REPORT FROM THE COMMISSION - 14th ANNUAL REPORT ON THE IMPLEMENTATION OF THE STRUCTURAL FUNDS

General summary

The year 2002 saw the finalisation of programming, mainly for Objective 2 but also the Community Initiatives. Programme implementation reached a generally satisfactory cruising speed with a rate of execution comparable with the previous programming period.

The first operations connected with the mid-term review were launched at the end of 2002 so as to be able to have the results of the evaluation in the second half of 2003.

On 7 October 2002, a ministerial meeting organised by the Commission was the occasion for the Member States to scrutinise the Commission's concrete proposals for improving the management of the Structural Funds. These proposals were designed to meet repeated requests from the Member States for greater simplification in the management of the Structural Funds and to reduce the slowness of procedures at both national and Community level, which had been largely the cause of a very slow start-up of programmes.

The deadline for the submission of final payment requests for 1994-1999 programmes was 31 March 2003. However, by the end of 2002, only few assistance packages had been closed. Similarly, the deadline of June 2002 for sending documentation enabling the closure of programmes was met only in rare cases.

ERDF

With respect to Objective 1, the rate of implementation is satisfactory and has made it possible to avoid automatic decommitments under the n+2 rule [1]. However, there are big variations from one region to another and even within programmes.

[1] Under Article 32(2) of Regulation (EC) No 1260/1999 containing the general provisions on the Structural Funds, the Commission automatically decommits any parts of commitments not executed by the end of the second year following the year of commitment.

Analysis of programming complements shows that one third of ERDF assistance is going to projects in the productive environment and two thirds to basic infrastructure projects.

Objective 2 shows an implementation rate lower than Objective 1 because programming under Objective 2 did not finished until 2002 with the adoption of the last programmes and the Commission's reception of the programming complements. This longer programming phase was basically due to the process for designating eligible areas. As a result of the floods in Germany and Austria, those countries had to partially revise their programmes.

It is interesting to note that the allocation of assistance between the productive environment (two thirds of assistance) and basic infrastructures (one third) is exactly the reverse of the situation for Objective 1.

EAGGF

The Objective 1 programmes under the EAGGF show an satisfactory rate of implementation overall (19.1%) even if this is slightly lower than the average for the Structural Funds. However, four programmes (NL, UK, IRL) run the risk of automatic decommitment under the n+2 rule because of insufficient payments.

Assistance from the EAGGF [2] under Objective 1 is divided up as follows: 45.5% for restructuring in the agricultural sector (mainly investment in farms and the processing and marketing of agricultural products), 41% for the environment and the management of natural areas and 13% for development and diversification of the rural economy.

[2] These percentages include the EAGGF Guidance and Guarantee Sections. The accompanying measures (early retirement schemes, less-favoured areas, agri-environmental measures, woodland management) under Objective 1 are financed by the Guarantee Section.

ESF

Under Objective 3, the ESF has concentrated on supporting the European Employment Strategy. However, measures are distributed across all five fields of action provided for in the ESF regulation. The main measures, none the less, do cover the promotion of reintegration of the unemployed and those not gainfully active into the labour market.

Implementation of these measures is generally well under way, at a speed which made it possible to make up the initial delays in adopting programmes. With two exceptions, no automatic decommitments will have to be carried out.

At annual meetings, a large number of Member States discussed in depth the links between programmes under the ESF, the European Employment Strategy and national action plans on social inclusion.

FIFG

The main event in 2002 was the reform of the common fisheries policy (CFP), finally approved by the Council on 20 December 2002. The goals of the CFP were reviewed and redirected, firstly, towards the sustainable exploitation of living aquatic resources, on the basis of properly founded scientific advice and the precautionary principle as applied to fisheries management, and secondly towards sustainable aquaculture. The management of fisheries will be better able in future to ensure the long-term viability of the industry by sustainably exploiting resources.

The new measures came into effect on 1 January 2003, They replace the ground rules which have governed the CFP since 1993 and amend substantially the rules on structural measures in the fisheries sector as provided for under the Financial Instrument for Fisheries Guidance (FIFG) [3].

[3] Regulation (EC) No 2369/2002 of 20 December 2002, amending Regulation (EC) No 2792/1999.

The main changes introduced by the reforms include the discontinuation of aid for the renewal of fishing vessels and the permanent transfer of Community vessels to non-member countries, which is no longer allowed from 2005. Assistance for modernising fishing vessels may be granted only to vessels at least five years old; this must be designed to improve on-board safety, the quality of products or working conditions, to switch to more selective fishing techniques or to equip vessels with the vessel monitoring system (VMS). It may not be used to increase the catch capacity of vessels.

The reform also introduces changes in the terms and conditions for aid from Member States to fishermen and shipowners who temporarily cease their fishing activity. Aid for the retraining of fishermen is widened to include diversification into other activities while they continue to fish part-time.

Community Initiatives

Out of a total of 72 Interreg programmes, 15 of the 18 remaining to be approved were adopted in 2002. This meant that inter-regional cooperation could get properly off the ground with the launch of the first call for project proposals at EU level. It is also worth noting the adoption of the Interact programme, the purpose of which is to make implementation of the Interreg Initiative more effective.

All the programmes of the Community Initiative Leader+ were also adopted in 2002, and the first steering committee meeting took place in November.

In the context of the Urban Initiative, it is worth noting the adoption of the Urbact programme, designed to facilitate sharing of experience and best practice among the towns and cities involved in the previous versions of Urban.

14th Annual Report on the implementation of the Structural Funds in 2002

1. General assessment

1.1. OBJECTIVE 1

ERDF

The year 2002 saw the application for the first time of the so-called "n+2" rule. This requires the Commission to automatically decommit parts of commitments of funds which have not been executed by the end of the second year following the commitment. Generally speaking, the pace of implementation has been satisfactory and made it possible to avoid such automatic decommitments. The average implementation rate of payments by the end of 2002 was 21.5% across all approved assistance. Rates vary among Member State from 7% in the Netherlands to 36% in Ireland, but for half of them the range is between 22% and 27%.

However, the rates of implementation are vary very much from one region to another, from one programme to another or inside the same programme. Measures aimed at creating new infrastructure are generally progressing well while those involving the participation of the private sector are proceeding more slowly. The economic climate in 2002 may partly explain this observation.

According to the annual reports received, the rates of execution (allocation of funds to projects and payments to projects) are very variable. Some regions have already allocated two thirds of available funds to projects (B, FIN, S) and payments are also flowing well. Changes to SPDs have been relatively limited.

Most of them have been the result of the adoption by the Council, on 28 June 2001, of amendments to Regulations (EC) No 1260/99 (general regulation on the Funds), (EC) No 1257/99 (rural development) and (EC) No 2792/99 (fisheries) to allow higher assistance rates in the outermost regions.

An analysis of programming complements shows that ERDF assistance is split into one third for the productive environment and two thirds for basic infrastructures. The "transport infrastructure" category accounts for the biggest share at 31% of all assistance. This is followed by assistance for small businesses and the craft industries (16%) and for the environment (water, waste, etc.: 13%). The extensive sector of R&D, telecoms and the information society accounts for 12% of ERDF assistance [4], while the field of social and public-health infrastructures gets 6%.

[4] This assistance is integral to the first stage of the Lisbon strategy (encouraging the transition towards a knowledge-based economy, in particular by investment in information and communication technologies and in R&D). The share of these fields in all ERDF assistance should be seen against the fact that the majority of the programme complements were drawn up out before the Lisbon strategy was set out (March 2000).

All Member States have started initial operations for the mid-term review. In the regions most advanced, contracts with evaluators have already been concluded.

EAGGF

The overall rate of execution is satisfactory, even if it is slightly lower than the average for the Structural Funds as a whole. The overall average level of payments against the total of assistance granted was 19.1% at the end of 2002, compared with 21.8% for all the Structural Funds. Among Member States, the execution rate varies from 7.8% (Netherlands) to 29.2% (Austria).

In Germany, programmes do not seem to have been affected by the floods since the execution rate is one of the highest at 25%.

Four programmes (Flevoland - Netherlands, Highlands and Islands - UK), Border, Midland and Western Region (Ireland) and Southern and Eastern Region (Ireland) could not manage an adequate level of payments and are in danger under the "n+2" rule of seeing a corresponding part of the commitments decommitted. Regarding the latter two programmes, the Irish authorities have submitted a request for exemption for "force majeure" because of the effects of the foot-and-mouth disease epidemic. This request is being examined by the Commission.

The programming complements show that EAGGF assistance [5] splits as follows: 45.5% for restructuring in the agricultural sector (investment on farms, processing and marketing of agricultural products), 41% for the environment and the management of natural areas and 13% for the development and diversification of the rural economy.

[5] These percentages include the EAGGF Guidance and Guarantee Sections. The accompanying measures (early retirement schemes, less-favoured areas, agri-environmental measures, woodland management) under Objective 1 are financed by the Guarantee Section.

The operations required for the mid-term review have been started and results are expected by the planned deadlines.

FIFG

The overall execution rate is satisfactory, falling within the average for all the Funds. An analysis by country however shows some variations. The satisfactory overall speed of implementation is due to the rapid execution of the FIFG programme in Spain (payments cover 26% of assistance granted), which accounts on its own for 60% of assistance granted. In eight Member States the rate is low, ranging between 7% and 10%.

On the basis of programming complements, one can see that renewal of the fishing fleet, vessel modernisation and new construction accounts for 22% of FIFG assistance while aquaculture is allocated 10% of assistance and "processing and promotion of fishery products" 15%.

