Although the role of the High Representative is still evolving, the responsibility of the implementation of the CFSP lies within the Presidency of the Council. Only the administrative implementation of the CFSP actions is the Commission's responsibility. The present situation leads to economic inefficiency in running the CFSP. The present text of the Treaty does not allow delegation in full of the implementation of actions to the Commission (see Annex 1).

23. The combination of the above factors (highly political content, rapid implementation, unclear definition of responsibilities) have led to problematic implementation of the Council Decisions (see paragraphs 24 to 30), to complex and sometimes inappropriate financial and budgetary arrangements (see paragraphs 32 to 58), to confusion about the responsibilities for evaluations to be carried out (see paragraph 60) and to inconsistent definition and funding of "operating" and "administrative" expenditure (see paragraphs 35 and 62 to 64).

OBSERVATIONS ON THE IMPLEMENTING OF CFSP ACTIONS

Council decisions

Background

24. During 1997-1999 a number of actions for south-eastern Europe was decided by the Council. Given the political situation it was felt that actions were to be undertaken urgently. However, by doing so, not all relevant factors influencing the implementation of the actions were taken properly into account as the following examples show.

Budgetary framework for the Republic of Srpska

25. The joint action which aimed to help the new Government of the Republic of Srpska to establish a coherent and transparent budgetary framework formulated conditions according to which "the Government of the Republic of Srpska is expected to establish rapidly the 1998 budget in a manner satisfactory to the International Monetary Fund, to work closely with the Customs and Fiscal Assistance Office (CAFAO) and other international organisations on restoring control over the collection of customs duties, excises and sales tax revenues, to implement the common Bosnia and Herzegovina customs tariff schedule and to submit to Parliament draft legislation on the reform of excise and sales taxes". It was also stipulated that the High Representative to Bosnia and Herzegovina could suspend assistance if the Government of the Republic of Srpska acted in a manner contrary to the objectives and criteria set out in that joint action.

26. The total assistance of 6 Mio ECU, agreed on 24 February 1998, was transferred to the Republic of Srpska in four instalments between 25 February and 25 May 1998. On the basis of the Council Decision(13), the expenditure was eligible retroactively to 1 December 1997. There was no reference, when these payments were made, to the abovementioned conditions, nor were they assessed in the final report. The payments to the beneficiary were made before the Srpska Government could provide evidence of having fulfilled the conditions. Laying down conditions for this type of grant is important, but only when the conditions are feasible and when the Commission is in the position to verify their fulfilment.

Conference on the Stability Pact for South-eastern Europe

27. The Council took a Common Position(14) to convene a conference on the Stability Pact for South-eastern Europe on 17 May 1999. The arrangements for the conference thereupon were begun by the country holding the Presidency without any specific decision having been taken by the Council, and without consulting the Commission on the terms of the arrangements with the Government of Bosnia and Herzegovina. On 19 July 1999 the Council took a decision for a joint action in order to make the resources available for the Conference of Heads of State and Heads of Government(15), which was to take place on 29 and 30 July 1999, less than two weeks after the decision. According to the decision, this joint action should apply until 30 September 1999. However, the contract between the Council of Ministers of Bosnia and Herzegovina and the Commission was not signed until 26 November 1999. In the contract it was agreed retroactively that the date on which the implementation of the joint action ended was 30 September 1999. In the meantime, the EU Presidency and the Council of Ministers of Bosnia and Herzegovina had agreed, on 27 July 1999, that the Member State holding the Presidency should prefinance a part of the costs of the summit which was not to exceed 40 % of the eligible costs to be paid under the joint action. The Commission reimbursed the prefinanced amount to the Member State on 14 December 1999.

28. In so far as no provision was made in the Council Decision of 19 July 1999 for financing expenditure incurred before that date(16), it is arguable that part of the reimbursement to the Presidency was technically not eligible. It is important that in comparable circumstances in future the Presidency should avoid financial commitments before appropriate consultation with the other Member States and the Commission has taken place.

Special representative for Yugoslavia

29. At the end of 1998, the Council Working Party of CFSP Counsellors indicated that the mandate of the EUSR for the Federal Republic of Yugoslavia, which was to expire on 31 December 1998, should not be extended. The obvious reason was the fundamentally changed political situation which led to the NATO intervention in Yugoslavia in April 1999. However, by its decision of 28 December 1998, the Council extended the action until 31 January 1999 and subsequently, on 25 January 1999, until the end of 1999. The EUSR presented a resignation request to the Presidency on 4 June 1999, because he considered, given the development of the conditions in the area, that it was not realistic to expect him to fulfil the mandate bestowed upon him by the Council. However, it was not until 11 October 1999 that the Council repealed the action. This delay cost the Union a total of 150000 euro(17), which was the expenditure in 1999.

Special representative for the Royaumont Process

30. On 31 May 1999, the Council appointed an EUSR for the Royaumont Process (Process on stability and good-neighbourliness in south-east Europe). The relevant Commission decision to make the appropriations available was only taken on 12 October 1999. The contract with the EUSR was signed two days later. The EUSR presented his resignation to the Presidency on 3 February 2000 to take effect on 1 March 2000, justifying his step by stating, inter alia, that: "my resignation will facilitate efforts by the Council for the rationalisation and streamlining of European Union activities in the region of South-eastern Europe. Moreover, it will open the way for the full integration of the Royaumont Process in the Stability Pact for South-eastern Europe". The Council, however, did not accept the resignation, and informed the EUSR that his resignation should coincide with the expiry date of the Council decision i.e. on 31 May 2000. For some reason it was found difficult to repeal this action, despite the fact that it was already clear at the moment of the Commission decision that this joint action was not relevant any more.

Financial and budgetary arrangements

31. The Court's Opinion No 1/97 mentioned several cases where similar operations were financed simultaneously both by appropriations from CFSP and by "non-CFSP parts of the budget". This is partly caused by the Treaties, which mention actions for human rights and democracy both in the context of CFSP (Article 11 of the TEU) and of development cooperation (Article 177 of the EC Treaty), and includes under the CFSP, inter alia, humanitarian and rescue tasks (Article 17 of the TEU), which can also be financed under the first pillar. The Court emphasised at that time that "clear criteria for determining the source of Community funding should be established" so that "transparency and consistency in the management of budget appropriations must be assured". Despite a number of improvements, certain arrangements and procedures need further clarification.

Different budget lines to finance CFSP operations

32. The funding of similar actions by more than one budget subsection (B7 and B8) continued during 1997 to 1999. Several anti-personnel landmine actions as well as election-monitoring actions were financed by subsections B7 and B8(18). The election process in Nigeria was supported by the EDF as well as by subsection B8. The project "Re-establishment of a viable police force in Albania" (MAPE) was earlier financed by Phare, notably through the rebuilding of stations and the provision of equipment, whereas the training activities were financed under subsection B8.

33. It was not until November 1999, that the Permanent Representatives Committee (Coreper) adopted criteria providing that normally the operating expenditure for actions for which there is a specific Council regulation should be financed from subsection B7 of the budget, whereas subsection B8 is reserved for actions which are not or only partially covered by a Council regulation. Also it was correctly stated that CFSP funds cannot be used as an "urgency" procedure. However, at the same time, exceptions were left open for so-called "borderline cases", which according to the Council document "mainly pertain to actions to develop and consolidate democracy and the rule of law, respect for human rights and freedoms in third countries, as well as cases on conflict prevention", although Council regulations to support actions of this kind were adopted only seven months earlier(19). Since November 1999 the criteria were followed, with the exception of two operations implemented by the Western European Union (WEU), one of the operations consists of anti-personnel landmine actions which type of action is also covered by Council regulations(20) for financing by subsection B7. However, the Commission's viewpoint is that on the basis of Article 17 of the TEU, any action implemented by the WEU needs a legal basis in the form of a joint action to be financed under subsection B8. The second action was to re-establish a viable police force in Albania, also implemented by the WEU (see also paragraph 32). It is difficult to see how this capacity-building operation falls under the terms of Article 17.

34. At the time of the Court's Opinion No 1/97, some of the appropriations were placed initially under Title B0-4 "Reserves and provisions", and transferred to the budget headings in subsection B8 "Common foreign and security policy". The Court criticised the delays in releasing funds as a result of cumbersome procedures for transferring appropriations from the reserve to the operational budget. The reserve has not existed since 1998, which has simplified procedures.

Contributions in kind and co-financing

35. The budget subsections B7 and B8 do not show all costs of the operations. The Council and the Commission second staff to the EUSR and furthermore the Council has provided office space in Brussels(21) for three EUSRs. As administrative expenditure, the costs of these secondments and offices are financed from part A of the budget. Consequently some salaries and logistical support were regarded as administrative and some other, similar, costs as operating expenditure(22). This practice is not transparent.

36. Nevertheless, some improvement has occurred. Since 1999 the financial statements(23) accompanying draft Council decisions mention usually as a "p.m." and/or as a description of the contributions in kind from the Commission and from the Council, whereas previously no information about Community contributions in kind was given. Secondments of personnel by Member States were usually included in the financial statements as "p.m." items, but since 1999 more specific information has been given for a number of actions. The nature and financial importance of contributions in kind has not been presented in the financial reports produced on the CFSP actions.

