I thank the committee for the invitation to appear before it today. The subject for discussion is the European Commission's amending letter No. 1 to the preliminary draft budget for 2006 of the European Union. The letter concerns new funds for compensatory aid to the African, Caribbean and Pacific countries affected by the reform of the EU sugar regime. I am the principal officer in the EU budget section of the Department of Finance and I am accompanied by my colleague from the same section, Ms Mary Lawless.
Before speaking about the Commission's amending letter, I wish to briefly outline the procedure in respect of the European Union's annual budget. Since 1988, the budget has been defined within a multi-annual financial framework, sometimes called the financial perspective, to use EU terminology. This multi-annual approach was introduced in 1988 to get away from having the budget decided solely in annual negotiations which had often proved to be acrimonious. The committee will probably recall the UK rebate discussions which had been spread over a number of years. There seemed to be a row every year when the budget was being decided and there was a desire to move away from that situation. The multi-annual approach also meant that the European Union's finances could be better managed by taking a more medium-term perspective. The current framework covers a seven year period. Therefore, instead of having a row every year, we have one every seven years. For example, this is the final budget year of the framework started in 2000. The committee will be familiar with the 2000-06 agreement which is sometimes referred to as Agenda 2000, to use EU terminology.
The committee will be aware that just before Christmas a further seven-year agreement was reached by the European Council of Heads of State and Government. This new agreement will cover the seven years from 2007 to 2013. As the Taoiseach reported recently to the Dáil, the outcome of the negotiations was very satisfactory from Ireland's point of view, including in regard to the agricultural provisions.
While these multi-annual frameworks provide the overall context and ceilings for spending over the periods involved, that is, seven years, it is the annual budgetary procedure that determines the actual, more detailed, level of spending in any year. The procedure for this annual budget is that in April each year, the European Commission produces its preliminary draft for the following year's budget. Thus in April 2005 the Commission would have produced its draft for the 2006 budget. This preliminary draft is examined in detail by the Council of Ministers of the member states in July. The result goes forward to the European Parliament for its consideration in October. In November the Council of Ministers reconvenes for a second time for what is called its Second Reading of the draft budget to vote on changes proposed by the European Parliament. Decisions made at this stage by the Council regarding compulsory expenditure are final. The term "compulsory" refers to certain spending required directly by the EU treaty and, in particular, includes CAP expenditure. The draft is then returned to the European Parliament which has its Second Reading in December and the final word on the remaining expenditure, non-compulsory expenditure. The President of the Parliament then declares the budget adopted.
From what I have outlined, it is evident that there is a long period involved from the time of the preliminary draft budget in April to the final decision in December. In the course of these rather drawn out procedures, the Commission may, on its own initiative or at the request of the other institutions, present a letter of amendment to the draft budget in the light of information not available when the draft was first drawn up, that is, in April. In the instance of the amending letter by the Commission before us today, the Council took the letter into account in its Second Reading of the 2006 budget in November and the European Parliament subsequently considered it during its Second Reading in December. The amending letter was finally adopted by the Council and the Parliament, the amounts in the letter were entered into the budget and the way is consequently cleared for the funds to be utilised in 2006. It has gone through the process.
I will return to the matter of the actual content of the amending letter. Before doing so, however, I should provide some background information on the relationship between the European Union and the African, Caribbean and Pacific or ACP group of countries. Some of this information is already contained in a note supplied to the Chairman in advance of this meeting.
There is a total of 77 ACP countries that are party to the Cotonou partnership agreement between the ACP and the European Union. The agreement was signed in 2000 in Cotonou, Benin, west Africa. It is the latest in a series of such partnership agreements that date back to 1975. The agreements reflect a special historical relationship between the European Union and the ACP countries concerned. In fact, many of them are former French or British colonies. Therefore, they have had a long-standing relationship with certain EU member states.
