Brexit update – September 2018

This note updates the Brexit Update I wrote in April 2018. In an ideal world, I might have incorporated the earlier material and written a new, stand-alone briefing – but I haven’t, so I’m afraid you will have to read the earlier note for background. Look particularly at the 5 big questions, the DFIDDepartment for International Development non-paper from February, and the seven priorities for the development sector.

It is hard to assess how the overall negotiations are going, and harder still to know whether we will actually leave. For what it’s worth, my guess is that things are somewhat more serene than they appear on the surface: kind of the reverse of what happens with ducks paddling furiously below the water while they glide smoothly across the pond. On the surface, all is sound and fury, among and between the political parties, especially about the viability of the Chequers proposals and the subsequent Brexit White Paper, both published in July. Under the surface, the blanks in the Withdrawal Treaty are gradually being filled in, and there have been positive comments recently, both from Michel Barnier, and, in his State of the Union speech on 12 September, Jean Claude Juncker. This may, of course, be too optimistic. It looks like the rubber will hit the road in November, with a special EUEuropean Union Summit pencilled in for 13 November.

Meanwhile, there are two areas to track. One relates to the UK position, especially on contributions to EUEuropean Union aid programmes after Brexit, but also on access to EUEuropean Union funding by UK NGOs. The other is the evolution of development policy in the EUEuropean Union itself, especially connected to the proposals for the Multi-Annual Financial Framework 2021-2027.

The UK position

In February, the UK expressed a desire to participate in future EUEuropean Union aid programmes, provided that it was given a voice in strategy. Key sentences from the Non-Paper read:

‘The EU has the opportunity now to design a set of future instruments which . . . creates an open and flexible enabling framework, within which the EU  and its partners can work together . . .. We suggest that . . . new instruments are designed so that they are open to external partners . . . should be invited to participate at a strategic level, with a seat at the table, where they are able to contribute expertise or resources (funding or in kind). Partners should be able to earmark funding within the geographical funds for Africa, the Caribbean and the Overseas Countries and Territories, and the Pacific, as well as to the neighbourhood.’

In May, the Government published a second non-paper, reproduced below for ease of reference. The willingness to collaborate was again emphasised, but again with a clear signal that this would be selective:

‘we will critically assess the rationale for close collaboration depending on the situation, and be rigorous in our assessment of whether working with the EUEuropean Union offers the best value for money.’

Being more specific, the paper identified three areas where closer collaboration would be attractive: (a) peace and security, including via a European Peace Facility; (b) humanitarian aid; and (c) migration. These, the paper says,

‘are key areas for policy co-operation, close mutual (i.e. side-by-side) programming and could potentially be areas where we may jointly fund in the future if we can create the mechanisms that allow us to do so effectively.’

There was quite a debate about these three areas when the paper was first circulated, with critics asking about the apparent exclusion of e.g. poverty reduction or social sector expenditure. It was not sufficiently made clear that the three areas represent the UK’s Government’s assessment of where the EUEuropean Union has comparative advantage vis-à-vis the UK. There was reference to this when the Secretary of State, Penny Mordaunt, appeared before the International Development Select Committee in Parliament, in July.

Thus, the debate should not be about whether these three areas are the most important in development, but rather whether these are areas where the EUEuropean Union can add value to the UK’s own efforts. That is certainly a debate worth having – both whether there is value-added in these three specific areas, and also whether there is value-added elsewhere. For example, it is interesting to compare the business-oriented priorities articulated by Theresa May in her recent visit to Africa, with a very similar emphasis on investment and growth in the new ‘Africa-Europe Alliance’ announced by Jean-Claude Juncker in his State of the Union. Can the EUEuropean Union add value to the UK effort, or does self-interest make that impossible?

It is just worth adding that the Brexit White Paper had only four short paragraphs on development cooperation, essentially confirming the thrust of the Non-Paper (see Box 1).

If this is the UK position, it becomes especially important to track the EUEuropean Union proposals for the next financial framework – on which, see below.