ESF

On the whole, programme execution is satisfactory with payments accounting for 24% of the total of assistance granted, a level higher than the average for all the Funds. Some delays have occurred, however, particularly in the Netherlands (payment rates: 7%).

The introduction of new fields for assistance under the ESF (e.g. lifelong learning, adaptability) could explain, at least in part, some of the delays observed since these fields require longer preparation than the usual fields of ESF assistance. It is also worth noting that measures involving equal opportunities show an execution rate lower than the average.

On the basis of the programming complements, it appears that ESF assistance is distributed in a relatively balanced way among the labour market (29%), training (26%) and workers' adaptability (21%).

1.2. OBJECTIVE 2

The Objective 2 programmes show an average execution level lower than for Objective 1 because the programming phase was longer, in particular because of the procedures for designating eligible areas. In a number of cases, programmes were approved only at the end of 2001 or at the beginning of 2002, with the programming complements being finalised during 2002. This largely explains the payments rate of slightly less than 14% compared with assistance granted. The Member States where programmes were adopted at the end of 2000 obviously present execution rates that are among the most favourable (Sweden and Finland: 22%; Denmark: 17%). It should however be noted that Spain has the highest execution (26%) and that Germany has managed a level equivalent to Denmark, despite its programmes being adopted later.

ERDF

The Member States which finalised their programming in 2001 show satisfactory rates of implementation: up to 60% of assistance budgets have already been allocated to projects. In others, progress is sufficiently steady to enable them to catch up their initial delays.

Some countries have encountered individual difficulties. Germany and Austria had to review some of their programming to take account of the floods in the summer (inclusion of flood prevention measures). The Italian programmes started only very late because the process of designating eligible areas caused many difficulties.

In some cases, the bad economic climate made it more difficult to implement measures involving private part-financing.

It is interesting to note that the programming complements show a split of assistance between field of assistance of two thirds for the productive environment and one third for the basic infrastructure, i.e. the opposite proportions to Objective 1. Measures for small businesses and craft industries are receiving 36% of ERDF assistance, while the sector of R&D, telecoms and the information society accounts for 15%. The two other fields accounting for significant shares of ERDF assistance are tourism (9.5%) and the environment (6.4%).

The preparation of the mid-term review was in hand in all the Member States by the end of 2002.

ESF

The rate of execution is on the whole slightly lower than for the ERDF.

ESF assistance is mainly directed at operations supporting the adaptability of labour force (33%) and training (27%).

The ESF programmes have also seen the launching of the initial operations required by the mid-term review.

EAGGF

Outside the Objective 1 regions, activities connected with rural development are part-financed by the Guarantee Section; they are spread across the 20 Objective 2 SPDs in France.

1.3. OBJECTIVE 3

The prevailing feature of Objective 3 programming is that most measures are focused on support for the European Employment Strategy, although with different priorities across the Member States, according to the identification of their needs. At the same time, measures are spread across all five policy fields of the ESF Regulation.

Among the most prevalent measures are those to promote the reintegration of the unemployed and the non-gainfully active into the labour market. While these tend to operate through training and activation activities, such activities are not exclusively focused on reintegration. Most Member States have activities involving training for particular groups, lifelong learning and modernising the public employment services. Other activities which are highlighted in several Member States are those relating to gender issues, social exclusion and health.

Implementation of these measures is generally on track, and in many Member States, progress is being made in catching up on the delays in the initial adoption of programmes which were noted in the previous two years.

Differences remain in the speed and difficulties of implementation across the Member States. For example, training measures in Italy have proved difficult to implement, and the reintegration schemes in the Netherlands are showing under consumption. In Austria, the lifelong learning programme is the only one with delays. Gender activities seem to be posing problems of implementation in most Member States where they exist. It is evident that the programmes which are lagging behind in their implementation are those which require the most intensive preparation, or which are more focused on particular targets, such as the health programme in Greece, or the job rotation scheme in Sweden.

The degree of progress being made is reflected in the assessment that in the great majority of Member States, no decommitments under the n+2 rule will be necessary. Two exceptions to this are Denmark, where there will be a small decommitment, and the Netherlands. Programmes in the Netherlands were severely delayed by the problems with irregularities in earlier years, and 2002 was the first full year of implementation, such that absorption is considerably below what is planned. More decommitments under the n+2 rule are therefore likely. In other Member States, transfers between programmes have been carried out to smooth out differences in absorption rates.

Most Member States held annual meetings in 2002 which were used to address a number of issues. In many Member States they discussed consistency between ESF programmes and the European Employment Strategy and the national action plan for social inclusion. They were also used to identify problems and weaknesses in implementing programmes, and subsequently to put in place measures to deal with these problems, and to propose solutions. In some cases, this led to transfers of funds between programmes, or changes to the programme complements or proposals for changes to SPDs.

Closure of programmes from the 1994-1999 period is, however, a considerable cause for concern in all Member States. In 12 of the 15 Member States, no requests for closure, or the final documents, had been received by the end of the year, despite the fact that the final date for submission is 31 March 2003. In the remaining three countries, only in Greece was there already significant progress with only 2 out of 24 programmes remaining to be closed at the end of the year. In Germany and Spain, a small number of requests had been received

1.4. FIFG outside Objective 1 regions

The Commission committed appropriations to the third tranche for the eleven programmes of regions outside Objective 1, totalling EUR168.9 million. The first tranche of EUR4.6 million for the Netherlands programme was also committed using appropriations carried over from 2001.

On the basis of the programming complements, it is evident that renewal of the fishing fleet, vessel modernisation and new construction accounts for 24% of FIFG assistance while aquaculture gets 7% and "processing and promotion of fishery products" 23%.

1.5. Community Initiatives

1.5.1. INTERREG

Following adoption on 28 April 2000 [6] of the guidelines for Interreg III in 2000-2006(EUR4.875 million at 1999 prices), Member States were invited to submit detailed proposals within six months of the date of publication of the final communication in the Official Journal [7].

[6] OJ C 143, 6.5.2000.

[7] OJ C 143, 6.5.2000.

The majority of the 72 programmes initially envisaged had already been approved in 2000 and 2001. The year 2002 saw the adoption of seven additional programmes in Strand A (Ireland/United Kingdom, Greece/Albania, Greece/FYROM, Greece/Cyprus, Morocco/Gibraltar-UK, Italy/Albania and Italy/Adriatic, covering cooperation between the Italian regions on the Adriatic with those in the countries of former Yugoslavia). Four programmes in Strand B were approved, including in particular the Atlantic Area, North-West Europe, the Caribbean and the Programme for Réunion/Indian Ocean. The last two programmes in Strand C on inter-regional cooperation were also approved, the Southern and the Western programmes. Finally, both programmes under Article 53 of the Interreg guidelines (networks) were approved - the ESPON programme (European Spatial Planning Observatory Network) and the Interact programme. Only three programmes remain to be adopted in 2003 - the Archimed programme of trans-national cooperation between Greece and Italy and both programmes of cross-border cooperation involving Greece-Italy and Greece-Turkey.

The most outstanding feature of 2002 was the approval of the Interact programme. In order to establish a supporting framework for efficient implementation of Interreg III, the Commission and Member States agreed to the Interact programme (standing for INTERreg - Animation, Coordination, Transfert). With its approval by the Commissioner, Mr Barnier, on 16 December 2002, the Union acquired a new tool for improving the effectiveness and quality of the Interreg III programmes. Given the considerable challenges facing the implementation of this Community Initiative, Interact will be an essential element in further simplifying procedures under the Interreg III programmes, in particular with a view to the programming period after 2006.

The Interact programme was presented by one of the Member States - Austria as coordinating country - in the name of all the Member States. The Austrian Federal Government was therefore designated as management and payment authority for Interact. The total cost of the Interact programme is EUR35.1 million, the ERDF contribution to which of EUR25 million.

Another important event was the start of inter-regional cooperation, since all the programmes had been finally approved. It was therefore possible to launch the first call for project proposals at European level on 10 October 2002. Altogether, the four programmes amount to an ERDF contribution of more than EUR300 million for interregional cooperation (see http:// www interreg3c.net).

A last outstanding event was the approval of the ESPON/ORATE programme. This programme is aimed at promoting a forward-looking and quantified view of spatial development trends in Europe, bringing in both neighbouring countries (including Switzerland and Norway) and the applicant countries. Luxembourg has been designated as management and payment authority for this programme and its joint secretariat is also located in Luxembourg. The total cost of the programme is EUR12 million, the ERDF contribution being EUR6 million.

Otherwise, the concrete implementation of the adopted programmes continued and intensified on the ground. The Commission took part in several monitoring and steering committee meetings, as provided for in the Fund regulations.

1.5.2. LEADER+

Leader+ is aimed at encouraging and supporting integrated pilot strategies for local rural development. At the end of 2002, 73 programmes under Leader+ had been approved. Nine Member States chose to have a national programme. In the six other Member States, 61 regional programmes were submitted and three of these Member States presented a national programme for a national network.

In 2002, the procedure to select local action groups (LAGs) was still being finalised in some Member States. Of the 938 LAGs expected, 692 have already been selected.

A first meeting of the Leader+ steering committee took place on 26 November 2002. This committee, chaired by the Commission and comprising representatives of national civil services and national networks, concentrated on the progress so far achieved in the implementation of this Community Initiative.

