COMMUNICATION FROM THE COMMISSION TO THE COUNCIL AND THE EUROPEAN PARLIAMENT - 2000-2006 FINANCIAL PROGRAMMING OF HEADING 4

the period 2000-2006: overall assessment

1. Following the geopolitical events in the last decade in the Central and Eastern European Countries (CEEC), the external action of the EU became a field of the Community policy in rapid expansion. The assistance programmes to those countries (PHARE and TACIS) were created in 1989 and 1992, respectively. In particular from 1995, the Community adopted new strategies concerning the enlargement of the European Union to the associated CEEC and the reinforcement of the partnerships between the European Union and the Third Mediterranean Countries, the New Independent States (NIS) and the Developing Countries of Asia and Latin America. Following the different conflicts and natural disasters in Central Africa, ex-Yugoslavia (Bosnia-Herzegovina), NIS, Central America (Mitch), Afghanistan, Irak and recently in the Western Balkans (Kosovo) and East Timor the EC crisis interventions have substantially increased - from EUR 114 million in 1990 to EUR 810 million in 1999 (general budget + European Development Fund).

2. In the community budget, the annual commitment appropriations for the external policies increased from EUR 1.9 billion for 1990 to EUR 6.4 billion for 1999 and EUR 8.2 billion for 2000 (taking in account the pre-accession strategy, which was 1 411 million in 1999 for PHARE and is in 2000 1 587 million for PHARE, 1 058 million for ISPA and 529 million for SAPARD).

3. In the framework of the Agenda 2000 and in particular of the financial perspective adopted following the European Council of Berlin in 1999, the ceiling for heading 4 increases from EUR 4,627 million in 2000 to EUR 4 787 at constant 2006 prices (Assuming a deflator of 2%, the figure for 2006 would be EUR 5,285 million). As has been set up by the Commission's programming at the time of the 2000 PDB, this amount still permits to cater for the existing priorities. The amount foreseen for the co-operation with the Western Balkans countries was of about EUR 1.85 billion for the 2000-2006 period and 280 million originally in 2000. Even if the Berlin financial perspective is more restricted in comparison with the initial proposal of the Commission, it was believed that the remaining envelope would provide the adequate funding for all the other programmes.

4. The Kosovo crisis and the ensuing bombardment shifted the political priorities of the EU towards the Balkans, a fact which has not been taken into account in the Berlin Financial perspectives. A declaration annexed to the inter-institutional agreement furthermore foresees the possibility to revise the financial perspectives "in the light of the situation in the Balkans". The Commission considers that the figures initially foreseen should be adjusted upwards to take into account the new political priority of stabilisation and development of the Balkans region.

5. The supplementary needs for 2000 to be available for Kosovo were found by making full use of the flexibility instrument and some redeployment within heading 4. Since a further EUR 40 million will have to be found by redeployment in the course of 2000, EUR 30 million were carried over from 1999 and EUR 15 million are foreseen for a macro-financial assistance to Bosnia-Herzegovina, the total amount for Western Balkans countries in 2000 will be EUR 540 million.

6. In the framework of the second reading by the Parliament of the 2000 budget, a declaration was issued to the decision of the European Parliament and the Council on the use of the flexibility instrument to finance the Kosovo's reconstruction. It states that the Commission will present to the Budgetary Authority an integrated assistance programme for the Western Balkans, the financial envelope of which will imply that the Commission presents a revision of the financial perspective and a Category 4 programming in time for the 2001 PDB. The present document is part of this package.

The financing needs for the Balkans

7. A new Council regulation proposed simultaneously will consolidate the legal framework for EU/Western Balkans co-operation establishing an integrated reconstruction and economic development programme CARDS - Community Assistance to Reconstruction Development and Stabilisation). The new CARDS programme will be a comprehensive programme encompassing regional co-operation, reconstruction and economic development covering Albania, Bosnia-Herzegovina, Croatia, the Former Yugoslav Republic of Macedonia and the Federal Republic of Yugoslavia (including Montenegro and Kosovo) for 2000-2006. The extent of participation in the programme will be conditional on the respect of certain criteria relating to the basic principles of democracy, the rule of law and human rights. The financial envelope of the programme (max EUR 5.5 billion) itself will cover reconstruction and co-operation as well as macro-financial assistance, excluding humanitarian aid and assistance in favour of democracy.

* As recalled above, the initial Agenda 2000 programming foresaw an amount of EUR 1.85 billion for the Western Balkans for the period 2000-2006. The situation has changed with estimated needs of up to EUR 5.5 billion for the region, that is, EUR 3.65 billion more than foreseen in April-May 1999.

* Taking into account the amount for the Western Balkans available in 2000 (EUR 540 million) which includes already 200 million from the flexibility instrument, the need for the period 2001-2006 for that region still amounts to EUR 5 billion or 3.4 billion in addition to what was already programmed.

