ENGAGING THE EU ON DEVELOPMENT ASSISTANCE IN

UNCLAS SECTION 01 OF 05 BRUSSELS 005221 SIPDIS SENSITIVE DEPT FOR E,EB,EUR/ERA,AF,NEA,PRM,S/CRS DEPT PASS MCC FOR MORFORD USAID FOR PPC,EGAT,AFR,ANE,GH,EE,LAC NSC FOR MCKIBBEN,STRONG,SIMON E.O. 12958: N/A TAGS: EAID ECON PREF PREL EUN UN USEU BRUSSELS SUBJECT: ENGAGING THE EU ON DEVELOPMENT ASSISTANCE IN 2005: THE GLOBAL SCOPE OF U.S.-EU COOPERATION REF: (A) BRUSSELS 5070 (B) BRUSSELS 4630 ¶1. (SBU) Summary. The 25 EU member states have a GDP roughly equal to the United States, but spend twice as much on development assistance. One fifth of EU assistance is funneled through the European Commission (EC),making the Commission the third largest single donor in the world and an important catalyst for other EU funding. Although EC decision-making and budgeting processes are sluggish in adapting to changing needs, when we can articulate a long-term vision, as we have in Afghanistan and the Balkans, for example, the US and the EU can work to each other's strengths in structuring our assistance. ¶2. (SBU) It is striking just how much US and EU development and humanitarian assistance priorities coincide. The numbers speak for themselves: 200 million euros/year for Afghanistan; 320 million euros to Iraq over the last two years, with another 200 million slated for 2005; over 300 million euros to Sudan/Darfur, and 250 million euros for the Palestinians this year (with another 20 million euros already set aside to support Gaza engagement). ¶3. (SBU) As the world's two largest donors, the US and EU have enormous scope for cooperation and coordination on our respective development assistance programs globally. As we look to address the next phase of challenges in Afghanistan, Iraq, and Darfur, or longer-term development in the Middle East, Africa, and Eurasia, the force-multiplier opportunities are there. New EU Commissioner President Barroso is also much more attuned to development and assistance needs than his predecessor was. Despite the political strains of recent years, development cooperation and coordination around the globe remains strong as this cable's survey demonstrates and critical to achieving our strategic policy objectives. (starting at paragraph 12). End Summary Putting Assistance in Context -------------- ¶4. (SBU) The December 2003 European Security Strategy ("A Secure Europe in a Better World") closely mirrors the US National Security Strategy emphasis on Defense, Diplomacy and Development. The strategy notes that "as a union of 25 states with over 450 million people producing a quarter of the world's Gross National Product (GNP). The European Union (EU) is inevitably a global player... (that) should be ready to share in the responsibility for global security and in building a better world." In fact, 2003 net Official Development Assistance (ODA) data from the OECD DAC reveal the EU member states disbursed $37.139 billion (compared to 16.254 billion by the United States). Nearly 20 percent of EU ODA flows, or over $7 billion annually, are channeled through the European Commission. Clearly, the EU and US working together represent the two largest donors globally. Cumbersome Decision-making -------------- ¶5. (SBU) Getting internal consensus within the EU on how to respond to development needs remains a time-consuming process and may well prove even more complex with 25 member states than it has been with 15. However, when we can articulate a long-term vision of what we see as the end game, as we have in Afghanistan and the Balkans, for example, the US and the EU can work to each other's strengths in structuring our assistance. ¶6. (SBU) Within the EU there are clear patterns of Development Ministers' views. Most Northern Europe Development Ministers, with the notable exception of the current Dutch Minister, tend to take a more purist approach to development assistance. The UK Development Minister in particular lambasts the EC for aid programs which he views as not consistent with a poverty reduction focus. The Southern Europe Development Ministers, on the other hand, tend to take a quite different approach, consciously linking development assistance to foreign policy goals, which leads to a perceived skewing of assistance to Latin America based on other than development grounds. The new member states are not significant donors, are still on a steep learning curve, and have yet to align themselves in one or the other camp. ¶7. (SBU) The EC's seven-year budget cycle also influences EU assistance. The EC is in a better position to respond to long-standing crises than to major new initiatives for which they have not planned. Similarly, while our interests largely coincide, in some instances they