House of Commons European Scrutiny Committee Eighteenth Report of Session 2013–14
Documents considered by the Committee on 16 October 2013, including the following recommendation for debate:
Future relations between the EU and the Overseas Countries and Territories
Report, together with formal minutes
Ordered by The House of Commons to be printed 16 October 2013
HC 83-xvii Published on 24 October 2013 by authority of the House of Commons London: The Stationery Office Limited £14.50
Notes
Numbering of documents
Three separate numbering systems are used in this Report for European Union documents:
Numbers in brackets are the Committee’s own reference numbers.
Numbers in the form “5467/05” are Council of Ministers reference numbers. This system is also used by UK Government Departments, by the House of Commons Vote Office and for proceedings in the House.
Numbers preceded by the letters COM or SEC or JOIN are Commission reference numbers.
Where only a Committee number is given, this usually indicates that no official text is available and the Government has submitted an “unnumbered Explanatory Memorandum” discussing what is likely to be included in the document or covering an unofficial text.
Abbreviations used in the headnotes and footnotes EC (in “Legal base”) Treaty establishing the European Community EM Explanatory Memorandum (submitted by the Government to the Committee)* EP European Parliament EU (in “Legal base”) Treaty on European Union GAERC General Affairs and External Relations Council JHA Justice and Home Affairs OJ Official Journal of the European Communities QMV Qualified majority voting RIA Regulatory Impact Assessment SEM Supplementary Explanatory Memorandum TEU Treaty on European Union TFEU Treaty on the Functioning of the European Union Euros
Where figures in euros have been converted to pounds sterling, this is normally at the market rate for the last working day of the previous month. Further information
Documents recommended by the Committee for debate, together with the times of forthcoming debates (where known), are listed in the European Union Documents list, which is published in the House of Commons Vote Bundle each Monday, and is also available on the parliamentary website. Documents awaiting consideration by the Committee are listed in “Remaining Business”: www.parliament.uk/escom. The website also contains the Committee’s Reports.
*Explanatory Memoranda (EMs) can be downloaded from the Cabinet Office website: http://europeanmemoranda.cabinetoffice.gov.uk/.
Letters sent by Ministers to the Committee relating to European documents are available for the public to inspect; anyone wishing to do so should contact the staff of the Committee (“Contacts” below). Staff
The staff of the Committee are Sarah Davies (Clerk), David Griffiths (Clerk Adviser), Terry Byrne (Clerk Adviser), Leigh Gibson (Clerk Adviser), Peter Harborne (Clerk Adviser), Paul Hardy (Legal Adviser) (Counsel for European Legislation), Joanne Dee (Assistant Legal Adviser) (Assistant Counsel for European Legislation), Hannah Finer (Assistant to the Clerk), Julie Evans (Senior Committee Assistant), Jane Lauder (Committee Assistant), Beatrice Woods (Committee Assistant), John Graddon (Committee Assistant), and Paula Saunderson (Office Support Assistant). Contacts
All correspondence should be addressed to the Clerk of the European Scrutiny Committee, House of Commons, 7 Millbank, London SW1P 3JA. The telephone number for general enquiries is (020) 7219 3292/5465. The Committee’s email address is [email protected]
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Contents
Report Page
Meeting Summary 3
Documents for debate
1 FCO (34119) Future relations between the EU and the Overseas Countries and Territories 5
Documents not cleared
2 DCMS (35305) (35304) The Telecommunications Single Market 8
3 DFT (33822) Vehicle registration 25
4 FCO (34868) (34869) EU-Kosovo Co-operation 29
5 HMT (34077) (34657) Financial assistance for non-eurozone Member States 33
6 HMT (35215) European Anti-Fraud Office 37
7 HMT (35232) (35259) EU General Budget for 2013 38
Documents cleared
8 BIS (35291) EU merger control 41
9 DCMS (35312) The broadband investment environment 45
10 DEFRA (35322) EU Forest Strategy 49
11 DEFRA (35349) (35350) EU-US trade dispute over beef imports 53
12 FCO (34311) EU restrictive measures against the Republic of Guinea 56
13 HMT (33761) Financial services: central securities depositaries and securities settlement 58
14 HMT (35359) Banking Union: Single Supervisory Mechanism 61
15 HMT (35374) (35382) Mutual financial assistance for non-eurozone Member States 64
16 HMT (35383) Multiannual Financial Framework, 2014-2020 67
Documents not raising questions of sufficient legal or political importance to warrant a substantive report to the House
17 List of documents 71
2 European Scrutiny Committee, 18th Report, Session 2013–14
Formal minutes 73
Standing Order and membership 74
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Meeting Summary
This week the Committee considered the following documents:
EU General Budget for 2013
The aim of this Draft Amending Budget and Draft Decision is to allow additional European Social Fund commitments in 2013 for France, Italy and Spain “as a contribution to the special effort needed to address the specific situations of unemployment, in particular youth unemployment, and of poverty and social exclusion in those Member States” — a matter agreed as part of the settlement at the June European Council for the next Multiannual Financial Framework. The Committee considered the documents in September and asked the Government for further details on why this particular settlement had been reached, and whether there was scope for transferring existing commitment appropriations from elsewhere in the 2013 Budget, rather than having recourse to this Instrument. The Minister’s reply does not answer all the Committee’s questions and so the Committee asks for a further response.
EU merger control
This Commission Staff Working Document examines ways in which the current EU legislation on merger control might be amended, notably by extending it to acquisitions of non-controlling minority shareholdings. Three possible approaches are proposed: a notification system; a self-assessment system (similar to the UK’s current merger regime); and a transparency system, which would oblige the parties to file a short information notice to the Commission. The Government believes that the proposals generally respect the current system and that the reforms proposed are sensible, and notes that the document is essentially consultative. We clear it from scrutiny but report it because of its policy significance.
The Telecoms Single Market and Broadband in the EU
This Commission Communication, Council Regulation and Commission Recommendation cover the EU’s latest policy thinking on the single market in telecommunications and the state of the Digital Agenda for Europe targets.
The Recommendation (on Broadband) aims to promote competition (through the application of tougher non-discrimination rules) and investment (by allowing for flexibility in the pricing of new wholesale next generation access services) and would apply to the market for wholesale infrastructure access and the wholesale broadband access market. The Government notes the Recommendation status of the proposals, and the fact that they are generally consistent with the way the UK market operates. We clear the Recommendation from scrutiny. However, the Government expresses concerns about the Communication and Regulation. The Minister states that the proposals could increase the administrative burdens for operators in the UK and represent a worrying shift in competence from national regulators, on such critical issues as spectrum assignment procedures. We keep these documents under scrutiny and ask for an update on negotiations following the October European Council.
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1 Future relations between the EU and the Overseas Countries and Territories
(34119) Draft Council Decision on the association of the Overseas Countries 12732/12 and Territories with the European Union + ADDs 1–2 COM(12) 362
Legal base Article 203 TFEU; unanimity; special legislative procedure Department Foreign and Commonwealth Office Basis of consideration Minister’s letter of 9 October 2013 Previous Committee Reports HC 83–xiv (2013–14), chapter 3 (11 September 2013) and HC 86–xi (2012–13), chapter 8 (5 September 2012); also see (31117) 15647/09: HC 5–iii (2009–10), chapter 1 (9 December 2009) and (29789) 11238/08: HC16–xxviii (2007–08), chapter 3 (22 July 2008) Discussion in Council To be determined Committee’s assessment Politically important Committee’s decision Not cleared; for debate in European Committee B (decision reported on 11 September 2013)
Background 1.1 When the UK joined the European Union in 1973 special arrangements were made for the UK’s non-European Territories in line with those already in place for French and Dutch Territories. They are styled the Overseas Countries and Territories, or OCTs.
1.2 The basic provisions on the association of the OCTs with the EU are governed by Part Four, Articles 198–204, of the Treaty on the Functioning of the European Union (TFEU). Detailed rules and procedures have been laid down by the Council, pursuant to ex-Article 187 EC, through successive Overseas Association Decisions (OAD) adopted since 1964.
1.3 The basic aim of the OAD is to promote the OCTs’ economic and social development and to establish close economic relations between them and the EU as a whole. This is achieved through co-operation: grants from the European Development Fund (EDF); loans from the European Investment Bank; and technical assistance. There are relevant provisions included in the Decision on economic co-operation, a trade regime, human and social development, regional co-operation and cultural development.
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1.4 The current OAD is due to expire on 31 December 2013. The draft Council Decision is a successor, to link in with the next EDF.1 The full background to this process thus far is set out in our previous Reports.
1.5 In sum, the Government noted that the main themes in the Commission’s proposal, as set out in the draft Council Decision, are consistent with the Government’s White Paper “The Overseas Territories: Security, Success, and Sustainability” published on 28 June 2012. In particular, it does not recommend any change in the eligibility criteria for territorial allocations from the EDF; access procedures would, however, be simplified. There were, however, other aspects that needed clarification and negotiation (see paragraphs 3.6–3.11 of our previous Report). The Minister noted the legal basis for the proposed new OAD is Article 203 TFEU, and commented thus:
“The Proposal is broader in scope than previous Council Decisions under Article 203. We are looking carefully at the Proposal to ensure both that it falls properly within the scope of Article 203 and to examine whether any of its provisions might engage the UK’s opt in under Protocol 21. We will update the Scrutiny Committees in due course on these issues.”
Our assessment 1.6 We were minded to recommend the proposed new OAD for debate before the adoption of any general approach, or partial general approach, prior to the beginning of the consequential negotiation with the European Parliament.
1.7 Before then, however, we looked forward to hearing further from the Minister about the legal and procedural issues that he had outlined.
1.8 In the meantime, we retained the document under scrutiny.2
1.9 The response, of 22 August 2013, from the Minister for Europe (Mr David Lidington), was set out in our previous Report agreed on 11 September.
1.10 We were given to understand that the Minister was hopeful that the remaining uncertainties would be resolved shortly, and that the Commission was aiming to have the Decision ready for adoption by mid-October.
1.11 We were also given to understand that the Government had concluded that no provisions required it to “engage the UK’s opt in under Protocol 21”.
1.12 We found it disappointing that the Minister had failed to explain this properly to the Committee in good time, resulting in the House being presented with incomplete information and an unnecessarily short timescale. We therefore recommended that the document be debated in European Committee B as soon as possible after the House returned from the conference recess, so as to enable the Minister to outline the outcome of
1 The European Development Fund (EDF) is the main instrument for delivering EU cooperation under the Cotonou Agreement with ACP States and the OCTs. The EDF is funded outside the EU budget by the Member States on the basis of specific contribution keys. The UK’s share is 14.68%. Each EDF is concluded for a multi-annual period. EDF 11 will total €30.5 million. 2 See headnote: HC 86–xi (2012–13), chapter 8 (5 September 2012).
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the negotiations properly to the many Members interested in the Overseas Countries and Territories, and for them to question him about the final shape of this important Council Decision, prior to its formal adoption.3
The Minister’s letter of 9 October 2013 1.13 The Minister begins his letter by apologising for failing to update the Committee following his EM of 21 August 2012 on the Proposal, noting that he has instructed officials to take steps to ensure that this does not happen again.
1.14 He then continues as follows:
“In its Report of 5 September 2012 the Committee asked for more information on the legal and procedural issues that were outlined in the August 2012 Explanatory Memorandum. The Committee noted that the Government was looking at the proposal to ensure that it properly fell within the scope of Article 203 of the Treaty on the Functioning of the European Union , as well as examining whether any of its provisions might engage the UK’s opt in under Protocol 21.
“The Treaty on the Functioning of the European Union (TFEU) expressly provides for the EU’s association with the Overseas Countries and Territories to afford the same trade rights as the Member States accord each other under the EU Treaties. The Government’s view is that the Mode 4 provisions in the proposal fall within the scope of powers conferred upon the EU by the TFEU. The Articles which provide for co-operation in relation to organised crime in the proposal reflect the position under the current Overseas Association Decision (OAD) and, we consider, fall within the principles for association set out in Article 198 of the TFEU. We have concluded therefore that both sets of provisions are within the scope of the EU’s Part Four powers to make arrangements in respect of association with the Overseas Countries and Territories.
“The proposal includes Mode 4 commitments and it is the UK’s position that Mode 4 commitments are entered into pursuant to Title V TFEU and therefore trigger the UK’s JHA opt in. However, this agreement is between the EU and the Overseas Countries and Territories, and as such is different from EU-Third Country Agreements. We have considered the applicability of the JHA opt-in in relation to this specific agreement and consider that it is not engaged.”
1.15 With regard to timing issues, the Minister says:
“Negotiations are continuing under the Lithuanian Presidency and we expect to see the conclusion of these in October. The proposal will then pass to COREPER II before being presented to Council for adoption by unanimity. We do not yet have a date for Council to consider this, but the current Decision expires at the end of 2013.”
1.16 Finally, the Minister says:
3 See headnote: HC 83–xiv (2013–14), chapter 3 (11 September 2013).
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“I welcome the upcoming debate on the Proposal which will be led by my colleague the Minister for Africa and the Overseas Territories. As the Committee notes, this is an important Council Decision for the UK and its Overseas Territories and merits the keen interest shown by the Committee.”
Conclusion 1.17 We welcome the Government’s conclusion that Title V TFEU is not applicable to this OAD.
1.18 The European Committee B debate will now take place on 23 October 2013.
1.19 We consider that this chapter of our Report is relevant to that debate.
2 The Telecommunications Single Market
(a) (35305) Commission Communication: “On the telecommunications single 13562/13 market” COM(13) 634
(b) (35304) Council Regulation laying down measures concerning the European 13555/13 single market for electronic communications and to achieve a + ADDs 1–2 Connected Continent, and amending Directives 2002/20/EC, COM(13) 627 2002/21/EC and 2002/22/EC and Regulations (EC) No. 1211/2009 and (EU) No. 531/2012
Legal base (a) — Article 114 TFEU; ordinary legislative procedure; QMV Documents originated 11 September 2013 Deposited in Parliament 23 September 2013 Department Culture, Media and Sport Basis of consideration EM of 10 October 2013 Previous Committee Report None Discussion in Council December 2013 Committee’s assessment Politically important Committee’s decision Not cleared; further information requested
Background 2.1 On its “Digital Agenda for Europe” website, the Commission says that, from landlines to mobiles to broadband, telecommunications networks and services are the backbone of
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our information society; and that the EU’s policy framework improves competition, drives innovation, and boosts consumer rights within the European single market. It states that, in decades, EU action for telecommunications has led to greater consumer choice, falling call costs, and higher standards of service, through:
x “A sound regulatory framework for electronic communications, promoting competition and consumer rights;
x “Promoting investment in broadband networks supporting high-speed Internet;
x “Supporting wireless technologies, such as 3G and LTE, through the radio spectrum policy programme;
x “Protecting mobile users from high roaming charges when travelling in the EU or internationally;
x “Taking a leading role in international discussions on Internet development and governance.”4
2.2 The EU regulatory framework consists of the following instruments:
x the Framework Directive, setting out the main principles, objectives and procedures for an EU regulatory policy regarding the provision of electronic communications services and networks;
x the Access and Interconnection Directive, stipulating procedures and principles for imposing pro-competitive obligations regarding access to and interconnection of networks on operators with significant market power;
x the Authorisation Directive, introducing a system of general authorisation, instead of individual or class licences, to facilitate entry in the market and reduce administrative burdens on operators;
x the Universal Service Directive, requiring a minimum level of availability and affordability of basic electronic communications services and guaranteeing a set of basic rights for users and consumers of electronic communications services;
x the Privacy and Electronic Communications Directive, setting out rules for the protection of privacy and of personal data processed in relation to communications over public communication networks;
x Regulation (EC) No. 1211/2009 on the Body of European Regulators for Electronic Communications (BEREC);
x Regulation (EU) No. 531/2012 on public mobile communication networks;
x the Radio Spectrum Decision, which establishes principles and procedures for the development and implementation of an internal and external EU radio spectrum policy.5
4 See http://ec.europa.eu/digital-agenda/en/about-telecoms.
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2.3 Against this background, the Commission says that, as the world moves rapidly towards an Internet-based economy, Europe lacks a genuine single market for electronic communications, and is consequently losing out on a major source of potential growth. Recalling the conclusions of the 2013 Spring European Council, calling for measures to create a Single Telecoms Market as early as possible, the Commission accordingly published, on 11 September, a legislative package for a “Connected Continent: Building a Telecoms Single Market”, which it says is aimed at building a connected, competitive continent and enabling sustainable digital jobs and industries; with proposed legislative changes to several regulations that (the Commission says) would “make a reality of two key EU Treaty Principles: the freedom to provide and to consume (digital) services wherever one is in the EU.” The Commission says that its proposal “does this by pushing the telecoms sector fully into the internet age (incentives for new business models and more investment) and removing barriers so the European Union’s 28 national telecoms markets become a single market, building on the 2009 Telecoms Framework Directive, and more than a quarter century of work to create that single market.”6
2.4 The Commission describes the legislative proposal in short, as:
x “Simplification of regulation for companies;
x “More coordination of spectrum use, so that we see more wireless broadband, more 4G investment, and the emergence of pan-EU mobile companies with integrated networks;
x “Standardised fixed access products, encourages more competition between more companies and facilitates increasing provision of pan-EU services;
x “Protection of Open Internet, guarantees for net neutrality, innovation and consumer rights;
x “Pushing roaming premiums out of the market through a carrot and stick approach to say goodbye to roaming premiums by 2016 or earlier;
x “Consumer protection: plain language contracts, with more comparable information, and greater rights to switch provider or contract.”7
The Commission Communication 2.5 The Communication begins by setting out the political and economic importance of a fully functioning telecommunications single market and notes that the European Council of March 2013 placed a commitment on the Commission to bring forward proposals to establish such a single market and that these proposals seek to meet that commitment.
