Opinion of the European Economic and Social Committee on the Proposal for a Council Regulation on the financing of the Common Agricultural Policy (COM(2004) 489 final — 2004/0164 (CNS))
Date: 2005-02-09
Institutions: European Economic and Social Committee
Subjects: account, auditing, common agricultural policy, financing, fund (EU), reform of the CAP, rural development

C 221/40

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Official Journal of the European Union

8.9.2005

Opinion of the European Economic and Social Committee on the Proposal for a Council Regu-
lation on the financing of the Common Agricultural Policy

(COM(2004) 489 final — 2004/0164 (CNS))

(2005/C 221/09)

On 29 October 2004, the Council decided to consult the European Economic and Social Committee,
under Article 37(2) of the Treaty establishing the European Community, on the abovementioned proposal.

The Section for Agriculture, Rural Development and the Environment, which was responsible for preparing
the Committee's work on the subject, adopted its opinion on 13 January 2005. The rapporteur was
Mr Kienle.

At its 414th plenary session of 9 and 10 February 2005 (meeting of 9 February 2005), the European
Economic and Social Committee adopted the following opinion by 133 votes with 6 abstentions:

1. Introduction

1 January 2005 saw the launch of the far-reaching agricultural
reform. At the heart of this reform is the decoupling of produc-
tion subsidies and a stronger emphasis on rural development.
The financial basis of the Common Agricultural Policy is the
October 2002 decision by heads of state or government laying
down a ceiling for agricultural expenditure under the first
pillar, which is to be capped at actual 2006 levels for the EU-
25 expenditure until 2013. This decision on agriculture is an
accepted part of the EU's financial perspective for 2007-2013
which covers overall EU funding. Thus, expenditure on the
Common Agricultural Policy including rural development (for
the EU-27) is set to run at EUR 57.18 billion in 2007, and will
increase by 1.1 % by 2013 (at 2004 prices).

The Guarantee Section is used to finance the common organi-
sation of agricultural markets (direct payments, export refunds,
intervention buying-in), certain types of expenditure in the
veterinary and phytosanitary sectors, and measures to evaluate
and provide information on the Common Agricultural Policy.
The Guarantee Section also comprehensively finances certain
measures for rural development (agro-environmental measures,
compensatory allowances for less-favoured areas, afforestation,
early retirement) and investments in regions that do not have
Objective 1 status.

The Guidance Section finances other investment expenditure
on rural development not covered by the Guarantee Section of
the EAGGF,
i.e. measures in regions with Objective 1 status
and the Leader+ initiative.

the title might

the
However, contrary to what
Commission proposal under review is not so much concerned
with the sources and use of funding for the Common Agri-
cultural Policy as with the budgetary implementation of
support for agriculture and rural development.

suggest,

2. Gist of the Commission document

The proposal under
review is intended by the European
Commission to serve as a budgetary basis for the Common
Agricultural Policy,
rural development
including the EU's
policy, in the period 2007-2013, and to regulate its financing
through a single legal act. It should be seen in conjunction
with the proposal for a Regulation on support for rural devel-
opment. The Commission's aim is to simplify and secure
greater efficiency. To this end, it proposes a tighter monitoring,
assessment and reporting system.

2.1.2 B a si c fe a tu r e s of

th e fu t u r e Common Ag r i -

c u lt u r a l Poli cy fu nds

The structure of the new funds is to be on the same lines as
the EAGGF. They are to be administered by a committee
the Member States and the
comprising representatives of
funds). All
Commission (Article 41, Committee on the
measures financed by the new funds are to become subject to
an accounts clearance procedure, whereas at present
this
requirement only applies to measures financed by the Guar-
antee Section. At present, measures financed by the Guidance
support
Section are monitored through the multi-annual
programmes (as per Regulation EC 1260/1999 on the Struc-
tural Funds).

2.1 Funds for financing expenditure

2.1.3 T h e

ne w E u r op e a n Ag r i c u lt u r a l G u a r a nte e

Fund (E AGF)

2.1.1 Cu r r e nt si tu a ti on: Th e Eu r op e a n A g r i c u ltu r a l

G u i da nc e a nd G u a r a nte e F u nd ( E A G G F )

The European Agricultural Guidance and Guarantee Fund
(EAGGF), which currently finances the Common Agricultural
Policy, consists of a Guidance Section and a Guarantee Section.