The priorities set by the Commission in its Communication on Leader+ have been taken up by the LAGs as follows: making best use of natural and cultural resources and in particular developing sites (33% of all the LAGs), improving the quality of life in rural areas (24%), developing local products (21%) and using new knowledge and technologies to increase the competitiveness of goods and services in rural areas (10%). The total Community assistance for Leader+ in 2000-2006 is EUR2.1 billion and it will be financed by the EAGGF Guidance Section.

For 2002, an amount of EUR356.80 million was committed and payments totalling EUR74.89 million were carried out.

1.5.3. EQUAL

The year 2002 was a key one for the Community Initiative EQUAL, which saw the start on the ground of the development partnerships and the take-off of the Initiative.

The selection phase was completed as of 15 November 2001, and the development partnerships made a start on Action 1 by mid-May 2002. This period enabled the project sponsors to finalise their national programmes, and to establish their transnational partnerships with at least one development partnerships in another Member State.

Slightly more than 1 500 EQUAL development partnerships throughout Europe began implementing their work programmes by the end of Action 1. They comprise some 13 000 partners and, seen overall, it is worth noting the leading place of public authorities, training bodies and bodies specialising in disadvantaged groups. However, it should also be noted that firms run the partnership in more than 8% of cases.

The distribution among themes appears uneven, the first theme of the "Capability for occupational integration" pillar accounting for almost a third projects. The geographical basis for development partnerships is less great than anticipated. The initial forecasts suggested a ratio of 80%: 20% as between geographical partnerships and sectoral partnerships. The development partnerships centred on "specific discrimination problems" account for almost two thirds of the sectoral development partnerships. This no doubt reflects an underlying continuation of ADAPT- and EMPLOYMENT-type projects.

At transnational level, approximately 450 transnational cooperation agreements were concluded with an average of three development partnerships per agreement, the record to date being a partnership of right development partnerships.

The EQUAL Initiative, in both its objectives and its architecture, gives pride of place to capitalising on the innovative elements and on their dissemination. At project level via the transnational cooperation partnerships, at regional and/or national level via the national thematic networks and at European level via the European thematic groups, with the aim of collecting, discussing and evaluating the most promising practices and findings from the grassroots and preparing their dissemination and integration into policy-making.

At European level, it is the role assigned to the six European thematic groups (employability, entrepreneurship, adaptability, equal opportunities, asylum seekers, partnerships), the foundations for which were laid at the Barcelona conference in May 2002 (Networking for inclusion) when almost 400 people took an active part in the debates.

Finally, in connection with enlargement, it is worth noting the participation of the Czech Republic (16 development partnerships) and Hungary (5 development partnerships) in this first round of projects as well as the active preparations for the inclusion of the applicant countries in the next call for proposals. In this context, the Copenhagen conference in November 2002 (EQUAL and enlargement) brought together 150 participants representing both current and future Member States of the Union to prepare for the EQUAL Community Initiative in an enlarged Europe.

1.5.4. URBAN

In 2002, the Commission adopted the Urbact programme aimed at sharing experience and best practice among towns and cities that took part in Urban I, Urban II or an urban pilot project. Urbact was presented jointly by all the Member States (except Luxembourg) and represents the last programme for implementation of the Urban II Initiative, with 70 programmes in declining towns and urban districts already having been approved during 2001.

These 70 programmes met all the regulatory deadlines in 2002: all adopted and sent to the Commission their programming complement and installed their Monitoring Committees, and 21 of them sent in their annual implementation report by the required date.

All the programmes received payment of the advance (7%) in 2002, and 26 have already received intermediate payments.

A first assessment of the programmes was presented by in a Communication from the Commission called "The programming of the Structural Funds 2000-2006: An initial assessment of the Urban Initiative" (COM(2002)308 final). This document was the subject of a wide-ranging debate between Commissioner Barnier and 600 Mayors and representatives of local authorities, during the conference "Cities and Cohesion" organised by the Commission in London on 8 and 9 July 2002.

1.6. Innovative actions and technical assistance

ERDF

A total of 50 regions applied for a regional programme of innovative actions in 2002, of which 45 were deemed of sufficiently high quality to be awarded ERDF part-financing. This was in addition to the 81 successful programmes submitted in 2001, meaning that by the end of 2002, 126 of the 156 eligible regions had already benefited. In addition, 3 specific network programmes were approved to foster cooperation between regions i.e. one for each of the three strategic themes eligible under the programmes a) research and technological development, b) IT at the service of regional development and c) regional identity and sustainable development.

The implementation of the pilot projects under Recite (47 projects) and Terra (15 projects) continued and led to the closure of three projects under Terra. At the end of 2002, all the projects had sent in a final report and requests for payment of the final balance. The closure of four Recite projects was also advancing at a good pace.

FIFG

On 4 June 2002, under Article 22 of Council Regulation (EC) No 1260/1999, DG Fish launched its call for proposals 02/C 132/11 for trans-national projects as innovative actions in the fisheries sector. After analysis and examination of the 46 proposals received, DG Fish selected ten projects and undertook the ten financial and legal commitments for a total amount of EUR1 114 858. The principal topics of the projects are socio-economic diversification in areas dependent on fishing, enhancement of the value of fishery and aquaculture products, improvement of the image of the industry, and vocational and continuing training in all the trades within the industry. The first intermediate reports will be available during 2003 and the final reports are expected during the first six months of 2004.

The technical assistance programme was carried out as planned in 2002, with a volume of EUR934 811 (see Table in Annex 3).

ESF

Innovative measures and technical assistance under Article 6 of the ESF Regulation

A call for proposals on the theme "local employment strategies and innovation" was published in the Official Journal on 31 October 2001 [8]. The aim of this call for proposals was to assist innovative actions in developing local employment strategies in order to support the implementation of the European Employment Strategy at local level. Among the fields covered by the call for proposals are e.g.:

[8] OJ C 306, 31.10.2001.

- development of partnerships at local level;

- development and implementation of local employment strategies;

- monitoring, benchmarking and evaluation;

- exchange of information, dissemination and networking.

Applications must be aimed at applying the priorities of the national (or regional) action plan (NAP) for employment in a given territory in the form of local employment strategies. The proposal can be of two types:

- to develop and implement a single strategy in coherence with the existing regional or national NAP;

- to develop a coherent series of individual strategies at a lower territorial level within the territory.

Each proposal aiming to develop and implement either a single territorial strategy at regional or provincial level (Type 1) or a series of local strategies (Type 2) should contain a number of common elements to make sure there is a level of consistency in approach across all of the strategies that will help to identify and compare good practices and lessons for the mainstream ESF and the European Employment Strategy. These common elements include the following:

- Each employment strategy must be developed, refined and implemented through a specific partnership, which includes representatives from as many of the relevant actors as possible.

- Local employment baseline analysis: each local employment strategy must be based on an analysis or diagnosis of the local labour market and employment situation. This will act as a baseline of the situation against which progress can be measured and evaluated.

- The eventual strategy or strategies must address each of the four pillars of the European Employment Strategy.

- The gender dimension/equal opportunities should be integrated into the local employment strategy at all stages, including the baseline analysis and diagnosis of the territory.

- Links with other sources of Community and national financing, and other Community programmes: the local employment strategy should act as an overarching framework for all employment activities in the territory.

In 2002, a total budget of EUR34.06 million was allocated to projects funded under this call. The Commission part-finances actions up to a maximum of 75% of the total eligible costs, between a minimum of part-financing of EUR300.000 and maximum of EUR3 million over a two-year period.

44 grant agreements for successful applicants under the first round of applications were signed in October 2002, with projects starting between 1 November and 31 December 2002.

In its Second Annual report on the implementation of innovative measures under Article 6 of the European Social Fund Regulation [9], the Commission announced "innovative approaches to the management of change" as the overarching theme for the remainder of the current programming period. Within this theme, two more specific strands for innovative actions have been identified:

[9] Presented to the ESF Committee on 17 December 2002, link: http://europa.eu.int/comm/ employment_social/esf2000/documents/report_2002_en.pdf

- the management of demographic change

- the management of restructuring

EAGGF

In 2002, commitments worth a total amount of EUR1.13 million were made within the framework of technical assistance.

1.7. Complementarity with other instruments

a) Cohesion Fund

The assistance granted by the Cohesion Fund allows the financing of transport infrastructures projects contributing to the implementation of the trans-European networks and of projects in the field of the environment enabling the countries concerned to progress towards implementing the goals of the environmental policy of the European Union. The Cohesion Fund enables the four eligible Member States to sustain a major effort of public investment in these two fields of common interest, while respecting the targets for reducing budget deficits as set out in the convergence programmes drawn up in the context of Economic and Monetary Union.

The main coordination instrument between the Cohesion Fund and the Structural Funds is the strategic reference framework (SRF). Presentation by these Member States to the Commission of an SRF is the logical corollary of the new legal provision governing the operations of the Cohesion Fund. Regulation (EC) No 1265/1999 stipulates that "Member States shall also provide the results of the environmental impact assessment in conformity with the Community legislation, and their consistency with a general environmental or transport strategy at administrative unit or sector level."

Moreover, the "Cohesion Fund Vade-mecum 2000-2006" sent to the national administrations of the four eligible Member States stipulates in particular that the strategy should be defined and formalised in an outline document which constitutes the 'frame of reference' for the assistance from the Cohesion Fund. This frame of reference, to be defined at the most suitable level, should comprise the following elements: a definition of long-term objectives; an indication of the individual projects; the specification of intermediate objectives to be achieved by 2006; the identification of the projects to be carried out in order to attain them; for each project, an initial indication of the investment costs and indicative planning of the sources of funding

The four Member States qualifying for the Cohesion Fund presented their SRFs for the environment and transport sectors at the end of 2000. In certain cases, these reference frameworks form an integral part of the programmes approved under the Structural Funds for 2000-2006, reinforcing the coordination between the Cohesion Fund and operations under the Structural Funds.