37. Apart from the contributions in kind, the operational expenditure was shared with a number of non-member States in the case of the High Representative's mission to Bosnia and Herzegovina. This action started at the beginning of the year 1996 and is still continuing. The costs were allocated to the different donors on the basis of a key introduced in 1996. However, no formal agreement exists between the different donors on the respective shares. At the time, the Community's share was 50,6 %. However, 2,4 % of the budgets was not allocated to any donor. In May 1999, Coreper accepted the increase of the EU's share to 53 % on request of the High Representative, but only from 1999 onwards. The Community did not accept that this higher share should also be adopted for expenditure in the years 1996 to 1998. The OHR financing shortfall is further increased by the fact that from the beginning a number of countries paid their share only partly or not at all. The financial report of the OHR as at 31 December 1999 shows that the outstanding amounts are in the order of 4,7 million euro(24) of which 2,6 million euro stems from "bad payers". The budgets for the OHR should be prepared on a solid basis and should not include unreliable pledges.

38. When deciding on the European Union's 10 Mio ECU participation in the implementing structures of the Bosnia and Herzegovina peace agreement on 20 December 1995, the Commission also decided to provide additional funds of 2130000 ECU for infrastructure and running expenses(25) directly paid by the Commission. It was thus not included in the accounts of the OHR. For that reason it was not shared with the other donors.

39. So far, the Commission has not checked whether its contributions exceed its authorised share of eligible expenditure (50,6 % for 1996 to 1998 and 53 % from 1999 onwards) (see paragraph 37). The Commission financed the OHR on the basis of expenditure forecasts. The OHR reports annually on its expenditure to the Commission. In 2000 the Commission recovered 1,2 million euro of the contribution made in 1999. However, the OHR's reporting of its expenditure includes items which are not real cash expenditure and therefore not eligible. Notably it includes "provisions for unpaid donations", "depreciation" and "losses on disposal of property, plants and equipment". In 1996 to 1999 the total amount of provisions for unpaid donations was around 4,7 million euro and the depreciation (on assets already financed by the EU) was around 5,5 million euro. As a result for the years 1996, 1997, 1998 and 1999 the Commission paid nearly 4 million euro more than its share. The Commission should, without delay, carry out reconciliations covering the years 1996 to 2000 and from then on this should be done on an annual basis. In case of overpayment, recovery should be made from the OHR.

40. Another case was the Royaumont Process which included the financing of 11 projects. According to the financial statement, the share financed by the Community varied between 30,5 % and 100 % and averaged 79 %. The other donors were not mentioned in preparatory documents, nor were reasons given for the different levels of Community financing.

Availability of resources

41. The Financial Regulation requires financial resources to be available when a decision to finance an action is taken. The Commission submitted a declaration to Coreper on 20 October 1998 in which "The Commission notes that two joint actions on the observation of the Nigerian elections and on the forensic experts mission to Kosovo will be adopted on the basis of the commitment appropriations of the 1999 budget. Whilst recognising the urgency and importance of both actions and the fact that they will only enter into force in 1999, the Commission recalls the previous agreement that this improper method would no longer be used and points out that it will lead to a situation in which a significant percentage of subsection B8 of the Community budget will be unavailable as of the beginning of that year on account of past decisions". Nevertheless, the commitment appropriations of the budget for the year 1999 were used. Several commitments, before or after the Commission's declaration, were made in a different budget year from the one in which the Council decision was adopted. In 2000, about 40 % of the commitment appropriations used reflected decisions taken by the Council before 31 December 1999(26). In 1999, the equivalent percentage was 19 %(27).

42. Also at the Coreper meeting on 20 October 1998, the Commission repeated its opposition to the incorrect budget technique again used in another joint action(28), which consisted in charging some of the commitments required to a future budget. It noted with satisfaction, however, the Member States' unanimous agreement that the technique was used on an exceptional basis and therefore all the commitments required for CFSP actions would be charged in their entirety to the budget for the year of the decision. Since that statement, so-called "split commitments" have not been used again.

43. In the years 1997 to 1999, the total amount of Council decisions in respect of the CFSP operations came to 117 million euro(29), which exceeded the appropriations available by 20,6 million euro. The Commission decisions exceeded the appropriations available by 7,7 million euro. The Council decisions and the Commission decisions should be made within the limits of commitment appropriations of the relevant year in the general budget of the European Union.

Delays in launching the actions

44. The time lapse between Council decision and first payment by the Commission provides an indicator of the speed at which actions are implemented. This time lapse is often considerable, despite the apparent urgent nature of many interventions.

45. During the period 1997 to 1999, the average time from the Council decision to the first payment was 173 days(30) (see Annex 4). By not using the reserve since 1997 (see paragraph 34), this time span was reduced in 1998. However, in 1999 it was higher than in 1997. The delay between the Council decision and first payment varies considerably from action to action: in one case, the time from the Council decision to the first payment was only four days; in one other case 18 days and in two other cases less than 50 days; in three cases the delays were between one and two years; for half of the cases, the delay was between 104 and 232 days in 1997, between 61 and 192 days in 1998 and between 128 and 183 days in 1999.

46. The time span between the Council decision and the Commission decision was more than 120 days in seven cases out of 40 in the period 1997 to 1999 of which six were related to 1999 Council decisions (see Annex 4). The joint actions and the implementing decisions related to Common Positions are usually taken when the Council considers that there is urgent need for a Community action. As the Court pointed out in its Opinion No 1/97, one factor causing delays is an insufficient involvement of the Commission in the preparatory phases of the common measures. A smooth fulfilment of the Council decision is hardly possible if the Commission does not participate in the preparatory work from the beginning. Another cause of delays has been coordination problems or other difficulties within the Commission's departments. The Commission has stated that the reorganisation of the CFSP tasks within the Commission should avoid repetition of such cases.

47. Due to the delays, actions often start much later than originally intended. Such delays are a threat to the effectiveness of the measures. The Commission should pay special attention to cases where there is a high risk of a long delay before any action is likely to take place. In those cases a re-assessment of the measure as well as of the intended partner for the management of the action should be considered. The result of such assessments and the eventual corrective action taken should be included in the project files.

Contracting and extensions

48. Contracting was in particular very complex for the assistance programme to support the Palestinian Authority in its efforts to counter terrorist activities emanating from the territories under its control. During three years the Commission signed two contracts with the EU adviser and concluded a total of 10 amendments. The annual renewal of the first contract occurred late so that an amendment to prolong the first contract for three months was needed. The signing of the second contract, however, led to an overlap with the first one. Amendments were needed to clarify points that were not well defined in the contracts, but they resulted in discrepancies between the contracted and actual amounts. It also caused problems closing the first contract, which was achieved in 2000 by means of the fifth amendment which tailored the budget of the contract to the actual expenditure.

49. In other cases, too, contracts were amended in order to extend their validity after they had expired(31). In some cases the extension exceeded the final deadline set in the Council decision for the measure. The Commission does not have the authority to do this. The reason for extending contracts was often that all of the amount committed had not been used by the time the contract expired. In these cases the unused funds should have been decommitted.

50. In seven out of 40 cases, the implementation period did not correspond to the periods indicated in the contracts: activities were implemented after the contract had expired, or contracts covered costs retroactively or covered expenditure which had been incurred before the contract was concluded. In this manner ineligible costs are charged to the budget. In most of the cases these irregular transactions appear to be motivated by a desire not to "lose" budgetary appropriations.

51. For the action concerning the EUSR for the African Great Lakes region the amount of two contracts exceeded the amounts of the corresponding budgetary commitments by 1,2 million euro. Such practices are contrary to Article 1(4) of the Financial Regulation.

52. The action for Bosnia and Herzegovina was financed in 1996 to 1999 by four successive decisions and two extensions. The first extension was justified, because at the time of the Council decision it was expected that only the Community budget would finance the action, whereas at a later stage more donors made significant contributions. The extension of the third decision, by which the operating time was extended by one year until 31 December 1999, was the result of the fact that the need for additional support was overestimated. Due to a cumulation of decisions and extensions, the action was covered by two decisions for long periods and in the period between 26 October 1998 and 31 December 1998 it was even simultaneously covered by three different decisions. These circumstances make a proper financial follow-up difficult.

53. The Council decisions usually indicate the planned duration of the actions with effect from the date of the decision. Whilst the duration may remain realistic, the deadline for the actions, also mentioned in the decisions, rapidly becomes obsolete if the preparation of an action takes so much time that the contract for its implementation is signed with considerable delay. This leads to situations where the contract goes beyond the deadline set by the Council decision, or to operations with more limited scope than planned in the Council decision. It has also required in some cases a Council decision with the sole aim to extend the deadline.

54. Once an action is completed, the Commission often does not close the commitments promptly (see Annex 5). To some extent, this has been due to delays in receiving reports (see paragraphs 59 and 60).

Employment conditions

55. In its Opinion No 1/97 the Court criticised the fact that employment conditions for the special envoys were not laid down in the Council decisions and that the Commission's departments had to agree them after appointment. The Commission issued a communication concerning the remuneration of EUSRs in June 1998, which also determines which articles of the Staff Regulations apply to an EUSR. The communication specifies that existing (more favourable) arrangements were not revised by the new rules as long as the EUSRs concerned fulfil the same mandate.

56. This Decision has since been applied to all new EUSRs and other special envoys of the Union appointed by the Presidency, with one exception. In that case the Council decision(32) explicitly introduced a special allowance for the EUSR. The amount of the special allowance was not mentioned in the Council decision, but was entered in the accompanying financial statement. There is, however, no apparent justification for such a special allowance.

57. According to the Commission decision concerning the remuneration of the EUSRs and other persons appointed by the Council(33), an insurance must be taken to cover the high risks which may arise during the mission of the EUSRs or other persons nominated by the Council. No comparable rule is applied to expatriate staff and family members, when sited on the spot outside the Union, by analogy with the provisions of Articles 24 and 25 of Annex X to the Staff Regulations.