The EAGF resembles the existing Guarantee Section of the
Common Agricultural Fund (EAGGF) and is
intended to
continue financing,
intervention measures, export
refunds, direct payments, information activities, and promotion
of agricultural products, as at present. Support measures for
rural development will no longer be financed by the EAGF;
instead, they would be covered by the EAFRD.

inter alia,

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2.1.4 T h e ne w E u r op e a n A g r i cu ltu r a l F u nd for R u r a l

De ve lop me nt (E A F R D)

The new EAFRD is to be used for all future financing of rural
development measures,
in order to simplify financing of the
second pillar. The EAFRD is to combine funds from the
EAGGF Guidance Section and funds for rural development
Including modulation
from the EAGGF Guarantee Section.
resources from the first pillar arising from reductions under
Article 10 of Regulation (EC) 1782/2003, the 2013 budget for
rural development will, as the European Commission sees it,
amount to a total of EUR 14.2 billion (for the EU 27, at 2004
prices).

2.2 Payment and checking procedures

2.2.1 Pa y i ng a g e nc i e s

According to the Commission's proposal, these procedures are
to be dealt with by the paying agencies set up by Member
States, as at present. Paying agencies are approved departments
or bodies of the Member States with responsibility for checking
the eligibility of
recording payments made, and
preparing the requisite documentation for the Commission.

requests,

2.2.2 Pa y me nt s t o M e mb e r Sta te s a nd commi t me nt of

fu nds

EAGF payments are to be made monthly, EAFRD payments
quarterly. Under the draft regulation, EAFRD funds will be
committed separately for each programme over a period of
several years, split into annual instalments. After this period,
funds will be automatically decommitted, under the N+2 rule,
which states that the funds allocated to a programme must be
spent by the end of the second year after allocation, where N is
the year of allocation.

2.2.3 Commu ni c a ti on w i th t h e Commi ssi on

Member States are to submit declarations of expenditure to the
Commission and annual accounts at the end of the budget
year, together with a document certifying that the accounts
submitted are complete, accurate and true. An additional
requirement envisaged under the proposal is for a statement of
assurance from the person in charge of the paying agency. For
EAFRD expenditure, the Commission proposes that the paying
agency should also submit separate annual accounts for each
programme, split into annual instalments.

2.2.4 Cle a r a nc e of a cc ou n ts, confor mi ty c le a r a nc e

and the fi na nci a l r epor t

The draft regulation envisages that the Commission will close
the accounts of the paying agencies prior to 30 April. The
clearance decision will cover the completeness, accuracy and
veracity of the accounts submitted. In line with current proce-
dures, the Commission is to assess whether any expenditure
should be excluded from Community financing (conformity

clearance). One change is that the period for making a financial
correction has been extended from 24 months to 36 months.
Also, the Commission's financial report on administration of
the funds is to be submitted to the European Parliament and
the Council by 1 September (instead of 1 July as at present).

3. General comments

3.1 The public must be able to accept and readily understand support

The EESC is aware that funding for the Common Agricultural
Policy accounts for a significant share of the EU's total budget,
albeit that share is,
in relative terms, diminishing over time.
The EESC feels that it is all the more essential that therefore the
public should be able to readily understand and accept support
for agriculture and rural development. In the view of the EESC,
two conditions must be met for this to happen:

— payments must reach final beneficiaries with as few deduc-

tions as possible; and

— abuse should be prevented through effective monitoring.

3.2 Innovative approaches for simpler operations

The EESC acknowledges that the draft regulation contains a
range of genuinely innovative approaches
for better and
simpler budgetary operations. The EESC believes that creating
two funds with a clear division of tasks is the right way of
achieving this objective. The regulation is a significant step
forward in terms of simplification. Financing of the Common
Agricultural Policy is regulated on a single legal basis, and the
two monitoring systems currently operating are replaced by a
single system. The various financial management systems for
rural development measures are unified, but a second system
remains for EAGF measures. The draft regulation on support
for rural development replaces the five programming systems
with a single system and reduces the number of programmes.
The EESC endorses these simplifications, which will particularly
benefit the Brussels administration.