The other main focus of UK policy over the summer has been on access by UK entities to EUEuropean Union funding. This became quite heated, for example when Penny Mordaunt, appeared before the Select Committee  in July (see esp Q 21). The main problem seemed to be that UK, mainly humanitarian, NGOs were discouraged from applying for EUEuropean Union funds, because if the UK left the EUEuropean Union without a ‘deal’, then their funding might be discontinued. This may have been a case of mis-communication by the European Commission, but in any case, the British Government stepped in to guarantee funding. In a letter to NGOs, the Secretary of State, Penny Mordaunt, said

‘I am pleased to announce the Government’s commitment to support UK aid organisations from additional financial liabilities as a result of “no deal’ planning currently being undertaken by ECHO. This contingency plan would apply in the event that ECHOEuropean Community Humanitarian Office terminates funding to UK organisations when we leave the EU.’

The commitment does not apply in the case of a ‘with deal’ Brexit, however, and there are other actors at risk, including universities and private companies. This is not a new topic. I reviewed it in May 2017, concluding that the main problem lay in restrictive EUEuropean Union rules on tied aid, which would (in different ways) disadvantage UK entities engaged in development aid, humanitarian aid and research. I concluded that after Brexit

‘it does look as though the UK would be excluded from a significant share of EU oda. There might be some special circumstances, and no doubt some UK organisations will establish EU subsidiaries in order to be able to access funding. However, a better option for all concerned, including developing countries, would be for the Regulations to be amended as soon as possible. As noted at the outset, this would benefit all parties, including the EU itself.’

So, pressure should be kept on the EUEuropean Union to untie aid.

Development Policy in the EU

As suggested in the earlier Update, development policy-making in the EUEuropean Union does not stand still. There have been important developments since April.

The most important for our purpose relate to the Multi-Annual Financial Framework for the period 2021-27. I confess to being sceptical of a budget process which sets parameters so far ahead; and wish the political process were timed so that fiscal issues featured prominently in the EP elections in 2019. However, we are where we are. Jean Claude Juncker called in his State of the Union for agreement in principle on the new budget before the planned Sibiu Summit in Romania on 9 May 2019 i.e. before the European Parliament elections.

The Commission has published its proposals in two parts: the first, an overview Communication, published in May, and with an accompanying fact sheet on The Neighbourhood and the World; the second, published in June, with more detailed information about the proposals for development cooperation and humanitarian aid – by the way, with lots of good explanatory graphics.

The Commission has nailed its colours to the mast: more money, despite Brexit; new sources of revenue; and re-ordered priorities. The flag flutters bravely in the wind. Whether it remains undamaged through to the end remains to be seen. Judging by early political reactions, the muskets are lined up and have the Juncker standard firmly in their sights. A smaller EUEuropean Union but a bigger budget, of €1.1 trillion? Revenue raised independently of Member States, for example via a levy on the emissions trading scheme? Smaller shares for agriculture and for transfers to poorer countries and regions? Political conditionality wrt intra-EU transfers? It is not hard to see where the debates are likely to focus.

There are plums in the pudding, too, of course, so perhaps the opposing forces will fight each other to a standstill. That is probably what Jean Claude Juncker and his budget Commissioner, Gunther Oettinger, are hoping for: that the glittering prizes of free inter-rail travel, 10,000 border guards, more for action on climate change, more for common defence,  or more for research and development will overcome objections to other items. It is going to be a busy period for the negotiators trying to reach agreement.

Development issues run through the MFF proposal. For example, a commitment to spend 25% of resources on climate change can be thought of as a global public good. The proposal to allocate €35 bn for border control, migration and asylum will impact many developing countries, though probably not in a good way. There are various proposals for managing Eurozone crises and asymmetric financial shocks which will be important for developing country exporters.

Attention is likely to focus, however, on the proposals regarding aid. There are three main points.

First, it is proposed that the European Development Fund, currently outside the budget, should lose its separate status. This will improve accountability to the European Parliament, but may worsen accountability to the recipients, who currently have separate oversight through the Cotonou Agreement – though the future of the Agreement, which expires in 2020, is currently in play and it is unlikely to survive in its current form.

Second, an increase is proposed in the volume of aid, including the EDF and humanitarian aid. The Commission claims a 26% increase, to €123bn. This is disingenuous, since inflation is not taken into account. In real terms, the increase is more like 13%. Still, this is a bigger increase than is proposed for the budget as a whole, so the weight of external action in the EUEuropean Union budget will increase.

Third, and this may be the biggest change, a single instrument is proposed to cover all development aid. This will be known as the Neighbourhood, Development and International Cooperation Instrument (NDICI), with world-wide coverage. The proposal is complicated, however: within the single instrument, there will be three separate pillars, one geographical, one thematic, and one for rapid response, plus a ‘flexibility cushion’ and new arrangements to crowd in private investment.