58. Apart from mission expenses all the salary-related costs of the seconded staff should be paid by the seconding Member State or Community institution, for example installation, housing, removal and resettlement allowances, high risk insurance, additional compensation for working abroad or at an insecure site and free tickets for private journeys to permanent home country. In practice the treatment is different depending on the action or the seconding Member State or institution.

Reporting and evaluations

59. In its Opinion No 1/97 the Court criticised the inadequacy of accounting and financial reporting. In a number of cases reviewed for the period 1997 to 1999, reports were still sent late, not produced annually and the information given was, in some cases, insufficient. Because information presented in progress reports, interim and final reports forms the basis for the Commission's supervision, it is difficult to carry out such enquiries when the quality of reporting is inadequate. Also a limited scope of reports can be a serious constraint for closing the accounts for the actions. During the period audited, the projects were usually not audited by an independent auditor.

60. In cases where the Council decision requests an evaluation or a review of the measure, this request has not always been met. Between the Council and the Commission, no clear agreement exists on the responsibility for conducting evaluations, unless a requirement is explicitly indicated in the Council decision.

61. On the basis of the Interinstitutional Agreement of 6 May 1999 between the European Parliament, the Council and the Commission on budgetary discipline and improvement of the budgetary procedure(34), the financial statements of each CFSP action entailing expenditure should be sent immediately after the Council decision to the European Parliament. So far the Council has only included those documents in its annual report to Parliament.

Operating versus administrative costs

62. The Court stated in its Opinion No 1/97 that "preparatory works and launching expenses can be considered and should normally be financed from operating appropriations". The Court also noted that, in the case of special envoys, there is no reason for classifying the same sort of expenditure first as administrative and later - when the joint action has been adopted - as operating. Since 1998, the situation improved in that the general budget of the European Union introduced a specific budget heading under subsection B8 for preparatory measures(35) (see also paragraph 35).

63. The Council decided on 30 March 2000 that any EUSR, whose appointment is based on Article 18(5) of the TEU, will be placed under a contractual obligation to the Council instead of the Commission. The Council Legal Service argued that the nomination of EUSR by the Council entails expenditure for that institution. Therefore, in accordance with Article 28(2) of the TEU, such administrative expenditure should be charged to the administrative budget of the Council. Consequently, according to the Council document, the contract of EUSR as "special adviser" to the Council involved a change in the budgetary responsibility for the financing of EUSR administrative expenditure (notably salaries and travel expenses), which under a temporary arrangement with the Commission dating from 12 February 1997 was charged to the CFSP budget chapter to cover operating costs. It was decided that such administrative costs will be charged to Item 1 1 1 3 of the Council section of the EU budget as from 1 January 2001.

64. The documents underlying the above Council decision do not define what is meant by "administrative" and by "operating" expenditure. Obviously the decision to consider the costs of the EUSRs as "administrative" is based on the nature of costs rather than on the objective of the activities. According to Article 14(1) of the TEU, "Joint actions shall address specific situations where operational action by the Union is deemed to be required". Article 15 of the TEU states that "Common Positions shall define the approach of the Union to a particular matter of a geographical or thematic nature". On the basis of those definitions, it is in general difficult to regard the expenditure incurred by a joint action or a Common Position as administrative. Therefore expenditure related to joint actions which consist of the activity of special representatives should be treated as operating expenditure. By defining the costs of EUSR as administrative expenditure the Council has created a situation whereby a legislative body will implement its own political decisions, making a political control difficult.

CONCLUSIONS AND RECOMMENDATIONS

Improvements since the Court's Opinion No 1/97

65. There have been some notable improvements in recent years, such as improving the criteria determining the source of Community funding, creation of a budget line for preparatory costs, abandoning of budgetary reserve and setting employment conditions for EUSRs. However, more remains to be done to solve fully the problems raised in the Court's Opinion No 1/97 (see paragraph 10).

Framework for the CFSP actions

66. The role of the Commission in determining the financial, legal and operational arrangements is still unclear (see paragraphs 19 to 30). Furthermore, by defining the costs of EUSRs as "administrative" and consequently financing those costs through the Council's budget, a part of the implementing authority has been shifted to the Council. This weakens the Commission's role in the implementation of CFSP actions (see paragraphs 62 to 64).

67. Recommendation 1

The European Parliament, the Council and the Commission should adopt at an interinstitutional level clear operational principles and arrangements with regard to the Commission's role in the implementation of the CFSP.

In this context for example the following matters in particular should be dealt with:

(a) the role of the Commission in influencing the conditions for the implementation of Council decisions related to joint actions and Common Positions should be enhanced;

(b) the Commission's role in closing an ongoing action, when its continuation is no longer relevant, should also be enhanced;

(c) the present classification of the costs of the Special Representatives as administrative expenditure should be reconsidered;

(d) the Commission services should have an adequate staffing level to meet the requirements of managing properly the CFSP actions.

Budgetary arrangements

68. The Council decisions and the Commission decisions in respect of the CFSP operations exceed the annual limits of the appropriations in the general budget of the European Union. In case of co-financing, agreement on cost-sharing between different donors is lacking and the total costs for actions can still not be derived from preparatory documents or from financial reports on the actions. On the basis of the present criteria similar actions can still be financed by more than one budget subsection (see paragraphs 32 to 43).

69. Recommendation 2

The financing of the CFSP actions should be managed in a more transparent manner.

In particular:

(a) commitments should be charged to the budget of the year in which decision for actions is taken;

(b) in cases of co-financing clear arrangements should be made on the sharing of the costs;

(c) the Commission and the Council should work out together a method by which the contributions in kind are evaluated in a consistent way on the basis of the real costs of the contributions. If, however, reliable information cannot be obtained from all Member States, the financial statements accompanying Council decisions should at least include the functions of seconded persons, the name of the seconding Member State, and the duration of secondments. The contributions in kind made by the institutions and the Member States should be reported in the financial reports produced on CFSP actions;

(d) the preparatory costs, financed by the Council, should have a separate budget item;

(e) the general criteria for the exercise of either Community powers (financing through other subsections than B8) or the European Union's powers under the CFSP (financing through subsection B8) should be developed in order to eliminate borderline cases.

Delays in launching the actions

70. The time lapses between the Council decision and the implementation of actions are often considerable which can put the impact of actions at risk (see paragraphs 44 to 47).

71. Recommendation 3

The Commission should launch an enquiry on the causes of long delays and reassess the action as well as the partner for the management of the action.

Contracting

72. In many cases, contracts between the Commission and those implementing CFSP actions have been amended. Often this has meant retroactive changes to the elements of the project budget and/or extension of the duration of the project. In some cases the extension exceeded the final deadline set by the Council, even though the Commission does not have authority to do this. The reason for extending contracts was often that the entire amount committed had not been used by the time the contract expired (see paragraphs 48 to 53).

73. Recommendation 4

The Commission should amend contracts retroactively or extend them only in cases of force majeure. Certain practical measures facilitating the smooth implementation of actions should be sought.

In particular:

(a) given the delays between the Council decisions and the start of the action, and the need to reduce extensions of actions while maintaining the planned scope of the actions, the deadline laid down for the completion of a project should be set from the time of the signing of the contract between the Commission and those implementing the action;

(b) if an existing operation is to be continued, the relevant Council decision should be taken sufficiently early for the extension of contracts relating to the implementation of the action to be finalised in time to avoid the interruption of contracts which hinders the smooth implementation of the actions. The target should be to reach a Council decision by July of one year for an activity which is to continue the following year;

(c) contracts should provide systematically for informing the Commission about minor changes, within set limits, through the normal periodical reporting system, avoiding formal amendment of the contract;

(d) a specific manual on the implementation of CFSP actions should be introduced.

Employment conditions

74. Conditions governing remuneration and salary-related costs for EUSRs were laid down in a Commission communication in June 1998, and followed with one exception. They were, however, not applied to EUSRs appointed before that date. Besides, conditions for other staff financed under the projects have not been laid down. The practice concerning salary-related costs of seconded staff paid from the CFSP project funds varies depending on the action and/or the seconding Member States or institution (see paragraphs 55 to 58).

75. Recommendation 5

The Council and the Commission should establish clear rules on remuneration and salary related costs.

In particular:

(a) the applicable rules should be applied without exception both to EUSRs and other staff financed by projects. When the contracts of the EUSRs are next renewed, the rules should also be applied to those who are still benefiting from more favourable terms;

(b) for seconded staff, only mission costs should be paid from CFSP project funds;

(c) high risk insurance for the spouses or children of EUSRs or other staff should be paid from project funds, when sited in high risk areas only, in analogy with the provisions of Annex X to the Staff Regulations.

Reporting and evaluations

76. Reporting is irregular, incomplete and unclear. Neither the Commission nor the budgetary authority is fully informed on a timely basis about the result of CFSP actions. Audits and evaluations are not carried out on a systematic basis (see paragraphs 59 and 60).

77. Recommendation 6

Arrangements should be laid down for adequate reporting, audit and evaluation.

In particular:

(a) the Commission should develop clear reporting formats and should establish clear rules on the frequency and content of reporting at various levels of the operation;

(b) to improve the quality of overall control, the Commission should arrange for audits to be carried out systematically for all important actions on the basis of clear terms of reference covering the totality of operations financed by the EU or co-financed with other donors. For actions of a longer duration audits should be carried out on an annual basis. The reports should present detailed findings and recommendations;

(c) the Commission should have independent evaluations made, at least for more important types of operation, even when the Council decision does not explicitly request them. It would be useful to prepare the terms of reference for such evaluations in cooperation with the Council.

