EU Structural Funds and the Baltic region EU: Some reflections on a very important Danish initiative

by Eugene Eteris, special report from Denmark

The Danish Ministry of Foreign Trade and the Danish Trade Council in cooperation with the European Commission organised a meeting on "Structural Funds and Cohesion Fund in the new EU member states". It took place in Copenhagen on the 17th of March 2004, and the BC was invited to participate in the conference.

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Photo: B. Kolesnikov, A.F.I. Mr. Gints Freimanis

Alongside representatives from the EU Commission, the Czech Republic, Hungary, Poland and Denmark, the three Baltic states have been represented by high government officials from key ministries responsible for the EU structural funds (See Table 1). The conference has been restricted to three most important economy sectors in the new member states, e.g. environment, transport, as well as agro-business and food processing. The themes chosen reflect, in fact, contemporary indicative structural funds' division (See Table 2). We can see from the table that the EU structural funds' four main objectives (the fifth – technical assistance – is mainly devoted to funds' administration in the new states) are almost equally divided among the three Baltic states. The funds' co-ordination activity is performed by the European Commission's Regional Policy Directorate-General (DG Regio). The Head of the DG Regio Unit, Mr. Erich Unterwurzacher, underlined that the share of the EU financial assistance to the new member states in 2004-2006 would be divided in the following way: major part of such assistance would still go to Structural Funds – about 14 billion euros, and to the Cohesion Fund – about 7.6 billion euros. For ISPA, within the six-year transitional period (from 2000 up to 2006) about 7 billion euros will be allocated.

Financial resources

Photo: S.Romin Mr. Andulis Zidkovs.

For the 2004-2006 period the EU Structural and Cohesion Funds have allocated about 22 billion euros, which is three times the amount that the EU candidate countries got through pre-accession funds, e.g. PHARE, ISPA (Instrument for Structural Policies for pre-accession), SAPARD (Special Accession Program for Agricultural and Rural Development), as well as through bilateral assistance, i.e. assistance programs among the EU old and the new member states. Although implementation of these funds is within the new member states' competence, the EU provides the necessary guidelines for qualification of projects. Social and economic cohesion in the "EU family" has been an important part of the EU economic development; suffice it to say that this activity is second in importance after CAP, and about 35% of the EU budget resources is dedicated to it, which is about 33 billion euros only for 2004.

In the years 2000-2004 within ISPA financial resources, DG Regio has already granted about 7 billion euros for 324 projects in all 10 new member states: 211 in environment, 102 in transport and more than 10 in various other sectors. During 2000-2003 DG Regio commitments have been almost equally divided between environment (50%) and transportation (49%) sectors.

The aim of the EU structural funds

Photo: P.Lileikis Lr Mr. Arenijus Jackus.

The levels of economic development and standards of living are somehow different in almost all EU member states. The goals to complete "Single Market" were not up to the efforts to reduce regional disparities. The Single European Act (effective since July, 1987) introduced regional policy in the Community's basic documents thus recognizing the importance of economic and social cohesion. The new Union's regional policy took effect in January 1989 with an allocation of about 64 billion euros (ECU at that time) up to 1993. The Treaty on European Union (TEU or Maastricht Treaty, effective since November 1993) levelled up the significance of economic and social cohesion to one of the EU fundamental objectives. A major role was attributed to four Structural Funds (SF), assembled around "problem objectives".

A special protocol to TEU and its article 161 provided for the creation of the Cohesion Fund (this article was later on reproduced in the Draft Constitution, art. III-119). The aim of the Cohesion Fund was to render financial contributions to projects in environmental fields and trans-European networks in the area of transport infrastructure.

Objective 1: three-fourths of the regional budget money would go to "traditional regions" and 35% of the reserves would go to the most depressed regions in the new EU member states. The objective aim is to promote development and structural adjustment of regions whose development is lagging behind (ERDF, ESF, and EAGGF-guidance).

Objective 1a: 22 billion euros during the budget period would be allocated to those regions in the new member states that would not get any funds under present distribution system.

Photo: press-foto Mr. Rainer Rohesalu.

Objective 2: 18% of the budget money would go to education, environment and other scientific projects, mostly in the new member states. This objective is to assist conversion of the regions (e.g. frontier-zone regions) seriously affected by industrial decline (ERDF and ESF).

Objective 3: 4% of the budget would be directed to cross-border regional cooperation, the so-called Interreg programs. This objective covers EU measures to combat long-term unemployment, facilitate the occupational integration of young people and integration into the employment market of the socially excluded (ESF).

