PRELIMINARY DRAFT GENERAL BUDGET of the European Communities for the financial year 2002 - GENERAL INTRODUCTION - Political Presentation

(presented by the Commission)

CONTENTS

1. Introduction

1.1. The APS cycle

1.2. Activity Based Budgeting

1.3. General framework

1.4. Structure of the documents presenting the PDB

2. Financial Framework

2.1. The Financial Perspective for the 2002 budget

2.2. Payment appropriations and the outstanding commitments (RAL)

2.3. BA budget lines for technical and administrative assistance

2.4. The interinstitutional agreement on legal bases and the implementation of the budget

POLICY AREAS AND PRIORITIES BY FINANCIAL PERSPECTIVES HEADINGS

3. Agricultural expenditures : Heading 1

3.1. Summary table

3.2. Key aspects of Heading 1

3.3. General presentation of Heading 1

4. Structural measures : Heading 2

4.1. Summary table

4.2. Key Aspects of heading 2

4.3. General presentation of heading 2

5. Internal policies : Heading 3

5.1. Summary table

5.2. Key aspects of heading 3

5.3. General presentation of heading 3

6. External action : Heading 4

6.1. Summary Table

6.2. Key aspects of heading 4

6.3. General presentation of heading 4

7. Pre-accession instruments : Heading 7

7.1. Summary table

7.2. SAPARD, the agricultural pre-accession instrument

7.3. ISPA, the structural pre-accession instrument

7.4. PHARE, the pre-accession instrument

8. Administrative expenditure : Heading 5:

8.1. Summary table

8.2. Key aspects of heading 5

8.3. General presentation of heading 5

DOCUMENT I - POLITICAL PRESENTATION

1. Introduction

1.1. The APS cycle

The 2002 Budget procedure in the wider sense has begun with the Political Orientation debate in December 2000, followed by the Annual policy Strategy Decision in February 2001 [1]. Indeed, the White Paper on Reform and the decisions following from it have led to the introduction of the strategic planning and programming cycle, which impacts on the establishment of the Commission's budget proposal. One of the purposes of this cycle is to enable the Commission to identify a limited number of priorities every year for particular emphasis. The strategic planning and programming cycle, of which the annual policy strategy decision is the first step, covers the year 2002. The choice of priorities, and of the specific measures and resources to be allocated to them, will be established annually in the Commission's policy strategy decision for the following year. This decision will guide the process of drafting the budget and planning the Commission's work.

[1] 21 February 2001, SEC (2001) 268

The Commission thus held a policy orientation debate on 6 December 2000 and was able to identify six main priority objectives for 2002: the Euro, sustainable development, development cooperation, the Mediterranean, enlargement and new governance.

This was followed by internal work to examine the impact of these choices on the resources of the various services and adopt budgetary guidelines for the year in question ensuring that priority measures are appropriately resourced. Regarding the allocation of financial resources, the exercise did take thorough account of the Financial Perspective. The Commission considers it essential to allocate the necessary human resources to support these actions and its existing commitments before it takes on new commitments. For this reason, the Commission held the peer-group exercise in 2000 to assess both its staffing levels and the tasks to be accomplished. In allocating human resources, the Annual Policy Strategy Decision for 2002 is firmly based on the exercise's conclusions for 2002. However, priority measures can be executed with or without new resources and there is no automatic link between resources and the identification of priority measures. The results of the APS decision are quantitative guidelines being given for each and every one of the Commission's 29 policy areas.

This APS cycle introduces a stronger element of top-down budgeting: the Commission's APS debate has become the prime occasion for determining budgetary policy. This level of quantitative guidance is unprecedented at such an early stage of the process and has provided departments with very clear pointers for the preparation of the PDB. As a result, budgetary hearings to elaborate the PDB have become a more bordered exercise, being based on pre-defined priorities. The APS conclusions have not been called into question, although a few adjustments have been made to take account of new elements.

1.2. Activity Based Budgeting

The 2002 Preliminary Draft Budget (PDB) has reinforced the Activity-based Budgeting (ABB) approach introduced last year. Although the full potential of this new budgeting approach will be achieved only when the wider Activity-based Management is in place, the approach has been further refined and improved by setting up a new nomenclature which will ease the reading of the budget, for instance by creating identical chapter for horizontal activities common to all policy areas.

As long as the recast of the financial regulation has not been approved, the PDB will be officially transmitted to the budgetary authority in the traditional form, as this will be the basis for the decision-making process. The accompanying documents will however contain elements of global objective settings as well as the ABB presentation. The traditional budget presentation has also been improved, by giving priority in every budget line to a short description of the actions covered.

In the context of the introduction of the ABB approach, it has been tried to enhance the role of the Activities in the resource allocation process leading to the 2002 PDB. The objective is to shift the focus from the more detailed article or item level to the more aggregate Activity level. This involves a description and justification for the Activity in question is given, including the general objectives of the Activity and, whenever possible, outputs produced. This results in a better presentation in the working documents to be transmitted to the Budgetary Authority.

1.3. General framework

Compliance with the financial perspective ceilings and the size of the various margins continue to be the main points of reference for the APS debate and of course sets the constraints for budget, both for commitments and for payments. The PDB 2002 will be set in the framework of the Financial Perspective 2000-2006, which define the maximum growth rates by broad categories of expenditure. The resulting figures are set out below.

As concerns human resources, the relevant heading 5 of the Financial Perspective is particularly tight for 2002, not least due to the new posts for the Council on a full year basis, the Commission's reform efforts and the preparation for enlargement. Last year the Commission conducted the peer-group exercise, which concluded with a concentration of the Commission's resources on its core activities and with additional needs. Last autumn the Commission therefore presented an amending letter to budget 2001, where it requested the first tranche of 400 new posts. The second tranche of 317 posts should be included in the present PDB for 2002, as has been announced at different occasions. These additional posts are important to properly serve the Commissions' activities and support the reform process.

The proposal for the PDB also takes into account priorities expressed by Parliament and the Council at the first trialogue held on 29 March, and in particular the actions to regain consumer confidence in European food safety and continued efforts in the areas of e-learning and immigration and asylum.

Commitment appropriations in the 2002 proposal amount to EUR 100 328 279 000 , or +3.5% with respect to the 2001 Budget. This figure can be decomposed in an increase of 4.6% for compulsory expenditures, of which 5.0% for agriculture, and only 2.6% for non-compulsory expenditures.

The rise in payment appropriations has been kept at 4.8%, with a more equal repartition between compulsory expenditures +4.6% and non-compulsory expenditures +4.9% (figures for 2001 include the SAB 1/2001). This increase in payments is higher than the increase of total government expenditure by the Member States, according to economic forecasts of April 2001, which averages 3,8% for the 15 Member States. The increase in payment appropriations for non-compulsory expenditure is mainly driven by the necessity to finance the outstanding commitments (RAL) and the overall needs have been established with a special attention this year. The payment amounts do however stay well below the ceiling set by the Financial Perspective and correspond to 1.06% of EU-GNP.

1.4. Structure of the documents presenting the PDB

The political presentation in Part I of this document accordingly takes into account both the Financial Perspective and the policy priorities. Part II, as last year, is presented by policy areas and activities.

2. Financial Framework

2.1. The Financial Perspective for the 2002 budget

2.1.1. The Financial Perspective framework

Evolution 2001 Budget, Financial Perspective and 2002 PDB (in EUR)

>TABLE POSITION>

* an allocation of EUR 167 million for the staff contributions to the pension scheme is included in the ceiling of heading 5

** the amount foreseen in the budget 2001 under this heading is higher than the Financial Perspective because of the use of the flexibility instrument, as foreseen in the Interinstitutional Agreement , for an amount of EUR 200 million in favour of Serbia.

The Financial Perspective table for 2000-2006 forms an integral part of the Interinstitutional Agreement of 6 May 1999 on budgetary discipline and improvement of the budgetary procedure.

An annual adjustment has been made according to paragraph 15 of the Interinstitutional Agreement by applying the following deflators: for heading 1 (agriculture) and for the "structural funds" subheading in heading 2, a deflator of 2% a year, i.e. a cumulative deflator of 6.12% for the period 1999-2002. For the other headings the adjustment is based on the most recent economic data and forecasts available in February 2001 (Commission's economic forecast of autumn 2000). The deflator of EU GNP in EUR are 2.7% in 2000, 1.8% in 2001 and 2.0 % in 2002, i.e. a cumulative deflator 1999-2002 of 6.64%. As a result, in comparison with the forecasts previously used the adjustments have been strongly revised upwards. As regard payments, the adjustment is based on the appropriations for payments estimated for each heading when the financial perspective was drawn up (1999 prices), taking into account the deflator for commitments of the respective ceilings.

The Financial Perspective ceiling in 2002 used for the PDB include a substantial increase for agricultural expenditure of 5.8%. The agricultural guideline has been calculated in accordance with the new Council regulation budgetary discipline. It represents an overall limit for the expenditure related to heading 1, the pre-accession aid in agriculture SAPARD and the amount left available for accession in respect of agriculture (heading 8, not represented in the table).

For the Structural actions the under-implementation experienced in 2000 has lead to the re-budgeting over the years 2002-2006 of the EUR 6 153 million not committed. The Financial Perspective has been adjusted by a decision of the budgetary authority taken at the beginning of May, which increases the ceiling for 2002 by EUR 870 million.