2.6 It then provides a summary of the impacts of the liberalising measures that began in the 1980s and considers the importance of specific developments, such as the Global System for Mobile Communications (GSM) and Universal Mobile Telecommunications System
5 See http://ec.europa.eu/digital-agenda/en/telecoms-rules. 6 See http://ec.europa.eu/digital-agenda/en/connected-continent-single-telecom-market-growth-jobs. 7 See http://ec.europa.eu/digital-agenda/en/connected-continent-legislative-package.
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(UMTS) standards, along with the existing telecommunications framework that was put in place in 2002 and reviewed in 2009. It then states the importance of this sector in driving not only Europe’s competitiveness but also wider economic growth that is important in the current economic situation. It then states that decisive further action is needed to prevent any further decline in this market and Europe’s global position.
2.7 It then considers what remaining barriers exist, citing a study that claims that completion of the single market in this sector could add up to £92 billion (€110 billion) or 0.9% to the EU’s GDP.8 It notes that despite the existing regulatory framework, many operators and networks operate on a national basis, with those who have a presence in more than one Member State continuing to operate as several ‘national’ operators rather than a single ‘European’ operator. The Commission claims that such behaviour was not only having a negative effect of pricing, but also on consumer behaviour (though it does not adduce evidence of either). It also asserts that differences in national procedures for the management of spectrum have a negative effect on investment and the roll-out of new technologies, before considering the benefits that could arise from greater harmonisation of the application of the existing regulatory framework and procedures.
2.8 The Communication then sets out what the Commission believes are the characteristics of a true single market and what measures are needed to change the existing regulatory framework in order to drive the market to begin to exhibit those features. It then notes a commitment made by the Commission at the conclusion of the 2009 review of the regulatory framework to act on the issue of open internet access before setting out four reasons why action is now needed and noting the proposals within the Regulation seek to address these.
2.9 The Communication then considers matters relating to investment and competition, with the recently agreed Recommendation on Costing Methodologies and Non- discrimination playing a role in providing a framework that will help drive investment in new broadband infrastructure by providing legal certainty on the prices associated with network access.9
2.10 It then notes that the medium-term effects of the proposals will be greater freedom and opportunities for market participants and a trend towards consolidation within the sector, with the market developing in such a way that ex post application of competition law will be sufficient to ensure market functioning. This situation will be addressed by the Commission further developing the existing Recommendation on relevant markets, with an expected reduction of ex-ante regulation. There is also an indication that the Commission will begin to consider what actions are needed to drive further coordination of regulatory remedies and once again raises the possibility of the creation of a single EU telecoms regulator, through conducting a review that will also seek to address issues relating to the perceived lack of a level playing-field for “over-the-top” services10 compared
8 Ecorys, TU Delft et al.,”Steps Towards a Truly Internal Market for e-Communications, 2013”. 9 See (35312) C(13) 5761 at chapter 9 of this Report for the Committee’s consideration of this Recommendation. 10 Over-The-Top Content (OTT) is a system for the broadband internet delivery of video and audio without a multiple system operator being involved in the control or distribution of the content. The provider may be aware of the contents of the IP packets but is not responsible for, nor able to control, the viewing abilities, copyrights, and/or other redistribution of the content. This is in contrast to purchase or rental of video or audio content from an Internet provider, such as pay television video on demand. OTT in particular refers to content that arrives from a
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to telecoms services, as well as matters relating to the convergence of audio-visual and telecommunication services and markets.
2.11 The Communication concludes by reiterating the potential benefits to the EU, its businesses and its citizens from a completed telecommunications market and calling upon the Council and the European Parliament to examine and adopt the proposed Regulation as a matter of the highest political priority.
The draft Regulation 2.12 In his Explanatory Memorandum of 10 October 2013, the Parliamentary Under- Secretary of State for Culture, Communications and Creative Industries at the Department for Culture, Media and Sport (Edward Vaizey) provides a helpful a summary of the Articles, as well as an outline of the effect of each: he notes that there are seven groupings of articles, each presented as a chapter, and that his Explanatory Memorandum follows the same format.
Chapter I — General Provisions (Articles 1– 2) “These Articles are self-explanatory and reiterate elements of the preceding Commission EM and associated Communication, as well as provide definitions for terms associated with the Regulation.
Chapter II — Single EU Authorisation (Articles 3–7) “These articles seek to create a system whereby any provider of electronic communication services would require a single authorisation from the Member State’s national regulatory authority (NRA) in which they are based in order to be able to provide their services across the EU28; parallels to this scheme are the single banking licence and the CE-marking scheme.
“The articles also set out provisions regarding the responsibilities of the authorising NRA and, in effect, gives responsibility to that NRA to take action, even if the activities that require intervention are conducted in another Member State, as well as placing an obligation on that NRA to behave in the same way as if the negative behaviour was occurring in its home Member State.
Chapter III — European Inputs
Section 1 — Coordination of use of radio spectrum within the single market (Articles 8–16) “This group of articles sets out a number of proposals related to the management of spectrum within the EU. They are:
third party, such as Netflix, and is delivered to an end user device, leaving the ISP responsible only for transporting IP packets. Consumers can access OTT content through internet-connected devices such as desktop and laptop computers, tablets, smartphones, set-top boxes, smart TVs and gaming consoles.
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x “An obligation on Member States to notify the Commission whenever a general authorisation or individual rights to spectrum is being granted. This decision would be subject to approval or amendment by the Commission in a process that mirrors existing provisions with the current Framework for market measures; x “Harmonised procedures for broadband spectrum assignments that would cover not only new bands that would be harmonised (such as 700MHz) but also existing harmonised bands. Such actions would include common timetables for granting rights, harmonisation of licence durations (both new and existing), setting dates for the termination of existing uses of spectrum to enable the spectrum to be used for broadband and actions that the Commission can take to ensure Member State compliance with such measures.
Section 2 — European virtual access products (Articles 17–20) “These Articles place on obligation on operators to provide two forms of wholesale access products for Next Generation Access (NGA) networks; the aim of which is to drive harmonisation of existing wholesale products which are subject to a variety of technical requirements.
“The first is an access product that should be provided by operators who have significant market power (SMP): the European virtual access product and the second to be provided by all NGA networks: the Assured service quality (ASQ) connectivity product.
Chapter IV — Harmonised rights of end-users
Costs of international calls and SMS (Article 21) “The Regulation proposes that all intra-EU calls from fixed lines should not be charged higher than domestic call rates unless higher rates can be objectively justified, eg by reference to reasonable extra costs associated with routing such calls. Rates for mobile calls and texts are similarly limited by reference to the Euro-tariffs set out in the Mobile Roaming Regulation (No 531/2012)
Cross-border dispute resolution (Article 22) “The Regulation extends the requirement in the Universal Services directive (2002/22/EC) to provide out-of-court procedures to resolve disputes between consumers and providers to include cross-border disputes.
Open Internet Access, Traffic Management, Safeguards for Quality of Service, and Transparency and Publication of Information (Articles 23– 25) “The Regulation proposes to introduce a form of ‘Net Neutrality’ that would allow users to freely access and distribute content, information, run applications and use services of their choice. Whilst mirroring the text that is already contained the Framework, it places a new obligation on NRAs to ensure that this is the case.
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“It also seeks to prohibit blocking, slowing down or otherwise degrading access to any services and content, except in instances where there is a genuine need to do so for traffic-management and network-management reasons. It does, however, allow providers to charge extra for different data volumes and speeds, as well as allowing for charges associated with enhanced quality of service, as well as imposing a requirement to ensure that consumers are aware of any specific restrictions or similar by requiring operators to publish specific information regarding speeds, traffic volumes, impact on services and any traffic management policies in place.
Information requirements for contracts, control of consumption and contract termination (Articles 26–39) “The proposals in these articles contain several provisions that are aimed at increasing consumer protection.
“The first (Article 26) sets out a series of specific minimum information requirements that need to be contained in a contract and, amongst other things, include: tariff plans and costs; any after-sales services provisions; any restrictions on the use of terminal equipment; payment methods; charges for early contract termination or switching/porting; and compensation.
“The following Article sets out anti-Bill Shock measures that ensure that a consumer is made aware that they reaching their tariff’s limits and ensures that consumers are still able to access the emergency services through the European emergency number once limits are reached and provides for free-of-charge itemised bills.
“Articles 28 sets out new requirements covering contract termination by adding to the existing maximum contract term of 24 months and the requirement to provide 12-month contracts by granting consumers a right to terminate contracts after 6 months with one month’s notice. However, end-users may need to reimburse the service provider for the residual value of subsidised equipment.
Chapter V — Facilitating change of providers
Switching & portability of numbers (Article 30) “This Article sets out the requirements aimed at facilitating consumers switching between providers.
“It contains new provisions that place an obligation on service providers to forward any emails to the consumer’s new email account for a period of 12 months, as well as obligations on operators to reimburse any unused pre-paid credit. It also includes an obligation that all switching be gaining-provider-led.
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Chapter VI
Penalties, Delegation of Powers, Committee Procedure and Amendments to Directive 2002/20/EC (Articles 31–36) “These Articles set out the mechanism for penalties that can be imposed by NRAs, deals with powers of the Commission to bring forward delegating acts and indicates that the Communication Committee will play a comitological role for the management of the Regulation’s provisions. This section concludes by deleting provisions within the Authorisation, Framework and Universal Service directives that would be superseded by the Regulation.
Amendments to Regulation (EU) No 531/2012 (Article 37)
“This Article contains two elements that would change the recently agreed third EU Mobile Roaming Regulation.
“The first is that, from 1st July 2014, consumers would not be charged to receive voice-calls.
“The second element provides an exemption for operators from the obligation to decouple roaming ie the third Regulation allows consumers to choice separate providers for their domestic and roaming provisions (from 1st July 2014). In order to gain this exemption, service providers must form a commercial or technical agreement with other operators that create a ‘virtual’ cross-border network that covers at least 17 Member States and 70% of the EU population and offer at least one retail package that offers a roaming service charged at domestic rates.
“The Article also provides for a transitional period of three years and makes allowance for reasonable use provisions.
Amendments to Regulation (EC) No 1211/2009 (Article 38) “This Article proposes changes to the Regulation that established the Body of European Regulators of Electronic Communications (BEREC).11 The first change proposes that the term of the Administrative Manager of the BEREC office be extended from three to five years, renewable once.
“The second change proposes that the role of BEREC Chair be filled by a ‘full-time independent professional’ to be appointed for a three-year term. The Chair is currently drawn from BEREC members i.e., the heads of NRAs, and serves a one- year term.
11 BEREC replaced the European Regulators’ Group (ERG) in January 2010, following the adoption of the BEREC regulation in November 2009 (this being part of the major revamping of the telecoms regulatory framework in that year). The ERG, which was set up as part of the original 2002 framework, was simply a network of EU NRAs (national regulatory authorities; in the UK, Ofcom), and had no formal role in the regulatory framework: BEREC, however, does, and is supported by a small administrative office in Riga.
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Review Clause and Entry into force (Articles 39–40) “The first Article sets down a requirement that a review and report on the Regulation take place no later than 1st July 2018, and the final Article provides that the Regulation will come into force on 1st July 2014, except for Articles 21 to 30, which will come into force on 1st July 2016.”
2.13 The Minister also notes that the draft Regulation is accompanied by two Commission Staff Working Documents: a 130 page Impact Assessment and a executive summary sheet.
Subsidiarity 2.14 The Minister comments as follows:
“In the accompanying Impact Assessment (para 6.1) it is noted that the general objective of the Regulation is “to complete the Single Market for electronic communication services to ensure that: citizens and businesses have the right to access electronic communications services irrespective of from where they are provided in the Union, without being hampered by cross-border restrictions and unjustified additional costs; and providers of electronic communications services and networks have the right to operate their networks and provide services irrespective of where the company is established or its customers are situated in the Union.” It would seem correct that this objective could not be sufficiently achieved other than action by the EU, rather than Member States, and therefore the proposal complies legally with the subsidiarity requirement in Article 5(3) TEU. We are nevertheless concerned that the harmonisation involved with certain elements of the proposals, specifically in relation to regulation of providers and spectrum, is excessive. This is discussed in the following sections.”
The Government’s view 2.15 The Minister begins by saying that the package’s aims “generally align with UK’s in terms of completing the telecoms single market and how this would contribute towards the creation of the digital single market”, and by noting “an alignment in terms of aims” and “some opportunities in terms of the spreading of good practice from the UK across the EU”.
2.16 He then says:
“the issue of any net economic benefits to the EU market from both the package in its entirety and each individual element remains unproven. This situation requires further analysis and this nuance [sic] HMG’s position as negotiations progress and elements of the package evolve.”
2.17 The Minister then continues his comments as follows, beginning by noting that the following paragraphs cover the policy implications for each strand of the Regulation, with each heading cross referencing where in the Regulation each proposal sits:
European Scrutiny Committee, 18th Report, Session 2013–14 17
Single EU Authorisation & Regulation of Providers (Chapter II — Articles 3–7) “Despite the existing Authorisation Directive (adopted in November 2009) not allowing NRAs to require authorisations as a condition of operation, all Member States require such notification (with two exceptions: Denmark and the UK). The main value of the single authorisation is stated as encouraging investment in the provision of pan-European services and reducing the unnecessary additional costs that providers of such services may currently bear, compared to local operators.
“Nevertheless, HMG does not believe that the resource currently associated with national notification and compliance has hitherto been a material obstacle to pan- European operations. The single authorisation cannot substitute for addressing ineffective or inconsistent regulation. Industry, while expressing a positive view in terms of costs reduction, does not see this as a complete answer to pan-European working. Ironically, the administrative burden for operators in the UK and Denmark would increase radically.
“Additionally, the introduction of a pan-European enforcement regime would require a fundamental change to Ofcom’s legal duties and powers, currently focused on the interests of UK consumers, raising issues of jurisdiction and competence.
“Whilst HMG supports the goal of eliminating unreasonable obstacles to pan- European service provision, there are risks that such a change could introduce delays in the monitoring, assessment, and enforcement of compliance with regulatory obligations, to the detriment to consumers and competing operators. There is a clear risk that any savings from changes to the notification process will be minimal and might be out-weighed by the potential negative outcomes and so full support cannot be given until these concerns are addressed.
Coordination of Use of Radio Spectrum (Chapter III — Articles 8–16) “The proposals on spectrum do pose some serious concerns for HMG, in particular the idea of the Commission supervision of national plans for spectrum assignments, including the timing. This would represent a shift in competence from national regulators, which we would not want to see. The Commission would be able to mandate the (re-) assignment of spectrum for wireless broadband through EU harmonised procedures and timetables. Quite how this would work is not clear as spectrum is not solely “wireless broadband spectrum”. The Commission proposals give a power of veto over national draft decisions on spectrum assignment procedures and licence conditions if it considers they would damage the internal market.
“HMG is therefore concerned about the proposals as drafted. The value of spectrum to Member States’ economy, and ability to manage the process of allocation within a coordinated framework is well documented. A recent study put the value to the UK economy at over £50bn. We are concerned that the Commission would be extending its competence into matters that are currently a national responsibility. At the same time we believe that there are tools open to the Commission to deliver a
18 European Scrutiny Committee, 18th Report, Session 2013–14
more effective single market that are not being deployed. A pan-EU rollout of 4G mobile broadband services would have an immediate positive impact on the European economy and would be more effective than further harmonisation of rules on spectrum auctions. The Commission has not taken action with its existing powers to expedite the allocation of spectrum for 4G service in Member States that have not yet done so.
“There are also alternatives to the proposal which could work without the need to take control, such as the wider use of the Radio Spectrum Policy Group to develop harmonised technical conditions and issue guidance on licence fees and durations. If the RSPG were invited to develop best practice guidelines of which Member States could be required to take utmost account, the poor auction design we have seen in other Member States might be addressed, without affecting Member States whose auctions are sufficiently well designed.
European Virtual Access Products (Chapter III — Articles 17–20) “Access services to enable pan-European provision for business customers are variable across the EU and HMG believes this issue should be addressed. However, it is important to ensure that the scope of the proposals reflect the scope of the problem identified.
“With this proposal, the Commission is seeking to encourage the availability of standardised European access products to be offered by SMP operators; in the UK’s instance BT. The Commission is also prescribing the minimum parameters of such products in an annex to the Regulation. In addition, the Commission is proposing to have a veto over NRA decisions on access remedies for pan-European operators.
“UK operators will have a potential advantage when engaging in the new measures since they already operate in the UK. Ofcom was the first NRA to introduce Virtual Unbundled Local Access (VULA) and, in principle, welcomes the Commission’s adoption of VULA.
“However, HMG believes that the Commission will not succeed in ensuring the provision of harmonised products merely by prescribing the key parameters, as in the current proposal. HMG considers that the parameters are too high level to guarantee harmonised products. A solution would be for BEREC to develop minimum reference offers in greater detail, in close consultation with industry, in order to ensure they reflect operators’ commercial needs.