have different priorities -- as we are now seeing with the EU emphasis on the Great Lakes crisis. One important factor to bear in mind as we encourage the EC to respond to our priorities is that the Community resources are part of a zero sum game. When the EC agrees to fund something of interest to us, it will come at the expense of something else we might like them to fund. Institutional Reforms -------------- ¶8. (SBU) Under the previous Commission, a number of institutional reforms were put in place to enable the EC to be more agile in its response mechanism. Those reforms included the establishment of a new Directorate General for European Aid Cooperation (DG AIDCO) for the implementation of development assistance policy, concurrent with a policy of "deconcentration" or devolution of staff to the field. As a result, the 80 Delegations in the field managing development assistance have been strengthened, and now possess the technical and administrative capacity to implement programs and pay contractors directly. Brussels headquarters therefore focuses more on policy and coordination, with significantly reduced technical capacity here. ¶9. (SBU) As part of the preparations for the 2007 -2013 Financial Perspectives, the Commission recently proposed a consolidation of funding instruments for external assistance from the current 90 "funding instruments" (budget lines) to just 6: (a) an instrument for pre-accession assistance; (b) a European Neighborhood and Partnership instrument; (c) a Development Cooperation and Economic Cooperation instrument; (d) an instrument for stability; (e) an existing instrument for humanitarian assistance; and (f) an existing instrument for macro financial assistance. The Commission is also seeking significant increases for these external assistance instruments. ¶10. (SBU) The debate on the overall size of the EC's development budget will go on all next year. Based on the recent debate over the 2005 budget, however, we saw the EU Finance Ministers defying the European Parliament and striking a deal on the 2005 budget (the first full-year budget for the EU-25) which limits the increase to 5.9% over ¶2004. The total EC budget of euro 106.3 billion (with less than 7 percent for foreign assistance) amounted to just over 1% of GNI. The six EU member states that are net contributors to the budget seek to likewise cap the 2007-13 budget at 1% of GNI, rather than 1.24% of GNI proposed by the Commission. US-EU Cooperation Spans the Globe -------------- ¶11. (SBU) Meanwhile, the US and EC coordinate and cooperate closely on humanitarian assistance worldwide. Over the past year the cooperation has included Afghanistan, Iraq, Liberia, Haiti, Palestinian Territories, Uganda, Sudan (including Darfur),Cote d'Ivoire, Colombia, Democratic Republic of Congo, Burundi, Ethiopia, Zimbabwe, Angola, Myanmar, Chechnya, Yemen, Tajikistan, Cambodia, Sierra Leone and assistance to the victims of the Bam earthquake in Iran. ¶12. (SBU) US-EC Cooperation on key USG strategic priorities: ¶A. Afghanistan - From the beginning of the international engagement, the EC made a long term commitment to Afghanistan by pledging $1 billion over five years at the Tokyo Conference. The European Commission and EU Presidency have been active co-chairs of the Donor Group. The EC has exceeded its pledge and been responsive in mobilizing resources for police training and the recent elections. We expect that commitment to continue. The EC welcomes the new Afghan counter-narcotics plan and the strong backing the US is providing this effort. ¶B. Iraq - Despite differences within the EU over the approach to Iraq, the EC and EU member states pledged $1.4 billion of assistance at the October 2003 Madrid Donors' Conference. The EC has fully disbursed the 2003 - 2004 funds ($320 million) to the World Bank and UN Trust Funds. Both the EC and the EU Presidency have been active participants in the Core Donor Group and are now preparing their 2005 package of euros 200 million (subject to European Parliament approval),with an emphasis on the upcoming elections, private sector development, trade, investment, public services, jobs, democracy and rule of law. The major challenge facing the EC is how to disburse their program without an office in country. The Commission argues that it has no mechanisms to provide protection for their offices, so they are attempting to run their program from Amman until such time as the security situation will allow them to re-locate. ¶C. Sudan - The EU shares our concerns over the horrific humanitarian disaster in Darfur, and has mobilized euros 326.5 million of assistance, including support for the African Union peacekeeping efforts. New Development