COMMUNICATION FROM THE COMMISSION TO THE COUNCIL AND THE EUROPEAN PARLIAMENT - AMENDING LETTER N°1 TO THE PRELIMINARY DRAFT BUDGET 2003 - SECTION III - COMMISSION

Having regard to:

- Article 272 of the Treaty establishing the European Community,

- Article 78 of the Treaty establishing the European Coal and Steel Community,

- Article 177 of the Treaty establishing the European Atomic Energy Community,

- Article 14 of the Financial Regulation of 21 December 1977 applicable to the general budget of the European Communities [1] as last amended by Regulation n° 762/2001 [2] of 9 April 2001,

[1] OJ L 356, 31.12.1977, p. 1.

[2] OJ L 111, 20.4.2001, p. 1.

The European Commission hereby presents the letter of amendment n° 1 to the 2003 preliminary draft budget for the reasons set out in the explanatory memorandum.

***

A technical annex regarding the financing of the present letter of amendment is being drawn up separately.

TABLE OF CONTENTS

EXPLANATORY MEMORANDUM

1. General introduction

2. HEADING 2: STRUCTURAL OPERATIONS: reform of the Common Fisheries Policy and supplementary Community measure for scrapping

2.1. Background

2.2. Actions envisaged

2.3. Calculation of the cost of the reform

2.4. Cost of the specific measure in 2003 and re-reprogramming in the structural funds

2.5. Consequences for the Community budget in 2003

3. SUMMARY TABLE BY FINANCIAL PERSPECTIVES

GENERAL STATEMENT OF EXPENDITURE

EXPLANATORY MEMORANDUM

1. General introduction

Article 14 of the Financial Regulation foresees that the Commission can present an Amending Letter to the preliminary draft budget on the basis of information, which was not available at the time the preliminary draft was established. Even if the reform of the common fisheries policy was already announced in volume 0 of the PDB, the proposal for the legal basis was however still under consideration inside the Commission. [3]. The present proposal respects the deadline set in paragraph 2 of article 14 of the Financial Regulation.

[3] COM (2002) 300 of 15 June 2002, p. 110

The Commission presents herewith amending letter n°1 to the preliminary draft budget 2003, which covers one single element. The present proposal is intended to create the budgetary structure accompanying the proposal for a legal basis [4] already made and is linked to the proposal for mobilisation of the flexibility instrument already put forward by the Commission on 10 July 2002.

[4] COM (2002) 190 of 28 May 2002

The Commission has proposed on 28th May 2002 a major review of the Common Fisheries Policy aiming for a fishing fleet whose capacity is in line with available resources. It includes an supplementary measure designed to provide additional incentives for scrapping fishing vessels in order to urgently address over-capacity in fisheries. To this end extra-funding is needed in 2003 in order to initiate the reform.

As the measure concerned would have been eligible for the FIFG and anticipates a major reshuffle of the FIFG programmes, the new line has to be financed under heading 2 of the financial perspective. The same reasoning as for the restructuring programme for Spanish and Portuguese vessels and fishermen financed in heading 2 already in 2002 can be applied. Since there is no margin left under the ceiling of heading 2, the Commission has also put forward a proposal to mobilise the flexibility instrument foreseen in point 24 of the Inter-Institutional Agreement of 6 May 1999 [5] for this amount in order to adapt the ceiling of the financial perspective.

[5] OJ C 172, 18.6.1999, p. 1

In this letter of amendment, it is proposed to create a new article in the 2003 budget, B2-201, "Supplementary Community measure for scrapping fishing vessels" in the chapter "Other specific structural operations". The required funding according to the Commission's proposal currently under discussion would be, for 2003, EUR 32 million in commitment appropriations and EUR 10 million in payment appropriations.

2. HEADING 2: STRUCTURAL OPERATIONS: reform of the Common Fisheries Policy and supplementary Community measure for scrapping

2.1. Background

The Commission has proposed on 28th May 2002 a major review of the Common Fisheries Policy aiming for a fishing fleet whose capacity is in line with available resources. However, while capacity has been somewhat reduced through the Multi-Annual Guidance Programmes (MAGPs), recent reduction targets have been very modest and the fleet still remains much too large for the size of stocks it is targeting.

For that reason, the Commission has proposed an supplementary measure designed to provide additional incentives to the owners of fishing vessels in order urgently to address over-capacity in fisheries where stocks are outside safe biological limits and for which multi-annual management plans have been implemented. These multi-annual management plans, such as those already proposed for cod and hake, will result in severe reductions in fishing opportunities for certain segments of the fleet. In the absence of the additional measures which encourage a similar reduction in fleet size the imbalance between fleet and resources could increase significantly.

To address this imbalance, this proposal would allow Member States to offer additional money to vessel owners, severely affected by effort reductions, for scrapping of their vessels. The aim is to encourage more vessel owners to take up the offer and thus help bring the capacity of the fleet in fisheries affected by multi-annual management plans in line with the available resources. The time-frame for this measure is limited to 2003-2006 in order to encourage vessel owners to decommission quickly.

The FIFG programmes will mainly provide for these extra-scrapping premiums thanks to the re-programming of the Structural Funds as foreseen in their mid-term review for the years 2004 to 2006. Social and regional consequences of the reform will also be taken into consideration during the mid-term review of all structural funds.

