Special Report No 4/2005 concerning the Commission’s management of economic cooperation in Asia, together with the Commission’s replies
Date: 2005-07-14
Institutions: European Court of Auditors
Subjects: Asia, European Commission, European Court of Auditors, administration of the Institutions, economic cooperation, interinstitutional relations (EU), project evaluation, report

19.10.2005

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Official Journal of the European Union

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I

(Information)

COURT OF AUDITORS

SPECIAL REPORT No 4/2005

concerning the Commission’s management of economic cooperation in
Asia, together with the Commission’s replies

(pursuant to Article 248(4), second subparagraph, EC)

(2005/C 260/01)

CONTENTS

Paragraph

Page

GLOSSARY OF ACRONYMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Background and description of the domain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The audit scope and approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

OBSERVATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Is there an effective strategy for economic cooperation in Asia? . . . . . . . . . . . . . . . . . . .

Broad strategy, against a fast changing background . . . . . . . . . . . . . . . . . . . . . . . . .

… inadequate objectives and indicators in the activity statement . . . . . . . . . . . . . . .

… leads to a wide variety of projects and programmes whose performance is diffi-
cult to measure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Has the Commission managed the implementation of economic cooperation activities
effectively? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Bilateral projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Asia-wide projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

CONCLUSIONS AND RECOMMENDATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Conclusions and recommendations on strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Conclusions and recommendations on implementation . . . . . . . . . . . . . . . . . . . . . . . . . .

I-VI

1-15

1-9

10-15

16-59

16-35

18-27

28-33

34-35

36-59

38-49

50-59

60-72

60-65

66-72

The Commission’s replies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2

3

4

4

6

10

10

10

11

12

12

12

16

18

18

18

20

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GLOSSARY OF ACRONYMS

Activity Based Budgeting

Activity Based Management

EuropeAid Cooperation Office (or EuropeAid)

Asia and Latin America

Association of South-East Asian Nations

Asia-Europe Meeting

Common RELEX Information System

Country Strategy Papers

European Business Information Centre

European Commission

ABB

ABM

AIDCO

ALA

ASEAN

ASEM

CRIS

CSP

EBIC

EC

ECERP

EU China Enterprise Reform Project

EU

IPR

IT & C

MoU

European Union

Intellectual Property Rights

Information Technology and Communications

Memorandum of Understanding

MUTRAP

Multilateral Trade Policy Assistance project

NIP

PCM

PMO

PRSP

National Indicative Programme

Project Cycle Management

Project Management Organisation

Poverty Reduction Strategy Paper

RELEX

Directorate-General for External Relations

RSP

SARS

SME

SPF

WTO

Regional Strategy Paper

Severe Acute Respiratory System

Small and Medium-sized Enterprise

Small Projects Facility

World Trade Organisation

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EXECUTIVE SUMMARY

EU economic cooperation expenditure in Asia is governed by the Council Regulation (EEC) No 443/92,
I.
which set the main objectives (improvement of scientific and technological cooperation; improvement of the
institutional structure; and support for undertakings by means of trade promotion, training and technical assis-
tance schemes) and lists the areas on which EU funds are to be spent (paragraphs 1-4).

II.
Economic cooperation in Asia is implemented in two different ways: bilateral projects, between the
Commission and individual beneficiary countries, and regional programmes covering subregions, or those cov-
ering the whole of Asia, which are referred to as ‘Asia-wide programmes’ (paragraphs 5-9).

The Court examined the extent to which the Commission has set a strategy which leads to the most
III.
effective use of the aid relating to economic cooperation activities in Asia, and whether the Commission man-
ages the implementation of this aid effectively (paragraphs 10-15).

IV.

In respect of strategy, the Court found:

— a lack of focus of the expenditure: both the policy and the operational strategies were found to be very
broad, resulting in a wide variety of projects covering many different areas, with sometimes over-ambitious
objectives (paragraphs 16-26);

— inconsistent objectives from policy down to operational levels, and impact and output indicators that con-

centrate on the political process rather than the result of the expenditure (paragraphs 28-33);

— as a result, the overall impact of the aid has been difficult to measure, and there is a limited basis on which

to assess its overall effectiveness and value for money (paragraphs 34-35).

In respect of the Commission’s management of the implementation of the economic cooperation

V.
expenditure, the Court found:

— the bilateral projects have faced long delays between the identification phase and the starting of the
projects and during their implementation. This reduced the projects’ outputs and impacts and in some
cases caused them to be abandoned. The level of monitoring was not always satisfactory and the evalua-
tions, when carried out, were not always done on a timely basis. The potential for sustainability for nearly
half of the projects audited was in doubt (paragraphs 38-49);

— the Asia-wide projects were subject to a heavy and complex application procedure and potentially valu-
able help from delegations in assisting applicants was not given. The projects audited had produced posi-
tive results, including reaching a sizeable number of beneficiaries. The projects were generally well moni-
tored. However, it was not clear whether their sustainability would be ensured (paragraphs 50-59).

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VI.

The Court recommends the Commission:

— sets a clear strategy which recognises the specific nature of the economic cooperation and of its objectives
and contains indicators allowing for proper monitoring and progress assessment. The Commission should
ensure logic and consistency within the activity statements in the context of the ABM process, which
would allow better focus on the specific needs and challenges of this type of cooperation (paragraphs 61,
63, 65);

— identifies the corrective actions necessary to improve the procedures for the approving, implementation,
monitoring and evaluation of the bilateral projects, with a view to achieving sustainability (paragraph 68);

— reconsiders the application procedures for the Asia-wide programmes, including the role of the delega-
in order to ensure they are not unnecessarily complex, thus helping encourage applications

tion,
(paragraphs 70-71);

— extends the successful system of monitoring the Asia-wide projects to other projects (paragraph 72).

INTRODUCTION

Background and description of the domain

technological cooperation;
improvement of the institutional
structure; and support for undertakings by means of trade pro-
motion, training and technical assistance schemes. The Council
Regulation stresses that regional cooperation is an important ele-
ment of economic cooperation, including regional policies, intra-
regional trade and regional institutions for economic integration.

Asia accounts for 56 % of

1.
the world’s population,
and 25 % of world GNP. The EU’s economic and commercial rela-
tions with Asia are of great importance. Asia is now the EU’s third
most important trading partner and its fourth most important
investment destination. The EU imports over 230 billion euro
from Asia and exports over 140 billion euro to the region (1).

2.
EU cooperation with Asia started in 1976, at the same
time as the cooperation with Latin America and the Mediterra-
nean countries. Up to 2004, EU cooperation in Asia totalled more
than 7 800 million euro, having increased in average terms from
50 million euro to 400 million euro per year.

3.
EU economic cooperation in Asia is governed by the
Council Regulation (EEC) No 443/92 (2). It states that economic
cooperation shall serve the mutual interests of the EU and its part-
ner countries, contributing to the development of the ALA coun-
tries (Asia and Latin America countries) by helping them to build
up their institutional capacity so as to create an environment
more favourable to investment. Particular attention is given to
enhancing the role of businessmen, technology and know-how
from the EU Member States, particularly in the private sector and
small and medium-sized enterprises (SMEs). The economic coop-
eration has three overall objectives: improvement of scientific and

4.
The Commission has two main budget lines/articles (3)
covering cooperation in Asia: ‘financial and technical coopera-
tion’ (B7-3 0 0/19 10 01); and ‘political, economic and cultural
cooperation’ (B7-3 0 1/19 10 02) (see Table 1 below). Between
2000 and 2004 the Commission committed 509 million euro
under the latter budget article. In reality the amounts committed
for activities of an economic cooperation nature are actually
higher as some projects funded under the general budget line,
B7-3 0 0, are of an economic nature as well.

(1) Source: European Commission, Strategy Paper and Indicative Pro-
gramme for multi-country programmes in Asia 2005-2006, page 11
(August 2004).

(2) Council Regulation (EEC) No 443/92 of 25 February 1992 on finan-
cial and technical assistance to, and economic cooperation with, the
developing countries in Asia and Latin America (OJ L 52, 27.2.1992,
p. 1).

(3) Following the introduction of Activity Based Management by the
Commission, relations with Asia are now grouped under Activity
19 10, separated into: 19 10 01 Financial and technical cooperation
with Asian developing countries; 19 10 02 Political, economic
and cultural cooperation with Asian developing countries; 19 10 03
Aid to uprooted people in Asian countries; 19 10 04 Rehabilitation
and reconstruction operations in developing countries in Asia;
19 10 06 Aid for the rehabilitation and reconstruction of Afghanistan.

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Table 1

Budget lines

Financial and technical
cooperation with Asian
developing countries

Political, economic
and cultural cooperation
with Asian developing
countries

Total

Political, economic
and cultural cooperation
as % of total

(1)

(2)

(3) = (1) + (2)

(2)/(3)

B7-3 0 0/19 10 01

B7-3 0 1/19 10 02

Commitment
appropriations

in million euro

Commitment
appropriations

in million euro

2000

2001

2002

2003

2004

300,39

237,27

375,30

178,32

291,55

Total

1 328,84

115,76

86,16

99,40

103,11

109,25

513,67

in million euro

416,15

323,43

474,70

281,43

400,80

1 896,51

%

28 %

27 %

21 %

37 %

27 %

27 %

Table 2

5.
Under this general framework, EU economic cooperation
in Asia is implemented in different ways. There are bilateral
projects between the Commission and individual beneficiary
countries (see paragraph 38); regional programmes between the
Commission and specific subregions such as ASEAN (1) and
demand-led programmes covering the whole of Asia (see para-
graph 50). For the latter, beneficiaries may be from any country
in Asia, as identified by the ALA Regulation and for this reason
they are referred to as ‘Asia-wide programmes’ throughout this
report.