“A veto on remedies constitutes a significant transfer of power from NRAs to the Commission, and we do not believe that the Commission has not made a case for this power. One real risk of a veto on remedies is that NRAs will be prevented from being innovative. HMG therefore does not support this element of the proposal.
European Scrutiny Committee, 18th Report, Session 2013–14 19
Costs of ‘International’ (intra-EU) Voice-calls and SMS (Chapter IV — Article 21(3)) “Significant price differences continue to exist, both for fixed and mobile communications, between domestic voice and SMS communications and those terminating in another Member State. While there are variations between countries, operators and tariff packages, and between mobile and fixed services.
“HMG is generally supportive of this measure, provided any significant retail tariff differences between domestic fixed long-distance communications and fixed communications terminating in another Member State are justified by reference to objective criteria. Retail tariffs for international mobile communications should not exceed the euro-voice and euro-SMS tariffs for regulated roaming calls and SMS messages, respectively, provided for in Regulation (EU) No 531/2012; unless justified by reference to objective criteria. Such criteria may include additional costs and a reasonable related margin.
Open Internet Access, Traffic Management, Safeguards for Quality of Service, and Transparency and Publication of Information (Chapter IV — Articles 23–25) “Traffic management is often necessary in order for Internet Service Providers (ISP) to manage congestion on its network and ensure all users receive a good level of service. HMG supports an open Internet, and to that end, agrees with the aims and objectives of the proposals. However, HMG believes that this can be achieved through self-regulation, and that transparency of traffic management policies employed by ISPs is the key driver for this. There is no evidence to date of consumer harm caused by traffic management policies, as market forces have been effective in ensuring consumers have choice.
“Regarding Quality of Service, specialised services are not prevalent in the UK market currently, although these are developing. We have concerns with the current proposals, as whilst the type of traffic management described is technically feasible, as yet there are no agreed standards and we have concerns that the Commission are proposing to regulate in this area until there is an evidence of need or agreed technical standards.
Information Requirements for Contracts (Chapter IV — Article 26) “The Consumer Rights Directive (CRD) currently seeks to provide clarity and consistency in terms of information to be provided to consumers and the available rights and remedies where the services are not satisfactory or problematic.
“That Directive also requires that the trader sets out the main characteristics. However, the proposed Regulation is prescriptive about what must be given. Further, the CRD is still being implemented so this raises the question of whether such a prescriptive approach is needed at this stage.
20 European Scrutiny Committee, 18th Report, Session 2013–14
“As such, HMG fully supports the principle of consumers being enabled to make informed choices about goods and services and believes this is an indicator of a healthy and properly functioning market. However, HMG would seek to avoid onerous requirements being place on businesses and consumers being provided with information that is not relevant to their needs.
Control of Consumption (Anti-Bill Shock Measures) (Chapter IV — Article 27) “Following publication of its strategy paper,12 HMG has, at this stage, opted not to legislate to require telecommunications providers to reduce the instances and impact of bill shock on consumers. However, we are very keen to see industry do more to prevent this increasing harm.
Contract Termination (Chapter IV — Article 28) “The proposals are in line with the Unfair Terms in Consumer Contracts Directive (CRD), but are more detailed in nature. As such, the proposed text would effectively set out in legislation the principles of the CRD that binds the service provider to the quality of the services advertised.
“Whilst HMG supports the principle behind the proposal, it may be necessary to examine the interplay between the proposal and the CRD before full support can be given.
Switching and Portability of Numbers (Chapter V — Article 30) “For the most part the proposals mirror existing mechanisms. However, Article 30 (4) of the proposed Regulation also proposes that ‘The receiving provider of electronic communications to the public shall lead the switching and porting process.’ That is not how switching currently works universally in the UK, and particularly not so in the mobile sector.
“In its strategy paper,13 the Government set out its objectives to move to Gaining Provider Led (GPL — the same as the ‘receiving provider’ system referenced in the Regulation) processes for switching ‘across the board’, and to ensure consistent and effective experiences for consumers switching between bundles. Further, Ofcom undertook a strategic review of switching and porting in September 2010. This was aimed at identifying the key issues and problems with switching processes across fixed and mobile telecommunications, broadband and the pay TV sector. That review concluded ‘in principle, GPL systems are preferable to losing providing-led (LPL) systems when no legacy systems are in place’. However, switching and porting of mobile networks numbers is heavily dependent on legacy systems.
12 “Connectivity, Content, and Consumers: Britain’s digital platform for growth” published on 30th July 2013. This is available at https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/225783/Connectivity_Content_and_Co nsumers_2013.pdf. 13 Ibid
European Scrutiny Committee, 18th Report, Session 2013–14 21
“Therefore, HMG supports this proposal in principle but would seek to ensure that any changes do not disrupt our current plans for change nor introduce any further complexity or administrative burden.
Market Analysis Procedures and Harmonisation (Chapter VI — Article 35) “Regarding market analysis procedures, the Commission is proposing to change the scope of the current ‘Three Criteria test’ to include consideration of the global competitiveness of the EU economy. However, this is currently not a policy or regulatory objective of the current Framework. Nor is it a NRA duty to ascertain how the Three Criteria test is applied and would therefore represent a fundamental change of direction of the Framework.
“HMG believes that, at the least, this proposal requires full discussion; though ideally it would be removed and the issue saved for the next review of the Framework as a whole.
Amendments to Regulation (EU) No. 531/2102 — the third EU Mobile Roaming Regulation (Chapter VI — Article 37) “The government is concerned that the full effect and success of the recently agreed Roaming Regulation remains untested. While the unspecified benefits to the consumer of the new proposals will appeal to consumers and business users, such a quick return to further regulation is unpopular with industry and may introduce costly and unnecessary burdens and encourage an anti-competitive market environment. The Roaming III Regulation was negotiated as a ten-year Regulation.
“HMG has recently announced that it believes that roaming charges have no place in a true single market and our preference would be for an eventual phasing out of all roaming charges under the current Regulation and within that regulatory framework rather than adding to the current existing Regulation.
Amendments to Regulation (EC) No. 1211/2209 — Establishing the Body of European Regulators for Electronic Communications (BEREC) and the Office (Chapter VI — Article 38) “The case for changing the role of the Chair of BEREC to that proposed is based around the argument that BEREC should drive greater harmonisation of market remedies and provide strategic direction that is perceived by the Commission to be lacking under the current system.
“Ofcom has expressed some serious concerns that the change may endanger the way in which BEREC operates; that being independently and rooted in its member NRAs. It carries the risk BEREC may no longer be able to act independently of the Commission and may represent the first step towards a centralisation of BEREC’s functions to Brussels and the erosion of national regulators’ discretion. HMG shares these concerns.”
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2.18 The Minister then comments on the Impact Assessment thus:
“A full Impact Assessment has yet to be conducted on this series of proposals. Based upon a study conducted by Ecorys et al in 201114 it is estimated that the measures could add between 0.52% and 0.89% to European GDP each year. This study embodies the difficulties of quantifying the efficiency and welfare gains resulting from enhanced competition and is heavily reliant upon assumptions made.
“However, an initial market assessment was conducted as the proposals were first trailed by the Commission and this provides a useful foundation. It showed that there is some evidence that: the EU market is fragmented and involves smaller players; the market capitalisation of EU telecoms firms is lower than, for example, Verizon or AT&T in the US and China Mobile; and overall, revenue growth is weaker for EU telecoms companies, as are their operating margins.
“There is a drive for more industry consolidation that underlying some of the proposals but it is not clear that greater consolidation is the right answer. Initial market analysis from Ofcom suggests that these market differences stem from lower competition and greater pricing-power of incumbents in the US, rather than scale effects. Further, fierce retail competition in domestic markets across the EU tends to drive down prices, margins and revenues but it also improves the quality of services.
“Therefore, competition is already a clear strength of the EU market and does not appear to inhibit investment, with EU operators also investing similar shares of their revenue as non-EU counterparts. These measures are unlikely to radically alter the prospects of those MS that already embrace competition in broadband markets. However, the EU is comparatively slow to roll out next generation technologies, in which it genuinely lags behind the US and parts of Asia. This results partly from uncertainty over demand, complex technical problems on co-existence and interference within spectrum, and poor coordination of spectrum allocation across Member States.
“It is also worth remarking that much of the growth found by Ecorys, et al stemmed from developments such as e Health, e Learning and e Government which are subject to other factors than the suggested measures. It is also worth noting that the Commission’s internal mechanisms initially expressed some concerns with the Impact Assessment, although these were later withdrawn.
“It, therefore, remained unclear whether the likely gains from the proposals are greater than the likely costs and whether the proposals themselves will address the issues the associated Communication identifies.”
2.19 With regard to Consultation, the Minister says:
“This package was widely leaked to governments and stakeholders, with consultation of major stakeholders taking place to drive HMG’s initial reactions to the proposals.
14 Ecorys, TUDelft and TNO: “Steps towards a truly Internal Market for e-communications In the run-up to 2020”, Client: DG Information Society and Media, European Commission, Rotterdam, 14 November 2011.
European Scrutiny Committee, 18th Report, Session 2013–14 23
It is intended that further consultation of stakeholders will take place as negotiations commence.”
2.20 Finally, on the Timetable, the Minister says:
“It is the stated ambition of the Commission for this package to be approved in time for the elections of the European Parliament ie end-May 2014.
“It is anticipated that the October European Council (24th/25th October 2013) will discuss this package as part of a wider debate on the digital single market and it is expected that Council Conclusions will be agreed that contain an element covering this package and negotiations at Working Group level to begin in November 2013. A Progress Report may be considered at the Telecommunications Council (6th December 2013). It is worth noting that the European Parliament has indicated severe concerns regarding the timing of this package and a mismatch with its parliamentary timetable with any plenary vote needing to take place by April 2014.”
Conclusion 2.21 It is notable that the Minister challenges the analysis cited by the Commission and describes the issue of any net economic benefits to the EU market from both the package in its entirety and each individual element as unproven. In particular, he notes that, although a drive for more industry consolidation underlies some of the proposals, it is not clear that greater consolidation is the right answer: that, on the contrary, Ofcom analysis suggests that the market differences cited by the Commission stem from lower competition and greater pricing-power of incumbents in the US, rather than scale effects; and that fierce retail competition in domestic markets across the EU tends to drive down prices, margins and revenues, and also improve the quality of services. He sees competition as already a clear strength of the EU market, which does not appear to inhibit investment, with EU operators also investing similar shares of their revenue as non-EU counterparts. Thus, he says, these measures are unlikely to radically alter the prospects of those Member States that already embrace competition in broadband markets. Set against this, he clearly sees the EU’s comparatively slow roll out of Next Generation technologies as the area in which it genuinely lags behind the US and parts of Asia.
2.22 Moreover, with regard to individual proposals, the Minister:
— does not believe that national notification and compliance has hitherto been a material obstacle to pan-European operations, or see single authorisation as a substitute for addressing ineffective or inconsistent regulation, and notes that the administrative burden for operators in the UK would also increase radically;
— notes that the proposals on Coordination of Use of Radio Spectrum would involve “a shift in competence from national regulators, which we would not want to see”, with the Commission acquiring a power of veto over national draft decisions on spectrum assignment procedures and licence conditions if it considers they would damage the internal market;
24 European Scrutiny Committee, 18th Report, Session 2013–14
— underlines the well-documented value of spectrum to Member States’ economies, and is accordingly concerned that the Commission would be extending its competence into matters that are currently a national responsibility;
— at the same time believes that a pan-EU rollout of 4G mobile broadband services would have an immediate positive impact on the European economy and be more effective than further harmonisation of rules on spectrum auctions, noting that the Commission has not used its existing powers to expedite the allocation of spectrum for 4G service in Member States that have not yet done so;
— sees the wider use of the Radio Spectrum Policy Group to develop harmonised technical conditions and issue guidance on licence fees and durations as a better alternative to the Commission’s proposal;
— believes that a better approach in the area of Virtual Unbundled Local Access (VULA) would be for BEREC to develop minimum reference offers in greater detail, in close consultation with industry; and notes that the proposal would constitute a significant transfer of power from NRAs to the Commission, which would risk NRAs being prevented from being innovative;
— believes that an open Internet can be achieved through self-regulation, and that transparency of traffic management policies employed by ISPs is the key;
— is concerned that such a quick return to further regulation may introduce costly and unnecessary burdens and encourage an anti-competitive market environment; noting that the recently agreed Roaming III Regulation was negotiated as a ten-year Regulation;
— is also concerned that the proposal to change the role of its Chair carries the risk that BEREC may no longer be able to act independently of the Commission, and may represent the first step towards a centralisation of BEREC’s functions to Brussels and the erosion of national regulators’ discretion.15
2.23 The theme of the Minister’s analysis is familiar to those who have engaged in this area over the years: an apparent determination by the Commission to undervalue the established process of taking this highly complex and fast-moving area forward in close coordination with NRAs and the industry, and instead to press for the enhancement of the Commission’s direct control. BEREC is a case in point: only this summer an independent assessment by PWC concluded that the structure of BEREC was relevant and efficient and that it had, thus far, successfully fulfilled its functions.
2.24 It is perhaps therefore not entirely regrettable that there appear to be considerable constraints on the Commission’s timeline being met. In the short term, we should be grateful if the Minister would write to us in a month’s time, to let us know how the Commission’s proposals were received at the October European Council and what sort of report is likely to be made to the 6 December Telecoms Council.
15 See (34917) 9291/13: HC 83–v (2012–13), chapter 12 (12 June 2013).
European Scrutiny Committee, 18th Report, Session 2013–14 25
2.25 In the meantime, we shall retain the documents under scrutiny.
3 Vehicle registration
(33822) Draft Regulation simplifying the transfer of motor vehicles 8794/12 registered in another Member State within the Single Market + ADDs 1–2 COM(12) 164
Legal base Article 114 TFEU; co-decision; QMV Department Transport Basis of consideration Minister’s letter of 1 October 2013 Previous Committee Reports HC 86–ii (2012–13), chapter 14 (16 May 2013) and HC 86–xxxiii (2012–13), chapter 11 (27 February 2013) Discussion in Council Not known Committee’s assessment Politically important Committee’s decision Not cleared; further information requested
Background 3.1 Businesses and individuals purchasing new and used vehicles in other Member States can find it burdensome to import and re-register the vehicles, depending on the Member State concerned, as there is little harmonisation over the requirements for importing — this would appear to contradict the principles of the single market.
3.2 With this draft Regulation the Commission has proposed simplification of re- registration and transfer of vehicles registered in another Member State. In summary, the proposed Regulation would:
x confirm that Member States are entitled to exempt various categories of motor vehicles from registration (such as vehicles used by the armed forces);
x provide clear definitions for registration of vehicles already subject to existing regulations on type approvals;
x state clearly where and when a vehicle re-registration should occur;
x allow citizens and businesses six months to re-register their vehicles when transferring from one Member State to another;
x elucidate precisely the situations where a Member State may refuse the registration of a vehicle originating from another Member State;
26 European Scrutiny Committee, 18th Report, Session 2013–14
x harmonise rules for the temporary registration of motor vehicles and set out the insurance liabilities of those vehicles;
x organise the electronic exchange of vehicle registration data between Member States; and
x harmonise the rules on so-called “professional registration” (that is, trade plate) schemes for manufacturers, assemblers, dealers and distributors.
3.3 We have considered this proposal twice and have commented that clearly simplification of transferring vehicles between Member States and of their re-registration would be welcome to many. However, we have noted that the Government has reservations on some points, some of which have been resolved, and have had the Government’s assessment of possible positive and negative impacts of the proposal. So we have kept the draft Regulation under scrutiny, asking to be kept informed of developments, particularly in relation to problematic points, in Council working group discussions and to know whether the Government believes the remaining negative impacts are outweighed by the positive ones.16
The Minister’s letter 3.4 The Parliamentary Under-Secretary of State, Department for Transport (Stephen Hammond) writes now to tell us that since he last wrote to us there has been some steady progress in negotiating the proposal. He first reports that:
x the subject of the Residency Requirements in Article 3 has proven the most contentious in recent Working Group discussion;
x it has been stated that citizens moving to another Member State will have six months to establish normal residence and a further 30 days in which they must notify the relevant authority (the DVLA in Great Britain and the DVA in Northern Ireland) that their vehicle needs to be re-registered;
x during this period, vehicle owners will not be immediately obliged to pay any relevant Vehicle Excise Duty, obtain UK motor insurance or a UK MOT certificate; and
x the Government will, however, have the freedom to make every encouragement to new residents to re-register their vehicle as soon as feasible.
3.5 The Minister continues that:
x Finland has submitted a paper concerning identification of a tax loophole which may arise as a result of this proposal;
x it feels that individuals and organisations may create shell companies in other countries where the rates of road tax are low or non-existent ʊ vehicles could then
16 See headnote.
European Scrutiny Committee, 18th Report, Session 2013–14 27
be registered to these companies paying little or no tax to the countries they are actually used in;
x the converse of this is that these vehicles will be subject to national rules in another Member State, including for Periodic Technical Inspection (PTI), for example MOT testing; and
x the Government feels that the prohibitive cost of shipping vehicles overseas for a PTI certificate and for type approval of any modifications would deter UK citizens from taking advantage of this loophole ʊ other Member States would face greater exposure to this risk.
