Time to end the tying of EUEuropean Union oda?
This note is about the tying status of EUEuropean Union aid and the implications of Brexit, for the UK, for developing countries, and for the EUEuropean Union itself. In the best case, EUEuropean Union aid is completely untied, in which case there are no implications. In the worst case, all or part of EUEuropean Union aid is tied in a way which excludes the UK. This would have unfortunate consequences for: UK suppliers, consultants, researchers and NGOs; developing countries who use EUEuropean Union money to access UK goods and services; and the EUEuropean Union itself, which may suffer in terms of lower value for money, diminished competition, and an offer which comprises a restricted range of services.
The conclusion is that a rather high share of EUEuropean Union aid is tied (at least a third), and that current rules will exclude the UK from significant parts of the EUEuropean Union aid programme. The rules should be changed whether or not the UK were to be part of the EU, but certainly before the UK leaves. This should be on the agenda of the Commission, the Member States, the European Parliament, and on the developing country side, including the ACP.
Tied aid is bad aid
By way of introduction, remember that the OECD/DAC has a position which disapproves of tied aid. It says on its website that
‘Evidence has shown that "tied" aid - offering aid on the condition that it be used to procure goods or services from the provider of the aid - can increase the costs of a development project by as much as 15 to 30 percent. Untying aid, on the other hand, avoids unnecessary costs and gives the recipient the freedom to procure goods and services from virtually any country.’
Untying aid was a key plank of the Paris Declaration on aid effectiveness, agreed in 2005. An evaluation commissioned by the DACDevelopment Assistance Committee (of the OECD) in 2009 concluded that
‘The overall picture is very positive in terms of progress by DACDevelopment Assistance Committee (of the OECD) donors in the formal untying of their aid, removing legal and regulatory impediments to the procurement of goods and services outside the donor’s own market. The proportion of fully untied bilateral aid rose progressively from 46% in 1999-2001 to 76% in 2007, and for LDCs it has increased from 57% to 86 %. Taking into account multilateral aid, the proportion of untied ODAOverseas Development Assistance has risen to 83% overall. The changes over the past 10 years indicate that the 2001 Recommendation on untying of aid, together with other international agreements such as the Paris Declaration, have had an overall positive impact on further untying aid. But there are important qualifications. Free-standing technical cooperation (TC) and food aid were excluded from the Recommendation and both remain significant ‘grey areas’, with 30% and at least 50% respectively still reported as tied, and the tying status of significant proportions not being reported by some donors.’
The most recent data from the DACDevelopment Assistance Committee (of the OECD) are for bilateral oda only, and show that 20% of bilateral oda was untied in 2015, equivalent to $US 20bn. Equivalent data do not appear to be available for multilateral oda. Six countries report oda as fully untied, including EUEuropean Union Members Denmark, Ireland and the UK. The lowest proportions are in the range 30-50%, including again some EUEuropean Union Members (Austria, Czech Republic, Poland, Slovak Republic and Slovenia, with Greece bottom of the class at 14.5% untied).
Source: http://www.oecd.org/dac/stats/statisticsonresourceflowstodevelopingcountries.htm
The EUEuropean Union already has too much tied aid
As far as the EUEuropean Union institutions are concerned, the OECD/DAC profile of EUEuropean Union development cooperation says that 65.6% of EUEuropean Union oda was untied in 2014, down from 67% in 2013. It reported in its 2012 Peer Review that
‘Bearing in mind differences between the EUEuropean Union and DACDevelopment Assistance Committee (of the OECD) Member countries, the EUEuropean Union institutions’ approach to untying only partially meets the 2001 DACDevelopment Assistance Committee (of the OECD) Recommendation . . . EDF and DCI are tied aid programmes under DACDevelopment Assistance Committee (of the OECD) definitions. Despite this, good progress on opening procurement eligibility has been made, . . the peer review team encourages a step-up in this process.’