This report was adopted by the Court of Auditors in Luxembourg at its meeting of 13 September 2001.

For the Court of Auditors

Jan O. Karlsson

President

(1) According to Article 14(1) of the TEU, "Joint actions shall address specific situations where operational action by the Union is deemed to be required".

(2) According to Article 15 of the TEU, "Common Positions shall define the approach of the Union to a particular matter of a geographical or thematic nature".

(3) Article 14(1) of the TEU.

(4) B8 only.

(5) Annex 3 describes the implementation of the budgets for 1997 to 1999 in 1997 to 1999. It does not include the appropriations carried over from the earlier years or carried over to the years after 1999, but it includes payments to actions decided earlier than in 1997. Annex 2 describes the implementation of the projects in 1997 to 2000. The difference in the total amount of commitments between Annexes 2 and 3 is approximately 13 Mio euro. It derives mainly from the situation where the commitment is charged against appropriations of the year following that of the Council decision.

(6) Resolution sent to the Court, in the name of the President of the European Parliament, by the Secretary-General on 29 April 1996.

(7) The opinion was not published.

(8) Article 14(1) of the TEU.

(9) In this report, this title is also used as a universal definition, even though the Council Decision may have used another title, such as "special envoy".

(10) Resolution of the European Parliament of 19 December 1997 on the Court's Opinion No 1/97, point 7 (OJ C 14, 19.1.1998).

(11) Article 18(2): 'The Presidency shall be responsible for the implementation of decisions taken under this title; in that capacity it shall in principle express the position of the Union in international organisations and international conferences.'

(12) Special Report No 2/96, paragraphs 61 and 62 (OJ C 287, 30.9.1996).

(13) 98/117/CFSP, Support of the Bosnian peace process (OJ L 35, 9.2.1998).

(14) 1999/345/CFSP, Stability Pact for South-eastern Europe/A conference on south-eastern Europe (OJ L 133, 28.5.1999).

(15) 1999/480/CFSP, A meeting of Heads of State and Government in Sarajevo, Bosnia and Herzegovina, concerning the Stability Pact for South-eastern Europe (OJ L 188, 21.7.1999).

(16) According to the final report the Organisation Board and subboards began to operate from 9 July 1999.

(17) Caused by the fact that the staff of the EUSR remained in office until the EUSR's resignation request was accepted. The EUSR did not receive renumeration from the Community funds.

(18) In 1999, budget headings B7-6 6 1 "Community participation in action concerning anti-personnel mines", B7-7 0 0 "Support for democracy in the countries of central and eastern Europe, including the Republics formerly part of Yugoslavia", B7-7 0 9 "Support for, and supervision of, electoral processes".

In 1998, budget headings B7-6 6 1 "Community participation in action concerning anti-personnel mines", B7-7 0 0 "Support for democracy in the countries of central and eastern Europe, including the Republics formerly part of Yugoslavia", B7-7 0 9 "Support for, and supervision of, electoral processes".

In 1997, budget headings B7-6 6 1 "Community participation in action concerning anti-personnel mines", B7-7 0 0 1 "Community measures to help democracy and support the peace process for the Republics formerly part of Yugoslavia, B7-7 0 9" "Support for, and supervision of, electoral processes".

(19) Council Regulations (EC) No 975/1999 and (EC) No 976/1999 (OJ L 120, 8.5.1999).

(20) Council Regulations (EC) No 1257/96 of 20 June 1996 concerning humanitarian aid (OJ L 163, 2.7.1996) and (EC) No 2258/96 of 22 November 1996 on rehabilitation and reconstruction operations in developing countries (OJ L 306, 28.11.1996).

(21) On the basis of Article 3(4) of JA 96/676/CFSP (EU special envoy for the Middle East peace process) and of Article 4(4) of JA 96/250/CFSP (Special envoy for the African Great Lakes region), logistic support could have been given only "in the region". The new decisions (JA 2000/794/CFSP, Article 4(6) and Council Decision 1999/423/CFSP, Article 2(3)) have the respective formulations.

(22) In 2001, all costs are paid from part A of the general budget of the European Union, because the appropriations for EUSRs have been transferred from B8 to A-1 1 1 3.

(23) A financial statement mentions, inter alia, the budget line concerned, the legal basis of the action, objectives and duration of the action, donors of the action and budget of the action.

(24) From this amount about 1900000 euro is allocated to the EU. This audit shows, however, that the EU had paid even more than its due share.

(25) The share of the Commission of the budgeted costs of the OHR was either 55,4 % or 61,4 % depending on whether the OHR budget included the 2,13 Mio ECU. During the audit, the real costs to the Commission from this contribution have not been clarified.

(26) Cover note of the Council, 8290/2000 CFSP 214. According to Sincom, 18600166 euro was committed due to the Council decision made in 1999. The commitment appropriation was 47 million euro for the year 2000.

(27) Forwarding note of the Council, 10814/1999 CFSP 269. Decision 98/623/CFSP (75000 euro) is missing from the list in the abovementioned note.

(28) Decision 98/608/CFSP, Special envoy for Middle East peace process.

(29) See Annex 4.

(30) 186 days in 1997, 122 days in 1998 and 199 days in 1999.

(31) Re-establishment of a viable police force in Albania.

Contract dated 8 July 1999, valid until 30 June 2000, extended on 28 July 2000.

Southern African Development Community

Contract dated 19 December 1997, valid until 18 June 2000, extended on 27 July 2000.

UNMIK

First amendment on 28 May 2000, retroactively from 1 January 2000.

EUSR for the African Great Lakes region

Third amendment of first contract on 31 July 1999, retroactively for the period from 1 August 1997 to 31 July 1998, corrected on 11 November 1999. Second contract on 31 July 1999 retroactively for the period from 1 August 1997 to 31 July 1998.

EUSR for Federal Republic of Yugoslavia

First amendment on 7 April 1999, retroactively from 1 January 1999.

EUSR for the Middle East peace process

Second amendment of first contract on 9 December 1997, from 25 November 1996 to 30 April 1998.

Third amendment of first contract on 2 December 1998, from 1 May 1998 to 24 November 1998.

Second contract dated 18 December 1998 for the period from 26 November 1998 to 31 July 1999.

First amendment of the second contract dated 16 June 1999 from 26 October 1998 to 31 December 1999.

EUSR Royaumont process

Fourth amendment dated 15 June 2000, retroactively from 1 June 2000.

(32) JA 1999/523/CFSP, Special representative of the European Union to act as coordinator of the Stability Pact for South-eastern Europe (OJ L 201, 31.7.1999), Article 3. JA 1999/822/CFSP extended the validity of this joint action until 31 December 2000 (OJ L 318, 11.12.1999).

(33) E/97/2709 - SEC(98) 925 of 4 June 1998. The Commission decision does not cover members of family.

(34) OJ C 172, 18.6.1999.

(35) In the budget for 1999, budget heading B8-0 1 4. In the budget for 1998, both commitment and payment appropriation for this purpose were 500000 ECU, but they were transferred in their entirety. In 1999 they were 250000 ECU. From the commitment appropriation 81115 ECU and from the payment appropriation 150000 ECU were transferred. In 2000, there are different headings for existing and new measures. The title has changed into "Preparatory measures and joint strategies". The amount is 1500000 euro for new measures and "p.m." for existing ones.

ANNEX 1

COMMON FOREIGN AND SECURITY POLICY (CFSP)

Institutional responsibilities and functions

>TABLE>

Source:

Treaty on European Union and Guide d'usage pratique de la PESC - General Secretariat of the Council, July 1996, with some amendments.

ANNEX 2

COMMON FOREIGN AND SECURITY POLICY (CFSP)

Amounts allocated in 1997 to 2000 to common measures, decided by the Council in 1997 to 1999

>TABLE>

Sources:

Council Decisions adopting common measures 1997 to 1999. Commission accounting system (Sincom).

NB:

Due to decommitments and rounding differences, outstanding commitments are not equal to commitments less payments.

ANNEX 3

COMMON FOREIGN AND SECURITY POLICY (CFSP)

Budgetary execution 1997 to 1999

>TABLE>

Sources:

General budget of the European Union 1997 to 1999. Revenue and expenditure account 1997 to 1999. Sincom.

ANNEX 4

TIME LAPSES IN IMPLEMENTATION OF JOINT ACTIONS HAVING FINANCIAL IMPLICATIONS (1997 TO 1999)

>TABLE>

N/A= Information not available.

ANNEX 5

CLOSURE OF ACTIONS

>TABLE>

N/A= information not available.

The Council's replies

1. Recommendation 1

Recommendation 1 will be debated fully in the Council bodies.

2. Recommendation 2d (and point 7)

Preparatory costs

It is correct to state that the Council has in the past - to a very limited extent - used budget Item 1 1 1 3 to finance costs which might be qualified as preparatory costs of common measures; the Council also agrees that because budget Item 1 1 1 3 covers the expenditure for all the Council's special advisers, and more recently its seconded national experts, the specific amounts allocated to the preparation of the CFSP actions cannot be derived directly from the budget heading as such.

In practice, however, the Council takes this opportunity to confirm categorically that Item 1 1 1 3 was not used at all either in 1999 or in 2000 to cover CFSP expenditure.

As from 2001, the Council decision of 30 March 2000, which the Court addresses as a separate point, refers to the administrative expenditure of the special representatives, and this can be considered as covering de facto the previous notion of preparatory expenditure as far as the Council budget is concerned.