Finally, two meetings took place with the Member States during 2002 to coincide with meetings of the CDCR (the Structural Funds committee), making it possible to further strengthen the consistency between these financial instruments.

b) The European Investment Bank (EIB) and the European Investment Fund (EIF)

Under the terms of the cooperation agreement between the Commission and the EIB covering Community structural operations in 2000-2006, a contact interface was set up between the Commission and the EIB. This interface functioned satisfactorily and led to specific coordination contacts in the field of major transport projects (Spain and Greece). These two countries expanded their cooperation with the Bank in the fields of PPP and the participation of the Bank in monitoring TENs projects.

As a result of the high-level meeting on 26 March 2002, particular emphasis was given to improving and refining the EIB's statistics on the regional impact of projects. The improvement to regional indicators will make it easier to gauge the regional impact of the EIB's interventions.

The year 2002 saw closer cooperation between the EIB and the candidate countries. Special attention was given to projects, their part-financing, their evaluation and cooperation in the field of PPP.

Under the framework contract between the Commission (DG Regional Policy) and the EIB in 2000-2006 for the evaluation by the EIB of various major projects submitted for funding by the Structural Funds by the beneficiary countries, 37 rapid evaluations (17 ERDF, 20 CF and 2 ISPA operations) and two detailed evaluations were carried out in 2002.

Turning to cooperation priorities, close attention was paid to major transport projects, the i2i initiative and innovative financial products, namely venture capital and global loans, in the framework of the first priority which is effective support for regional development.

A new method of part-financing was launched. This method involves part-financing by the EIB of regional Operational Programmes. Such funding, carried out especially in Italy, has proved a major success.

As regards the EIB's activities in 2002, it devoted EUR33.4 billion to projects within the Union, as against EUR31.2 billion in 2001. In the candidate countries, the EIB financed investment contributing to the preparation of enlargement with a total of EUR3.6 billion compared with EUR2.7 billion in 2001. EIB support to the regions least-favoured regions came to EUR12.5 billion in individual loans compared with EUR14.5 billion in 2001. The impact of global loans in the less-favoured regions is put at about 60%.

The main countries benefiting from EIB loans are Germany, Italy, Spain, the United Kingdom and France.

Within the EIB group, the EIF is now exclusively in charge of all guarantee operations for small businesses and for venture capital (Community resources and EIB/EIF resources).

In its fields of assistance, the EIF took part in 68 operations in 2002, of which 36 involved venture capital and a total participation of EUR471.5 million. The total amount of assistance signed in 2002 amounted to EUR1.707 billion.

The interventions in regional development, research and in particular biotechnology also included the candidate countries.

As a result of the conclusions of the European Councils in Nice and Stockholm, close attention was paid to the knowledge-based society.

The Commission makes sure that these contributions to regional development have their proper place in overall assistance.

Finally, an initiative for strengthening cooperation between the Commission and the EIF in connection with the assisted regions was given concrete expression in an agreement on assistance and advice to be provided by the EIF to regions requesting them.

c) Trans-European Networks - energy and transport

Coordination between the budget for the trans-European transport and energy networks (TENs) and the Structural Funds, in particular ERDF resources, is important in Objective 1 and 2 areas and the cohesion countries because these Community financial instruments take into account the need to link to the central regions of the Community those regions suffering from a structural handicap or from their status as islands, landlocked areas or remote regions.

While both transport and energy TEN projects of common interest are financed from the TEN budget line, the Cohesion Fund provides specifically for transport infrastructure and the ERDF for both transport and energy. Article 2 of the ERDF Regulation (EC) No 1783/1999) provides that in achieving Objective 1 the Fund is to contribute to financing investment in infrastructure contributing to the establishment and development of trans-European networks. In this connection, the Community also encourages public-private partnerships by, inter alia, providing a higher rate of intervention where its aid takes a form other than a cash grant.

The TENs Regulation does not allow the same phase of a single project to be financed both by the TENs budget and from other Community sources but, in some cases, feasibility studies financed through the TENs budget may be followed by support from the ERDF and the EIB for the (part-)financing mainly of construction works of the actual investment. Frequently, in the area of transport, the ERDF finances works designed to give "access" to the trans-European transport network, which itself is financed from the TEN budget line and/or the Cohesion Fund.

The TEN Financial Regulation (EC) No 2236/95) was amended by Regulation (EC) No 1655/1999) to provide for medium-term planning via indicative multi-annual programmes for Community funding (MIP) and for the encouragement of public-private partnerships, together with the use of a small amount of the budget line (1-2%) to support projects involving venture capital.

The MIP proposal for 2001-2006, adopted by the Commission in September 2001, foresees a total of about EUR2.8 billion for 11 priority projects (Essen projects), the project of Global Navigation Satellite Systems (Galileo) and four groups of projects of "common interest".

In 2002 a total of EUR563.4 million in commitment appropriations was allocated to TEN-T projects under the MIP, the Galileo project and projects of common interest outside the MIP. In addition EUR7.0 million were transferred to the venture-capital facility to contribute to financing TEN-T projects under a PPP concept.

Concerning the distribution of support in 2002 by transport mode, by the far greatest part of Union spending on transport under the TEN-T budget was concentrated on rail projects (almost 47%), followed by Galileo (30%) and roads (4%).

1.8. Closure of preceding programming periods

For all operations in the 1994-1999 programming, the regulatory deadline for the closure is 31 March 2003, In principle, by that date the amounts of all assistance for which the Commission has not received a full and correct closure dossier (final report, final payment request, "Article 8" audit statement) must be decommitted.

ERDF

At the end of 2002, some assistance packages were closed. In certain other cases, the closure files were sent during 2002 but too late to be processed before the end of the year. Very often dossiers are incomplete or have to be queried.

By 24 April 2003, out of a total of 942 assistance packages, 194 had been closed, 727 were in the process of scrutiny and 21 closure files had still to reach the Commission or to be amplified so that they could be processed.

EAGGF

In general, a very small number of cases could be enclosed by 31 December 2002. Closure work was none the less well on track since the necessary files had been sent for a majority of assistance packages.

Out of the 402 programme closure files which the Commission had received by the end of 2002, 142 were complete and 27 of these were closed (22 for Italy). The 260 remaining documents for programmes to be closed were received by the deadline of 31 March 2003 and thus avoided automatic decommitment.

FIFG

In 2002, several requests were received for the closure of programmes from previous periods. Thorough analysis of these requests did not enable these to be closed because some information was still missing.

By 31 March, all the files for 54 assistance packages had been received by the Commission.

ESF

Closure work seems to have accumulated major delays in the vast majority of cases because very few closure dossiers were forwarded to the Commission.

By 31 March, 16 dossiers out of a total of 754 were closed and 539 in the process of closure, while 53 files had still to reach the Commission and 162 still needed more documentation.

2. Consistency and complementarity

2.1. The Structural Funds and environmental policy

The protection and improvement of the environment is one of the tasks of the Structural Funds in pursuing the three priority Objectives set out in Regulation (EC) No 1260/99 (Article 1). Among the means listed in Article 2 of the Regulation, specific mention is made of integrating the requirements of environmental protection into the implementation of the Funds.

Direct investment in the environment

Altogether, the regional and national authorities inserted about EUR20 billion for environmental direct investment in their 2000-2006 programming, which is slightly more than 10% of the overall envelope of the Structural Funds. This will be used, for example, to finance infrastructure in the field of water supply and treatment, purification of waste water, disposing of and recycling waste, and protecting the soil and natural sites.

Most of this investment is planned in Objective 1 regions, but there are major delays in these areas in particular because of the scale of investment required.

Compliance with environmental legislation

Operations part-financed by the Funds must comply with Community legislation in force, including environmental legislation. This resulted, in some Member States, to start-up being slowed down or even stopped by the lack of an environmental legal framework in conformity with current legislation.

The main fields in which there have been failures to comply with the legislation either because it has not been transposed into national law or because the provisions of the Community legislation were not being complied with are the following: solid waste (three Member States were found by the Court of Justice in 2002 not to have introduced plans for waste management in accordance with the legislation on solid waste), water pollution by nitrates from agriculture (several adverse judgements from the Court of Justice), the treatment of urban waste water, water quality and, finally, compliance with the procedure for environmental impact assessments for various public and private projects.

Natura 2000: in 2002 the remaining difficulties linked to insufficient designation of sites were overcome with the submission of supplementary notifications. Integration of the environment into various operations

Integration of the environment into various operations

Taking the environment into account in the programmes of the Structural Funds has led to increasing integration of environmental considerations, both in the design of programmes and in their implementation. This increasingly applied principle is reflected in various forms at the various stages of programming: ex-ante environmental impact assessments of all programmes when they are drawn up, systematic evaluation of the environmental impact of projects covered by Directive 85/337/EEC and the introduction of an environmental criterion into the selection criteria for projects at the call for proposals stage.