6.
The Court of Auditors calculated that the bilateral eco-
nomic cooperation projects in Asia approved for funding between
1995 and 2002 (2) totalled 343 million euro, (see Table 2) with
projects of 37 million euro in the ASEAN region.

(1) The Association of South-East Asian Nations. The 10 members are
Indonesia, Malaysia, Philippines, Singapore, Thailand, Brunei, Viet-
nam, Laos, Burma/Myanmar and Cambodia.

(2) Estimated from data collated from a variety of sources including Del-
egations’ websites, country strategy papers, etc. The Commission’s
management information systems, CRIS, did not include this infor-
mation.

Share of projects identified as economic cooperation per country

Country

Amount (euro)

Percentage

Bangladesh

Bhutan

Brunei

Cambodia

China

India

Indonesia

Laos

Malaysia

Burma

Nepal

Pakistan

Philippines

Singapore

Sri Lanka

Thailand

East Timor

Vietnam

947 000

1 000 000

1 973 400

0

99 634 648

60 354 119

7 990 016

8 000 000

3 000 000

0

15 000 000

54 950 000

6 659 829

500 000

3 315 700

8 674 000

0

70 811 380

Total bilateral

342 810 092

ASEAN

37 000 000

Source: Court of Auditors.

0,3 %

0,3 %

0,6 %

0,0 %

29,1 %

17,6 %

2,3 %

2,3 %

0,9 %

0,0 %

4,4 %

16,0 %

1,9 %

0,1 %

1,0 %

2,5 %

0,0 %

20,7 %

100,0 %

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There are five different programmes covering the whole of
7.
Asia; the two dealing more explicitly with economic cooperation
are Asia Invest and Asia IT & C (1). To a degree the Asia ProEco,
Asia Link and Asia Urbs programmes also support economic
cooperation.

8.
The Asia Invest programme began in 1997 with a Com-
mission contribution (2) of 42 million euro over a five-year
period, and has since entered a second phase of implementation
from 2003 to 2007, with a contribution of 41 million euro. The
aim of the projects financed by the programme is to ‘foster direct
business cooperation between economic operators in the EU and
Asia, with a focus on small and medium-sized enterprises, and to
support a dynamic private sector in Asia’. It involves partners in
both the EU Member States and the Asia countries.

9.
The Asia IT & C programme ran from 1999 to 2003
with a Commission contribution of 35 million euro. A second
phase was approved on 3 November 2003 for a further year, with
a contribution of 10 million euro. The general objective of Asia
IT & C (3) is to ‘create broad, intense and enduring technological
and economic relationships between Asia and Europe, in which
balanced partnerships and joint innovations may flourish’. It
involves partners in both the EU Member States and the Asia
countries.

The audit scope and approach

10.
In the past the Court’s audits have concentrated on finan-
cial and technical cooperation. Economic cooperation takes place
against the fast developing background of international trade. The
specific management challenges this provides, and the risks
entailed, is the focus of the Court’s audit.

11.
The audit covered bilateral projects, and the two types of
regional programmes: those covering the whole of Asia (Asia-
wide programmes) and those covering subregions (ASEAN pro-
grammes), focussing mostly on the former.

12.
The objective of this audit was to assess the Commis-
sion’s management of economic cooperation activities in Asia, by
examining:

— the extent to which the Commission has set a strategy which

leads to the most effective use of the aid; and

— whether the Commission manages the implementation of

the aid effectively.

13.
Expenditure on individual projects was audited in three
beneficiary countries — India, Vietnam and China — represent-
ing (see Table 2) 67 % of all bilateral projects, as well as a signifi-
cant proportion of the Asia-wide projects (50 %, see Table 3).

Table 3

Share of approved Asia-wide projects per country 2002

Country

Bangladesh
Bhutan
Brunei
Cambodia
China
India
Indonesia
Laos
Malaysia
Nepal
Pakistan
Philippines
Singapore
Sri Lanka
Thailand
East Timor
Vietnam

Total

Source: Court of Auditors.

Asia Invest
(euro)

0
0
0
0
3 185 288
1 073 785
200 988
0
200 975
120 000
0
510 887
100 993
283 686
333 887
0
1 648 135
7 658 624

Asia IT & C
(euro)

319 872
0
213 333
754 701
4 136 074
3 500 896
832 004
200 000
1 269 066
263 267
746 667
962 780
0
1 544 453
4 786 280
400 000
2 419 158
22 348 552

Total
(euro)

319 872
0
213 333
754 701
7 321 361
4 574 681
1 032 992
200 000
1 470 041
383 267
746 667
1 473 667
100 993
1 828 139
5 120 167
400 000
4 067 293
30 007 175

Percentage

1,1 %
0,0 %
0,7 %
2,5 %
24,4 %
15,2 %
3,4 %
0,7 %
4,9 %
1,3 %
2,5 %
4,9 %
0,3 %
6,1 %
17,1 %
1,3 %
13,6 %
100,0 %

(1) Other programmes are the Asia Urbs programme, promoting network-
ing and cooperation among local authorities between EU and Asia; the
Asia Link programme, promoting networking and exchanges
among universities in the two regions; and the Asia ProEco programme,
promoting partnerships in the field of the environment.

(2) These programmes are co-financed so actual programme value is

higher.

(3) As specified in the Financing Proposal, approved on 18 June 1998.

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The sample of bilateral projects for detailed audit covered
14.
the different types of programmes and projects on economic
cooperation, allowing the main management issues to be identi-
fied. The sample mostly comprised ongoing projects, but a num-
ber of completed projects were also audited (see Table 4).

14 bilateral projects were audited in detail, representing 37 % of
this type of expenditure in the selected countries (see Table 5). Of
the Asia-wide projects, 39 were audited in detail, representing
25 % of their total value (see Table 6). The full list of Asia Invest
and Asia IT & C projects audited is shown in Table 7.

Bilateral and other regional projects visited during the audit

Table 4

Project No

Project name

Bilateral projects

India

Amount
(EUR)

Status at time
of audit visit

IND/EUAID/D/6/1997/0229

EU-India Maritime Transport Project

8 000 000

Closed

IDD/RELEX/1997/0481

EU-India Civil Aviation Project

IDD/RELEX/2001/0001

India Small Projects Facility

IND/RELEX/2001/0009

European Business Information Centre (EBIC)

IND/RELEX/1997/0120

EU India IPR

Subtotal

Vietnam

18 000 000

4 200 000

279 170

950 000

31 429 170

Ongoing

Ongoing

Closed

Not
implemented

VNM/RELEX/H05/1997/0294

Multilateral Trade Policy Assistance (MUTRAP)

3 100 000

Ongoing

VNM/RELEX/H01/2000/2242

EBIC Vietnam

VNM/RELEX/2001/0032

EC Vietnam in the Audio-Visual Sector

CHD/RELEX/1995/0111

CHD/RELEX/1998/2202

Subtotal

China

EU-China Intellectual Property Rights Cooperation pro-
gramme (IPR CHINA)

WTO Framework programme for EU support to China’s
accession to the WTO (phase I)

CHD/RELEX/1999/2071

EU China Financial Services Cooperation Project

CHD/RELEX/2000/2018

EU China Enterprise Reform Project (ECERP)

CHD/RELEX/2000/2021

EU China Small Projects Facility

ASIE/CHD/2002/0418

EU China WTO Project (phase II)

Subtotal

Regional projects

993 080

950 000

5 043 080

Closed

Ongoing

5 600 000

Ongoing

3 600 000

Closed

8 500 000

8 500 000

8 000 000

15 000 000

49 200 000

Ongoing

Ongoing

Ongoing

Ongoing

ASIE/1998/004-949 (EC)

ASIE/1996/004-641 (EC)

EU-ASEAN Intellectual Property Rights Cooperation Pro-
gramme (Ph II)

5 000 000

Ongoing

EU-ASEAN Regional Cooperation Programme on Standards
and Quality (1)

9 000 000

In preparation

ALA 94/15

ASEAN-EC COGEN programme Ph III (1)

5 000 000

Ongoing

Subtotal

19 000 000

ASEM Trust Fund

Monitoring of State-Owned Enterprises, New Establishment
and Transformation

400 000 USD

Ongoing

Study on Public Service Unit Reform

600 000 USD

Ongoing

Subtotal

1 000 000 USD

TF 051 834

TF 052 334

(1) Seen at preliminary study only.
Source: Court of Auditors.

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Bilateral projects audited compared to total number of projects

Table 5

Number of projects of
economic development
nature in the country

Amount of the projects
of economic
development nature in
the country
(euro)

Number of visited
projects

Amount of the visited
projects
(euro)

India

Vietnam

China

Total

Source: Court of Auditors.