The NDICI has a proposed budget of €89.2 bn over the seven year period, earmarked as between the different pillars: €68 bn for the geographical pillar, further earmarked for different regions; €7 bn for the thematic pillar; €4 bn for the rapid response pillar; and €10bn in reserve. There are also specific earmarks for horizontal priorities, e.g. 20% for human development and 25% for climate change. It is not clear why the funding has all been merged into one instrument if it is then so heavily earmarked, but presumably there is a case for flexibility.

The humanitarian instrument is separate to this, with a proposed budget of €11 bn. The Commission is also proposing a separate European Peace Facility, for legal reasons outside the scope of the budget; the existing African Peace Facility will be subsumed in this new instrument. .

All these proposals have received detailed scrutiny – among others, from the European Think Tanks Group (here and here), from ECDPM (here) and from the Centre for Global Development (here). It is clear that the negotiations will be complex. There are informal ministerial meetings and like-minded meetings in September, with no doubt others to follow. As usual, however, aid advocates are unlikely to take commanding positions in the final negotiations.

Will UK needs be met?

An important question will be whether the design of the NDICI and Humanitarian Instrument in particular, as well as the proposed Peace Facility, conform to the requirements for cooperation set out by the UK Government: especially for third party Governments, as the UK will be, to have a strategic voice in designing and managing the instruments. The key sentence in the May Non-Paper is this:

‘We need flexible mechanisms that allow for future cooperation in geographic and thematic areas, where it is in our mutual interests; mechanisms for consultation and coordination which we don’t need to take the time to set up in times of crisis because they already exist; mechanisms that are open to the UK and others, to be able to pool our expertise and resources together with the EUEuropean Union and its Member States; mechanisms that give us an equal voice in shaping our approach and oversight of our funds; and mechanisms that allow programmes to be delivered by UK NGOs who are widely regarded as being among the best at delivering aid in the World.’

At present, there are various ways for third party Governments to participate in EUEuropean Union programmes, which offer different degrees of voice and oversight. There may be different roles for EUEuropean Union institutions, including the Commission, the Court of Auditors, the European Parliament and the European Court of Justice. The three main options appear to be: (a) delegated cooperation; (b) participation in Trust Funds, and (c) something called an External Assigned Revenue Facility.

On the first, regular procedures for direct, indirect and shared management ‘modes’ of EUEuropean Union Spending (Budget and EDF) are prescribed by the EUEuropean Union Financial Regulation (see also the Practical Guide on contract procedures). A good source of detail is the ‘Devco Companion’ which sets out procedures for different kinds of funding, implemented through different kinds of implementation ‘modality’. The EUEuropean Union is able to delegate implementation to other entitites, but ‘even if the Commission delegates the implementation of an action to an organisation or partner country in indirect management, it remains accountable to the European Parliament and to the Council for the proper use of the EUEuropean Union funds’ (from the Companion).

‘Delegated cooperation’ is a mechanism by which funds can be entrusted to the Commission from Member States (through Transfer Agreements), or entrusted by the Commission to Member States (Delegation Agreements). There are, again, many details to consider, but the following text seems to offer a model for future collaboration with the UK:

‘A high degree of involvement implies Commission participation in the policy dialogue, planning, monitoring and annual reviewing, reporting and evaluation processes. Minimum involvement implies for example an observer status in the annual policy dialogue and further reliance on the reporting by the implementing entity - fund-managing donor. In any case, the Commission should lend weight and leverage to negotiations at the request of the fund-managing donor. The Commission's involvement should however not take the form of its participation in the decision-making as this would risk watering down the responsibility of the implementing entity for the implementation of the action.’

Note, however, that ‘no derogation from EUEuropean Union jurisdiction can be granted’.

About €1.5 bn was spent on delegated cooperation between 2008-14, with about 80% being in the form of TAs rather than DAs – so a small amount compared to total EUEuropean Union spending in that period. An evaluation in 2016 concluded that the impact on aid efficiency and effectiveness was ‘limited’.

The rules for delegated cooperation formally apply to Trust Funds, where the EUEuropean Union manages funds on behalf of other donors, including non-EU members. The Emergency Trust Fund for Africa is an example. The Governance is described as in Box 2, with a Strategic Board and an Operational Committee. Both of these allow for the participation of non-Member States as members.

