Communication from the Commission to the Council and the European Parliament - The Madrid Conference on Reconstruction in Iraq: 24 October 2003
Date: 2003-10-01
Institutions: European Commission
Subjects: Community budget, Iraq, aid policy, common foreign and security policy, international aid, national sovereignty, political situation, the EU's international role

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 1.10.2003
COM(2003) 575 final

COMMUNICATION FROM THE COMMISSION
TO THE COUNCIL AND THE EUROPEAN PARLIAMENT

The Madrid Conference on Reconstruction in Iraq

24 October 2003

COMMUNICATION FROM THE COMMISSION
TO THE COUNCIL AND THE EUROPEAN PARLIAMENT

The Madrid Conference on Reconstruction in Iraq

24 October 2003

1.

INTRODUCTION

At the Thessaloniki European Council on 19-20 June 2003, the European Union reiterated its
commitment to the development of a prosperous and stable Iraq and concluded that it “stands
ready to participate in the reconstruction of Iraq within the framework of UNSC Resolution
1483”. The July GAERC confirmed that the EU is ready to participate in reconstruction and
to play an important role in multilateral efforts with a view to a Donors’ Conference for Iraq.
The Thessaloniki European  Council  invited  the  Commission  to  submit  proposals  for  an  EU
contribution  to the  multilateral  effort to assist Iraq’s transition.  The  present  Communication
responds to this invitation.

Under the auspices of the United Nations, a preliminary conference was held in New York on
24  June  2003.  This  meeting  decided  that  donors  would  be  asked  to  contribute  to  meeting
Iraq’s needs for assistance for rehabilitation and reconstruction in the coming 12-15 months.
The Spanish Government has agreed to host an international conference on 23 and 24 October
2003 which will launch the multilateral effort to support the rehabilitation and reconstruction
of Iraq and seek indicative pledges from donors for the period until the end of 2004.

The  present  Communication  aims  to  take  full  account  of  the  developing  situation  in  Iraq,
particularly with regard to security and steps towards political transition. This is all the more
urgent  in  the  light  of  recent  violence  which  has  tragically  claimed  the  lives  of  Iraqis  and
members of the international community, including UN Special Representative Sergio Vieira
de Mello. Iraq now has a unique opportunity to transform itself from an authoritarian regime
and command economy to a representative, democratic political system that promotes respect
for  human  rights  and  fundamental  freedoms  and  a  functioning  market  economy.  This
objective deserves the full support of the European Union and the international community as
a whole.

This  Communication  sets  out  the  basis  for  a  common  approach  for  the  participation  of  the
European Union in the Madrid Conference, as well as making proposals for the Community’s
contribution  to  rehabilitation  and  reconstruction  in  Iraq  until  the  end  of  2004.  It  will  be
necessary  subsequently  for  the  European  Union  to  develop  a  comprehensive  medium-term
strategy  for  its  relations  with  Iraq  in  the  light  of  developments  during  this  period  including
political, social, economic and trade policy issues.

2.

THE CONTEXT FOR THE MADRID CONFERENCE

Security Environment

The attack on UN headquarters on 19 August 2003, the bombing of the mosque in Najaf, the
targeting  of  international  humanitarian  organisations  and  the  daily  toll  of  casualties  and

2

fatalities among  coalition soldiers  have  led to a  scaling down of  operations  by  international
organisations and NGOs.  A  large number of NGOs have withdrawn  their  international  staff
from the country, scaled back operations outside the capital, and increased protection for local
staff. The United Nations has reduced its international staff by more than two thirds.

A general increase in criminality has restricted the scope for movement around Baghdad and
beyond –  both  for  international  operators  and the  Iraqi population.  Acts of sabotage  against
infrastructure,  particularly  the  electricity  transmission  lines  and  oil  and  water  pipelines,  are
undermining  efforts  to  restore  the  delivery  of  basic  utilities  and  re-start  production.  As
explained  below,  a  significant  improvement  in  security  environment  is  needed  to  permit
reconstruction work to go ahead.