The ceiling for administrative expenditure (heading 5) will increase in 2002 by 5.6% as compared to 2001. Due to the fact that not all other institutions have transmitted their provisional estimate for 2002, the Commission's estimate of growth of 4.3% has been applied to the 2001 figures, leading to a total figure of EUR 1 760 million for the other institutions combined. As far as the Commission is concerned, taking into account the second tranche of the posts foreseen by the peer-group, the need to finance the 400 new posts granted in 2001 and the normal increase in salaries (2.7%), the increase for part A (excluding pensions) is about 3.9%. A footnote to the Financial Perspective states that the figures for pensions included under the ceiling for this heading are to be calculated net of the staff contributions to the pensions scheme, up to a maximum of EUR 1 100 million in 1999 prices. In current prices, the corresponding amount, which can be deducted from the expenditure under heading 5, will be EUR 167 million.

Heading 8, appropriations available for accession, is foreseen in the Agenda 2000 Financial Perspective table for the 1st time in 2002. However, since no accession is foreseen for that year, this has no impact on the budget, but only on the margin available under the 1.27 % of GNP ceiling for payment appropriations.

The calculation of the own resources ceiling has also been modified. The new accounting system SEC 95 will apply for the budgetary purposes when the new Own Resources Decision will enter into force in 2002. The own resources ceiling, presently set at 1.27% of EU GNP will be recalculated in December 2001, to take account of the change in the level of GNP, observed on average over the period 1998-2000, as the result of the application if the new system of national accounts. The new percentage will then be incorporated into the Financial Perspective for 2002 and subsequent years. This change will have no impact on the size of the margin in absolute terms available under the own resources ceiling.

2.1.2. Overall growth rates in commitments and margins available

Table 2 presents the proposed 2002 PDB (commitment appropriations by heading of the financial perspective) in comparison both with the financial perspective 2002 and the 2001 budget adopted last December, including the SAB 1/2001.

Total commitment appropriations amount to EUR 100.328 billion or + 3.5 % as compared to the 2001 budget. The increase for compulsory expenditures is 4.6 %, and non-compulsory expenditures are proposed to increase by 2.6 %.

Agricultural expenditure shows the highest increases (+5.0% PDB 2002/budget 2001), especially for market-related expenditure (Heading 1a, + 5.3%) despite the fact that SAB 1/2001 already substantially increased the budget voted for 2001 to cater for BSE related costs. As it is not possible at present to precisely identify the needs for the eradication of Foot and Mouth Disease and since there are risks in the beef market as well, it is proposed to budget a reserve of EUR 1 billion, set aside as a provision earmarked for potential additional veterinary and market related expenditure in the context of Foot And Mouth Disease and the beef crisis. . The resulting margin is EUR 365 million. For rural development (Heading 1b), it is proposed to go up to the ceiling in 2002 (EUR 4.595 billion), as was the case in 2001, which results in an increase of + 2.2% over 2001. As a result, an additional EUR 2,2 billion are available in 2002 compared to 2001 for agricultural expenditures.

The ceiling for expenditure on Structural Actions (Heading 2) would have increased by only 0.1%, reflecting the stabilisation of aid intensities and the gradual phasing-out of non-eligible regions as foreseen in the Financial Perspective. The decision to rebudget funds unused in 2000 taken at the beginning of May increases the ceiling by an amount of EUR 870 million for 2002 and thus increases the change over 2001 to 2.8%. According to the Interinstitutional Agreement, no margin is left under the ceiling.

Proposed expenditure for Internal Policies (heading 3) increases above the average for the whole budget (+4.1%). The margin below the ceiling is proposed to be EUR67.967 million, significantly lower than the margin proposed last year in the PDB 2001 (EUR 136 million). However, this margin will allow to take account of the pilot projects and preparatory actions.

For heading 4, External Actions, commitment appropriations are down by 2.1%. This decrease reflects the fact that the budget 2001 had been increased above the ceiling allowed by the Financial Perspective by the use of the flexibility instrument worth EUR 200 million for the Western Balkans. The proposed margin amounts to EUR 47.219 million. It is notable that due to the frontloading achieved in 2000 and 2001 for the Western Balkans through the flexibility instruments and redeployments, the Commission is able to meet its present needs without a revision of the ceiling of this heading.

For heading 5, Administrative expenditures for all institutions increase by 5%. This figure includes a very marked 11.3% increase in pension expenditure (A-19), and is based on an increase for the other institutions similar to the one of the Commission and compatible with the ceiling of the heading 5. The estimated margin is EUR 30.335 million. This heading will have to be subject in the near future to particularly attentive monitoring, given the expected needs from the Commission's reform, the future of ESDP as concerns the Council's budget and the preparation for enlargement generally.

For heading 6, Reserves, the 3 instruments exactly add up to the ceiling. The decrease is due to halving the monetary reserve for agriculture as decided in Berlin.

For heading 7, Pre-accession aid, SAPARD, ISPA and the PHARE programme strictly respect the sub-ceiling allowed.

2.2. Payment appropriations and the outstanding commitments (RAL)

The 2002 PDB proposal contains EUR 97.771 billion for payment appropriations, representing an increase of 5.6 % over the 2001 budget, as voted, or 4.8% over the 2001 budget including the SAB 1/2001. A request for an additional EUR 350 million will be submitted to the Budgetary authority in the framework of the SAB 4/2001 (surplus from the previous year). If SAB 4/2001 was adopted as such, the increase would be reduced to 4.4%. The amount is the result of a careful and rigorous analysis of two elements: the volume of 2002 commitment appropriations which will be paid in 2002, and the volume of backlog, or outstanding commitments (RAL), which will be settled during that same year.

The 2002 PDB in payment appropriations represents 1.06% of community GNP at market prices, somewhat less than the 2001 Budget including SAB n°1/2001 (1.07%). The total amount of payment appropriations is proposed to increase by 4.8% and the lower share of community GNP is therefore explained by a slightly higher increase of the nominal GNP [2].

[2] See doc COM (2001) 1997 on the technical adjustment of the financial perspective for 2002 in line with the movements in GNP -and prices for GNP growth (3.06%) and deflator ( 2.01%). Figures and forecasts remain based on the ESA (79) as long as the new Own Resources Decision has not entered into force.

For 2002 a particular emphasis has been put on the subject, as result of the increased interest by the budgetary authority on the issue. The Council strives to limit the amount and increase of payment appropriations. In its budgetary guidelines adopted by the ECOFIN on 12 March "the Council stresses once again the importance of keeping a tight grip on commitment and payment appropriations for 2002. The level of payment appropriations entered in the budget must be sufficient, taking into account past uptake and the genuine possibilities for future uptake of appropriations, while endeavouring to maintain a strict relationship between appropriations for commitments and appropriations for payments. Outstanding commitments should not exceed a normal level, i.e. they should be in line with the expected execution of the budget. Particular attention should be paid to mopping up outstanding commitments not warranted by normal execution of the budget." The EP on the other hand stated in its resolution on the 2002 budget guidelines that it: "expects appropriate account to be taken of the pressures on the 2002 budget, notably concerning payment appropriations in headings 1b, 2 and 7, in order to guarantee an orderly progression as between commitment and payment appropriations", while also recalling "the agreement reached in the 2001 budget procedure [3] on improving performance and reducing the backlog in unpaid commitments (RAL)." These positions, have to be weighed against the low level of implementation experienced in 2000, when a total of around 10 billion of payment appropriations was left unspent at the end of the year, mostly for structural funds.

[3] See Joint declaration on a progress report to be submitted by the Commission on 30 June 2001, attached to the adoption of the budget 2001 on 14 December 2000.

As has been highlighted by the report on a strategy on outstanding commitments prepared by the Commission on 15 November 2000, despite the significant increase of RAL over the past years, most outstanding commitments are not abnormal. Only those that are very old or against which no payments have been made for a long time (dormant commitments) are a matter of concern. At the end of last year the abnormal component of outstanding commitments amounted to almost EUR 5 billion. This figure is still low compared with total outstanding commitments, almost EUR 59 billion. Furthermore, it is divided unevenly between the headings of the financial perspective: while three quarters of all outstanding commitments are accounted for by structural actions, the level of abnormal outstanding commitments is proportionally higher for external action.

In preparing the proposal for the 2002 PDB, Commission departments have carefully examined the payment appropriations necessary to cope with the outstanding commitments, taking into account, for the different types of programme, the historical schedules for payments and, for the specific programmes, the known problems of implementation. As a result, an important increase has been proposed especially for heading 4, external actions, + 9.6%, and heading 7, pre-accession instrument, + 39%. Compared to 2001, the payment appropriations necessary for heading 1, agriculture, do not show the highest rate of increase.

As has been agreed in the joint declaration, the Commission departments will draw up another report on the progress made until the end of June 2001 to reduce the backlog to a normal level by December 2003.

It is essential that the budgetary authority takes this analysis into account and authorise an adequate level of payment appropriations, as proposed in the PDB, so that the situation concerning the outstanding commitments (RAL) can be properly managed. The year 2002 is of special importance, since it is clear the reduction of the outstanding commitments will not only involve decommitments, but that special management measures undertaken should result in increased liquidation.

2.3. BA budget lines for technical and administrative assistance

BA lines exist for many of the operational programmes in part B of the budget. They provide funding for the management and running of the programme, to the mutual benefit of the Commission and the beneficiary. Since the Amending Letter 1/2001, they also cover expenditures related to the phasing out of the Technical Assistance Offices, on a provisional basis.

Overall, the PDB 2002 aims at a stabilisation of these expenditures compared to 2001. However, for specific reasons, including the deconcentration to delegations BA lines may witness an important increase for some external programmes.