In order to initiate this new policy in 2003, a special incentive that would provide Member States with additional money is required to co-finance this extra scrapping, on top of the Community budget already available through FIFG.

2.2. Actions envisaged

It is intended to allow additional financial incentives for scrapping, in order to ensure that, taken together, FIFG and this new measure will mobilise sufficient financial aid to meet the needs of more rapid decommissioning of fishing vessels.

The target beneficiaries are shipowners/fishermen affected by multi-annual management plans (to be decided for certain fisheries). The immediate output is the uptake of the measure leading in a net reduction of the capacity of the fleet(s).

Member States wishing to receive the additional financial contribution available in 2003 will present to the Commission a plan of the decommissioning expenditure for which they are seeking extra money. They will have to show that their annual allocations of FIFG money are insufficient to achieve their scrapping targets of the year. On the basis of this information the Commission will then proceed with the commitment of the amount available.

Member States shall submit their application for payment of assistance by 30 June 2004. On the basis of the applications, the Commission shall decide on the Community contribution to be paid to each Member State.

2.3. Calculation of the cost of the reform

The starting-point for calculating the cost of the necessary capacity reductions is the recommended reductions in fishing effort. The number of vessels that would be affected by such reductions in fishing effort can be calculated approximately, using the fishing fleet register. By using estimates of how many of these vessels will seek scrapping aid, total demand for scrapping premiums in each Member State can be calculated. The difference between this figure and the amount already programmed for scrapping aid in each national FIFG programme indicates the need for additional financial resources.

Assuming that the oldest vessels will be scrapped first, the total number of vessels that would need to be removed from fishing in order to achieve the reduction in fishing mortality is estimated at 8,592. Converting them into tonnage and assuming an uptake of 80%, the total cost of scrapping would be EUR1,376m, including a Community contribution of EUR712 million.

2.4. Cost of the specific measure in 2003 and re-reprogramming in the structural funds

EUR663 million have already been programmed under the FIFG for adjusting the fleet capacity (i.e. amounts earmarked for scrapping but also for exports or joint companies that would be re-assigned to scrapping). The requirements by Member State show that some would not require any extra financing whereas others would. It will not be possible, however, to transfer FIFG funds between Member States. Considering these calculations per Member State the Commission therefore estimates that the additional budget required for decommissioning for those vessels likely to be severely affected by multiannual management plans could be evaluated at EUR272 million over the period 2003-2006. See table in annex.

The amount provided for 2003 represents the estimated need for extra funding before the mid-term review and reprogramming can take place to cover the remainder. As far as this measure is concerned, Member States should be able to re-deploy EUR240 million of the EUR272 million estimated necessary for the scrapping of vessels. In the light of the timetable for the mid-term revision of the Structural Funds, which will not come into effect until 2004, an additional amount of 32 million Euro is necessary in 2003 to initiate the reform of the fisheries policy.

2.5. Consequences for the Community budget in 2003

The financing of the supplementary measure for the year 2003 requires the insertion of a new budget line (B2-201 N) in the chapter B2-20 in the preliminary draft budget. This new budget line will be included in the activity "structural interventions for fisheries" included in the policy area "Fisheries".

As the measure concerned would have been eligible for the FIFG and initiates a major reshuffle of the FIFG programmes, the new line has to be financed under heading 2 of the financial perspective.

As the structural operations are budgeted up to the ceiling of the corresponding heading, the Commission has proposed to mobilise the flexibility instrument in 2003 and to allocate the corresponding appropriations to heading 2 of the financial perspectives for that purpose (item 24 of the Interinstitutional Agreement).

As the legal basis is not yet adopted by the Council, the Commission proposes to enter the commitment and payment appropriations as a reserve under B0-40. The Commission will propose the transfer to the new budget line as soon as the legal basis is adopted.

3. SUMMARY TABLE BY FINANCIAL PERSPECTIVES

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(*) including 170 mEUR for staff contributions to the pension scheme, according to footnote n°2 in the tables of the financial perspectives and the financial framework for the EU21 attached to the IIA of 6/5/1999.

(**) after EUR 124 814 000 in commitment appropriations is drawn from the flexibility instrument.

Annexe : Financial intervention [6]

[6] Foreseeable financial need for the purpose of this fund is shown in annexed table.

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GENERAL STATEMENT OF EXPENDITURE

General characteristic of the budget line to be created:

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(ABB nomenclature: 11 06 10 N):

New article: B2-201 Supplementary Community measure for scrapping fishing vessels

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(1) An appropriation of EUR 32 000 000 is entered in Chapter B0-40

(2) An appropriation of EUR 10 000 000 is entered in Chapter B0-40

Remarks for the new line

The likely schedule of payments vis-à-vis commitments is as follows:

>TABLE POSITION>

(1) of which 32 000 000 EUR is entered in chapter B0-40

(2) of which 10 000 000 EUR is entered in chapter B0-40

This appropriation is intended to cover the supplementary Community measure for scrapping fishing vessels.

Legal basis

Proposal for a Council Regulation establishing an emergency Community measure for scrapping fishing vessels, COM (2002) 190 final of 28.05.2002.