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Classification of Irish North-South Bodies, September 2011

Released: 30 September 2011 Download PDF

Abstract

This article explains changes to way the UK and Ireland treat the activities of a group of cross border bodies created following the Belfast Agreement in 1998. These bodies have historically been treated as international organisations, and treated as outside of the UK economic territory. Following discussions with Eurostat and Central Statistical Office, Ireland ONS has agreed to change they way it treats these bodies, bringing them into the national accounts as part of General Government, from their creation.

Acknowledgements

With thanks to Aidan Synnott and Mick Lucey at the Central Statistical Office, Ireland

Executive Summary

This article explains changes to way the UK and Ireland treat the activities of a group of cross border bodies created following the Belfast Agreement in 1998.

This agreement between the UK and Irish Republic Government, which came into force on 2 December 1999, established the Northern Ireland Assembly with devolved legislative powers.

Strand two of the agreement established a joint body called the North / South Ministerial Council (NSMC), with responsibility for Areas for Co-operation". In some areas policy is agreed jointly but implemented separately, but there are a number of formal cross border North / South bodies that implement policy across the whole of the island of Ireland. These bodies are: Waterways Ireland; Food Safety Promotion Board; Trade and Business Development Body (a.k.a. InterTradeIreland); Special European Union Programmes Body; Foyle, Carlingford and Irish Lights Commission; The Language Body/An Foras Teanga/North-South Body o Leid; and Tourism Ireland Ltd 

Since their formation both the UK and Ireland have treated these bodies as being part of the Rest of the World sector, as both the UK and Ireland treated these bodies as "international organisations".

When considering classification issues ONS follows international guidance, principally set out in the European System of Accounts 1995 (ESA95) and other documents. ESA 95 includes the concept of the “economic territory” of a country. ESA 95  explains that a country’s  economic territory does not include extraterritorial enclaves defined as “the parts of the country's own geographic territory used by general government agencies of other countries, by the Institutions of the European Union or by international organisations under international treaties or agreements between States.”

Eurostat, the statistical office of the European Union, asked the UK and Ireland to review this decision, given the more detailed definitions of International Organisations set out in the System of National Accounts 1993 (on which ESA 95 is based). SNA 93 paragraph 4.164 states, among other things, that 

c. Because they are established by international agreement, they are accorded sovereign status; that is, international organizations are not subject to the laws or regulations of the country, or countries, in which they are located; they are not treated as resident institutional units of the countries in which they are located;"

Although the NSMC was created via an international treaty, neither the NSMC nor the NSMC Joint Secretariat or North / South Bodies have sovereign status and they remain subject to the laws and regulations of both countries.

Consequently, ONS and CSO Ireland have agreed that the North-South Bodies are classified, in both Ireland and the UK, as part of the respective Central Government sectors, with their expenditure apportioned in proportion to the funding provided by the two governments i.e. if the Northern Ireland Assembly puts in 25% of a body's funding, it would be assumed that 25% of expenditure takes place in Northern Ireland.

The decision was authorised by Aileen Simkins, the Chair of the National Accounts Classification Committee.

The amounts involved are relatively small. These bodies have little or no debt, and their total combined expenditure was only around £240million (of which the UK government accounted for around 30%). The expenditure is already recorded as government expenditure. Consequently there will be no substantive change in the main fiscal aggregates.

The context of National Accounts classification decisions

The National Accounts provide a framework for describing what is happening in national economies.  All institutional units operating within an economy are classified to an institutional sector and all transactions between the sectors of the economy are also categorised as part of the National Accounts framework. Work on classification of sectors and transactions is a key input in the production of National Accounts.

This is particularly relevant in the area of public expenditure, revenues, borrowing and debt.  This applies both domestically, and within the European Union. For example, in the European Union statistics based on the European System of Accounts 1995 (ESA95) are used in:

  • the Maastricht Treaty Excessive Deficit Procedure measures, particularly of government debt and deficit, where they determine the convergence criteria for monetary union for non-members, and performance against the Growth and Stability Pact for eurozone members; and

  • the measurement of Gross National Income (GNI), one of the main determinants of member states' contributions to the European Union's budget.