3.6 The Minister says that a second problem was identified by the Netherlands and the UK’s Finance and Leasing Association, which involves fraudulent activity by individuals. He explains that:
x some Member States, including the UK, have a legal distinction between a vehicle owner and a vehicle registered keeper;
x whilst other countries such as Germany only have a legal definition of a vehicle owner;
x it could be that individuals who purchase vehicles from a finance company on a hire-purchase agreement could take their vehicle to a country like Germany, present their registration documents and end up registered as the owner of the vehicle;
x whilst this fraud does go on today, it requires the vehicle keepers to have the vehicles on national soil for 185 days; but
x using the shell corporation loophole, that 185 day requirement would no longer apply, making fraud easier.
3.7 The Minister also tells us that:
x several Member States have expressed serious concern with Article 3 as it stands, believing it to be a serious threat to revenue collection and to the present system of hire-purchase and car finance and are prepared to challenge the Commission;
x as representatives of a country which has expressed concern over the fiscal impact of the draft Regulation, Government officials have been included in discussions;
x whilst the Government is concerned that a Regulation would be creating legal loopholes that the unscrupulous would exploit, the impact for the UK is anticipated to be negligible; and
x the Government could earn some goodwill in supporting fellow Member States in challenging the Regulation and it is monitoring the situation very closely.
3.8 Turning to the next steps the Minister says that:
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x since the beginning of the Lithuanian Presidency, work has accelerated on this proposal, not least as there is less than a year to go before the next European Parliamentary election;
x the indicative date for the European Parliament first reading plenary is in November and there is at least one Working Group scheduled between now and then;
x the Government has further considered the UK position on the proposal and feels that to a large extent, the island status and driving system insulates the UK to a large extent from the impacts seen by other Member States;
x new residents in the UK would be more likely to use their “establishing residency” period to sell their old cars and purchase vehicles suitable for driving on the left; and
x Government officials have been working on a UK specific impact assessment for MEP briefing ahead of first reading which will be shared with us once complete.
Conclusion 3.9 We are grateful to the Minister for his account of where matters stand on this proposal. We will not consider the matter again until we hear further from the Minister, whether it is in connection with further developments in Council consideration or with the promised impact assessment. But we remind the Minister that we still wish to know the outcome on issues mentioned to us previously, such as the use of EUCARIS. We also still need to know whether the Government believes (perhaps on the basis of its further consideration of the UK position on the proposal) any remaining negative impacts are outweighed by the positive ones.
3.10 Meanwhile the document remains under scrutiny.
European Scrutiny Committee, 18th Report, Session 2013–14 29
4 EU-Kosovo Co-operation
(a) (34868) Draft Council Decision on the signing of a Framework Agreement 8775/13 between the European Union and Kosovo on the general COM(13) 218 principles for the participation of Kosovo in Union programmes
(b) Draft Council Decision on the conclusion of a Framework (34869) Agreement between the European Union and Kosovo on the 8776/13 general principles for the participation of Kosovo in Union COM(13) 219 programmes
Legal base (a) Articles 212 and 218(5)TFEU; QMV (b) Articles 212 and 218 (6)(a)TFEU; QMV Department Foreign and Commonwealth Office Basis of consideration Minister’s letters of 18 June and 8 October 2013 Previous Committee Report HC 83–iv (2013–14) chapter 13 (5 June 2013) Discussion in Council Not known but see paragraph 0.10 Committee’s assessment Legally important Committee’s decision Not cleared; further information requested.
Background and previous scrutiny 4.1 In our previous Report, we outlined the background and content of the proposed Framework Agreement between the EU and Kosovo and explained that these Council Decisions will enable Kosovo to participate in 22 EU programmes (annexed to the Agreement), by authorising the signing (document (a)) and conclusion (document (b)) of the Framework Agreement.
4.2 We reported that the Government was contesting the proposed sole legal base for the Decisions, Article 212 TFEU, which provides that the Union “shall carry out economic, financial and technical cooperation measures, including assistance, in particular financial assistance, with third countries other than developing countries”. The Government said, in its Explanatory Memorandum, that there should be multiple substantive legal bases for the Decisions, reflecting those of the 22 programmes themselves. These should include Article 352 TFEU as the successor to Article 308 EC Treaty which was used as the legal base for the Europe for Citizens programme. The Government said that this approach would follow the previous approach taken to the Western Balkans Framework Agreements and would reflect the fact that none of the 22 programmes uses the predecessor of Article 212 TFEU (Article 181a EC Treaty) as part of their substantive legal base.
4.3 We also explained the legal implications of the citation of an Article 352 TFEU legal base, namely the need for approval by Act of Parliament pursuant to section 8 of the European Union Act 2011 (“the EU Act”) before a UK Minister could vote in favour of the proposal in Council. This is unless, as we outlined in our last Report, other subsections of section 8 applied, such as in cases where adoption of the proposal is a matter of urgency or
30 European Scrutiny Committee, 18th Report, Session 2013–14
there is a Ministerial Statement laid to the effect that the proposal falls within certain “exempt purposes”. We reported that the Government considered that it would be able to rely on the exemption in section 8(6)(c) of the EU Act from the requirement for primary legislation — where a Minister lays before Parliament a statement that the measure’s purpose is “to extend a measure previously adopted under that Article to another Member State or other country”. This was because the Council Decision renewing the Europe for Citizen’s programme (containing the same Article 352 legal base) as part of the 2014–20 Multiannual Financial Framework (MFF) would require EU Act approval by primary legislation first.
4.4 In the Conclusions to our Report, we said that we agreed with the Government’s position on legal bases and asked the Minister for Europe (Mr David Lidington) to inform us of progress made in persuading the Commission to alter the proposed legal bases for the proposals. We also sought reassurance from the Minister that the Government’s proposed reliance on the section 8(6)(c) EU Act exemption was soundly based in terms of the timings of the MFF process. In addition, we asked for clarification that should it transpire that reliance on the exemption was no longer possible, the Government would not resort to the section 8(4) exemption for “urgent” or “emergency” uses of Article 352 TFEU.
Minister’s letter of 18 June 4.5 The Minister responded to the questions in our Report in a letter of 18 June. In summary, he said that the Government intended to make clear to both the Commission and other Member States that it does not accept the use of Article 212 TFEU as the sole legal base for the reasons set out in the Explanatory Memorandum, that the MFF timings were such that the section 8(6)(c) exemption could be relied on (but that failing which Parliament’s approval under the EU Act would be sought on a timely basis) and that the timings of the Council discussion of the current documents was not clear because the focus of the June European Council would be on the prospect of accession negotiations with Serbia and Stabilisation and Association Agreement negotiations with Kosovo.
Our response of 26 June 4.6 In response, we wrote back to the Minister on 26 June, saying that we were surprised that the Government had yet to marshal support for its position on the legal base amongst other Member States given the important voting implications of citing Article 352 TFEU as a legal base — the need for unanimity in the Council. We also asked the Minister whether the Government intended to challenge the legal base before the Court of Justice should the UK be outvoted in the Council.17
Minister’s letter of 8 October 4.7 The Minister now writes to inform us of further developments in relation to the current documents.
17 This is on the assumption that the Article 212 TFEU base persists and voting would be by qualified majority.
European Scrutiny Committee, 18th Report, Session 2013–14 31
Legal Base 4.8 On the issue of the proposed legal base of Article 212 TFEU, the Minister says:
“Firstly, we continue to make clear to the Commission and to Member States that we do not accept the use of Art 212 TFEU as an appropriate sole legal basis for the proposed Council Decisions, for the reasons I set out in my Explanatory Memorandum. Discussions on the above documents have already opened in the Western Balkans Working Group (COWEB) and are focussing on the appropriate legal bases. The Commission claims, in support of Article 212 TFEU, that the practice for extending participation in Union programmes to third countries is inconsistent and that in some previous cases multiple substantive legal bases were cited whereas in others only article 217 (TFEU) was cited. However, they have not yet provided examples. The Commission also argues that where existing EU programmes provide for their extension to a third country, there would be no need to cite the legal base under which it was adopted as part of the legal base — this would be covered by Article 212 TFEU. In other words, the Commission has argued that citing only Article 212 TFEU henceforth would streamline the Framework Agreement. We are continuing to argue our case. However, with debate in Brussels soon to be focussed on the opening of Stabilisation and Association Agreement (SAA) negotiations with Kosovo, it is probable that these programmes will continue to be pushed back until January 2014 (when the current programmes will expire, and the successor programmes, currently being negotiated as part of the new Multi- Financial Framework, will be in force).”
UK’s JHA opt-in 4.9 The Minister informs us of a new issue. He says that the Government now takes the view that the current documents have already triggered the UK’s JHA opt-in because two of the 22 programmes within the scope of the Framework Agreement have a Title V legal base and there are also a number of proposed Decisions appearing in the annex to the Agreement which cite Title V legal bases:
“This situation, in which existing Union programmes overlap with a new proposal, is complicated and one that Government has not previously had to consider. Following significant analysis and consideration involving a number of Departments, we are now of the view that two of the programmes in which Kosovo would be eligible to participate in future, Fiscalis 2020 and Customs 2020, cause the UK’s JHA opt-in to be triggered, as these programmes are pursuant to Title V TFEU. Further, the Kosovo Framework Agreement contains an Annex listing the programmes in which Kosovo will be able to participate and this list contains a number of proposed Decisions relating to ‘Solidarity and Management of Migration Flows’ programmes that cite Title V legal bases. This second point remains complicated by the fact that the proposed Decision for Kosovo does not precisely correspond with existing Decisions that seem to have actually established these programmes, and which do not appear to permit the participation of third-countries in such programmes. Nevertheless, we now consider that our opt-in was triggered.”
32 European Scrutiny Committee, 18th Report, Session 2013–14
4.10 The Government’s view is that the deadline for the Government to opt into the measures expired on 22 July 2013 and that the UK cannot now exercise its opt-in prior to their adoption. The Minister continues:
“However, discussions remain on-going regarding the legal bases of these agreements and we do not expect these proposals to come forward for adoption for some time. We will continue to press for citation of all appropriate legal bases, including the relevant Title V legal bases.
“I regret that this notification that the JHA opt in was triggered comes so late to your Committee. It is an unfortunate circumstance and I wish to assure you that I and my officials will continue to work to ensure that this issue does not arise again. I and my officials would be happy to provide further information that your Committee might find helpful.”
4.11 Finally, the Minister undertakes to keep us informed of the progress of the negotiations on the current documents.
Conclusion 4.12 As on many previous occasions, we restate our view that the UK’s JHA opt-in is not triggered in the absence of the formal citation of a Title V legal base in an EU legislative proposal.
4.13 That said, we are at a loss to understand why the question of whether Title V was applicable was not considered at the start of the Government’s review of the current proposals, particularly given that it was the Government’s intention from the outset, as stated in the Explanatory Memorandum submitted to us on 9 May, to press the Commission to use the multiple legal bases of the 22 programmes involved, and that a review of the legal bases of the programmes had clearly taken place by that stage.
4.14 We therefore ask the Minister to respond to the following questions:
i) what precisely went wrong with the Government’s initial review of the legal bases and when did this come to light?
ii) we are aware that the Legal Service of the Council Secretariat has advised in relation to the draft Directive on the fight against fraud on the EU’s financial interests by means of criminal law,18 that the UK’s JHA opt-in period will run from the date of the general approach in Council agreeing to substitute the proposed legal base with a Title V base. This approach we think conforms to the language and logic of Protocol (No) 21. Should, in the current situation, the Government be successful in achieving the citation of the Title V legal bases, we ask the Minister to say whether the Government will hold to its view that the pre-adoption opt-in period has already been triggered. For the sake of consistency on an important procedural clarification and the need for predictability and certainty of scrutiny, we trust that it will not.
18 See (34091) 12683/12: HC 86–xii (2012–13) chapter 10 (12 September 2013).
European Scrutiny Committee, 18th Report, Session 2013–14 33
iii) The Minister has yet to respond to the question we posed in our letter of 26 June 2013: should no satisfactory resolution be achieved on legal base, in particular as regards the absence of Title V and Article 352 TFEU legal basis, will the Government be prepared to take the issue before the Court of Justice?
5 Financial assistance for non-eurozone Member States
(a) (34077) Draft Regulation establishing a facility for providing financial 12201/12 assistance for Member States whose currency is not the euro COM(12) 336
(b) (34657) ECB Opinion on a draft Council Regulation establishing a facility 5477/13 for providing financial assistance for Member States whose — currency is not the euro (CON/2013/2)
Legal base (a) Article 352 TFEU; consent; unanimity (b) ʊ Department HM Treasury Basis of consideration Minister’s letter of 3 October 2013 Previous Committee Reports (a) HC 86–xi (2012–13), chapter 15 (5 September 2012) and HC 86–xxxviii (2012–13), chapter 7 (17 April 2013) (b) HC 86–xxxv (2012–13), chapter 13 (13 March 2013) and HC 86–xxxviii (2012–13), chapter 7 (17 April 2013) Discussion in Council Not known Committee’s assessment Legally and politically important Committee’s decision Not cleared; further information requested
Background 5.1 Council Regulation (EC) 332/2002 established a medium term financial assistance facility for Member States whose currency is not the euro, known as the EU balance of payments facility. Decisions to grant such financial assistance, by way of conditional loans, are made by the Council and the total of loans outstanding may not exceed €50 billion (£41.8 billion).
5.2 In June 2012 the Commission presented this draft Regulation, document (a), seeking to develop the facility, primarily in four ways:
34 European Scrutiny Committee, 18th Report, Session 2013–14
x introducing two new instruments ʊ enhanced conditions credit lines (ECCL) and precautionary conditioned credit lines (PCCL) to the facility, which can currently provide a “loan or appropriate financing facility”;
x specifying the form of monitoring to apply throughout a programme and potential suspension of programme and other EU funds resulting from non-compliance with programme conditionality ʊ this includes eliminating duplicate reporting requirements under the European Semester and for countries under the Excessive Deficit and the Macro-economic Imbalances Procedures;
x increasing the involvement of relevant institutions (European Parliament, European Central Bank (ECB), European Supervisory Authorities (ESAs)) in the agreement, surveillance and progress of programmes; and
x simplifying and codifying existing activation procedures, not provided for in the current Regulation. 5.3 The total amount available would remain unchanged, with decision making remaining with the Council.
5.4 In this Opinion, document (b), the ECB shows itself broadly supportive of the draft Regulation and does not highlight any areas of real concern.
5.5 When, in September 2012, we considered the draft Regulation, although acknowledging the Government’s support for the intentions of the proposal, we noted that it was considering the implications for the UK. Most importantly, we assumed that the Government was considering the implication of the use of Article 352 TFEU for the provisions of Section 8 of the European Union Act 2011. So before considering the matter further we asked to hear about the outcome of those considerations.
5.6 When, last March, we considered the ECB Opinion we noted that:
x the Government had not commented directly on the Opinion; and
x it had told us that there was currently no agreed timetable for the draft Regulation and that the Irish Presidency work programme did not include any reference to it. 5.7 We said that we assumed that the response to our earlier requests in relation to the draft Regulation would take into account any relevant aspects of the ECB Opinion.
5.8 Last April we heard that:
x the timetable had still not been agreed and there was no indication that the dossier was to be taken forward in the near future;
x there was also as yet, no clarity on the read across to the Banking Union proposals that would influence the draft Regulation;
x we would have an assessment of the proposal and the Government’s position on it, taking into account relevant aspects of the ECB Opinion, when the issue was to be taken forward; and
European Scrutiny Committee, 18th Report, Session 2013–14 35
x given the legal base of Article 352 TFEU, the proposal, as and when it proceeds, would require not only unanimous support from the Member States in the Council but also an Act of Parliament. 5.9 We, while noting this latest information, looked forward to having in due course an assessment of the draft Regulation and the Government’s position on it, taking into account relevant aspects of the ECB Opinion. Meanwhile the documents remained under scrutiny.19
The Minister’s letter 5.10 The then Financial Secretary to the Treasury (Greg Clark) tells us that the Lithuanian Presidency has indicated that it intends to progress the draft Regulation during its Presidency, with the aim of reaching a Council General Approach by the end of the year.