Political and Legal Framework

United  Nations  Security  Council  Resolution  (UNSCR)  1483,  adopted  on  22  May  2003,
established  the  international  framework  for  the  administration  of  Iraq.  Under  the  terms  of
Resolution  1483  the  Security  Council  takes  note  that  the  Coalition  Provisional  Authority
assumes  specific  authorities,  responsibilities  and  obligations  under  applicable  international
law  as  “Occupying  Powers”.  This  encompasses,  inter  alia,  compliance  with  the  Geneva
Convention of 1949  and  the  Hague  Regulations of 1907. The United  Nations  –  through  the
Office  of  its  Special  Representative  –  was  given  a  significant  role  in  co-ordinating
humanitarian  and  reconstruction  assistance  and,  together  with  the  Coalition  Provisional
Authority,  in  restoring  representative  government  in  Iraq.  UN  Security  Council  Resolution
1500, adopted on 15 August, welcomed the establishment of an Iraqi Governing Council as an
important  step  towards  the  hand  over  of  sovereignty  to  a  representative  Iraqi  government.
UNSCR  1500  also  established  the  United  Nations  Assistance  Mission  for  Iraq  (UNAMI),
tasked with implementing the mandate accorded to the United Nations in UNSCR 1483.

to 

UNSCR  1483  refers 
internationally  recognised,
the  future  establishment  of  an 
representative government by the people of Iraq which will assume the responsibilities of the
Coalition Provisional Authority. Until such a time, the Iraqi people shall, with the help of the
Coalition Provisional Authority and working with the United Nations Special Representative,
form an Iraqi interim administration as a transitional administration run by Iraqis. On 21 July
2003, the European Union welcomed the establishment of  the  Iraqi Governing Council as a
first step in this process. On 1 September 2003, the Governing Council appointed 25 Interim
Ministers who took office on 2 September 2003.

On 13 August 2003, the Iraqi Governing Council appointed the 25 members of a Preparatory
Committee  charged  with  agreeing  on  a  process  for  drafting  a  new  Iraqi  constitution.  This
Committee is due to report back on 15 September with its recommendations. The aim is for a
draft Constitution to be put forward for adoption by a popular referendum, paving the way for
elections for a Iraqi government and the transfer of sovereignty.

Economic Situation

Iraq is not a resource-poor country. It has the second largest proven oil reserves in the world
and  the  lowest  oil  production  costs  in  the  region.  It  is,  however,  suffering  from  over  two
decades of economic degradation, a tightly controlled command economy, and the impact of
successive  conflicts  and  associated  sanctions.  Between  1990  and  2001,  for  example,  Iraq’s
position in the United Nations Human Development Index slipped from 76 to 127and Gross
Domestic Product declined by at least two-thirds to around US$750-1000 per capita.

3

The Iraqi economy has a number of fundamental strengths. An abundant supply of arable land
and water resources could contribute to the revival of the agricultural sector. High investment
in education until the 1990s has created a skilled labour force. One hundred thousand small
businesses already exist from which to expand Iraq’s private sector. In the medium-term Iraq
ought  to  be  able  to  exploit  this  potential  in  order  to  diversify  its  economy  and  develop
alternative sources of revenue.

Iraq’s  immediate  economic  prospects  are  heavily  dependent  on  its  capacity  to  expand
production  in  the  oil  sector  in  2003-4.  Substantial  investment  and  improved  security
conditions are  required if oil production  is to  be  expanded  from  1.3  million  barrels  per  day
(mbd) in August 2003 to the 2.5-3.0 mbd the Coalition Provisional Authority hopes to achieve
by the end of 2004. In the coming 12 – 15 months, oil revenues will not be sufficient to cover
the costs of Iraq’s rehabilitation and reconstruction1.

Moreover,  action  is  needed  in  a  number  of  areas  to  set  Iraq’s  economy  on  a  sustainable
medium  term  path.  For  instance,  the  massive  external  financial  obligations  (debt  and
compensation claims) accumulated by the previous regime should be addressed and economic
management  should  be  improved,  including  through  market-oriented  reforms  and  the
introduction of an effective social safety net.

Framework for Reconstruction

UNSCR  1483  created  a  Development  Fund  for  Iraq  (DFI)2,  funded  from  Iraqi  resources,
mainly  oil  revenues,  and  through  the  repatriation  of  frozen  assets  and  the  remaining  funds
from the Oil For Food programme, administered by the United Nations3. The decline in Iraq’s
oil  production  capacity  and  a  lack  of  alternative  sources  of  state  revenue  place  severe
constraints  on  Iraq’s  capacity  to  finance  rehabilitation  and  reconstruction  activities  in
2003-2004 from the DFI. With Iraq’s resources devoted to covering recurrent administration
and  investment  costs  of  the  state,  external  assistance  will  be  required  to  meet  the  cost  of
investment in reconstruction.

