Opinion of the Economic and Social Committee on:

- 'The sixth annual Report on the Structural Funds 1994` and - 'The new regional programmes under Objectives 1 and 2 of the Community structural policies` (96/C 295/11)

On 27 March 1996 the Commission decided to consult the Economic and Social Committee, under Article 198 of the Treaty establishing the European Community, on 'The sixth annual Report on the Structural Funds 1994`.

On 25 October 1995 the Economic and Social Committee, acting under the third paragraph of Rule 23 of its Rules of Procedure, decided to draw up an Opinion on 'The new regional programmes under Objectives 1 and 2 of the Community's structural policies`.

The Section for Regional Development and Town and Country Planning, which was responsible for preparing the Committee's work on the subjects, decided to adopt one Opinion on both subjects on 25 June 1996. The Rapporteur was Mr Christie. The Co-Rapporteur was Mr Quevedo Rojo.

At its 337th Plenary Session (meeting of 10 July 1996), the Economic and Social Committee adopted the following Opinion with 93 votes for, two votes against and two abstentions.

1. Introduction

1.1. This document represents a Joint Opinion prepared on the basis of two Commission documents: COM(95) 111 'The new regional programmes under Objectives 1 and 2 of the Community structural policies`, and COM(95) 583 'Sixth annual Report on the Structural Funds`.

1.2. The decision to consider both documents jointly reflects the similarity in the issues addressed in each. COM(95) 111 discusses the changed regulations for implementing the Structural Funds under Objectives 1 and 2 while the document COM(95) 583 comments in considerable detail on the first year results from the implementation of the Funds under these new Regulations. Consequently there is much in the way of common ground covered in these two documents.

1.3. Beyond this, the ESC also considers that expressing an Opinion upon a Commission communication over 1 year after the publication of that communication, as would be the case with respect to COM(95) 111 for which it was agreed that the ESC would present an Own-initiative Opinion, is of limited value.

1.4. Both documents are extensive in scope and deal in considerable detail with the implementation of EU Structural Funds during the course of the first year in which the revised Regulations were in place. The Commission has provided much in the way of detailed information both about the nature of the new arrangements, and concerning the anticipated results within each Member State as the Funds are applied in the course of the period 1994-1999 (1994-1996 in the case of recipients under Objective 2 arrangements).

2. Context

2.1. In considering these documents, the ESC has an opportunity to discuss the broad development of EU Structural Policies over the period since the signing of the Treaty on European Union (TEU) in the context of the issues and the objectives for common action within the EU that have emerged since then. In particular, we can point to the heightened emphasis attached to the role of competitiveness in promoting the long-term economic interests of the EU and the stress now placed upon accelerating the process of industrial change within the EU to help achieve progress toward this end.

2.2. Both documents provide a clear analysis of the range of EU measures available under the guise of the Structural Funds that are available to help raise living standards and promote employment in the EU's disadvantaged regions, particularly with respect to Objectives 1 and 2. Taken together, much of the force of these Structural measures (including actions under Objectives 3 and 4) is directed towards a strategy of promoting the development of new economic activities in the less favoured regions and accelerating structural adjustment in those regions experiencing difficulties associated with managing the decline of the traditional sectors. In short, the structural measures discussed in these documents represent key mechanisms for developing the EU as an open and competitive economy. Consequently, it is important to recognize this aspect of the Funds when assessing their contribution to the process of European integration.

2.3. There is a tendency for critics of the operation of EU Structural Funds to focus solely upon the cash transfers associated with these operations. This is regrettable in that often, as the Commission documents make clear, it is difficult to specify precisely the direct effect the Funds are having in a particular Member State. In other cases - such as regions benefitting under Objective 1 - it is much easier to calculate the employment or output impact directly resulting from the application of the Funds. Notwithstanding certain reservations that the ESC has expressed regarding the operation of the Structural Funds, it should be stressed that the absence of quantitative evidence concerning the direct effects of the Funds does not mean that they are failing in their primary task of promoting self-sustaining economic development in the disadvantaged regions.

2.4. Further, it is worth noting that the application of the structural funds in the disadvantaged regions promotes economic activity elsewhere in the EU. This is because a significant part of the expenditure under structural operations, particularly in the Objective 1 regions, induces an expansion on intra EU trade to the benefit of the union as a whole.