* It is not possible to cover this additional need entirely from within heading 4 without any review of the ceiling of the financial perspectives for that period.

8. The indicative amount of EUR 5.5 billion is based on the assumption of an economic reconstruction programme in Serbia of EUR 2.3 billion for 2001-2006. EC assistance to that country is of course conditional on a favourable development of its political regime, otherwise only minimal assistance (about EUR 300 million over 2001-2006) to strengthen the opposition forces in Serbia is proposed.

For the 2001 financial year, even with no reconstruction in Serbia, an increase of the ceiling of heading 4 for 300 million will be necessary, mainly due to the front-loading of the reconstruction in Kosovo. Should Serbia become democratic in 2001, the Commission would propose to use the flexibility instrument for max EUR 200 million.

9. In conformity with the results of the Commission's 2001 orientation debate and taking into account the EUR 540 million foreseen in 2000 and based on this hypothesis, the Commission elaborated a scenario whereby the remaining EUR 5 billion for the period 2001-2006 should be covered by redeployment inside category 4 (EUR 1.4 billion) and an increase of the ceiling of max EUR 2 billion for that period i.e. a revision of EUR 300 million p.a. from 2001 to 2006 and possibly the use of the flexibility instrument in 2001. The estimation of needs is of course dependent on the development of the political situation in the region, notably as concerns Serbia.

10. Table 2 attached presents a simulation for a financial programming aiming at reducing the financial effects of the Western Balkans Programme and for the other regions. This scenario would front load the financial effort and gradually allow to build up a margin to cover future unforeseen events in the external relations and possible adjustments related to the estimate of the deflator.

11. This proposal for the financial programming of Category 4 takes into account full support for Serbia in 2002 under the assumption that the change in the regime in Serbia occurred in 2002. The overall amount for the whole region would reach EUR 5.3 billion with EUR 800 million for the region in 2001, with the possibility to reach EUR 5.5 billion if the flexibility instrument was fully mobilised in 2001.

The new programming of heading 4: evolution of the different components of the external policies

12. Indeed, the hypothesis of coverage by redeployment alone would entail serious consequences for almost all areas covered by heading 4. A redeployment of EUR 3.4 billion (about EUR 570 million/year) would put into question the existing financial programming, political commitments and expectations created by the 1999 and 2000 budget, as well by the co-operation agreements, strategic communications and regulations adopted in the past two years. All geographical assistance programmes would be seriously cut in real terms.

13. As it appears from the table, the other programmes in heading 4 as a whole would not, under the present scenario, have to suffer a decrease of financial means available in nominative terms between 2000 and 2006. According to the IIA a redeployment should be used before having recourse to an increase of the financial perspectives. The redeployment takes into account the following 3 considerations:

- the geo-political weight and priorities attached to certain regions;

- the poverty focus of the programmes;

- past and present performance of the different programmes in terms of absorption capacity and evolution.

The comparison shows that despite the fact that cuts have been made on the basis of the financial programming from May 1999 - prior to the Balkans crisis-, the total of heading 4 still presents an increase for 2000-2006 as compared to the previous period 1993-1999.

14. On this basis, the Commission has come to the conclusion that for the geographic budget lines, apart from Western Balkans and ex-Yugoslavia, it wishes to maintain first of all the increase for Asia. The programme for Asia is highly poverty focused and any decrease would directly affect the poor. The geographical envelope will increase by 8.5% between 2000 and 2006. The envelope for the new period will thus be 12% higher than appropriations for 1993 and 1999 [1].

[1] The figures for the period 1993-1999 are not strictly comparable since the financial perspectives 1993-1999 have been increased in 1995 to take into account the enlargement.

15. The South Africa programme has both considerable political importance as well as a high poverty focus and it will only be reduced slightly over 2000-2006. The proposed amount for South Africa is therefore the result of an almost linear continuation of EUR 120-122 million per year against EUR 123.5 million as already decided for the 2000 budget. The programme is stabilised.

16. The programmes for Mediterranean third countries, NIS and Latin America, in contrast, are supposed to be reduced somewhat compared to the May 1999 financial programming, given their more limited poverty focus and poorer performance record.

Specifically, and in the line with the conclusions from the Commission's orientation debate, the back-log (Reste A Liquider) was a key factor in deciding for a lesser increase in new commitment appropriations and helps explaining the reduction in the envelope foreseen for Latin America over 2000-2006, which nevertheless received an important increase in 2000. While the main goal of financial and technical assistance is to aid the poorest segments of society through programmes and projects in specific area of EU's expertise, the economic co-operation aims at creating the ideal environment for economic growth. For Latin America the average annual growth rate over 2000-2006 will be - 1.1% as compared to +4.5% over 1993-1999. The total envelope 2000-2006 will thus be 17% higher than it was in the period 1993-1999, a fact which is to be explained by the high growth rate over 1993-1999 For the NIS, the financial reference amount contained in the new TACIS regulation of EUR 3,138 million, whilst being indicative only, is below the Agenda 2000 programming and justifies a reduction of the amount programmed. TACIS has been cut in 1998, 1999 and 2000 as compared to the previous year. Over 1993-1999 the yearly average growth was -2.2%, a decrease in real terms. The NIS region however, despite the longer than expected economic transition period, becomes more important politically in the light of the future enlargement. Therefore the average annual growth 2000-2006 will be +3.6%. In addition, it appears likely that this envelope will have to finance a new EC contribution to the Chernobyl shelter fund. It is also worth noting that even before the new legal basis focused more on concentration of efforts, the management performance of TACIS was such that its back-log could be reduced over the last year.