18

21

23

62

60 354 119

70 811 380

99 634 648

230 800 147

5

3

6

14

31 429 170

5 043 080

49 200 000

85 672 250

Asia-wide projects audited compared to total number of projects

Table 6

Asia Invest (1) (funded projects starting in 1999 to 2002)

Asia IT & C (funded projects from 2000 to 2003)

Country

Total No of
projects

Amount
(euro)

No of
projects
audited

Total No of
projects

Amount
(euro)

No of
projects
audited

India

Vietnam

China

UK

France

Total

13

22

39

9

5

88

1 073 785

1 648 134

3 185 288

594 388

287 276

3

7

5

2

2

3 500 896

2 419 158

4 136 073

6 921 111

4 973 774

4

3

4

3

6

19

11

14

26

18

88

6 788 871

19

2 077 677

21 951 012

20

5 172 935

(1) Asia Invest: the projects of the components Asia Interprise have not been taken into consideration.
Source: Court of Auditors.

Amount of
projects
audited
(euro)

975 597

595 000

1 387 370

1 000 000

1 214 968

Amount of
projects
audited
(euro)

200 143

662 326

982 652

131 242

101 314

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Table 7

Asia-wide projects audited during the audit

Project No

Project name

Amount
(euro)

Status at time
of audit visit

108 55

108 69

108 77

108 86

108 88

108 101

108 135

108 138

108 144

108 149

108 150

108 151

108 153

108 157

108 166

108 175

108 176

108 184

ISO 9000 for the Association of Electronics and Information Technology Enterprises of Ho
Chi Minh City

83 001

Closed

Asia Invest

Training Vietnamese trainers and executives in quality management

Sustainable development of the Vietnamese shoe industry

HACCP Implementation in the Indian Food Industry

Preparation of Indian SMEs for EU Certification

Capacity for Business

Training on good manufacturing practices — HACCP methods and foodstuffs related EU
legislation

Quality management in the graphic media industry

Introduction of Non-Destructive Testing in Welding to Vietnam

Introducing Environmental Management Plan and Practices for Hotels and Resorts in Viet-
nam

Strengthening the Capacity in Engineering Consultancy Services of Vietnam

Master of e-management

Optimised Design and Operation for Sino-Euro Municipal Waste Water Treatment Facilities

Language and Business Familiarisation in the Textile and Clothing sector

Chinese IT Market

China Business Familiarisation Seminars for Multipliers in the UK

Train Rhône Alpes SMEs for Asia

104 200

86 954

120 000

21 343

59 369

Closed

Closed

Closed

Closed

Closed

102 705

Ongoing

120 000

Closed

98 171

Ongoing

118 076

Closed

99 755

Closed

112 555

Ongoing

65 689

58 800

87 657

31 487

54 629

Closed

Closed

Ongoing

Closed

Ongoing

From Cleaner Production to One Corporate Responsibility — A One-Year Competitiveness
Training Programme for China’s Textiles Enterprises

105 674

Closed

108 185

Modern Management Methods for Chinese Suppliers in the Automotive Industry

97 258

Closed

01 01

01 06

02 26

12 03

12 05

12 14

21 06

21 13

22 02

22 11

22 14

22 29

23 11

23 18

23 19

23 20

23 50

23 58

23 60

23 67

Asia IT & C

European Masters in Modelisation of Continuum

Sharing Capability in Localisation and Human Language Technologies

CCI Networking and e-commerce awareness

Transfer of European Level graduate IT Courses

MIPAA Multimedia Platform for Appropriate Architecture

IT & C skills for efficient micro finance sector in South Asia

Developing web based teaching packages for building professionals

Promoting Internet Policy and Regulatory Reform in Vietnam

e-Business Solutions for marketing intelligence in textile sector

Promoting Information and Regulatory dialogue in China

Indo-European System Usability Partnership

200 000

Ongoing

200 000

Ongoing

184 730

Closed

200 000

Ongoing

189 000

Closed

400 000

Ongoing

196 734

Ongoing

200 000

Ongoing

198 418

Closed

200 000

Cancelled

199 944

Ongoing

Information technology and Communications for natural disasters warnings and mitigation

200 000

Ongoing

SPIN ASIA Spintronic Innovative Technologies for Asia

Transfer of IT & C skills for micro finance sector in China

WEBPOT Web based optimisation tools for research

GENNERE Generic Epidemiological network in Nephrology

E3 Toolbox

EDECAD Education and e-Commerce task force for small firms

Casa Asia Virtual

ELVIS E-learning with Virtual Interactive Synthetic characters

400 000

Ongoing

400 000

Ongoing

533 822

Ongoing

400 000

Ongoing

195 552

Ongoing

377 235

Ongoing

200 000

Closed

387 370

Ongoing

Source: Court of Auditors.

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The Court’s audit also included visits to Project Manage-
15.
ment Organisation (PMOs), and European partners in Germany,
Spain, France and the United Kingdom and Asian partners and
PMOs in India, Vietnam and China. A preliminary mission was
also carried out to Thailand.

OBSERVATIONS

Is there an effective strategy for economic cooperation in Asia?

16.
The Court examined the extent to which the Commission
has set a strategy which leads to the most effective use of eco-
nomic cooperation expenditure. This involved determining
whether a clear strategy has been established, assessing how far
this would lead to an effective use of the aid, and judging its appli-
cation in practice.

17.
Strategy can be distinguished between policy strategy —
resulting in a decision to support a given area or topic — and
operational strategy, which sets out how the policy strategy
should be put into practice. In this case, the result of the decision
to support economic cooperation in Asia was included in the
Council ALA Regulation (EEC) No 443/92 (which covers all
development aid in Asia and Latin America). This sets out the
main objectives and provides a list of areas on which the money
is to be spent. The purpose of the operational strategy is to set out
how these objectives should be achieved, and provide direction
and focus for the expenditure.

Article 8 sets out the three sectors in which the aid is to
19.
be spent. First, is ‘improvement of scientific and technological
potential and of the economic, social and cultural environment in
general by means of training schemes and the transfer of know-
how’, which is ‘… directed chiefly at executives, economic deci-
sion makers and shall cover all economic, technical and scientific
fields …’. The second sector is ‘improvement of institutional
structure … to make the economic, legislative, administrative and
social climate conducive to development’. The third is ‘support
for undertakings by means of trade promotion, training and tech-
nical assistance schemes … establishing contacts between under-
taking and by schemes to facilitate cooperation between them’.

The objectives of Article 8 of the ALA Regulation are
20.
broad, with an extremely wide range and number of potential
beneficiaries and projects. As such, without specific targeting of
the aid within an appropriate implementation strategy, there is a
risk that the overall progress and impact of the expenditure can-
not be measured, and that therefore there is no basis for ensuring
sound financial management of the EU funds. Furthermore, Asia
is a huge region — including three of the world’s five most popu-
lous countries, and its fourth largest economy — which is devel-
oping fast in both economic and mainstream development terms.

21.
The Commission’s overall strategy towards Asia is set out
in its 1994 Communication to the Council ‘Towards a New Asia
Strategy’ (1), updated in 2001 in the Communication ‘Europe and
Asia: A Strategic Framework for Enhanced Partnerships’ (2).

Broad strategy, against a fast changing background …

18.
The concept of economic cooperation was formalised in
the ALA Regulation (see paragraph 3). Article 7 sets out the
objective of helping the developing countries ‘build up their insti-
tutional capacity so as to create an environment more favourable
to investment and development … making the most of the pros-
pects opened up by the growth of international trade, including
the European Single Market’. Member States are also intended to
benefit by ‘… enhancing the role of business men, technology and
know-how from all the Member States, particularly in the private
sector and in small and medium-sized undertakings’. These are
broad aims against a fast-developing market-led background,
dominated by increasing international trade. The inclusion of
both developing countries and EU Member States as partners wid-
ens the scope of the aid, reinforcing the need for careful targeting.

The 1994 Communication recognises the ‘momentous
22.
changes’ and likely economic growth of the Asia region, and that
therefore the Union urgently needs to ‘strengthen its economic
presence in Asia in order to maintain its leading role in the world
economy … [and] to ensure that its interests are taken fully into
account there’. The success of Europe ‘depends largely on deci-
sions taken … by the private sector’, with the Union’s role to
‘overcome obstacles to European trade and investment by encour-
aging a favourable regulatory environment for business in Asia’.
This needs more ‘proactive strategies: emphasising fuller,
and increasingly targeted use of economic cooperation to pro-
mote European trade and investment’. The emphasis is therefore
on protecting the influence of the EU, and market-led opportu-
nities for European companies, while developing the economies
of the Asian beneficiary countries.

(1) COM(94) 314 final, 13 July 1994.
(2) COM(2001) 469 final, 4 September 2001.

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The specific nature of economic cooperation is recogn-
23.
ised by the Communication, and described as ‘improving the
business and regulatory environment in partner countries in
order to stimulate two way trade and investments with the direct
participation of the private sector to the benefit both of the Union
and the partner country’. As such, economic cooperation is of a
qualitatively different nature from the financial and technical
cooperation that forms the bulk of the EU’s expenditure in the
external actions field. It therefore requires a specific attention to
reflect the special nature and characteristics of the aid. This was
not evident in the strategic documents.

The Commission emphasises in its Communications the
27.
need for a regional dimension in projects to promote regional
cooperation. Although, by their nature it is not expected that
bilateral projects should have a regional focus, in practice, some
of them did. For the individual Asia-wide projects, and the pro-
grammes as a whole, this was mostly not the case.