Commissioner Louis Michel made his first foreign trip to Khartoum and Darfur November 25 - 27. We expect continued strong support from the EC, as well as the EU Foreign Ministers and Development Ministers, in efforts to resolve the humanitarian crisis, and to produce a North-South peace agreement which will unleash significant development resources. The US and EU already are in close policy coordination on Sudan. ¶D. Palestinian Authority - This year assistance to the Palestinians from the EC budget is set at around 250 million euros, including a package for the West Bank and Gaza for 124.25 million euros. The assistance has two objectives: addressing urgent needs and contributing to the creation of a viable and democratic Palestinian state. The EC is contributing 65 million euros to the Public Financial Management Reform Trust Fund established by the World Bank at the request of the Palestinian Authority with backing from the international donor community to continue improving management of public finances and the viability of Palestinian Authority institutions. Following a recent request of the Council to the Commission to consider developing concrete measures to make a success of the disengagement from Gaza, a reserve for an amount of 20 million euros has been set aside. This will be defined in due course subject to developments on the ground. In addition, some 3 million euros have been set aside to support civil society initiatives in East Jerusalem with a view to strengthening institutions that are working on the improvement of living conditions in the area. This total package comes on top of around 128 million euros already earmarked through the following programs: 89 million euros through the United Nations Relief and Works Agency for Palestine Refugees in the Near East (UNRWA),(of which 8 million euros from ECHO),29 million euros for humanitarian aid through ECHO, around 10 million euros for food aid /food security through the World Food Program and NGOs and for the European Initiative for Democracy and Human Rights (EIDHR). ¶E. LIBERIA - At the February Donors' Conference in NY, the EC pledged $125 million for reconstruction and $75 million for humanitarian assistance. Both the EC and Dutch EU Presidency report ongoing concerns with donor coordination in Monrovia. These concerns are discussed Ref A. ¶F. Haiti - The EC was the single largest donor of budget support at the July Donors' Conference in Washington. Ongoing violence in the country is affecting the EC's ability to disburse funds in a timely fashion. The EC also has funds reserved for rehabilitation programs which are now under way. They are also moving ahead with a justice reform program which they consider a priority. The EC plans to contribute euros 10 million for the elections if they take place. ¶G. Ethiopia - The EC and EU member states are actively engaged in the G8 Famine Initiative in Ethiopia where we are jointly assisting the GOE get on an economic growth path, which will liberalize markets and get agricultural growth above 6% within the next three to four years. The initiative includes a multi-donor sector wide program supporting a "productive safety net" which will stabilize rural incomes of the chronically food vulnerable and build productive assets of rural communities. ¶H. Georgia - The Donors' Conference in Brussels saw a robust EC commitment of over 125 million euros of EC funds to Georgia over the period 2004-2006. Taken together with humanitarian and other assistance, total European Community aid to Georgia for 2004-2006 amounts to 137 million euros. The EU broadened the European Neighborhood and Partnership policy to embrace Georgia in addition to the 14 other countries and Palestinian Authority which form the EU's new neighborhood. ¶I. Sri Lanka - The EC remains a strong donor Co-Chair having joined the US, the Norwegians and the Japanese in urging in the strongest possible terms a rapid resumption of the peace negotiations so that Sri Lanka can benefit from the generosity of the international community. The EC has asked for the next Co-Chair meeting to be scheduled. ¶J. Broader Middle East and Mediterranean - Donor coordination on assistance programs in USAID presence countries with the EC and EU member state bilateral programs is already quite strong. Recent instructions from State and Brussels to respective field missions in the region to meet on a quarterly basis should identify additional areas of potential cooperation and coordination on messages of support for reform agenda. We were pleased to see the EC demonstrating leadership on the Forum for the Future by convening a technical level dialogue among key donors supporting the Literacy initiative. The