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COMMISSION OFTHEEUROPEAN COMMUNITIES
COM(79)itfinal.
Brussels «10January1979
COMMISSION COMMUNICATION TOTHECOUNCIL
InclusionoftheEuropeanDevelopment Fundinthebudget
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COMMISSION COMMUNICATION TOTHECOUNCIL
InclusionoftheEuropeanDevelopment Fundinthebudget
AtthetimeoftheLomeConventionnegotiations -andinparticular inthe
1Communication itpresentedtotheCouncilinJune1973,theCommission had
proposedthattheEuropeanDevelopment Fundbeincludedinthebudgetand
financedoutoftheCommunity'sownresources.InthatCommunication ,the
Commissionlistedwhatitconsidered themainargumentsinfavourofincluding
thefourthEDFinthebudget.Thesearguments werethatinclusionwouldserve
todiversifythebudgetandincreasethetransparency ofCommunityoperations ;
itwoulddoawaywiththedifficultdiscussions onthescaleofMemberStates'
contributions totheFundandwouldbeconducivetoabalancedstrengthening of
Communitypolicytowardsthedeveloping countries asawhole.Forallthese
reasons,inclusioninthebudgetwas,intheopinionofboththeCommission and
theEuropeanParliament,alogicalstepinthedevelopment oftheCommunities .
TheCommission'sproposalwasnotfollowedupatthetime,butageneral
consensus emergedwithintheMemberStatesinfavourofasolutionofthiskind
forthefifthEDF.Parliament,foritspart,hasrepeatedlycalledfor
inclusionoftheFundinthebudget.
Thereisnodoubtthat,evenallowingfordevelopmentintheargumentsput
forwardforincludingtheEDFinthebudgetwhentheLomeConvention was
negotiated,thevalueandscopeofthoseargumentshaveremainedintact.For
thisreason,theCommission,initsmemorandumof16February1978onthefuture
ACP-EECnegotiationsfortherenewaloftheLom^Convention,declareditself
resolutelyinfavourofincludingthefifthEDFinthebudget.
IntransmittingthisCommunication totheCouncil,theCommissionfeelsit
wouldbeusefultostateonceagaintheargumentsinfavourofincludingtheEDF
inthebudget,topointouttheconditionswhichmustfirstbefulfilled,to
assessthebudgetaryconsequencesofsuchastep,andtospecifyhowitwouldbe
broughtabout.
I•REASONSFORINCLUSIONINTHEBUDGET
SincetheDecisionof21April1970onthereplacementoffinancialcontributions
fromMemberStatesbytheCommunity'sownresources,th?EDFistheCommunity's
SEC(73.'2K ?fi^lof

soleoperationstillfunctioningunderanallocationsystemfallingoutsidethe
budget.
Fromthepointofviewofbudgetaryorthodoxy,asituationofthiskind
constitutesananomalywhichshouldbecorrected:EPFappropriations are
Communityexpenditureandmustthereforebeenteredinthebudgetandfinanced
fromit.
Inthisrespectitissignificanttonotethat,sincetheLomeConventioncame
intoforce,alldecisionsadoptedinthefieldofdevelopmentcooperationhave
beenincludedinthebudget.Thustheexpenditure onfinancialandtechnical
cooperationtobefinancedundertheAgreementsconcludedwiththeMediterranean
countries(MaghrebandMashreq,Greece,Turkey,Portugal,MaltaandCyprus)is
coveredbytheCommunitybudget.Inviewofthedecisionstaken,itwouldbe
logicalforthesamearrangementstobemadeinthecaseofthefutureConvention
tobeconcludedwiththeACPStates,whichwillconstituteanagreementthatis
similar-thoughadmittedlynotidenticalto-thoseconcludedwiththe
Mediterranean countries.
Asolutionofthiskindwillofferadvantagesfromthepointofviewof
budgetaryunityanddiversification andalsofromtheangleofthe
"communitization "ofaid.
Budgetaryunity:thetraditionalprincipleofbudgetaryunityimpliesthatthe
budgetshouldbedrawnupinsuchawaythatitgivesacomprehensive and
immediatelyclearpictureofalltheCommunity'srevenueandexpenditure .
Thisprincipleisundermined whendifferentinstrumentsareusedtocoversuch
importantoperationsasthoseconnectedwiththeimplementation oftheCommunity's
development cooperationpolicyvis-a-vistheACP.Bycontributing inadecisive
waytorealizingtheprincipleofbudgetaryunity,theinclusionoftheEDFin
thebudgetwiUundeniablyhelptomakeCommunitymeasuresmoretransparent .
Thiswillmakeforgreatertransparency notonlyatoverallbudgetlevelbut
alsoatthelevelofCommunitydevelopment cooperationpolicy.Atpresent,