In the industrial field, the integration of environmental considerations has taken place for example in the choice of environmentally friendly methods or products that encourage a sustainable use of natural resources, cutting down and recycling waste or cutting down emissions to the atmosphere. In this context, aid granted by the Funds for productive activities encourages investment based on a preventive approach, higher aid rates for such investments in some Member States. In the field of transport, integrating the environment into programmes has enabled some Member States to carry out the necessary improvements to transport infrastructure without detriment to the quality of the environment, i.e. by encouraging environmentally friendly modes of transport (priority for public transport and railways and intermodal operations).

Participation of the environmental authorities

Some Member States such as Italy, Spain and Portugal have used technical assistance to set up a Task Force of environmental experts who take on a role alongside the management authorities as environmental authorities. They take part in the management of funds and ensure, at the most suitable level, that environmental considerations are taken into account in the implementation of programmes.

Mid-term review

The mid-term review of the efficiency of programmes which started at the beginning of 2003, and which may lead to proposals for revising some programmes, should provide an occasion for taking better account in the operations Structural Funds of the priorities set out in the Sixth Action Plan for the environment and in the Commission's Communication on a European Union strategy for sustainable development.

Innovative actions

Sustainable development is one of the three eligible themes for experimentation in the regional programmes of innovative actions. To date, 49 of the 126 benefiting regions have opted to explore this theme in their programmes, including various operations related to the environment but also encompassing transport, cultural heritage, delivery of social services, etc. with a total volume of around EUR80 million. It is intended that the lessons drawn from these programmes should be incorporated into the mainstream Structural Fund programmes.

2.2. The Structural Funds and transport and energy policy

On 12 September 2001, the Commission adopted a White Paper on transport which makes improving transport conditions one of the main subjects for reflection axes, based on the following points:

- reduction of congestion;

- creation of new infrastructures, in particular railways;

- tariff-setting as a means of rebalancing different modes of transport and of financing of infrastructures.

To achieve these ambitious objectives, the Commission will be relying on the funding available under the TEN-T budget, the Cohesion Fund and the ERDF, and on ISPA for the future Member States.

2.3. The Structural Funds and competition policy

Under Article 87(1) of the Treaty, state aid is normally considered not to be compatible with the common market. This principle of incompatibility is not however an absolute prohibition, and the Commission pays close attention to the potentially beneficial effects of aid intended to facilitate the economic development of the most disadvantaged regions, provided competition and trade between Member States are not affected to a degree contrary to the common interest. Since a large part of the assistance of the Structural Funds directly benefits individual businesses, it is essential to ensure that the Community's regional policy is conducted in full compliance with the rules on competition.

On this subject, the General Regulation governing the Structural Funds contains a significant number of provisions stipulating, in particular, that the operations approved by the Commission must include, within each measure, the details necessary for ex-ante appraisal of the compatibility of the state aid element with the common market. In this context, and following finalisation of the scrutiny of measures planned under single programming documents involving assistance from the Funds in the Objective 2 regions in 2000-2006, the Commission focused its attention during 2002 on the appraisal of various major projects eligible under Articles 25 and 26 of the General Regulation, which should be made simpler by the adoption of the new multisectoral framework on regional aid for large investment projects [10].

[10] OJ C 70, 19.3.2002.

The new framework brings together some sectoral rules which were scattered elsewhere (on cars, synthetic fibres and the iron and steel industry), introduces an automatic system for determining intensities of aid according to the amount of the investment which functions as a progressive tax rate, and sets a higher individual notification threshold than in the past. At the same time, the framework also recognises that some major investment projects may indeed contribute to regional development and provides that, as from 2004, a cohesion premium may be granted for major projects exceeding EUR100 million part-financed by the Structural Funds. The new system will thus take into account the value added by these major projects using an approach which makes it possible to reconcile the aim of reducing state aid involving the most serious distortions, on the one hand, and the goals of economic and social cohesion, on the other.

The Commission also continued its work on reforming the relevant rules of procedure in the case of aid schemes less likely to create distortions of competition. A new set of rules was adopted in 2002 making exemptions for aid to support employment [11], which should result in simplifying the Community's part-financing procedures for certain aid schemes throughout the current Structural Fund programming period. This regulation introduces an exemption from prior notification for aid schemes involving job creation, as well as for schemes to encourage the recruitment of disabled and disadvantaged persons and in particular an increase in intensities of aid intended to create net employment in assisted regions.

[11] OJ L 337, 13.12.2002.

2.4. The Structural Funds and policy on public procurement

Article 12 of the General Regulation on the Structural Funds stipulates that operations receiving Community funding must "be in conformity with the provisions of the Treaty, with instruments adopted under it and with Community policies and actions, including the rules on [...] the award of public contracts". Greater decentralisation has been introduced into the management of the Structural Funds, increasing the responsibility of the Member States and in particular the management authorities when contracts financed by the Community Funds are being awarded. To ensure the conformity of these procedures with Community rules, the Commission encourages the national authorities to adopt various preventive measures such as appropriate training for staff involved in awarding contracts and issuing guide and vade-mecums on contracting procedures. As part of its general tasks, the Commission also ensures that procedures for awarding contracts are in conformity with Community law by checking on the transposition of the relevant Community Directives and by making use of its powers to intervene when Community law is breached. In this context, the Commission examined more than 400 cases in 2002 of inadequate transposition or potential misapplication of the relevant Community provisions.

2.5. The Structural Funds and the information society

The development of the information society is an integral part of policy for the Structural Funds in 2000-2006, with a view to exploiting all the social, economic, cultural and political benefits of the revolution in communications and information processing. The European Council in Lisbon adopted an ambitious strategy to make the European Union "the economy based on the most competitive and dynamic knowledge in the world, capable of sustainable economic growth, with better and more jobs, and greater economic and social cohesion" between now and 2010. The conference in Lyon took up this challenge, declaring that the information society was "a means to an end" and its aim was to "carry out the competitiveness of the regions and the creation and the maintenance of stable jobs". The key message was that the regions should design and implement an integrated and common strategy on the information society.

A recent study [12] shows that in 2000-2006 the direct Community contribution to the information society under the Structural Funds will come to some EUR10 billion, i.e. 4.5% of total expenditure on Objectives 1 and 2. Structural priorities, broadly consistent with the eEurope action plan 2002 aiming at wider-scale connection with the Internet, run from the modernisation of access infrastructures to general participation in the knowledge-based economy, support for the use of electronic trading by small businesses, new types of qualifications and working patterns, and finally e-governance. It is also worth noting the adoption by half of the regions studied of a strategic and planned approach to the information society.

[12] Thematic evaluation of the information society , Technopolis, October 2002.

The successor action plan eEurope 2005 was adopted at the European council in Seville in June 2002; it concentrates on full use of the Internet and sets out to stimulate the development of secure services, applications and contents which exploiting the broad-band infrastructure already widely available. These new priorities put user and uses in the foreground and concern the regions even more directly. In a particularly difficult economic climate affecting some sectors particularly, the renewed risks of a digital divide led the Commission to take action in 2002 in the following fields:

- the development of infrastructures for broad-band access in the regions with low population density, where the market is not in a position to supply a suitable solution. State aid for investment in such infrastructures and the conditions for topping up from the Structural Funds call for new guidelines, work on which started in 2002 and will need to be finalised at the latest in the first half of 2003.

- the social integration of the tools of the information society. Several measures to counter the digital divide were implemented at regional level in 2002 and should be continued if access to the information society is not to create two groups of 'haves' and 'have nots' in the future.

- the capacity of regions to organise and formulate an integrated strategy on the information society which meet the needs of users and is based on wide inter-regional cooperation. Although good results were already apparent in 2002 in half the regions, the other half has not given enough priority to developing the information society and are likely to be excluded from the cooperation networks which are emerging at international level.

- the national development plans (and operational programmes) sent in the applicant countries, as far as they cover the information society, reflect very specifically the risks described above and show little consistency with policies adopted within the framework of eEurope+. The fragmentary nature of the measures concerning the information society in various sectors of activity call first of all for a suitable coordination mechanism to be set up, to include the regional level, and at a later date a strategic and structured approach based on real capacity for analysis and management at regional level.

Finally, a coherent reference framework is needed for regional policy on the information society and an approach needs to be found involving indicators and data gathering which is better attuned to regional priorities.

Innovative actions

Information society is one of the three eligible themes for experimentation in the regional programmes of innovative actions. To date, 92 of the 126 benefiting regions have opted to explore this theme in their programmes, including diverse actions focusing on IT at the service of regional development with an total volume of around EUR240 million. It is intended that the lessons drawn from these programmes will be incorporated into the mainstream Structural Fund programmes.

3. Evaluation and financial control

3.1. Evaluations

a) ERDF

Evaluations launched in 2002

In 2002 DG REGIO launched five studies concerning regional policy and the Structural Funds, two of which were completed in the course of the year. The studies are:

- Ex-post evaluation of Objective 6, 1994-1999, aimed at measuring the success of the objectives and strategies of the two Objective 6 programmes in Finland and Sweden, and appraising the systems for implementing them.

This evaluation showed that, although the funds allocated to these two programmes had had a beneficial effect on the regions concerned, they were not sufficient to alter the depopulation trend in those Objective 6 areas.

The conclusions of this evaluation will be taken into account when the two Objective 1 programmes for 2000-2006 are adapted in 2003.

- Interim thematic evaluation on sustainable development.

The purpose of this study was to identify instruments which can assist the regions of the Member States in assessing their sustainable development plans. The results of the evaluation will be used to raise the profile of sustainable development in the 2000-2006 Structural Funds programmes, particularly in the context of the mid-term evaluations.