The Cotonou agreement, essentially, covers aid and trade and is particularly important for the countries concerned. It also has associated protocols covering commodity sectors, including the sugar sector. The sugar protocol involves 18 ACP countries, countries which have a notable sugar sector. Under the protocol, some of the ACP countries involved rely on the EU market for their sugar exports. They were given sugar import quotas by the European Union and received the EU price per tonne which is substantially above the world market price. As a result of the recent sugar reforms, the price the ACP countries will receive for their sugar exports to the European Union will be substantially reduced. As a consequence, the market conditions for them will be significantly altered. In addition, the adjustment process to these new conditions will be complex. This reflects the socio-economic importance of the sugar sector in the countries concerned and their significant reliance on the EU market.
In anticipation of the agreement on sugar reforms, the Commission, in its communication to the European Parliament and the Council on accomplishing sustainable sugar sector reform, committed itself to supporting the adjustment process of the ACP sugar protocol countries. It was accepted that the impact of the reform was not just an internal EU matter but also affected the ACP countries concerned. The Commission proposed financial and technical assistance, including EU budget support where appropriate, in addition to that provided for in the framework of the ACP-EU partnership agreement. The proposal offered a broad range of supports to take account of varying conditions between the countries concerned and within a single country. Activities to be supported included upgrading of the competitiveness of the sugar cane sector; developing alternative economic activity; and coping with the serious social, environmental and economic consequences of a reduction in the contribution of the sugar sector to the countries concerned.
On foot of the Commission's communication on the effects of reform on ACP countries and in line with the budgetary procedure referred to concerning changed circumstances and new information not available when the draft budget was drawn up, the Commission proposed in its amending letter No. 1 which we are discussing that additional assistance to ACP countries should be provided from the EU budget, initially in 2006. The letter proposed adding new funding - €40 million for commitment appropriations and €21.2 million for payment appropriations - under heading 4 which is concerned with external actions in the budget for 2006 to support the measures mentioned for the ACP countries affected by the reform. It was also proposed that further funding, as required in the light of developments, could be provided up to 2013.
To clarify, the amending letter has proposed what are called commitment appropriations and payment appropriations. The distinction is that commitment appropriations represent an expectation to enter obligations up to that amount that will result in actual payments over 2006, while payment appropriations represent the actual amount that specifically may be paid out in 2006. The figure for actual payment in 2006 is €21.2 million. This is a distinction made in the EU budget which is not made in our national budget.
As this is an external development issue, there were no domestic implications for Ireland other than that our contribution to the EU budget for 2006 would increase by €280,000 to cover our share of the cost of providing the €21.2 million in payments in 2006 to ACP countries. Some member states suggested this aid should be funded from within the agriculture heading in the budget rather than the external actions heading. Ireland, with most other member states, rejected this. By inclusion under the agriculture heading it would have impacted on the financial ceiling for the CAP, implying possible cuts in direct payments to farmers in the European Union, including Ireland.
As part of the normal budgetary procedure, the proposal was adopted by the Council and the Parliament and the amounts were entered into the EU budget for 2006 under heading 4, external actions, as the Commission had originally proposed. Considering the complexity of the restructuring and diversification to be undertaken in the sugar protocol countries, the Commission proposed that the assistance to the countries concerned should cover a relatively long term, that is, up to 2013. Funding for ACP countries in the years after 2006 will be covered by the new multi-annual financial framework for the period 2007 to 2013 for the EU budget agreed at the European Council in December, to which I have referred. The multi-annual framework sets out the maximum amounts and overall composition of expected future funding over that period. It is divided into budgetary headings, reflecting the main EU priorities for the period. The Council's decision on the new framework is being given operational effect in negotiation of what is referred to as the inter-institutional agreement between the Council, the Parliament and the Commission. It is envisaged that the negotiations on this agreement will be finalised before Easter. This will allow the details of funding for specific measures such as those involving ACP countries to be decided subsequently in the annual budgetary process starting with the budget for 2007. As I mentioned, the annual budgetary procedure determines the level of spending for each year and each EU measure under the ceilings set for the various headings by the financial framework which provides the overall context for a given budgetary period but the detail is provided in the annual budgets.
In this short statement I have covered the overall EU budgetary procedure, the special ACP-EU relationship and the role of the amending letter. I am aware that representatives from the Department of Agriculture and Food attended the committee specifically to discuss the impact on Ireland of the EU sugar reforms. This aspect would be a matter for that Department. I am afraid that I would not be able to comment on that domestic dimension.