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Communitydevelopmentoperationsarefinancedindifferentways:EDFoperations
arecoveredbynon-budgetfunds,whiletheCommunitybudgetpaysforfoodaidand
otherdevelopmentmeasures,whethertheybespecific,exceptionalorcooperation
activities .
Ifacoherentpolicyistobeestablishedfordevelopmentcooperation,all
expenditurerelatingtheretomustbegroupedtogetherunderonetitleinthe
budget.TheinclusionoftheEDFinthebudgetisastepinthisdirection,
andamoreaccuratepictureofCommunityactivitywillemergeasaresult.
Budgetarydiversification :thefinancingofthecommonagricultural policy
weighsheavilyonthebudget(accountingforaround70%ofthetotalamountin
1978). •
Inclusioninthebudgetofexpenditure onfinancialandtechnicalcooperation,
combinedwiththeimprovedmanagementofagricultural expenditure advocatedby
theBudgetAuthorityandtheCommission andthedevelopment ofothersectors,
willmeanabetterdistribution ofCommunityexpenditure .Thethree-yearly
forecastspresentedbytheCommissiontotheBudgetAuthorityfor1979-81are
significant inthisrespect.Twoconclusions canbedrawnfromthem:
i.inclusionoftheEOFwouldmakethedevelopmentcooperationsectorthe
secondlargestiteminthebudgetin1981;
ii.thiswouldmeanthatwiththeincreasesinothersectors(social,regional,
energy,etc.),agricultural expenditure couldbe.reducedtoamorebalanced
proportionofthebudget(around60%)asfrom1981.
Communitization ofaid:asParliamenthaspointedout,thediscussionwhichtakes
placeduringthefinalphaseofthenegotiationstodeterminethescaleofMember
States'contributionstotheFund,paradoxicallycallsintoquestiontheCommunity
characterofthosenegotiations^.
ReportbyMrMichelCointatontheinterinstitutional dialogueconcerningcertainbudgetarymatters.Doc.PE44071finalof10May1976,page29.

Thereisnodoubtthatsincetheproblemofthescaleofcontributions will
besolvedbyfinancingcooperationwiththeACPStatesfromownresources,this
willenablemeasuresofaCommunitycharactertobecarriedoutonthebasisof
Communityfinancingwhichwillbefreeofanyconsiderations ofdistributing
theburdenwithintheCommunity.
II.CONDITIONS GOVERNINGINCLUSIONINTHEBUDGET
ThesuccessiveConventions concludedbytheCommunitywiththeAASMtostart
with,andwiththeACPStatessubsequently,havealwaysconstituted an
exemplarybodyofmethods,meansandtechniques.Thespiritofpartnership which
characterizes relationsbetweentheCommunityandtheStatesinquestion,the
contractual andperiodically reaffirmednatureoftheagreementsconcluded,the
balancecreatedbetweenthepowersandresponsibilities oftheCommunityonthe
onehand,andthoseoftherecipientStatesontheother,theroleplayedbythe
nationalauthoritiesintheimplementation andadministration offinancialand
technicalcooperation-allthesethingsadduptoasolidfoundationwhichcannot
becalledintoquestion -byconsiderations ofbudgetarypolicyandtechniquethat
areinternaltotheCommunity.
Forthisreason,anumberofessentialconditionsmustbemetbeforetheEDFcan
beincludedinthebudget:
1.Inclusioninthebudgetandnegotiation
Theideahasbeenputforwardthatincorporation oftheEDFinthebudgetwould
makeitunnecessary forbilateralnegotiations tobeheldperiodically between
theCommunityanditspartnersinordertofixthevolumeoffinancialand
technicalcooperation ,,Anunacceptable consequence ofthisapproach,however,
wouldbethattheamountofaidwouldbedeterminedonlyannuallyand
unilaterally underthebudgetaryprocedure.Therefore,thefactorsdetermining
theamountandtermsoftheaidaccordedtotheACPStatesandtheOCTmust
continuetobefixedbyspecificacts:afreelynegotiatedconventioninthe
caseoftheACParsdaCouncildecisionfortheOCT.
Theappropriations reededtoimplementtheagreementswillthushavetobe
approvedinthebudgeteachyearinthecontextofthesenegotiatedand
contractually agreedamounts.