This evaluation showed that, on the whole, the Structural Funds make a positive contribution towards sustainable regional development, but that there is still room for improvement.

In 2002 a further three studies were launched, the results of which will become known in the course of 2003; they are:

- Ex-post evaluation of the Interreg II Community Initiative, 1994-1999, aimed at evaluating, for strand A (cross-border cooperation) and strand B (completion of energy networks), the degree to which these strands have made an effective contribution to promoting cross-border cooperation, to helping the border areas of the European Union overcome the specific problems stemming from their relative isolation from national economies and the Union as a whole, and to filling in the missing links in the trans-European energy distribution network.

For strand C of Interreg II, the evaluation is to indicate to what degree this strand has helped launch and/or improve the targeting of strategies and processes to rebalance and plan the territory of the Union.

The conclusions of this evaluation will be used in particular to learn lessons for the future of the Interreg Initiative after 2006.

- Ex-post evaluation of the Urban Initiative, 1994-1999, which will have three objectives:

* determining the impact of the Community Initiative on improving the socio-economic development conditions in areas covered by the programme and its role as a catalyst;

* identifying the Community added value obtained as a result of Structural Fund investment;

* identifying the lessons which have relevance both for the 2000-2006 programming period and for planning for the Structural Funds post-2006 in the context of enlargement.

- Finally, the Directorate-General for Regional Policy has launched a study on the efficiency of the method used to implement the Structural Funds, including Objectives 1, 2 and 3, and the Community Initiatives.

This evaluation will be used to assist the Commission, in the context of the reform of the Funds, in drawing up proposals for implementing procedures after 2006.

Lessons from the evaluations launched in 2001 and finalised in 2002.

The conclusions of two evaluations launched in 2001 and completed in 2002 may be summed up as follows:

- Thematic evaluation on the information society.

On the basis of seventy regional programmes (as well as three national programmes on the information society), the Structural Funds appear to have made a significant contribution in both financial and strategic terms.

However, only a few programmes were able to implement horizontal approaches, as for example in the case of the information society, mainly on account of major differences in the regions' capacities and programming.

- Input-Output study on the economic impact of Objective 1 assistance for the period 2000-2006.

This study demonstrated the extent of the impact of the Structural Funds on the GNP of Member States benefiting from Objective 1, as well as the effect of the feedback -24 % on average - towards the more developed regions of the Union via imports of equipment and services by the less developed areas.

In addition, two important studies, one an ex-post evaluation of Objective 1 programmes for 1994-1999 and the other an ex-post evaluation of Objective 2 programmes, both of which were launched at the end of 2001, will be completed at the beginning of 2003.

Other activities in the evaluation field.

- Cost-benefit analysis.

Article 26 of the General Regulation on the Structural Funds stipulates that Member States must notify the Commission of major projects and that information must be supplied on the cost-benefit analysis, and the impact on employment and the environment.

In 2002 DG REGIO analysed and issued an opinion on some 110 major projects submitted to it, mostly associated with the environment and transport infrastructure.

In order to improve practice in this area, which varied widely between Member States, DG REGIO published an update of its guide to cost-benefit analysis in 2002 with the assistance of an external consultant.

- Update of the methodological evaluation guide "MEANS".

In 2002, DG REGIO launched a call for tenders to update the MEANS methodological guide in order to take account of the experience acquired and the developments in techniques in recent years.

- Definition of the indicators necessary for the implementation of the performance reserve.

During 2002, DG REGIO specified the criteria for the use of the indicators provided for implementing the performance reserve in accordance with the provisions laid down in Article 44 of Regulation (EC) No 1260/1999, and in the context of the simplification exercise decided on by the Commission in agreement with the Member States.

- Appraisal of the calls for tender for the ex-ante evaluations of the national development programmes and operational programmes presented by the applicant countries.

In 2002, DG REGIO appraised the terms of reference for the ex-ante evaluation of the national development programmes and operational programmes submitted by the applicant countries, resulting in redrafting in certain cases where weaknesses were identified.

Compliance with the principle of additionality 1994-1999

Among the general principles underlying the operation of the Structural Funds, additionality, which is governed by Article 9 of the coordinating Regulation (EEC) No 2082/93, is aimed at preventing resources from the Community Funds being used as a substitute for eligible national public expenditure in joint assistance areas.

Pursuant to this Article, each Member State must maintain for each Objective, in the whole of the territory concerned, its public structural or comparable expenditure with the exception of the Structural Funds contribution and in real terms, at least at the same average level as in the previous programming period, taking into account the macroeconomic circumstances in which the funding takes place, as well as a number of specific economic circumstances, namely privatisations, an unusual level of public structural spending in the previous programming period and business cycles in the national economy.

Ex-post checking of compliance with the principle of additionality can be conducted only after the closure of the programming period. A check on the 1994-1999 period had to be carried out on the basis of actual eligible public or comparable spending between 1994 and 1999.

At the end of 2001 the Commission asked the Member States to supply information on actual spending under Objectives 1 and 6. This information was to be accompanied by details of information sources, the deflators applied and any methods used to estimate data. Any discrepancies are estimated by comparing average actual expenditure in the 1994-1999 period and ex-post expenditure in the preceding period.

As at the end of 2002, ex-post checking of compliance with the principle of additionality for the period 1994-1999 has been completed for nine Member States; it has been completed for Objective 1 in the case of seven Member States, namely Austria, Belgium, Germany, Greece, Netherlands, Portugal and Spain, and for Objective 6 in the case of Finland and Sweden.

For seven Member States a significant increase of between 10% and 30% was noted in national public spending in real terms as compared with the 1989-1993 period.

In two cases, namely Germany and Spain, the decrease of 20% and 2.4% respectively in public spending in relation to the 1989-1993 period does not call into question the principle of additionality in view of the unusual level of public structural spending in the previous programming period.

In the case of Ireland, although the Irish authorities have still to send the most recent information, the principle of additionality would appear to have been complied with for the 1994-1999 period.

Although complete, final information has not yet been received for Italy, particularly as regards the final expenditure of the municipalities, the average annual level of eligible public spending in the Objective 1 regions for the 1994-1998 period is below the average annual level for the 1989-1993 period.

The information received for France and the United Kingdom do not make it possible to establish whether the principle of additionality has been complied with at this stage.

b) FIFG

An ex-post evaluation of the FIFG programmes for the 1994-1999 period has been launched at EU level by DG FISH. The contract was signed in December 2002 and the final report is expected in October 2003. Several Member States have launched their own evaluations, the final reports of which should also be available by the end of 2003.

During 2002, several Member States embarked on the mid-term review exercise. A seminar organised on 24 February 2003 brought together the parties responsible for the mid-term review of the FIFG programmes for the 2000-2006 period in the Member States, enabling them to discuss the terms of reference and methodologies adopted. Despite significant delays in the cases of some programmes, most of the final reports should be available by 31 December 2003 in accordance with Article 42 of Regulation (EC) No 1260/1999.

c) EAGGF Guidance Section

Ex-post evaluations for the 1994-1999 programming period:

Most of the ex-post evaluations were finalised by the Member States and regions and sent to the Commission. In all, the Commission received seventeen ex-post evaluation reports for Regulation (EC) No 950/97 (Measures for improving the efficiency of agricultural structures, under Objective 5a), twelve reports for Regulation (EC) No 951/97 (Improving the processing and marketing of agricultural products, under Objective 5a), fifty-two reports for Objective 5b measures, and eighty-two reports for the Leader II Community Initiative. Some reports were still awaited in 2003.

The Commission launched four EU-level synthesis evaluations, which will be carried out by external evaluators. Four contracts were drawn up to carry them out, covering ex-post evaluations of Regulation (EC) No 950/97, Regulation (EC) No 951/97, Objective 5b and Leader II. Final reports for these four evaluations will be available during the third quarter of 2003.

Mid-term evaluations of the 2000-2006 programming period:

The mid-term evaluations are under way in all Member States and are scheduled to be completed by 31 December 2003. The Commission finalised and disseminated guidelines for the evaluation of rural development measures with a view to achieving a coordinated approach to evaluation, which would allow EU-level synthesising of evaluation findings. Programmes involving the EAGGF are to apply these guidelines to the greatest possible extent. Guidelines were also drawn up for the mid-term evaluation of the Leader+ Initiative.

d) ESF

As scheduled, an ex-post evaluation of the 1994-1999 programme for Objectives 1, 3 and 4 began in September 2002. The final results are expected by September 2003. The aim of the exercise is to assess the results and impact of ESF action in the areas described. The main emphasis is on quantifying and qualifying the impact on individuals (direct beneficiaries) and systems (including indirect beneficiaries). The Community added value of the assistance will be determined in so far as possible. The results of the evaluation are intended to be used in the: (i) drafting of the next report on economic and social cohesion, (ii) implementation of the ESF in 2000-2006, (iii) policy development for the future of the ESF, (iv) negotiation of ESF programmes with new Member States following EU enlargement, and (v) analysis of the ESF contribution to the European Employment Strategy.

During 2002, DG Employment continued to support the preparation of the mid-term evaluation of ESF programmes under Objectives 1, 2 and 3 for the 2000-2006 programming period. These evaluations are organised by the Managing Authorities in partnership with the Commission. By the end of 2002, mid-term evaluations had been launched in the case of almost all Member States and programmes. The Commission participates in the Steering Groups monitoring these evaluations.