In  this  context,  the  United  Nations  hosted  technical  consultations  in  New  York  on  24  June
2003 and a Liaison Group, composed of some 50 states, and a Core Group were established to
consider the international contribution to reconstruction in Iraq. The Core Group was asked to
co-ordinate the preparation of a Donors Conference4. It agreed that the United Nations and the
World Bank should organise needs assessment missions leading up to a Donor’s Conference
in October 2003.

1

2

3

4

A detailed assessment of the Iraqi economy and its prospects is under preparation by the UN, IMF and
World Bank in the context of the needs assessment process. A synthesis report will be issued before the
Madrid Conference.
As the governing authority, the Coalition Provisional Authority is responsible for disbursements  from
the DFI.  An International  Advisory and Monitoring Board, composed of the IMF, World  Bank,  Arab
Fund for Social and Economic Development and the UN, is responsible for auditing the way in which
DFI funds are spent.
The United Nations is due to transfer responsibilities for the Oil for Food Programme to the Coalition
Provisional Authority on 21 November 2003.
Initial  participants  in  the  Core  Group  were  EU  (Commission  and  Presidency),  US,  Japan,  UAE,  UN
Development Group, World Bank, IMF and Coalition Provisional Authority. Following the decision to
hold the Donors’ Conference in Madrid, Spain was invited to join the group.

4

                                                
On 16 July 2003, the Coalition Provisional Authority, in conjunction with the Iraqi Ministries
of  Finance  and  Planning,  circulated  a  budget  covering  July  –  December  2003.  This  budget
focused  on  the  restoration  of  basic  services,  restructuring  the  banking  system,  state  owned
enterprises and agriculture and expanding security and justice activities. For 2004, the United
Nations and the World Bank led needs assessment, in which Commission experts have been
involved, will identify sector priorities for reconstruction.

In parallel, the Coalition Provisional  Authority is  producing  a draft  national  budget for  Iraq
for  2004  which  will  show  expected  levels  of  revenue,  in  particular  from  oil  sales,  and
expenditure for both the operating costs of the Iraqi administration and investment needs for
reconstruction. These two exercises are being co-ordinated to ensure that potential donors are
presented  with  an  integrated  set  of  priorities  for  rehabilitation  and  reconstruction  at  the
Madrid Conference.

3.

THE  EUROPEAN  UNION’S  POSITION  AT  THE  MADRID  DONORS  CONFERENCE  AND
BEYOND

Three broad conditions need to be satisfied if the European Union and its Member States are
to make an effective contribution to the reconstruction of Iraq at Madrid and beyond:

(cid:1)  The need for an improvement in the security situation

The  security  environment  in  Iraq  needs  to  be  improved  to  permit  effective  and  rapid
reconstruction work to go ahead. As the occupying power, the Coalition Provisional Authority
is responsible for providing the conditions which will enable the delivery and implementation
of international assistance. This requires more effective action by the military, better adapted
to present  circumstances, and  further efforts to expand and  improve  civilian  policing. Some
donors  have  expressed  an  interest  in  providing  assistance  for  non-military  security,  such  as
police training, as well as independent protection for international organisations operating in
Iraq.

The  European  Union  should  continue  to  underline  the  need  for  the  Coalition  Provisional
Authority to  make  further  efforts  to  improve  the  security  environment  in  Iraq.  These  issues
will need to be taken up in the agenda for the Madrid Conference.

(cid:1)  A clear commitment to the establishment of a sovereign Iraqi government

The  United  Nations  Secretary  General  has  emphasised  that  “the  importance  for  the  Iraqi
people  of  moving  quickly  towards  their  own  government  cannot  be  overstated”5.  Tangible
progress and a clear timetable for the transfer of power and sovereignty to the Iraqi people are
needed  if  they  are  to  gain  a  sense  of  participation  in  and  responsibility  for  rebuilding  their
country.  In  this  context,  Iraqi  Ministerial  and  civil  society  representatives  should  be
encouraged to participate fully in the Madrid Conference, presenting their views on needs and
priorities  for  the reconstruction process. The  European Union  should  continue  to  emphasise
the  importance  of  transition  to  an  internationally  recognised  and  representative  Iraqi
government and the central role of the UN in facilitating this process.