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Thisis,moreover,thewayinwhichtheagreementsconcludedwiththe
Mediterranean countriesareimplemented .
2.Inclusioninthebudgetandthenationalauthorities' powers
OneofthemoststrikinginnovationsoftheLomeConventionintheareaof
financialandtechnicalcooperationistheincreasedresponsibility giventothe
ACPStatesintheadministration andmanagementofaid.Apartfromtherole
playedbytheACPStatesindefiningthegeneralguidelinesforaid,provision
wasmadefortherecipientStatestoparticipateactivelyineachofthestages
ofaproject:programmingofaid,projectpreparation,appraisalandexecution,
andfinalevaluation oftheresults.
Atthelevelofprojectexecutioninparticular,itisuptothenational
authoritiestoissueinvitations totender,receivetenders,establishthe
resultsoftheinvitationstotender,signcontractsandauthorizepayments.
ThissituationreflectsatrendwhichhasappearedsincetheEDFstartedits
operationsandwhichisexpressedintheconstantaffirmation oftheprinciple
ofthedivisionofresponsibilities betweenthedonorsandrecipientsof
Communityfinance.
Becauseofthisdivisionofresponsibilities theCommunityhasestablished *
inparticularbyFinancialRegulation76/657/EECof27July1978applicableto
theFourthED/,financialrelationsdesignedspecifically forEDF-financed
operation.Theserelationsarebasedonthedecentralization ofexecutive
functions.Thus,sidebysidewiththecentralexecutiveagents,(Chief
AuthorizingOfficer,FinancialController,AccountingOfficer),exeGiitive
agentshavealsobeenappointedforeachoftherecipientcountries (National
AuthorizingOfficer,CommissionDelegate,PayingAgent),
TheComm.issionfeelsthatitwouldbepoliticallyunacceptable tocallinto
questiontheseprinciples,wJiithwereworkedoutwiththeACPStatesduring .
,theLomeConventionnegotiations andareembodiedinextrfemelypreciseprovisions
inProtocolNo2toth^.Convention. *'/

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Incorporation inthebudgetmustthereforebecarriedoutonthebasisof
arrangementspermittingtheapplicationofdecentralized andconcerted
proceduresfortheallocationandutilizationoffundswithintheframeworkof
afixedbudgetappropriation tobedeterminedcontractually withtheACPStates
bytheConvention,
TheCommissionconsideredthat,forthispurpose,specificprovisionswillhave
tobewrittenintotheFinancialRegulationapplicabletothegeneralbudgetof
theEuropeanCommunities ,
3.InclusioninthebudgetandtheroleoftheMemberStatesinthe
implementation ofaid
Atpresent,theMemberStatesparticipate intheimplementation offinancialand
technicalcooperation throughvariouscommittees :
(a)theprogramming committees,whichdeterminethegeneraltermsofreference
ofprogrammingmissionsanddeliveranopinionontheindicativeprogrammes
ofCommunityaid;
(b)theACP/FINWorkingParty,whichdealswithgeneralmattersandhelpsto
framegeneralpolicyonfinancialandtechnicalcooperation;
(c)theEDFCommitteeandtheArticle22Committee,whichareinvolvedinthe
procedureforapprovingeachindividualproject.
TheinclusionoftheEDFinthebudgetmustnotupsetthepresentdistribution
oftasksandresponsibilities .