The Council will examine the possibility of identifying these CFSP costs under a separate budget item, in the context of its preparation of the draft estimates for 2003.

3. Sundry

Subject to those two remarks, the Council agrees with all the observations that relate to it.

The Commission's replies

SUMMARY

IV. Regarding the legal framework of CFSP, Article 14 TEU foresees that the scope, means and conditions for the implementation have to be laid down in the joint action. Yet, the Commission retains certain discretionary powers as regards the modalities of implementation in accordance with Article 274 EC. Furthermore and notwithstanding the somewhat vague wording of Article 18 TEU, in practice a division of labour is emerging in a logical way: the Presidency is responsible for the overall achievement of the objectives of the joint action (JA), assisted by the Secretary-General/High Representative (SG/HR), while the Commission is responsible for the proper execution of the actions through preparing and negotiating contracts with the implementing agencies and monitoring of implementation as reported to the Commission.

V. The Commission stresses that the criteria for Community funding and notably the budgetary remarks have been strictly respected.

On the other hand it agrees that during the observation period of the audit, there were cases where information was lacking on the contributions of third parties. For political reasons and for reasons of good management it is further not always possible nor desirable to flag exactly the amounts of each contributor. In fact in order to create the required political momentum to engage in a specific project political pledges are often solicited which due to the political development on the ground are not always honoured afterwards by the third parties being geographically or politically less concerned than the EU. The Union might, however, for imperative reasons of conflict prevention or political stabilisation have an interest to continue the project in question irrespective of possible lack in contributions.

There is, however, a clear improvement on this issue in 2000 and 2001 since contributions in kind are indicated in the financial statements.

VI. In 1998 and 1999 a number of Council decisions were attributed to commitment appropriations of the following year, three and five decisions respectively. Although the amounts were much higher in 1999/2000 than in 1998/99, this cannot be considered as a tendency but rather as an exception since in 2000 there was just one case.

Concerning the availability of resources, the Commission wishes to recall that the financial provisions in the Council decisions are indicative (see points 41 and 43).

In terms of rule compliance, the practice of committing appropriations during the budgetary year after the Council decision is not irregular. The objective in implementing CFSP actions is the adoption in the same budgetary year of the budgetary commitment (i.e. the Commission decision) and the legal commitment (i.e. the contract).

In the case of renewal of an existing action with a calendar year end (this applies to most financially important actions) the Council has to take a decision sufficiently early for the Commission to be able to make its financing decision and legal commitment in the same year. In terms of sound financial management, the Commission is therefore often put in a difficult position as the Council decides the renewal of an action at a date too close to the budgetary year end.

VII. Tailor-made solutions often need to be drawn up for the implementation of joint actions. Standard contracts can rarely be applied, which means that negotiation and preparation of contracts to implement joint actions normally take more time than in the case of grants to NGOs or international organisations.

VIII. To ensure a timely reaction to political events the Council adopts joint actions with normally only a short time frame. CFSP actions are easily affected by political and security developments necessitating adjustments or extensions to the existing action, which should be addressed in the case of minor adjustments by contractual amendments whereas significant changes to the mandate or renewals of the mandates should generally lead to new contracts. This approach is the most practical and effective way, even if this may make the follow-up more difficult.

IX. A significant effort to establish clear criteria has been made with the adoption of two communications in 1997 and 1998, defining the position of the special representatives. These rules have been applied to those special representatives (EUSRs) whose mandates originate from after the two communications. In any case, from 2001 onwards the remuneration and salary-related costs and allowances for special representatives are financed from the administrative budget of the Council.

The Commission acknowledges that for office staff the situation is indeed somewhat ambiguous and might need to be addressed in a more coherent way. However the indirect application of "market rules" has so far often led to the most cost-effective results.

X. As regards in particular the financial and technical reporting from the beneficiaries, it has indeed been insufficient in some cases and should in the future be improved by a closer and more interactive follow-up. The average project lasts for one year which normally requires two financial reports. The reports are obligatory prior to payment, thereby allowing a sufficient and regular control. Moreover the Commission proposed in the budgetary remarks to B8-0 1 5 (Preparatory actions) for the PDB 2002 the possibility for the Commission of launching autonomously evaluations and audits where needed.

XI. As the Court notes, one of its greatest concerns for the Court in its earlier report has been resolved: the classification of preparatory costs as administrative.

The Court's comment is valid regarding the contributions in kind by the Council and the Commission to the offices of EUSRs.

As regards the Council decision of 30 March 2000 on EUSRs the Commission had already in December 2000 brought certain problems linked to the practical implementation of the aforementioned Council decision to the attention of the Permanent Representatives Committee in writing: while stating its support for the objective of the new guidelines to place the EUSRs clearly under the authority of the SG/HR, it expressed a need to define what is to be considered as administrative and what is to be considered as operating expenditure.

In 2001, the Commission launched an audit on EUSRs of which the objective is in part to help give a better definition of administrative and operating expenditure.

XII. The Commission welcomes the proposal by the Court for clear operational principles and arrangements with regard to the Commission's role in the implementation of the CFSP, and fully supports the request for more transparency. Improvements can be made, notably by the proposed rationalisation of the number of budget articles in the PDB 2002 as proposed by the Commission.

The Commission already reacted by adopting its new management structure and by considering further simplification tools such as an empowerment by the College of the Commissioner in charge of external relations for the required financing decision. Yet, delays are sometimes not avoidable. Also they are not always a sign of bad management but instead of thorough preparation of contracts so as to avoid problems during subsequent implementation and demands on obtaining more adequate reports from the implementing agency.

The Commission refers to its reply under point VIII where it concluded that minor adjustments should be addressed by contractual amendments whereas significant changes to the mandate or renewals of the mandates should generally lead to new contracts.

Clear rules on remuneration and salary-related costs were meanwhile adopted for the EUSRs, falling however outside the period of assessment.

The Commission refers to its reply under point X where it concluded that in particular the financial and technical reporting from the beneficiaries should in future be improved by a closer and more interactive follow-up. The average project lasts for one year which normally requires two financial reports. The reports are obligatory prior to payment, thereby allowing a sufficient and regular control. Moreover the Commission proposed in the budgetary remarks to B8-0 1 5 (Preparatory actions) for the PDB 2002 on the possibility for the Commission of launching autonomously evaluations and audits where needed.

INTRODUCTION

Common measures: financial and budgetary data

8 and 9. The comparability of amounts across years is rendered more difficult by the fact that some actions earlier financed under budget title B8, civilian mine-clearing and election observation, have been shifted to the first pillar during the observation period as described by the Court.

The Court's Opinion No 1/97 on the common foreign and security policy.

10. The Commission welcomed the Court's findings expressed in its Opinion No 1/97 and took the following measures to respond to the five main observations of the Court.

(a) "There was a lack of clear criteria for determining the source of Community funding"

The Commission refers to its reply given under point 65(a).

(b) "Little or no information was available on the amounts disbursed by different Member States or by other donors"

The Commission refers to its reply given under point 65(b).

(c) "Preparatory work was considered by the Council as administrative expenditure and therefore charged to Section II - Council - of the general budget, leading to a loss of transparency in the management of the budget"

The Commission refers to its reply given under point 65(c).

(d) "Financial resources were not made available in time to permit efficient implementation or to carry out the preliminary work required before a common measure is decided upon"

The Commission refers to its reply given under point 65(d).

(e) "In the absence of clear definitions, the Commission's role in determining the financial, legal and operational arrangements needed for the implementation of the CFSP measures involving expenditure was not clearly established"

The Commission refers to its reply given under point 65(e).

Some implications for the CSFP of the Treaty on European Union

13. The delegation of implementing authority towards the Commission in the fields of human rights, mine-clearing, etc. represents a growing trend towards communitarisation of policies which had so far been tackled in the intergovernmental framework of the second pillar. The Commission has initiated and actively supported this tendency by taking the corresponding legal initiatives

14. The Commission considers the definition of the role of the SG/HR to correctly reflect his organisational function within the Council institution.

PRELIMINARY REMARKS ABOUT SOME CHARACTERISTICS OF CFSP ACTIONS

20. The Commission shares the Court's analysis of the complex political and legal characteristics of CFSP actions.

21. Article 14 TEU foresees that the scope, means and condition for the implementation have to be laid down in the joint action. Yet, the Commission retains certain discretionary powers as regards the modalities of implementation in accordance with Article 274 EC. Furthermore and notwithstanding the somewhat vague wording of Article 18 TEU, in practice a division of labour is emerging in a logical way: the Presidency is responsible for the overall achievement of the objectives of the JA, assisted by the SG/HR, while the Commission is responsible for the proper execution of the actions through preparing and negotiating contracts with the implementing agencies and monitoring of implementation as reported to the Commission.

22. While the Commission fully agrees that a clearer delegation of implementing powers could lead to more economic efficiency it would like to point out that the Mostar administration was a very specific case: not only did the Presidency change every six months, but also a number of key staff in the field changed.

In December 2000, the Council adopted a joint action on the European Union Monitoring Mission (EUMM) where the specific point raised by the Court is addressed: A Head of Mission has been appointed for three years, conditional on the continuation of the Mission. The Head of Mission takes all operational decisions as long as he stays within his mandate and as long as he does not exceed his budget. He reports regularly to the Presidency and to the SG/HR (not existing at the time of the Mostar administration), receiving feedback and guidelines in return. On all activities undertaken in the framework of his contract, notably regarding the implementation and the use of his budget, the Head of Mission reports, and is supervised by, the Commission. Continuity on all levels is thus assured. The system has already demonstrated its flexibility and capacity to react to the political changes and security developments of the first five months of 2001.

