Explanatory Memorandum to COM(2011)608 - European Globalisation Adjustment Fund (2014 - 2020)

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dossier COM(2011)608 - European Globalisation Adjustment Fund (2014 - 2020).
source COM(2011)608 EN
date 06-10-2011

· General context

In its Communication A Budget for Europe 2020 the Commission stressed the need to tackle effectively a number of challenges that constitute a serious threat to social cohesion and competitiveness. These pressing challenges are mainly: shortfalls in skills levels, under-performance of active labour market policy and education systems, social exclusion of marginalised groups and low labour mobility.

In this context, the need is recognised to provide, for the duration of the Multiannual Financial Framework (MFF) 2014 – 2020, specific, one-off support to workers made redundant as a result of major structural changes triggered by the increasing globalisation of production and trade patterns. As in the 2007-2013 programming period, this specific support should be provided through the European Globalisation Adjustment Fund (EGF), one of the existing special instruments whose mobilisation does not affect the expenditure ceilings of the MFF.

In the same Communication the Commission indicated that through the EGF the Union should also be able to provide support in the event of large-scale redundancies resulting from a serious disruption of the local, regional or national economy caused by an unexpected crisis. The scope of the EGF will furthermore be extended to provide transitory support to farmers to facilitate their adaptation to a new market situation resulting from the conclusion by the Union of trade agreements affecting agricultural products.

· Grounds for and objectives of the proposal

The European Globalisation Adjustment Fund (EGF) was initially established for the duration of the programming period 2007 – 2013 by Regulation (EC) No 1927/2006 to provide the Union with an instrument to demonstrate solidarity with, and give support to, workers made redundant as a result of major structural changes in world trade patterns caused by globalisation where these redundancies have a significant adverse impact on the regional or local economy. By co-funding active labour market policy measures, the EGF aims to facilitate the re-integration of workers in areas, sectors, territories or labour markets suffering the shock of serious economic disruption.

In the light of the scale and the speed of development of the financial and economic crisis in 2008, the Commission, in its European Economic Recovery Plan, envisaged the revision of Regulation (EC) No 1927/2006. Apart from some permanent changes based on the first years of EGF implementation, the main aim of this revision was to extend from 1 May 2009 until 30 December 2011 the scope of the EGF to enable it to demonstrate Union solidarity and provide support for workers made redundant as a direct consequence of the financial and economic crisis and to increase the co-funding rate from 50 to 65 %, thus reducing the burden for Member States. Taking into account the current economic situation and the need for fiscal consolidation the Commission has proposed that the temporary crisis derogation be extended until 31 December 2013, i.e. the end of the implementation period of Regulation (EC) No 1927/2006.

The prime objective of this proposal is to ensure that the EGF continues to operate in the next programming period in line with the basic principles laid down for the MFF 2014 – 2020, which also extended the scope of the EGF to include farmers.

In line with the main aim of Regulation (EC) No 1927/2006 the proposal aims to demonstrate solidarity at Union level with redundant workers affected by exceptional circumstances and to provide support towards their rapid reintegration into employment in line with the objectives of the Europe 2020 strategy.

Specifically, the EGF will provide support in cases where workers have been made redundant as a result of major structural changes in world trade patterns, in line with the initial scope of the EGF as laid down in Article 1 of Regulation (EC) No 1927/2006. The EGF will also be able to act in the event of unexpected crises leading to a serious disruption of the local, regional or national economy. Such unexpected crises could, for example, include a major recession in important trading partners, a collapse of the financial system comparable to the one that occurred in 2008, a serious energy or primary commodity supply problem, a natural disaster, etc. The EGF will also be available to help farmers adjust to a new market situation resulting from a trade agreement, such as an agreement on agricultural products concluded by the Union. Examples of such possible forthcoming trade agreements are those under negotiation with Mercosur countries, or in the context of the World Trade Organisation under the Doha Development Agenda.

