Document originated:	18 March 1998
Original language:	French
Forwarded to the Council:	20 March 1998
Circulated by the Council in the original language:	26 March 1998
Circulated by the Council in English:	27 March 1998
Deposited in Parliament:	20 April 1998
Department:	H M Treasury
Basis of consideration:	EM dated "March 1998"
Previous consideration:	None
Committee's assessment:	Politically important
Committee's decision:	For debate in European Standing Committee B, together with the Commission Communication on the establishment of a new Financial Perspective for the period 2000-2006 (see paragraph 2 of this Report)

Background

3.1  As part of the Agenda 2000 programme and in accordance with paragraph 25 of the Interinstitutional Agreement of 29 October 1993, the Commission has presented a report to the Budgetary authority on the application of the Agreement and on the amendments which the Commission considers need to be made to it in the light of experience. The Committee reported on 12 November 1997[9] on a document entitled Agenda 2000: New Financial Framework. We considered that paper to be politically important, and recommended it for debate on the Floor of the House with the other aspects of Agenda 2000 dealt with in the same report. With our agreement, the substantive debate on the New Financial Framework took place in European Standing Committee B on 10 December 1997.

3.2  The current document is one of a number of further papers published by the Commission setting out in more detail its proposals on reform of the CAP and structural funds, the pre-accession strategy and the Community's future financing. These matters are dealt with in other paragraphs of this Report.[10]

3.3  The purpose of the Interinstitutional Agreement (IIA) is to implement budgetary discipline and to improve the functioning of the annual budgetary procedure and co-operation between the Institutions on budgetary matters. Paragraph 2 of the Agreement says that it is intended to ensure "that, in the medium term, Community expenditure broken down by broad category, develops in an orderly manner and within the limits of the own resources assigned to the Community." The 1993-1999 financial perspective, which is contained in Annex 1, is regarded as an integral part of the Agreement. The IIA does not constitute legislation, but is a political agreement between the Council, the European Parliament and the Commission and is pivotal in arrangements for the orderly development of the Community spending plans.

3.4  The Commission describes its verdict on the 1993 IIA as "broadly positive" and proposes that the fundamental rules be retained. It suggests, however, that certain provisions should be amended in the light of experience, and also because of the tighter financial constraints proposed by Agenda 2000. The principal amendments or additions which the Commission is proposing are essentially on three points and can be summarised as follows:

        —  in anticipation that the financial framework will offer less latitude over the period 2000 to 2006, the Commission is proposing that the management of the Financial Perspective be given additional flexibility by permitting transfers between headings three and four of the Perspective (internal and external policies), and limited rollover from year to year.

        —  in line with the new financial management arrangements proposed for the Structural Funds, the Commission suggests that it is no longer necessary to provide in principle for the transfer to subsequent years of the allocations for the funds which have not been used.

        —  with a view to possible enlargement of the Community, the Commission proposes incorporating, beneath the expenditure ceilings, margins left available with an eye to enlargement. The Commission suggests that the IIA should leave open the possibility of revising the financial framework should the allocations planned for enlargement prove inadequate.

3.5  The Commission is also proposing a number of points for the improvement of the budgetary procedure and interinstitutional collaboration, including a proposal that the IIA should determine the classification of existing budget headings (that is, between compulsory and non-compulsory expenditure) and to have the classification of new headings agreed by the Council and the European Parliament under the conciliation procedure. The Commission suggests that if the two arms of the budgetary authority failed to agree, the Commission's proposal would be deemed approved.

3.6  In his Explanatory Memorandum dated March 1998, the Chief Secretary to the Treasury (Alastair Darling) says:

"The Government welcomes the proposed continuation of the Interinstitutional Agreement (IIA), which has made an important contribution to the greater discipline which has recently been evident in EC budget decisions. It broadly agrees with the list of provisions which the Commission has proposed should be kept unchanged."

3.7  On structural funds the Government considers that the Commission's proposal that Structural Funds commitments not paid within two years of their entry into the budget should be cancelled does not go far enough to change the "privileged" status of Structural and Cohesion Fund expenditure. The Government believes that these funds should in future be subject to the same budgetary disciplines as other forms of expenditure.

3.8  On the grounds that reforms introduced or proposed reduce market support so that the budget will have significantly lower exposure to movements in the ECU-dollar exchange rate, the Government agrees with the Commission that there is a strong argument for abolishing the agricultural monetary reserve. The Government agrees that the past practice of using the emergency aid reserve to augment routine external spending programmes should be ended but does not agree with the Commission's proposal that the resultant reduction in the reserve should be allowed to lead to a corresponding increase in the ceiling for external expenditure.

3.9  On the Commission's proposal that transfers should be permitted between categories three and four of the Financial Perspective and between one year and the next, the Government takes the view that the arrangements would represent an unjustified weakening of the budgetary discipline which the Financial Perspective provides.

3.10  The Government reiterates the importance of making a clear distinction between expenditure relating to the Union as currently constituted and that reserved for the future acceding countries as pre-accession or accession aid. The Chief Secretary's Memorandum says in particular that:

"the Government believes that it is important to safeguard spending provision intended for the new Member States. The revision of the perspective on enlargement must not make additional resources available to existing Member States."

3.11  The Government's comments on the Commission's proposals for changes to the IIA in relation to budgetary procedure and institutional co-operation can be summarised as follows:

        —  the Government is opposed to permitting the Commission to adjudicate where there is disagreement between the Council and Parliament on the classification of expenditure (between compulsory and non-compulsory);

        —  the Government is opposed to the Commission proposal that in future the arm of the budgetary authority responsible for taking final decisions on the expenditure arising in connection with legislative acts from multi-annual programmes should have the power to amend the annual amount entered into the budget, on the grounds that this would leave the Parliament free to revise unilaterally agreements reached by the co-decision procedure. Conclusion

3.12  Any proposals for changes to the Interinstitutional Agreement are of political importance because the IIA is a significant document for securing co-operation between the Institutions in the maintenance of budgetary discipline and overall financial control.

3.13  In his Explanatory Memorandum, the Chief Secretary tells us that the General Affairs Council, which has overall responsibility for Agenda 2000, has endorsed UK Presidency handling plans and that work is proceeding at expert level. The General Affairs Council is due to produce a report for the European Council in Cardiff (15-16 June) on the whole of Agenda 2000, taking account of input from the ECOFIN and Agriculture Councils. The Minister tells us that the UK Presidency will seek to make as much progress as possible, although decisions are unlikely until later this year or early 1999.

3.14  The House should clearly be kept abreast of significant proposals which will determine the level of expenditure for the period 2000-2006 and the way in which it will be administered. We are today recommending that the Commission proposals on the Financial Perspective (which forms part of the Interinstitutional Agreement) should be debated in European Standing Committee B. This proposal should also be debated on the same occasion.