COMMUNICATION FROM THE COMMISSION TO THE COUNCIL, THE EUROPEAN PARLIAMENT, THE ECSC CONSULTATIVE COMMITTEE, THE ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS Expiry of the ECSC Treaty: Financial activities after 2002

Introduction

The purpose of this communication is to present the Commission's proposals on financial and research activities after the expiry of the ECSC Treaty.

In its preparatory work, the Commission has taken account, as far as possible, of the work done in the other Community bodies, in particular the Council, the European Parliament and the ECSC Consultative Committee. It has endeavoured to respond to the request made by the Heads of State and Government at the Amsterdam European Council in their resolution on growth and employment, and the resolutions of 20 July 1998 and 21 June 1999 of the Council and the Representatives of Member States' Governments meeting in the Council.

Background and early discussions

With a view to the expiry of the ECSC Treaty on 23 July 2002 under the terms of Article 97, a vast debate was launched in the early 1990s involving all the interested parties: Member States, Council, Commission, ECSC Consultative Committee, European Parliament, and the industries concerned. In theory, several options were available: renewal of the Treaty, expiry of the Treaty immediately or as scheduled, or a compromise scenario.

In view of the foreseeable developments in the sectors concerned, it was soon decided that the ECSC Treaty should expire as scheduled and that the coal and steel sectors should be placed under the ordinary regime set up by the Treaty establishing the European Community. [1]

[1] See in particular the Commission's Communication on the Future of the ECSC Treaty - SEC(91)407 final of 15 March 1991.

In this context, the Commission suggested in its Communication to the Council, [2] the gradual incorporation ("phasing in") of the coal and steel sectors into the Treaty establishing the European Community, and put forward a possible scenario for phasing out budgetary expenditure by 2002. This scenario was updated to incorporate the proposed reduction of the levy and the release of the ECSC reserves as a result of the reduction in borrowing/lending activity. [3]

[2] The Future of the ECSC Treaty - Financial activities (SEC(92)1889final) of 18 November 1992.

[3] Communication Future of the ECSC Treaty - Borrowing/lending activity - COM(93)512 final.

In its decision of 22 June 1994, [4] the Commission took note of the agreement reached by the Council (Industry) on 22 April 1994 on the adjustment of borrowing and lending policy with a view to the expiry of the ECSC Treaty.

[4] OJ C 175 of 28 June 1994.

On 11 September 1996 the Commission confirmed its intention of maintaining reserves to cover 100% of loans outstanding after 23 July 2002 not covered by a State guarantee, which would require a gradual increase in reserves (Guarantee Fund and provisions) to achieve this level.

The Amsterdam European Council

In its resolution on growth and employment, the Amsterdam European Council invited the Commission to make "appropriate proposals to ensure that upon expiry of the ECSC Treaty in 2002 the revenue from outstanding reserves would be used for a research fund for sectors related to the coal and steel industries." This was in line with the wishes already expressed by the European Parliament, the ECSC Consultative Committee and the two industries, which, through their levy payments have provided most of the ECSC assets.

An overall approach

In 1997 the Commission suggested an overall approach along the lines proposed by the Amsterdam European Council [5]. The Commission's scheme was based on the following ideas:

[5] Communication Expiry of the ECSC Treaty - financial activities - COM(97)506 final of 8 October 1997.

- the assets of the ECSC in liquidation (some EUR1.6 billion [6]), following expiry of the Treaty, should revert to the Communities remaining and their administration be entrusted to the Communities remaining, represented by the Commission;

[6] The figures for the assets and net revenue are estimates. The exact amount of the assets will be established after the closure operations. The foreseeable amount of net revenue was estimated on the basis of assumptions concerning yields, namely 4% for short-term investments and 5.5% for medium and long-term investments. A table summarising data and estimates, updated to 21 June 2000, is annexed.

- all the net revenue (around EUR45 million a year) from the management of the ECSC assets would constitute earmarked revenue under the general budget for financing research outside the framework programme, but complementary to it, to be managed by the Commission and directed at sectors related to the coal and steel industries;

- this mechanism would be set up for an indefinite period with the possibility of a revision;

- research activities would carry on from ECSC-funded programmes with due allowance for the desire to open them up to other sectors as expressed in the Amsterdam European Council's resolution on growth and employment;

- the procedures and implementation arrangements should be based broadly on the approach which has proved successful in the past.

The architecture of the future system

In their Resolutions of 20 July 1998 and 21 June 1999, the Council and the Representatives of the Governments of the Member States [7] recognised the justification for this approach and stressed the excellent results of research funded by the ECSC. They also recognised the important contribution made by these activities to the improvement of the competitiveness and social conditions in the coal and steel industries.

[7] OJ C 247 of 7 August 1998 and C 190 of 7 July 1999.