2.5. One of the principal strengths of the Structural Funds, and that which distinguishes the present arrangements from those prevailing prior to 1988, is the stress that is now given to the 'bottom-up` approach to regional economic development. This remains a key aspect for the successful implementation of regional economic assistance and the ESC welcomes the continued stress given by the Commission to this approach. However, to be successful, this approach requires that the input from local experts and economic and social partners is maximized. Otherwise there is a risk that economic development plans will reflect national, rather than local, problems and priorities and that the 'best` projects and programmes from the local economic development perspective are not receiving adequate support. Consequently, the Committee would once again call upon Member States to give particular attention to the views and opinions of the local economic and social partners in the formulation and implementation of regional economic plans. As those groups are best placed to understand local economic conditions and needs, this will contribute greatly to the success of the Structural Funds.

2.6. Although the primary task of the Structural Funds is to contribute towards economic and social cohesion, the Funds also play an important, complementary, role in supporting the industrial policy objectives of the EU. Article 130 of the TEU calls upon the Union and the Member States to ensure that conditions necessary for the competitiveness of the Community's industry to exist and to pursue actions intended; (i) to accelerate the process of structural adjustment; (ii) to encourage an environment favourable to initiative, especially with respect to SMEs; (iii) to encourage an environment favourable to cooperation between undertakings and; (iv) to foster better exploitation of the industrial potential of policies of innovation, research and technological development.

2.7. The Commission's sixth annual report on the Structural Funds details the ways in which EU structural policies are supporting these broader industrial policy aims. Consequently, this complementary aspect of the operation of the structural funds should not be ignored in the appraisal of their impact. This is particularly important during the period running-up to the review of the Structural Funds in 1999.

3. Overview of the Commission communications

3.1. Both Commission documents are concerned with the revision to the Structural Funds Regulations that preceded the introduction of the new period of operation of the Funds. The revised Funds will operate over the period 1994-1999, except in the case of Objective 2 where the period 1994-1999 is divided into two sub-periods of three years - 1994-1996 and 1997-1999.

3.2. The 1993 revision to the regulations built upon the foundations laid in the 1988 reforms. In the main, the revised regulations sought to continue and strengthen the principles entrenched by the regulations issued in 1988.

3.3. Although the broad principles were maintained - concentration, partnership, additionality and programming - the Commission sought to adjust the regulations in the light of current economic conditions and in the context of a greater strategic element in the application of the European Social Fund as evinced by the introduction of new Objectives 3 and 4. Objective 5 was also revised to incorporate the need for restructuring in the fisheries sector. Subsequently, with the enlargement of the EU from 1 January 1995, a new Objective 6 was added in order to address the special needs of the sparsely populated areas.

3.4. Elsewhere the revised regulations sought to impact upon specific aspects of the structural operations that have often been discussed within the ESC. In particular the Commission sought to:

(a) simplify programming procedures by introducing single programming documents (SPDs) which allows implementation of the funds to be undertaken within the framework of a single document,

(b) increase the stringency of prior appraisal, monitoring and ex post evaluation of the structural measures,

(c) ensure a greater adherence to the principle of additionality,

(d) have greater attention given to the environmental impact of policies financed under structural operations,

(e) in the application of the Funds to promote equal opportunities for men and women,

(f) facilitate greater involvement on the part of the European Parliament,

(g) to broaden the scope of partnership specifically to include the economic and social partners.

3.5. It is worth re-stating the commitment of the ESC to each of these attempts on the part of the Commission to guide the evolution of the Structural Funds in a manner consistent with the broad principles of the EU, principles that are endorsed regularly by the ESC.

3.6. The sixth annual Report on the Structural Funds is presented in five chapters which together reproduce much of the information contained in the Commission communication on the New Regional Programmes.

3.7. The first chapter focuses on the plans submitted by the Member States under each of the Objectives 1, 2, 3, 4, 5(a) and 5(b). Following this, Community Initiatives, innovative measures and technical assistance are each examined. Particular attention is given to the prior appraisal of the programmes - that is, computing the results that the Commission expects will flow from the application of Structural Fund support in the recipient regions, particularly in those areas eligible under Objective 1.

3.8. The second chapter deals with the budget programming and implementation arrangements including the financial checks carried out by the Commission to ensure that adequate financial control is being exercised over the application of monies spent under the Funds. Chapter II also considers the coordination of the Structural Funds with other EU financial instruments (the Cohesion Fund, EIB, ECSC, the European Investment Fund and the financial mechanism of the EEA). Finally the complementarity between the Structural Fund and other EU policies is considered.

