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COMMISSION OFTHEEUROPEAN COMMUNITI
COM (7°)732 final . .
Brussels ,22December
COMMISSION COMMUNICATION TOTHE COUNCIL
Inclusion oftheEuropean Development Fund inthebudget
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COM (78)732 final .

COMMISSION COMMUNICATION TOTHE COUNCIL
Inclusion oftheEuropean Development Fund inthebudget
Atthetime oftheLome Convention negotiations ,andinparticular inthe
1Communication itpresented totheCouncil inJune 1973 ,theCommissi onhad
proposed that theEuropean Development Fund beincluded inrhebudget and
financed outoftheCommunity 'sownresources .Inthat Conwuni cation ,the
Commission listed what itconsidered themain arguments infavour ofincluding
thefourth EOFinthebudget .These arguments were that inclusion would serve
todiversify thebudget andincrease thetransparency ofCommunity operations ;
itwould doaway with thedifficult discussions onthescale cfMember States'
contributions tothe Fund andwould beconducive toabalanced strengthening of
Community policy towards thedeveloping countries asawhole .Forallthese
reasons ,inclusion inthebudget was,intheopinion ofboth theCommission and
theEuropean Parliament ,alogical step inthedevelopment ofthe Communities .
TheCommission 'sproposal was not followed upatthe time ,but ageneral
consensus emerged within theMember States infavour ofasolution ofthis kind
forthe fifth EDF .Parliament ,for itspart ,hasrepeatedly called for
inclusion ofthe Fund inthe budget .
There isnodoubt that ,even allowing fordevelopment inthearguments put
forward for including the EOF inthebudget when the Lome Convention was
negotiated ,thevalue andscope ofthose arguments have remained intact . For
this reason ,theCommission ,initsmemorandum of16February 1978 onthe future
ACP-EEC negotiations fortherenewal oftheLome Convention ,declared itself
resolutely infavour ofincluding thefifth EDF inthebudget .
Intransmitting this Communication tothe Council ,the Commission feels it
would beuseful tostate once again thearguments infavour ofincluding theEDF
inthebudget ,topoint outtheconditions which must first befulfilled ^,to
assess thebudgetary consequences ofsuch astep ,andtospecify how itwould be
brought about .
1•REAS ONS FOR INCLUSION INTHE BUDGET
Since theDecision of21April 1970 onthereplacement offinancial contr ibutions
fror .Member States bytheCommunity 'sownresources ,theEDFistheCommunity 's
SEC<73)2149 final of12June 1973 .

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soleoperationstillfunctioningunderanallocationsystemfallingoutsidete
budget.
Fromthepoint•.?vofbudgetaryorthodoxy,a^situat-onofthiskuid
constitutes aner.cr.zlywhichshouldbecorrected ?EDFappropriations are
Community«..penditureandraustthereforebeenteredinthebudgetandfinanced
fromit.
Inthisrespectitissignificanttonotethat,sincetheLomeConventioncame
intoforce,alldecisionsadoptedinthefieldofdevelopmentcooperation have
beenincludedinthebudget.Thustheexpenditure onfinancialandtechnical
cooperationtobefinancedundertheAgreementsconcludedwiththeMediterranean
countries(MaghrebandHashreq,Greece,Turkey,Portugal,MaltaandCyprus)is
coveredbytheCommunitybudget.Inviewofthedecisionstaken,itwouldbe
logicalforthesamearrangementstobemadeinthecaseofthefutureConvention
tobeconcludedwiththeACPStates,whichwillconstitute anagreementthatis
similar-thoughadmittedlynotidenticalto-those;concludedwiththe
Mediterranean countries .
Asolutionofthiskindwillofferobviousadvantagesfromthepointofviewof
budgetaryunityanddiversification andalsofromtheangleofthe
"communitizat ion"ofaid.
Budgetaryunity:thetraditionalprincipleofbudgetaryunityimpliesthatthe
budgetshouldbedrawnupinsuchawaythatitgivesacomprehensive and
immediately clearpictureofalltheCommunity'srevenueandexpenditure .
Thisprincipleisundermined whendifferentinstruments areusedtocoversuch
importantoperations asthoseconnectedwi*htheimplementation oftheCommunity' :
development cooperation policyvis-a-vistheACP.Bycontributing inadecisive
waytorealizingtheprincipleofbudgetaryunity,theinclusionoftheEDFin
thebudgetwillundeniably helptomakeCommunitymeasuresmoretransparent .
Thiswill -forgreatertransparency notonlyatoverallbudgetlevelbut
alsoatthelevelofCommunitydevelopment cooperation policy.Atpresent.

