LIMITE EN CONFERENCE ON ACCESSION TO THE EUROPEAN UNION CROATIA. Brussels, 29 June 2011 AD 30/11 LIMITE CONF-HR 17

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1 CONFERENCE ON ACCESSION TO THE EUROPEAN UNION CROATIA Brussels, 29 June 2011 AD 30/11 LIMITE DOCUMENT PARTIALLY ACCESSIBLE TO THE PUBLIC ( ) CONF-HR 17 ACCESSION DOCUMENT Subject: EUROPEAN UNION COMMON POSITION Chapter 33 - Financial and budgetary provisions AD 30/11 CONF-HR 17/11 1

2 EUROPEAN UNION COMMON POSITION (Revision of CONF-HR 30/07) Chapter 33 Financial and budgetary provisions This position of the European Union is based on its general position for the Accession Conference with Croatia (CONF-HR 2/05), and is subject to the negotiating principles endorsed by the Conference (CONF-HR 5/05), in particular: - any view expressed by either party on a chapter of the negotiations will in no way prejudge the position which may be taken on other chapters; - agreements - even partial agreements - reached during the course of the negotiations on chapters to be examined successively may not be considered as final until an overall agreement has been established; as well as to the requirements set out in points 13, 16 and 26 of the Negotiating Framework. The EU underlines the importance for Croatia of compliance with the Stabilisation and Association Agreement as well as the Accession Partnership, which constitute basic elements of the preaccession strategy. The EU encourages Croatia to continue the process of alignment with the acquis and its effective implementation and enforcement, and in general develop already before accession, policies and instruments as close as possible to those of the EU. AD 30/11 CONF-HR 17/11 2

3 The EU notes that Croatia, in its addendum CONF-HR 12/11, accepts the acquis under Chapter 33 as in force on 1 June 2011 and declares that it will be able to implement it by the date of its accession to the EU, with the exception of a request for transitional arrangements concerning payments to the EU Budget. The EU's response to this request is set out below. (i) Financial Framework for Croatia's accession The EU underlines that this position is drawn up based on the Commission Communication of 29 October 2009 (doc /09) and in accordance with Council conclusions of 7 December 2009 on a financial package for the accession negotiations with Croatia. The EU stresses that this position is based on the same principles and methodology underlying the financial packages agreed with the twelve Member States of the fifth enlargement. Moreover, the EU recalls its position on financial issues set out in EU Common Position CONF-HR 8/11 on Chapter 22 Regional Policy and Coordination of Structural Instruments and EU Common Position CONF-HR 7/11 on Chapter 11 Agriculture and Rural Development. The EU underlines the importance of its approach which balances the specific needs of Croatia on the one hand with limits on absorption capacity on the other, including an appropriate phasing in of certain expenditure items. The EU recalls that discussions or agreement on future policy reforms, or the new financial framework, shall neither impede the pursuit and conclusion of accession negotiations with Croatia, nor be prejudged by the outcome of these negotiations. Based on an accession date for Croatia of 1 July 2013, the financial package outlined below will be governed by the terms of the current financial framework until the end of Following this period, expenditure for Croatia would be governed by the then applicable acquis, including the next financial framework, taking into account the continued phasing-in of certain expenditure items as well as ring-fenced expenditure in 2014 covering a "cash-flow facility" and a "Schengen facility" set out in this position. AD 30/11 CONF-HR 17/11 3