In order to ensure that the EGF remains a valid European-level instrument, an application for EGF support for workers can be triggered when the number of redundancies reaches a minimum threshold. Experience with the functioning of Regulation (EC) No 1927/2006 has shown that a threshold of 500 redundancies within a given reference period is acceptable, in particular taking into account the possibility to submit applications for a lower number of redundancies in small labour markets or in exceptional circumstances.

For the agricultural sector an EGF application would be triggered on a different basis. Ex-ante information about the sectors and / or products likely to be affected by increased imports as a direct result of trade agreements will be provided in the analysis carried out by the Commission departments for the trade negotiations. Once the trade agreement is initialled, the Commission departments further check the sectors or products for which a substantial increase in Union imports and a significant drop in prices are expected and will assess the likely effect on sectoral income. On this basis the Commission would designate agricultural sectors or products and, where relevant, regions as eligible for possible EGF support. Member States would have the possibility to submit applications for an EGF contribution, provided that they can prove that eligible sectors experience significant trade-related losses, that farmers operating in these sectors are affected and that they have identified and targeted the affected farmers.

In order to ensure that EGF support is available to workers independently of their contract of employment or employment relationship, the notion of workers is extended to include not only workers with contracts of employment of indefinite duration as in Regulation (EC) No 1927/2006, but also workers with fixed-term contracts, temporary agency workers and owner-managers of micro, small and medium-sized enterprises and self-employed workers (including farmers).

As the access to EGF support is conditioned by the fact that the workers must have been made redundant, or for farmers that they are adjusting that part of their activity affected by the relevant trade agreement, the proposal contains specific provisions on how the redundancy should be counted for each worker.

The EGF is designed to contribute to the growth and employment objectives of the Europe 2020 strategy. Therefore, its focus is on active labour market measures aimed at reintegrating dismissed workers rapidly into stable employment. As does Regulation (EC) No 1927/2006, this proposal provides for a financial contribution from the EGF for a package of active labour market measures. It cannot contribute to the funding of passive measures as these are not compatible with the growth and employment objectives of the Europe 2020 strategy. Allowances may only be included if they are designed as incentives to facilitate the participation of dismissed workers in active labour market policy measures. In order to ensure a reasonable balance between genuinely active labour market policy measures and activated allowances, the share of allowances in a coordinated package of active labour market measures is capped.

For farmers, including all members of the farm household active on the farm, the measures would focus on the acquisition of appropriate training and skills and use of advisory services enabling them to adjust their activities, including carrying out new activities, within and / or outside agriculture, as well as to support to a limited extent the initial investments in changing or adjusting their activities so as to assist them to become structurally more competitive and secure their livelihoods. Support could also be given to cooperation activities with a view to creating new market options especially for small-scale farmers.

The EGF is being placed outside the MFF because of the unforeseeable and urgent character of the circumstances which warrant its deployment. However, its effectiveness has suffered from the length and procedural requirements of the decision-making process. Shortening as much as possible the time lag between the date of application for EGF support and the date of payment, and simplifying the procedures, should be a common concern for all parties involved in the EGF process: Member States should strive to submit a complete application as soon as possible once the relevant criteria are met; the Commission should assess and conclude on eligibility soon after the submission of a complete application, and the budgetary authority should swiftly take its decision on deploying the EGF funding. In order to cover the needs arising at the beginning of the year, the Commission will continue to propose within the annual budgetary procedure a minimum amount in payment appropriations for the relevant budgetary line.

In view of the unpredictable nature of the needs arising for support from the Fund, it is necessary to reserve a part of the annual maximum amount for applications receiving financial contributions after 1 September each year. In case the needs for support from the Fund exceed the amount remaining available, the Commission’s proposals will reflect the proportion set for support of the agricultural sector during the duration of the MFF.