3.3 Simplification must have a perceptible impact on beneficiaries

However, the EESC is of the view that simplification must have
a perceptible impact at all levels, benefiting the EU, Member
States and final beneficiaries. The EESC considers that it is
particularly important for simplification of bureaucratic proce-
dures to have an impact at the end of the administrative chain,
for farmers. At present European farmers have to deal with a
considerable amount of red tape, which is frequently accompa-
nied by late payment of subsidies. SAPARD — the Special
Accession Programme for Agriculture and Rural Development
— was an extreme example of this, in a case that was also
recently criticised by the European Court of Justice. However,
there is only a very small risk of not being able to recover
payments which have been mistakenly made to farmers. The
EESC therefore feels that urgent steps should be taken to
ensure that support for final beneficiaries is prompt and as
straightforward as possible.

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3.4 Red tape can be cut

4. Specific comments

Although the goal of
simplification is being adequately
achieved from the Commission's perspective, the same cannot
be said for Member States. Some parts of the regulation even
run counter to the objective of simplification, and increase the
administrative burden. The EESC laments the fact that, because
of differing procedures for payment and committing funds,
paying agencies still have to run two separate financial manage-
ment systems.
involved to a
In order to keep the effort
minimum, it is essential that these two systems be as stream-
lined as possible. In view of this, further changes are needed,
not least to the regulation on support for rural development.
The requirement
for extra documentation is an additional
administrative burden for Member States.

3.5 More demands on Member States

In view of the longer period for charging expenditure, tighter
deadlines and provisions for the recovery of
funds by the
Commission, the Commission's proposal would mean more
shared financial responsibility for Member States. In principle,
the EESC welcomes the fact that the rules on the recovery of
funds, do not place liability for disbursed support on the EU
alone, but also on the Member States. For funds to be used
more efficiently and transparently, there must be scope for
recovering funds which have been mistakenly paid out, even
after a relatively long period. In view of objections by many
Member States to greater shared responsibility, the EESC will
be observing very closely whether these Member States lose
interest in the programmes, at the expense of potential final
beneficiaries. The tighter expiry deadline for payments is also
intended to encourage more discipline on the part of Member
States. While the EESC agrees that there should be limits to
payments, it feels that the deadlines stipulated are excessively
tight, and asks the Commission to reconsider them.

3.6 Indirect support should remain the exception

i.e. support of

The EESC is concerned that increased technical support will
divert resources from the actual purpose of the funds, which is
to support agriculture and rural development. This kind of
indirect support,
institutions and structures
which are responsible for providing actual support, should be
kept within tight limits, and should only be permitted when
strictly necessary.
the EESC is particularly
critical of Community support for administrative and moni-
toring capacity building in Member States, which is undeniably
the responsibility of Member States themselves. The EESC
suggests that this extension of technical support should only be
offered in a few exceptional cases and for a limited period. The
EESC feels that a report should be issued by the Commission in
these cases, to ensure strict monitoring of such support.

In this context,

4.1 German names for the European Agricultural Fund for Rural

Development (EAFRD)

In the German-language version of the regulation on support
for rural development, the new European Agricultural Fund for
Rural Development (EAFRD) — in German Europäischer Fonds
für Landwirtschaft und Landentwicklung (EFLL) — is referred to as
the Europäischer Landwirtschaftsfonds für die Entwicklung des ländli-
chen Raums (ELER). The EESC asks that the regulation texts
should avoid any discrepancy and use the same name for the
same fund.

4.2 Administrative burden

4.2.1 E x te nsi on
( A r t i c le 7 )

of

t h e

c e r ti fi c a ti on

p r oc e du r e

An increased administrative burden would arise from the exten-
sion of
the certification procedure to monitoring systems
(Article 7). Currently, certification bodies examine the comple-
teness, accuracy and veracity of the annual accounts submitted
to the Commission, but under the proposed regulation they
would have responsibility for ‘certification of the management,
monitoring and control systems’. The EESC would like an
explanation of why such certification is necessary. The aim
should be for certification bodies to concentrate uniformly on
certifying payments made by paying agencies.

4.2.2 A nnu a l a c cou nts (Ar ti c le 8)

payments,

prefinancing

Annual accounts will have to be drawn up for payments from
the new EAFRD but the system of financing (commitment of
payments,
funds,
payments of balance) will be based on the total duration of the
programme. The EESC is concerned that paying agencies will
have to report expenditure both in annual accounts and in
financial statements for programmes as a whole, which would
in increased effort. The annual accounts must be
result
accepted in each case.

intermediate

In addition, paying agencies will have to submit separate
individual EAFRD
for expenditure under
annual accounts
programmes. Certification bodies, which until now have
submitted reports with annual accounts, will in turn have to
prepare separate annual reports for these separate accounts.
The EESC regrets that the Commission has not achieved more
simplification, but feels that the effort involved is acceptable.