5.11 The Minister therefore now gives us details of the Government’s position on this proposal. First, recalling that the draft Regulation would introduce the possibility for financial assistance to be available in the form of precautionary credit lines, a PCCL or an ECCL, similar to the precautionary instruments already available from the IMF, the Minister says that:
x these precautionary programmes would allow Member States meeting a set of pre- qualification eligibility criteria to access a credit line with lighter conditionality than that of a full macroeconomic adjustment programme;
x precautionary programmes can provide a safety net to help countries, with sound economic fundamentals but moderate vulnerability, to cope with adverse shocks in order to prevent a crisis from occurring or deepening;
x their availability would complement the crisis resolution function of traditional programme types with more effective tools for crisis prevention;
x precautionary programmes also avoid the stigma sometimes associated with more traditional programme types;
x countries would be encouraged to make approaches for assistance in a more timely fashion, reducing the risk of contagion in order to help prevent a deeper, more damaging, crisis developing;
x the Government has welcomed the reforms to the IMF’s precautionary credit lines in recent years, as the IMF’s lending frameworks need to be flexible enough to deal with individual country problems and systemic shocks, while providing the right incentives for countries to adopt sound policies in the good times; and
x the proposed introduction of the PCCL and ECCL would allow the EU to provide precautionary assistance alongside the IMF. 5.12 The Minister says secondly that:
x the proposal as currently drafted extends the participation of the ECB beyond what has been the practice under the existing Regulation;
19 See headnote.
36 European Scrutiny Committee, 18th Report, Session 2013–14
x this role is not justified in the case of those Member States who do not intend to adopt the euro and have no obligation to do so — in negotiations the Government will seek for it to be removed; and
x the ECB itself in its Opinion argued that it should have less involvement than envisaged in the draft Regulation — in addition, it is important that arrangements for the monitoring of any financial sector conditionality included in a programme, such as stress tests or assessment of supervisory capacity, are consistent across Banking Union Member States and those Member States that are not part of the Banking Union. 5.13 Next the Minister says, with respect to the roles of other institutions, that:
x it is the established practice for EU balance of payments assistance to be provided alongside an IMF programme and for the Commission and IMF to cooperate on programme design and monitoring (with the involvement of the ECB for Denmark, Latvia and Lithuania); and
x having considered the role foreseen for the ESAs and the European Systemic Risk Board, the Government believes they have useful expertise in the areas identified by the draft Regulation and that the proposal is consistent with the existing remit of those bodies. 5.14 The Minister also comments that it is important that throughout the negotiations the role established for the Council in the existing Regulation is preserved.
5.15 Finally the Minister reminds us that the draft Regulation is not only subject to unanimity, but, being based on Article 352 TFEU, would require, for the UK, an Act of Parliament.
Conclusion 5.16 We are grateful to the Minister for this explanation of the Government’s view of the substance of the draft Regulation, on which we have no further questions to ask. However, we should be grateful for an indication soon, given the Presidency’s intention to seek a General Approach before the end of the year, of the Government’s timetable for the Bill which will need to be enacted before the Government can acquiesce in adoption of the draft Regulation.
5.17 Meanwhile both documents remain under scrutiny.
European Scrutiny Committee, 18th Report, Session 2013–14 37
6 European Anti-Fraud Office
(35215) Commission Communication: Improving OLAF’s governance and 12554/13 reinforcing procedural safeguards in investigations: A step-by-step COM(13) 533 approach to accompany the establishment of the European Public Prosecutor’s Office
Legal base — Department HM Treasury Basis of consideration Minister’s letter of 21 September 2013 Previous Committee Report HC 83–xv (2013–14) chapter 3 (11 September 2013) Discussion in Council Not known Committee’s assessment Politically important Committee’s decision Not cleared
Background and previous scrutiny 6.1 We considered this Commission Communication on the future reform of the European Anti-Fraud Office (OLAF), its relevance to the draft Regulations in relation to the creation of a European Public Prosecutor’s Office (EPPO)20 and reform of Eurojust21 and the Government’s view of the document, in our previous Report under reference.22
6.2 In the Conclusions to that Report, we said that while we welcomed the Minister’s approach in questioning provision for Member States not participating in the EPPO proposal in any future OLAF reform and the need for a “Controlled of procedural safeguards” (CPS) office, we recommended that this document be considered as part of the opt-in debate offered by the Government in respect of the Eurojust and EPPO proposal.
6.3 We also asked the then Financial Secretary to the Treasury (Greg Clark) to confirm, prior to the debate taking place: a) what his strategy was for pre-empting any legislative proposals on the CPS office and its attendant costs (which we considered to be doubly surprising given the recent rejection of a similar proposal by Member States and the proposed reduction in OLAF’s remit); and b) when the Commission was likely to bring forward legislative proposals to make further changes to OLAF’s regulatory and operational framework, in particular whether these proposals will be progressed in parallel to the EPPO and Eurojust proposals).
Minister’s letter 6.4 In his letter of 21 September, the Minister responds to these questions as follows:
20 (35217) 12588/13 Draft Council Regulation on the establishment of a European Public Prosecutor’s Office. 21 (35216) 12566/13 Draft Regulation on the EU Agency for Criminal Justice Co-operation (Eurojust). 22 See headnote.
38 European Scrutiny Committee, 18th Report, Session 2013–14
“On what the Government’s strategy is for pre-empting any legislative proposal on the CPS office and its attendant costs, it should be noted that this is only a communication at this stage. The Government plans to engage early with allied Member States ahead of any legislative proposal from the Commission on the CPS and its attendant costs.
“With regards to when the Commission is likely to bring forward legislative proposals on the issue, we have received no further communication from the Commission on a timetable for bringing forward legislative proposals at this stage.
“Our understanding is that this proposal will not be progressed in parallel with the EPPO and Eurojust proposals. This is based on the Communication from the Commission covering the EPPO and Eurojust proposals, which indicates that legislative proposals on OLAF will only be made once the EPPO negotiations have neared completion.”
Conclusion 6.5 We thank the Minister for his concise response to our Report in time for the opt-in Lidington debate on the floor of the House on the draft EPPO and Eurojust Regulations (the timing of which has yet to be formally confirmed).
7 EU General Budget for 2013
(a) (35232) Draft Amending Budget No. 7 to the General Budget 2013: 12769/13 General statement of revenue: Statement of expenditure by COM(13) 557 section: Section III: Commission
(b) (35259) Draft Decision on mobilisation of the Flexibility Instrument 12770/13 COM(13) 559
Legal base Article 314 TFEU and Article 106a EURATOM; co- decision; QMV Department HM Treasury Basis of consideration Minister’s letter of 3 October 2013 Previous Committee Report HC 83–xiii (2013–14), chapter 20 (4 September 2013) Discussion in Council Not known Committee’s assessment Politically important Committee’s decision Not cleared; further information requested
European Scrutiny Committee, 18th Report, Session 2013–14 39
Background 7.1 During the course of a financial year the Commission presents to the Council and European Parliament Draft Amending Budgets (DABs) proposing increases or reductions for revenue and expenditure in the current EU General Budget — there are about 10 DABs each year.
7.2 The Interinstitutional Agreement of 17 May 2006 on EU budgetary and financial management allows mobilisation of a Flexibility Instrument to allow the financing of clearly identified expenditure which could not be financed within the limits of the ceilings available for one or more Headings of the Multiannual Financial Framework (MFF).
7.3 The European Social Fund (ESF), one of the Structural Funds, is the EU instrument for supporting jobs, helping people get better jobs and ensuring fairer job opportunities for all EU citizens. The ESF finances programmes intended to improve the job prospects of millions of Europeans, in particular those who find it difficult to secure employment. Amongst the Conclusions of the June European Council was that, in seeking to improve youth employment, use should be made of the Structural Funds, with particular focus on the ESF.23
7.4 DAB No. 7/2013, document (a), concerns an increase of €150 million (£125 million) in commitment appropriations in Heading 1b of the current MFF. The intention is to increase the ESF in order to allow further commitment allocations in 2013 for France, Italy and Spain “as a contribution to the special effort needed to address the specific situations of unemployment, in particular youth unemployment, and of poverty and social exclusion in these Member States”. The Commission has proposed that the increase in commitment appropriations would be covered by the margin under the ceiling of Heading 1b, that is €16 million (£13 million), and by mobilisation of the Flexibility Instrument for €134 million (£112 million), as proposed with the draft Decision, document (b).
7.5 When we considered this matter, early last month, we recognised the impetus the European Council intended for tackling youth unemployment. But we asked the Government for information on two points. First, what were the “certain issues resulting from the final outcome of the negotiations of the MFF for the years 2014–20, affecting France, Italy and Spain” the Commission mentioned in support of its proposals? Secondly, was there scope for transferring commitment appropriations from elsewhere in the 2013 Budget, rather than having recourse to the Flexibility Instrument? Meanwhile the documents remained under scrutiny.24
The Minister’s letter 7.6 In response to our first question the former Financial Secretary to the Treasury (Greg Clark) says that:
x the June European Council discussed and agreed on a number of elements and technical details of the final MFF deal for 2014–20;
23 See http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/137634.pdf. 24 See headnote.
40 European Scrutiny Committee, 18th Report, Session 2013–14
x there was a wide discussion of youth employment and agreement that more needed to be done urgently to tackle this issue;
x on that basis, the European Council took a decision to resolve outstanding concerns held by France, Italy and Spain through youth employment measures;
x this now takes the form of a one-off increase in commitments under the ESF to tackle youth unemployment, poverty and social exclusion in those Member States;
x the wider youth employment package also included measures for all other Member States, namely increased flexibility to use margins left available below the MFF ceilings for the years 2014–17 to create a ‘global margin for commitments’ to fund measures to fight youth unemployment and agreement that the disbursement of the €6 billion (£5 billion) allocated to the Youth Employment Initiative should take place during the first two years of the next MFF;
x other issues arising from the February European Council agreement were also resolved at the June meeting, including on the treatment of abatable rural development expenditure in new Member States; and
x given the preservation of the rebate, in line with the February European Council decision that the UK rebate will remain unchanged, the Prime Minister could support this.
7.7 On mobilisation of the Flexibility Instrument, the Minister says that:
“the Government will continue to press the Commission to respect the FEC [February European Council] conclusions that the Flexibility Instrument will only be ‘mobilised in case of need’, with the objective being to ‘finance a clearly identified and unforeseen piece of expenditure’.”
7.8 The Minister tells us that:
x the Presidency took DAB No. 7/2013, document (a), to Coreper on 25 September;
x the Government abstained on scrutiny grounds;
x Sweden and the Netherlands also abstained, while all other Member States voted in favour; and
x as a result, there is a qualified majority in favour and the matter is now going to the Council for formal approval.
Conclusion 7.9 We are grateful to the Minister for his explanation as to the rationale for the DAB and its relationship to the negotiation of the next MFF. However, we find his comments in relation to the Flexibility Instrument and developments on the proposals less clear. So we should like the new Minister to answer the three following questions. We are told that DAB No. 7/2013 has been voted on ʊ what is the position in relation to the draft Decision on the Flexibility Instrument? Does the Government believe there is scope for
European Scrutiny Committee, 18th Report, Session 2013–14 41
transferring commitment appropriations from elsewhere in the 2013 Budget, rather than having recourse to the Flexibility Instrument? We are told that the Government will continue to press the Commission to respect the February European Council conclusions on use of the Flexibility Instrument ʊ does this mean that that the Government has voted, or will be voting, against the draft Decision?
7.10 Pending receipt of this further information the documents again remain under scrutiny.
8 EU merger control
(35291) Commission Staff Working Document: Towards more effective EU 12927/13 merger control SWD(13) 239
Legal base — Document originated 25 June 2013 Deposited in Parliament 11 September 2013 Department Business, Innovation and Skills Basis of consideration EM of 24 September 2013 Previous Committee Report None Discussion in Council See para 8.11 below Committee’s assessment Politically important Committee’s decision Cleared
Background 8.1 An EU system for merger control has been in place since 1989, and is currently based on Council Regulation (EC) No. 139/2004. This seeks to create a “one stop shop” by making a clear distinction between the role of the Commission and Member States, with the Commission having exclusive jurisdiction over mergers with an EU dimension (defined in terms of the combined global turnover of the two parties, and the turnover of each of the parties in the EU). Mergers below these thresholds are subject to Member State controls, though there is provision (see below) for particular cases to be referred from the Commission to Member States and vice versa. A merger which appears to have an EU dimension must be notified to the Commission, and may not proceed unless and until the Commission has ruled that it is compatible with the common market.
The current document 8.2 As nearly 10 years have now elapsed since the Regulation was adopted, the Commission believes that this is an appropriate moment to consider possible further improvements, in line with its Better Regulation agenda. It has therefore circulated this
42 European Scrutiny Committee, 18th Report, Session 2013–14
Staff Working Document (which it has not yet formally endorsed), in order to canvass views, notably on:
x whether the merger control rules should be extended to deal with the anti- competitive effects stemming from certain acquisitions of non-controlling minority shareholdings; and
x the effectiveness and smoothness of the referral system for transferring cases from Member States to the Commission both before and after notification.
Minority shareholdings 8.3 The Document notes that — unlike the domestic merger regimes of a number of Member States, including the UK — acquisitions of non-controlling minority shareholdings (“structural links”) are not currently covered by Council Regulation (EC) No. 139/2004. However, it says that these can cause “significant harm”, similar to that arising from mergers, notably by:
x reducing competitive pressure between competitors (“horizontal unilateral effects”);
x facilitating coordination among competitors (“horizontal coordinated effects”); and
x allowing companies to hamper competitors’ access to inputs or customers (“vertical effects”).
8.4 It has accordingly suggested three possible approaches:
Notification System 8.5 The notification system would simply extend the current system of ex-ante merger control to structural links, so that all acquisitions of relevant structural links would have to be notified to the Commission in advance (provided the turnover thresholds were met), and could not be implemented before the Commission has cleared them.
Self-assessment System 8.6 The self-assessment system would be similar in some ways to the UK’s current domestic merger regime, in that the Commission would have the discretion, on the basis of its market intelligence or a complaint, to open an investigation into the acquisition of a particular structural link, but the regime would be non-suspensory allowing the parties to proceed with the transaction.
Transparency System 8.7 This would oblige the parties to a prima facie problematic structural link to file a short information notice to the Commission (containing, for example, information on the parties, the type of transaction and the economic market), which would be published on the Commission’s website. As with the self-assessment system, the Commission would
European Scrutiny Committee, 18th Report, Session 2013–14 43
then be able to open an investigation in the cases which appear to raise competition concerns.
8.8 The Document also examines a number of other related issues, including:
x what level of structural link should be within the scope of the EU’s jurisdiction (including whether to put in place “safe harbours” for shareholdings below a certain level);
x the need to have the same thresholds for determining which cases fall within the jurisdiction of the Commission or those of Member States;
x whether parties should be able to notify voluntarily under the self-assessment and transparency systems;
x whether the current system of referrals between the Commission and national competition authorities (‘NCAs’) should apply to structural links; and
x whether the test of “significant impediment to effective competition” applied to acquisitions should also be used for structural links.
Referrals 8.9 The other main focus of the Paper concerns the referral of cases to the Commission under Articles 4(5) and 22 of Council Regulation (EC) No. 139/2004.
Article 4(5) 8.10 Article 4(5) allows the merging parties during the pre-notification period to request the referral to the Commission of mergers which do not fall within the relevant thresholds and are notifiable in at least three Member States. There is currently a two stage procedure whereby the parties put in a reasoned submission to the Commission, and, so long as the National Competition Authorities raise no objection, the parties then submit a notification to the Commission.
8.11 The Commission says that companies consider this process to be cumbersome and time-consuming, and that, of the 254 referral requests so far, only six have been vetoed. In view of this, the Document proposes to abolish the two stage procedure, and instead allow direct notification to the Commission, which would have jurisdiction unless an Authority with competence to review the transaction opposes the referral within 15 working days.
Article 22 8.12 Article 22 is currently used to allow National Competition Authorities to refer to the Commission those cases where it is the “more appropriate” or “better placed” authority, even if the parties did not or could not request a pre-notification referral of the case. The Article was originally designed to give Member States without a merger control regime the opportunity to refer a case to the Commission (the so-called “Dutch clause”), and, as a consequence, it currently only confers jurisdiction on the Commission over a case for the territory of those Member States requesting and joining the referral. The Commission says
44 European Scrutiny Committee, 18th Report, Session 2013–14
that this has led to a “patchwork of competences” in many cases, and, in order to avoid this (and to implement fully the “one stop shop principle”), the Document proposes that the Article should be amended so that, unless a National Competition Authority opposes such a request, the Commission would (if it accepts it) have jurisdiction over a case across the EEA. However, if at least one National Competition Authority opposes the referral, then the Authorities concerned will each retain jurisdiction.
The Government’s view 8.13 In her Explanatory Memorandum of 24 September 2013, the Minister for Employment Relations and Consumer Affairs (Jo Swinson) says that the proposals seek to respect the current system under Council Regulation (EC) No. 139/2004, which embodies a case allocation system based on the principles of subsidiarity. She points out that there are as yet no definitive legislative proposals, but that, although implementing an extension of EU jurisdiction to include structural links will present challenges, the reforms proposed appear to be sensible, and are — subject to a number of technical legal points — supported by the UK competition authorities,25 which have expressed a preference for a voluntary self-assessment system.
8.14 The Minister adds that the Commission has not yet set a timetable, and has informed the Office of Fair Trading that this depends on the replies to the public consultation. However, if the Commission decides to go ahead with a proposal, this would be put together without another consultation and submitted to the Council (with any subsequent Regulation having to be adopted by unanimity).
Conclusion 8.15 As this is clearly an important subject, we think it right to draw this Commission Staff Working Document to the attention of the House. However, as the Document has essentially been prepared in order to canvass views in advance of any legislative proposals, and is supported by the UK competition authorities, we do not think it gives rise to any major issues requiring further consideration at this stage. We are therefore clearing it.
25 The Office of Fair Trading and the Competition Commission.
European Scrutiny Committee, 18th Report, Session 2013–14 45
9 The broadband investment environment
(35312) Commission Recommendation on consistent non-discrimination 13566/13 obligations and costing methodologies to promote competition COM(13) 5761 and enhance the broadband investment environment
Legal base — Document originated 11 September 2013 Deposited in Parliament 1 October 2013 Department Culture, Media and Sport Basis of consideration EM of 19 October 2013 Previous Committee Report None Discussion in Council None Committee’s assessment Politically important Committee’s decision Cleared
Background 9.1 The Digital Agenda for Europe (DAE), a flagship initiative of Europe 2020 strategy for a smart, sustainable and inclusive economy, has set a goal to make every European digital and ensure Europe’s competitiveness in the 21st century. The DAE broadband targets are:
x basic broadband for all by 2013;
x Next Generation Networks (NGN) (30 Mbps or more) for all by 2020; and
x 50% of households having 100 Mbps subscriptions or higher.