Community development operations arefinanced indifferent ways :EDFoperations
arecovered bynon-budget funds ,white theCommunity budget pays forfood aidand
other development measures ,whether they bespecific ,exceptional orcooperation
activities .
Ifacoherent policy istobeestablished fordevelopment cooperation ,all
expenditure relating thereto must begrouped together under onetitle inthe
budget .Theinclusion oftheEDFinthebudget isastep inthis direction ,
andamore accurate picture ofCommunity activity will emerge asaresult .
Budgetary diversification ;thefinancing ofthecommon agricultural policy
:-ighs heavily onthebudget (accounting foraround 70%ofthetotal amount in
1978),?Venthough theproportion allocated tothis item iscontinuing to
decrease slowly .
Inclusion inthebudget ofexpenditure onfinancial andtechnical cooperation ,
combined with theimproved management ofagricultural expenditure advocated by
the8udget Authority andtheCommission andthedevelopment ofother sectors ,
will mean abetter distribution ofCommunity expenditure . The three-yearly
forecasts presented bythe Commission tothe Budget Authority for 1979-81 are
significant inthis respect .Two conclusions can bedrawn from them :
i.inclusion oftheEDFwould make ,thedevelopment cooperation sector the
second largest item inthe budget in1981 ;-
ii.this would mean that with theincreases inother sectors (social ,regional ,
energy ,etc.),agricultural expenditure could bereduced toamore balanced
proportion ofthebudget (around 60% )asfrom 1981 .
Communitization ofaid :asParliament haspointed out,thediscussion which takes
place during thefinal phase ofthenegotiations todetermine thescale ofMember
States *contributions totheFund ,paradoxically calls into question theCommunity
2character ofthose negotiations .
2Report byMrMichel Cointat ontheinterinstitutional dialogue concerning
certain budgetary matters .Doc.PE44071 final of10May1976 ,page 29.

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Thereisnodoubtthatsincetheproblemofthescaleofcontributions will
besolvedbyfinancingcooperationwiththeACPStatesfromownresources,this
willenablemeasuresofaCommunitycharactertobecarriedoutonthebasisof
Communityfinancingwhichwillbefreeofanyconsiderations ofdistributing
theburdenwithintheCommunity .
II.CONDITIONS GOVERNING INCLUSION INTHEBUDGET
Thesuccessive Conventions concludedbytheCommunitywiththeAASMtostart
with,andwiththeACPStatessubsequently ,havealwaysconstituted an
exemplarybodyofmethods,meansandtechniques .Thespiritofpartnership whi
characterizes relationsbetweentheCommunityandtheStatesinquestion,the
contractual andperiodically reaffirmednatureoftheagreements concluded,the
balancecreatedbetweenthepowersandresponsibilities oftheCommunity onthe
onehand,andthoseoftherecipientStatesontheother,theroleplayedbythf
nationalauthorities intheimplementation andadministration offinancial and
technicalcooperation-allthesethingsadduptoasolidfoundation whichcan''
becalledintoquestion -byconsiderations ofbudgetarypolicyandtechniquetha1
areinternaltotheCommunity.
Forthisreason,anumberofessentialconditions mustbemetbeforetheEDFcat
beincludedinthebudget:
1.Inclusioninthebudgetandnegotiation
Theideahasbeenputforwardthatincorporation oftheCDFinthebudgetwould
makeitunnecessary forbilateralnegotiations tobeheldperiodically between„
theCommunity anditspartnersinordertofixthevolumeoffinancial and
technicalcooperation .Anunacceptable consequence ofthisapproach,however,
wouldbethattheamountofaidwouldbedeterminedonlyannuallyand
unilaterally underthebudgetaryprocedure.Therefore,thefactorsdeterminin
theamountandtermsoftheaidaccordedtotheACPStatesandtheOCTmust
continuetobefixedbyspecificacts:afreelynegotiated conventioninthe
caseoftheACPandaCouncildecisionfortheOCT.
Theappropriations neededtoimplementtheagreementswillthushavetobe
approvedinthebudgeteachyearinthecontextofthesenegotiated and
contractually agreedamounts.