2.4. The interinstitutional agreement on legal bases and the implementation of the budget

The Interinstitutional Agreement of 6 May 1999 comprises as an integral part, an earlier Interinstitutional Agreement on the legal bases (and the implementation of the budget). It elaborates that, "under the system of the Treaty, implementation of appropriations entered in the budget for any Community action requires the prior adoption of a basic act". It defines the basic act in question as "an act of secondary legislation which provides a legal basis for the Community action and for the implementation of the corresponding expenditure entered in the budget. Such an act must take the form of a regulation, a directive or a decision. Recommendations and opinions do not constitute basic acts, nor do resolutions or declarations." The Interinstitutional agreement foresees 3 types of exceptions: pilot schemes and preparatory actions, within the limit of EUR 32 million and EUR 75 million respectively, actions undertaken on the basis of the institutional prerogatives and specific powers conferred on the Commission by the Treaties or stemming from the administrative autonomy of the institution. For pilot schemes and preparatory actions, the Commission, according to its right of initiative, may propose new budget lines or activities.

According to the Interinstitutional agreement, the Commission submits, when presenting the PDB, a report on the actions referred to as pilot schemes and preparatory actions, which covers the objective of the action, an assessment of results and the follow-up envisaged. The implementation of the agreement in this field is therefore the subject of detailed information to the budgetary authority, in the form of a working paper accompanying the PDB. The Interinstitutional Agreement also foresees that, when presenting its PDB, the Commission takes into account the possibilities for new activities of this type (by leaving a sufficient margin) or continuing multi-annual operations which are coming to and end, after assessing whether it will be possible to secure a basic act (point 28 of the Interinstitutional agreement).

The relevant proposals, particularly the Pilot Projects and Preparatory Actions, of the PDB comply with the Interinstitutional Agreement dispositions and ceilings.

POLICY AREAS AND PRIORITIES BY FINANCIAL PERSPECTIVES HEADINGS

The 2002 PDB has been prepared on a dual basis: following the Activity-based Budgeting approach and the present traditional nomenclature. The result of the new approach can be found in Part II, where all budget resources are analysed by policy area. Thus, financial interventions resources, management and support resources (including BA lines) and human resources are discussed in detail by policy area.

However, as this year's budget procedure will still be based on the traditional budget nomenclature, in particular in regard to the financial perspective ceilings, the following analysis of policy areas is made by heading of the financial perspective. Under each of the seven headings, the different policy areas covered are discussed according to the following structure: summary table, key aspects and general presentation.

3. Agricultural expenditures : Heading 1

3.1. Summary table

(in EUR million)

>TABLE POSITION>

3.2. Key aspects of Heading 1

* The 2002 budget for agriculture and rural development is faced with a double challenge, i.e. to cope, within the limits of the Financial Perspective, with the CAP reform decided in Berlin, as well as with the significant financial burden of the crisis in the animal sector (BSE and Foot and Mouth Disease).

* As regards the Agenda 2000 reforms, the 2002 budget is the second consecutive budget that has to cover the gradually increasing needs, resulting mainly from the switch from a system of price support to a system of income support. The necessary budgetary means are in place, as the Financial Perspective ceiling for Heading 1a increases by nearly EUR 1.95 billion from 2001 to 2002. A further increase of the ceiling of about EUR 700 million is foreseen for 2003. From then on, the reforms should not induce any further increase of expenditure.

* The beef sector has been very severely affected, first by the second BSE-crisis that emerged in autumn 2000, and more recently by the outbreak of Foot and Mouth Disease, initially in the UK, and later in some other Member States. Concerning the foreseeable evolution of the beef market, for 2001, the SAB N° 1/2001 takes into account extra costs of about EUR 971 million, and the proposals contained in the seven-point plan proposed by the Commission in February 2001 are covered by the PDB 2002 (EUR1 145 million). It is however difficult to assess the future evolution of the market and the ensuing costs for the EU budget.

* Concerning Foot and Mouth Disease, at this stage, the situation in regard to veterinary costs linked to its eradication changes every day. The financial package could be spread over the years 2001 and 2002 (at least). Indeed, some of the costs might be chargeable to the 2001 budget and within the margin available in autumn 2001. For the time being an amount of EUR 420 million has been entered in the veterinary chapter B1-33 (EUR 250 million for Foot and Mouth Disease).

* Under the current market forecast and the present circumstances, and in particular with Foot and Mouth Disease affecting only small parts of the continent, it seems possible to finance, within the ceilings of the Financial Perspective in 2001 and 2002 agricultural expenditures stemming from the current (and proposed) legislation, including the cost of the BSE and Foot and Mouth Disease crises. The situation, however, is tight and important risks prevail. It is therefore proposed to create a reserve of EUR 1 000 million in the budget, set aside as a provision earmarked for potential additional veterinary and market-related expenditure in the context of Foot and Mouth Disease and the beef crisis. The remaining amount available below the ceiling of heading 1a after budgeting all needs (including the reserve) is EUR 365 million

* The Commission considers the margin and the reserve left in the PDB as sufficient to cope with the possible risks in the agricultural sector. However, the situation as regards FMD and the BSE crises remains uncertain The Commission intends to fully use the facility offered by the Interinstitutional Agreement to reassess needs and to review the situation in the context of the Letter of Amendment in October 2001. If this analysis shows additional risks for the 2002 budget, the Commission will make the appropriate proposals.

3.3. General presentation of Heading 1

Agriculture-Market organisations and veterinary expenditure (Sub-heading 1a)

In view of the additional needs resulting from the Agenda 2000 reforms and from the BSE and Foot and Mouth Disease crises, the Commission proposes to budget EUR 41 626.8 million. This would leave a margin of EUR 365 million under the ceiling of the Financial Perspective. This represents an increase of 5.3 % compared to the appropriations in the 2001 budget. Of this amount EUR 1 000 million would be in the reserve for beef and Foot and Mouth Disease.

The reforms decided in Agenda 2000 for some important common market organisations came into force at the beginning of the marketing year 2000/01 and explain part of the significant increase of the agricultural budget in 2001 and 2002. In line with the changes made to the common market organisations for arable crops (cereals, oilseeds and protein crops) and for beef, the level of direct payments is increased in exchange for cuts in support prices. The supplementary expenditure linked to direct payments is only partially offset by the savings on market interventions. Also the reform of the cotton sector decided by the Council in April 2001 has been integrated into the PDB.

As in the past, the PDB takes into account the financial aspects of the legislative proposals (reforms and other measures) tabled by the Commission. The most important initiatives concern the seven-point plan presented by the Commission in February 2001, to tackle the BSE-crisis. Concerning the other sectors, reform proposals have been presented for rice (EUR -60 million) and sugar (EUR -360 million). Finally, the Commission is presenting a reform of the sheep meat sector, which should provide one-off savings of EUR 560 million in 2002, due to the fact that the first payment will occur after the 15 October 2002, i.e. under the 2003 budget.

Although the overall level of the appropriations is seen to increase, expenditure for some sectors is expected to decrease compared to 2001. This is the case for sugar and textile plants (see above), for olive oil (due to the stabiliser mechanism), for sheep meat and pig meat (as a counterpart of the slowing consumption of beef), and for agri-monetary aids. The estimate of the needs is based on the economic scenario which underpins the Package II (the so-called seven-point plan) presented by the Commission in February to combat the BSE crisis. This scenario is based on a drop in consumption in the beef market of 10% in 2001 and 7% in 2002. If consumption falls below the level of this estimate, it could become necessary to use the reserve created. Total appropriations for chapter B1-21, Beef, are EUR 8 371 million.

The preliminary draft budget for 2002 is based on the average Euro/dollar parity of EUR 1=$ 0.92 observed over the first 3 months of 2001. In comparison, for the Agenda 2000 reform, the ceiling was calculated at a rate of EUR 1=$ 1.15, which leads to substantial savings in 2002 and helps to cope with the unexpected crises.

Appropriations for veterinary measures are much higher than in the past. In fact, with a view to guaranteeing food safety to the maximum, the EU budget finances part of the costs for the BSE tests, which are now obligatory for bovine animals slaughtered and aged thirty months or over. At this stage, a co-financing of EUR 15 per kit is foreseen. These provisions will be reviewed by the Commission in the framework of the Amending Letter in October in the light of the upcoming reports that Member States have to provide in line with the Commission decision 2000/773/EC, in order to adjust the community contribution to the decreasing costs of the testing. For Foot and Mouth Disease an amount of EUR 250 million in chapter B1-33 (Veterinary and Plant Health Measures) is foreseen. If necessary, further financing could be found in 2001 or be made available in 2002 by use of the reserve, to cope with needs. The appropriations proposed are provisional and need to be updated in the framework of the Letter of Amendment.

Rural development - Sub-heading 1b

The new rural development policy, now the "second pillar" of the Common Agricultural Policy is an essential part of the European agricultural model. It aims at putting in place a consistent and lasting framework for guaranteeing the future of rural areas and promoting the maintenance and creation of employment. Alongside the market measures and the elements of a competitive European agriculture, it recognises the expectations of today's society and environmental requirements. The appropriations allocated for rural development are set exactly at the level of the ceiling of the Financial Perspective (EUR 4 595 million) for Heading 1b. At present, almost all programmes have been adopted by the Commission and are being implemented by the Member States. Already for 2001, Member States' estimates of needs were at the level of the ceiling. As the 2002 budget covers the expenditure for the third year of the new programming period, it is assumed that execution will be at normal speed and that Member States will take up the full amount allocated to Heading 1b.

It should be noted that the breakdown of appropriations between different schemes under rural development, which is based on the plans as presented by the Member States and adopted by the Commission, is only indicative. In fact, according to the principle of subsidiarity, Member States can shift between the different schemes within certain limits. The different schemes and their corresponding measures, are as follows:

* investment in agricultural holdings (EUR 227 million);

* setting up of young farmers (EUR 161 million);

* training (EUR 33 million);

* early retirement (EUR 192 million);

* less-favoured areas and areas with environmental restrictions (EUR 835 million);

* agri-environment (EUR 2 115 million);

* improving processing and marketing of agricultural products (EUR 191 million);

* forestry (EUR 288 million);

* and finally a variety of measures for promoting the adaptation and development of rural areas (EUR 500 million). There is also a provision for miscellaneous expenditure (EUR 53 million).