5

SG Report pursuant to para 24 of UNSCR 1483 (S/2003/715 of 17/7/03) Para 23

5

                                                
The  Iraqi people  need to see  a  credible  process  leading  to  a new  constitution  and  elections.
Developing  the  institutions  of  democracy  and  fostering  an  independent  and  strong  civil
society capable of voicing its concerns are essential to achieve pluralistic and representative
government. Ensuring more active participation of women in public life and a free media are
two  important  dimensions  of  this.  Work  is  needed  to  promote  reconciliation,  by  addressing
past violations of human rights and by establishing a properly functioning judiciary capable of
assuring the rule of law. The European Union should support the efforts of the United Nations
to  assist  the  establishment  of  national  and  local  institutions  for  representative  governance,
promote the protection of human rights, judicial and legal reform.

(cid:1)  The  creation  of  a  transparent  and  operational  multilateral  framework  for

reconstruction

A  coherent  budgetary  framework  is  essential  to  ensure  a  transparent  and  efficient
reconstruction  programme.  The  World  Bank  and  United  Nations-led  needs  assessment
missions  are  helping  to  define  a  common  set  of  priorities  for  donors,  the  Iraqi  Provisional
Government and the Coalition Provisional Authority for 2003-4. As the Coalition Provisional
Authority  hands  over  more  responsibility  to  the  Iraqi  Interim  Authority,  dialogue  should
progressively become one between donors and the Iraqi authorities.

Donors  wish  to  channel  their  contributions  to  reconstruction  independently  of  the  Coalition
Provisional  Authority  and  the  DFI.  With  this  end  in  view,  the  World  Bank  and  UN  are
currently developing a Multi-Donor Trust Fund for Iraq. The Commission intends to channel
the  main  part  of  the  Community  contribution  through  such  a  fund,  while  allowing  for
flexibility  to  support  actions  implemented  by  UN  bodies  and  NGOs,  especially  in  the  early
phases of reconstruction. A mechanism is also needed to ensure proper liaison  and dialogue
between  the  international  community,  the  Iraqi  authorities  and  the  Coalition  Provisional
Authority  on  budget  expenditure  priorities  and  the  reconstruction  strategy.  Transparent  and
non-discriminatory procedures are needed, in particular concerning public procurement, in the
management of both the Development Fund for Iraq and the Trust Fund.

A further important factor in the success of the European Union’s efforts is the:

(cid:1)  Involvement of Iraq’s Neighbours

Successful transition in Iraq and regional stability will also depend on co-operative relations
between Iraq and its neighbours, notably Turkey, Jordan, Syria, GCC states and Iran.

The  European  Union  should  support  and  promote  the  involvement  of  Iraq’s  neighbours  in
Iraq’s reconstruction, at Madrid and beyond.

4.

FINANCIAL IMPLICATIONS FOR THE EUROPEAN UNION

The  commitment  of  the  European  Union  to  Iraq  is  not  new.  Since  1992,  through  its
Humanitarian  Aid  Office  (ECHO),  the  Community  has  been  the  largest  external  source  of
humanitarian aid for Iraq after the United Nations-administered Oil For Food programme. In
March  2003,  a  total  of  €100  million  was  earmarked  for  humanitarian  aid  to  Iraq.  Of  this,
€69.5  million6  has  already  been  committed  for  humanitarian  interventions  in  areas  such  as

6

As of 30 September 2003

6

                                                
health,  water  and  sanitation,  de-mining  and  to  support  co-ordination  amongst  humanitarian
actors in Iraq.

The  European  Union  has  expressed  its  desire  to  make  a  significant  contribution  to
rehabilitation  and  reconstruction.  It  is  well  placed  to  assist  in  this  process,  drawing  on  its
experience in post-conflict countries and  economic transition. In order to  achieve maximum
impact, the contributions of the European Union as such and of the Member States need to be
closely  co-ordinated.  We  should  therefore  aim  at  making  a  combined  pledge  at  the  Madrid
Conference.  To  facilitate  co-ordination,  the  Commission  has  established  a  clearinghouse
mechanism to collect and distribute information about reconstruction activities.

