House of Commons European Scrutiny Committee Twenty-seventh Report of Session 2017–19 Documents considered by the Committee on 9 May 2018 Report, together with formal minutes Ordered by the House of Commons to be printed 9 May 2018 HC 301-xxvi Published on 15 May 2018 by authority of the House of Commons 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 AFSJ Area of Freedom Security and Justice CFSP Common Foreign and Security Policy CSDP Common Security and Defence Policy ECA European Court of Auditors ECB European Central Bank EEAS European External Action Service EM Explanatory Memorandum (submitted by the Government to the Committee)* EP European Parliament EU European Union JHA Justice and Home Affairs OJ Official Journal of the European Communities QMV Qualified majority voting 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) and letters issued by the Ministers can be downloaded from the Cabinet Office website: http://europeanmemoranda.cabinetoffice.gov.uk/. Staff The staff of the Committee are Dr Philip Aylett (Clerk), Kilian Bourke, Alistair Dillon, Leigh Gibson, Foeke Noppert and Sibel Taner (Clerk Advisers), Arnold Ridout (Counsel for European Legislation), Françoise Spencer (Deputy Counsel for European Legislation), Joanne Dee (Assistant Counsel for European Legislation), Mike Winter (Second Clerk), Sarah Crandall (Senior Committee Assistant), Sue Beeby, Rob Dinsdale and Beatrice Woods (Committee Assistants), Ravi Abhayaratne and Paula Saunderson (Office Support Assistants). Contacts All correspondence should be addressed to the Clerk of the European Scrutiny Committee, House of Commons, London SW1A 0AA. The telephone number for general enquiries is (020) 7219 3292/5465. The Committee’s email address is [email protected]. Twenty-seventh Report of Session 2017–19 1 Contents Meeting Summary 3 Documents not cleared 1 BEIS Mutual recognition of goods 7 2 BEIS Market surveillance 20 3 CO The European Citizens’ Initiative 27 4 HMT Brexit: EU supervision of UK-based central counterparties 32 5 HMT The Law Applicable to Assignment of Claims in the Capital Markets 38 6 HSE Workplace safety: amendments to the Carcinogens and Mutagens Directive (Phase II and Phase III) 42 7 MOD European Defence Industrial Development Programme (EDIDP) 47 Documents cleared 8 DEFRA Animal welfare and international competitiveness 53 9 MHCLG Energy Performance of Buildings 55 Documents not raising questions of sufficient legal or political importance to warrant a substantive report to the House 59 Formal Minutes 62 Standing Order and membership 63 Twenty-seventh Report of Session 2017–19 3 Meeting Summary The Committee looks at the significance of EU proposals and decides whether to clear the document from scrutiny or withhold clearance and ask questions of the Government. The Committee also has the power to recommend documents for debate. Brexit-related issues The Committee is now looking at documents in the light of the UK decision to withdraw from the EU. Issues are explored in greater detail in report chapters and, where appropriate, in the summaries below. The Committee notes that in the current week the following issues and questions have arisen in documents or in correspondence with Ministers: • The European Citizens’ Initiative • Supervision of UK central counterparties after Brexit • European Defence Industrial Development Programme Summary The European Citizens’ Initiative The European Citizens’ Initiative (ECI) was introduced by the Lisbon Treaty and is intended to give EU citizens a direct say in shaping the laws that govern them. A 2011 Regulation sets out the procedures and conditions for implementing the ECI. The Commission considers that there is scope to clarify and simplify the existing rules to make ECIs more accessible for EU citizens and less burdensome for their organisers. Most of the changes proposed are designed to streamline the ECI process. The most eye-catching is giving 16-year olds the right to support an ECI (currently they have to be of voting age). The Government told the Committee in December that it broadly supported the changes proposed but alluded to “timing and implementation” issues connected with the UK’s exit negotiations. Since then, EU and UK negotiators have agreed a transition/implementation period which extends the application of EU law in the UK to 31 December 2020. In her latest update, the Minister for the Constitution (Chloe Smith) says that the ECI legislation will apply in the UK during a transition/implementation period but that UK nationals will not be able to take part as they will no longer be EU citizens from 30 March 2019. This is at odds with our understanding of the draft Withdrawal Agreement which provides that the ECI legislation will not apply during the transition/implementation period but makes clear that certain rights associated with EU citizenship will continue to apply until the end of 2020. The Minister is asked to explain this apparent contradiction, clarify the status of UK nationals during the transition/implementation period, and provide further information on the concept of “associated citizenship” mentioned in her letter. Supervision of UK central counterparties after Brexit The Committee has considered progress in the Government’s efforts to block EU proposals that would allow it to force relocation of UK-based central counterparties—a crucial part of the market infrastructure for trade in derivatives—to the EU after Brexit. The latest 4 Twenty-seventh Report of Session 2017–19 update from the Government shows that the UK has the support of Sweden and the US in opposing the proposals, but it appears likely the ‘location powers’ will appear in the legislation (which is due to be formally adopted in early 2019, after the Member States and the European Parliament have agreed on the definitive legal text). The Committee has drawn these developments to the attention of the Treasury Committee, and again expressed its concern over the apparent disconnect between the Government and the EU- 27 over the scope and depth of any post-Brexit free trade agreement on financial services. In June 2017, the European Commission presented proposals on EU regulatory oversight of central counterparties (CCPs) based outside the EU. CCPs are a crucial part of the market infrastructure for the trade in derivatives, which largely takes place in the UK. The proposals are driven by the perception that it would be unsafe for the EU to allow substantial volumes of CCP activity to take place outside of the EU’s legal framework (called EMIR) when the UK leaves the Single Market, In the most extreme cases, the proposed legislation could allow the EU to require a British CCP to relocate to an EU country or ban them from servicing EU-based counterparties to a derivatives transaction. The Government has opposed these proposals, arguing that they would “risk fragmenting global derivatives markets”, which in turn would “increase the cost of trading and clearing, acting as a drag on growth and could discourage firms from hedging their risks using derivatives markets”. Instead, it has called for a new “regulatory and supervisory model” between the EU and the UK after the latter leaves the Single Market, which would preserve cross-border market access in the CCP industry on a more permanent basis without the need for the UK to continue applying EU legislation on CCPs (over which it will have no say after 29 March 2019). The Committee has now published a Report on the latest information received from the Treasury about negotiations on the proposal, which indicates that some form of the new ‘location policy’ powers will be maintained in the final legislation despite opposition from the UK, Sweden and the US. The main unresolved issue, therefore, is the exact requirements that must be fulfilled before the location policy could be invoked against British (and other non-EU) CCPs. While the Government has welcomed some amendments to the proposals by the European Parliament’s Rapporteur, the Committee notes that those amendments are yet to receive any formal approval from the Parliament as a whole.