These measures comprise not only those launched under the new rural development regulation, but also expenditure on the ongoing accompanying measures, launched under the previous programming period. Total needs for the latter in 2002 are estimated at EUR 489 million.

The evolution of the needs for the different chapters of heading 1, and of the budgetary ceilings are presented in the following table.

Million EUR

>TABLE POSITION>

4. Structural measures : Heading 2

4.1. Summary table

>TABLE POSITION>

4.2. Key Aspects of heading 2

* The proposed commitment appropriations for the structural operations are in line with the conclusions of the European Council in Berlin and with the Financial Perspective annexed to the Interinstitutional Agreement and leave no margin under the ceiling for heading 2. An overall amount of EUR 195 010 million is programmed for the Structural Funds for the period 2000-06, and an amount of EUR 18 000 million is planned for the Cohesion Fund during the same period (both at 1999 prices). Under the terms of the structural funds regulation, annual allocations for structural funds are indexed at 2% per year. Appropriations for the Cohesion Fund are indexed each year, in accordance with the relevant rate used for the technical adjustment of the financial perspective. The definition of overall budget is therefore straightforward.

* For 2002, commitment appropriations amount to EUR 33 638 million (at current prices), i.e., an increase of 2.8 % over 2001. In accordance with point 17 of the Interinstitutional Agreement, appropriations that have neither been used in 2000 nor carried forward to 2001 should be transferred to future years by an adjustment of the financial perspective and re-entered into future budgets. The amounts proposed for the 2002 PDB for the Structural Funds already include this re-entry operation for an amount of EUR 870 million, in accordance with the decision adopted by the two arms of the budgetary authority.

* For heading 2 payment appropriations amount to EUR 32 450 million, i.e., an increase of 2.8% over 2001. Payment appropriations for structural funds amount to EUR 29 850 million, a 4% increase compared to the 2001 budget. All payments on account having been paid in 2001 (and 2000), the amount foreseen in 2002 covers only two elements: The main part will be devoted the new programmes (EUR 22 528 million), since a steady increase of reimbursements is foreseen in the 3rd year of the new period. However, payment on outstanding commitments from the former period (RAL) will still require a substantial amount in 2002 (EUR 7 322 million), as end March 2003 is the deadline for sending the last payment requests to the Commission, under the terms of the new Structural Funds Regulation. It is foreseen that around 50 % of the RAL from end 2001 will be liquidated. For the Cohesion Fund the amount proposed is lower than the 2001 budget, but higher than the 2001 PDB.

* After the failure of the international fisheries agreement with Morocco, the Commission will propose a restructuring programme for the fisheries fleet, in accordance with the Nice summit conclusions. It will be proposed to use the flexibility instrument for heading 2, since a revision of the ceiling of heading 2 is excluded by the Nice conclusions.

4.3. General presentation of heading 2

Heading 2 of the Financial Perspective covers the Structural Funds (the European Regional Development Fund (ERDF), the European Social Fund (ESF), the European Agricultural Guidance and Guarantee Fund (EAGGF) and the Financial Instrument for Fisheries Guidance (FIFG)) and the Cohesion Fund.

It relates to the following ABB policy areas:

- Regional policy for the ERDF and the Cohesion Fund ;

- Employment and social affairs for the ESF;

- Agriculture and rural development for the EAGGF Guidance Section;

- Fisheries for the FIFG.

4.3.1. The Structural Funds

During the period 2000-06, some 94% of the Structural Funds are devoted to the main programmes (Single Programming Documents or Operational Programmes) and 5,35% of the overall allocation are reserved for the Community Initiatives. The remaining part of the allocation, up to 0.65 %, is devoted for Innovative Measures (up to 0.4 %) and technical assistance (up to 0.25 %).

For 2002, commitment appropriations amount to EUR 30 849 million, including re-entry deriving from the 2000 under implementation: EUR 28 874.3 million for the main objectives, EUR 1 830.3 million for the Community Initiatives and EUR 144.4 million for Innovative Actions and technical assistance.

In 2002, re-entry of unused 2000 appropriations applies to objective 1, objective 2, FIFG outside objective 1 and the Community initiatives EQUAL, INTERREG and URBAN.

4.3.1.1. Main programmes (chapters B2-10 to B2-13)

The main Objectives for the Structural Funds are:

- Objective 1, promoting development and structural adjustment in less developed regions;

- Objective 2, promoting economic and social conversion of areas in structural difficulty;

- Objective 3, supporting the adaptation and modernisation of policies and systems for education, training and employment; and

- Structural measures in the fisheries sector outside the regions of Objective 1.

The European Council in Berlin has decided the following breakdown for the main objectives (at 1999 prices):

- Objective 1 (including transitory support), financed by the four funds: EUR 135 900 million

- Objective 2 (including transitory support), financed by ERDF and ESF: EUR 22 500 million

- Objective 3, financed by ESF: EUR 24 000 million

- FIFG (excluding Objective 1): EUR 1 100 million

Objective 1 also provide assistance to the specific programme for Northern Ireland Peace Process (PEACE) as well as a special additional programme to some Swedish regions.

The regions which were eligible for Objective 1 during the previous period (1994-1999), and which no longer meet the required eligibility criteria during for 2000-2006, receive a transitory support under Objective l from all the Structural Funds, at least until 2005. Similarly, the regions which were eligible for Objectives 2 or 5b in 1999, and which are not eligible for the new Objective 2, receive transitory support under Objective 2, from the ERDF until 2005.

The breakdown of allocations between the Funds within the Objectives 1 and 2 derives from the programmes that are being established in partnership with the Member States. As the programming is still ongoing, it is not yet possible to present a very final figure. For objective 1, only minor changes could be expected at this stage. For objective 2, the breakdown between ERDF and ESF is assessed on the basis of the programmes already adopted. These allocations are to be revised when the programming is finalised.

Commitments appropriations in 2002 (including re-entry from 2000)(in EUR million )

>TABLE POSITION>

(*) Including the PEACE programme

In each chapter, there is a specific budget line covering the completion of earlier programmes. For commitments, these lines have a token entry ('p.m.'). Payments are the only, but decisive, issue to be addressed by these lines. The former objectives 1 & 6 programmes are included in chapter B2-10, the former 2 and 5b programmes in chapter B2-11 and the former objectives 3 and 4 in B2-12. The chapter "Other Structural Actions (excluding Objective 1)" includes two special lines for payments relating to the commitments prior to 2000 of FIFG (former 5a fish) and EAGGF (former 5a agriculture).

4.3.1.2. The Community Initiatives (chapter B2-14)

There are four Community Initiatives, each being financed by only one Fund:

(1) INTERREG for the promotion of cross-border, trans-national and interregional co-operation, financed by the ERDF;

(2) LEADER, for rural development, financed by the EAGGF Guidance Section;

(3) EQUAL, for the development of the human resources in a context of equal opportunities, financed by the ESF; and

(4) URBAN, for the economic and social regeneration of cities and urban neighbourhoods in crisis with a view to promoting sustainable urban development, financed by ERDF.

The allocations for the four Community Initiatives are EUR 1830 million at current prices, including the re-entry of the 2000 under implementation. In accordance with the Structural Funds Regulation and the Commission's guidelines on each Initiative, the sharing-out of the allocation for 2002 is the following:

- INTERREG EUR 880,2 million

- LEADER EUR 311,6 million

- EQUAL EUR 512,2 million

- URBAN EUR 126,3 million

In this chapter, there is also a separate budget line to cover payments from previous programming periods that includes all former Community initiatives.

4.3.1.3. Innovative Actions and technical assistance (chapter B2-16)

The appropriations of this chapter amount to EUR 144.4 million in commitments. These appropriations cover Innovative Actions at the Community level such as studies, pilots project and experience-sharing, as well as technical assistance actions such as preparation, monitoring, evaluation and control measures. Technical assistance also includes structural funds mini-budget, which are identified by a specific budget remark in the budget.

There is also a separate budget line to cover payments from previous period.

4.3.1.4. Payment appropriations

There are three types of payments: payments on account, payments on commitments from the new period (reimbursements on the new programmes) and payments related to commitments from the former period (RAL).

For the new programmes, it is assumed that all payments on account would be paid in 2001 and the only payments in 2002 should be reimbursements. For the third year of implementation of the new programmes, a sharp increase is planned in the reimbursements. However, the initial delays in adopting the new programmes have to be taken in account when assessing the needs for payments. For that reason, requested appropriations are below the underlying assumption in the financial perspective, even if there is a substantial uncertainty in assessing the reimbursements, as it is a completely new mechanism for structural funds. This uncertainty should be put in perspective taking into account the overall constraint on the budget. On average, it is assumed that some 75% of one annual instalment would be paid out in 2002, with a slightly higher rate of reimbursement (around 80%-85%) for Objective 3 and FIFG (outside objective 1) as nearly all their programmes were already adopted in 2000.

For the earlier programmes, it is assumed that some 50% of the forecast RAL (outstanding commitments) remaining at the end of 2001 would be paid in 2002. This rate of payment is in the line with the underlying assumption used when establishing the Financial Perspective. It would indeed mean that some 15% of the outstanding commitments as registered at the end of 1999 would be paid out in 2002 while some 70% are already supposed to be liquidated in 2000 and in 2001. This assumption is applied to all budget chapters concerned but it will certainly allow some flexibility between the funds - especially if financed on the same budget line - depending on the actual needs in implementing the budget.