The work of these Steering Groups has consisted mainly in drafting technical guides to facilitate the evaluation of programmes belonging to a single Community support framework, and in discussing both the evaluators' methodological reports and the initial evaluation results on specific or horizontal aspects. In certain countries, the different players involved in Objective 3 have actively contributed to the evaluation reports for the first five years of the implementation of the European Employment Strategy.

For its part, the Commission has organised periodic meetings with Member States and evaluators to promote exchanges of information and experiences. In 2002 work focused on methodological notes on the contribution of the Structural Funds to the European Employment Strategy and the criteria for assessing Objective 3 monitoring systems. In addition, discussion notes on the evaluation of ESF horizontal priorities (equal opportunities for women and men, local development and the information society) were drafted and discussed in order to foster exchanges between Member States and evaluators.

Specific assistance to the candidate countries has been provided in the form of fact-sheets providing guidance on ex-ante evaluation and specific indicators for monitoring ESF assistance.

As regards the evaluation of the Equal Community Initiative, the Commission expected all the evaluators to be appointed early in 2002. In most cases appointments were delayed, but most of the national evaluators for the Community Initiative programmes were already in place by the end of November 2002. In September 2002, the Commission launched the EU-wide Equal evaluation to synthesise national evaluation results, to evaluate transnationality, mainstreaming and networking at EU level, and to foster coordination among the national evaluators. The reports, expected by February and December 2003, will serve as a basis for the revision of the programmes.

As regards the evaluation of innovative measures under Article 6 of the ESF Regulation, the on-going appraisal of the 1998 pilot projects on local social capital was completed at the close of 2002. The evaluators consider that the exercise succeeded in reaching out to disadvantaged groups and helping them move closer to employment. The method used to achieve these results was the decentralised delivery model: Intermediate Bodies gave both advice and micro-grants to small-scale projects. Participants achieved high rates of success and the initiative generated positive results for both the partnerships and areas involved. The evaluators suggest that the Local Social Capital approach may circumvent problems and limitations in conventional programmes by combining continuous support and grants with rapid payment and less red tape for micro-projects. These results are relevant to several fields (i) European Employment and Inclusion strategies, (ii) European Social Fund and use of global grants and (iii) project partnership development and operation.

The evaluation of the Article 6 projects on the New Economy in the context of Social Dialogue effectively started in 2002 and will end in 2004.

A call for tenders has been launched for the evaluation of Local Development Strategies and Innovation 2002 Projects, and evaluators will be selected by the end of 2002.

3.2. Controls

a) Inspections carried out by OLAF

In 2002, OLAF carried out twelve inspection missions in the Member States in connection with structural measures.

Four missions focused on the ESF (relating to cases initiated in 2002). Another four involved the EAGGF Guidance Section and concerned investigations launched in 1998. Three were in the ERDF area (two relating to investigations opened in 2002 and one to an investigation opened in 2000). Lastly, an FIFG inspection mission related to an investigation opened in 2001.

In addition, between November 2002 and January 2003, OLAF conducted a joint audit with the Directorates-General responsible for the Structural Funds on the implementation by the Member States of the provisions of Regulation (EC) No 1681/94 on the systems and procedures for notifying and following up irregularities, as well as the application of Article 8 of Regulation (EC) No 438/2001. The conclusions of this audit will be transmitted to the Member States, Council, European Parliament and Court of Auditors.

Moreover, for 2002, Member States notified the Commission, pursuant to Regulation (EC) No 1681/94, of 4652 irregularities involving a total of EUR604 466 000.

Compared with 2001, the number of irregularities notified and the amount involved more than tripled [13]. This may be accounted for by the fact that 2002 was the last year for carrying out inspections before the closure of the programmes for 1994-1999.

[13] 2001: number of cases notified: 1190; total amount involved: EUR199 120 000

It should also be noted that Articles 3 and 12 of Regulation (EC) No 1681/94 lay down that the Member States must notify the Commission of all cases of irregularities involving amounts of EUR4 000 or more [14]. This Regulation does not distinguish between fraud [15] and other types of irregularity.

[14] For a definition of "irregularity": see Article 1(2) of Regulation (EC, Euratom) No 2988/95.

[15] For a definition of "fraud": see Article 1(1) of the Convention on the protection of the European Communities' financial interests.

It should also be pointed out that significant progress was achieved in 2002 in applying Article 5 of Regulation (EC) No 1681/94, which obliges Member States to inform the Commission of individual proceedings initiated in connection with the irregularities notified and of any significant changes occurring in those proceedings. However, in certain cases, the Commission has not been informed of the follow-up action taken in the cases notified. A large number of cases have been notified without any indication of the action taken. They are mainly programmes from the first programming period, although the deadlines for closing certain programmes have expired.

In closing the programmes for 1994-1999, a process currently under way, both the Member States and the Commission have made an effort to ensure that the majority of cases notified under Article 3 of Regulation (EC) No 1681/94 are settled by the time of closure. In the case of irregularities for which legal proceedings are still under way at national level, final settlement of the amounts involved will have to be suspended until these proceedings have been completed.

The new Regulation (EC) No 448/2001 links application of the financial correction to the reports sent by the Member States pursuant to Regulation (EC) No 1681/94 and requires Member States to transmit to the Commission once a year a statement of recoveries pending. Application of this Regulation will facilitate the financial monitoring and charging to the Member State of amounts lost as a result of its negligence. This will make correct application of the Regulation a priority for the Member States.

b) Checks carried out by the operational DGs

ERDF

Audits on the application of Regulation (EC) No 2064/97

For the ERDF (1994-1999), the systems in the Member States are known as a result of audits in earlier years, particularly systems audits carried out in 2001 on the application of Regulation (EC)No 2064/97. Audit activity in 2002 focused on following up major findings with an impact on Member States' readiness to close programmes. Nine follow-up audits were carried out to check on the remedial action taken. In addition, three Interreg programmes were checked and a fact-sheet was subsequently drawn up to provide guidance for Member States in applying Article 8 of Regulation (EC) No 2064/97 to such programmes. In general, satisfactory measures have been taken to deal with the principal deficiencies. In specific cases there are still problems which have not been effectively addressed.

The programmes concerned will receive particular attention at the time of closure and if adequate guarantees are lacking, payment of the final balance will be suspended. The methodology for the closure of audits carried out in order to verify that Member States have followed a correct and reliable procedure in closing their programmes has been finalised.

Audits to close programmes in the 1994-96 period

Seven closure audits on Objective 2 programmes for 1994-96 closed in 2001 were carried out as a pilot exercise. Significant irregularities were detected in programmes audited in two Member States (Spain and Italy). Following the completion of the contradictory procedure with the authorities, financial corrections may be made and consideration may be given to extending the scope of the audit work to other closed programmes from that period. This pilot audit exercise also made it possible to identify certain types of problem which will be taken into account in the checks to be carried out on the closure process in 2003.

Audits of 2000-2006 programmes

Desk checks have been carried out on the Article 8 declarations received during the second half of 2002. In over 50% of the files, it was found that the declaration could not be accepted, generally because there was insufficient supporting information and payment was therefore suspended.

FIFG

In 2002 DG FISH carried out eleven on-the-spot checks in the following Member States: Spain (4), France (1), Portugal (1), Italy (1), Ireland (1), Germany (1), Greece (1) and Finland (1). The following types of control were carried out:

- three systems audits for the 1994-1999 programming period, including preparations for closure (EL, F, IRL);

- five audits concerning the management and control systems for the 2000-2006 programming period (D, E, P);

- one check on projects involving aquaculture, processing and the modernisation of fishing vessels (FIN);

- two checks on compliance and accounting operations (E, I).

ESF

In 2002 thirty inspection missions were carried out in the Member States, their essential purpose being to evaluate the systems for the new 2000-2006 period, following the receipt between June and December 2001 of descriptions on paper of the management and control systems set up in the Member States.

The inspections relating to the new 2000-2006 period may be broken down as follows:

twelve preventive audits relating to Objective 1.

fifteen preventive audits relating to Objective 3.

three preventive audits relating to the Equal Community Initiative.

The objective of carrying out at least one ESF preventive audit in 2002 was achieved (six Member States audited once, nine Member States audited twice or three times).

These inspections made it possible to conduct an on-the-spot practical evaluation of the descriptions of systems presented by the Member States (Article 5 of Regulation (EC) No 438/2001). The essential conclusions of these inspections were communicated, inter alia, at the coordination meetings held on 28 February (twelve of the fifteen Member States), while the inspection reports were transmitted to the Member States within an average of 8.7 weeks, i.e. in keeping with the good practice laid down by the Commission in the context of the simplification exercise.

Four audits were carried out for the purpose of pursuing the checks initiated in 2001 on the implementation of Regulation (EC) No 2064/97, which were aimed at assessing the state and quality of preparations for closure in the Member States (which, for example, made it possible to detect in time and radically change the Article 8 certification procedures in the United Kingdom (Northern Ireland)).

Two further audits were carried out on 1994-1999 programmes (including support for the national control authorities in France in connection with closure procedures ).

EAGGF Guidance

During the first half of 2002, DG Agriculture continued the control enquiry into 1994-1999 programmes begun in 2001 with a view to examining the Member States' management and control systems prior to closure, with special emphasis on the application of Regulation (EC) No 2064/97. In 2002, the enquiry included thirteen inspection missions in twelve Member States (A, D, DK, E, F, FIN I, L, NL, P, S, UK). In all, the enquiry into the 1994-1999 programmes prior to closure carried out by DG Agriculture in 2001-2002 included twenty-seven missions and covered all Member States.