… inadequate objectives and indicators in the activity
statement …

24.
The 2001 Communication updates that of 1994, with
the aim of setting out a ‘comprehensive strategic framework for
our relations with Asia and its subregions in the coming
decade’. In the case of economic cooperation, the core objective
is defined as ‘strengthening the EU’s political and economic pres-
ence across the region … [further strengthening] our mutual trade
and benefit flows with the region’. Again, the focus is on the ben-
efits for the EU as well as the development aims of the beneficiary
countries.

28.
Since 2001, the Commission has been progressively
introducing its new management approach — Activity Based
Management (ABM) — intended to improve the way resources
are prioritised, used and reported on. ABM is the way the Com-
mission puts its operational strategy into practice. Activity Based
Budgeting (ABB) is the budgeting component of ABM. The 2004
Budget was the first one to be adopted following the ABB
approach. The allocation of resources should be consistent with
political priorities, and management of resources consistent with
pre-determined objectives. Within the budgetary structure ‘rela-
tions with Asia’ is defined as a distinct activity (budget chapter
19.10), and ‘Political, economic and cultural cooperation with
Asia developing countries’ is the budget article (out of five) that
deals with economic cooperation.

The Communication recognises the limited resources
25.
available, and states that the Commission must focus them ‘on a
smaller number of simpler activities, targeted on key priorities …
and ensure that these activities are implemented rapidly and effec-
tively’. The success of the aid is to be assessed on the basis of ‘cer-
tain simple (if largely qualitative) indicators … [such as] … the
evolution of the EU’s trade and investment relations with Asia’.
The Court found no evidence of the aid being targeted around a
small number of key priorities (see paragraph 35), and the impact
and output indicators since established by the Commission are
process, rather than results, driven (see paragraphs 32-33).

setting out

29.
For each budgetary exercise an activity statement is pre-
pared to support and justify the budgetary appropriations
the specific objectives and output
requested,
and impact indicators. In the case of the Preliminary Draft Bud-
get for 2005 the activity statements were published in early
2004 (1). The Court examined the activity statement for relations
with Asia in respect of the economic cooperation activities and
assessed its logic and coherence, the relevance of the objectives
and the utility of the indicators.

26.
The Communication stresses that economic aid should
be ‘modular’, i.e. specifically targeted to the circumstances and
needs of individual countries. As such, the Country Strategy
Papers (CSP), which are intended to cover all development needs,
should set out the specific economic cooperation strategy. In
practice this was not the case: the economic aspect of the CSPs of
the three countries audited in detail — India, Vietnam and China
— was inadequately distinguished from mainstream development
issues, insufficient in detail and content, and therefore did not
provide a practical strategy to orient the aid.

30.
Part 3 of the activity statement sets out the core objec-
tive of the activity as set out in the 2001 Communication — ‘to
strengthen the EU’s political and economic presence across the
region …’ — together with six priorities. The priority which
relates to economic cooperation is to ‘strengthen mutual trade
and investment flows with the region’.

(1) Commission Working Document of May 2004 accompanying the
Preliminary Draft General Budget of the European Commission for the
Financial Year 2005.

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Part 4 of the activity statement sets out the specific objec-
31.
tives, indicators, outputs and outcomes of the activity. This forms
the operational basis for targeting, monitoring and assessing the
implementation of the EU expenditure, thereby ensuring sound
financial management. Economic cooperation does not have its
own ABM objective, but is included within the fourth objective:
‘In the context of agreed policy frameworks, to strengthen dia-
logue and cooperation with Asian partners in the political, eco-
nomic and cultural fields’. This is stated as being related to the
strategic objective ‘To promote the sustainable economic and
social development of developing countries’, which neither
reflects the core objective, nor the related priorities (see previous
paragraph).

Inadequate and inconsistent operational strategy is due in
35.
part to the very specific nature of economic cooperation, which
is intended to benefit EU partners as much as those in Asia.
Indeed, the main objective of strengthening trade and investment
flows relies heavily on political initiatives, such as through nego-
tiation on a bilateral or multilateral basis (e.g. the World Trade
Organisation). In practice, the use of a development aid frame-
work targeted around small projects in increasingly rich countries
(as opposed to the larger bilateral projects) has little measurable
impact on achieving the overall objectives. Furthermore, the fast-
moving commercial world of IT goods and services on which
focus is given, cannot be tackled effectively through the tradi-
tional and relatively lengthy project preparation, approval
and implementation procedures used for development aid.

Only one impact indicator is provided: ‘Joint declara-
32.
tions, common positions and common agendas on major inter-
national, political and economic issues resulting from the ASEM
ministerial and Summit meetings in 2004’ (1). Whilst this broadly
follows the ABM objectives, it does not measure impact of the aid,
much of which is spent on small projects, nor the main priority
of mutual trade and investment flows (which by its nature is both
objective and measurable).

33.
The output indicators, in respect of the 2004 financial
year (of which there are nine), mostly cover participation in meet-
ings or committees, which may reflect the overriding political
concerns and action, but again is not the main target or purpose
of the expenditure. Furthermore, the indicators mostly concern
process — a meeting taking place — rather than its output — the
expected result.

Has the Commission managed the implementation of economic
cooperation activities effectively?

In order to conclude on this audit objective, the Court

36.
examined the extent to which the Commission’s management:

— has set up an application procedure which encourages and

facilitates applications;

— ensures projects are decided and implemented in a timely

manner;

— monitors projects regularly and takes timely corrective

action;

— ensures that projects produce real results with a positive

impact and are sustainable; and

… leads to a wide variety of projects and programmes whose
performance is difficult to measure

— undertakes appropriate evaluations.

The absence of specific operational strategies at both
34.
Commission and specific country level resulted in practice in an
extremely wide and diverse range of projects over a wide geo-
graphical area (see paragraphs 39 and 50). The lack of targeting,
against the background of Asia’s large, rapidly growing econo-
mies, fast increasing international trade and significant overseas
investments, means that overall impact of the aid is difficult to
measure or actively manage. As such, there is only a limited basis
to assess the effectiveness of the expenditure, or whether value for
money has been achieved.

(1) Completed by ‘Reinforcement of the multilateral approach to Asia
security issues, global economic regulation (i.e. WTO and global finan-
cial regulation), and inclusion of a cultural dimension’.

37.
Economic cooperation activities consist of two different
implementation approaches: bilateral projects between the Com-
mission and partner countries, and Asia-wide programmes (see
paragraphs 38 and 50). Due to their different natures, and the
sometimes specific issues involved, the report presents its find-
ings on the two approaches separately.

Bilateral projects

For bilateral projects a Financing Agreement is made
38.
between the Commission and the beneficiary government. Prior
to the introduction of the current Financial Regulation, the
projects were usually implemented by a Project Management
Organisation (PMO), most often headed by both European and
Asian co-directors.

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Box 1 — Examples of projects and their objectives

1.
In India there was a project for civil aviation. The general objec-
tives were to improve aviation safety and to facilitate business con-
tacts between EU and Indian companies. Another project concerned
a Small Projects Facility with the overall objective of supporting the
ongoing reform process of India’s economy and system of governance
through an enhanced involvement of civil society partners.

Bilateral projects are identified on a case-by-case basis,
41.
rather than through a standardised application procedure (1). Due
to the nature of the processes the time taken between project
identification and the project starting implementation can be sig-
nificant. The audit examined the extent to which the projects had
been subject to unnecessary delays.

2.
In Vietnam the largest bilateral project was Multilateral Trade
Policy Assistance (MUTRAP). The general objectives were to sup-
port the Vietnam’s transition to a market economy and to contrib-
ute its integration into regional and global economic and trade
frameworks.

42.
All the projects audited suffered from long delays prior
to implementation for various reasons: reorganisations and staff
changes at the Commission’s central services in Brussels, confu-
sion between the Commission central services and its Delegations
over responsibilities following devolution, complex procedures,
problems with the structures chosen for the projects, and diffi-
culties in recruiting suitably qualified and experienced EU experts.

3.
In China there was a project (ECERP) for enterprise reform,
with the specific objective of increasing the contribution of the SME
sector to provincial wealth and employment. Another project had as
its overall objective to contribute to a sound, transparent and effi-
cient
trade
and investment flows with the region and contribute to the spread-
ing of democracy, good governance and the rule of law.

to strengthen the mutual

financial services sector,

39.
In the countries audited there was a variety of bilateral
economic cooperation projects (see Table 4 for complete details)
with no focus on a particular area or theme. In many cases the
projects had only relatively limited funds to tackle very challeng-
ing aims in extremely large and populous countries. In general,
the projects gave the opportunity of a continuous dialogue on
economic cooperation but the impact of the projects themselves
was in many cases not significant so far (see paragraph 44).

Delays in approving and setting up projects

Box 2 — Delays before implementation

For the Civil Aviation project in India originally there was a
1.
Memorandum of Understanding (MoU) signed with the Govern-
ment of India (GOI). There was then a delay of one and a half years
after the GOI gave its approval, while the Commission replaced the
MoU with a Financing Agreement, as it took further time for the
Ministry of Civil Aviation to understand and recognise the change.
The project was drawn up in 1997 but as the Financing Agreement
was not signed by all parties until late 2000 the original Terms of
Reference needed to be updated to reflect changes in the industry
environment. Consequently, implementation only started in Febru-
ary 2001.