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However,thisdivisionmusttakeintoaccount,tothegreatestdegree
possible,theresponsibilities oftheCommissionunderArticle205of
theEECTreatyasregardsbudgetexecution.
III.BUDGETARY CONSEQUENCES OFINCLUSION
Thefinancialimplications oftheinclusionoftheEDFinthebudgetareoneof
theimportantfactorstobeconsideredbeforeadecisionistakenonthe
Commission'sproposal.
Itis,however,notpossibleatthisstagetoforecastthevolumeoffundswhich
theCommunitycoulddevotetocooperation withtheACPStates,andthereforean
ideaoftheamountofexpenditure whichthebudgetmighthavetocoverannually
cannotbegiven.Todosowouldbetoprejudgetheresultofthenegotiations
thathaveopenedbetweentheCommunityandtheACPStatesfortherenewalof
theLomeConvention .
ButwhateverproportionofthebudgetmightbeaccountedforbyEDFexpenditure,
theCommunitywillbefacedwiththemoregeneralproblemoffinancingall
expenditureenteredinthebudgetoutofownresources.
Fortakingintensifiedinternational cooperationinconjunctionwiththeim­
pendingenlargementandwiththepursuitofpriorityobjectivessuchasbacking
upandpromotingmajo^structuralchanges,reducingtheCommunity'senergy
dependenceandlesseningregionalimbalances,thereisarealriskoftheIK
VATceilingbeingexceededin1981.

-8-
Forthis reason ,initsCommunication tothe Council andParliament dated
27February 1978 ontheoverall assessment oftheCommunity 'sbudgetary problems ,
the Commission was atpains tostress that "financing the Budget under the
system provided for inthe Decision of21April 1970 will beaproblem inthe
medium term astheavailable margin may disappear bythebeginning ofthe 1980s ."
Thethree-yearly forecasts covering theperiod 1979-81 ,which the Commission
presented totheBudget Authority inMay1978 ,confirm this outlook byquantifying
it.
Basing itself onacomparison ofexpenditure andrevenue forecasts ,thedocument
points outthat appropriations forpayment would leave only anarrow margin in
1980 Crate ofVATvariously estimated atbetween 0.90% and 0.97% )and would
reach the limit ofresources in1981 (rate ofVATbetween 0.99% and 1.12% ).
Thus ,irrespective ofthedecision tobetaken onthe inclusion ofthe EDF in
thebudget ,which will inanycase have only amodest impact onappropriations
forpayment in1980 and1981 ,thegrowth ofCommunity expenditure intheother
sectors will make itnecessary toraise additional resources over thecoming years .
IV*PROCEDURE FOR INCLUSION INTHE BUDGET
Inorder tomake such aradical change inthemethods offinancing cooperation
with theACPStates andtheOCTthere must obviously benoambiguity astothe
procedures forincluding theEDFinthebudget .With this inmind ,the
following four points should bemade :
1•Inclusion inthebudget andmultiannual nature ofappropriations
EDFresources areintended tofinance operations which ,bytheir very nature ,
will normally becarried outinamultiannual framework .