9.2 The Commission says that its policy framework to achieve these targets encourages both private and public investment in fast and ultra-fast networks.26
The Commission Recommendation 9.3 The Recommendation aims to promote competition, through the application of tougher non-discrimination rules; and investment, by allowing for flexibility in the pricing of new wholesale next generation access (NGA) services, while ensuring stable wholesale “copper access” prices. The Recommendation applies only to the market for wholesale network infrastructure access and the wholesale broadband access market. It consists of four sets of measures covering:
x non-discrimination;
x compliance monitoring of the non-discrimination obligation;
x costing methodology; and
26 For full information, see https://ec.europa.eu/digital-agenda/en/about-broadband.
46 European Scrutiny Committee, 18th Report, Session 2013–14
x the non-imposition of regulated wholesale prices on NGA networks.
9.4 Each of these sub-headings is analysed and commented upon by the Parliamentary Under-Secretary of State for Culture, Communications and Creative Industries at the Department for Culture, Media and Sport (Edward Vaizey) in his Explanatory Memorandum of 10 October 2013 as follows:
Non-discrimination “The Recommendation states that an effective level playing field between an incumbent operator with a position of Significant Market Power (SMP) and alternative operators is best achieved through the application of Equivalence of Inputs (EOI).27 It requires national Regulatory Authorities (NRAs) to examine whether it would be proportionate to provide relevant wholesale inputs on this basis.
“We agree that EOI is the surest way to achieve effective protection for non- discrimination. BT’s NGA product (Virtual Unbundled Local Access –VULA) is already subject to the obligation of EOI and, as a result, the current UK regulatory framework already produces outcomes that are consistent with the Recommendation.
Compliance monitoring of the non-discrimination obligation “The Recommendation states that compliance with the non-discrimination obligation is to be assured through the use of Key Performance Indicators (KPIs) agreed between incumbent (SMP) operators and alternative access seekers. These KPIs should be fostered by the NRA if necessary. They should also be supplemented by Service Level Agreements (SLAs) and Service Level Guarantees (SLGs).
Costing methodology “The Recommendation provides guidance on the costing methods that NRAs should adopt when modelling the costs of wholesale NGA and copper access products providing detailed guidance on the following important elements:
x “How to calculate the costs of an NGA network;28
x “How to value re-usable civil engineering assets, such as ducts;29 and
x “How calculate the costs of wholesale copper access services.
27 EOI means the provision of services and information to internal and third-party access seekers on the same terms and conditions, including price and quality of service levels, within the same time scales using the same systems and processes, and with the same degree of reliability and performance. 28 The proposed methodology is to be based on the incremental capital and operating costs borne by an efficient provider of access services and add a mark-up for recovery of common costs. 29 The proposed methodology is to value these at their indexed net book value. It is recommended that regulators employ a Regulatory Asset Base (RAB) which consists of the civil engineering assets valued at current costs reduced by elapsed economic life (and hence costs already recovered). Once an asset is fully depreciated it is no longer part of the RAB and no longer represents a cost for the alternative access seeker.
European Scrutiny Committee, 18th Report, Session 2013–14 47
“The Recommendation anticipates that application of the proposed costing methods will lead to stable copper access prices within a band between €8 and €10 (net of all taxes) expressed in 2012 prices.30
“Overall, we share the aim of achieving stable copper prices during a period of technological change. Like the Commission, we see an environment of relatively stable copper prices as likely to be conducive to efficient investment in NGA and to provide a safeguard to access seekers and ultimately consumers. We also agree with the Commission that copper networks will be replaced by fibre (NGA) networks and from a UK perspective an FTTC network is the network topology being implemented by BT.
The non-imposition of regulated wholesale prices on NGA networks (i.e. fibre networks) “The Recommendation provides guidance on the conditions which need to be satisfied before NRAs can lift (or decide not to impose) strict wholesale pricing obligations on new NGA services. Regulators should decide not to impose, or to remove, pricing obligations on NGA wholesale inputs only when these inputs are subject to the EOI obligation and significant competitive constraints.
“The current UK regulatory framework already results in an outcome which is consistent with the Commission’s recommended approach — BT’s NGA product (VULA) is subject to the obligation of EOI, but not any pricing obligations.
“We agree with the Commission that (wholesale) pricing flexibility has an important role to play in investment in new technology, as it enables operators to trial different pricing arrangements in the early (uncertain) period of such investments. However the Recommendation goes further and stresses that such pricing flexibility is particularly important when, in addition to the competitive constraints, SMP operators have also implemented EOI effectively. While we recognise the strength of this argument, pricing and non-discrimination obligations affect the market in different ways and therefore are not necessarily substitutable. However, the text of the Recommendation is sufficiently flexible that, should competitive safeguards fail to constrain the wholesale price of new NGA services, NRAs could still consider the imposition of pricing obligations even where EOI was in place.”
The Government’s view 9.5 In addition to his comments above, the Minister notes that the Recommendation is adopted as part of a wider package which includes the Proposal for a Regulation laying down measures concerning the European single market for electronic communications and to achieve a Connected Continent.
9.6 He also says that the Recommendation was widely discussed and considered during 2012 and 2013, prior to which Ofcom had responded to an initial Commission
30 Full LLU monthly rental fee (voice + ADSL services) UK: €9.05 = GBP 7.66 at today’s exchange rate. EU27 average €7.97 = GBP 6.74 (Cullen research March 2013).
48 European Scrutiny Committee, 18th Report, Session 2013–14
consultation in October 2011 (through BEREC);31 and that BEREC provided a formal Opinion on the draft Recommendation at the end of March 2013.
9.7 With regard to its implications, the Minister says that, as Commission Recommendations are only to be “taken utmost account of’”, and as many of the specific recommendations are already consistent with the way that Ofcom approaches issues of costing and non-discrimination in the UK, he does not think that it will lead to the imposition of costs on business in the UK.
9.8 Finally, the Minister says that the Recommendation was adopted at the July COCOM meeting, and will not be considered by the Council.32
Conclusion 9.9 Given their non-legislative nature, it is not customary for such Commission Recommendations to be deposited, particularly if they are non-contentious. In this instance, however, the Minister chose to do so because of its being part of the Commission’s latest “telecoms package”, which we consider elsewhere in this Report.33
9.10 We therefore consider it warrants reporting to the House, and now clear it.
31 Body of European Regulators for Electronic Communications http://berec.europa.eu/ . 32 The COCOM is a committee composed of Member State representatives. Its main role is to provide an opinion on the draft measures that the Commission intends to adopt. The COCOM deals with the current issues which form the Digital Agenda, such as: Commission Implementing Regulation on Roaming; The regulation on the measures applicable to the notification of personal data breaches; The call for expressions of interest for the selection of the “EU Top Level Domain Registry”; The implementation of the single European emergency number 112. The COCOM operates: o through advisory and examination procedure in accordance with Comitology Regulation; o through regulatory procedure with scrutiny in accordance with Comitology Decision. The COCOM was established in 2002 under the Framework Directive. Members of the Committee meet usually five times a year in Brussels. Observers from candidate and EEA countries participate in the meetings. Moreover, experts from European telecommunications associations may be invited in the meeting for specific agenda points. See https://ec.europa.eu/digital-agenda/en/communications-committee for full information. 33 See (35304) 13555/13 at chapter 2.
European Scrutiny Committee, 18th Report, Session 2013–14 49
10 EU Forest Strategy
(35322) Commission Communication: A new EU Forest Strategy for forests 13834/13 and the forest-based sector COM(13) 659
Legal base — Document originated 20 September 2013 Deposited in Parliament 25 September 2013 Department Environment, Food and Rural Affairs Basis of consideration EM of 2 October 2013 Previous Committee Report None, but see footnote Discussion in Council No date set Committee’s assessment Politically important Committee’s decision Cleared
Background 10.1 According to the Commission, forestry and other wooded land cover over 40% of the EU’s total land area, and, although the global forest area continues to decrease, that within the EU has grown by about 0.4% a year in recent decades. It adds that currently only about 60–70% of the annual increment in the EU is being cut, but that harvest rates in 2020 are expected to be around 30% higher than those in 2010.
10.2 The Commission also points out that forests serve a range of economic, social and environmental purposes, providing about three million jobs, offering habitats for animals and plants, and playing a major role in mitigating climate change. In particular, forest biomass is currently the most important source of renewable energy, accounting for half of the EU’s total renewable consumption.
10.3 The Commission says that ensuring sustainable forest management is essential if these benefits are to be realised in a balanced way, and that, although the Treaty on the Functioning of the EU contains no specific provisions for an EU forestry policy, the EU has a long history of contributing through a range of other policies. It also notes that the 1998 EU Forestry Strategy established a framework for forest related actions supporting sustainable management and based on cooperative links between the EU and Member States.
10.4 The Commission also highlights the Forest Action Plan for 2007–11,34 which addressed competitiveness, environment, quality of life and coordination and communication, with co-financing being provided under the Rural Development Regulation. It says that an evaluation of that Plan has underlined the need for a new forest strategy which develops and implements a common vision of multifunctional and sustainable forest management in Europe; defines action priorities and targets; links EU
34 (27603) 10448/06: see HC 34–xxxv (2005–06), chapter 12 (12 July 2006).
50 European Scrutiny Committee, 18th Report, Session 2013–14
and Member State funding strategies and plans; strengthens coherent cross-sectoral planning, funding and implementation; establishes clear mechanisms for monitoring, evaluation and reporting; and revises stakeholder involvement.
The current document 10.5 The Commission has sought in this Communication to set out objectives of such a Strategy, which it defines as being:
x to ensure EU forests are managed in a sustainable way;
x to demonstrate that sustainable forest management is being achieved;
x to apply these principles worldwide, and strengthen the EU’s role in reducing global deforestation;
x to balance forest functions and deliver ecosystem services;
x to provide for a viable and competitive forestry and forest-based industries; and
x to promote the role of forestry in delivering a “green economy”.
10.6 In order to achieve this, the Strategy sets out the following priority areas:
Supporting rural and urban communities
Rural Development funds from within the EU budget would be used to promote competitiveness and support sustainable economic activity.
Fostering forest-based industries, bio-energy, and the green economy
The long-term sustainability and increasing competitiveness of these industries, including the need to develop the role of biomass, assess potential wood supplies and support the development of technology, would be ensured.
Forests in a changing climate
The resilience of forests to climate change (including from forest fires) would be increased, and their roles in emissions reduction through Land Use, Land Use Change and Forestry (LULUCF) initiatives would be recognised.
Protecting forests and enhancing ecosystem services
The co-operation of Member States on trans-boundary threats, such as pests, and the protection of the forest environment, would be improved, contributing to the management of the Natura 2000 network and implementing EU nature legislation.
Improving the forest knowledge base
A forest information system across the EU, based on Member States’ activities, would be created, assisting Member States in preventing the spread of plant diseases, and tackling the trade in illegal timber.
European Scrutiny Committee, 18th Report, Session 2013–14 51
New innovative forestry and added-value products
There would be cooperation in the area of forest research and technological development, including the use of funding from the Horizon 2020 budget.
Cooperation to manage and better understand forests
The work of the Standing Forestry Committee as a forum for discussing forest- related issues would continue, and there would be improved coherence with other sectors and EU policies.
Forests from a global perspective
The new Strategy would form a vehicle for implementing the Forest Europe Legally Binding Agreement, combating illegal logging and co-ordinating EU and Member State policies in relation to international issues.
10.7 As was the case with the original Strategy, the Commission is expected to propose a new implementing Action Plan, outlining specific initiatives through which the objectives will be achieved by the Commission and Member States within their respective competences. It will also work to reinforce links between forest policy and related EU measures.
The Government’s view 10.8 In his Explanatory Memorandum of 2 October 2013, the Parliamentary Under Secretary of State at the Department for Environment, Food and Rural Affairs (Lord de Mauley) says that the Communication is clear that there is no EU competence on forest policy, but states that the EU can contribute to “Member States’ decisions on forests”. He adds that the aim of the previous Strategy, and the clear direction from Member States in developing this Strategy, has been to provide a forum for improving the evidence base for Member States’ forest policies (including the better sharing of scientific evidence and best practice), to improve the coherence of policy making at the EU level, and to ensure forest management has been taken into account in the development of policy in areas where the EU does have competence, for example biodiversity and climate change.
10.9 The Minister observes that, where the EU operates externally, it is recognised that competence remains with Member States, though the mixed competence nature of many agreements allows for an active role for the EU, one such example being the development of the Legally Binding Agreement (LBA) on Forests in Europe.35 He adds that the issue of competence is one where the UK has wide support from other Member States, including the most forested EU countries (Finland, Sweden, Austria and Germany), which are resistant to any suggestions that policy on a sector which is so significant economically and socially at the national level should be determined at the EU level. He says that this was clearly set out in the development of the Strategy, and that the UK can expect support on
35 The Negotiating Directives, for both the EU and the Presidency of the Council states that they “shall ensure that any LBA is a framework agreement, which has a content that shall primarily be implemented by the Member States and which will not entail new EU legislation that would affect the current distribution of competences between the EU and its Member States, taking into account the principle of subsidiarity”.
52 European Scrutiny Committee, 18th Report, Session 2013–14
this in the forthcoming Council Conclusions for the Strategy and on the subsequent implementation.
10.10 The Minister also points out that implementation by Member States of initiatives outlined in the Strategy will be optional and entirely dependent on national forest plans, but says that the guidance contained in the Strategy and the forthcoming Action Plan will help the UK’s policy formation, with there being benefits from increased information sharing, particularly in combating the spread of disease and the trade of illegal timber. He also believes that the framework set out will result in more coherent action at EU level, ensuring that any new initiatives or legislation affecting forests and forest activities are conducted in a way which complements existing efforts and ensures a consistent approach to sustainable forest management.
Conclusion 10.11 Although we do not think this document raises any issues requiring further consideration, and are therefore clearing it, we think it right to to draw it to the attention of the House.
European Scrutiny Committee, 18th Report, Session 2013–14 53
11 EU-US trade dispute over beef imports
(a) (35349) Draft Council Decision on the signing of a revised Memorandum 14369/13 of Understanding with the United States of America regarding the COM(13) 675 Importation of Beef from Animals Not Treated with certain Growth-promoting Hormones and Increased Duties applied by the United States to certain Products of the European Union
(b) (35350) Draft Council Decision on the conclusion of a revised 14372/13 Memorandum of Understanding with the United States of COM(13) 677 America regarding the Importation of Beef from Animals Not Treated with certain Growth-promoting Hormones and Increased Duties applied by the United States to certain Products of the European Union
Legal base Article 207 TFEU (in conjunction with Articles 218(5) and 218(6); QMV Documents originated 2 October 2013 Deposited in Parliament 7 October 2013 Department Environment, Food and Rural Affairs Basis of consideration EM of 14 October 2013 Previous Committee Report None, but see footnote To be discussed in Council 16 October 2013 Committee’s assessment Politically important Committee’s decision Cleared
Background 11.1 Council Directive 96/22/EC36 effectively banned the use within the EU of hormone growth promoters in food-producing animals, and hence in meat, except for certain specified purposes. Broadly speaking, these restrictions also applied to imports from third countries, and this in turn led to a dispute with the United States and Canada, on which the World Trade Organisation (WTO) Dispute Settlement Body ruled in February 1998 that the steps taken by the EU were in breach of the WTO’s rules. The Dispute Settlement Body also authorized the United States to suspend trade concessions to the EU of $116.8 million.
11.2 This ruling by the WTO was essentially because the EU measures in question had been based on general studies rather than the particular risks thought to arise from the use of growth hormones. As a result, the Commission initiated assessments of six such substances, leading to the adoption of Directive 2003/74/EC,37 and, although this in effect maintained the original prohibitions, the Commission said that the reliance on more
36 OJ No. L 125, 23.5.96, p.3. 37 OJ No. L 262, 14.10.03, p.17.
54 European Scrutiny Committee, 18th Report, Session 2013–14
specific assessments meant that the EU now complied with WTO rules. However, the United States continued to consider the EU to be in breach of its WTO obligations, and therefore maintained its earlier sanctions.
11.3 In May 2009, the EU and the United States signed a Memorandum of Understanding, comprising:
x Phase 1 (August 2009 — August 2012), which opened a tariff quota38 for 20,000 tonnes of ‘high quality beef’ to enter the EU, with the US reducing the level of sanctions it had applied to EU products as part of this dispute.
x Phase 2 (1 August 2012 — 1 August 2013), which opened a larger quota for 45,000 tonnes to enter the EU, with the US suspending all such trade sanctions on EU products.
11.4 The Memorandum of Understanding also provided that if, before the end of Phase 2, no agreement between the EU and the US had been reached to enter into Phase 3, it would be considered terminated, although the core elements — the opening of the tariff quota by the EU, and the suspension of all trade sanctions by the US — would remain in place for a further six months.