4 The EU stresses that the protection of the EU's financial interests is of the utmost importance. The EU therefore underlines the importance of Croatia ensuring, in a timely manner, that the required capacities and structures for the sound management and effective control of EU financial instruments are in place in accordance with the acquis. All amounts set out in this position are expressed in current prices. Heading 1: Sustainable growth 1a Competitiveness for growth and employment Croatia shall participate fully in the EU s actions and programmes as from its accession. Based on the methodology used to determine the level of increase in the funds available for the internal policies to take account of the accession of the twelve countries of the fifth enlargement, funding of 47.4 million in 2013 would be required to take account of Croatia's accession. 1b Cohesion for growth and employment The EU notes that based on application of current acquis and the latest available GNI figures, Croatia's maximum level of transfers from funds supporting cohesion in any one year under the current financial perspective would be capped at 3.524% of GDP. Taking into account point 8 of Annex II of Council Regulation (EC) No 1083/2006, the overall capped amount will include contributions from the ERDF to the financing of the cross border strand of the Instrument for Pre-Accession Assistance, and the contributions from the part of the EAFRD originating from the Guidance Section of the European Agricultural Guidance and Guarantee Fund, and from the European Fisheries Fund. AD 30/11 CONF-HR 17/11 4

5 The EU recalls its position on financial issues set out in EU Common Position CONF-HR 8/11 on Chapter 22 Regional Policy and Coordination of Structural Instruments, in particular that: "In order to reflect the progressive increase of absorption capacity in Croatia, the EU considers that structural actions allocations for Croatia should be progressively phased-in. Accordingly, Croatia should be entitled to 60% and 80% of its normal allocations in the first and second years of accession respectively. Full phasing-in would be achieved by the third year of accession. The same phasing-in will apply to Croatia's allocations under Structural and Cohesion funding, rural development funding and the European Fisheries Fund" and its position that "Should Croatia not accede to the EU on the 1 January of a given year, an adjustment will be made to its financial allocations on a pro rata temporis basis. Similarly, provisions will be foreseen to take into account allocation of pre-accession funds for that year on a pro rata temporis basis". Based on an accession date of 1 July 2013, the EU considers that the total cohesion envelope for Croatia covering Structural and Cohesion Funds (SCF), rural development measures (the "Guidance part") and the European Fisheries Fund would normally amount to million in The EU considers that 84.25% of this total cohesion envelope ( million) will be reserved for Structural and Cohesion Funds (SCF) in 2013 and 1.64% of this envelope ( 8.7 million) will be reserved for funding participation in the European Fisheries Fund. Rural development funding is addressed under heading 2 below. For the period covered by the next financial framework, Croatia's allocations under Structural and Cohesion funding will be calculated based on the then applicable acquis. These amounts should then be adjusted in accordance with the following phasing-in schedule: %, %, as of %. AD 30/11 CONF-HR 17/11 5

6 Based on budget years, the phasing-in schedule is as follows: %, %, %, as of %. An adjustment should be made to ensure, insofar as the limits of the new acquis allow, an increase of funds for Croatia in 2014 of 2.33 times the 2013 allocation, and in 2015 of 3 times the 2013 allocation. In line with its position in EU Common Position CONF-HR 8/11, the EU considers that one third of the 2013 Structural and Cohesion Funds envelope should go towards the Cohesion Fund to reflect the significant needs in terms of transport and environment infrastructure. Taking into account the principles of the fifth enlargement, as well as the short period remaining from accession to the end of the current financial framework, the EU considers that pre-financing under the Structural and Cohesion Funds shall amount to 30% and 40% of the total envelope respectively. As set out in EU Common Position CONF-HR 8/11 on Chapter 22, this should be paid in one instalment as soon as the report referred to in Article 71 of Council Regulation (EC) No 1083/2006 is accepted by the Commission. Heading 2: Preservation and management of natural resources For market measures under the common agricultural policy, fisheries market measures and animal and plant health measures, the EU underlines that the acquis will apply fully to Croatia as from its accession to the Union, with the exception of the support programme in the wine sector. As a modification of the EU Common Position CONF-HR 7/11 Croatia shall not implement the support programme in the wine sector for the financial year 2013 and the total annual amount for the support programme in the wine sector for years shall be increased annually by million, without prejudice to the then applicable acquis. AD 30/11 CONF-HR 17/11 6