If it is true that the EDF (European Development Fund) and the DCI (Development Cooperation Instrument) are regarded as tied, then it is hard to see how the EUEuropean Union manages to reach 65.6% untied aid. These two instruments alone accounted for over 50% of EUEuropean Union oda in 2015, with other instruments, as we shall see, rather less likely to be untied.
The rules would exclude the UK after Brexit
A more detailed picture of EUEuropean Union tying rules can be gleaned from the EU’s own regulations. The EUEuropean Union website gives ‘rules of nationality and origin’, pasted in for ease of reference at the end of this note, with the following key statement of eligibility:
‘Participation in procedures for the awarding of contracts or grants is open to international organisations and to all natural persons who are nationals of, and legal persons which are effectively established in:
- a Member State of the European Union;
- a Member State of the European Economic Area;
- a beneficiary of the Instrument for Pre-Accession Assistance II,
- overseas countries and territories covered by Council Decision 2001/822/EC, as amended
- Developing countries and territories as included in the OECD-DAC list of ODAOverseas Development Assistance recipients, which are not members of the G-20 group;
- Developing countries, as included in the OECD-DAC list of ODAOverseas Development Assistance recipients, which are members of the G20 group, and any other countries and territories, when they are beneficiaries of the action financed by the Union under the Instruments concerned;
- another third country, based on a European Commission decision establishing reciprocal access to external aid.
- OECD members in case of activities implemented in the Least Developed Countries (LDC) and in Heavily Indebted Poor Countries (HIPC). This applies for the entirety of regional or global programmes which include at least one LDC or HIPC.’
This implies that OECDOrganisation for Economic Cooperation and Development members which are not Member States (a category that would cover the UK after Brexit) are eligible to participate in EUEuropean Union programmes only in the case of LDCs and HIPCHeavily-indebted poor countries countries. Helpfully, the EUEuropean Union provides a list of such countries in an Annex linked in the document. LDCs are: Afghanistan, Angola, Bangladesh, Benin, Bhutan, Burkina Faso, Burundi, Cambodia, Central African Republic, Chad, Comoros, Democratic Republic of the Congo, Djibouti, Equatorial Guinea, Eritrea, Ethiopia, Gambia, Guinea, Guinea-Bissau, Haiti, Kiribati, Lao People's Democratic Republic, Lesotho, Liberia, Madagascar, Malawi, Mali, Mauritania, Mozambique, Myanmar, Nepal, Niger, Rwanda, Sao Tome & Principe, Senegal, Sierra Leone, Solomon Islands, Somalia, Sudan, South Sudan, Tanzania, Timor-Leste, Togo, Tuvalu, Uganda, Vanuatu, Yemen, and Zambia. Additionally, HIPCHeavily-indebted poor countries countries are: Bolivia, Cameroon, Republic of the Congo, Côte d’Ivoire, Ghana, Guyana, Honduras, Nicaragua.
The DACDevelopment Assistance Committee (of the OECD) profile of the EUEuropean Union gives the ten largest recipients of EUEuropean Union oda as in the Table below. None of the top seven would be eligible for UK engagement after Brexit, though the bottom three, Afghanistan, Mali, and DRC would all qualify as LDCs.
Source: Importantly, the Common Implementation Regulation, from which the above analysis derives, does not apply to humanitarian aid. To access these funds, it is necessary for organisations to sign a Framework Partnership Agreement. Article 7 of the Humanitarian Regulation says that
‘Non-governmental organizations eligible for Community financing for the implementation of operations under this Regulation must meet the following criteria:
(a) be non-profit-making autonomous organizations in a Member State of the Community under the laws in force in that Member State;
(b) have their main headquarters in a Member State of the Community or in the third countries in receipt of Community aid. This headquarters must be the effective decision-making centre for all operations financed under this Regulation. Exceptionally, the headquarters may be in a third donor country.’