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Thisis,moreover,thewayinwhichtheagreementsconcludedwiththe
Mediterranean countriesareimplemented .
2.Inclusioninthebudgetandthenationalauthorities' powers
OneofthemoststrikinginnovationsoftheLomeConventionintheareaof
financialandtechnicalcooperationistheincreasedresponsibility giventothe
ACPStatesintheadministration andmanagementofaid.Apartfromtherole
playedbytheACPStatesindefiningthegeneralguidelinesforaid,provision
wasmadefortherecipientStatestoparticipateactivelyineachofthestages
ofaproject:programmingofaid,projectpreparation,appraisalandexecution,
andfinalevaluationoftheresults.
Atthelevelofprojectexecutioninparticular,itisuptothenational
authorities toissueinvitations totender,receivetenders,establishthe
resultsoftheinvitations totender,signcontracts andauthorize payments.
Thissituationreflects atrendwhichhasappearedsincetheEDFstartedits
operations andwhichisexpressedintheconstantaffirmation oftheprinciple
ofthedivisionofresponsibilities betweenthedonorsandrecipients of
Communityfinance.
Becauseofthisdivisionofresponsibilities theCommunity hasestablished /-
inparticular byFinancialRegulation 76/657/EECof27July1978applicableto
theFourthEDF,financialrelationsdesignedspecifically forEDF-financed
operation.Theserelationsarebasedonthedecentralization ofexecutive
functions.Thus,sidebysidewiththecentralexecutiveagents(Chief
AuthorizingOfficer,FinancialController,AccountingOfficer),executive
agentshavealsobeenappointedforeach.oftherecipientcountries (National
AuthorizingOfficer,CommissionDelegate,PayingAgent).
TheCommissionfeelsthatitwouldbepolitically unacceptable tocallinto
questiontheseprin_cip_le_s,wJiidiwereworkedoutwiththeACPStatesduring
theLomeConventionnegotiations andareembodiedinextremelypreciseprovisions
inProtocolNo2toth§»Convention.
A

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Incorporation inthebudget must therefore becarried outonthebasis of
arrangements permitting theapplication ofdecentralized andconcerted
procedures fortheallocation andutilisation offuncss within theframework of
a.fixed budget appropriation tobedetermined nontractual lywith theACPStates
bythe Convention .
TheCommission considered that ,forthis purpose ,specific provisions will have
tobewritten into theFinancial Regulation applicable tothegeneral budget of
theEuropean Communities dealing inparticular with therespective powers ofthe
executive agents ,theconditions ofcompetition andthearrangements for
administering andimplementing thevarious types ofaidprovided for inthe
Convention .
3.Inclusion inthe budget and the role ofthe Member States inthe
implementation ofaid
Atpresent ,theMember States participate inthe implementation offinancial an«
technical cooperation through various committees :
(a)theprogramming committees ,which determine thegeneral terms ofreference
ofprogramming missions anddeliver anopinion onthe indicative programme
ofCommunity aid;
(b)theACP/FINWorking Party ,which deals with general matters andhelps to
frame general policy onfinancial andtechnical cooperation ^-
(c)theEDFCommittee andtheArticle 22Committee ,which areinvolved inthe
procedure forapproving each individual project .
Theinclusion oftheEDF inthebudget must notupset thepresent distribution
oftasks andresponsibilities .