3.9. The third chapter examines the impact of enlargement on the Structural Funds.

3.10. Chapter IV considers the development of structural operations in the context of the dialogue with other institutions and economic agents within the EU. In particular, the dialogue with other EU Institutions is considered as also is the dialogue with the economic and social partners in the preparation of the programmes.

3.11. The final Chapter reviews the operation of the Structural Funds over the period 1989-1993 and presents final data in respect of actions undertaken in that period.

4. Comments

4.1. The ESC welcomes the reinforcement of emphasis given by the 1993 revision to the regulations governing the Structural Funds with respect to the prioritization of objectives. The success of the structural operations will be closely related to these underlying guidelines, and the ESC calls upon the Commission to closely monitor the actions of Member States with respect to these guidelines. In part, the recent criticisms by the Court of Auditors also points to the need for the mechanisms for monitoring and implementing actions under the structural operations to be strengthened. The ESC endorses this and welcomes the Commission's proposal to use the services of independent experts in the appraisal of regional plans.

4.2. The principle of geographical concentration in the application of the Structural Funds will be weakened somewhat over the period 1994-1999 with coverage rising from 43 % of the EU population in the period 1989-1993 to 52 % in the period 1994-1999. Whilst some part of this increase is attributable to special circumstances surrounding the unification of Germany, it remains vital that the allocation of Structural Fund support is focused upon those regions experiencing genuine disadvantages, and that the principle of concentration is not diluted for any reason.

4.2.1. The ESC understands that individual Member States may be reluctant to lose entitlement to elements of the Structural Funds. However, the ESC would stress that it is in securing progress towards economic and social cohesion across the EU that the Funds are directed, and this requires that a strict interpretation and application of the principle of concentration is undertaken.

4.3. Whilst the ESC understands and endorses the stress that the Commission is now placing upon ensuring that the Structural Funds support the creation of lasting employment opportunities, it should always be remembered that economic development in the lagging and declining regions is an inherently long term process. Consequently, job creation should not become the sole criterion in the allocation of Structural Fund support, nor in devising programmes to benefit from financial assistance under the Funds. Many regions will continue to require support for programmes (e.g. infrastructural development, education and training support, etc.) that will enhance its long term economic development prospects, with the beneficial effects on levels of employment only accruing over the longer term.

4.4. The ESC welcomes the simplification of the procedures for implementing Structural Fund support. The introduction of the Single Planning Document to replace - in many cases - the CSF represents a move towards simpler and more efficient procedures and is to be welcomed.

4.5. The ESC notes that the adoption of programmes took longer than was provided for in the rules, with the delay explained by the time it took systematically to evaluate the programming documents. Delays in implementing structural support are always regrettable as they are likely to impact adversely on the economically weakest sectors. Consequently, it is important that when presenting programmes to the Commission, Member States observe closely the requirements of the regulations for implementing structural support measures. It appears to be the case that in many instances the delay was attributable to the failure by Member States to ensure that their programming documents satisfied clearly specified criteria.

4.5.1. Complaints at the local level continue to be made relating to delays in the operational implementation of Structural Fund assistance. Such delays often can create severe difficulties at the local level, particularly within the SME sector, and the ESC calls upon both Member States and the Commission as a matter of priority to adopt procedures that ensure the speedy and efficient operation of support measures that fall under the aegis of the Structural Funds.

4.6. Ensuring that the principle of additionality is observed continues to represent a major problem for the Commission. Despite the tightening of relevant provisions, Member States appear to be unwilling in all cases to provide the quality of information required by the Commission to ensure that the regulations are being observed. The ESC calls upon Member States to adopt financial practices which enable the Commission to see clearly that additionality is being observed. Failure to do so may result in certain payments being withheld to the detriment of the economic development efforts within the eligible regions.

4.7. Despite a strengthening of the Regulations, some Member States continue to ignore the role of partnership in the development and implementation of regional economic development plans. Undoubtedly this is compromising the efficiency of the application of the Funds in those countries. The ESC once again calls for greater involvement of the economic and social partners and supports the Commission in this regard. Despite progress that has been made to date, the ESC would support further measures aimed at ensuring the involvement of all partners in devising, implementing and appraising regional economic development plans. In particular, it is the case that frequently the economic and social partners lack the technical expertise necessary to enable them to become fully involved in what is a complex planning process. Consequently, in addition to continuing to insist that Member States observe the principle and practice of partnership, the ESC calls upon the Commission to consider developing programmes of technical assistance and support to the economic and social partners at local level to permit them to play a full part in the regional economic planning process.