Thus, UK institutions would be excluded, except in exceptional circumstances. One such might be membership of the Council of Europe. Apparently
‘on the basis of Article 2(1) of the European Convention on the Recognition of the Legal personality of International Non-Governmental Organisations adopted by the Council of Europe on 24 April 1986 (Convention 124), the legal personality and capacity as acquired by an NGONon-governmental organisation in one of the signatory States of the Convention "shall be recognised as of right" in the other State Parties. This means that the legal personality of an NGONon-governmental organisation which satisfies the conditions foreseen in Convention 124 is recognised as such in all countries where Convention 124 entered into force. ‘
Finally, with regard to research, the Regulation governing Horizon 2020 specifies that an ‘associated country’ may participate, where an associated country is defined as ‘a third country which is party to an international agreement with the Union, as identified in Article 7 of Regulation (EU) No 1291/2013’. That Article appears to exclude most third countries, except under certain circumstances (see box).
Source: http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32013R1291&from=EN
Conclusion: act now to untie EUEuropean Union aid, for the benefit of all
Putting all this together, it does look as though the UK would be excluded from a significant share of EUEuropean Union oda. There might be some special circumstances, and no doubt some UK organisations will establish EUEuropean Union 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 EUEuropean Union itself.
Annex
2.3.1. The rules on nationality and origin
For each external financial instrument (including EDF), specific rules on nationality and origin may apply. These rules can be found in the following legal acts:
External financial instruments financed from the Budget: As from 15 March 2014, the rules on nationality and origin laid down in the CIR apply to all calls for proposals and tenders launched under these instruments. This includes also award procedures launched after 15 March 2014 under the previous external financial instruments, with the exception of calls for proposals and tenders under IPA I or procedures launched under financing decisions or financing agreements expressly setting out different rules (ie.: other than the standard reference to the basic act). In the latter case, the different rules can be reconstructed by using the previous versions of the PRAG applicable at the time of adopting the financing decisions or of signing the financing agreement.
EDF: As from 20 June 2014, the rules on nationality and origin laid down in Decision No 1/2014 regarding the revision of Annex IV to the Cotonou Agreement apply to all calls for proposals and tenders launched under the EDF.
OCTs: Regarding OCTs, from the entering into force of Decision 2013/755/EU of 25 November 2013, specific rules on nationality and origin apply to grant and procurement procedures.
For each external financing instrument, the countries corresponding to the rules on nationality and origin are listed in Annex A2ato this Practical Guide.
Rule on nationality
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BUDGET-FUNDED PROGRAMMES Subject to other specific rules set out in the applicable financing decisions or financing agreements, for all EUEuropean Union budget-funded programmes, except IPA I, the CIR applies. This regulation aligned nationality rules to a very large extent for DCI, ENI and PI. The same eligibility rules apply to INSC via reference made by the latter regulation, while IPA II remains more restrictive and EIDHR and IcSP are fully untied. Common core rules and particularities introduced in the CIR are presented in detail below: Participation in procedures for the awarding of contracts or grants is open to international organisations and to all natural persons who are nationals of, and legal persons which are effectively established in: a Member State of the European Union; a Member State of the European Economic Area; a beneficiary of the Instrument for Pre-Accession Assistance II, overseas countries and territories covered by Council Decision 2001/822/EC, as amended Developing countries and territories as included in the OECD-DAC list of ODAOverseas Development Assistance recipients, which are not members of the G-20 group; Developing countries, as included in the OECD-DAC list of ODAOverseas Development Assistance recipients, which are members of the G20 group, and any other countries and territories, when they are beneficiaries of the action financed by the Union under the Instruments concerned; another third country, based on a European Commission decision establishing reciprocal access to external aid. OECD members in case of activities implemented in the Least Developed Countries (LDC) and in Heavily Indebted Poor Countries (HIPC) . This applies for the entirety of regional or global programmes which include at least one LDC or HIPC. For each external financing instrument, Annex A2ato this Practical Guide contains the list of countries which correspond to rules on nationality and origin. The CIR also includes provisions which further extend the rules on nationality in certain cases. Therefore, in addition to entities eligible according to the rules above: In the