Assistance from the EGF will be in addition to the efforts of the Member States, at national, regional and local levels. For reasons of sound financial management the EGF cannot replace measures that are already covered by Union Funds and Programmes included in the MFF. Nor can the EGF financial contribution replace measures that are the responsibility of dismissing companies under national law or collective agreements.

The budget procedure in the proposal follows directly from point 13 of the draft Interinstitutional Agreement. Whenever possible, the process will be shortened and streamlined.

Taking account of the fact that the measures co-funded by the EGF are implemented by means of shared management with the Member States, the payment mechanism for the financial contribution will remain in line with those applied for this management mode of the Union budget. At the same time, the financing arrangements should reflect the scope of the actions to be carried out by the Member States as proposed in their applications.

The co-funding rate will be modulated, with a 50 % contribution to the cost of the package and its implementation as the norm, and the possibility to raise this rate to 65 % in the case of applications submitted by those Member States on the territory of which at least one region at NUTS II level is eligible under the 'Convergence' objective of the Structural Funds. The purpose of this modulation is to ensure that the Union’s expression of solidarity with workers in these Member States and regions is not hampered by a lack of Member State co-funding resources, as recognised by the higher co-funding rates laid down under the Structural Funds. The Commission, in its assessment of such applications, will decide whether the higher co-funding rate is justified in the specific case proposed by the Member State.

One of the key messages for the period 2014 – 2020 is that expenditure at Union level should be result-oriented, thus ensuring that the output and impact of the expenditure push forward the implementation of the Europe 2020 strategy and the achievement of its targets. For expenditure related to the EGF the MFF sets the target that at least 50 % of workers assisted through the EGF should find a new and stable job after 12 months. In order to enable the Commission to monitor whether Member States are successfully striving towards this target, Member States will present an interim report on the implementation of EGF support after 15 months. Within the same results-oriented approach the proposal provides for the possibility that Member States, subject to approval by the Commission, can amend the planned active labour market policy measures if in the course of the 24-month implementation period other measures become more relevant and promising to reach a higher reintegration rate.

· Existing provisions in the area of the proposal

As indicated in the Communication[7] on the MFF, the Structural Funds, comprising the European Social Fund (ESF) and the European Regional Development Fund (ERDF) will provide funding for structural actions for economic, social and territorial cohesion. This funding will be concentrated on the key priorities of the Europe 2020 strategy, such as promoting employment, investment in skills, education and life-long learning, social inclusion and the fight against poverty as well as enhancing institutional capacity and efficient public administration. Both the ESF and the ERDF consist of multi-annual programmes in support of strategic, long-term goals, in particular the anticipation and management of change and restructuring. The EGF, in turn, is established to provide support in exceptional circumstances and outside a multi-annual programming routine.

As indicated in the same Communication, the Common Agricultural Policy (CAP) will maintain its current two-pillar structure and will continue to provide direct support to farmers and to support market measures, entirely funded by the Union budget. It will also continue to deliver specific environmental public goods, improve the competitiveness of the agriculture and forestry sectors and promote the diversification of economic activity and quality of life in rural areas under its second pillar, and in particular under the support provided by the European Agricultural Fund for Rural Development (EAFRD). Like the Structural Funds, the EAFRD consists of multi-annual programmes in support of strategic, long-term goals.

The EGF, in turn, is established to provide European Union solidarity by means of time-limited support to workers being made redundant and to farmers needing to change or adjust their previous agricultural activities in exceptional circumstances and outside the multi-annual programming routine.

To promote the effective use of Union economic, social and territorial cohesion instruments the choice of the instrument will be based on an assessment of whether the redundancies are caused by structural factors or by a temporary deterioration of the employment situation caused by the factors defined in the Regulation.

· Consistency with the Union's other policies and objectives

The EGF contributes to the objectives of the Europe 2020 strategy, which should enable the Union to emerge stronger from the crisis, and to turn its economy towards smart, sustainable and inclusive growth, accompanied by a high level of employment, productivity and social cohesion. In its Communication[8] 'Europe 2020 – A strategy for smart, sustainable and inclusive growth', the Commission highlights the role of the EGF under the flagship initiative An industrial policy in the globalisation era, in particular with a view to quick redeployment of skills to emerging high-growth sectors and markets.