The current documents 11.5 There is at present no agreement to enter into Phase 3, but termination of the Memorandum is not considered to be in the best interests of either the EU or the US, and these two draft Council Decisions relate to the signing and conclusion of a revised Memorandum, which:
x extends the duration of Phase 2 by two years to 1 August 2015;
x allows for the Memorandum to be terminated by either party on six months’ notice (during which period the core elements (the tariff quota and suspension of all trade sanctions) would be maintained);
x states that Phase 3 will begin upon notification being given to the WTO Dispute Settlement Body to that effect;
x provides that, should the EU and the US enter into Phase 3, the 45,000 tonnes tariff quota will be maintained, and the US will end the increased duties imposed in connection with the WTO dispute; and
x reflects changes in the administration of the quota to a ‘first come, first served’ approach.
38 (30703) 11090/09: see HC 19–xxiii (2008–09), chapter 6 (8 July 2009).
European Scrutiny Committee, 18th Report, Session 2013–14 55
The Government’s view 11.6 In his Explanatory Memorandum of 14 October 2013, the Parliamentary Under Secretary at the Department for Environment, Food and Rural Affairs (George Eustice) notes that these proposals are intended to maintain good trade relations between the EU and the US pending resolution of the WTO dispute. He adds that the continued agreement by the United States authorities to reconsider their sanctions against EU exports will be of benefit to the Union as a whole, and says that this new quota would be minimal in relation to the overall EU beef market, and to UK interests. The Government is therefore in favour of what is proposed.
Conclusion 11.7 Although their impact on the beef market would not in itself warrant a substantive Report, these documents form part of continuing attempt to deal with a long-standing trade dispute between the EU and the United States. Consequently, although we are content to clear them, we think it right to draw them to the attention of the House.
56 European Scrutiny Committee, 18th Report, Session 2013–14
12 EU restrictive measures against the Republic of Guinea
(34311) Draft Council Decision amending Council Decision 2010/638/CFSP — concerning restrictive measures against the Republic of Guinea —
Legal base Article 29 TEU; unanimity Department Foreign and Commonwealth Office Basis of consideration EM of 10 October 2013 Previous Committee Report None; but see HC 86–xvi (2012–13), chapter 19 (24 October 2012); also see HC 428–xxxix (2010–12), chapter 10 (26 October 2011) and HC 428–xxxviii (2010–12), chapter 9 (19 October 2011); (32487) —: HC 428–xvi (2010–11), chapter 15 (9 February 2011); (32020) —: HC 428–iii (2010–11), chapter 18 (13 October 2010) and (31404) —: HC 5–xiv (2009–10) chapter 4 (17 March 2010); also see (31133) —: HC 5– ii (2009–10), chapter 10, (25 November 2009); (30721) 11429/09 HC 19–xxiv (2008–09), chapter 8 (15 July 2009) and (26227) 16041/04, (29544) 7499/08 and (30446) 6543/09: HC 19–x (2008–09) , chapters 7 and 8 (11 March 2009) Discussion in Council Before 27 October 2013 Committee’s assessment Politically important Committee’s decision Cleared
Background 12.1 EU restrictive measures have been in place against the Republic of Guinea since 27 October 2009, in response to a military coup and subsequent violent suppression of demonstrators by members of the armed forces in Conakry on 28 September 2009, which resulted in the massacre of over 150 protestors, the rape of 100 and the injury of many others. The original Council Decision (Common Position 2009/788/CFSP) consisted of an arms embargo and targeted measures against 67 individuals (travel bans and asset freezes).
12.2 The 67 individuals originally subject to restrictive measures were targeted due to their affiliation with the National Council for Democracy and Development (CNDD) party, which was set up following the military coup. In 2010 the CNDD became defunct following the first-ever democratic election of Guinea’s President, Alpha Condé; this brought about the de-listing of 62 of these 67 individuals.
12.3 The remaining five individuals who remained subject to EU restrictive measures were identified by the United Nations International Commission of Inquiry (UNICI) as being directly responsible for the acts of suppression, which were deemed as crimes against humanity by the International Criminal Court (ICC).
European Scrutiny Committee, 18th Report, Session 2013–14 57
12.4 Since the imposition of the embargo on arms and equipment for the use of internal suppression, the EU has introduced a number of exemptions. The first, in 2010, allowed the acquisition of non-lethal equipment that was intended to assist the police and the gendarmerie in maintaining public order.
12.5 The second, in 2011, allowed the return of non-combat helicopters to Guinea: at the time, two such helicopters were being repaired in Romania that had not been allowed back into Guinea under the previous revision of the arms embargo.
12.6 The third revision, in 2012, introduced a further exemption with regard to the export of explosives and related equipment for civilian use in mining and infrastructure investments in Guinea. This was in recognition of the progress that had been made, and the fact that sanctions were never intended to target commerce — mining and infrastructure investments both being critical parts of the country’s economy and central to Guinea’s ongoing economic development.39
The draft Council Decision 12.7 The draft Council Decision extends the current measures for a further year, until 27 October 2014.
The Government’s view 12.8 In his Explanatory Memorandum of 10 October 2013, the Minister for Europe (Mr David Lidington) says that, over the past 12 months, Guinea’s transition to full democracy has “progressed intermittently, hampered by the delay to the long-awaited legislative elections.”
12.9 He continues his comments as follows:
“The elections for the National Assembly were finally held on 28 September 2013, but the results are yet to be confirmed. Should the elections conclude successfully, Guinea’s transition to democracy will be complete and the foundations for sustained political stability will have been laid. This would mark a significant improvement to the political situation in Guinea, reducing the possibility of further internal suppression.
“In addition to this, the Guinean government plans to introduce a national security strategy in 2014. If implemented successfully, the strategy will help to establish and demonstrate that the military is under the control of a civilian government. In turn, this should reduce the chance of further internal suppression and political instability.
“Until these two key developments have had time to demonstrate actual change and sustained improvement to stability in Guinea, the embargo on arms and equipment for the use of internal repression should not be lifted. We are hopeful that significant progress will be made in these areas next year, in time to be considered in our review
39 The full background to all these measures, and the Committee’s consideration thereof, is set out in the Reports cited in the headnote.
58 European Scrutiny Committee, 18th Report, Session 2013–14
of the regime before 27 October 2014. In addition to this, we want to ensure that the listings against the 5 individuals remain legally robust and that sanctions do not act as a substitute for adequate judicial processes. Although the designation criterion warrants the indefinite listing of the individuals, we do not want to maintain restrictive measures where no objective is being met. Currently, the 5 individuals who are deemed responsible for the events of 28 September 2009 are being processed through the Guinean judicial system; the ICC is monitoring progress. We will likely have a better idea of the outcome of this next year, when the potential to relax or remove restrictive measures may be more appropriate.”
Conclusion 12.10 Although this straightforward “rollover” raises no questions, we are reporting it to the House because of the level of interest in political developments in West Africa and, in this instance at least, continuing progress. If matters move apace, either generally or in connection with the individuals still listed, we will no doubt hear further from the Minister.
12.11 In the meantime, we now clear this document.
13 Financial services: central securities depositaries and securities settlement
(33761) Draft Regulation on improving securities settlement in the 7619/12 European Union and on central securities depositories (CSDs) and + ADDs 1–2 amending Directive 98/26/EC COM(12) 73
Legal base Article 114 TFEU; co-decision; QMV Department HM Treasury Basis of consideration Minister’s letter of 3 October 2013 Previous Committee Reports HC 83–xiv (2012–13), chapter 13 (11 September 2013), HC 83–ix (2013–14), chapter 7 (10 July 2013), HC 86–ii (2012–13), chapter 15 (16 May 2012) and HC 428–lvii (2010–12), chapter 6 (18 April 2012), Discussion in Council 25 September 2013 Committee’s assessment Politically important Committee’s decision Cleared
European Scrutiny Committee, 18th Report, Session 2013–14 59
Background 13.1 The Commission has in recent years proposed a package of legislative reforms to strengthen the EU post-trade financial market infrastructure and to address barriers to the creation of a truly competitive single market in post-trade financial services.
13.2 Securities settlement concerns the delivery of securities between a buyer and a seller in order to settle a trade agreed between two counterparties, typically on an exchange and sometimes after being cleared by a central clearing party (CCP).
13.3 Central Securities Depositories (CSDs) are systemically important financial market infrastructures that support the settlement of securities. They perform a number of crucial services that support the issuance, safekeeping, and settlement of securities, which support the efficient functioning of the financial market.
13.4 In March 2012 the Commission presented this draft Regulation on CSDs and securities settlement with the aim of increasing the safety and efficiency of cross border transactions and ensuring a level playing field for CSDs by establishing the core and ancillary services that a CSD can provide, establishing new common rules for the authorisation and ongoing supervision of CSDs, setting prudential, technical, legal and organisational requirements for the operation of CSDs and their services and harmonising securities settlement rules.
13.5 We have considered this proposal four times previously. We have learnt that the Government supports the general aims of the Commission’s proposals to ensure the robustness and efficiency of CSDs as systemically important financial infrastructure, to create a competitive single market in post-trade financial market services and to increase the safety and efficiency of securities settlement. However, when we last considered the matter, in early September, we heard that, although some fundamental issues had been mostly settled in Council working group discussion, with only small technical tweaks under consideration, three important issues remained under discussion. Nevertheless, we were asked to give the Government, in terms of the Scrutiny Reserve Resolution of 17 November 1998, a waiver to allow it to participate in a General Approach if a favourable agreement were to arise during the forthcoming Conference Recess. In agreeing that waiver we asked to hear in October about whatever developments there might have been. Meanwhile the draft Regulation remained under scrutiny.40
The Minister’s letter 13.6 The then Financial Secretary to the Treasury (Greg Clark) reports now that a Council General Approach was agreed on 25 September, which the Government agreed to on the basis that it represented a favourable agreement overall. He then summarises the resolution of the three principal outstanding issues highlighted to us previously.
13.7 On the process for authorisation of banking services, the Minister says that, in line with the Government’s preference, the text provides for a process of close cooperation between relevant national authorities, in which the European Securities and Markets
40 See headnote.
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Authority has only a non-binding mediation role and the home authority makes the final decision.
13.8 Turning to the securities settlement regime, the Minister says that:
x the Government has been concerned to ensure that the buy-in remedy (whereby securities which should have been delivered will be bought in the market and delivered to the relevant receiving party) is sufficiently flexible in relation to less- liquid securities and markets;
x the text provides for flexibility by allowing certain relevant time periods to be set out in regulatory technical standards according to asset type, the liquidity of the relevant financial instrument and the type of transaction, subject to certain parameters set out in the text; and
x the levels of cash penalties will also be set in a similarly flexible manner in delegated acts.
13.9 Finally, on the third country regime, the Minister tells us that:
x the text provides for transitional arrangements for non-EU CSDs currently providing services into the EU, which should mitigate any perceived risk of obstruction to cross-border business; and
x national rules will continue to apply to third country CSDs until the necessary decisions on recognition have been made by the Commission and the European Securities and Markets Authority.
13.10 Finally, the Minister says it is expected that trilogue discussion of the draft Regulation will begin within the next few weeks.
Conclusion 13.11 We are grateful to the Minister for this account of the outcome of the Council consideration of this proposal. Having no further questions to ask, we now clear the document.
European Scrutiny Committee, 18th Report, Session 2013–14 61
14 Banking Union: Single Supervisory Mechanism
(35359) Interinstitutional Agreement (IIA) between the European –– Parliament and the European Central Bank on the practical –– modalities of the exercise of democratic accountability and oversight over the exercise of the tasks conferred on the ECB within the framework of the Single Supervisory Mechanism
Legal base –– Department HM Treasury Basis of consideration EM of 10 October 2013 Previous Committee Report None Discussion in Council None planned Committee’s assessment Politically important Committee’s decision Cleared
Background 14.1 In recent years various measures have been discussed, and some introduced, to strengthen economic governance in the eurozone and in the wider EU. Much of this activity has been concerned with countering the present eurozone difficulties. Measures advocated have included a “banking union”. In this context in September 2012 the Commission proposed the first stage of a Banking Union, involving two draft Regulations. One would confer specific tasks on the European Central Bank (ECB) concerning policies relating to the prudential supervision of credit institutions — a Single Supervisory Mechanism (SSM). The other, would amend consequentially the Regulation establishing the European Banking Authority (EBA).41
The document 14.2 On 9 October, the European Parliament approved in its plenary session an Inter- Institutional Agreement (IIA) with the ECB on arrangements for holding the ECB to account for its supervisory functions under the SSM.42
14.3 The agreement is required as a result of two provisions in the draft Regulation conferring specific tasks on the ECB concerning policies relating to the prudential supervision of credit institutions, that is the draft SSM Regulation:
x Article 20(8) would provide for an agreement to be concluded on the detailed arrangements for organising confidential oral discussions behind closed doors between the Chair of the ECB Supervisory Board and Chair and Vice-Chair of the
41 HC 86–xiv (2012–13), chapter 1 (17 October 2012), HC 86–xxix (2012–13), chapter 17 (23 January 2013), HC 86–xxxviii (2012–13), chapter 16 (17 April 2013) and HC Debs, 6 November 2012, cols. 805–833. 42 The text can be seen at http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+TA+P7-TA-2013– 0404+0+DOC+XML+V0//EN&language=EN#BKMD-2.
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competent committee of the European Parliament ʊ this agreement should comply with confidentiality requirements in EU law; and
x Article 20(9) would require the ECB and European Parliament to conclude appropriate arrangements on the exercise of democratic accountability and oversight over the ECB’s supervisory tasks ʊ these should cover, inter alia, access to information, cooperation in investigations and information on the selection procedure of the Chair of the Supervisory Board.
14.4 The IIA covers the following areas:
x the ECB will submit to the European Parliament and publish on the SSM’s website an annual report on the execution of its supervisory tasks, and provide quarterly reports on the operational implementation of the SSM Regulation during the start- up phase;
x the Chair of the Supervisory Board will participate in ordinary public hearings on the execution of the ECB Supervisory Board’s tasks, as well as ad-hoc exchanges of view on supervisory issues and confidential meetings;
x the ECB will reply in writing to written questions put to it by the European Parliament;
x the ECB will provide the European Parliament with a comprehensive record of the Supervisory Board’s proceedings, and publish on its website a guide to its supervisory practices;
x the European Parliament will implement safeguards to ensure that information provided by the ECB is treated with sensitivity;
x procedures for the European Parliament to be involved in the selection process of the Chair of the Supervisory Board, including submitting questions to the ECB on the shortlist of candidates and the selection criteria;
x arrangements for the ECB to assist in investigations led by the European Parliament and confidentiality requirements on information provided;
x the ECB will share its draft Code of Conduct for staff working on banking supervision with the European Parliament and inform it on implementation;
x the ECB will inform the European Parliament on procedures for adopting ECB regulations, decisions, guidelines and recommendations and the consultation process around the draft acts; and
x the IIA will be reviewed every three years.
The Government’s view 14.5 The Financial Secretary to the Treasury (Sajid Javid) reminds us that the Government’s position is that the UK will not participate in any element of Banking Union, including the SSM and so the IIA will not impact directly on the UK.
European Scrutiny Committee, 18th Report, Session 2013–14 63
14.6 The Minister continues that:
x the IIA was considered an essential component of the European Parliament’s agreement to the overall SSM legislative package;
x although the Treaty base for the SSM Regulation (Article 127(6) TFEU) only requires the European Parliament to be consulted, the associated Regulation consequentially amending the Regulation establishing the EBA has as its Treaty base Article 114 TFEU and the European Parliament withheld its agreement to the SSM package as a whole until the draft IIA was concluded;
x now that that European Parliament has formally approved the draft IIA, the SSM Regulation and the EBA amending Regulation will proceed to Council for formal agreement; and
x the IIA is consistent with the relevant Articles in the SSM Regulation and will not have an effect on the substance of the legislative package.
Conclusion 14.7 Whilst clearing this document, we draw it to the attention of the House, as supplementary information on the Single Supervisory Mechanism.
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15 Mutual financial assistance for non-eurozone Member States
(a) (35374) Draft Council Decision granting mutual assistance for Romania 14698/13 COM(13) 709
(b) (35382) Draft Council Decision providing precautionary EU medium-term 14605/13 financial assistance to Romania COM(13) 708
Legal base (a) Article 143 TFEU; —; QMV (b) Council Regulation (EC) No. 332/2002; —; QMV Documents originated 10 October 2013 Deposited in Parliament 15 October 2013 Department HM Treasury Basis of consideration EM of 15 October 2013 Previous Committee Report None Discussion in Council 22 October 2013 Committee’s assessment Politically important Committee’s decision Cleared
Background 15.1 The EU can provide mutual assistance to non-eurozone Member States threatened with difficulties as regards their balance of payments. Such balance of payments assistance in the form of medium-term financial assistance is designed to ease a country’s external financing constraints.
15.2 Romania requested a new EU medium-term financial assistance programme in July, jointly with an IMF stand-by arrangement, following the end of its second programme in June. Its second programme was a joint EU-IMF precautionary programme and no funds were disbursed either by the EU or the IMF. The Romanian government has implemented substantial reforms since 2009 with the support of its two programmes and largely corrected its external and internal economic imbalances and improved its economic and financial stability.