context of actions jointly co-financed: whether implemented through direct or indirect management,8 where actions are co-financed jointly with a partner or other donor, all persons that are eligible under the rules of that partner or other donor are also eligible. (NB: Where actions are co-financed in parallel with a partner or other donor, the respective rules on nationality apply, i.e. EUEuropean Union rules apply to the part of the action financed by EUEuropean Union instruments (without extension) and the rules of the partner or other donor apply to the part financed by it.) In the context of actions implemented under shared management with a Member State, all persons that are eligible under the rules of that Member State are also eligible. In the context of actions implemented through indirect management, all persons that are eligible under the rules of the entrusted body are also eligible, except when the management is entrusted to partner countries (as per article 58 c (i) of the FR). In the latter case, only the rules of the EUEuropean Union instrument apply. In the case of actions implemented through a Union Trust Fund established by the Commission, all persons that are eligible under the rules determined in the trust fund's constitutive act are also eligible. In the case of actions financed by more than one instrument for external action, including the EDF, the natural persons who are nationals of, and legal persons which are effectively established in countries identified under any of these Instruments are eligible for the purpose of those actions. In the case of actions of a global, regional or cross-border nature financed by one of the EUEuropean Union Instruments for external action, eligibility can be extended to natural persons who are nationals of, and legal persons which are effectively established in the countries, territories and regions covered by the actions. |
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EDF-FUNDED PROGRAMMES The revised Annex IV to the Cotonou Agreement harmonised to the extent possible the rules on nationality and origin with those of the CIR. Participation is open tointernational organisations and to all natural persons who are nationals of, or legal persons who are established in : an ACPAfrica, Caribbean and Pacific State. an EUEuropean Union Member State, Member States of the European Economic Area Beneficiaries of the EUEuropean Union Instrument for pre-accession assistance (IPA II), Overseas countries and territories covered by Council Decision 2013/755/EU of 25 November 2013; developing countries and territories, as included in the OECD-DAC list of ODAOverseas Development Assistance recipients, which are not members of the G-20 group, without prejudice to the status of the Republic of South Africa, as governed by Protocol 3 to the Cotonou Agreement; another third country, based on a European Commission decision establishing reciprocal access to external aid in agreement with ACPAfrica, Caribbean and Pacific countries; OECD members in case of activities implemented in the Least Developed Countries (LDC) and in Heavily Indebted Poor Countries (HIPC). This applies for the entirety of regional or global programmes as well which include at least one LDC or HIPC. For the complete list of eligible countries please refer to Annex A2a to this Practical Guide. Annex IV to the Cotonou Agreement includes provisions which further extend the rules on nationality in certain cases. Therefore, in addition to entities eligible according to the rules above: When an operation is implemented as part of a regional initiative, natural and legal persons from a country participating in the relevant initiative are also eligible; In the context of actions implemented through direct management and where actions are co-financed jointly with a partner or other donor, all persons that are eligible under the rules of that partner or other donor are also eligible. (NB: Where actions are co-financed in parallel with a partner or other donor, the respective rules on nationality apply, ie. EUEuropean Union rules apply to the part of the action financed by EUEuropean Union instruments (without extension) and the rules of the partner or other donor apply to the part financed by it.) When an operation is implemented through a Trust Fund established by the Commission, participation is also open to all persons eligible under the rules determined in the Trust Fund constitutive act; In the case of actions implemented in indirect management through entrusted bodies, which are Member States or their agencies, the European Investment Bank and international organisations or their agencies, natural and legal persons who are eligible under the rules of that entrusted body as identified in the agreements concluded with the co-financing or implementing body are also eligible; In addition, where actions are co-financed jointly with a partner or other donor, all persons that are eligible under the rules of that partner or other donor are also eligible. In the case of projects financed under another EUEuropean Union financial Instrument, participation is also open to all persons eligible under that EUEuropean Union financial Instrument. |