It is a legal requirement for European Union countries to compile specified statistical returns on the basis of ESA95.  The United Kingdom National Accounts are produced by the Office for National Statistics (ONS) on this basis. Further guidance is contained in Eurostat’s Manual on Government Deficit and Debt, and additional clarification is contained in the System of National Accounts (SNA) 1993.

In the UK, since 1997 the fiscal policy frameworks have also been based on the National Accounts.  Fiscal policy objectives are in terms of statistics based on National Accounts aggregates. This means that key fiscal targets are dependent on National Accounts definitions and classifications.

Classification decisions for National Accounts purposes are taken by the National Accounts Classification Committee (NACC) within ONS.

Background to North-South Implementation Bodies

On 10 April 1998 the British and Irish Government signed the document known as the Belfast Agreement (or the Good Friday Agreement).

The agreement established the Northern Ireland Assembly with devolved legislative powers. On 23 May 1998 the Agreement was endorsed by the voters of Northern Ireland in a referendum. On the same day, voters in the Republic of Ireland voted separately to change their constitution in line with the Agreement.

The Agreement came into force on 2 December 1999.

Strand two of the agreement established a body called the North / South Ministerial Council . The council meets regularly and agreement between the representatives from both sides is required for decisions to be reached, accordingly neither the UK nor Irish government is formally in control of the NSMC, rather it is a joint body.

The NSMC has responsibility for twelve "Areas for Co-operation". In six areas -  Agriculture, Education, Environment, Health, Tourism and Transport - policy is agreed jointly but implemented separately, but there are a number of formal cross border North / South bodies that implement policy across the whole of the island of Ireland.

The North-South Bodies

The cross border North-South bodies are:

  • Waterways Ireland  - Responsibility for the management, maintenance, development and restoration of specified inland navigable waterways principally for recreational purposes.

  • Food Safety Promotion Board  – responsible for the promotion of research into food safety, communication of food alerts, surveillance of food borne disease, promotion of scientific co-operation and laboratory linkages, and development of cost-effective facilities for specialised laboratory testing.

  • Trade and Business Development Body (aka InterTradeIreland)  – Responsible for the promotion of trade and business on an all-island and cross-border basis and the enhancement of the global competitiveness of the all-island economy to the mutual benefit of Ireland and Northern Ireland.

  • Special European Union Programmes Body  - This body provides managerial and oversight functions in relation to EU programmes including PEACE III and INTERREG IVA.

  • Foyle, Carlingford and Irish Lights Commission  – operating through two Agencies - The Loughs Agency and Lights Agency. The Loughs Agency has responsibility for the promotion and development of Lough Foyle and Carlingford Lough for commercial and recreational purposes in respect of marine , fishery and aquaculture matters. It was intended that the Lights Agency, when established, would replace the Commissioners of Irish Lights as the General Lighthouse Authority for Ireland. However, given the complexities that have arisen in terms of pursuing such a transfer of functions, the matter is under review at present.

  • The Language Body/An Foras Teanga/North-South Body o Leid  - consisting of two agencies ie. Foras na Gaeilge and The Boord o Ulster-Scotch): Foras na Gaeilge is responsible for the promotion of the Irish Language throughout the island and Tha Boord o Ulster-Scotch is responsible for promoting the study, conservation, development, and use of the Ulster-Scots as a living language: to encourage and develop the full range of its attendant culture;and to promote an understanding of the history of the Ulster-Scots.

  • Tourism Ireland Ltd  - Tourism Ireland was established under the framework of the Belfast Agreement of Good Friday 1998. We are jointly funded by the Irish Government and the Northern Ireland Executive on a two to one ratio, and operate under the auspices of the North/South Ministerial Council through the Department of Enterprise, Trade and Investment in Northern Ireland and the Department of Tourism, Culture and Sport in the South.

All of these bodies produce their own annual accounts, employ staff and appear to meet the definition of an insitutional unit for national accounts purposes, and they are jointly funded by the Northern Ireland Assembly and Irish Government.

Since their formation both the UK and Ireland have treated these bodies as being part of the Rest of the World sector.

