EU auditors: Challenges in financial contributions from non-EU countries

EU auditors: Challenges in financial contributions from non-EU countries

The task of managing the financial contributions to the EU budget from non-EU countries is beset with risks and based on a diverse system of arrangements, according to a new report published on Tuesday by the European Court of Auditors (ECA).

In the first comprehensive review of its kind, ECA draws the attention to a little-known  but important topic for EU’s budget and its relations with non-EU countries, both candidate countries and other third countries.

About 1% of EU revenue comes from contributions paid by 18 non-EU countries. This represented around €7 billion over the 2014-2019 period, with Switzerland and Norway (€2.2 bn each), Turkey (€1.3 bn) and Israel (€1.0 bn) being the largest contributors. In return for these financial contributions, non-EU countries gain access to EU programmes or activities such as the R&D programme Horizon or education programme Erasmus+.

In addition to these contributions paid directly to the EU, the four EFTA states (Iceland, Liechtenstein, Norway and Switzerland) provide an average of €0.5 billion each year directly to some EU member states to complement the EU’s cohesion policy by reducing social and economic disparities in the EU and the European Economic Area.

“With this review, we aim to provide a comprehensive picture of the largely unknown financial contributions non-EU countries provide directly to the EU and to some of its member states”, said François-Roger Cazala, the ECA member responsible for the review (27 April). 

“Our work sheds light for the first time on the challenges the EU is facing in connection with these contributions and their management.”

“This review was undertaken because we have never covered this topic,” the ECA team told The Brussels Times. “A significant amount of information on EU’s agreements with non-EU countries and related contributions already exists, but it is fragmented and incomplete. We thus carried out this review with the aim to provide a comprehensive overview of the contributions and the rules governing them.”

Calculation of contributions

In terms of data collection, the review does not differ much from an audit report but does not contain audit observations, conclusions or recommendations. Nevertheless, ECA identified a number of challenges and issues that could be subject for more specific audits in this area in the future. It is up to the EU institutions concerned to manage the challenges, according to ECA.

The 18 non-EU countries that contributed to the EU budget were the EFTA countries, the EU candidate and potential candidate countries (Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia, Serbia and Turkey), the European Neighbourhood Policy countries (Armenia, Georgia, Israel, Moldova, Tunisia and Ukraine) and the Faroes.

Currently, a detailed breakdown showing the contributions of each non-EU country to each EU programme or activity is not presented regularly and there is no overview of all EU financial support provided for the reimbursement of these contributions. This is a challenge in promoting transparency and accountability for the benefit of the interested public and budget authorities.

In the short term, another key challenge pointed out by the auditors has to do with the impact Brexit is having on the contributions from non-EU countries to the EU. Brexit will lead to an overall increase in the contributions to be provided by non-EU countries, because of its impact on individual contribution calculations.

The auditors also highlight challenges associated with the contributions directly paid by EFTA countries to some EU member states, for which the EU institutions have no direct oversight. These contributions can be seen as a counterpart to the EFTA countries’ participation in the EU’s internal market.

The decision on which countries receive the support was the result of a political agreement between the EU and EFTA countries, taking into account the need to reduce economic and social disparities. The country-specific allocation of the contributions provided directly to some EU member states were established by the European Commission based on the distribution key used for the EU Cohesion Fund

However, there is no particular methodology underpinning their calculation, according to ECA. The challenge for the EU is to ensure that those financial contributions are commensurate to the benefits of access to the internal market in future negotiations with these countries.

Asked if the non-countries should pay more for their participation in the EU programmes, ECA replied that it does not express itself on this question in this review. “It is a complex and political issue discussed and agreed as part of broad negotiations.”

The candidate countries participate in many EU programmes as a form of preparation for their future EU membership. Is their level of participation sufficient?The review did not analyse as to whether the level of participation of candidate countries is sufficient. It may be difficult to answer that question”, ECA replied.

Among the candidate countries, Turkey is the main contributor with €1.3 billion during the 2014 – 2020 period, thereof €0.8 billion for Erasmus+.

Israel and Horizon

Horizon 2020 was the EU funding programme for research and innovation over the 2014-2020 period, with a budget of €77 billion.

Entities from associated countries benefited from the same terms and conditions as those from the EU member states. Associated countries had to pay financial contributions to the programme, defined in specific agreements on participation in Horizon 2020 concluded with the EU. Switzerland’s largest contribution went to Horizon 2020, with €1.8 billion during the previous programming period.

Israel was also a dominant contributor to Horizon 2020 with a total of over €1 billion. In fact, the EU delegation to Israel celebrated last week 25 years of successful EU-Israel R&I collaboration. The cooperation started in 1996 when Israel became associated with the fourth EU Framework Programme for Research.

“Since then, about 5,000 research contracts were signed as part of our cooperation, more than 6,000 participants, and about 1,000 SMEs for 2.5 billion in total of EU funding for research and innovation to which Israel also was an outstanding financial contributor,” commented Signe Ratso, the Deputy Director-General for research and innovation at the European Commission.

“Behind the numbers, the true value of our cooperation is in terms of shared concerns and common goals. We can mention projects in the area of biotechnology to fight climate changes, or new ways to ensure safe and drinkable fresh water, innovation in agriculture, safer transportation, new drugs discovery and better public health,” Ratso added.

However, the signature of the agreement with Israel on its participation in Horizon 2020 was delayed because of differences about funding to entities located across the 1967 borders (the Green Line). A compromise solution was found where Israel accepted EU’s position that such entities are not eligible for EU funding while sticking to its own position about the borders.

Is there a risk that the political differences between EU and Israel might affect their future cooperation in research and innovation?

“We do have differences of view on a number of important issues, but EU-Israel cooperation in R&I has endured and developed for 25 years,” Emanuele Giaufret, the EU ambassador to Israel, told The Brussels Times.

“It’s an established area of cooperation foreseen by the EU-Israel Action Plan, which guides our bilateral cooperation. It’s a cooperation that greatly benefitted Israel in establishing its unique innovation ecosystem, but also the EU greatly benefitted from including in its research area the dynamic and innovative Israeli research and start-up community.”

He added that exploratory talks to determine the modalities of Israel’s association to the new EU framework program for R&I – Horizon Europe (2021 – 2027) with a budget of €95.5 billion – are ongoing. “I’m confident that progress will soon be made.”

A spokesperson of Israel’s ministry of foreign affairs commented that formal negotiations between Associated Countries and the European Commission on their participation in community programs can only commence after the passing of relevant legislation by the European Parliament.

The European Parliament adopted the Horizon Europe regulation on 27 April. “By doing so, the road is now open for Israel and the European Commission to start formal negotiations on Israel’s participation in Horizon Europe. We hope that these discussions could take place shortly.”

M. Apelblat
The Brussels Times

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