2. All European Business Information Centre (EBIC) projects in
Asia suffered major delays before starting. Getting approval from the
ALA Committee involved lengthy negotiations, as Member State
representatives had concerns over the role of the EBICs compared
with the commercial sections of their national embassies. Both in
India and in Vietnam there were further delays while problems with
the legal status of the EBIC were resolved.

3.
In the case of the Small Projects Facility in China the Financ-
ing Agreement was signed in March 2001, the contract of the Euro-
pean Co-Director came into effect in June 2003 and the first call for
proposal was launched in November 2003. The main reason for the
delay was problems in recruiting the European Co-Director due to an
unsatisfactory framework contract that had to be used.

it

In the fast developing world of economic cooperation in
40.
Asia,
is imperative that projects are planned, approved
and implemented in the shortest possible time. Unnecessary
delays lead to the risk that projects are no longer needed, or need
to be significantly reformulated, underlying cost assumptions
change and budgetary commitments are tied up unnecessarily.
The result is that the process becomes more difficult and costly
to manage, and the projects are less effective.

(1) In theory priority areas of intervention are identified through the
Country Strategy Paper process in collaboration with the partner
country. Once an area has been identified the Commission hires con-
tractors to carry out a feasibility study, as a result of which a financing
proposal will be prepared which will propose a project and how it
should be carried out. Projects above EUR 1 million are approved by
the ALA Committee, composed of representatives of the Member
States.

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Projects delayed and sometimes abandoned …

Box 4 — Projects targets are not reached

43.
Significant delays also occurred during implementation
in 10 out of the 14 bilateral projects audited. There were a num-
ber of causes: the unnecessary complexity of the projects; a lack
of experience of the PMOs; frequent changes in staff at the Com-
mission; problems with contractual arrangements and slow
procedures.

1. MUTRAP’s effectiveness has been diminished by problems with
tendering, and an unplanned gap until the next stage of the project
started.

2. Due to an ineffective implementing agency, the Audio-visual
project in Vietnam produced very little in the way of tangible results:
only one workshop was held and there was only very limited promo-
tion activity in Europe and Vietnam.

3.
For the Financial Services programme in China the results were
insufficient and inadequate, caused in part by a lack of clarity in the
Financing Agreement.

Box 3 — Delays during implementation

Box 5 — Successful projects

1.
In the EU-India Maritime Project the contract was signed in
May 1999 and was extended until December 2003. The training
activities were unnecessarily delayed until the end of the programme.
At the Commission’s headquarters the project was assigned to four
different desk officers in turn, which also contributed to the delays in
the implementation.

In China the IPR project was implemented with considerable
2.
delays. The project was extended until December 2005 but the
PMO’s contract was only extended to December 2003 leading
to coordination problems between the different beneficiary agencies.

3. The EU India IPR project has not been implemented at all. The
problems resulted from a combination of a lack of coherent follow-up
by the Commission due to staff changes and inexperience on the part
of the European PMO.

1.
For the Civil Aviation project in India targets were well on the
way to being met. According to the Financing Proposal approxi-
mately 900 people were to have been trained. At the time of the
audit the actual number trained was 2 315 engineers, managers,
experts, technicians and pilots: 97 % of attendees rated the training
activities as good, or very good.

In Vietnam, EBIC had a positive impact. Although no targets
2.
in the Financing Proposal or Financing Agreement,
were set
the project dealt with 1 007 enquiries, 107 events/seminars,
5 599 registered participants, and 315 press reports. 82 % of the
participants were satisfied with the seminars and 75 % were satis-
fied with the information services.

… reducing outputs and impact

Monitoring not always satisfactory

44.
In order to assess the progress and success of a project,
appropriate targets need to be established from the outset. In
practice the Court found that targets, such as the number of
people to be trained to a defined level, were often not clearly set,
and, as such, there was no objective basis against which to judge
results or performance. In judging the projects against actual or
assumed criteria, the Court found that some projects were clearly
not successful, while others were.

45.
Effective monitoring involves following progress, identi-
fying problems and taking timely corrective action. It should be
properly documented to record the work done and any action
subsequently taken. The Court assessed the quality of the Com-
mission’s monitoring for each of the selected projects. Financing
Agreements stipulate that the PMO should supply the Commis-
sion with regular reports on the progress of the implementation
of the project. Most projects set up systems to measure and moni-
tor progress and provide a basis for progress reports, which, in
turn, are reviewed and evaluated by the Commission.

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The monitoring by the Commission has not always been
46.
consistent or completely successful. In some cases it was insuffi-
cient, resulting in problems not being identified, whereas in oth-
ers there has been too much interference in the day-to-day run-
ning of the project. This hampers implementation, risks not
identifying higher level problems and is an ineffective use of the
Commission’s scarce resources. Even when monitoring is carried
out there is not always written evidence of what took place.

Box 7 — Sustainability

1.
ECERP had still not prepared a sustainability plan eight
months before the end of the project. It was unclear how activities
would continue once the financial support of the EU came to an end.

2.
For the Financial Services project no sustainability plan had
been drawn up and some of the activities given priority were short-
term in nature, with solutions designed to tackle current problems as
opposed to implementing long-lasting structures.

Box 6 — Inconsistent monitoring

1.
For the EBIC in India it was not clear from the Commission’s
files what monitoring had taken place. For the EBIC in Vietnam
there was no clear evidence of monitoring by the Commission except
for one visit from the Commission central services covering the Phil-
ippines, Thailand, Vietnam and Cambodia.

2.
In India the Delegation’s monitoring of the Small Project Facil-
ity (SPF) was inadequate and unsystematic: projects were not required
to submit any progress reports reducing the effective basis for moni-
toring.

In the China Financial Services project there was evidence of
3.
regular monitoring carried out by the Delegation. However, the Del-
egation has gone beyond its monitoring function by taking a man-
agement role in running the project.

Sustainability in doubt

47.
All EU-funded projects are intended to be sustainable: an
activity is considered sustainable when it is able to deliver ben-
efits to the target group for an extended period of time after the
main assistance has ended. This can be achieved by the project
becoming self-financing or through a commitment to continue
from the beneficiary country government. The Court examined
whether projects had drawn up a sustainability plan and had given
adequate attention to the issue of sustainability throughout the
project’s life. In practice, sustainability often depends on sufficient
progress having been achieved within the project’s life time: suf-
ficient time should be given to meet the objectives as an unfin-
ished project will usually not be sustainable. In six out of the
14 projects audited, the potential for sustainability was in doubt.

Evaluations lacking

Evaluation is an essential element of the Commission’s
48.
approach to sound financial management and involves ‘judge-
ment of interventions according to their results, impacts and
needs they aim to satisfy’ (1). It is intended to assess the achieve-
ment of objectives and explain underlying causal mechanisms.
Problems or weaknesses identified in both management and the
results should form the basis for corrective action by the
Commission.

49.
The Financing Agreements for the bilateral projects
audited did not systematically provide for independent evalua-
tions and there was no evidence of the criteria used to decide
which projects should be evaluated. Even when they were pro-
vided for they did not always take place on a timely basis thereby
reducing or even negating, their effectiveness.

Box 8 — Shortcomings in the evaluation of the projects

1. The Financing Agreements did not provide for independent
evaluations of the three IPR programmes.

2.
In India the original five-year agreement for the Civil Aviation
project said that there should be a mid-term evaluation after two
years of implementation. Subsequently the project was split into two
contracts with a 12-month inception phase, followed by a three-year
implementation phase. The new agreement for the implementation
phase maintained the clause that the project should have a mid-term
evaluation after two years of implementation. However, whereas a
mid-term review after two years is appropriate for a five-year project,
it is late for a three-year project, as it leaves insufficient time for cor-
rective measures to be implemented.

(1) The Commission’s Communication on Evaluation (SEC(2000) 1051).

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Asia-wide projects

The Asia-wide programmes (see paragraphs 5, 7-9) are
50.
divided into a number of instruments or components within
which a large number of small value projects are carried out. A
typical project is 100 000-200 000 euro and involves co-funding
by the Asian or European partners who provide 50 % of the
funds. The projects are demand-led with funding requests com-
ing from the applicants in the form of proposals. This has led to
a diverse range of projects being funded. For a full list see Table 7.

The Commission provides clear detailed guidelines for
52.
applicants, including eight explanatory annexes. Nevertheless ful-
filling the requirements of the application procedure is under-
standably going to be difficult for inexperienced applicants.
Although most partners found the guidance documents helpful,
detailed and logical to follow, 10 of the 39 projects found them
difficult to understand and comply with. It is time-consuming —
and therefore costly — and difficult for applicants to prepare,
obtain and collate all the information needed, particularly if it has
to be translated.

Box 9 — Examples of Asia-wide projects

1. An Asia IT & C project that aimed to effectively disseminate
advanced and tailored e-business devices that can foster relations
between Indian and European operators in the textile sector.

2. An Asia Invest project that aimed to stimulate a sustainable
growth of the Vietnamese footwear industry through the introduc-
tion and transfer of product development techniques, management
capacity building and to stimulate the creation of a supporting
industry.