23. The Commission agrees with the Court that the complex political and legal characteristics of CFSP actions often lead to implementation problems. It, however, does not share all the observations made by the Court. The relevant points of disagreement are illustrated in the replies of the Commission under the relevant points indicated by the Court.

In addition, inside the Commission, some implementation problems can be attributed, on the one hand, to changes of responsibilities between services and DGs during the observation period and, on the other hand, to the lack of human resources available for the management of the CFSP. The latter point is related to the Court's recommendation 1(d) on the necessity of an adequate staffing level.

OBSERVATIONS ON THE IMPLEMENTING OF CFSP ACTIONS

Council decisions

Budgetary framework for the Republic of Srpska

26. The Commission accepts this criticism and considers this to be an isolated case.

Conference on the Stability Pact for South-eastern Europe

27. The Commission understands this criticism to be primarily addressed to the Presidency and to the General Secretariat of the Council. Proper preparation with full participation of the Commission speeds up the subsequent signature of the contract, which should indeed take place before the beginning of the action and in this specific case under consideration before the conference.

Based on the experience gained from the action in question, the "action statements" have been introduced in 1999 for a more thorough preparation of the CFSP actions. If they were filled in as they should be for each project by the Council's thematic or geographic working groups before discussion in the External Relations Counsellors' Group, then these action statements would constitute the required preparatory tool to allow the establishment of a correct financial statement and a good implementation framework.

28. The Commission agrees with the Court's findings that in future the Presidency should avoid financial commitments before appropriate consultation with the other Member States and the Commission has taken place.

Special representative for Yugoslavia

29. The situation may have been determined by particular political events that were not entirely predictable. Yet, the Commission would point out that it had insisted on several occasions in the various Council forums concerned, on a swift repeal of the joint action.

Special representative for the Royaumont Process

30. The Commission does not consider it appropriate to reply on the Court's findings that are addressed to the Council.

Financial and budgetary arrangements

31. A large number of improvements have indeed been accomplished. Clarifications are given below on those arrangements and procedures described in the Commission's reply under points 32 to 34.

Different budget lines to finance CFSP operations

32. In 1996, the European Parliament created budget Article B7-6 6 1 "Community participation in action concerning anti-personnel mines". The financing of mine actions by the Community has since been progressively concentrated under that article. This trend will accelerate with the establishment of a specific Council regulation in 2001. In the period 1998 to 2001, no mine actions have been committed from the CFSP budget. The only exception is the mine action in Croatia, which could not be financed under the relevant first pillar regulation because the implementing body, WEU, was a military organisation.

Article 17 of the TEU establishes conditions under which the WEU can be mobilised by the EU for the purpose of implementing an action of the Union. There is no possibility for the EU of mobilising WEU without such a legal basis. This fact conditioned the choice of the legal basis for JA 2000/231/CFSP (and also JA 2000/798/CFSP on the different area of police mission in Albania). It would have been contrary to the Treaties to establish financing under a Community regulation for an action which was established by a CFSP act, as it would be legally unacceptable to instruct, via a second pillar instrument, the WEU to undertake a Community activity.

Since the adoption of Council Regulations (EC) No 975/1999 and (EC) No 976/1999 (human rights), election monitoring has been financed exclusively under the first pillar. Furthermore, election processes in Nigeria and Bosnia and Herzegovina were initially funded by subsection B8, but due to the adoption of the regulation they were shifted to Item B7-7 0 9 0 as of 1 January 2000.

Phare indeed supported the Albanian police through the rebuilding of stations and the provision of equipment. It did not finance the activity which was subsequently conducted by the WEU. Although the objectives of the actions cited were hence complementary, the actions were distinct as regards funding, legal base and corresponding budget line.

33. The criteria of Coreper on the financing of an action under subsection B8 were always followed, except in two cases. These cases were financed under budget subsection B8 due to the fact that in both cases the implementing body was the Western European Union, a military organisation, which could not have been a beneficiary under the first pillar budget lines. The cases in question are the anti-personnel landmine action in Croatia (Weudam), due to terminate in November 2001, and the action for the re-establishment of a viable police force in Albania (MAPE), which has been terminated in the meantime. Certain elements of support to the Albanian police, which are not linked to the WEU as such will be continued under the CARDS (Community assistance to reconstruction, development and stabilisation) Regulation. The Commission refers to its interpretation given under point 32 on the necessity of using Article 17 for actions implemented by the WEU.

The Commission considers that the borderline cases mentioned in the Court's report have been taken over by the new Council regulations.

According to Council Joint Action 2000/798/CFSP of 14 December 2000 (third preamble) the general idea is reflected that WEU structures (including MAPE) be integrated into the EU, i.e. into the CFSP. In 2001, the Commission rejected the integration of the MAPE structure into the CFSP on the grounds that the type of action envisaged under the structure would fall under an existing first pillar legal basis, namely the CARDS Regulation. As a result, those elements of the MAPE structure which continue to be operational will now be taken over under this Council regulation.

34. The Commission notes the conclusion by the Court according to which the initial criticism has been properly addressed by the budgetary authorities and the problem in question has been solved.

Contributions in kind and co-financing

35. The number of seconded staff was limited to the following: two secretaries by the Council and one administrative assistant by the Commission to EUSR Moratinos and one administrator by the Commission to EUSR Hombach.

36. The Commission tries to mention all the known contributions in the financial statements. Whenever contributions are made in kind or when personnel is seconded, this is indicated.

Calculating the financial importance of contributions in kind is difficult and in most cases not desirable politically. See further the replies given under point V.

A solution, which was for instance adopted in the case of the special coordinator of the Stability Pact, is to pay only a well-defined component of the total project.

37 and 38. The High Representative and his Office (OHR) were established under the "General Framework Agreement for Peace" (GFAP; Annex 10), initialled in Dayton on 21 November 1995 and signed, by the three parties to the conflict, in Paris on 14 December 1995. The Agreement was witnessed by other countries and the "special EU negotiator". A Peace Implementation Conference at Lancaster House, London, on 8 and 9 December 1995 agreed on the dissolution of the structures of the International Conference on the Former Yugoslavia (ICFY) and established a Peace Implementation Council (PIC), in which the European Commission is represented (Lancaster House conclusions, paragraph 21). The Conference agreed on the following (paragraph 22): "A budget to cover the operational costs of the PIC, notably the cost of the headquarters and offices of the High Representative (...) will be proposed by the Steering Board [of the PIC]. The PIC undertakes to provide funding for this budget on a key derived from the ICFY to be agreed by consensus. It was noted the EU was already taking steps to provide for certain immediate costs for the High Representative and for its share of the total."

In December 1995, before the other donors, the EU agreed on a contribution of ECU 10 million, which when assessed against the OHR budget of ECU 19,763 million agreed by the Steering Board in March 1996 equated to 50,6 %. A "funding gap" of 2,4 % opened, because the OHR erroneously included in the funding key a one-off contribution-in-kind from the Commission (accommodation for the OHR in Brussels).

In a letter of 10 December 1996, Commissioner Hans van den Broek confirmed to the OHR, that henceforth the contribution from the Community budget as a proportion of the general budget of the OHR would be 50,6 %.

On 11 May 1999, the Council stated that since 1997 the EU's share was 50,6 % of the adopted budget of the OHR (as stated in the financial statements attached to the Council decisions), but that the Council had never formally decided that the EU's share would be at this percentage. In the same decision the Council agreed to finance 53 % of the OHR's budget of the year 1999 under three conditions: that there be no nominal increase in the EU contribution for 1999, that there be a net reduction in the OHR's budget in the year 2000; and that there be no retroactive assessment for the period 1996 to 1998. Since then the EU's share is 53 % of the adopted budget of the OHR. As stated by the Court it is the case that not all members of the Peace Implementation Council subsequently contributed to the budget of the OHR. These members are mostly economically less-advanced countries.

While it is the case that there was no formal agreement establishing donor shares on a long-term basis, the shares of all donors were established annually in the context of the approval of the OHR budget.

The Commission accepts that the budgets of the OHR should be prepared on a reliable basis and agrees in principle that unreliable pledges should be excluded. However, it must be recognised that while this will not necessitate an increase in the monetary contribution of the contributing members of the PIC to cover the entire budget, it will increase the percentage share paid by the contributors.

39. The Commission will make the reconciliations recommended by the Court, and will communicate the results to the OHR. Where necessary, a recovery will be made.

The net effect of calculating unpaid contributions as expenditure has been to ensure that the OHR's budget remained balanced, with the actual contributors increasing their contributions on a pro rata basis. The unsatisfactory situation in relation to non-paying members of the PIC has been discussed on a number of occasions in the financial experts working group of the PIC Steering Board. The Commission urged the OHR to take action to address the problem. However, it has been concluded by the members of the PIC that for political reasons non-paying members should not be expelled. In 1999, China declared that it was no longer a member of the PIC and was consequently excluded from the funding key. Efforts to invite new members to join the PIC to cover the financing gap have been unsuccessful.

As regards the practice of reporting as expenditure "depreciations" and "losses on disposal of property, plant and equipment", the Commission and other donors have had no reason to suspect that this has contradicted accepted accounting standards. This was never highlighted as a problem in the annual audit reports of the OHR prepared by recognised international auditors. Nevertheless, in light of the Court's comments, the issue would seem to merit a re-examination by accounting experts.