The Needs  Assessment process, led by the UN  and  World  Bank,  has  examined  Iraq’s  short
and medium-term needs and priorities for reconstruction in 14 sectors to be addressed via the
Multi  Donor  Trust  Fund  for  Iraq7.  Commission  officials  participated  in  missions  on  the
macroeconomic framework, health, education, employment creation and local governance.

Priorities for Community assistance will build on the work of ECHO and include support in
areas  such  as  institutional  and  capacity-building,  particularly  in  the  area  of  macroeconomic
management including trade policy, creating a social safety net, health, water and sanitation,
education, employment, the strengthening of civil society and the protection and promotion of
human rights and democracy.

On  this  basis,  and  taking  into  account  the  resources  available  under  Heading  4  of  the
Community budget, the Commission will propose to the budgetary authority that €200 million
be made available for Iraq until the end of 2004. Since urgent reconstruction needs in Iraq go
beyond  the  resources  available  from  the  Community  budget,  and  as  a  number  of  Member
States have indicated their willingness to contribute to these efforts, the Commission proposes
that, at the Madrid Conference, a common pledge is made on behalf of the European Union
and its Member States.

5.

CONCLUSIONS

In the context of preparations for the Madrid Conference, the European Commission invites
the Council to:

(cid:1)  Reiterate  the  European  Union’s  support  for  the  development  of  a  prosperous,  stable  and

sovereign Iraq.

(cid:1)  Underline the important role of the UN, in line with the relevant UNSC resolutions, in the
process  leading  to  the  establishment  of  an  internationally  recognised  representative
government  in  Iraq  and  in  mobilising  the  necessary  support  from  the  international
community for Iraq’s reconstruction.

7 

Needs  assessment  missions  considered  the  following  sectors:  health,  education,  water  resources,
agriculture, irrigation and food security, humanitarian mine action, water supply and sanitation, macro-
economic  policy,  economic  management, 
trade,  price
liberalisation,  safety  nets,  investment  climate  and  state  owned  enterprises,  banking  and  finance,
transport and communication, electricity, livelihoods, employment generation and reintegration, labour
and  social  welfare,  housing,  including  urban  development  and  property  restitution,  local  governance
capacity building, civil society, rule of law and media. In addition to the sector analysis, each team was
also requested to assess needs in the areas of gender and the role of women, human rights, environment
and capacity building as cross-cutting issues.

including  public  sector  management, 

7

                                                
(cid:1)  Confirm  that,  to  be  effective,  support  from  the  EU  and  its  Member  States  for
reconstruction  in  Iraq  requires  an  improvement  in  the  security  situation,  a  clear
commitment  by  the  parties  concerned  to  create  the  conditions  for  the  establishment  of  a
sovereign Iraqi government, and the setting up of a transparent multilateral framework to
channel  support  from  the  international  community  for  reconstruction.  These  conditions
will determine the participation of the EU in the reconstruction process beyond the Madrid
Conference.

(cid:1)  Note  the  importance  of  promoting  Iraq's  integration  in  its  regional  environment  and
reiterate the European Union’s call on Iraq's neighbours to support stability in Iraq and in
the region.

(cid:1)  Note  that  work  is  underway  to  set  up  an  independent  Multi-Donor  Trust  Fund  for  Iraq
which should be  managed by the UN  and World  Bank  to  address  priorities  identified  by
the UN, World Bank and IMF in the framework of Iraq’s overall reconstruction needs.

(cid:1)  Note  that  this  implies  a  need  for  close  co-ordination  between  donors  and  the  relevant

authorities in Iraq.

(cid:1)  Confirm  the  importance  of  transparent  and  non-discriminatory  procedures,  in  particular
concerning public procurement, in the management of both the Development Fund for Iraq
and the Multi-Donor Trust Fund.

(cid:1)  Note that support from the European Union and its Member States may also be directed to

UN bodies and NGOs which are operational in Iraq.

(cid:1)  Invite  the  Commission  to  ensure  the  necessary  co-ordination  with  a  view  to  the
announcement  of  an  overall  pledge  by  the  European  Union  and  its  Member  States  for
reconstruction in Iraq in 2003 and 2004 at the Madrid Conference.