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Itwillthereforebevitaltomakethedistinction betweenappropriations for
commitmentandappropriations forpaymentthatisnowstandardpracticeinthe
Communitybudget.
Beinginaccordancewithorthodoxbudgetpractice,theuseofdifferentiated
appropriations willenabletheCommissiontoadministertheEDFwiththeflexibility
andefficiencycalledforbytheoperationstobefinanced.
Thisdifferentiation willleadtheCommissiontocoupleitsbudgetforecasts
eachyearwithamultiannual scheduleofthefundsneededtoimplementthe
agreements.
2.Inclusioninthebudgetandclassification ofexpenditure
Theclassification ofexpenditurearisingfromcooperation withtheACPStates
andtheOCTdependsonthenatureandextentofthecommitments undertaken.
TheCommissionisoftheopinionthatthisexpenditurewillrepresentthe
financialexpressioninthebudgetofinternational commitmentsundertakenby
theCommunitywhichconsequentlyentailfirmfinancialobligations forthe
latter.EDFexpenditurewillhavetobeclassifiedascompulsoryexpenditure .
Fromthepolitical pointofview,asolutionofthiskindwillprovidean
elementofsecurityfortheACPStates.
3.Inclusioninthebudgetandbudgetaryprocedures
Althoughtheappropriations madeavailabletotheACPStatesandtheOCTby
thefutureagreementswillhavetobeadministeredaccordingtospecial
provisionsadaptingtheprovisionsofthegeneralFinancialRegulationtothe
specificnatureofEOFoperations,therulesofordinarylawwillforthe

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purposes ofbudgetary procedure andimplementation have tobeapplied .
A. Inclusion inthebudget and the EIB loans guarantee
Under thepresent allocation system falling outside thebudget ,theguarantee
given totheEuropean Investment Bank forthe loans which itgrants from its
own resources iscovered byacommitment entered into bytheMember States .
Alogical consequence ofinclusion oftheEOF inthebudget would beforthe
Community tocover this guarantee through itsownbudget .
This solution hasalready been adopted fortheguarantee onloans extended by
the Bank from itsown resources under the Cooperation Agreements concluded with
the Mediterranean countries .
CONCLUSION
The inclusion inthebudget ofappropriations forcooperation with the ACP State
isapolitical andbudgetary necessity forthe following reasons :
i.From apolitical point ofview ,itisabnormal andcontrary totheprinciples
governing thedevelopment oftheCommunities that activities asimportant
asthose connected with theimplementation ofthis cooperation should
continue tobecovered bydifferent mechanisms and instruments .The
present situation ismade particularly paradoxical bythe fact that since
theLome Convention wassigned ,allcooperation agreements ofthesame kind
concluded with developing countries have been included inthebudget .
ii.From thebudgetary point ofview ,considerations oforthodoxy dictate that
thebasic principle ofbudgetary unity must beobserved ,thus making for
greater transparency ,,coherence andbalance within thebudget itself .

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InclusioninthebudgetwouldthereforeenabletheCouncilandParliament,
thetwoinstitutions makinguptheBudgetAuthority,toexercisefullythe
responsibilities conferred uponthembytheTreaty.
Nodoubtachangeofthismagnitude cannotcomeaboutwithoutaccountbeing
takenofthenatureandcharacteristics ofthecooperation established between
theCommunity andtheACPStates.Thecontractual natureofthiscooperation
andtheparticipation oftherecipientStatesinitsimplementation froma
patrimonywhichitwouldbepolitically unacceptable tocallintoquestion.
TheinclusionoftheEDFinthebudgetmusttherefore becarriedoutonthe
basisofaconceptandarrangements whichpreservethespecificnatureofthat
patrimony.
TheCommissionwillthereforeproposetotheCouncilinduecoursethe
appropriate legalprovisionstobewrittenintotheFinancialRegulation
applicabletothegeneralbudgetoftheEuropeanCommunities tomeetthe
particular requirements oftheEDF.
Atthesametimespecificprovisionswillbeproposedforothercooperation
expenditure (FinancialProtocols,aidtonon-associated developingcountries).

FinanceSection
1.Itisnotpossibleatthisstagetoforecastthevolumeoffundswhich
theCommunitycoulddevotetocooperation withtheACPStates,,andtherefore
anideaoftheamountofexpenditure whichthebudgetmighthavetocover
annuallycannotbegiven.
Todosowouldbetoprejudgetheresultofthenegotiations thathave
openedbetweentheCommunity andtheACPStatesfortherenewalofthe
LomeConvention .
2.Itishoweverrecalled,bywayofindication,thatthefigurefor
EDFIVis3159.5MEUA(ACP+PTOM),fortheperiodcoveredbytheLome
Convention .