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However,thisdivisionmusttakeintoaccount,tothegreatestdegree
possible,theresponsibilities oftheCommissionunderArticle205of
theEECTreatyasregardsbudgetexecution-
Ill.BUDGETARY CONSEQUENCES OFINCLUSION
Thefinancialimplications oftheinclusionoftheED^inthebudgetareoneof
theimportantfactorstobeconsideredbeforeadecisionistakenonthe
Commission'sproposal.
Itis,however,notpossibleatthisstagetoforecastthevolumeoffundswhich
theCommunitycoulddevotetocooperation withtheACPStates,andthereforean
ideaoftheamountofexpenditure whichthebudgetmighthavetocoverannually
cannotbegiven.Todosowouldbetoprejudgetheresultofthenegotiations
thathaveopenedbetweentheCommunityandtheACPStatesfortherenewalof
theLomeConvention .
ButwhateverproportionofthebudgetmightbeaccountedforbyEDFexpenditure ,
theCommunitywillbefacedwiththemoregeneralproblemoffinancingall
expenditure enteredinthebudgetoutofownresources.
Inadditiontotheamountallocatedtoagriculture inthebudget,theefforts
beingmadetobackupandpromotemajorstructural changes,reducethe
Community'senergydependence,decreaseregionalimbalances,allowforthe
enlargement dimensionandstrengtheninternational cooperation leadoneto
believethattheavailablemarginoftherelevantresources (andinparticular
theuseoftheVATpercentage point)islikelytobecomeinadequate inthe
nextfewyears.

Forthis reason ,initsCommunication totheCouncil andParliament dated
27February 1978 ontheoverall assessment oftheCommunity 'sbudgetary problems ,-
theCommission was atpains tostress that "firancirta theBudget under the
system provided forintheDecision of21April 1970 will beaproblem inthe
medium term astheavailable margin maydisappear bythebeginning ofthe1980s ."
Thethree-yearly forecasts covering theperiod 1979-81 ,which theCommission
presented totheBudget Authority inMay1978 ,confirm this outlook byquantifyir
it.
Basing itself onacomparison ofexpenditure andrevenue forecasts ,thedocument
points outthat appropriations forpayment would leave only anarrow margin in
1980 (rate ofVATvariously estimated atbetween 0.90% and0.97% )andwould
reach the limit ofresources in1981 (rate ofVATbetween 0.99% and 1.12% ).
Thus ,irrespective ofthedecision tobetaken ontheinclusion ofthe EDF in
thebudget ,which will inany case have only amodest impact onappropriations
forpayment in1980 and 1981 ,thegrowth ofCommunity expenditure intheother
sectors will make itnecessary toraise additional resources over the coming yea .
IV.PROCEDURE FOR INCLUSION INTHE BUDGET
Inorder tomake such aradical change inthe methods offinancing cooperation
with the ACP States and the OCTthere must obviously benoambiguity astothe
procedures forincluding the EDF inthebudget .With this inmind ,the
following four points should bemade :
1.Inclusion inthe budget and multiannual nature ofappropriations
EDFresources areintended tofinance operations which ,bytheir very nature ,
will normally becarried out inamultiannual framework .

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Itwilltherefore bevitaltomakethedistinction betweenappropriations for
commitment andappropriations forpaymentthatisnowstandardpracticeinthe
Communitybudget.
Beinginaccordance withorthodoxbudgetpractice,theuseofdifferentiated
appropriations willenabletheCommissiontoadminister theEDFwiththeflexibility
andefficiency calledforbytheoperations tobefinanced.
Thisdifferentiation willleadtheCommission tocoupleitsbudgetforecasts
eachyearwithamultiannual scheduleofthefundsneededtoimplement the
agreements .
2.Inclusioninthebudgetandclassification ofexpenditure
Theclassification ofexpenditure arisingfromcooperation withtheACPStates
andtheOCTdependsonthenatureandextentofthecommitments undertaken .
TheCommissionisoftheopinionthatthisexpenditure willrepresentthe
financialexpressioninthebudgetofinternational commitments undertaken by
theCommunitywhichconsequently entailfirmfinancialobligations forthe
latter.EOFexpenditurewillhavetobeclassified ascompulsory expenditure .
Fromthepsychological pointofview,asolutionofthiskindwillprovidean
elementofsecurityfortheACPStates.
3.Inclusioninthebudgetandbudgetary procedures
Althoughtheappropriations madeavailabletotheACPStatesandtheOCTby
thefutureagreementswillhavetobeadministered accordingtospecial
provisionsadaptingtheprovisionsofthegeneralFinancialRegulationtothe
specificnatureofEDFoperations,therulesofordinarylawwillforthe