As regards the destination of the ECSC assets and their management, the Member States agreed that on expiry of the Treaty, ownership of assets and liabilities would revert to the Communities remaining, represented by the Commission, which would have to:

- separate ECSC assets from other Community funds and designate them as the assets of the "ECSC in liquidation"; draw up an "ECSC in liquidation" balance sheet as an Annex to the general statement of the Communities' assets and liabilities and produce a consolidated balance sheet of the Communities' assets and liabilities; draw up a profit and loss account in a similar way;

- after the end of the liquidation of the ECSC, designate the assets which will go to make up the fund revenue as "Assets of the Coal and Steel Research Fund";

- maintain the separation from other Community funds for the purposes agreed by the Member States, even after all outstanding financial operations have been completed and all possible contingencies have been met;

- administer these assets and continue to manage budgetary and financial operations not completed in 2002;

- ensure a long-term return on the assets, which should be managed on the basis of multiannual financial guidelines proposed by the Commission and adopted by the Council; management of the assets should be aimed at the highest possible yield that is attainable with due account for security;

- adopt an annual financial report certified by the Court of Auditors and then transmitted to the Council;

- meet the cost of managing the assets or the fund out of the general budget of the European Communities.

The Member States also stipulated that any changes to the purpose for which the assets had been provided must be subject to a unanimous decision by them.

On the question of the organisation and financing of research activities, the Member States adopted the following guidelines:

- the revenues from the ECSC assets should constitute "earmarked" revenue under the general budget of the European Communities to be administered by the Commission; this should be directed to a research programme for sectors related to the coal and steel industries, guided by the proposals on scientific and technical content set out in the 1997 Commission communication and including the possibility of widening the scope of the existing programme to applied research; further changes to the use of the revenue should be subject to a unanimous decision of Member States;

- to maximise the impact of research on the competitiveness of these industries, the research programme should be managed along lines similar to the existing research programme and on the basis of multiannual research guidelines proposed by the Commission and adopted by the Council, in close consultation with industry;

- these guidelines should further develop the current research programme financed by the ECSC, by ensuring a high degree of concentration of research activities and by making them complementary to those under the Community framework programme; they should take account of the objective of strengthening competitiveness, growth and employment; the guidelines should state clearly how industry experts are to be involved both in future research decisions and in the monitoring of projects;

- in order to ensure the efficient annual allocation of funding, the existing procedures concerning the adoption of individual research projects should be respected, that is, the decisions of the Commission should be taken with the agreement of the Council and in consultation with the sectors concerned;

- a full evaluation of the research should be undertaken upon completion of the projects financed during the period covered by each multiannual research guideline; in particular, this evaluation should examine the benefits of the research to the sectors concerned; it is also important that preliminary results of research are made known to Member States before the expiry of each guideline as a basis for future decision-making.

The Commission proposals

The aim of these proposals is to convert these guidelines into legal instruments and into operational procedures and concepts. The Commission is accordingly proposing the following four texts:

1. A draft framework decision

This is the decision whereby the Member States, to which the ECSC's assets revert under the principles of public international law on expiry of the Treaty, decide to transfer these assets to the European Community, represented by the Commission. In other words, this text is the act establishing the EC's "universal succession" to the ECSC.

It must be stressed that acceptance by the EC of the donation of the ECSC assets must be approved by the two arms of the budgetary authority as provided in Article 4 of the Financial Regulation as it is a donation which may involve financial charges.

The text adopts the architecture of the future system in accordance with the guidelines laid down by the Member States. In this way the framework decision regulates the question of the ownership, management and destination of funds from the ECSC. It is therefore planned that the assets will revert to the European Community, represented by the Commission, which will be responsible for ensuring separate budgetary supervision, guaranteeing that operations not completed in 2002 are carried through, managing the ECSC's assets and ensuring their long-term profitability, and allocating the income to financing research.

It should be noted that the Commission suggests that the ECSC assets should revert to the European Community and not the Communities remaining. This solution, which is not that proposed by the Member States, is closer to the idea of a gradual transfer of coal and steel to the ordinary regime created by the Treaty establishing the European Community. It is also more convenient from the point of view of the management and operational aspects of financial and research activities.

From the terminology point of view, the text states that all the assets from the ECSC will be designated as "ECSC in liquidation" and, once liquidation is complete, as "Assets of the Coal and Steel Research Fund", the Coal and Steel Research Fund being itself made up of the net income generated by the investment of these assets.

Finally, the framework decision adopts a number of technical and procedural arrangements for meeting the administrative expenditure resulting from the liquidation, investment and management of the Research Fund, for the possible participation of the new Member States in the Assets of the Coal and Steel Research Fund, and for offsetting the effects of fluctuations on the financial markets on the return on the Assets of the Coal and Steel Research Fund and the annual allocation of this Fund.