3. An Asia Invest project provided training to export advisers from
British organisations on how to export to, and invest in, China.

4. An Asia IT & C project aiming at alleviating poverty and
enhancing opportunities for China’s IT & C sector by using the Inter-
net as an information service platform to strengthen communication
and exchange among Chinese microfinance actors and policy mak-
ers, and between domestic actors and foreign organisations.

5. An Asia Invest project aiming to enhance the capacity, impart
knowledge and know-how on aspects related to the environmental
management systems for the hotel industry in Vietnam.

Application procedure heavy and complex

Application procedures should provide a sufficient basis
51.
for selecting the most effective projects and protecting the Com-
munities’ financial interests, while not deterring potential appli-
cants from applying with overly complex procedures and unnec-
essary requirements. For the Asia Invest and Asia IT & C
programmes there is a call for proposals twice a year under which
applicants submit project proposals which the Commission then
evaluates. The application process is formalised: a standardised
application form must be completed, including, a detailed budget
and a Partnership Statement under which the different partners
agree to the principles of good partnership practice.

53.
Asian partners also had problems in providing their stat-
utes and/or articles of association as required by the application
procedure, particularly as in some Asian countries such docu-
ments do not exist in this form. The fact that partnership agree-
ments between the parties have to be in place when applying for
a project was also a difficulty. Asian partners described their
reluctance to enter into such agreements prior to knowing if the
application would be successful.

Although the programme is aimed at the private sector
54.
operating in a commercial market-led environment, the aid can
only be paid to ‘non-profit business intermediaries promoting
trade and investment between the EU and Asia’, i.e. public and
non-profit making organisations, or local administrations. In
practice projects are often with trade associations or organisa-
tions, which themselves are nominally non-profit making but are
funded by private sector companies to further commercial aims.
This financing constraint risks excluding potentially valuable
projects such as those involving direct business partners who, for
reasons of commercial secrecy, may not wish to use intermediar-
ies or trade associations.

Box 10 — Application procedure

1. An Asia IT & C project where the main applicant was a higher
level educational institution in Vietnam which had the objective to
evaluate existing European graduate level IT & C e-learning courses
in the context of developing significant local expertise in Vietnam
described their experience. They found the application procedure
time-consuming as it took them three months to complete the pro-
posal. Their Director went to Europe to ask how to fill out the pro-
posal. They also had a problem because they completed the budget
using an old template of the Commission so it was not accepted and
had to be re-done. They found the guidance documents difficult to
understand and had to ask a successful Asian contact for help.

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2. Another higher education institution in Vietnam with three
Asia Invest projects in areas relating to business management
administration said that they found the administrative burden of the
application procedure too heavy and were disappointed that the
applications could not be presented on-line. This beneficiary has pre-
sented three applications and has had to present the same documen-
tation three times. They had difficulty in providing their statutes.

3. A Chinese Industrial Association whose project aimed at train-
ing businesses in waste water treatment considered that the work
load requested for the application is too heavy. The main problems
for them was that the plan of activities requested was too detailed, it
is very difficult e.g. for one applicant to know several months in
advance who is going to give a speech. Some documents have had to
be translated from Chinese into English, which was very expensive
both in terms of time and of money.

55.
The role of the Delegations in assisting potential appli-
cants with proposals is not clearly defined. Properly directed help
should encourage a greater number of applications, speed up the
application process, improve the quality of the applications and
help maximise the potential of the projects. However, when help
is given it should not compromise the objectivity of the Delega-
tions’ role in evaluating and approving proposals, nor give the
impression that Delegations’ assistance gives a right to approval.

56.
In practice Delegations do not all give help, yet their role
in evaluating and approving projects is limited to making com-
ments on the proposals to an evaluation committee at the Com-
mission central services in Brussels. As such, potential and actual
beneficiaries of EU programmes are being denied valuable assis-
tance to deal with a complex process, thereby exacerbating delays
and weaknesses in applications and probably deterring some
applicants.

Projects gave positive results …

57.
Although eight of the projects audited were still at an
early stage and so it was too soon to assess their results, in 28
cases the projects demonstrated substantial progress and useful
results. The projects audited had not experienced major delays
and managed well at coping with external problems, such as
SARS and political uncertainties. Given the low monetary value
of the Asia Invest and Asia IT & C individual projects the number
of beneficiaries they have reached is considerable.

Box 11 — Successful projects

A project of 100 000 euro to strengthen the capacity of engineering
consulting services in Vietnam to win and undertake more effective
project preparation and site supervision work, trained 600 people in
three separate training modules each lasting approximately two
weeks.

… and were well monitored …

58.
The regular monitoring systems put into place for Asia
Invest and Asia IT & C have worked very well. Partners provide
quarterly reports and these are screened by the teams set up by
the Commission, who produce short written comments on the
reports. Both teams send reminders when reports were late. Most
beneficiaries have expressed a high level of satisfaction with the
regular monitoring by the teams in Brussels and/or Bangkok. Ben-
eficiaries particularly appreciated Asia IT & C monitoring because
the team always provided feedback, both positive as well as nega-
tive, on all progress reports, whereas Asia Invest tended to con-
tact the partners only when there were problems.

… but sustainability still in doubt

59.
As part of the application procedure applicants are sup-
posed to provide information about their plans for sustainability.
Most projects audited in Europe had established a sustainability
plan as part of the project design but it was still not always clear
whether sustainability would be ensured. In some cases projects
were designed on the assumption that there would be another
EU-funded phase, which means, by definition, that the project is
not sustainable.

Box 12 — Sustainability

1. Not all projects in India established a sustainability plan as
part of the project design and even when they had been established
they were often of poor quality.

2. Most projects in Vietnam had not established sustainability
plans as part of the project design although many of them were
actively working on them at the time of the audit. In most cases in
both countries the projects’ sustainability seems to be dependent on
further financial support from the Commission. Indeed in some cases
the main activity relating to sustainability seemed to be the submis-
sion of new proposals to the Commission.

3.
Sustainability for most of the Asia-wide projects in China
seemed quite good. Not all projects had established sustainability
plans but plans were being established or there was evidence of
follow-up activities being carried out. In only one case was the project
looking for further EU financing for other projects.

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CONCLUSIONS AND RECOMMENDATIONS

Conclusions and recommendations on strategy

Economic cooperation is a specific area for the EC’s
60.
development programmes. While the strategy for economic
cooperation is set out in a number of different sources, there is
little consistency. It is intended to help develop the economies of
the Asian countries themselves while increasing the EU’s influ-
ence and trading. It is aimed at both the least developed Asian
countries, as well as those with the more developed economies
(see paragraphs 16-27).

The Court recommends the Commission sets, within the
61.
context of overall development cooperation, a consistent strategy
for economic cooperation which recognises the very specific
nature of the aid and its objective, making a clear distinction
between the objectives to be met by negotiation and political
action, and those for which expenditure on projects and pro-
grammes is appropriate.

62.
The Commission recognises the need to take into account
the specific needs of the individual countries in terms of eco-
nomic cooperation, but fails to reflect this sufficiently in the
Country Strategy Papers. Within the ABM activity statement —
which is now at the heart of the Commission’s approach to sound
financial management — there is no consistent or logical flow
from the overall objectives, through the priorities and to the
detailed objectives. The output and impact indicators — which
should form the basis for monitoring and assessing progress
and impact — concentrate on process at a political level, rather
than the output and results of the aid itself (see paragraphs 21-33).

The absence of specific operational strategies for eco-
64.
nomic cooperation resulted in a wide range of projects and pro-
grammes spread throughout the whole region — a region where
national and global trade dominates. This lack of focus means
that the impact of the economic cooperation is difficult to mea-
sure, the link with the main priority of strengthening mutual
trade and investment is difficult to establish, and therefore there
is only a limited basis for assuring whether the EU expenditure
has
(see
given
been
paragraphs 34-35).

for money

effective

value

or

65.
The Court recommends that the Commission ensures aid
is focused at clearly defined and measurable targets, using this as
a basis for ensuring and reporting on sound financial manage-
ment of the EU budget.

Conclusions and recommendations on implementation

66.
The Court’s audit revealed weaknesses in the Commis-
sion’s management of the implementation of economic coopera-
tion in Asia, some of which compromised the effectiveness of the
aid.

In the case of the bilateral projects there were unaccept-
67.
ably long delays between the identification phase and the starting
of implementation for various reasons. In many cases delays con-
tinued during the implementation phase which reduced the
projects’ outputs and impacts. The level of monitoring was not
always satisfactory, external evaluations were not always carried
out on a timely basis and the potential for sustainability was in
doubt
(see
for
paragraphs 38-49).

almost half of

the projects

audited

68.
The Court recommends that the Commission identifies
the types of corrective actions necessary to resolve the problems
in bilateral projects and to prevent similar problems in planning
and implementing future projects. Specific areas requiring atten-
tion included ensuring that the objectives of the different pro-
grammes and projects are clear and are realistic for the planned
time-frame and that evaluations are carried out where appropri-
ate, following a clear strategy and on a timely basis.

63.
The Court recommends the Commission provides suffi-
cient consideration of economic cooperation within the Country
Strategy Papers, while taking into account the link with the main-
stream development needs. The approach should be tailored to
present the right mix of aid for the particular circumstances. Spe-
cific efforts should be made to ensure logic and consistency
within the activity statement. Indicators should be established
which are objective, useful and comprehensive and reflect the
output of the aid.