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Programmes for OCTs Rules on nationality and origin for public procurement, grants and other award procedures for OCTs are established by Article 89 of Decision 2013/755/EU of 25 November 2013. Participation in the award of procurement contracts, grants and other award procedures for actions financed under this Decision for the benefit of third parties shall be open to all natural persons who are nationals of, and legal persons which are effectively established in: Member States, candidate countries and potential candidates as recognised by the Union, and members of the European Economic Area; OCTs; developing countries and territories, as included in the OECD-DAC list of ODAOverseas Development Assistance Recipients, which are not members of the G-20 group; countries for which reciprocal access to external assistance is established by the Commission; Member States of the OECD, in the case of contracts implemented in a Least Developed Country; For the complete list of eligible countries please refer to Annex A2a to this Practical Guide. The Decisions includes provisions which further extend the rules on nationality in certain cases. Therefore, in addition to entities eligible according to the rules above, the following ones are also eligible: In the case of actions jointly co-financed with a partner or other donor countries entities which are eligible under the rules of that partner, other donor In the case of actions implemented through a Member State in shared management, entities which are eligible under the rules of that Member State In the case of actions implemented through a Trust Fund established by the Commission, entities which are eligible under the constitutive act of the trust fund, shall also be eligible. In the case of actions implemented through entrusted bodies, which are Member States or their agencies, the European Investment Bank or through International Organisations or their agencies, entities that are eligible under the rules of that entrusted body, as identified in the agreements concluded with the co-financing or implementing body, shall also be eligible. In the case of actions financed under this Decision and, in addition, under another Instrument for external action, including the Partnership Agreement between the members of the African, Caribbean and Pacific Group of States, of the one part, and the European Community and its Member States, of the other part, signed in Cotonou on 23 June 2000 (1), as last amended in Ouagadougou on 22 June 2010 (2), entities identified under any of these Instruments as eligible, shall be so as well for the purpose of that action. In the case of actions of a global, regional or cross-border nature financed under this Decision, natural and legal persons from countries, territories and regions covered by the action may participate in the procedures implementing such actions. |
Rules for experts and international organisations:
Both for the EDF (including OCTs) and BUDGET-funded programmes, the nationality of experts and other natural persons employed or legally contracted does not have to follow the nationality rules. Therefore, unless otherwise provided for in the applicable financing decision/agreement, experts recruited or otherwise legally contracted by an eligible contractor/sub-contractor, may be of any nationality.
Likewise, the nationality rule does not apply to international organisations participating in a procurement or grant award procedure.
How to verify compliance with the nationality rules?
For the purpose of verifying compliance with the nationality rules, the tender dossier and the guidelines for applicants require the following from tenderers and applicants:
natural persons must state the country of which they are nationals;
legal persons must state the country in which they are established and provide evidence of such establishment by presenting the documents required under that country's law.
If the contracting authority (or evaluation committee) suspects that a candidate, tenderer or applicant does not comply with the nationality rules, it must ask the candidate/tenderer/applicant to provide evidence demonstrating actual compliance with the applicable rules.
To demonstrate their actual compliance with the "establishment" criterion, legal persons have to demonstrate that:
the legal person is formed under the law of an eligible State, and
its real seat is within an eligible State. "Real seat" must be understood as the place where its managing board and central administration are located or its principal place of business.
This is to avoid awarding contracts to firms which have formed “letter box” companies in an eligible country to circumvent the nationality rules.
The decision on whether or not candidates/tenderers/applicants are eligible is taken by the contracting authority (usually on the basis of the information and evidence provided during the evaluation).
Sanctions: When verifying compliance with the nationality rules, careful attention has to be made regarding entities which are nationals of or effectively established in countries against which the EUEuropean Union has adopted restrictive measures9. Notably, a case-by-case analysis of the scope of the restrictive measures is necessary in order to establish their exact impact on eligibility rules in a specific procedure.
Source: http://ec.europa.eu/europeaid/prag/document.do?nodeNumber=2.3.1
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