7 The EU recalls that, as set out in the EU Common Position CONF-HR 7/11 on Chapter 11- Agriculture and Rural Development, direct payments should be introduced gradually over a period of ten years in Croatia, starting in the first year of accession at 25% of the then applicable level of such payments in the EU-15. The EU considers that Croatia shall receive phasing-in direct payments for the whole year 2013, provided that by the date of accession Croatia has taken the necessary measures to allow granting of direct payments by that year, as will be further specified in the Act of Accession. The same approach shall apply to the demining reserve. For the period covered by the next financial framework, Croatia's allocations for market expenditures and direct aids will be calculated based on the then applicable acquis, using for direct aids the phasing in rates of 30% in 2014, 35% in 2015 and so on, as foreseen in EU Common Position CONF-HR 7/11 on Chapter 11: Agriculture and Rural Development. As regards rural development, due to an extremely short programming period (6 months), it would not be feasible to implement efficiently a national rural development programme in Croatia in The EU considers that instead of the rural development programme in 2013 Croatia should continue with the IPARD programme in the second half of 2013 and benefit from an increased phasing in of allocations for rural development in 2014 of 100% instead of 80%. For the period covered by the next financial framework, Croatia's allocations under rural development funding would therefore be calculated fully based on the then applicable acquis. For the year 2013 the full allocation for IPARD, i.e million shall be available for Croatia. The EU notes that Croatia will participate fully in the European Fisheries Fund as from accession. The EU considers that the total envelope to be made available under this fund to Croatia in 2013 should be 8.7 million. Taking into account the principles of the fifth enlargement, as well as the short period remaining from accession to the end of the current financial framework, the EU considers that pre-financing under the European Fisheries Fund shall amount to 25% of the total envelope. This amount should be paid in one instalment. AD 30/11 CONF-HR 17/11 7

8 For the period covered by the next financial framework, Croatia's allocations will be calculated based on the then applicable acquis. These amounts should then be adjusted in accordance with the following phasing-in schedule: %, %, as of %. Based on budget years, the phasing-in schedule is as follows: %, %, %, as of %. An adjustment should be made to ensure, insofar as the limits of the new acquis allow, an increase of funds for Croatia in 2014 of 2.33 times the 2013 allocation, and in 2015 of 3 times the 2013 allocation. Croatia shall participate fully in the EU programme Life + as from its accession. Based on the methodology used to determine the level of increase in the funds available for the internal policies to take account of the accession of the twelve countries of the fifth enlargement, funding of 1.25 million in 2013 would be required to take account of Croatia's accession. Heading 3: Citizenship, freedom, security and justice. 3a Freedom, security and justice Croatia shall participate fully in the actions and programmes under the sub heading 3a Freedom, security and justice as from its accession. Based on the methodology used to determine the level of increase in the funds available for the internal policies to take account of the accession of the twelve countries of the fifth enlargement, funding of 2.1 million in 2013 would be required to take account of Croatia's accession. The EU notes that based on the eligibility rules under the following instruments: the European Fund for the Integration of Third-country Nationals, the European Refugee Fund and the Return Fund, no country specific allocations for Croatia are foreseen for Croatia should participate fully in these instruments from AD 30/11 CONF-HR 17/11 8

9 The EU considers that a special temporary Schengen facility should be established as a temporary measure to deal with specific investment needs to maintain and reinforce the external borders of a European Union which includes Croatia, as well as to deal with the effects of Croatia's eventual entry into the Schengen system. Based on the methodology to determine the funds available to the beneficiary States in the fifth enlargement, funds amounting to 120 million in the first two years of Croatia's accession should be foreseen ( million, million). These amounts shall be made available to Croatia in the form of lump-sum payments. The EU underlines that the funds allocated to this special temporary Schengen Facility shall be used to support Croatia in its obligation to finance actions at the new external border of the Union for the implementation of the Schengen acquis and external border control. Payment shall be such that the amount for 2013 shall be payable to Croatia on 1 July 2013 and the amount for 2014 on the first working day after 1 January The lump-sum payments shall be used within three years from the first payment. Croatia shall submit, no later than six months after expiry of this three-year period, a comprehensive report on the final execution of the lump-sum payments under this Schengen facility with a statement justifying the expenditure. Any unused or unjustifiably spent funds shall be recovered by the Commission. The EU notes that all the above amounts shall be fixed in the Accession Treaty. The detailed rules for the management of the Schengen Facility for Croatia will be provided for by a Commission Decision. In particular, provisions regarding monitoring, reporting by Croatia and auditing will be included in this decision in order to set a robust legal framework for the management of the Schengen Facility. The EU considers that no funds should be made available for Croatia in 2013 under the External Borders Fund nor in 2014 from the financial instrument covering the objectives of the External Border Fund under the new financial framework, given the availability of a Schengen Facility for Croatia. AD 30/11 CONF-HR 17/11 9