4.3.2. The Cohesion Fund

The commitment appropriations are EUR 2 789 million, in conformity with the Financial Perspective. Payment appropriations amount to EUR 2 600 million, i.e. a decrease of 9.1% over 2001 budget, but a 4% increase compared to the 2001 PDB.

5. Internal policies : Heading 3

5.1. Summary table

>TABLE POSITION>

5.2. Key aspects of heading 3

* For the financial year 2002 the current proposal foresees, with regard to expenditure under the internal policies (Heading 3 of the Financial Perspective), a total of EUR 6 490 million in commitment appropriations and EUR 6 057 million in payment appropriations, i.e. increases of 4.1% and of 3.5% respectively, as compared to the 2001 budget.

* The increase in the ceiling of this heading according to the Financial Perspective (EUR 286 million) is mainly used for the increases already programmed for the 5th framework programme for research (EUR 135 million) and in the field of the environment (EUR 84 million). Indeed, the allocation of more than 4/5 of the total in the internal policies area is predetermined by the amounts agreed by co-decision for the multi-annual programmes. In addition to this there are a small number of major programmes containing indicative reference amounts.

* In addition to the broad medium-term strategic objectives for 2000-2005 (A new economic and social agenda, Improved quality of life and living conditions) the budgetary proposal for heading 3 covers particularly two of the six political priorities for 2002, namely:

- Introduction of the single currency, of which the supporting measures must be continued to ensure the success of the introduction of the Euro. They cover in particular information campaigns, as well as of the continuation of the development of statistics, analytical forecast and orientation tools necessary for the decision-making in the Euro area;

- Sustainable development from an environmental, economic and social point of view. In addition to the strengthening of the measures targeted on environmental protection, the public health, food security (in particular with the adoption of the new European Food Agency) and the fight against social exclusion, it is foreseen to re-examine certain sectoral policies, such as transport and energy. This priority is particularly close to the strategic objective 'improved living and working conditions' aimed at answering the questions affecting the daily life of the citizens of the Union. In addition to the existing actions as regards transport (including the safety problems), education, culture and the environment, new priority fields include consumer protection, food security, public health and justice. The strengthening of these actions, essential for sustainable development in all its dimensions, in the field of research, education and training must also be taken into account.

- Moreover, the strategic objective 2000-2005 of 'a new economic and social agenda', resting on a knowledge-based economy ,on innovation and on a competitive and sustainable durable economic development strategy, which contributes to growth, to full employment and to social cohesion is also reflected in the PDB. In particular, research and technological development, the promotion of the information society, the measures to stimulate innovation and the entrepreneurial spirit, to encourage investment in human capital and to set up a European strategy in the social field (employment, work, social welfare environment, etc.) explain many accents set in the 2001 and 2002 budgets that remain valid.

5.3. General presentation of heading 3

- Research and technological development (RTD): RTD remains the single most important expenditure in this heading (almost 2/3 of heading 3, EUR 4 055 million), with an increase of EUR 135 million as compared to the 2001 budget, i.e. + 3,4% for the 5th framework programme. This amount includes EUR 45 million corresponding to the last block of recovering from the funds taken from RTD in 1999 to meet the urgent needs of reconstruction in Kosovo. 2002 is not only the last year of the 5th framework programme but also the year of the launching of the new, 6th framework programme. This programme, recently proposed by the Commission for an amount of EUR 17 500 million, aims at realising the single European area of research, a project ratified by the European Councils of Lisbon, Feira and Nice. It is a central component of the process to develop, in the Union, the knowledge-based economy and society, which are the key for innovation, competitiveness and employment, sustainable economic growth and of social cohesion.

- Trans-european networks: the TEN programmes for transport (EUR 585 million, or + 1.7%), telecommunications (EUR 37 million, or + 5.7%), energy (EUR 21 million, or stabilisation in relation to 2001) enter their third year of implementation and the amounts proposed respect the agreed financial planning. The IDA II programme (EUR 24 million), which connects the telematic networks between the administrations, is maintained at the same level as in the previous years.

- Education and youth: for the Socrates programme (EUR 250 million, or + 1.7%) and Youth programme (EUR 72 million, or + 2.9%), 2002 will be the third year of implementation. The Leonardo programme (2000-2006) was not subject to the co- decision procedure, but the amount proposed for the preliminary draft budget 2002 (EUR 157 million, or + 6.8%) respects the programming. It is proposed to continue the e-learning initiative for the second year.

- For the 1st time, an amount of EUR 7 million is proposed for the financing of the European Political Parties on a new specific budget line, B3-500.

- Culture and Audio-visual actions: the framework programme for Culture (EUR 32.5 million, or - 1.5%) will enter into its third year of implementation in 2002, while for both the Media Plus and Media Training programmes (EUR 78 million in total, or - 2.5%) 2002 will be the second year. It is proposed to create a new budget line, B3-2018, for pilot projects in relation with the Audio-visual i2i programme of the EIB group.

- Information and communication: a total amount of EUR 112.1 million, i.e. + 8.8% compared to 2001 is proposed for this field (including the campaigns on the Euro, the 2004 Intergovernmental Conference and enlargement).

- Internal market, health and consumer protection: (EUR 14.2 million and EUR 76.5 million in heading 3 respectively) the most important programmes are Customs 2002 (EUR 24,1 million, the same as in 2001), Fiscalis (EUR 8.4 million, or + 10.5%), Statistics (EUR 34 million, or + 4.3%) and the consumer protection framework programme (EUR 22,5 million, the same level as the previous year). The amount for Fiscalis is co-decided, it is the last year of the programme. The public health programme enters its second year (EUR 46.5 million) and EUR 7.5 million are assigned to the start-up of the European Food Agency, which constitutes a shared political priority with the European Parliament and the Council. Should this amount prove insufficient, it could be reinforced by transfer treated with preference during the year 2002. The Agency for the evaluation of medicinal products will be funded by a basic subsidy of EUR 14 million, and an increased subsidy for fee exemptions for orphan drugs of EUR 3.3 million.

- Environment: appropriations assigned to the internal part of the LIFE III programme, EUR 140.6 million, increase by + 84.2 million compared to 2001 after its reprogramming. This sharp increase can be explained by the fact that in 2001 the appropriation for this programme remained definitely below the level of the 2000 financial year. This in turn is due in part to the late adoption of the new regulation for LIFE III (2000-2004) and in part to the need for an intensive monitoring of a significant number of LIFE II contracts in order to catch up with the delays caused by lack of human resources. It was agreed to launch only four instead of five calls for proposals during the period 2000-2004. The total budget of EUR 613 million was therefore divided into four periods, of which 2000-2001 is the first (EUR 113 and EUR 56.4 million), instead of five equal annual allocations of about EUR 120 million. For the PDB 2002, that means that EUR 140.6 million are proposed, compared to EUR 56.4 million in the 2001 budget.

- Energy: ALTENER (EUR 18.2 million, or + 4%) and SAVE (EUR10 million, or - 9.1%) are both in their last year of implementation.

- Justice and home affairs: the amount of approximately EUR 80.6 million planned for 2002 will allow to continue the activities at the same level as in 2001, when a significant strengthening of this field took place. The DAPHNE programme (EUR 5 million) will be in its third year in 2002, while the European Refugee Fund is stabilised (EUR 45 million) and the campaign against discrimination is continued (EUR 16.2 million, i.e. + 31.7%). This field also represents one of the political priorities of Parliament for 2002 under the heading of a European area of freedom, safety and justice, and in particular on the implementation of the conclusions of the European Council of Tampere in 1999 and on the development of a coherent asylum and immigration policy.

- Enterprise : the appropriations proposed for the multi-annual programme for enterprises and entrepreneurship and the action for improving the financial environment for SMEs are in accordance with the financial planning (EUR 27.6 and EUR 71 million respectively) agreed by the budgetary authority in the framework of last year's budget procedure The pilot project on the impact of enlargement - B5-3003- will receive continued funding.

- Employment and social affairs: for 2002, except for the amounts planned for the programmes « Fight against exclusion » and « Measures for the labour market » which in 2002 are below the 2001 envelopes, it is generally proposed to continue the actions at the same level as in 2001. In preparation of the European Year for the Disabled foreseen for 2003, there are already EUR 4 million planned in the 2002 PDB. The total amount planned for 2002 amounts to EUR 133.1 million, or- 10% compared to 2001, in particular owing to the termination of the pilot action « local initiatives for employment » (EUR 12 million in 2001). The results of this pilot action have been taken into account in the programmes financed by the Social Fund.

6. External action : Heading 4

6.1. Summary Table

>TABLE POSITION>

6.2. Key aspects of heading 4

* In the preliminary draft budget for 2002, commitment appropriations proposed for Heading 4 total EUR 4 826 million, which is some EUR 103 million less than in 2001 (-2.1%). This decrease is due to the mobilisation in 2001 of the flexibility instrument for EUR 200 million. Given a ceiling for Heading 4 of EUR 4 873 million, the margin left beneath the Heading 4 ceiling would be EUR 47.22 million. This tight situation has imposed difficult choices.

* As far as the payment appropriations are concerned, the overall proposed level is EUR 4 296 million, which corresponds to an increase of 9.6% compared to 2001. While this percentage appears high, it has to be put into perspective by remembering that the level of payments in the 2001 budget is not sufficient to cover all EU contractual commitments. This is particularly true for the Balkans' budget chapter, whose shortage of available payments appropriations are taken into account in the Supplementary and Amending Budget n°4/2001, to be transmitted to the Budgetary authority after the PDB 2002 and to be adopted before the summer break. The proposed increase in payment appropriations in 2002 shows the effort put on the absorption of the outstanding commitments (RAL), especially in the two priority areas cited below.