 As far as the External Assigned Revenue Facility is concerned, this is a procedure covered by Article 21 of the 2012 Financial Regulation, and interalia provides for contributions to EUEuropean Union programmes by EFTA countries, including Norway and Switzerland. There is an explanatory factsheet here. In 2016, EFTA countries contributed about €400 mn to the EUEuropean Union budget – so relatively small scale. Additional earmarked contributions from different countries, mostly for  research, but including for refugees in Turkey, amounted to about €3 bn. A

Note that different rules apply to humanitarian aid, particularly for NGOs, which have the option of signing Framework Partnership Agreements.

Finally, it is worth noting that procedures may change when the new Multi-Annual Financial Framework is launched in 2021. The proposals published by the Commission include proposed Regulations for the new Instruments like the NDICI. The latter, for example, contains this paragraph (Pg 12):

‘As regards the choice of partners outside the Union, the Commission may also decide to work with international organisations, partner countries or entities from other third countries under indirect management for the implementation of a specific action, when this is in the interest of the Union and of the objectives of such action, and subject to the rules and conditions laid down in the Financial Regulation. This choice would require a Commission decision. Furthermore, Members States and third countries may contribute to the External Action Guarantee and therefore their entities could become potentially eligible counterparts for its implementation. For third countries other than contracting parties to the Agreement on the European Economic Area, these contributions require the prior approval by the Commission. The conditions for such contribution should be reflected in an agreement between the Commission and the third country.’

A key question in all these arrangements is whether participation by the UK is project-based or at a strategic level. It is easy to imagine that the UK would wish to be involved in overall management committees for the various instruments, preferably with a vote, but otherwise as an observer. Governance could well be a sticking point in the negotiations.

To summarise, it does look as though there may be options for UK-EU cooperation after Brexit, although constrained by EUEuropean Union Regulations, and, it has to be said, somewhat on the EU’s terms. It will be interesting to learn more of the UK’s success in negotiation. A task for the International Development Select Committee?

________________

UK NON-PAPER ON DEVELOPMENT – MAY 2018

Why it makes sense for the UK and the EUEuropean Union to continue to work together on development

In our February non-paper, the UK set out the reasons why a flexible, open and responsive EUEuropean Union is in everyone’s interests. This paper sets out further thinking, and will be followed by further detail on the particular issues raised as discussions progress.

The UK will continue to share the same overall objective after we leave the European Union: to meet the SDGs and to eradicate poverty. We will continue to be like-minded on policy and approach and we are fully behind the European Consensus on Development in addressing, in an integrated manner, the main focus points of the 2030 Agenda: people, planet, prosperity, peace, and partnership. While we may not agree on every detail, every time, we do believe that our collective impact in addressing specific development challenges is greatest when we work together.

We are clear that we wish to be able to cooperate strategically with the EUEuropean Union in the future, but there is no doubt that this future cooperation will look, and feel, different. When the UK no longer contributes to all of the EU’s development programmes by virtue of its membership of the EU, we will critically assess the rationale for close collaboration depending on the situation, and be rigorous in our assessment of whether working with the EUEuropean Union offers the best value for money. It may not make sense to join up on everything, but where a UK contribution through the EUEuropean Union makes sense to both parties in the interests of best addressing poverty, we will need frameworks and mechanisms that enable us to do so.

Let’s focus for now on three thematic areas where there is a strong case for continued close collaboration between the UK and the EU: peace and security, humanitarian aid, and tackling migration.

Peace and Security

The UK’s 2015 Strategic Defence and Security Review (SDSR) and the EU’s 2016 Global Strategy confirmed the UK and EU’s visions for addressing the poorest and most conflict-affected countries are closely aligned. The UK provides global leadership in delivering aid and building stability in fragile and conflict affected states, through actions such as stabilisation, governance and conflict sensitive programming and we welcome the EU’s increased focus and investments in these areas. This is important for the world’s poorest, it is also important for Europe’s own security.

The Commission’s proposal for a European Peace Facility (EPF) could provide a mechanism for continued UK and EUEuropean Union strategic cooperation in this area. However, the current proposal does not appear to cover all requirements for Capacity Building in support of Security and Development, in line with the EU’s commitment to the Integrated Approach which aims to address conflict and fragility in a coherent and comprehensive way. It also potentially makes it difficult for non-EU partners to participate.