4.8. The ESC welcomes the decision by the Commission to require plans, CSFs and SPDs to be assessed using the help of outside independent assessors. However, further action in this respect might be needed. In addition to appraising plans, independent assessors could be used to monitor the implementation of the plans subsequently. Institutionalizing an on-going monitoring arrangement is especially important where the aims of the plan have not been quantified. Quantification of the plan's aims is easier to achieve under Objective 1 support, given the relative size of the support. However, it is more difficult in Objective 2 regions as the amounts involved tend to be relatively less significant. In these cases, independent assessors could provide useful information to assist the process of ex post evaluation of the plans.

4.9. The ESC requests that the results of ex post appraisals of the efficiency of the Funds should be made available as soon as possible. In the absence of such work, it is difficult to respond in detail to criticisms that often are made with respect to the Structural Funds.

4.10. The ESC detects in the sixth annual Report a tendency to present data on a national rather than regional basis (e.g. tables 2, 9, 12, 13). It encourages the Commission to report regional as well as national data where this is appropriate.

In addition, the sixth annual Report focuses particularly on the prospective impact of the Funds in the period 1994-1999. It draws on a valuable input-output study of the significance for Objective 1 regions, prepared for the Commission by Prof. Beutel (April 1995). The ESC hopes that the Commission will develop this approach in later years, by broadening the analysis to cover other Objectives and facilitate comparison of anticipated effects with the actual outcome where such comparisons are feasible.

4.11. The ESC believes that Structural Fund policies must be in harmony with other EU priorities and policies.

Close attention must be given to environmental matters as there is a risk that certain spending programmes under the structural funds (especially infrastructural investment) may in some cases conflict with the needs of the environment.

4.11.1. Elsewhere, it remains important in the interests of cohesion across the EU generally that all Member States continue to observe common rules relating to competition policy (especially state aids to industry) and to public procurement. Similarly, the Structural Funds must continue to develop within the context of the Common Agricultural Policy, and should complement the objectives underpinning the reform of the CAP. Otherwise there is a risk of population moving out of rural areas.

4.12. There is a perception that the actions of the Structural Funds tend to favour manufacturing industry rather than the services sector - the sector which by far accounts for the largest share of employment across the EU. Although it is true that a healthy and expanding manufacturing sector creates a great number of opportunities for the services sector, and that the Structural Funds support tourism and related projects within areas eligible for certain measures under the Structural Funds, it may be appropriate to give greater emphasis to direct support for service sector investment where it can be demonstrated that this will enhance local economic development. The ESC proposes that greater consideration should be given to the regional development aspect of this sector, especially aspects that relate to the 'information society` and other high-technology activities.

4.12.1. A great many firms working within the services sector, especially high-technology firms, are SMEs. Whilst it is the case that support for the SME sector under the Structural Funds will double under the present arrangements compared to the period 1988-1993, and that under the Community Initiatives measures this sector receives specific assistance, the ESC supports the development of measures of assistance to SMEs. This is a sector within which the greatest employment opportunities will continue to arise in the future, and it is a sector that requires substantial support, both in terms of encouraging business start ups and in supporting the ongoing development of existing SMEs.

4.13. The ESC notes that under the 1994 Regulations assistance under Objective 2 was granted for two periods of three years, rather than one six-year period as was the case for assistance under Objective 1. The ESC previously argued that it saw little merit, and a degree of potential harm, in this approach being taken to Objective 2 regions as a three-year period was unlikely to be sufficiently long to be effective. It is now understood that - following discussions at the European Council meeting in Madrid - the Commission is unlikely to propose altering the territorial eligibility for support under Objective 2 during the second phase of its operation. The ESC greatly welcomes this decision. It is as important for Objective 2 regions as it is for Objective 1 regions that as high a degree of continuity in delivering economic support is achieved as is possible. The added uncertainty that was associated with the threat of losing support might well have harmed unnecessarily the development prospects of specific Objective 2 regions.

Done at Brussels, 10 July 1996.

The President of the Economic and Social Committee Carlos FERRER