· Impact on fundamental rights

The proposal has no impact on fundamental rights.





· Consultation of interested parties

Two stakeholder conferences were held to discuss the future of the EGF, on 25-26 January 2011[9] and 8 March 2011[10].

Evidence[11] on the acceptance of the EGF was collected by asking Member State experts about the future of the EGF through two questionnaires sent to them on 26 August 2010 and 12 October 2010 and European social partner organisations through a questionnaire sent to them on 2 February 2011. Twenty-five Member States replied; relatively few social partner organisations answered but they participated actively in the conferences. Member State experts were further consulted at an expert meeting in Porto on 29-30 September 2010[12] and in Brussels on 9 March 2011[13]. The main outcome of these consultations was overwhelming support for a rapid crisis intervention instrument in the event of large-scale redundancies. Nevertheless the complexity of the procedure and the slowness of the current decision-making process were severely criticised by all.

· Collection and use of expertise

There was no need for external expertise.

· Impact assessment

The impact assessment of the EGF is covered by the Impact Assessment[14] of the financial instruments of the Directorate-General Employment, Social Affairs and Inclusion, i.e. the European Social Fund (ESF), the EGF, the PROGRESS programme, EURES and the PROGRESS Micro-finance Facility.


The impact assessment considered three options for the EGF:

– Option 1 – No policy change, i.e. the EGF continues without its own budget. Following each application the budgetary authority has to take a decision whether this particular situation merits support. The main disadvantage is the long delay caused by the administrative procedures surrounding the decision-making process. The main advantages are the flexibility of the instrument, in particular taking into account the largely unpredictable nature of the expenditure, the awareness it raises in the European Parliament of mass redundancies, the high visibility of each application as well as the high visibility of the EGF itself.

– Option 2 – Incorporation of EGF actions into the ESF. The main disadvantages are the need for a clear budget allocation during the programming period despite the unprogrammable nature of mass redundancies, the possible conflict with overall allocation criteria used in cohesion policy and a reduction of the political visibility of Union support as the budgetary authority would not be involved. The main advantages of this option are increased coherence and complementarity with the ESF, the shortening of the decision-making process and the simplification and streamlining of EGF applications as the EGF could benefit from ESF structures, procedures, management and control systems as well as ESF simplifications in areas such as eligible costs.

– Option 3 – the EGF as a stand-alone fund with its own budgetary allocation. The main disadvantages are the loss of budgetary flexibility as it would earmark for a variable expenditure pattern a fixed amount of expenditure, the delivery mechanism (a negative impact on the delivery mechanism compared with option 2 as the EGF would not benefit from ESF structures, procedures and simplification) and finally the risk of some overlap with the ESF. The main advantage is the high degree of visibility for European solidarity.

The assessment has shown that in terms of speed of delivery of EGF assistance options 2 and 3 are preferable. However, these options involve a higher risk of reduced efficiency because of non-use of allocated resources. The involvement of policy makers in option 1 guarantees the highest level of public commitment of the Union to the welfare of redundant workers. Therefore, option 1 is the preferred option, offering as it does the necessary flexibility to enable effective use of resources, without affecting the Multiannual Financial Framework. It contains scope to further simplify the delivery mechanism and thus improve the effectiveness of the assistance provided to dismissed workers and to farmers affected by globalisation.

As far as the financial set-up is concerned this proposal is based on option 1, i.e. a specific instrument operating outside the MFF. The specific content of the provisions, and in particular the adaptation of the EGF rules to cover farmers, has been further assessed in the ex-ante evaluation accompanying this proposal.

