Outcome of negotiations on Regional Policy

The European Union's regional policy is synonymous with EU funding. Everyone has heard about EU funds or the Structural Funds. However, the issue of how much funds Malta and other candidate countries will get has not yet been settled.

Instead, it has been left to be dealt with at the very end of negotiations. As a result, negotiations on this subject focused on technical issues, in particular on how each country is preparing to be in a position to spend its allocation of funds effectively when it joins the EU.

EU regional policy

The EU's regional policy is designed to provide EU assistance to help the most disadvantaged EU regions overcome their economic and social difficulties and catch up with the others.

It is important to appreciate that what is happening here is that money is being redistributed from the richer to the poorer regions which need it most. Clearly then, above all, the EU's regional policy is about solidarity, which is another word for cohesion.

Between 2000 and 2006, a third of the EU budget (which is made up of contributions from the member states) will be spent on regional policy. The total allocation for funds is €213 billion (Lm89 billion).

How Malta compares

Compared to EU countries and regions, Malta still lags behind. Its GDP level is just over half of the average in EU countries.

Latest statistics put Malta at 55% of the EU average. Compared with the richest ones, we find that the average Luxembourger is more than three times as rich as the average Maltese. During negotiations, Malta sought to ensure that it should benefit from the highest level of EU funding once it joins the EU.

The regions and countries that have a GDP level which is less than 75% of the EU average are listed in a category that attracts the highest level of funding. These are known as "Objective One" regions or countries.

Since Malta falls below the 75% threshold, it expects to be classified under this Objective. However, a final decision on this point will only be taken at the end of negotiations when the decision on the actual amount of funding will also be taken.

In deciding on whether a country falls below the 75% threshold, its GDP will be compared to the existing 15 EU countries and not to the enlarged Union.

The decision will apply for the purposes of EU funding until the end of 2006. It will then need to be reassessed for the purposes of deciding on EU funding for the period running from 2007 to around 2013.

According to new rules introduced in the Nice Treaty, this will be the last time that a decision on EU funds will be taken unanimously. This decision will be taken by countries that are members of the EU in 2006.

Territorial organisation

Since the eligibility for funding depends on the level of economic development, it is clear that statistics are an important factor in determining whether a country or region qualifies for funding and, in that case, in which category of funding it should fall.

It is here that the issue of regionality comes in. For the purposes of the collection of statistics a difference is made between one country or region and another, depending on its size.

Regions are classified according to their territorial size and given a "Nomenclature of Territorial Statistical Units" or NUTS classification. For instance, territories such as Malta, with a population of under 400,000, would normally classified under the third level of NUTS, whereas larger territories are classified under the second level (NUTS 2) and even larger ones under the first level (NUTS 1). Examples of regions at NUTS 3 level include Rome, Paris or Dublin.

Will Malta be divided into regions?

Malta had originally submitted that for the purposes of collection of statistics, it should be considered as one single region at NUTS 1 level and three separate regions under NUTS 2 and 3, namely, Malta Majjistral, Malta Xlokk and Gozo (including the island of Comino).

This request was subsequently changed and, instead, Malta and Gozo as an entire country will be classified as one unit at the levels of NUTS 1 and 2. On the other hand, Malta and Gozo will be considered as separate regions at NUTS 3 level.

This was accepted by the EU even though, as such, Gozo has a much smaller population than a typical NUTS 3 region. On the other hand, this was accepted by Malta on the understanding that, in addition to this classification, a specific protocol for the island of Gozo will be negotiated, as discussed below.

This means that both Malta and Gozo will be considered as separate regions for statistical purposes. Smaller territorial units, such as local councils, are to be classified under NUTS level 5. Comino is included with Gozo.

This classification does not affect Malta or Gozo's eligibility for EU funding because the entire country is expected, in any case, to be under Objective One whether or not it is considered as one or more regions.

Both Malta and Gozo will therefore be fully eligible for the highest level of funding from the Structural and Cohesion Funds. However, the classification does make a difference when it comes to managing funds, as shall be explained below.

Gozo protocol

The EU Treaty acknowledges that island regions, such as Gozo, suffer from permanent disadvantages which need to be addressed.

Malta claims that Gozo suffers from permanent disadvantages as a result of its status as a small island within an archipelago (double insularity), its small population size coupled with high population density, its limited resources and its environmental fragility.

In fact, in 2000, Gozo's regional GDP stood at just 71.7% of Malta's national average, which in turn is just over half the EU average.

To address Gozo's disadvantages, Malta wants to negotiate a special protocol for Gozo that takes into account both its funding requirements as well as its other needs. Negotiations on the Gozo protocol are still under way. One has to await the outcome of negotiations on this protocol to get the full picture on Gozo.

Which EU funds will Malta and Gozo be eligible to?

Malta and Gozo will be eligible for funding from all EU funds. These are known as the Structural and Cohesion Funds. (see box)

How are funds allocated?

Funds are allocated according to the needs of each country and region. Clearly, the poorest regions get the highest level of funding, whereas the richest regions may get nothing at all.

Each country is required to draw up a document listing its priorities for spending EU funds. But it is important to note that EU funds add to, but do not replace, national efforts.

Furthermore, EU funding does not cover total costs of a particular project and the amount provided by the EU may vary from project to project. Funding must also be spent according to strict EU conditions of transparency, accountability and efficiency.

Who will administer EU funds in Malta?

A well-functioning structure must be put in place in each country to ensure that it can absorb EU funds effectively and manage them properly.

In Malta, the main player will be the Regional Policy Directorate which will be responsible for programming and management of the funds allocated to Malta. There is also the involvement of ministries and other public entities.

An active participation of the Malta Council for Economic and Social Development (MCESD) and of non-governmental organisations is also envisaged.

In Malta's case the document that will identify its priorities will be known as the "Single Programming Document" (SPD). Out of these priorities, specific concrete projects can be formulated that would qualify for EU funding.

Specific projects will also need to be identified for the purposes of funding from the Cohesion Fund. These are likely to include projects relating to the treatment of sewage, the Maghtab and Tal-Qortin landfills, and the improvement of Malta's roads and transport network.

It is important to note that for funding purposes, in particular for Objective One funding, the EU normally considers regions at NUTS 2 level and not lower levels. This has a lot to do with the need to ensure that the region is sufficiently large to be able to set up the necessary structures to administer and absorb funds effectively.

This means that in the case of our country, EU funding allocation will go to Malta and Gozo as a single country and will be administered by the national structures and not by separate administrations in Malta and Gozo as this would not be cost-effective.

But of course, as a region at NUTS 3, Gozo would still benefit from the funding allocated to the wider region at NUTS 2 level (Malta and Gozo) because it forms part of it.

And to ensure that a high priority is given to Gozo's needs, a separate priority of Malta's Single Programming Document will be dedicated to the "Regional Development of Gozo".

This will be based on Gozo's special needs and will include the financial indications for Gozo's priorities, projects and measures.

Furthermore, the Ministry of Gozo will set up a Regional Project Committee which will provide an input into the programming phase concerning Gozo's development and also to select and implement projects and measures for Gozo. This will ensure that Gozitans will be directly involved in how funds are spent in Gozo.