EC has indicated they would welcome follow up to the series of DVCs held in March -April in preparation for the drafting of the US-EU Summit statement on BMEM, particularly in the areas of vocational education and training for the labor market, small and medium enterprise development, support for independent media, support for youth, etc. ¶K. Broadening and deepening our coordination and cooperation in Africa - the EU Development Ministers recently called for a renewed focus on Africa as part of the effort to prepare for the MDG 5 Stocktaking event next September. New Commissioner for Development Louis Michel has made it clear Africa will be his focus, given his long and abiding interest in the continent. The US and EC already enjoy excellent cooperation on a range of issues in Africa, and it behooves us to actively engage in broadening and deepening those efforts including elections, agricultural technology, food security, economic growth. In 2003 the EC also introduced the Africa Peace Facility (APF),funded out of European Development Funds at the 250 million euro level for three years to respond to emerging security needs linked to development. This instrument was established in record time, demonstrating that where there is internal EU consensus they can move quickly to deliver. The APF has been critical to mobilizing peacekeeping efforts in Darfur. ¶L. Cyprus - The EU is in the process of securing a Euros 259 million aid and trade package to end the isolation of the Turkish Cypriot community. Given Cyprus' member state status in the EU, this has proven more complex than originally envisioned. The EC has asked for consultations to ensure the respective efforts the EC and USG will fund are complementary and mutually reinforcing. ¶M. DPRK - The EC shares US concerns over monitoring of humanitarian assistance in North Korea. Ref B provides further details ¶N. Food Security - Over the past two years we have made notable progress in our dialogue with the EC on food security and there is now a greater understanding of how each donor uses food aid when assisting countries to get on an economic growth path, as in the case of Ethiopia. The EC remains skeptical about US food aid policies in the abstract. However, in the context of the Darfur humanitarian crisis, the EC encouraged EU member states to increase their food aid contributions. The dialogue needs to be maintained with each donor playing to its strengths -- US food, EC cash to buy locally or regionally. We also need to continue to work together on the economic impact of local purchase and needs assessments as this is the principal means upon which more credible response plans can be developed. ¶O. HIV/AIDS - The EU has made its support for The Global Fund to Fight AIDS, Tuberculosis and Malaria (GFTAM) the principle vehicle for contributions from the EC and EU member states, pledging $1.5 billion as of June 2004. EU member states also fund bilateral assistance programs for HIV/AIDS in many countries. In Europe the perception is the USG is more focused on our bilateral PEPFAR initiative than on our support for the multilateral GFATM, despite US chairmanship of the GFATM. Early engagement at Cabinet level with the EU in the new year on this issue would be helpful. The last such visit to Brussels was carried out by HHS Secretary Thompson in 2003. ¶P. Water - The EC and EU member states are heavily engaged in water projects globally and recently initiated an EU Water Facility funded at the euro 1 billion level. Opportunities for greater US-EU coordination exist, but would require a joint STATE-USAID team to come to Brussels for serious discussions. Conclusion -------------- ¶13. (SBU) As the world's two largest donors, the US and EU have enormous scope for cooperation and coordination on our respective development assistance programs globally. While the focus of the donor community for the coming year will be in preparing for the September 2005 Millennium Development Goals Stocktaking event, we will continue to have numerous opportunities through the US-EU task forces and US -EU Senior Level Coordination Group (SLCG) Dialogue, US -EU Troika experts level consultations on Africa (COAFR),the Middle East (COMEM),South East Europe (COSEE),the Western Balkans (COWEB),Eastern Europe (COEST),Latin America (COLAT),and Asia (COASI),as well as the Humanitarian Assistance Strategic Partnership dialogue and other informal or ad hoc discussions to engage our interlocutors in the new Commission. MCKINLEY YY PRIORITY NSC WASHDC PRIORITY SECSTATE WASHDC Y DEPT FOR E EB EUR/ERA AF NEA PRM S/CRS: USAID FOR PPC EGAT AFR ANE GH DCHA EE LAC: PASS MCC FOR MORFORD: NSC FOR MCKIBBEN STRONG SIMON Y UNCLASSIFIED SIPDIS