The rationale for classifying the North-South Bodies as rest of the world was that they were controlled by the North South Ministerial Council (NSMC) which itself is a joint arrangement between the Republic of Ireland and the Northern Ireland Assembly where neither has a majority both the UK and Ireland treated these bodies "international organisations" and therefore outside of their respective economic territories – explained in more detail below.

International Organisations in the National Accounts

National Accounts are produced, under the rules in SNA 93 and ESA 95, on the basis of the national economy. Within ESA 95 there is the concept of the “economic territory” of a country. This is essentially the geographic territory administered by a government, but extends to include the air space, territorial waters and territorial enclaves overseas – such as a country’s embassies, military and scientific bases (so the UK economic territory includes the permanent UK army bases in Cyprus, Germany and elsewhere).

ESA 95 paragraph 2.06 sets out what is excluded from the UK economic territory:

2.06 The economic territory does not include extraterritorial enclaves (i.e. the parts of the country's own geographic territory used by general government agencies of other countries, by the Institutions of the European Union or by international organisations under international treaties or agreements between States.

There are numerous examples of International Organisations including the various institutions of the European Union, the UN, NATO and bodies like the IMF and World Bank.

There are also less obvious examples such as the European Centre for Medium Range Weather Forecasts (ECMWF) which is located just outside Reading in Berkshire.

The key thing about all these bodies is that they are physically located in the country, but treated as outside the economic territory for national accounts purposes.

Eurostat’s View

Eurostat is the statistical office of the European Union. Its task is to provide the European Union with statistics at a European level that enable comparisons between countries and regions. Eurostat oversees implementation of ESA 95 in the European Union.

Eurostat conduct regular Dialogue Visits to Member States to discuss methodological and reporting issues. Eurostat raised the issue of North-South bodies in their mission to the UK in January 2011 (having raised it previously with both the UK and Irish Statistical Authorities).

Eurostat's view is that the North-South bodies are not "international organisations" as defined in SNA 93. Specifically, this requires that international organisations be accorded sovereign status and their staff privileges like diplomatic immunity.

Eurostat instead suggested that the bodies expenditure be considered for integration in the resident government accounts, in proportion to their funding. Eurostat pointed to SNA 1993 paragraph 14.27 that discusses ventures jointly held by governments with a recommendation of splitting the unit or allocating to either of the general governments.

Following the mission, ONS has reexamined the classification of these entities.

Analysis and Classification Decision

International Organisations are defined in more detail in SNA 93 paragraph 4.164:

"4.164 Certain international organizations have all the essential attributes of institutional units. The special characteristics of an "international organization" as this term is used in the SNA may be summarized as follows:

a. The members of an international organization are either national states or other international organizations whose members are national states; they thus derive their authority either directly from the national states that are their members or indirectly from them through other international organizations;

b. They are entities established by formal political agreements between their members that have the status of international treaties; their existence is recognized by law in their member countries;

c. Because they are established by international agreement, they are accorded sovereign status; that is, international organizations are not subject to the laws or regulations of the country, or countries, in which they are located; they are not treated as resident institutional units of the countries in which they are located;"

Although the NSMC was created via an international treaty, neither the NSMC or the NSMC Joint Secretariat or the Implementation Bodies have sovereign status and they remain subject to the laws and regulations of both countries.

The North-South Bodies can be contrasted with genuine international organisations that do enjoy these kinds of benefits. The 1973 Multilateral Convention that established the European Centre for Medium- Range Weather Forecasts includes an accompanying  Protocol setting out the privileges and immunities of the ECMWF that includes the following:

"Article 1.

1. Subject to the provisions of this Protocol, the premises of the Centre shall be inviolable.

2. The authorities of the State in which the headquarters of the Centre are located may not enter the premises of the Centre except with the consent of the Director or person nominated by him. In case of fire or other disaster requiring prompt preventive action, the consent of the Director may be assumed.

....................

Article 3.