4.2.3 A ddi ti ona l doc u me n ta ti on (A r ti c le 8)

In addition to the annual accounts, a statement of assurance
will have to be submitted by the person in charge of the
paying agency. The EESC does not feel that this is necessary.
The arrangements for paying agencies and certification bodies
already provide for monitoring procedures. In the view of the
EESC it would also suffice for the person in charge of the
paying agency to confirm the veracity of information.

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4.3 Financing

4.3.1 A ddi ti on a l
( A r t i c le 5)

fi na nc i ng of

te c h ni c a l

a ssi sta nc e

25)

4.3.3 L i mi ti ng p r e fi na nc i ng p a yme nts to 7 % (A r t i cle

Financing of technical assistance is to be extended to analysis,
management, monitoring and implementation of the Common
Agricultural Policy, as well as to measures for the development
of control systems and technical and administrative assistance.
The proposal also introduces financing of executive agencies
set up in accordance with Council Regulation (EC) No.
58/2003 and financing of measures promoting cooperation
and exchanging experience at Community level, undertaken in
the context of rural development, including networking of the
parties concerned. This expenditure is to be administered in a
centralised manner. The EESC is extremely critical of proposals
for Community support of
the administrative functions of
Member States.

However,
responsible for the promotion of networking.

it is appropriate that the Commission should be

4.3.2 R e cove r y of p a yme nts (A r ti c le s 32, 33, 35)

the primary administrative or judicial

In the case of non-recovery, the proposal envisages that a
greater share of the financial consequences should be borne by
Member States. The Commission would be able to charge the
sums to be recovered to the Member State, if the Member State
had not initiated all the appropriate administrative or judicial
procedures for recovery purposes (for the EAGF: within one
year of
finding). At
present, this is not possible. If recovery has not taken place
within four years, or within six years where recovery action
has been taken in the national courts, 50 % of the financial
consequences of non-recovery would be borne by the Member
State concerned. At present, all of the financial consequences
are borne by the Community budget. The EESC broadly
welcomes the fact that responsibility for payments will not be
borne by the Commission alone but will be shared with
Member States. This could induce Member States to exercise
greater care in devising their support and monitoring struc-
tures. A greater share in financial responsibility must not be
allowed to put Member States off participation in programmes.
Given that procedures can last for over four or six years, the
EESC proposes reconsidering timeframes and percentage rates
for Member State involvement.

Brussels, 9 February 2005.

Article 25 sets the prefinancing amount, paid by the Commis-
sion after adoption of a rural development programme to the
paying agency designated by the Member State, at 7 % of the
EAFRD contribution. In the view of the EESC, this is an accep-
table limit, as similar restrictions already apply, and as it would
not have any adverse consequences for the liquidity of paying
agencies.

4.4 Expiry of payments (Article 16)

Article 16 sets 15 October of the relevant budget year as a cut-
off date for late payments by Member States. However, some-
times back payments have to be made (e.g. court judgements).
In particular, administrative authorities will need more time to
adjust to the new system of (decoupled) production subsidies.
The EESC therefore feels that 15 October is not an appropriate
cut-off date.

4.5 Period for refusing financing (Article 31)

Article 31 (conformity clearance) allows the Commission to
refuse financing under certain circumstances (infringement of
Community rules, failure to reach agreement with the relevant
Member State). This does not apply to expenditure incurred
more than thirty six months before the Commission notified
its inspection findings. At
the Member State in writing of
present,
the limitation period is 24 months. This change
further helps the Commission to avoid payments that do not
conform to Community law. However, the EESC feels that a
certain degree of time pressure for checking such conformity
— as exists under the current rules — is useful. In addition,
prompt intervention by the EU serves a preventive purpose and
maintains discipline among Member States.

4.6 Reduction of payments by the Commission (Article 17)

Article 17 gives the Commission the option of reducing or
suspending monthly payments. In addition to recovering or
refusing payments in the context of clearing accounts, the
Commission would also have the option of cutting payments at
short notice in the event of clearly improper use of Community
funds. The EESC is in favour of laying down a legal basis for
such an approach, which is already current practice.

The President

of the European Economic and Social Committee

Anne-Marie SIGMUND