The problems detected during the control missions carried out in 2002 were similar to those detected in 2001, i.e. late or unsatisfactory application of Regulation (EC) No 2064/97, reconciliation of expenditure problems, cases of ineligible expenditure or projects, etc. All the problems detected are being (have been) taken into account in the closure of the programmes.

During the second half of 2002, DG Agriculture made all the appropriate preparations for the closure of the 1994-1999 programmes, including the examination of some 100 control statements (out of a total of some 380) presented by Member States under Article 8 of Regulation (EC) No 2064/97. The quality of the first control statements was not satisfactory and for this reason, DG Agriculture had to ask for additional information or clarifications from Member States. The quality of the statements was gradually improved in the course of the year.

Furthermore, in 2002, DG Agriculture launched a tender for the appointment of an external audit firm to assist it in examining the descriptions of the management and control systems for the 2000-2006 programmes and its inspection missions. The selection procedure and the signature of the contract was concluded in early 2003.

4. Committees

4.1. Committee for the Development and Conversion of the Regions

This Committee acts as a management committee when it deals with rules implementing the Structural Funds Regulation (EC) No 1260/1999 and as a consultative committee when dealing with other points. In addition, it acts as a forum for information on and discussion of any specific points relating to the implementation of the Structural Funds, in particular the European Regional Development Fund (ERDF). Overall, in the ten meetings of the CDCR and the five meetings of its working group on urban and territorial matters, some 75 dossiers were treated.

The year 2002 was in particular marked by discussion of the Commission's proposals for simplifying, clarifying, coordinating and flexibly managing the structural policies. Most of the CDCR's work during the second half of 2002 was concentrated on these issues. For one them, namely the proposed modification of the implementing regulations on eligibility, a vote by written procedure within the CDCR became necessary in view of widely divergent views amongst Member States.

The results of these discussions shaped the Communication from the Commission on simplification, adopted by the Commission on 25 April 2003.

4.2. European Social Fund Committee

The ESF Committee held four plenary meetings in 2002, and the Technical Working group met seven times.

The Committee gave its opinion on two procedures: the revision of Regulations (EC) Nos 1685/2000 and 485/2001, and the Further Indicative Guidelines for Candidate Countries.

The Committee addressed a wide range of issues relating to the operation of the ESF during the year. In particular it discussed the outcome of the evaluation of the European Employment Strategy and the proposed revision to the procedure and the timetable to bring it into line with the Broad Economic Policy Guidelines. It also spent a considerable amount of time discussing evaluation issues, not only relating to the ESF directly, but also other programmes where evaluation reports have recently been concluded. Similarly, it also received reports on the progress of Article 6 activities, both in terms of the launching of calls for tender and the Annual Report. It received a report on the study carried out for the Commission on the implementation of the ESF in the 2000-2006 programming period, which analysed the support given in programming documents for the European Employment Strategy. It was regularly informed about progress in the negotiations on enlargement. The last meeting of the year was attended by representatives of candidate countries, and was largely devoted to discussions relating to the implementation of the ESF in those countries after accession.

The main issue discussed by the Technical Working Group during the year 2002 was simplification, which culminated in the joint meeting of all the Structural Fund Committees in November. The Group also discussed other issues relating to the administrative and financial implementation of the ESF.

4.3. Committee on Agricultural Structures and Rural Development (STAR Committee)

The STAR Committee (agriculture and rural development) met 13 times in 2002 and acted as a management committee under the procedure provided for in Article 47(3), giving a favourable opinion on Regulation (EC) No 2251/2002 amending Commission Regulation (EC) No 2759/1999 laying down the rules for the application of Council Regulation (EC) No 1268/1999 on Community support for pre-accession measures for agriculture and rural development in the applicant countries of Central and Eastern Europe in the pre-accession period.

The Committee gave favourable opinions on 47 rural development plans under Article 44(2) of Regulation (EC) No 1257/99 and on 15 amendments to rural development plans under Article 4 of Regulation (EC) No 1268/99.

The Committee furthermore held extensive discussions over five meetings during 2002 on the simplification of the Community's rural development policy, which led to the presentation of detailed legislative proposals by the Commission in December 2002.

4.4. Committee on the Fisheries and Aquaculture Sector

During 2002, the Committee on the Fisheries and Aquaculture Sector met seven times and was consulted once by written procedure (amendments to Regulation (EC) Nos 1685/2000 and 438/2001).

In particular, it was informed about:

- details of the ex-post evaluation and mid-term review of FIFG programmes

- the communication of irregularities concerning the operation of the Structural Funds and closure of 1994-1999 programmes

- The closure of the OPs/SPDs and the N+2 rule

- the implementation of MAGP IV and associated aid schemes

- Commission proposals to simplify the management of the Structural Funds

- the results of the call for proposals for "innovative actions"

- the Communication on further indicative guidelines for candidate countries (Structural and Cohesion Funds).

5. Relations with other Institutions

European Parliament

The on-going dialogue with the European Parliament took place both during the plenary sessions and in connection with the work of the Parliamentary committees, in particular the Committee on regional policy, transport and tourism (RETT), the Committee on Budgets (COCOBU) and the Committee on Constitutional Affairs (AFCO).

In the plenary sessions, it is worth noting the adoption of the following resolutions:

- EP resolution of 13 June 2002 on European Parliament resolution on the Communication from the Commission on the impact of enlargement on regions bordering candidate countries, on the basis of the Sommer report adopted by RETT on 21 March 2002;

- EP resolution of 13 June 2002 on the twelfth annual report on the Structural Funds (2000); on the annual report of the Cohesion Fund 2000; on the annual report of the Instrument for Structural Policy for Pre-Accession (ISPA) 2000. This resolution accompanied the Turco report, adopted on by RETT 22 May 2002;

- EP resolution of 7 November 2002 on the first progress report from the Commission on economic and social cohesion, on the basis of the Schroedter report adopted by RETT on 10 October 2002;

- EP resolution of 20 November 2002 on the proposal for a Council decision concerning the dock dues in the French overseas departments, on the basis of the Sudre report approved by RETT on 8 October 2002;

- EP resolution of 20 November 2002 on the proposal for a Council regulation concerning Community financial contributions to the International Fund for Ireland, on the basis of the Caveri report approved by RETT on 8 October 2002.

With regard to the first progress report on economic and social cohesion, in addition to the RETT the Agriculture and Foreign Affairs Committees also gave opinions.

The Schroedter report supported the positions of the Commission on a number of points: the need to maintain a strong cohesion policy based on solidarity and partnership, in the context of enlargement and the persisting inequalities within the EU; not going below 0.45% of the Union's GDP in order not to challenge the credibility of cohesion policy; the need to adapt cohesion policy to the conditions which will prevail in the enlarged Union; the need to promote sustainable development and territorial cohesion in Europe and reinforce the polycentric, harmonious and balanced development of the Union, in accordance with the guidelines of the ESDP; support for areas with specific handicaps (with special mention of the outermost regions); strengthening cross-border cooperation; opposition to any renationalisation of cohesion policy; the importance of partnership and the value of considering tripartite agreements with the regions and Member States.

The report also reflected other concerns: taking account of other indicators than GDP to determine eligibility for Structural Fund assistance; improve the consistency of employment policy, the common agricultural policy, environmental policy, transport policy and economic policy with a view to sustainable regional development; increasing the administrative capacity of the applicant countries; defining the more flexible methods of implementing assistance with a view to gradual decentralisation of the management of the Funds, subject to effective and rigorous monitoring; raising the assistance for regional competitiveness; allowing the regions to implement their own development strategies; introducing the principle "one programme - one Fund", by giving more responsibility to the regions for implementation.

The report called on the Commission, before its Third Report on economic and social cohesion, to present:

- a proposed timetable designed to ensure that programming for 2007-2013 could really start to be implemented with effect from 1 January 2007;

- proposals to improve the consistency of the EU policies affecting economic and social cohesion;

- proposals on the future of the Community Initiatives and Objective 2.

Committee of the Regions

Following the signature on 24 September 2001 of the cooperation protocol between Presidents Prodi and Chabert, the Commission adopted a guide in April 2002 covering the different aspects of the Commission's policy with regard to the Committee of the Regions and the practical application of the programming of and participation in the proceedings of the Committee of the Regions.

Within this framework, Commissioner Barnier on 12 July 2002 asked the new President of the CoR, Mr Bore, for an opinion in the form of a "forward-looking report" on the implementation of the Structural Funds, focusing on how the management of cohesion policy could be simplified after 2006. This forward-looking report was prepared by Mr Fitto (PPE/Italy) and Mr Van Cauwenberghe (PSE/Belgium) and presented by the rapporteurs in Helsinki on 4 December.

On the same day, the COTER committee gave an opinion on the Urban Initiative, on the basis of a report submitted by Mrs Sally Powell (ESP/UK).

In November 2002, the Commission took part in a discussion of the working paper drawn up by the chairman of the Committee on constitutional affairs at the European Parliament (Mr Napolitano), on the basis of which the CoR adopted its own report drawn up by Lord Tope (ELDR/UK). The Tope report found that the local and regional authorities should have the right to make referrals to the Court of Justice under the subsidiarity principle and that the CoR itself should be given the status of a European Institution.

The COTER committee also produced an opinion in 2002 on the first progress report on economic and social cohesion. The rapporteur, Mr D'ambrosio (PSE/Italy), particularly stressed the disparities which remained at regional level and the marginalisation of the less-favoured regions.

Final