40. The different levels of Community financing are explained by the fact that in some projects there were co-donors willing and able to contribute more than in other projects. Also the share of own funding by the implementing agencies was larger in some projects than in others.

Availability of resources

41. The decision to finance an action refers to the Commission decision which is taken after checking the availability of financial resources. Since the end of 2000, the verification is made automatically due to the introduction of a new technical function of the accounting system (pre-commitment).

According to Article 34(2) of the Interinstitutional Agreement (IIA) of 6 May 1999 the financial reference amount in the Council decision is to "be taken as illustrating the will of the legislative authority and will not affect the powers of the budgetary authority as defined by the Treaty" (see also the Commission's reply under points IV and VI).

The clarification made by the IIA solves the objection raised by the Commission in its Coreper declaration of 1998.

43. In the case of CFSP joint actions it is the Commission's role to ensure that appropriations are available before adopting a commitment decision. It has to comply with the rules and restrictions of the Financial Regulation, but it can also use the possibilities of this Regulation to implement the JA in a flexible way. Notably in the case of a Council decision taken at the very end of the year the possibility of carrying over appropriations to the following year for a well-defined action or of taking both the financing decision and the legal commitment in the beginning of the following year exists (see also Commission's reply under points 41 and VI).

The Commission agrees with the Court that Commission and Council decisions should be made within the annual budgetary limit. As regards the specific period mentioned (1997 to 1999) by the Court, the Commission would like to point out that the overall amount of commitments did not exceed the global CFSP budget, as demonstrated by Annex 3 to the present report.

Delays in launching the actions

44. Speed is often an important factor in CFSP, but it is equally important to concentrate on the proper preparation of contracts and on the overall implementation framework in order to avoid problems during the implementation phase.

In addition, the Commission is currently reflecting on tools to reduce the internal decision-taking period, such as by an empowerment of the Commissioner for External Relations for the financing decision.

45. At the end of 1997 an internal restructuring took place in the Commission, separating in two different DGs the management of the preparatory phase of the project cycle and the implementation phase. This situation lasted until the end of 2000 and caused longer time lapses between the Council decisions and the first payments. The reunification of the project cycle into one unit at the beginning of 2001 is expected to shorten these delays.

46. The Commission refers to its replies under points 44 and 45.

47. The rapid launching of an action is largely dependent on proper preparation prior to the Council decision. The situation has improved in 2000/2001 after the introduction in November 1999 of action statements. If complete action statements are provided by the Council's thematic and geographic working groups, contracts can be signed rapidly. The first payments are normally made upon signature.

This being said, the Commission welcomes the Court's recommendation on a recognised right of reassessment in cases where there is a risk of a long delay before any action is likely to take place.

Contracting and extensions

48. The large number of contracts and amendments was partly dictated by the budgetary and implementation framework of the action. The joint action of 29 April 1997 entailed commitments from three successive Community budgets (a practice that was abandoned in 2000, although the necessity for concluding contracts and amendments remained). It established a need for individual Commission decisions during three successive years. These decisions, in turn, included explicit authorisations to sign, and in the latter two cases, to extend the contract with the EU adviser (Decisions C(1997) 2077, C(1998) 2616 and C(1999) 1537).

49. The Council does not set the deadline for the operation but it often sets an end date for the validity of the decision itself. In fact, the operation cannot terminate by the end date of the Council decision unless the project implementation starts on the date of the decision (unless the intended duration of the operation is shorter than the period of validity of the decision, which is in practice never the case). Due to the necessity of preparing a Commission financing decision and a contract with the implementing agency, the execution of the operation will start some time later. Hence, the Commission agrees with the Court's recommendation 4(a) that a deadline should be laid down for the completion of a project, but that the implementation period should start from the signature of the contract with the implementing agency. Yet in cases where funds are unused, the Commission agrees that these should be decommitted.

50. One important reason for contracts covering costs retroactively is the fact that Council decisions are taken too late to extend existing actions. Besides, interrupting actions waiting for the administrative implementation (extension of a contract) of a taken political decision would in many cases substantially hinder the achievement of the objectives sought.

51. Although the Commission agrees that such practices contravene Article 1(4) of the Financial Regulation, it would like to point out that it concerns an isolated case with no negative budgetary or financial implications. Indeed, the amount foreseen under the first contract was too high in proportion to the activities completed. Therefore it was never fully consumed and the total amount effectively spent under the two contracts in question never exceeded the amounts of the corresponding budgetary commitments.

52. The Commission agrees with the assessment. In order to support the OHR, the Commission had to adapt to the many successive decisions.

53. See the reply by the Commission under points 47 and 49 and the Court's recommendation 4(a), which is supported by the Commission.

54. The Commission takes note of the assessment and would like to point out that the delays can in most cases be attributed to late or incomplete reports leading to further delays when providing subsequent additional information requested by the Commission.

Employment conditions

55. The Commission considers that the initial criticism regarding the employment conditions of the EUSR has been satisfactorily addressed by the adoption of the corresponding communications adopted by the Commission in 1997 and 1998.

56. The special allowance in the specific case raised by the Court was entered in the financial statement by the Council against the advice of the Commission, which insisted on respecting the remuneration scheme for the EUSRs referred to by the Court.

57. The special representatives do not contribute to the sickness and accident schemes of the Community. They are covered by a high-risk insurance without any social security aspects, such as reimbursement of medical expenditure.

58. The Commission would like to clarify that since the adoption of the Commission communication on EUSR remunerations of 1998 the treatment is uniform for the people seconded to the offices of those EUSRs whose mandates originate from after 1998. As regards these "new EUSRs", high-risk insurances and other benefits listed in the Court's comment are not granted for the secondees.

Reporting and evaluations

59. Each action is different, and it is not always necessary to have an audit for each JA. Some actions can very well be evaluated on the basis of a final report, especially when a Commission Delegation is involved in the implementation. However, the Commission has recently taken efforts to improve management in these respects.

Since the Court's last opinion the Commission has tried to ensure more interaction and dialogue at an early stage between the file managers and the implementing bodies. Furthermore two audits were launched in 1999 regarding the Organisation for Security and Cooperation in Europe (OSCE) in Bosnia and Herzegovina and the ECMM (since 1 January 2001 now called EUMM). Another audit has been launched in 2001 on the three EUSRs and a fourth one is planned regarding the joint action in Cambodia. Regarding the latter action an evaluation has been completed by an external expert.

In general, greater attention has been paid to the control and evaluation headings in the financial statements. Further, there is a clear intention to plan more control missions on the spot.

60. The evaluation responsibility depends on the nature of the action. While the financial and technical evaluation fall to the Commission, sometimes a specific evaluation of the political opportunity to continue an action is needed. This evaluation is implicitly made by the Presidency and the Council working groups each time an action is extended. This is also the main reason why the duration of most of the actions is so short.

61. The Commission does not wish to comment on the assessment made, which is addressed to the Council.

Operating versus administrative costs

62. The Commission notes that according to the findings of the Court, the criticism raised in its opinion of 1997 regarding preparatory measures has been satisfactorily met with the introduction of the corresponding budget heading.

64. The Commission made a note to Coreper in December 2000 where, while stating its support for the objective of the new guidelines to place the EUSRs clearly under the authority of the SG/HR, it expressed a need to define what is to be considered as administrative and what is to be considered as operating expenditure.

The Commission has also launched an audit in 2001 on the operations of EUSRs Hombach, Ajello and Moratinos, where the definition of administrative and operating expenditure is among the issues to be addressed.

CONCLUSIONS AND RECOMMENDATIONS

Improvements since the Court's Opinion No 1/97

65. The Commission has taken the following important measures to respond to the five main observations in the Court's Opinion No 1/97.

(a) There was a lack of clear criteria for determining the source of Community funding.

Clear criteria were established in the document "General criteria for the exercise of either Community powers or the European Union's powers under the CFSP Brussels", Council Document 13314/1999 of 24 November 1999 according to which competence determines the source of financing.

Since the Court's opinion of 1997, even before the publication of these criteria, mine actions (with the exception of Weudam due to the fact that it was implemented by the WEU, being a military organisation) and election-monitoring have been financed under the applicable Council regulations.

(b) Little or no information was available on the amounts disbursed by different Member States or by other donors.

Financial contributions and contributions in kind are now indicated in the financial statements.

(c) Preparatory work was considered by the Council as administrative expenditure and therefore charged to Section II - Council - of the general budget, leading to a loss of transparency in the management of the budget.

Since the Court's opinion, a budget article for preparatory action has been created under budget subsection B8.

(d) Financial resources were not made available in time to permit efficient implementation or to carry out the preliminary work required before a common measure is decided upon.

The delays in the mobilisation of financial resources have become shorter with the creation of the budget article for preparatory action and the abandoning of the budgetary reserve.

(e) In the absence of clear definitions, the Commission's role in determining the financial, legal and operational arrangements needed for the implementation of the CFSP measures involving expenditure was not clearly established.

The Commission's task of implementing the budget is unambiguous. The Commission is responsible for the proper management of the Community resources decided to be used for the CFSP actions (see also Article 28 TEU and Article 274 EC). Yet, the participation of the Commission in the preparation of the Council decision is still restricted.

Framework for the CFSP actions

66. In practice a division of tasks between the Council and the Commission has been established which is working well for most of the JA, although some legal precisions would improve the clarity.

As the working conditions of the EUSRs were already largely defined by the Council and as they politically report to the Council, it seems a matter of good management to have them classified under the administrative expenditure of the Council. Thereby the respective roles of the institutions have been clarified from a budgetary point of view, which has not affected negatively the Commission's overall role in the implementation of CFSP actions.