(cid:1)  Endorse  the  Commission’s  proposal  that  the  European  Union  announce  at  Madrid  an
indicative  pledge.  This  pledge  will  be  made  up  of  €200  million  at  this  stage  for  2003-4
from the EU budget, plus the contributions of Member States.

(cid:1)  Note that in parallel to the work on reconstruction,  the European Union will  continue its

active and substantial involvement in humanitarian relief.

(cid:1)  Invite  the  Commission  to  report  as  necessary  on  preparations  for  the  Madrid  conference

and its follow up.

8

ANNEX

FINANCIAL STATEMENT

1.

BUDGET HEADINGS:

DATE: [23.09.2003]

A) 2003 financing
B7-432 (19 08 06 under ABB structure) “Other operations in favour of Middle
East developing countries”.

B) 2004 financing
New budget article 19 08 07 “Aid for rehabilitation and reconstruction of Iraq”.
TITLE:
[New Article proposed for 2004:
19 08 07 “Aid for rehabilitation and reconstruction of Iraq”]
LEGAL BASIS:

Council Regulation (EEC) No 443/92 of 25 February 1992 on financial and technical assistance to and
economic cooperation with developing countries in Asia and Latin America (OJ L 52, 27.2.1992, p. 1).
(Attached to 19 08 06, ex B7-432)

Council  Regulation  (EC)  No  2258/96  of  22  November  1996  on  rehabilitation  and  reconstruction
operations in developing countries (OJ L 306, 28.11.1996, p. 1).
(Attached to 19 08 05, ex B7-431)

“Under  the  new  line,  in  2004,  both  legal  bases  will  be  applied.  For  2003,  the  projects  will  be
implemented under budget article B7-432 (ALA Regulation) “.
AIMS:
[Community contribution to rehabilitation and reconstruction of Iraq over the coming 14 months]
FINANCIAL IMPLICATIONS

12 MONTH
PERIOD

(EUR million)
[-]

CURRENT
FINANCIAL
YEAR
[2003]
(EUR million)
[40] (8)

FOLLOWING
FINANCIAL
YEAR
[2004]
(EUR million)
[160](1)

2.

3.

4.

5.

5.0

5.1

EXPENDITURE
-CHARGED TO THE EC BUDGET
(REFUNDS/INTERVENTIONS)
-NATIONAL AUTHORITIES
-OTHER
REVENUE
-OWN RESOURCES OF THE EC
(LEVIES/CUSTOMS DUTIES)
-NATIONAL

5.0.1 ESTIMATED EXPENDITURE
5.1.1 ESTIMATED REVENUE
5.2 METHOD OF CALCULATION:
6.0

[-]

[-]

[-]

[2005]
[-]
[-]

[2006]
[-]
[-]

[2007]
[-]
[-]

[2008]
[-]
[-]

CAN THE PROJECT BE FINANCED FROM APPROPRIATIONS ENTERED IN
THE RELEVANT CHAPTER OF THE CURRENT BUDGET?

6.1

CAN THE PROJECT BE FINANCED BY TRANSFER BETWEEN CHAPTERS OF
THE CURRENT BUDGET?

NO

YES in
2003 and
NO in 2004

8

In 2003, only € 29 Million on article 19 08 06 (B7-432) for Iraq. Remaining funds on RRM and EIDHR
articles (€ 11 Million). In 2004, € 160 Million on the new Iraq article 19 08 07 (B7-433).

9

                                                
6.2 WILL A SUPPLEMENTARY BUDGET BE NECESSARY?
6.3 WILL APPROPRIATIONS NEED TO BE ENTERED IN FUTURE BUDGETS?
OBSERVATIONS:
[See clarifications below]

NO
YES

1.

BUDGET HEADING

Considering  the  importance  of  such  pledge,  the  Commission  is  proposing  to  create  a  new
budget line dedicated to fund the rehabilitation and reconstruction in Iraq. This will allow to
respect the policy expressed by the Budget Authority, in particular the European Parliament,
as  regards  transparency  when  the  Community  is  contributing  to  the  financing  of
reconstruction action (Afghanistan, Kosovo, East Timor).