15.3 Romania does not face an imminent financing gap and is expected to maintain full access to sovereign debt markets. However the economy remains vulnerable to exchange rate volatility, reversal of international capital flows and deteriorating economic conditions. In such a scenario, marked by liquidity constraints, Romania’s financing costs could increase abruptly. In addition, adverse developments in the eurozone could cause renewed pressure on the banking sector.
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The documents 15.4 In light of the vulnerabilities and risks to its balance of payments the Commission recommends providing Romania with a precautionary medium-term financial assistance of €2 billion (£1.672 billion) conditional on the Romanian authorities’ commitment to implement fiscal, financial and structural reforms. The modalities involve two Council Decisions, the first to grant mutual assistance, as in document (a), and the second to provide for that assistance in the form of precautionary medium-term finance, as in document (b).
15.5 The Commission and the IMF negotiated the modalities and contents with the Romanian authorities in July and reached a staff-level agreement. While under present market conditions Romania does not intend to draw down the loan, the precautionary assistance can be expected to help consolidate macroeconomic, budgetary and financial stability and, through the pursuit of structural reforms, increase the resilience and the growth potential of the Romanian economy. It will also carry over the unfulfilled conditions from the second programme.
15.6 The main contents of a new programme would be as follows:
x fiscal consolidation: Romania has successfully corrected its excessive deficit, reducing its budget deficit from 9% of GDP in 2009 to just below 3% in 2012. A new programme would support further consolidation efforts aimed at reaching the medium term objective of a structural budget deficit of 1% of GDP by 2015 and maintain it thereafter, in line with Stability and Growth Pact requirements;
x fiscal governance and structural fiscal reforms: the IMF and the World Bank will provide extensive technical assistance to the Romanian government for public financial management and control;
x public debt management: the authorities will improve public debt management in order to reducing funding costs and increase the average maturity of public debt;
x financial sector regulation and supervision: the Romanian authorities will continue improving the bank resolution framework and the legislation on the Deposit Guarantee Fund. They will take steps to further develop the capital markets, refrain from adopting or promoting legislation that undermines credit discipline and amend legislation to strengthen non-bank financial sector supervision; and
x structural reforms: The Romanian government’s structural reform agenda aims to improve market functioning, increase resilience to external shocks and increase Romania’s long-run growth potential. It will step up the restructuring of state- owned enterprises, improve the business environment, facilitate access to finance for small and medium-sized enterprises and complete pension reforms by equalising the pensionable age of men and women.
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The Government’s view 15.7 The Economic Secretary to the Treasury (Nicky Morgan) comments that the Government believes that it is in the UK’s interest that Romania’s economy is stable and supports the steps taken to achieve this. She says that the draft Decisions have no direct policy implications for the UK and outlines the financial implications thus:
x the proposals could have financial implications for the UK;
x a credit line would be made available to Romania, albeit one which it does not intend to draw down as it faces no imminent threat to its balance of payments;
x if the credit line remains unused there would be no UK exposure;
x if Romania asked to draw down the loan, the Commission would raise money on international capital markets, using the EU budget as a guarantee — this would create a contingent liability for the UK;
x only in the event that Romania were to default on loan repayments would the EU budget be called on to meet the cost of that repayment;
x this would require an increase in the budget, and in turn, an increase in Member States’ contributions to the EU budget; and
x any increase to the UK’s contribution would be within the limits of the EU Own Resources ceiling already approved by Parliament through the European Communities (Finance) Act 2008.
Conclusion 15.8 Whilst clearing these documents from scrutiny, we draw them to the attention of the House as indicative of Romania’s present economic situation.
European Scrutiny Committee, 18th Report, Session 2013–14 67
16 Multiannual Financial Framework, 2014–2020
(35383) Draft Council Regulation laying down the Multiannual Financial 11791/13 Framework for the years 2014–2020 —
Legal base Article 312 TFEU and Article 106a EURATOM; consent; unanimity Deposited in Parliament 16 October 2013 Department HM Treasury Basis of consideration EM of 15 October 2013 Previous Committee Report None Discussion in Council Possibly November 2013 Committee’s assessment Politically important Committee’s decision Cleared
Background 16.1 In February the European Council reached agreement on the Multiannual Financial Framework (MFF) for the period 2014–20.43 Since then there have been negotiations with the European Parliament to secure its consent to the proposals.
16.2 In early July we considered the Irish Presidency’s proposals for a new Council Regulation on the MFF, the Interinstitutional Agreement (IIA) between the three institutions on the MFF and budgetary cooperation and a set of accompanying draft declarations. The draft MFF Regulation covered the key policies agreed at the February European Council and the draft IIA covered more technical aspects of the budget. Four draft joint declarations covered own resources, duration, and improving effectiveness of public spending in matters subject to EU action and gender-responsive elements. Two draft declarations by the Commission covered national management declarations and review and revision. The documents were to be presented to the June European Council as the probable outcome of the negotiations with the European Parliament. These documents were debated in European Committee B on 16 July.
16.3 Subsequent to the debate we heard from the Government that:
x the Presidency had issued further versions of the MFF Regulation and accompanying declarations ahead of the European Council on 27–28 June and the European Parliament plenary session of 1–4 July;44
x a further draft declaration on the Fund for European Aid to the Most Deprived had also been issued;45
43 See the European Council Conclusions: http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/135344.pdf. 44 See http://register.consilium.europa.eu/pdf/en/13/st11/st11655.en13.pdf and http://register.consilium.europa.eu/pdf/en/13/st11/st11658.en13.pdf.
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x the Interinstitutional Agreement was unchanged;
x the revised documents were very similar to the earlier versions deposited;
x the main changes to the draft MFF Regulation were related to the flexibilities in annual payment and commitment ceiling totals;
x these had been extended from the previous versions of the documents, but remain within the seven-year commitment and payment ceilings agreed by the European Council in February;
x this flexibility now also included an increase in the amount to be drawn forward to 2014 and 2015 for youth employment agreed to at the European Council;
x the other notable change in the draft MFF Regulation was introduction of text asking the institutions to consider the most suitable duration for the MFF from 2021;
x the declaration on the duration of the MFF after 2021 had now been moved to the MFF Regulation and a Commission declaration on this point had been included in the package; and
x the new draft declaration on the Fund for European Aid to the Most Deprived said that Member States “may decide to increase their allocations spent on this programme by up to €1 billion on a voluntary basis”.
16.4 We noted this information and looked forward to scrutinising the final texts of the MFF package.46
The document 16.5 This document is the final version of the draft MFF Regulation, sent to the European Parliament for its consent before adoption by Council. It covers the key policies agreed at February European Council, including the expenditure ceilings, expenditure instruments outside the MFF and rules for the functioning of the expenditure side of the budget. It also covers additional areas of agreement between the Council and the European Parliament. The draft Regulation has now been through legal examination and translation and there are very few substantive changes from the previous version of this document, around the terms of flexibilities between headings and years within the framework that the Member States have agreed, which was cleared from scrutiny following the debate of 16 July.
The Government’s view 16.6 The Economic Secretary to the Treasury (Nicky Morgan) elaborates that:
x the budget ceilings set out in the draft MFF Regulation correspond to the ceilings agreed at the February European Council;
45 See http://register.consilium.europa.eu/pdf/en/13/st11/st11698.en13.pdf. 46 (35096) 11295/13 (35097) 11298/13 (35098) 11307/13: see HC 83–viii (2013–14), chapter 3 (3 July 2013), HC 83–xiii (2013–14), chapter 52 (4 September 2013) and Gen Co Debs, European Committee B, cols. 3–26.
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x the ceiling for commitment appropriations totals €960 billion (£803 billion) and the ceiling for payment appropriations totals €908 billion (£760 billion) (at 2011 prices);
x after the February European Council the Prime Minister noted the Government’s position on these ceilings — the payment limit is €80 billion lower than the original Commission proposal and €35 billion lower than the current MFF agreed in December 2005;
x the draft MFF Regulation also sets out the limits for instruments outside the MFF — ‘off-budget’ instruments;
x these are: the European Union Solidarity Fund, €500 million (£418 million) per annum, the Flexibility Instrument, €471 million (£394 million), the Emergency Aid Reserve, €280 million (£234 million), the European Globalisation Adjustment Fund, €150 million (£125 million) and the Contingency Margin (representing up to 0.03% of EU Gross National Income);
x the total of instruments outside the MFF in the 2014–20 period is lower than that agreed for 2007–13;
x the draft MFF Regulation includes maximum amounts for expenditure on large scale projects within the budget;
x these are: the European Satellite Navigation Programmes (EGNOS and Galileo), €6.3 billion (£5.3 billion), the International Thermonuclear Experimental Reactor Project (ITER), €2.7 billion (£2.3 billion) and the European Earth Monitoring Programme, Copernicus, €3.8 billion (£3.2billion);
x the draft MFF Regulation has rules for the status of the Own Resources ceiling, the rules for the annual inflationary technical adjustment to the ceilings (as set out in the Treaty) and rules relating to adjustment of the framework, including for the case of Treaty revision, enlargement, Cypriot reunification and review of cohesion policy envelopes;
x the draft MFF Regulation includes rules for flexibilities between years and headings — the February European Council indicated that the final deal on the MFF legal texts should include some flexibilities on how spending is divided between different budget years and different areas of spending and the rules set out in Articles 5 and 14 of the draft MFF Regulation ensure that any flexibility of payments or commitments will be within the framework that the Member States have agreed; and
x Article 2 of the draft MFF Regulation provides that the Commission will conduct a mid-term review of the framework by the end of 2016, which could be followed if appropriate by proposals from the Commission for revision of the MFF — any decision to revise the 2014–20 MFF would be by unanimity, in accordance with the Treaty.
16.7 On the financial implications the Minister says that:
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x the UK contribution to the MFF is provisionally estimated to be 14.5% pre- abatement and 11.5% post-abatement;
x the actual financial cost to the UK of the 2014–20 MFF is contingent on the level of actual spending agreed through the annual budget process, implementation of the budgets and the distribution of spending across Member States and programmes within the MFF;
x these factors determine the level of UK receipts and also affect the size of the UK’s abatement;
x while the actual amount that the UK contributes depends on these factors, as well as economic performance and exchange rates, as a result of this deal, the Government expects that the UK’s contribution to the EU will fall as a share of Gross National Income; and
x the estimated impact of the February European Council agreement on the UK’s contribution was reflected in the Office of Budget Responsibility’s March 2013 forecast.
Conclusion 16.8 As this document is essentially the same as that debated in July, we clear it from scrutiny.
European Scrutiny Committee, 18th Report, Session 2013–14 71
17 Documents not raising questions of sufficient legal or political importance to warrant a substantive report to the House
Department for Business, Innovation and Skills
Anti-Dumping Measures
(35338) Draft Council Implementing Regulation amending Implementing 13141/13 Regulation (EU) No. 857/2010 imposing a definitive countervailing COM(13) 604 duty and collecting definitively the provisional duty imposed on imports of certain polyethylene terephthalate originating, inter alia, in Pakistan.
Other
(35323) Commission Communication — Empowering businesses and citizens 13847/13 in Europe’s single market: An Action Plan for boosting Your Europe COM(13) 636 in cooperation with the Member States.
(35326) Commission staff working document — opportunities for SMEs in 13126/13 Africa. SWD(13) 302
(35332) Draft Regulation amending Council Regulation (EC) No. 55/2008 14045/13 introducing autonomous trade preferences for the Republic of COM(13) 678 Moldova.
(35360) Draft Council Decision on the position to be taken within the 14649/13 administrative committee of the united nations economic commission — for Europe regarding the draft regulation on uniform provisions concerning the recyclability of motor vehicles.
Department for Environment, Food and Rural Affairs
(34874) Amended Draft Regulation on the European Maritime and Fisheries 8883/13 Fund [repealing Council Regulation (EC) No. 1198/2006 and Council COM(13) 245 Regulation(EC) No. 861/2006 and Council Regulation No. XXX/2011 on integrated maritime policy].
(35327) Commission Report: on the implementation of Council Regulation 13913/13 (EC) No. 814/2000 on information measures relating to the common + ADD 1 agricultural policy. COM(13) 645
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Department for Transport
(35287) Commission Report: Report on the Application of Regulation (EC) 13226/13 No. 1371/2007 of the European Parliament and of the Council of 23 COM(13) 587 October 2007 on Rail Passengers’ Rights and Obligations.
(35361) Draft Council Decision on the position to be taken within the 14645/13 administrative committee of the united nations economic commission — for Europe regarding the draft regulation on uniform provisions concerning the approval of retrofit emission control devices (rec) for heavy duty vehicles, agricultural and forestry tractors and non-road mobile machinery equipped with compression ignition engines.
(35366) Draft Council Decision on the position to be adopted within the 14648/13 relevant committees of the united nations economic commission for — Europe regarding the proposed amendments to regulations Nos 3, 4, 5, 6, 7, 10, 12, 14, 16, 17, 19, 23, 31, 37, 38, 43, 48, 49, 50, 54, 67, 69, 70, 77, 83, 87, 91, 94, 95, 98, 99, 100, 101, 103, 107, 110, 112, 113, 115, 117, 119, 121, 123, 128, 129 and the consolidated resolution on the construction of vehicles (r.e.3) and regarding the draft global technical regulation on pole side impact.
Foreign and Commonwealth Office
(35358) Draft Council Decision on the Union support for IAEA activities in the — areas of nuclear security and verification and in the framework of the — implementation of the EU Strategy against Proliferation of Weapons of Mass Destruction.
HM Treasury
(35283) Commission Report: Annual Report to the Discharge Authority on 13213/13 Internal Audits carried out in 2012 (Article 99(5) of the Financial + ADD 1 Regulation). COM(13) 606
(35348) Draft Council implementing Decision amending Implementing 14350/13 Decision 2011/77/EU on granting Union financial assistance to Ireland. COM(13) 679
(35377) Amending letter to draft amending budget No. 6 to the general 13813/13 budget 2013 — general statement of revenue. COM(13) 655
European Scrutiny Committee, 18th Report, Session 2013–14 73
Formal minutes
Wednesday 16 October 2013
Members present:
Mr James Clappison Chris Kelly Nia Griffith Jacob Rees-Mogg Kelvin Hopkins Henry Smith
In the temporary absence of the Chair, Mr James Clappison was called to the Chair for the meeting.
The Committee deliberated.
Draft Report, proposed by the Chair, brought up and read.
Ordered, That the draft Report be read a second time, paragraph by paragraph.
Paragraphs 1.1 to 17 read and agreed to.
Resolved, That the Report be the Eighteenth Report of the Committee to the House.
Ordered, That the Chair make the Report to the House.
****
[Adjourned till Monday 21 October at 4.00pm.
74 European Scrutiny Committee, 18th Report, Session 2013–14
Standing Order and membership
The European Scrutiny Committee is appointed under Standing Order No.143 to examine European Union documents and— a) to report its opinion on the legal and political importance of each such document and, where it considers appropriate, to report also on the reasons for its opinion and on any matters of principle, policy or law which may be affected; b) to make recommendations for the further consideration of any such document pursuant to Standing Order No. 119 (European Committees); and c) to consider any issue arising upon any such document or group of documents, or related matters.
The expression “European Union document” covers — i) any proposal under the Community Treaties for legislation by the Council or the Council acting jointly with the European Parliament; ii) any document which is published for submission to the European Council, the Council or the European Central Bank; iii) any proposal for a common strategy, a joint action or a common position under Title V of the Treaty on European Union which is prepared for submission to the Council or to the European Council; iv) any proposal for a common position, framework decision, decision or a convention under Title VI of the Treaty on European Union which is prepared for submission to the Council; v) any document (not falling within (ii), (iii) or (iv) above) which is published by one Union institution for or with a view to submission to another Union institution and which does not relate exclusively to consideration of any proposal for legislation; vi) any other document relating to European Union matters deposited in the House by a Minister of the Crown.
The Committee’s powers are set out in Standing Order No. 143.
The scrutiny reserve resolution, passed by the House, provides that Ministers should not give agreement to EU proposals which have not been cleared by the European Scrutiny Committee, or on which, when they have been recommended by the Committee for debate, the House has not yet agreed a resolution. The scrutiny reserve resolution is printed with the House’s Standing Orders, which are available at www.parliament.uk.
Current membership Mr William Cash MP (Conservative, Stone) (Chair) Andrew Bingham MP (Conservative, High Peak) Mr James Clappison MP (Conservative, Hertsmere) Michael Connarty MP (Labour, Linlithgow and East Falkirk) Geraint Davies MP (Labour/Cooperative, Swansea West) Julie Elliott MP (Labour, Sunderland Central) Tim Farron MP (Liberal Democrat, Westmorland and Lonsdale) Nia Griffith MP (Labour, Llanelli) Chris Heaton-Harris MP (Conservative, Daventry) Kelvin Hopkins MP (Labour, Luton North) Chris Kelly MP (Conservative, Dudley South) Stephen Phillips MP (Conservative, Sleaford and North Hykeham) Jacob Rees-Mogg MP (Conservative, North East Somerset) Mrs Linda Riordan MP (Labour/Cooperative, Halifax) Henry Smith MP (Conservative, Crawley) Ian Swales MP (Liberal Democrat, Redcar) The following members were also members of the committee during the parliament: Sandra Osborne MP (Labour, Ayr, Carrick and Cumnock) Jim Dobbin MP (Labour/Co-op, Heywood and Middleton) Penny Mordaunt MP (Conservative, Portsmouth North) Mr Joe Benton MP (Bootle)
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