69.
In the case of the projects audited within the Asia-wide
programmes, the application procedure was found to be onerous
and complex by some applicants for the small-scale projects
involved, and a lack of clarity in the role of the Delegations in
assisting potential beneficiaries to prepare their applications
meant that valuable help was not given. While the projects
audited had made good progress in achieving useful results they
were unlikely to be sustainable as most needed further financial
support. The Commission’s monitoring systems were very effec-
tive (see paragraphs 50-59).

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The Court recommends the Commission reconsiders
70.
its application procedures with a view to balancing the need
to protect the EU’s financial interests while encouraging the
widest range of potential beneficiaries and projects. In doing so
it should reconsider the need for applicants to prepare a logi-
cal framework. It should also ensure that the documents or
information requested are available. A model completed
application, preferably tailored to the legal and organisational
framework in each country, would be helpful in this respect.
The Commission should consider setting up a central registry
for documents provided with applications, so that they need
not be provided again for future applications by the same
beneficiary.

The Court recommends the role of the Delegations in
71.
assisting potential beneficiaries in defining projects and in prepar-
ing applications should be clearly defined and enhanced. The aim
should be to stimulate the widest interest in the programmes and
thereby encourage the greatest number of potential beneficiaries
and proposals, help ensure applications are complete and pre-
pared quickly, thereby helping ensure the most effective and
appropriate projects are selected.

The Court recommends that the system of regular moni-
72.
toring of the Asia-wide projects, including a standard reporting
format, could serve as a useful model for Delegations for the
monitoring of both bilateral and Asia-wide projects.

This report was adopted by the Court of Auditors in Luxembourg at its meeting of 14 July 2005.

For the Court of Auditors
Hubert WEBER
President

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THE COMMISSION’S REPLIES

EXECUTIVE SUMMARY

IV.
Starting in 2000, the Commission has undertaken a reform of its external assistance management. This
includes the introduction of Country Strategy Papers, Regional Strategy Papers and multi-annual indicative
programmes.

(first and second indents) — Priorities for expenditure have always been mutually agreed with Asian govern-
ments, and as far as possible reflected the priorities and objectives of civil society. With the introduction of
Country and Regional Strategy Papers in combination with indicative programmes, the Commission aims to
achieve better focus of development expenditure including that on economic cooperation.

(third indent) — The Commission recognises that the overall impact of assistance is difficult to measure. This
is particularly the case where projects have been largely technical assistance in nature. At the project level, since
the reform of EC external assistance, all aspects of Project Cycle Management (PCM) are fully institutionalised.
The use of the logical framework approach provides objectively verifiable indicators and predefined means to
assess the effectiveness of the expenditure. Independent monitoring, as well as mandatory mid-term and final
evaluations are then used to verify this.

V.

(first indent) — The delays between the identification phase and the start of the projects, as well as those delays
that were identified in projects under implementation, concern bilateral projects designed before the reform of
EC external assistance. As a result of this reform, including the establishment of EuropeAid (January 2001) and
the devolution of aid management to the Commission Delegations, together with the New Financial Regula-
tion (January 2003), project delays will be limited and contained.

In the current design of projects, a monitoring, audit and evaluation plan is obligatory. In parallel, since 2000,
monitoring has also been systematically carried out by independent experts. Within this monitoring exercise
economic cooperation projects in Asia have scored well in terms of potential for sustainability.

(second indent) — The application procedures, derived from the financial regulations, are geared towards the
highest level of transparency and fairness. Support to applicants is given through public briefing/information
days, regular updating of websites, including Frequently Asked Questions (FAQ). As a result, the Asia-wide
projects are being managed well and no major delays have been experienced. Within the independent moni-
toring exercise, Asia-wide initiatives have also scored well in terms of sustainability.

VI.

(first indent) — The Commission considers economic cooperation as one of the intertwined components of
its development assistance and is committed to giving it careful attention in the formulation of the CSP/NIP.
The Commission will endeavour to further improve the consistency within the activity statement as well as to
develop adequate indicators.

(second indent) — The reform of the EC external assistance, in particular the devolution of responsibilities to
Delegations, which has taken place over the 2002-2005 period, has and will continue to improve the imple-
mentation and monitoring of bilateral projects on the ground. The requirement to conduct an evaluation is
now systematically included in the Financing Agreement of all projects.

Monitoring and evaluation of projects has been enhanced by obligatory use of the logical framework tool. This
will help to further improve sustainability.

(third indent) — The ongoing revision of AIDCO Practical Guide to contractual procedures will simplify the
application process for grants to the extent allowed by the Financial Regulation, as well as clarify the role of
the delegations in the evaluation.

(fourth indent) — The Results Orientated Monitoring (ROM) system, introduced since 2002, provides stan-
dardised monitoring information on projects and programmes.

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OBSERVATIONS

20.
The Commission agrees with the Court’s statement of the
potential risk of non-targeted assistance in all areas of coopera-
tion. With the reform of external assistance in 2000 and the
introduction of CSP/RSP in conjunction with the strategic com-
munications on Asia, the Commission reaffirmed that short and
long-term strategic objectives of EC cooperation in Asia should
remain focused, thereby reducing the abovementioned risks.

22.
The concept of mutual interest cannot be interpreted as
a means for protecting EU interests. The Communication does
not provide any bias for such a cooperation to be interpreted as
mainly benefiting one partner or the other.

23.
The objective of the economic cooperation is to stimu-
late mutual trade and investment and to provide an appropriate
environment for the private sector to flourish. These and other
such activities are intended to support the development objectives
and the integration in the world economy of the Asian countries.
Hence economic cooperation supports and facilitates the Com-
mission’s development objectives in Asia.

24.

See reply to paragraph 22.

25.
The Commission agrees with the Court that the defini-
tion and monitoring of indicators could be improved and this has
been addressed by the Commission in the preparation of its
CSP/Regional Strategy Papers and related indicative programmes
for 2005-2006.

Current programming guidelines determine that aid should be
targeted to a limited number of interventions. Also based on les-
sons learned the EC has since 2004 begun to reduce the scope of
the Asia-wide programmes from five programmes to three.

26.
The Commission is of the view that CSPs in Asia do not
and should not make a hard distinction between economic coop-
eration and financial and technical cooperation strategies as both
are mutually reinforcing instruments to achieve the EC’s strategy
in Asia. Furthermore, pro-poor economic and poverty reduction
policies are not separated in national plans of the beneficiary
countries in Asia. The recently proposed external action instru-
ments go further along these lines, whereby there no longer exists
a distinction between financial and technical cooperation and
economic cooperation.

With its new ABM/ABB management approach the Com-
29.
mission seeks to improve the nature of the budgetary debate, on
defining the overall political priorities, assessing the impact these
priorities have on current activities and the objectives pursued by
them, and granting resources accordingly. This policy-oriented
debate, which has been welcomed by the budgetary authority,
should allow to focus the debate on the activity level and less so
on the individual budget lines.

31.
The Commission accepts that the description of the
objectives is general and could be further refined. This will be
taken into account in the work to improve the activity statement.

32.
The Commission shares the Court’s view as regards
impact indicators and is of the opinion that a realistic approach
to measuring impacts is required, which takes account of the lim-
ited size of the EU intervention and the existence of similar pro-
grammes undertaken by Member States. The EC intervention can
only contribute to, without being the sole generator of, increased
trade and investment. The Commission will endeavour to further
develop and improve adequate impact indicators.

33.
The activity statement presents the information on the
past outputs under each key objective and the way it is linked to
the progress towards meeting them. The Commission is working
towards more result-oriented indicators.

Until 2001, policy objectives were directly translated
34.-35.
into projects and programmes. Since 2002 national indicative
programmes have been the tool for improved targeting, includ-
ing for economic cooperation, resulting in a reduction of the
number of sectors of intervention as well as a clarification of
objectives and goals pursued under each sector. The Commission
recognises that the overall impact of assistance is difficult to mea-
sure. This is particularly the case where projects have been largely
technical assistance in nature.

At project level, since the reform of EC external assistance, all
aspects of Project Cycle Management (PCM) are fully institutiona-
lised. The use of the logical framework approach provides objec-
tively verifiable indicators and predefined means to assess the
effectiveness of the expenditure. Mandatory mid-term and final
evaluations are then used to verify this.

39.
The bilateral economic cooperation projects serve eco-
nomic cooperation priorities, which are set in accordance with
the existing priorities of individual countries as per their PRSPs
and National Development Plans. Where possible the Commis-
sion works together with other donors so as to create a multiplier
effect thereby ensuring that limited Community funds attain the
maximum impact possible.

27.
As regards the comments made by the Court on regional
dimension, the Commission is of the view that Asia-wide pro-
grammes should be considered at the programme level. Applica-
tions involving more than one Asian country are encouraged in
order to establish Asian cross-border business collaboration.

In many economic cooperation projects the impact of projects
can only be viewed over the longer term. The impact of all future
projects will be more systematically measured through the
enhanced monitoring and evaluation procedures which are now
in place.