(cid:1)  The following nomenclature and title is proposed through an amending letter to the 2004

PDB: Article 19 08 07 “Aid for rehabilitation and reconstruction of Iraq”

6.0 CAN THE PROJECT BE FINANCED FROM APPROPRIATIONS ENTERED

IN THE RELEVANT CHAPTER OF THE CURRENT BUDGET? NO

The 2003 financial contribution of € 40 Million is provided as follows:

I. Existing instruments (€ 11 Million)

(cid:1)  Up to € 8 million from 19 02 05 “Rapid Reaction Mechanism” (9). Commitments from the

RRM line. No transfer of funds needed.

(cid:1)  €  3  million  from  19  04  “EIHRD”.  Projects  committed  from  the  EIHRD.  No  transfer  of

funds needed.

II. Reserve and excess of funds in Heading 4 (€ 29 Million)

(cid:1)  € 6,4 million from B0-4011, item B7-6600 “KEDO” (10).

9

10

As  of  28.08.2003,  €  8  Mio  unprogrammed  in  2003.  Intervention  would  depend  on  the  priority  sector
identified by the Commission.
With regard to the proposed use of the part of the budget reserved for Kedo, the following observation
has to be made:
The Council, on the proposal of the EP, has decided to put the EU's 2003 contribution to Kedo (apart
from a small part to be used for Kedo's administrative costs) in reserve. This was done under the terms
of  the  Accession  Agreement  as  the  DPRK  didn't  respect  anymore  its  nuclear  non-proliferation
obligations. In spite of this non-respect Kedo has continued up to today the construction of two nuclear
light water reactors in the DPRK (LWR project). However a consensus is now emerging amongst the 4
Kedo  Members  to  suspend  these  construction  activities  for  probably  a  year.  The  extra  costs  resulting
from  such  a  suspension  have  been  estimated  by  Kedo's  secretariat  to  amount  to  $102  million.  The
decision to suspend will have to be taken by Kedo's Executive Board. No date for a meeting has been
set  yet.  No  agreement  exists  yet  on  who  will  pay  for  the  additional  costs.  Kedo's  existing  financing
mechanism  doesn't  foresee  the  payment  of  such  additional  costs.  The  EU  has  no  financial  liability
beyond  its  financial  contribution.  It  has  taken  the  view  that  suspension  of  the  LWR  project  would
remain within the realm of that project and thus leave  untouched the financial commitments  made by
the Japanese and South Korean Governments. The US shares this position. However Japan and South
Korea  consider  that  all  4  Members  should  finance  the  extra  costs.  The  issue  can  only  be  finalized
through a decision of the Executive Board. It is also still not known whether the Council, possibly for
political reasons, may wish to contribute to the suspension costs as they are a logical consequence of the
non-proliferation difficulties. Therefore the proposed use of the part of the budget reserved for Kedo (€
6,5 million) would create the risk, remote as it may be, that at a later and for the time being unknown
moment, no money would be available for the payment of an existing EU financial obligation.

10

                                                
(cid:1)  € 2,5 million from  B0-4011, item B7-8000 “International fisheries agreements”.

(cid:1)  € 20,1 million from available funds in Heading 4.

These  credits  of  €  29  million  in  CA  will  be  transferred  to  the  budget  line  B7-432  “Other
operations  in  favour  of  Middle  East  developing  countries”  through  a  specific  budgetary
authority  transfer.  The  corresponding  PA  will  be  also  transferred  to  cover  the  first
disbursements of the 2003 commitment.

The 2004 contribution of € 160 million:

I. New additional funds

(cid:1)  € 86 million from the Preliminary Draft Budget margin in Heading 4. Amending Letter to

increase the Preliminary Draft Budget (PDB) 2004 needed.

(cid:1)  € 74 million from the funds available under the Flexibility Instrument. Amending Letter to

increase the Preliminary draft Budget (PDB) 2004 needed.

The  status  of  the  humanitarian  assistance  provided  through  ECHO  in  2003  for  Iraq  is  that
ECHO  has  programmed  €  100  million  in  2003,  of  which  €  69,5  million  has  already  been
decided  by  the  Commission  and  pre-committed.  ECHO  has  as  of  5.9.2003  signed  contracts
for  the  amount  of  €  57,3  million.  The  remaining  fund  to  be  committed  and  contracted
amounts  to  €  30,5  million.  Financial  decisions  are  expected  to  be  presented  to  the
Humanitarian Committee during October 2003.

11