* Among the six priorities for 2002 set out by the Commission at the end of 2000 and the APS decision of February 2001, three priorities are directly linked to the external policies: two of them, Development Co-operation and the Mediterranean are dealt with in heading 4, whereas another priority, Enlargement, falls within the scope of Heading 7 (Pre-Accession).

- Development co-operation is an essential activity for the Union, given EU's central role as major supplier of financial assistance. Stress is put on the strategies to combat poverty ('poverty focus'), which represents the main goal of all development aid: in this context, the Commission puts particular emphasis on education and health, and seek for efficient coordination with the Member States and the international organisations operating in the development field. To that end, the Commission will re-orient its policy instruments, including the EDF. As far as the EDF is concerned, the year 2002 should witness an important increase in payments over 2001.

- For the priority Mediterranean the principles, the goals and the instruments defined in Barcelona remain valid, since the Union needs to forge closer links with its immediate neighbours, ensuring the indispensable assistance to the beneficiary states, with a view to allow them to achieve stability, democracy and prosperity. EU intervention will be along three axes: the acceleration of the negotiations of Accession Agreements, the development of co-operation and exchanges South-South, and the gradual creation of a functioning Euro-Med internal market. For the year to come the budgetary priority will focus on payments which will increase sharply while the evolution of the commitments is more backloaded.

* Programme management and deconcentration. The management of the external assistance programmes is experiencing a thorough process of rationalisation. In the course of 2001, 21 Commission delegations will be reinforced in order to improve the management of the external aid and to establish closer links with the beneficiary countries. In 2002, some 30 other delegations will be subject to this process. In the meantime, the old TAOs will be phased out. To achieve this twofold result, the Commission needs to foresee an appropriate level of the allocations for the BA budget lines (technical assistance budget lines). However, the increase in the BA budget lines is compensated by an equivalent reduction in the operational lines within the correspondent geographical envelope.

* Regarding the failed fisheries agreement with Morocco, the programmed amount of EUR 125 million will be maintained in the reserve for the time being. The amount corresponding to the restructuring programme to be proposed in heading 2 is proposed to be set aside under heading 4, while some other international fisheries agreement might be increased. The situation will be updated in the traditional Amending Letter in autumn.

6.3. General presentation of heading 4

Heading 4 of the Financial Perspective covers the external interventions of the Union, with the exception of the enlargement process and the European Development Fund (EDF). The policy areas that fall within this Heading are: external relations, development and relations with the ACP countries, trade, humanitarian aid and the part of the fisheries policy area relating to international agreements. For the time being, the financial assistance to the Mediterranean candidate countries, Cyprus, Malta and Turkey, also falls within this heading.

The focus on payments in this years proposal is on two main objectives: firstly, the need to ensure an adequate level of payment appropriations to respect all the contractual obligations undertaken, secondly, the continuationof the effort already deployed in 2000 for the absorption of the outstanding commitments created in the past. It is worth reminding that the Commission has already undertaken a far reaching analysis of all the old and dormant commitments, some of which were born before 1996: this exercise has already produced good results, as the Commission has de-committed important amounts of funds, and the process is continuing. To comply with both the aforementioned requirements, a thorough assessment of the real needs in terms of payments has been undertaken: such an analysis is also aimed at reducing to the minimum the number of adjustments to operate during the year (transfers, amending budgets).

As stated above, the percentage increase in payment appropriations (9.6%) is influenced by the insufficient level of payments appropriations for the Balkans in the 2001. A closer look at the breakdown by chapters will confirm that the Balkans chapter shows the highest relative increase in payments appropriations within heading 4.

As far as the geographical and thematic interventions are concerned, the main elements are the following:

Western Balkans (-1.3%, EUR 828 million) Commitment appropriations for the Western Balkans are slightly reduced compared to 2001. This figure takes into account the frontloading achieved in 2000 and 2001 thanks to redeployment and use of the flexibility instrument and is compatible with the Council's indicative CARDS reference amount of EUR 4 650 million for the region over the 2000-2006 period. The continuation of such a level of financial commitment in 2002 is necessary to build on the momentum following the democratic change in Serbia and sustained by the Community with an important rehabilitation programme. The macro-financial assistance covered by this chapter has been increased by 25% compared to 2001. The payment appropriations are increased compared to budget 2001 to honour the rapid implementation of the commitments.

Eastern Europe, Caucasus and Central Asian republics (TACIS) (0.1%; EUR 470 million) Commitment appropriations remain at the same nominal amount as in 2001 and are compatible with the reference amount of the legal basis set at EUR 3 138 million for 2000-2006. The stabilisation of the financial commitment, while other envelopes are decreasing, reflects the growing importance of the region to the EU, especially with the perspective of enlargement.

Asia (-2.2%; EUR 436 million). In order to achieve poverty alleviation, the EU activity in Asia is focused on basic education and health.. EU financial co-operation will mainly be deployed in poorer countries, whereas the reinforcement of the economic co-operation will be along various streams of the mutually beneficial activities (science, technology, culture, environment, as well as the economic and legal framework). Reflecting to a large extent the approach adopted for other regions, the Commission will accelerate the deconcentration process towards the EU delegations in the region, ensuring an increased proximity between the EU and the final beneficiary of the financial assistance.

Latin America (-6.3%; EUR 315 million). As for the Asian region, the Commission has specifically emphasised the sectors of health and education in its intervention in Latin America. While EU financial and technical co-operation will aim at promoting sustainable development in the region, the economic co-operation should act as a multiplier for growth. The follow-up of the Rio Summit is a central element, with strategies based on three main axes: reinforced political dialogue, financial and economic relations and co-operation in key sectors. A decrease is proposed in the overall allocation for Latin America, which is the combined result of the tight financial resources, the insufficient implementation record of the previous year, as well as the amount of the outstanding commitments. However, the proposed 2002 allocation should enable the continuation of the EU efforts in the most affected countries (e.g. post-hurricane Mitch reconstruction, Venezuela). The level of the administrative and technical assistance (BA lines) will increase in order to cover the additional expenditures borne by the deconcentration exercise and by the needs of the programmes in the delegations that are phasing-out of the TAOs.

Mediterranean (-3.7%, EUR 863 million). The main financial instrument of the region is the MEDA programme, renewed in 2000, with an indicative amount of EUR 5.35 billion for the period 2000-2006. The Mediterranean is also one of the six priorities decided by the Commission at the end of 2000 and confirmed by the APS decision of February 2001. Apart from the MEDA programme, the implementation of which undoubtedly needs to be improved in terms of procedures and efficiency, other community instruments in the Mediterranean region are: the financial protocols with the Mediterranean countries, the assistance to the Mediterranean candidate countries, the financial support of the Palestine and the co-operation and assistance to the Gulf region (GCC, Yemen, Iran). The amount proposed for the Mediterranean region in 2002is decreased but the level of payment appropriations increases by 19%, in order to absorb the important outstanding commitments created in past years. The financial assistance to Cyprus and Malta has been isolated in a separate chapter for reasons of visibility and is proposed to increase by more than 10% in commitment appropriations and more than 55% on payment appropriations. For Turkey the appropriations remain in the same structures as in the 2001 budget, pending the adoption of the legal basis for the pre-accession strategy. They could then be transferred to an individual chapter, similarly to Malta and Cyprus.

South Africa (+2.5%, EUR 125 million). The slight increase of the allocation for South Africa is the direct consequence of the adoption of the legal basis in June 2000, with an indicative annual amount of EUR 125 million. South Africa has already reviewed all the management procedures (deconcentration process) in order to ensure an improved implementation of the programmes.

Human Rights and Democratisation (-7.8 %; EUR 95 million) The overall allocation for this activity amounts to EUR 95 million (compared to EUR 103 million of 2001). The whole structure of the chapter is rationalised: one single budget line replaces the existing instruments, in order to allow a more flexible and consistent management of this activity. The fight against sexual tourism is also integrated within the scope of this single budget line.

Other co-operation measures (-0.7%; EUR 457.3 million). For 2002, the Commission continues its effort of transparency and specificity by changing the nomenclature for a variety of heterogeneous set of interventions (e.g. tropical forests, children, NGOs, health ), which fall within title B7-6 of the budget. Each of these interventions has been assigned to a separate chapter. Other interventions included in title are the rapid reaction mechanism (increased to EUR 25 million, i.e. +25%), the contribution to KEDO (Korean Peninsula Energy Development Organisation), evaluation, landmines. This section also include interventions under title B7-8 of the budget, such as co-operation in the field of education, environmental measures, trade issues: as for trade policy, the Commission proposes an amount higher than the 2001 budget allocations in order to manage the new round of multilateral negotiations on services within the framework of the WTO/GATS that is likely to start in the near future, as well as for increasing the capacity to assist LDCs with technical assistance. The 2002 PDB also proposes to contribute, under heading 4, to the World Anti-Doping Agency (EUR 2.55 million on Article B7-823).

Fisheries (+0%; EUR 273 million). The appropriations are for the moment proposed to be left unchanged compared to the 2001 budget at EUR 273.4 million. Following the end of the negotiations with Morocco, the amount of EUR 125 million has been entered into the reserve, which allows for possible increase in agreements to be renegotiated in 2001-2002.

Humanitarian aid (+0%; EUR 473 million). The Community humanitarian aid targets non discriminatory assistance, geared primarily towards help and protection for people in the third countries, primarily those in developing countries, victims of natural disasters, wars or armed conflicts. The appropriations are proposed to be unchanged compared to the 2001 Budget at EUR 473 million (Budget chapter B7-21). An additional amount of EUR 213 million, up from EUR 208 million, is included in the «Emergency aid reserve». This reserve can, however, only be used for non-foreseeable needs.