17. The MEDA programme will evolve by 13.6% over 2000-2006, or an average of 2.1% annually. In the coming years this programme will have to finance the second phase of the establishment of a free-trade zone EU/MED and consequently the reinforcement of the partnership with those countries to attenuate commercial, social and economic consequences. Turkey, which newly acquired a candidate status benefits from the MEDA envelope to an extent which has been significantly increased in comparison to 1999. The low level of 1999 implementation for MEDA has undoubtedly been a factor in the decision to reduce the 2001 allocation; in addition, the high level of backlog (RAL) has also called for such a reduction. An effort will be made to stabilise the back-log before the programme's financial envelope will increase again from 2002 onwards. The Commission will also prolong its active involvement in the Middle-East peace process, which could, if successful, give rise to substantial financing needs in the medium term. Compared to 1993-99, it is the MEDA envelope which increases most- apart obviously from the increase for the Western Balkans.

18. On the thematic side, the Commission proposes to decrease slightly the food aid allocation from EUR 3.851 million over 1993-1999 to EUR 3,458 million for 2000-2006. Food aid has been decreasing by a yearly average of 2.1% over 1993-1999 and will increase by 2.7% on average over 2000-2006. Food aid is aimed at the poor and the proposed reduction comparatively to the May 1999 programming should therefore be as small as possible. As far as "other co-operation" is concerned, the Commission wishes to limit the decrease by comparison with Agenda 2000. This envelope will be stabilised at an average annual growth rate of 0.5% which represents a 2000-2006 envelope lower than that for 1993-1999. An important effort of rationalisation has already been undertaken in the sense that budget lines have been regrouped according to their thematic orientation: geographic, environmental, social or their end user (NGOs). The fisheries agreements under 'other co-operation' are, at least in the short term, inflexible expenditure and will be stabilised over the period. At the same time, a new instrument, the 'Rapid Reaction Facility' will be created in this area. The already tight budgetary situation within this collective group of interventions does not permit any further reductions.

19. Humanitarian aid should not be cut because of its good performance, visibility and targeting of the poorest populations hit by a crisis. It will be stabilised at the high level it reached after average yearly growth of 13.2 % over 1993-1999.

20. The present programming allows to gradually build up over the entire period a margin that leaves some room for contingencies in the unpredictable area of external relations, as well as for possible deflator fluctuations. The multi-annual programme is indicative.

21. In conclusion, the Commission thinks that the present proposal is in line with our medium-term objectives and recent policy statements. It shows our dual commitment to supporting on the one hand the regions of geo-political importance to the EU and on the other hand the poorer regions in the world as a whole. It also respects the constraints imposed by the financial perspectives and takes account of the past and present performance record of the various programmes involved.

Annex :

1- comparison 1993-1999 to 2000-2006

2- new programming of heading 4 for 2000-2006

3- CARDS programme for south-east Europe

ANNEX 1 - Comparison 1993-1999 to 2000-2006

DELORS II / BERLIN (April 1999) / REVISION FINANCIAL PERSPECTIVE (April 2000)

>TABLE POSITION>

ANNEX 2 - New programming of heading 4 for 2000-2006

EXTERNAL ACTIONS INTERNAL SIMULATION OF A MULTI-ANNUAL FINANCIAL PROGRAMMING WITH REVISION OF THE FINANCIAL PERSPECTIVES FOR 2001-2006

>TABLE POSITION>

(1) The total amount foreseen for Western Balkans is EUR 5.5 billion if Serbia becomes democratic in 2001. The additional need wold have to be covered by the flexibility instrument for EUR 200 million.

(2) Western Balkans : The amount of EUR 542 million for the 2000 financial year is composed by EUR 472 million entered in the 2000 budget + EUR 40 million to find by redeployment from other actions + EUR 30 million carried over from 1999 to 2000.

(3) The margin for 2000 remains EUR29,220 million (figure ajusted to take in account the carry over above mentioned).

ANNEX 3 - CARDS programme for south-east Europe

>TABLE POSITION>

(1) 240 + 30 (carry-over) + 40 (redeployments)

(2) If Serbia became democratic in 2001, the additional need would have to be covered by the flexibility instrument

(3) In case the flexibility instrument is used in 2001

(4) Not yet programmed