1 . Within the scope of its official activities, the Centre shall have immunity from jurisdiction and execution except:

(a) to the extent that, by decision of the Council, the Centre waives it in a particular case. However, the Centre shall be deemed to have waived this immunity if, upon receiving a request to waive immunity submitted by the national authority before which the case is .brought or by the opposing party, it has not given notice, within fifteen days after receipt of the request, that it does not waive such immunity;

(b) in respect of a civil action by a third party for damage arising from an accident caused by a vehicle belonging to or operated on behalf of the Centre or in respect of a traffic offence;

(c) in respect of an enforcement of an arbitration award made either under Article 23 of this Protocol or Article 17 of the Convention establishing the Centre, hereinafter referred to as "the Convention";

(d) in the event of the attachment, pursuant to a decision by the administrative or judicial authorities, of the salaries, wages and emoluments owed by the Centre to a member of its staff.

................

Article 12.

Representatives of Member States taking part in the work of the organs and committees of the Centre shall enjoy, while performing their duties and in the course of their journeys to and from the place of meeting, the following privileges, immunities and facilities:

(a) immunity from arrest and detention and from seizure of their personal luggage, except when found committing, attempting to commit, or just having committed an offence;

(b) immunity from jurisdiction, even after the termination of their mission, in respect of acts, including words spoken or written, performed by them in their official capacity and within the limits of their authority; this immunity shall not apply in the case of a traffic offence committed by a representative of a Member State nor in the case of damage caused by a vehicle belonging to or driven by such a person;

(c) inviolability for all their official papers and documents;

(d) exemption from all measures restricting aliens' entry and from aliens' registration formalities;

(e) the same customs facilities as regards their personal luggage and the same privileges in respect of currency and exchange regulations as are accorded to the representatives of foreign Governments on temporary official missions."

The North-South bodies have none of these priviliges and immunities. Consequently, the ONS agree with Eurostat that the North-South Bodies do not meet the criteria to be treated as "international organisations" under the definition given in SNA 93 paragraph 4.164, and should therefore be treated as resident units, from both a UK and Irish perspective with expenditure apportioned between them in proportion to their funding.

As the North-South implementation bodies are controlled by the NSMC, a joint body between the British and Irish governments, and are mainly grant funded (and therefore non-market bodies under the ESA 95 Market test) the end result is that the North-South Bodies are classified, in both Ireland and the UK, as part of the respective Central Government sectors.

This decision was authorised by Aileen Simkins, the Chair of the National Accounts Classification Committee.

Implementing the Decision

In the UK and Ireland, the grant funding from the Northern Ireland Assembly has historically been recorded as a D.7 transfer, from General Government to the Rest of the World sector.

With the move to treat these bodies as UK and Irish resident, Central Government bodies, treating the grant funding into these bodies as D.7 transfers would no longer be appropriate, rather the final expenditure of these bodies should be recorded as Government spending on compensation of employees, intermediate consumption, rental payments etc.

In cooperation with CSO Ireland, ONS has agreed that this be done pro rata to the grant funding put in by each government i.e. if the Northern Ireland Assembly puts in 25% of a body's funding, it would be assumed that 25% of expenditure on compensation of employees takes place in Northern Ireland.

The amounts involved are relatively small. These bodies have little or no debt, and their total combined expenditure was only around £240million (of which the UK government accounted for around 30%). The expenditure is already recorded as government expenditure. Consequently there will be no substantive change in the main fiscal aggregates.

This decision will be initially implemented in the Public Sector Finances, and published in the Public Sector Finances Statistical Bulletin as soon as possible, and no later than February 2012.

The change will subsequently be implemented in the ONS publication “Government Deficit and Debt under the Maastricht Treaty”, which will be published on 31 March 2012.

Implementation in the National Accounts and Blue Book will follow at a later date.

CSO, Ireland intends to implement the reclassification at the same time as the ONS.  It will be introduced initially within a new release on Government Finance Statistics (GFS) to be published before the end of 2011.

In Ireland, the full set of annual National Accounts is only published (with revisions) in June of each year.  The classification change will therefore be included in these Accounts on their next annual publication as 'National Income and Expenditure 2011' in June 2012.

Further Information

Further information on ONS classifications and the NACC can be found on the National Statistics website.

Background notes

  1. Details of the policy governing the release of new data are available by visiting www.statisticsauthority.gov.uk/assessment/code-of-practice/index.html or from the Media Relations Office email: media.relations@ons.gsi.gov.uk

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