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purposesofbudgetaryprocedureandimplementation havetobeapplied.
4.InclusioninthebudgetandtheEI3loansguarantee
Underthepresentallocation systemfallingoutsidethebudget,theguarantee
giventotheEuropeanInvestment Bankfortheloanswhichitgrantsfromits
ownresourcesiscoveredbyacommitment enteredintobytheMemberStates. i
Alogicalconsequence ofinclusionoftheEDFinthebudgetwouldbeforthe
Communitytocoverthisguaranteethroughitsownbudget.
Thissolutionhasalreadybeenadoptedfortheguarantee onloansextendedby
theBankfromitsownresourcesundertheCooperation Agreements concludedwith
theMediterranean countries.
CONCLUSION
i
Theinclusioninthebudgetofappropriations forcooperation withtheACPState
isapolitical andbudgetarynecessityforthefollowing reasons:
i.Fromapoliticalpointofview,itisabnormalandcontrarytotheprinciple
governingthedevelopment oftheCommunities thatactivities asimportant
asthoseconnectedwiththeimplementation ofthiscooperationshould j
continuetobecoveredbydifferentmechanismsandinstruments.The j
presentsituationismadeparticularly paradoxical bythefactthatsince
theLomeConvention wassigned,allcooperation agreementsofthesamekind[
concludedwithdevelopingcountrieshavebeenincludedinthebudget.!
I
r
n.Fromthebudgetarypointofview,considerations oforthodoxydictatethat 1
thebasicprincipleofbudgetaryunitymustbeobserved,thusmakingfor
greatertransparency,coherenceandbalancewithinthebudgetitself. I

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InclusioninthebudgetwouldthereforeenabletheCouncilandParliament,
:hetwoinstitutions makinguptheBudgetAuthority,toexercisefullythe
responsibilities conferred uponthembytheTreaty.
Nodoubtachangeofthismagnitudecannotcomeaboutwithoutaccountbeing
takenofthenatureandcharacteristics ofthecooperation established between
theCommunityandtheACPStates.Thecontractual natureofthiscooperation
andtheparticipation oftherecipientStatesinitsimplementation froma
patrimonywhichitwouldbepolitically unacceptable tocallintoquestion.
TheinclusionoftheEDFinthebudgetmusttherefore becarriedoutonthe
basisofaconceptandarrangements whichpreservethespecificnatureofthat
patrimony.
TheCommissionwillthereforeproposetotheCouncilinduecoursethe
appropriate legalprovisionstobewrittenintotheFinancialRegulation
applicabletothegeneralbudgetoftheEuropeanCommunities tomeetthe
particular requirements oftheEDF.
Atthesametimespecificprovisionswillbeproposedforothercooperation
expenditure (FinancialProtocols,aidtonon-associated developing countries).

Finance Section
1.Itisnotpossible atthis stage toforecast the volume offunds which
theCommunity could devote tocooperation with theACPStates ,andtherefore
anidea ofthe amount ofexpenditure which the budget might have tocover
annually cannot begiven .
Todosowould betoprejudge the result ofthenegotiations that have
opened between the Community and the ACP States for the renewal ofthe
Lome Convention .
2.Itishowever recalled ,bywayofindication ,that the figure for
EDF IVis3159.5 MEUA (ACP +PTOM ),for theperiod covered bythe Lom4
Convention .