The ex-ante evaluation[15] considered three options:

– Option 1 - No policy change, i.e. the EGF continues to operate under its current rules as amended by the so-called crisis derogation and set of eligible actions;

– Option 2 - Extension of the eligible population, i.e. the EGF continues to operate under its current rules as amended by the so-called crisis derogation and set of eligible actions as in option 1, but its intervention criteria are extended to include temporary agency workers and workers with fixed-term contracts;

– Option 3 – Further extension of the eligible population and the set of eligible actions, i.e. the EGF expands option 2 by including in the eligible population owner-managers of micro, small and medium-sized enterprises and self-employed workers (including farmers) and by extending the set of eligible actions to take into account the specific requirements of owner-managers.

On the basis of the assessment of the advantages and disadvantages of the three above options, this proposal extends support to that part of the labour force negatively impacted by globalisation of economic activities, sudden crisis situations or trade agreements, either as a permanent or temporary employee or as an owner-manager or self-employed worker.



· Summary of the proposed action

The proposal aims to ensure that the EGF continues to operate in the next programming period in line with the basic principles laid down for the MFF 2014 – 2020. The EGF should enable the Union to demonstrate solidarity at Union level and to provide support to workers made redundant as a consequence of trade globalisation, as a result of an unexpected crisis or as a consequence of trade agreements impacting upon the agricultural sector.

· Legal basis

The Treaty on the Functioning of the European Union, and in particular the third paragraph of Article 175 and Articles 42 and 43.

Article 175 allows the European Parliament and the Council to take action in accordance with the ordinary legislative procedure and after consulting the Economic and Social Committee and the Committee for the Regions, if specific actions prove necessary outside the Structural Funds and the Common Agricultural Policy and without prejudice to the measures decided upon within the framework of the other policies of the Union.

As regards specifically the provisions in this Regulation related to support for active farmers, EGF assistance can be considered as aid to agricultural activities and as action taken in pursuance of an express objective of the Union's Agricultural Policy. Therefore, Articles 42 and 43 of the Treaty on the Functioning of the European Union constitute the appropriate legal basis for the measures targeting farmers.

· Subsidiarity principle

The subsidiarity principle applies insofar as the proposal does not fall under the exclusive competence of the Union.

The objectives of demonstrating solidarity at Union level in exceptional circumstances to that part of the workforce that has been negatively impacted by globalisation, a sudden crisis or trade agreements, cannot be sufficiently achieved by the Member States alone. They can be better achieved at Union level taking into account that the EGF is an expression of solidarity across and between Member States. Mobilising a financial contribution from the EGF will require the agreement of both arms of the budgetary authority, thus expressing solidarity by the Union and the Member States. In this way, the proposal will contribute to making the objective of Union solidarity in exceptional circumstances more tangible for that part of the labour force affected in particular and for Union citizens in general.

· Proportionality principle

In accordance with the principle of proportionality, the provisions of this proposal do not go beyond what is necessary to achieve its goals. The obligations imposed on the Member States reflect the need to help the affected workforce to adapt to changing circumstances and to reintegrate rapidly into employment. The administrative burden on the Union and on the national authorities has been limited to what is necessary for the Commission to exercise its responsibility for the implementation of the Union budget. Since the financial contribution is made to the Member State under the principle of shared management, the Member State will be required to report on the use made of the financial contribution.

· Choice of instrument

Proposed instrument: a Regulation.

Other means would not be appropriate for the following reason: the objective of demonstrating Union-level solidarity can only be achieved through a directly applicable legal instrument.



The EGF is one of the special instruments not included in the MFF, with a maximum amount from January 2014 to 31 December 2020 of EUR 3 billion, while the amount in support of the agricultural sector shall not exceed EUR 2,5 billion (2011 prices).

Its functioning is governed by point 13 of the Draft Interinstitutional Agreement[16] between the European Parliament, the Council and the Commission on cooperation in budgetary matters and on sound financial management.

It may not exceed a maximum annual amount of EUR 429 million.