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There is a balance between the speed of project
40.-41.
preparation and the qualitative development of a project which
involves: (a) an identification stage, to assess the sector concerned
and identify key problems to be addressed, likely beneficiaries and
possible implementation modalities; (b) an appraisal stage, where
the details of the project are established with the full involvement
and consultation of all relevant stakeholders, beneficiaries and
other donors. This stage often includes the conduct of an eco-
nomic and financial analysis, environmental impact assessment
and gender impact assessment. Projects commence implementa-
tion with an inception period (usually of six months’ duration)
during which time the proposed activities are verified in terms of
their timeliness and cost/benefit.

42.-43.
Following the reform of EC external assistance,
including in particular the devolution of management responsi-
bilities to the Delegations, the implementation of projects and
programmes has improved. Inevitably, there has been a period of
adjustment, accompanied by the recruitment and substantial
training of new staff in Delegations.

With regards to the problem of expertise, the gap between
demand and offer of highly qualified TA working in the field of
trade needs to be taken into account. The Commission has intro-
duced measures to improve the situation by better targeting the
new framework contract on trade (December 2003), by establish-
ing a Trust Fund with the UN International Trade Centre (July
2004) and by better using expertise of relevant UN organisations.

Since the reform of EC external assistance, all aspects of
44.
Project Cycle Management (PCM) are now fully institutionalised.
This is emphasised through the use of the logical framework
approach, which provides the definition of the project objective,
purpose, results, activities, objectively verifiable indicators and
predefined means of verification.

46.
Monitoring of projects has been more recently enhanced
by the more focussed use of the logical framework tool, which
includes clear definitions of the global objective, the project pur-
pose, results and activities, along with specific indicators of
achievement. Moreover, improvements in monitoring include the
establishment of a system of Results Orientated Monitoring
(ROM) undertaken by independent consultants.

47.
Since 2000, monitoring has been systematically carried
out by independent experts who are asked to analyse relevance,
effectiveness, efficiency,
impact and sustainability of selected
projects according to an annual workplan. Within this exercise
economic cooperation projects in Asia have scored well in terms
of sustainability.

Moreover, since 2002 the EC has introduced a system of quality
support measures that strengthen the examination of project
design at the identification and formulation stages. The sustain-
ability plans are now carefully looked at through this procedure.

Sustainability is examined as a specific criterion in all phases of
the quality support process.

Within the quality support system, in place since late
48.-49.
2002, mid-term and final evaluations have become mandatory in
project design with budget line items identified to implement
them. The mid-term evaluation is specifically foreseen to identify
weaknesses and take the appropriate corrective measures. Both
the devolution of aid management, and the systematic external
monitoring exercise, provide a close monitoring and early iden-
tification of weaknesses thus enabling timely corrective measures.

52.
Within the Asia-wide programmes, as well as the man-
agement of external assistance in general, the Guidelines for
Applicants are constantly under revision and every effort is being
made to simplify the application procedures. A balance will be
sought between the necessary weight of procedures required for
transparency and fairness and the simplicity desired by applicants.

53.
The provision of statutes/articles of association is neces-
sary to assess the status and nationality of the applicants, and thus
meet the requirements of the legal basis.

Partners are requested to sign a ‘partnership statement’ where they
commit themselves to fulfilling their role if the proposal
is
selected.

54.
The advantage of the non-profit making business inter-
mediaries as beneficiaries is that they have the adequate structures
to multiply the beneficial effects of projects.

The feasibility of allowing the profit making businesses to apply
under the Asia-wide programmes is currently under examination.
The condition would be that the beneficiaries do not make any
profit from the co-funded projects.

The application of the principle of non-profit is being reviewed
in a way which may facilitate the implementation of this kind of
economic cooperation project in the way the Court suggests.

55.
In the past two years, the EC has implemented a large
variety of activities to improve guidance to potential applicants.
This includes briefing sessions in EU Member States and Asian
partner countries, regularly updated FAQ sections on the pro-
gramme website, and centrally managed mailboxes to which
applicants can address their queries. Best practice presentations
on how to conceive good project proposals are made available on
the websites. Respective responsibilities of Delegations and head-
quarters in this regard have been clarified as the process of devo-
lution has developed.

Under the new generation of Asia-wide programmes, the EC has
introduced a specific programme component on capacity-
building actions which aim to enhance project preparation and
project management skills of beneficiaries.

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Delegations cannot assist applicants in preparing their
56.
proposals without infringing the principle of equality of treat-
ment. This is why assistance is limited to the actions mentioned
above.

In any event, assistance provided by Delegations cannot exceed
the provision of general guidance, without entering into the
details of a proposal.

59.
Each proposal which is subject to a technical and finan-
cial evaluation is assessed in relation to sustainability. In addition
the relevant Commission Delegation(s) is asked to comment spe-
cifically on the sustainability of the project in financial, institu-
tional and policy terms, among other aspects.

CONCLUSIONS AND RECOMMENDATIONS

60.
The concept of economic cooperation, as spelled out in
the ALA regulations, is to stimulate mutual trade and investment
and to provide an appropriate environment for the private sector
to flourish. These and other such activities are intended to sup-
port the development objectives and the integration in the world
economy of the Asian countries. Hence economic cooperation
supports and facilitates the Commission’s development objectives
in Asia. With the introduction of country and Regional Strategy
Papers as of 2002, the Commission aims to achieve better con-
sistency between strategy, programming and implementation.

In accordance with Article 177 and 181a TEU, the Com-
61.
mission is of the firm view that economic cooperation must
remain an integral part of its development actions in a single
development strategy. The Commission, however, recognises that
economic cooperation indicators need to be more country
specific.

Until 2001, policy objectives were directly translated into
64.
projects and programmes. Priorities for expenditure were mutu-
ally agreed with the Asian governments, and as far as possible
reflected the priorities and objectives of civil society. Since 2002
CSPs and national indicative programmes have been the tool for
improved targeting, including for economic cooperation, result-
ing in a reduction of the number of sectors of intervention as well
as a clarification of objectives and goals pursued under each
sector.

65.
Since the reform of EC external assistance, all aspects of
Project Cycle Management (PCM) are fully institutionalised. The
use of the logical framework approach provides objectively veri-
fiable indicators, and predefined means to assess the effectiveness
of the expenditure.

66.
The majority of the projects audited by the Court were
designed in the period before the reform of the EC external
assistance.

67.
As a result of the reform of EC external assistance and
with the entry into force of the new Financial Regulation in Janu-
ary 2003, project delays have since then been significantly lim-
ited and contained.

Monitoring and evaluations have been enhanced by the obliga-
tory use of the logical framework tool, as well as the establish-
ment of obligatory mid-term and final evaluation for every
project/programme.

The sustainability plans are now carefully looked at through the
Quality Support process. Moreover, sustainability is one of the
criteria examined by the Result Oriented Monitoring and is sys-
tematically looked at in the context of independent monitoring
exercises.

68.
The current project design already requires a clear defi-
nition of the global objective, the project purposes, project results
and activities. The requirement to conduct an independent exter-
nal evaluation is systematically included in all projects since late
2002.

To implement its overall vision, the Commission devel-
62.
ops specific CSPs/RSPs and draws up national programmes. These
include both financial and technical and economic cooperation
activities, which are mutually reinforcing and complementary.

The Commission acknowledges that the application pro-
69.
cedures for Asia wide programmes are complex, although every-
thing is done to keep them as light as possible.

The ABM process is new, and its formulation and consistency are
being improved. However, activity statements should not be
taken in isolation as they are used by the Commission, together
with the other relevant documents that drive the Commission’s
actions in the Asia region.

The Commission considers economic cooperation as one
63.
of the intertwined components of its development assistance
and is committed to giving it careful attention in the formulation
of the CSP/NIP. Moreover, the Commission will endeavour to fur-
ther improve the consistency within the activity statement as well
as to develop adequate indicators.

The current review of the Financial Regulation and its Implement-
ing Rules should lead to more flexibility and proportionality in
the application of the rules to small-scale projects, i.e. more in
proportion to the risks involved.

Moreover, the ongoing revision of AIDCO Practical Guide to con-
tractual procedures will simplify the application process for grants
to the extent allowed by the Financial Regulation, as well as clarify
the role of the delegations in the evaluation.

70.
The posting of a model application on the website car-
ries the risk of applicants replicating extensively from the model.
The Commission makes available detailed fact sheets on all funded
projects on the programme websites.

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Monitoring and evaluation of projects has been enhanced by
obligatory use of the logical framework tool. In part, it is due to
the existence of the logical frameworks that the regular monitor-
ing systems put into place for Asia wide programmes have
worked very well. The Commission would therefore prefer to
maintain the requirement that applicants complete a logical
framework. The Commission will consider the use of a central
registry as suggested by the Court.

In the past two years, the Commission has implemented
71.
a large variety of activities to improve guidance to potential appli-
cants. Under the new generation of Asia-wide programmes, the
Commission has introduced a specific programme component on

capacity-building actions which aim to enhance project prepara-
tion and project management skills of beneficiaries.

Delegations cannot assist applicants in preparing their proposals
without infringing the principle of equality of treatment. This is
why assistance is limited to the provision of general guidance,
without entering into the details of a proposal.

72.
The Commission is constantly adapting procedures in
order to adopt best practice. Both the monitoring system of the
Asia wide projects and the external monitoring exercise now
employ standard reporting formats. Since devolution, the Delega-
tions are actively involved in this systematic monitoring activity.