These three objectives, out of half a dozen more in the EU funds, cover about 95% of the EU structural budget's amount.

Important Danish initiative

Denmark has been always interested and active in Central and Eastern European states' economic development: its export in 2002 to this region reached about 3 billion euros. And after the new wave of enlargement the export potentials are going to be even bigger. The importance of the conference lies in the fact that Danish firms and companies, invited to participate in it, could be familiar with the new EU funds and be presented to the major authorities in the new member states, in case the former decided to take part in such projects.

What can be practically done?

Business representatives at the conference have been mainly interested in practical steps towards cooperation facilities with the new member states. As the Cohesion Funds (CF) are available to the new member states already from January 2004, some differences with ISPA projects should be mentioned, such as increased total available budget (from 0.75 billion euros to 2.9 billion euros in 2004; minimal project value of 10 million euros, higher assistance rate (up to 80-85%), conditionality (GDP below 90% of EU average), full implementation responsibility rests with member states. It's extremely important that national authorities in the new member states are becoming main partners for the CF and other EU projects. This means that the Commission is not any more "pressing and controlling" member states, leaving implementation of projects to national authorities. Although national rules apply, it has to be remembered that these rules are, in fact, EU transposed acquis with corresponding environment, competition, etc. rules to be applied to projects implementation. It was somehow decided that in the Baltic states the Ministries of Finance are the main co-coordinating and managing authorities for the EU funds. For more detailed information:http://europa.eu.int/comm/regional_policy/funds/prord/

sf_en.htm.

As it concerns bilateral assistance, the Danish Trade Council through the Royal Danish Embassies in the Baltic states can render necessary help in acquiring possible grants. For example, in the Royal Danish Embassy in Riga a special consultant position has been created last year; Mr. Vagn Erik Gaarde Petersen can be contacted by E-mail: [email protected], or www.denmark.lv.

For sectoral projects applicants in the Baltic states shall address the corresponding ministry, e.g. transport, environment, agriculture, etc.

Changes in post-accession financing

After the new states become full member states, the pre-accession instruments would become instruments of Cohesion Policy, e.g. PHARE would be phased out and Structural Funds would come in, ISPA would become the Cohesion Fund and SAPARD – the European Agricultural Guidance and Guarantee Fund (EAGGF). These changes are already valid from January 2004. Last contract under PHARE program can be approved before 2005, and payment occur before 2006. For the so-called transitional projects the EU has created 400 million euros financial program to ease the process.

As Mr. G. Freimanis underlined, Latvia has already created the institutional framework for use of the EU Structural Funds. It consists of 4 levels: first – the Ministry of Finance (managing authority), and the State Treasury (paying authority), second – the managing authority's monitoring and steering committees, third – the ministerial level (or the so-called intermediate bodies) consisting of about 9 national sectoral ministries, and fourth – the final beneficiaries' level. More information: www.esfondi.lv

The Baltic states participants

Latvia: Mr. Gints Freimanis, Deputy State Secretary, Finance Ministry (responsible for the national structural funds program); Mr. Andulis Zidkovs, Investment Department director in the Transport Ministry (responsible for structural funds and other investment projects within transportation sector in Latvia).

Latvia's total appropriation from EU for 2004-2006 reaches 1141 mln euros, i.e. 626 mln euros within Structural Funds and 515 mln euros within the Cohesion Fund.

Lithuania: Mr. Arenijus Jackus, Director of Strategic Planning and Financing Department, Transport Ministry (responsible for structural and cohesion funds in the country's transportation sector); Mr. Saulius Silickas, Deputy Director in the Ministry of Agriculture (responsible for administering the EU structural funds allocation in the country's agricultural sector).

Lithuania's appropriation for 2004-2006 reaches 1503 mln euros, i.e. 895 mln euros in Structural Funds and 608 mln euros in the Cohesion Fund.

Estonia: Mr. Rainer Rohesalu, Director General, Strategies and Investment Department in the Environment Ministry.

Estonia's total appropriation amount for 2004-2006 reaches 680 mln. euros, i.e. 371 mln euros in Structural Funds and 309 mln euros in the Cohesion Fund).

EU Structural Funds' indicative division

among the three Baltic states (in %)                            

SF Objective	Estonia (EE)	Latvia (LV)	Lithuania (LT)
General infrastructure	37.2	32.6	39.4
Competition, industry & SMC	19.7	25.0	25.3
Human Resources Development	25.0	21.2	18.3
Agriculture & Fisheries	18.7	18.5	15.3
Technical assistance	3.9	2.7	1.7

Source: EC Statistics.