10 3b Citizenship Croatia shall participate fully in the actions and programmes under the sub heading 3b Citizenship as from its accession. Based on the methodology used to determine the level of increase in the funds available for the internal policies to take account of the accession of the twelve countries of the fifth enlargement, funding of 2.2 million in 2013 would be required to take account of Croatia's accession. The EU underlines that the establishment of adequate administrative and judicial structures and the strengthening of administrative and judicial capacity to properly implement the acquis is of critical importance to the accession process. The EU considers that funds should therefore be allocated to Croatia in support of institution building measures after accession similar to those agreed in the fifth enlargement, in particular through the use of a "transition facility" to develop and strengthen Croatia's administrative and judicial capacity to implement and enforce EU legislation and to foster exchange of best practice among peers. This assistance shall fund institution-building projects and limited small-scale investments ancillary thereto. The EU notes that assistance shall address the continued need for strengthening institutional capacity in certain areas through action which cannot be financed by the Structural Funds or by the Rural Development funds. For twinning projects between public administrations for the purpose of institution building, the procedure for call for proposals through the network of contact points in the Member States shall continue to apply. The commitment appropriations for the Transition Facility, at current prices, for Croatia shall be EUR 29 million in total in the first year after accession to address national and horizontal priorities. Assistance under the Transition Facility shall be decided and implemented in accordance with Council Regulation (EC) No 1085/2006 of 17 July 2006 establishing an Instrument for Pre- Accession Assistance (IPA) 1 or on the basis of other technical provisions necessary for the operation of the Transition Facility, to be adopted by the Commission. 1 OJ L 210, , p. 82. AD 30/11 CONF-HR 17/11 10

11 The EU underlines the need to ensure appropriate complementarity with the envisaged European Social Fund support to administrative reform and institutional capacity development. Heading 6: Compensation The EU has carefully considered Croatia's request for the application of transitional corrective measures with regard to the payments of Croatia into the EU budget. The EU recalls that the Own resources acquis will fully apply to Croatia as from accession and stresses that payments due to the EU budget by Croatia shall be made in accordance with the relevant acquis. The EU consider that, in order to mitigate the impact of full application from accession of the own resources rules to Croatia and the time lag between commitment appropriations and actual payments being made, particularly in the first year of accession, a special temporary "cash-flow facility" should be made available to Croatia to improve its net budgetary position. Based on application of a similar methodology as used in the fifth enlargement, the EU considers that the following amounts should be made available to Croatia: million, million. Each annual amount shall be divided into equal monthly instalments, payable on the first day of each month. (ii) Own Resources Traditional Own Resources As regards traditional own resources (TOR), the EU takes note of the upgraded existing information and accounting systems, and notes the development of the TOR accounting module for the so called A&B accounts, which allows a distinction to be made between recovered/guaranteed debts and outstanding debts as required by Council Regulation No 1150/2000. The EU invites Croatia to gradually broaden the scope of the testing environment so as to allow country-wide application of the TOR accounting module by mid Moreover, the EU notes that with the adoption of the General Tax Act in December 2008, the legal framework has been created for a write-off system of irrecoverable debts in line with Article 17(2) of Council Regulation No 1150/2000, as amended by Council Regulation No 2028/2004. The EU encourages Croatia to finalise preparations for full application of this framework. AD 30/11 CONF-HR 17/11 11