Designing an EPF that is broader in its approach would improve policy coherence and efficiency in delivery. Enabling third countries to participate would also increase the ability of the EUEuropean Union and the UK (and possibly other non-EU donors) to work better together in fragile and conflict affected states. We would argue this makes good development sense.

Humanitarian Aid

The UK works with a wide range of partners to deliver aid and respond to crises in the most effective way possible. We have worked closely with ECHO, the humanitarian arm of the Commission, in humanitarian crises throughout the world, coordinating our efforts as like-minded donors. ECHOEuropean Community Humanitarian Office and the UK are closely aligned on humanitarian policy and response. We are both leaders on humanitarian reform, not least via our mutual leadership on Grand Bargain commitments, including increased use of cash transfers that are more efficient and provide greater dignity to those in need. We also have a shared approach to protracted crises, which sadly are increasingly common.

For these reasons, we see ECHOEuropean Community Humanitarian Office as a strategic partner on humanitarian issues. Standard third country access through Externally Assigned Revenues provides a useful funding option in some humanitarian crises and we hope this mechanism will continue. However, we believe we can go beyond that and combine our networks, expertise and resources where it makes sense, so that we can work together to deliver most impact. We believe it makes sense to provide for this close and effective collaboration to be able to continue.

Migration

Migration is a significant challenge that will continue to affect all European countries for many years to come. We will see ongoing impacts on countries of origin and transit and on migrants themselves, including their continued exploitation by traffickers. This is a huge development, as well as a political, challenge, to which the UK remains fully committed to addressing.

The EUEuropean Union has established frameworks for coherent regional engagement, and the UK plays a leading role in these. We value the whole-of-route approach, linking upstream migration to other migration programming along the route, including programmes to address Organised Immigration Crime, support protection in refugees’ regions of origin and transit, and work with regional governments on returns and reintegration. We share technical expertise and partnership networks that enable the EUEuropean Union and all its partners to deliver at scale politically and programmatically. We believe the scale of this challenge means it would be best addressed by the EUEuropean Union and the UK working together, including with partners from outside the EU. Open and enabling partnerships which give a voice to all key actors and allow the pooling of resources will be essential.

The way forward

We suggest these three areas – peace and security, humanitarian, and migration - could form the basis of a strategic partnership of development cooperation between the UK and the EU. These are key areas for policy co-operation, close mutual (i.e. side-by-side) programming and could potentially be areas where we may jointly fund in the future if we can create the mechanisms that allow us to do so effectively. But we should not limit ourselves to these three areas if other thematic or geographical challenges emerge where a close partnership is also the best approach.

We can’t know now what challenges we may face in five or ten years’ time. We need to future-proof our options, so that – when needs must – we are able to flex and respond strategically and effectively together. This is not about joint programming or setting up a specific time-bound trust fund. Both of these can be useful tools, but they are most useful when set up to tackle a specific issue or deliver a certain outcome. Clearly regional priorities may well change over time and it does not make sense to lock in specific long term commitments to regional partnerships between the EUEuropean Union and UK now, but it does make sense to make sure the door to strategic cooperation remains open through EUEuropean Union regulation that promotes flexible, inclusive and responsive collaboration.

The UK believes that it is in the interests of developing countries that the UK and the EUEuropean Union should develop a partnership that goes further than existing standard third country partnerships. We need flexible mechanisms that allow for future cooperation in geographic and thematic areas, where it is in our mutual interests; mechanisms for consultation and coordination which we don’t need to take the time to set up in times of crisis because they already exist; mechanisms that are open to the UK and others, to be able to pool our expertise and resources together with the EUEuropean Union and its Member States; mechanisms that give us an equal voice in shaping our approach and oversight of our funds; and mechanisms that allow programmes to be delivered by UK NGOs who are widely regarded as being among the best at delivering aid in the World.

With creativity and flexibility we believe this is possible and desirable. Furthermore, we firmly believe it is in the interest of the EUEuropean Union and Member States to enable this to happen – not just because of the expertise and resources that this could bring to the table – but because it will result in better development programmes and better impact. The UK works with many development partners to tackle poverty and achieve the SDGs. We want the EUEuropean Union to continue to be one of our closest partners in this. And we want to work together to make this possible.

24th May 2018