Recommendation 1

67. The European Parliament, the Council and the Commission should adopt at an interinstitutional level clear operational principles and arrangements with regard to the Commission's role in the implementation of the CFSP.

The Commission welcomes the proposal by the Court for clear operational principles and arrangements with regard to the Commission's role in the implementation of the CFSP and believes that the proposals made by the Court aiming at an enhanced Commission role in the implementation and closing of actions would lead to an overall improvement of the management of CFSP actions.

The Commission is generally satisfied with the guidelines regarding the EUSRs and the financing of administrative expenditure from the Council's administrative budget. However, the Commission has itself proposed to have the distinction between "administrative" and "operating" expenditure clarified.

The rapid development of CFSP reflected in a growing number of actions presents a challenge to the Commission, which it can only meet if it has the adequate human resources.

Budgetary arrangements

68. As the financial statements accompanying the Council decisions are only "illustrating the will of the legislative authority", their annual total constitutes not a real constraint. On the contrary, the total of the amounts of the Commission decisions should not exceed the total of the budgetary appropriations available. If necessary and under strict conditions laid down in the Financial Regulations, the Commission can respond to extra requirements of funds without transfers from other budgetary subsections by using available appropriations of the following budgetary year. This is not unusual when the Council decision is taken at the end of the year.

Regarding the different budget lines to finance CFSP operations and contributions in kind and co-financing, the Commission refers to its position expressed in points 32 and 35 to 37.

Recommendation 2

69. The financing of the CFSP actions should be managed in a more transparent manner.

The Commission takes note of this recommendation and will try to reduce the time lapse between the Council decision and the Commission decision. It will avoid cases where the contract is signed in another budgetary year than the Commission's commitment decision.

In general, the Commission agrees that it would contribute to a more transparent management if Council decision, Commission decision and contract could be made in the same budgetary year. However, in cases where Council decisions are taken late in the year this is not always possible.

The Commission now systematically alerts the Presidencies of the need to ensure timely decision-making, so as to enable the Commission to take the commitment decision and to prepare the contract before the end of the budget year.

The Commission will continue to ask the Council to establish clear arrangements on co-financing. The Commission tries to mention all the known contributions in the financial statements accompanying the joint actions. Whenever contributions are made in kind or when personnel is seconded, this is indicated.

An alternative solution that has been used in the case of the special coordinator of the Stability Pact was to pay only a well-defined component of the total project.

The finding of a method to evaluate the contributions in kind does not seem feasible since comparable and detailed information may not be obtainable from the Member States or other contributors. However, the Commission agrees with the Court that the mentioning of functions of secondees, names of the seconding MS and duration of secondments are the minimum information to be included in the financial statements.

The Commission does not wish to comment on this recommendation, which is addressed to the Council.

Regarding the issue of general criteria established by the decision of 24 November 1999, the Commission refers to its reply under points 10(a) and 65(a).

The number of borderline cases has declined and will continue to decline. Election-monitoring and mine actions have been taken over by the Community under budget subsection B7 under applicable Council regulations. Election-monitoring is implemented under the Council Regulations (EC) No 975/1999 and (EC) No 976/1999 of 29 April 2001 and a specific Council regulation on anti-personnel landmines is being adopted. Weudam will be terminated in November 2001. MAPE is terminated and only specific elements of the training of the Albanian police force, which are not linked to the WEU will continue to be covered by the CARDS Regulation. Nevertheless, there is a continuous need to monitor new potential grey areas and develop criteria for their classification.

Delays in launching the actions

70. Speed is often an important factor in CFSP, but it is equally important to concentrate on the proper preparation of contracts and on the overall implementation framework in order to avoid problems during the implementation phase and to ensure a quality output.

In addition, the Commission is currently reflecting on tools to reduce the internal decision-taking period, such as by an empowerment of the Commissioner for External Relations for the financing decision.

At the end of 1997 an internal restructuring took place in the Commission, separating in two different Directorates-General the management of the preparatory phase of the project cycle and the implementation phase. This situation lasted until the end of 2000 and caused longer time lapses between the Council decisions and the first payments. The reunification of the project cycle into one unit at the beginning of 2001 should shorten these delays.

The rapid launching of an action is largely dependent on proper preparation prior to the Council decision. The situation has improved in 2000/2001 after the introduction in November 1999 of action statements. If complete action statements are provided by the Council's thematic and geographic working groups, contracts can be signed rapidly. The first payments are normally made upon signature.

In some cases, the Court's recommendation on reassessments would be in contradiction with the comment referring to statistics in the delays in the first payment. If the Commission engages more often in reassessing actions and implementing partners between Council decision and contracting, the average delay in making the first instalment is likely to be greater.

This being said, the Commission welcomes the Court's recommendation on a recognised right of reassessment in specific cases where there is a risk of a long delay.

Recommendation 3

71. The Commission should launch an enquiry on the causes of long delays and reassess the action as well as the partner for the management of the action.

An improvement is expected due to the Commission's reorganisation and more specifically to the concentration of the whole CFSP project cycle within one unit. The Commission should be duly involved in the preparation phase of the actions. Besides, in the framework of the Commission reform, internal control tools are being strengthened.

Contracting

72. The Council does not set the deadline for the operation but it often sets an end date for the validity of the decision itself. In fact, the operation cannot terminate by the end date of the Council decision unless the project implementation starts on the date of the decision (unless the intended duration of the operation is shorter than the period of validity of the decision, which is in practice never the case). Due to the necessity of preparing a Commission financing decision and a contract with the implementing agency, the execution of the operation will start some time later. Hence, the Commission agrees with the Court's recommendation 4(a) that a deadline should be laid down for the completion of a project, but that the implementation period should start from the signature of the contract with the implementing agency.

One important reason for contracts covering costs retroactively is the fact that Council decisions are taken too late to extend existing actions.

Recommendation 4

73. The Commission should amend contracts retroactively or extend them only in cases of force majeure. Certain practical measures facilitating the smooth implementation of actions should be sought.

The Commission agrees that contracts should be amended retroactively only in cases of true exceptions. It, however, would like to point out that such exceptions are often created by a belated Council decision extending an action which is due to expire in a few days or which has already expired. In these cases the eligibility of expenditure must be established retroactively in order to avoid a gap in financing.

Political and security developments typically affect CFSP actions in ways that may delay activities. In clear cases, extensions should rather be granted as a rule than an exception.

The Commission supports this proposal and will investigate the best ways of how to conform.

The Commission agrees with the recommendation to prepare the Council decisions for actions to be continued the following year early and has taken initiatives to address the issue with the various Presidencies.

The possibility of using the contingency reserve has always existed and, since 2001, minor changes concerning transfers between budget headings have systematically been authorised. For minor foreseeable changes the Commission will reflect on abandoning the requirement for prior authorisation.

In line with the reform, the Commission is preparing a vade-mecum on the implementation of CFSP actions.

Employment conditions

74. Regarding the employment conditions of EUSRs, the Commission would like to point out that the special allowance in the specific case raised by the Court was entered in the financial statement by the Council against the advice of the Commission, which insisted on respecting the remuneration scheme for the EUSRs referred to by the Court.

Regarding other staff, the Commission acknowledges that there are ambiguities and that the situation might need to be addressed in a more coherent way. However the indirect application of "market rules" has so far often led to the most cost-effective results.

A secondment is already a sign of goodwill and a cost-reducing factor of the action. In practice only the mission costs of seconded personnel are reimbursed from the project budget. More detailed conditions were already introduced in the case of the European Union Monitoring Mission, setting the minimum period of service. The Commission will continue to insist on more uniform practices.

Recommendation 5

75. The Council and the Commission should establish clear rules on remuneration and salary related costs.

The Commission will continue to insist that applicable rules on remuneration and salary-related costs are indeed applied and that for seconded staff, only mission costs should be paid from CFSP project funds.

It is specified in the Commission communication of 1998 that the rules do not apply to those EUSRs whose mandates originate from a period preceding the communication. Only two EUSRs are hence benefiting from these more favourable terms. Since 1 January 2001, remunerations of the EUSRs are being covered by the Council's administrative budget.

The Commission will examine the recommendation made by the Court.

Reporting and evaluations

76. A distinction should be made between project reporting and reporting on the overall implementation to the budgetary authority. The Commission reports on the overall implementation in its quarterly reports to the European Parliament.

As regards project reporting, each action is different, and it is not always necessary to have an audit for each JA. Some actions can well be evaluated on the basis of a final report, especially when a Commission Delegation is involved in the implementation. However, the Commission has recently taken efforts to improve management in these respects.

Audits have already been undertaken for important actions and further ones are planned on a more regular basis.

In general, greater attention has been paid to the control and evaluation headings in the financial statements.

The evaluation responsibility depends on the nature of the action. While the financial and technical evaluation fall to the Commission, sometimes a specific evaluation of the political opportunity to continue an action is needed. This evaluation is to be made by the Presidency and the Council working groups each time an action is extended. This is also the main reason why the duration of most of the actions is so short.

Recommendation 6

77. Arrangements should be laid down for adequate reporting, audit and evaluation.

Some standard reporting formats have already been developed. Furthermore they have to be adapted to the wide variety of projects under CFSP.

The Commission agrees that audits should be carried out on a more regular basis, in particular for financially important actions.

In general the Commission agrees that evaluations should be carried out on a more regular basis for the more important types of operation but points out that it has limited appropriations to that end.