Common Foreign and Security Policy (-2.8%; EUR 35 million). The commitment appropriations for the Common Foreign and Security Policy are stable (slightly down from EUR 36 million to EUR 35 million). As a reminder, the administrative costs of special envoys have been transferred to the Council's budget in 2001. It is furthermore proposed to change the budgetary nomenclature by merging new and existing actions.

Food aid (-4.6%; 434 million). The food aid and support activities appropriations are proposed at a level (EUR 434 million) lower than the 2001 budget (EUR 455 million). This is due to a shift in priorities inside the limited possibilities in heading 4.

7. Pre-accession instruments : Heading 7

7.1. Summary table

>TABLE POSITION>

The activities covered by these instruments are all part of the enlargement policy area and strictly respect the ceilings adopted in the Financial Perspective.

As far as payment appropriations are concerned, the PDB proposes a very important increase. SAPARD and ISPA have started in 2000, but no payments could be made in that first year. In 2002 the programmes should reach cruising speed and face important reimbursements. For PHARE, the argumentation similar to heading 4 about reducing the outstanding commitments applies.

Among the six priorities for 2002 set out by the Commission at the end of 2000, then leading to the APS decision of February 2001, one priority, Enlargement, is identical to the scope of Heading 7 (Pre-Accession), albeit it covers of course many activities carried-out by services which do no have a direct budgetary impact. The focus will be on monitoring the implementation of the acquis communautaire with a view to conclude the accession negotiations for those countries that meet the criteria, and the financial impact is therefore rather on heading 5 - Administrative expenditures.

7.2. SAPARD, the agricultural pre-accession instrument

In accordance with the decisions adopted at the Berlin European Council, pre-accession aid for agriculture is provided for the ten applicant countries of Central and Eastern Europe. On the basis of the financial framework for the period 2000-2006, an annual total of EUR 520 million (at 1999 prices) has been earmarked and is covered by the agricultural guideline. The allocation for 2002 corresponds to the indexed amount decided in Berlin and comes to EUR 555 million. The amount for payment appropriations is EUR 470 million.

In particular, pre-accession activities are intended to support improvements in the efficiency of farms, the processing and distribution of agricultural products, veterinary and plant health controls and quality. Pre-accession aid also supports the management of natural resources, vocational training, economic diversification in rural areas, agri-environmental and forestry initiatives and improvements to rural infrastructure and villages.

7.3. ISPA, the structural pre-accession instrument

ISPA is part of the Regional Policy Area but it is devoted to structural adjustment in the applicant countries.

An amount of EUR 1 109 million is proposed in commitment appropriations up to the corresponding sub-ceiling of the Financial Perspective. Payment appropriations amount to EUR 900 million, a sharp increase from the EUR 350 million entered into the 2001 budget, as payments should start catching up the commitments in the third year of implementation.

7.4. PHARE, the pre-accession instrument

The Financial Perspective determine the total amount for 2002 of EUR 1 664 million, which represents a 2.7% increase compared to the EUR 1 620 million of the 2001 budget. At the same time, the payment appropriations increase by 9.2% compared to 2001, reaching the level of EUR 1 550 million.

As already mentioned, although Cyprus, Malta and Turkey are candidate countries, their respective pre-accession strategy will continue to be financed through Heading 4, until a revision of the ceiling of Heading 7 is adopted. Should this happen, the ceiling of Heading 7 would be adjusted to accommodate the transfer of the aid for these countries.

8. Administrative expenditure : Heading 5:

8.1. Summary table

(in EUR million)

>TABLE POSITION>

8.2. Key aspects of heading 5

In 2002, three major events will influence the evolution of part A of the Commission:

(1) The actions linked to the reform

In 2002, the actions linked to the reform will be the continuation in 2002 of the actions initiated by the Amending letter 1/2001 in order to better balance the human resources available to the Commission with its activities, the acceleration of the deconcentration of external aid programmes to delegations and the strong emphasis on training.

* In order to balance its resources with its activities, in 2001 the Commission has proceeded last year to a thorough analysis of all its activities, to see what could be reduced, discontinued, phased out, or, on the other hand, which core activities needed reinforcement. This assessment led to a first tranche of 400 new posts granted in the 2001 budget and substantial redeployment within the existing resources. 2002 will entail further redeployment amounting to 234 posts, stemming from a one-off 1% productivity gain (168 posts) on top of normal productivity growth to face increasing workloads and the phasing out of certain activities (66 posts). In addition the Commission requests 317 new posts in its PDB 2002 to cover the remaining gap of resources identified in the so-called Peer Group review. The requested posts have been allocated by policy area. These new posts will complete the actions initiated in the Amending letter 1/2001. The costs of these 317 additional posts may be estimated at EUR 12,95 million in 2002 if they were all allocated at the headquarters.

* The Commission will reinforce significantly its deconcentration exercise to the delegations, as part of the reform in the management of external aid programmes. 114 posts will be transferred from the headquarter to the delegations to support deconcentration. In addition to these 114 posts, 4 posts will be deconcentrated by the Financial Control (and 8 for supervising translation in the candidate countries) in 2002. The additional cost is estimated as being EUR 8.66 million as a post in delegation is more costly than the equivalent post at the headquarter, especially for the first year.

* The training budget (A-706) will be increased by EUR 1,5 million. A limited investment in 2002 is also foreseen for in enhancing some social infrastructure.

(2) The administrative preparation for enlargement

Enlargement, as one of the 6 priorities decided upon in the APS framework, imposes important additional investments in 2002, notably in the area of administrative preparation for the enlargement. Thus, in 2002 it will be necessary already to:

- extend economic studies to the candidate countries (+EUR 0,3 million on top of the increase of EUR 0,85 million in 2001),

- to reinforce the capacity of interpretation and preparatory work for translation (EUR +1,07 million),

- to ensure verification of the translation work done by the candidate countries (+ EUR 0,93 million on part A),

- to launch recruitment procedures in view of preparing the arrival of new officials from the new member states ,

- and finally to prepare the environment in order to be able to publish the acquis communautaire in the language of candidate countries on the date of accession (+ EUR 2.5 million).

As a consequence the additional amount needed in part A for enlargement in 2002 is around EUR 8.5 million.

(3) The increased effort on codification of community legislation

The acceleration of the work on codification is undertaken in order to make the community law more understandable, and toreduce the publication requirements in the languages of the new candidate countries. This will imply a reinforcement of the work on consolidation made by OPOCE (EUR +5 million), reinforcement of the work made by the College of Bruges in support of the Legal Service (+ EUR 5 million), as well as the temporary reinforcement of the Legal Service with additional external personnel (+ EUR 1.22 million. In addition, a limited number of LA posts of the Translation Service will be redeployed temporarily to the Legal Service to complete the codification process.

Some other elements have an impact on the evolution of the ceiling of heading 5:

* It is necessary to finance on a whole year basis, the 400 posts allocated to the Commission by the Budgetary Authority in 2001. The additional amount is about EUR 15 million in 2002.

* The expenditure for pensions, which concerns retired staff from all institutions, will increase by 11,3 % (+ EUR 69,8 million), at a much higher rate than the increase of the ceiling of heading 5.

* Not all institutions having communicated their state of estimates in time, the calculation of the margin is based on the financial programming transmitted by the other institutions as long ago as autumn 1999 and a 4.3% increase applied to the 2001 budget for all other institutions. This increase is somewhat more generous than the growth of the Commission's administrative budget, amongst others to take into account the costs of the Council's SAB 2/2001 on a full year basis.

So, taking into account these constraints,

* In 2002 the proposed administrative budget of the Commission (part A, including pensions for all the Institutions) amounts to EUR 3 388.665 million, a 5.3% increase in comparison with budget 2001 (EUR 3 217,2 Mio). Excluding pensions, administrative expenditure increases by 3,9 % to EUR 2 700 million. This increase is of the same order of magnitude as the one proposed for the other institutions (3.7% including SAB 2/2001 or 4.3% over the budget 2001 as adopted in December 2000) and considered for the calculation of the margin of heading 5.

* Taking into account the elements mentioned for the Commission, the margin amounts to EUR 30.335 million, without taking into account any additional expenditure for reform and enlargement for the other institutions.

8.3. General presentation of heading 5

8.3.1. Human Resources

In line with the commitments made in its White Paper on reform [4], the Commission decided in February 2000 to conduct a detailed evaluation of its activities and human resources. It set about surveying the activities that it considered as non-essential and that could accordingly be reduced, discontinued or gradually phased out, and assessing the scope for more re-deployments within and between Directorates-General. It also considered how far Directorates-General were running core activities or implementing policy priorities where the human resources allocated were inadequate.

[4] COM(2000) 200 final and /2 of 1 March 2000.

This rigorous approach led to the identification of overall genuine needs standing at around 1 254 posts [5], excluding research. The Commission undertook to meet part of the needs through its own efforts and request the remainder to the Budgetary Authority by means of a net increase in the establishment plan.

[5] Matching the Commission's activities with its human resources -The means to achieve our objectives- SEC(2000) 2000/3

Own efforts of the Commission concentrate on discontinuation or scaling down of certain activities that allow for 222 posts to be re-deployed in 2001-2002 and on exceptional productivity gains allowing for savings of 315 posts in 2001-02. The resulting identified staff shortage stands therefore at 717 posts. With the Letter of Amendment n°1 to the Preliminary Draft Budget 2001 [6] the Commission requested and obtained a first tranche of 400 new posts announcing that the remainder, i.e. 317 new posts, would be requested in the framework of the Preliminary Draft Budget 2002.

[6] SEC(2000)1363 final

This Preliminary Draft Budget requests for 2002 the remaining 317 new posts. These posts concern the establishment plan in Part A of the budget.