12 The EU takes note of the progress achieved in the area of sugar charges and Croatia's commitment to ensure by the time of its accession to the EU, an adequate legislative and institutional framework for the implementation of sugar charges. The EU notes the on-going strengthening of the internal financial control system in Croatia. In this regard, the EU underlines the importance of ensuring sufficient, independent internal and external control/audit of the collection, accounting and making available of traditional own resources, including further development of post-clearance control at trader s premises. The EU notes the strengthening of the central Department for Internal Audit and Control and the organisational role attributed to it, particularly its competence for internal checks on TOR. The EU underlines the importance of Croatia optimising instruments to combat customs duty and VAT fraud so that the financial interests of the EU can be protected. The EU encourages Croatia to continue strengthening its risk-analysis procedures and systems in order to ensure effective and efficient controls and to modernise its existing customs control strategy by focussing more on post-clearance auditing using audit methodology. VAT resource The EU notes that the technical requirements for calculating the VAT based own resource have generally been met and that analytical capacity has improved. However, the EU invites Croatia to continue reinforcing its administrative capacity and to complete on-going work aimed at improving the statistics for the calculation of the Weighted Average Rate. The EU notes that Croatia has been granted transitional periods and derogations from the EU VAT acquis under Chapter 16 Taxation. In this regard, the EU points out that where specific provisions are agreed that affect the application of the system of own resources, the bases on which various categories of Own Resources are calculated would have to be adjusted so that the amounts that Croatia would normally be required to pay into the EU budget would not be affected by any such provisions. AD 30/11 CONF-HR 17/11 12

13 GNI resource The EU notes that the technical requirements for determining the GNI own resource have generally been met. Continued efforts are, however, needed to further improve the quality and exhaustiveness of the national accounts and GNI calculations. The EU notes that with the 2010 revision a number of deviations from ESA95 were addressed. Administrative infrastructure The EU notes that Croatia has strengthened the administrative capacity of the Department for the Co-ordination and Management of the Own Resources within the Ministry of Finance, which acts as the coordination structure for own resources, and that procedures for managing the own resources system from accession have been put in place. The EU encourages Croatia to continue to strengthen capacity and procedures so that a fully operational coordination structure will be in place from accession to ensure the correct calculation, forecast, collection, payment and control of own resources and reporting to the EU for implementation of the own resources rules. The EU invites Croatia to continue implementing within the set deadlines its commitments laid down in its Action Plan to complete own resources preparations and to continue reporting progress every two months to the European Commission services. * * * AD 30/11 CONF-HR 17/11 13

14 In view of all these considerations, the EU notes that, at this stage, this chapter does not require further negotiations. Monitoring of progress in the alignment with and implementation of the acquis will continue throughout the negotiations and until Croatia's accession. The EU underlines that it will devote particular attention to monitoring all specific issues mentioned above with a view to ensuring Croatia's administrative capacity to ensure the correct calculation, collection, payment and control of own resources and reporting to the EU for implementation of the own resources rules. Particular consideration needs to be given to the links between the present chapter and other negotiation chapters. A final assessment of the conformity of Croatia's legislation with the acquis and of its implementation capacity can only be made at a later stage. In addition to all the information the EU may require for the negotiations in this chapter and which is to be provided to the Conference, the EU invites Croatia to provide regularly detailed written information to the Stabilisation and Association Council on progress in the implementation of the acquis. In view of all these considerations, the EU will, if necessary, return to this chapter at an appropriate moment. Furthermore, the EU recalls that there may be new acquis between 1 June 2011 and the conclusion of the negotiations. AD 30/11 CONF-HR 17/11 14

15 LEGAL ANNEX DELETED FROM THIS POINT UNTIL THE END OF THE DOCUMENT (page 17) AD 30/11 CONF-HR 17/11 15