2. Draft financial guidelines

This document sets out the Commission's working hypotheses regarding the management and investment of ECSC assets.

The financial guidelines will take the form of an annex to a Council Decision, as requested by the Member States.

In substance, the financial guidelines define the types of transactions the Commission is authorised to undertake, and establish prudential limits for different categories of investment, in order to minimise risk.

The text also proposes budgetary and accounting procedures to ensure that the returns earned on such assets are correctly attributed within the budget to their intended purposes.

For the rest, the financial guidelines make reference to the Commission's Internal Rules, which are currently used for the management of the ECSC's funds and which are based on the experience of the departments responsible, acquired over nearly fifty years of financial management of such funds.

3. Draft guidelines on research activities

This document sets out in detail the way in which the Commission intends to finance and carry out coal and steel research using income from investment of the ECSC assets.

It, too, will take the form of an annex to a proposal for a Council decision, in accordance with the wishes of the Member States.

As for content, the text restates the objectives and general principles of the research programme, which must follow the lines of the existing ECSC programmes and supplement the framework programme. The research guidelines go on to set out the criteria for participation in the programmes and eligibility criteria for projects applying for funding. Finally, the text lays down the operational arrangements for the programme, particularly as regards the procedures to be followed, the evaluation and selection of projects, provisions on contracts, and the monitoring and dissemination of results.

4. Updating of financial data

The Commission is proposing in annex an updating of the financial data appearing in its communication of 8 October 1997 (COM(97)506 final: ECSC scenario 2002, version 7, tables 1 to 4).

The last simulations (ECSC scenario 2002 version 10) confirm the upward tendency of the total funds being administered at 23 July 2002 announced in versions 8 and 9 of the scenarios in question appearing in the draft ECSC operating budgets for 1999 [8] and 2000 [9].

[8] SEC(1998)966.

[9] SEC(1999)803.

Table 2 shows that the total funds administered rise from EUR1 387 to EUR1 601 million, corresponding in the main to an increase in the provisions for the ECSC budget as a result of forecasts of a higher level of budget activity over the period 2000-02 than initially expected. This was made possible principally by lower social expenditure over the period 1997-99 and by a higher volume of actual or estimated cancellations of commitments.

In conclusion, the Commission

- calls on the Representatives of the Governments of the Member States meeting within the Council to adopt the draft Decision concerning the financial consequences of the expiry of the Treaty establishing the European Coal and Steel Community;

- calls on the Council to adopt the proposal for a Decision laying down multiannual financial guidelines for managing the "ex-ECSC" funds and the proposal for a Decision laying down the guidelines for the "Coal and Steel Research Fund" research programme;

- calls on the Council to consult the European Parliament.

TABLE 1 ANNEX

ECSC 2002 - ILLUSTRATIVE SCENARIO version 10****

ECSC OPERATING BUDGET

ECU/EUR million

>TABLE POSITION>

RESERVES AND PROVISIONS ENTERED IN THE ECSC BALANCE SHEET

ECU/EUR million

>TABLE POSITION>

* Not including provisions for fines and other amounts to be recovered.

** Estimated outturn for 1999 and budget for 2000.

*** Up to 23 July 2002.

**** This scenario does not prejudge the decisions to be taken under the annual budgetary procedure.

TABLE 2

RESERVES AND PROVISIONS ENTERED IN THE ECSC BALANCE SHEET

ECU/EUR million

>TABLE POSITION>

* Up to 23 July 2002.

TABLE 3

RESERVES AND PROVISIONS ENTERED IN THE BALANCE SHEET OF THE ECSC IN LIQUIDATION

ECU/EUR million

>TABLE POSITION>

* Up to 23 July 2002.

** Other assets: total of the budget surplus for 2002 and the provision for financing the ECSC budget at 23 July 2002 and fines received and other amounts recovered.

*** After 2002, the amounts of commitments cancelled each year are added to this total.

TABLE 3 (CONTINUED)

RESERVES AND PROVISIONS ENTERED IN THE BALANCE SHEET OF THE ECSC IN LIQUIDATION

ECU/EUR million

>TABLE POSITION>

** Other assets: total of the budget surplus for 2002 and the provision for financing the ECSC budget at 23 July 2002 and fines received and other amounts recovered.

*** After 2002, the amounts of commitments cancelled each year are added to this total.

TABLE 4

AMOUNTS AVAILABLE FOR THE FINANCIAL MECHANISM

ECU/EUR million

>TABLE POSITION>

* Up to 23 July 2002.

>TABLE POSITION>

* Up to 23 July 2002.

** The EUR 25 million used in the ECSC operating budget in 2002 as the net balance will have to be subtracted from this amount.

TABLE 4 (CONTINUED)

AMOUNTS AVAILABLE FOR THE FINANCIAL MECHANISM

ECU/EUR million

>TABLE POSITION>