In addition to the new posts there will be additional re-deployments within the Commission ensured by a one-off 1% productivity gain (168 posts) and by the phasing out of activities (66 posts). Thus, all in all there would be 551 posts available for allocation to meet acknowledged needs for priority policy areas or for priority activities within policy areas in 2002. The indicative pre-allocation of these posts follows the strategy announced in the Letter of Amendment n° 1 to the Preliminary Draft Budget 2001. The Policy Areas with the most significant reinforcements being External Relations and Development (including enlargement and de-concentration to delegations of the management of Community Aid), Competition, Regional Policy, Health and Consumers' protection, Co-ordination and Legal, Justice and Home Affairs, Agriculture, Environment. The Policy Areas with the most significant negative variations are Administration and Budget.

It is useful to recall that the Commission has also tabled a proposal for a termination of service scheme that would allow 600 officials to leave the Institution before normal retirement. As the scheme has been designed to be budgetary neutral, its net effect on the establishment plan will be a reduction of 342 posts once the scheme is fully implemented. Thus, if the Budget Authority approves the scheme, ultimately the establishment plan of the Commission will increase by 375 posts, corresponding to around one third of the initial overall identified needs that stood at 1 254 posts.

As far as the establishment plans for Direct and Indirect Research are concerned, the Amending Letter n°1 to the PDB 2001 announced that they would have been dealt with separately. For these activities the evaluation of the Commission has led to the identification of a net staff shortage of 27 posts for Indirect Research, these posts have been requested to the Budgetary Authority with the SAB 3/2001. For Direct Research (JRC) the Commission's assessment has led to the identification of a possible reduction of 175 posts. This Preliminary Draft Budget integrates the reduction of 175 posts for Direct Research. The proposed reduction in Direct Research will not hinder the possibilities of a continued strong presence in the core activities with higher value added.

8.3.2. Remuneration and pensions

Remuneration (title A-1 without A-19) will increase by 5,4%. Such an increase is the result of 4 factors:

- As for other Institutions, the adaptation of salaries foreseen in December 2001 is +2,7% and the adaptation foreseen in December 2002 is +2,7%. A correction of 0,2% of the adaptation of December 2000 has also been taken into account.

- In the budget 2001, 400 new posts have been allocated to the Commission. Budget 2001 only included the credit for 5 months of salaries. Budget 2002 has to take into account the full cost of them. The increase is around EUR 11,4 million on title A-1, equivalent to 0,8% of the remuneration budget of 2002.

- Appropriations for the requested 317 new posts will cover 6 months of remuneration. The amount will be around EUR 10 million on title A-1, or 0,7% of the remuneration budget of 2002.

- The transformation of appropriations into posts in 2001 will reduce the appropriations of title A-7 and increase title A-1. This effect amounts to EUR 8,5 million or 0,6% of the remuneration budget of 2002.

Expenditure of title A-1 also reflects the increased recourse to outside interpreters by the SCIC Interpretation Service, leading to a transfer of EUR 2.4 million from title A-1 to title A-4 and a parallel reduction of 25 LA posts in the establishment plan.

Pensions expenditures (chapter A-19) increase by 11,3%. Such an increase is mainly the consequence of the growing number of officials reaching retirement age. The rise is also the result of the increase of the higher level of remuneration of officials going into retirement and is the extrapolation of a trend that has been observed in the previous year. Pension expenditures represent EUR 688 million, corresponding to 13.3% of the ceiling of heading 5. As the ceiling of heading 5 increases by 4.9% in 2002, it means that all expenditures other than pension may only increase by 3.9% to reach the proposed margin of EUR 30.335 million.

8.3.3. Buildings and other running costs (title A-2)

Expenditures related to buildings are supposed to increase by 4.35% to reach EUR 272.93 million on chapter A-20. The rise is mainly the result of the inflation and the need to increase the surfaces in order to accommodate the new posts. The Berlaymont is not scheduled to be reintegrated in 2002.

Other expenditures of title A-2 (office equipment and consumables, IT infrastructure, telecom...) are foreseen at EUR 130.3 million, a reduction of 4.7%, mainly thanks to a reduction in costs for telecom and in office infrastructure.

8.3.4. Subsidies; European schools, OPOCE and Inter-institutional expenditures (title A-3 and A-4)

Expenditures for title A-3, excluding grant (A-30 & A-321), European school (A-327), OPOCE (A-342) and OLAF (A-360) are EUR 57.1 million (+18,7%). There is a global reduction of 2% of this type of expenditures, compensated by the proposed increase (+ EUR 5 million) for the consolidation and the proposed increase (EUR + 5 million) for codification. Expenditures on publications have been reduced by 4.5 %, mainly as a result of the falling costs of publishing.

Subsidies of chapter A-30 will be reduced by EUR 2.3 million to reach EUR 30,9 million by a linear cut of 10% on all subsidies except A-300, A-301 and A-3020 (Euratom Supply Agency, big institutes, "our Europe") in order to reach the above-mentioned margin. The amount for town-twinning will be the same as the one of PDB 2001.

The amount for the European schools (A-327) is decreasing by 10.4% to reach EUR 108 million. This was expected, as the special action of 2000 and 2001 for the teachers leaving the school after 9 years come to completion.

The budget for OPOCE (A-342) is expected to increase by 2.46% to reach EUR 59.23 million without taking into account the preparation for enlargement. Taking into account these costs, the budget will be EUR 61.7 million (+6.8%) due to an increase in the number of auxiliaries on a temporary basis in order to be ready for publishing the acquis communautaire in the language of present candidate countries the day of accession.

The Budget of OLAF (A-36) will be EUR 39.7 million, an increase of 15.2%. This increase is the direct result of the increase of posts in 2000 and 2001, which are to be paid on a full year basis and with a much reduced number of vacant posts in 2002.

Title A-4 covering interinstitutional expenditures increases by 7.3%, to reach EUR 81.4 million. Expenditures for translation and interpretation increase by 10.35%. The needs for preparing enlargement will be covered in 2002 mainly by internal redeployment of resources, although some additional appropriations have been foreseen for interpreters in the languages of the candidate countries. However, the main explanation for the increase is the change in the level of externalisation of SCIC. SCIC will increase its reliance on freelance interpreters financed by line A-4000. To compensate, it will decrease its dependence on statutory permanent staff (-25 LA posts). As a consequence, EUR 2.4 million have been transferred from title A-1 to title A-4.

The increase of title A-4 is also the consequence of the increase of the budget for recruitment (+17.9%) in order to prepare the enlargement.

Title A-5 has been suppressed in order to better align the management of Information Technology with the way it is handled in other Institutions. Infrastructure and general support has been moved to title A-2, while the development of specific administrative information systems has been moved to title A-7.

8.3.5. Deconcentration and translation requirements for enlargement

Expenditures for delegations, title A-6, are expected to be EUR 273.3 million, a rise of 10% in comparison with the 2001 budget. Such a rise is the result of the deconcentration exercise, which will allow 54 delegations to operate in a deconcentrated way at the end of 2002. To reach this objective, delegations are being reinforced with 40 additional posts (and an equivalent number of local agents) in 2001 from headquarter to delegations. A similar additional move of at least 114 plus 4 (for Financial Control) posts is foreseen in 2002 financed on part A . Part of the financing up to 48 posts will come from internal transfer within Title A-6. To this end the Commission proposes to charge on the relevant BA lines the cost (EUR 6 million) of local agents in Delegations directly involved in programme implementation and currently paid on part A). In 2002, the appropriations for a full year of the officials moved in 2001 must be foreseen, as well as installation allowances and salary for 6 months for those transferred in 2002. The emphasis for IT and telecommunication in delegation will be continued in order to allow the proper operation of the IT systems necessary for deconcentration and a specific budget line (A-6019) will be created in order to account precisely for this effort. A special emphasis is also given tosecurity in IT and telecommunications in order to prepare for ESDP and CFSP.

The candidate countries are responsible for translating the secondary legislation in their official language. These translations have to be verified and completed by the Commission. To this end, it is foreseen that the Translation service will post an experienced translator to act as task manager for monitoring a complementary PHARE programme, to be established, that will be used to check the quality of the translations already carried out.

8.3.6. Decentralised expenditures

Decentralised expenditures (A-7) amount to EUR 227 million a decrease of 1%. However, the comparison with 2001 must take into account the transformation of appropriations into posts which will transfer EUR 8 million to title A-1. The evolution of title A-7 is the result of the normal increase of salary for personnel and an increase of EUR 1.5 million for training as part of the reform effort. Appropriations for auxiliary personnel include a tempory special effort to accelerate the codification process and for the administrative preparation of enlargement. For training, a key aspect of the reform, and amount of EUR 10.5 million is currently proposed in the PDB. This amount could be increased to EUR 13 million, as presented in the financial statement of the Commission's communication, by an internal transfer during the year 2002, if the appropriations are available and the absorption justifies the reinforcement. Appropriations for the remaining items (meetings, missions, conferences, studies, IT information systems) remain globally stable, with some re-adjustments between individual items.

In 2002, the Commission requests the transformation of appropriations into 25 permanent posts. This exercise is budgetary neutral and will be made in the usual way, by transferring the relevant amount from title A-7 to title A-1.

* Reserves : heading 6

>TABLE POSITION>

Heading 6 comprises three reserves for which resources will be called in only if the need arises during the year. They are as follows:

- Whereas for EAGGF Guarantee expenditure, the monetary reserve was EUR 500 million until 2001, it is foreseen by the Inter-Institutional Agreement that it will be phased out: EUR 250 million is budgeted for 2002 and will be wound up in 2003. It is part of the Policy Area "Agriculture and Rural Development";

- the emergency aid reserve now allocated EUR 213 million: it is part of the humanitarian aid policy area;

- the guarantee reserve is also allocated EUR 213 million in 2002.