Select Committee on European Scrutiny Fourth Report


The European Scrutiny Committee has made further progress in the matter referred to it and has agreed to the following Report:—





COM(00) 319

Draft Directive amending Directive 97/67/EC with regard to the further opening to competition of Community postal services.
Legal base: Articles 47(2), 55 and 95 EC; co-decision; qualified majority voting
Basis of consideration: SEM of 8 December 2000 and Minister's letter of 15 January 2001
Previous Committee Report: HC 23-xxviii (1999-2000), paragraph 10 (1 November 2000)
Discussed in Council: 22 December 2000
Committee's assessment: Politically important
Committee's decision: For debate in European Standing Committee C


  1.1  Directive 97/67/EC established a harmonised regulatory framework for the Community postal sector. It also defined the process for further liberalisation of the postal market, including a decision on the next step to apply with effect from 1 January 2003.

  1.2  On 1 November 2000 we reported on a Commission proposal setting out two liberalisation steps, the first in 2003 and the next in 2007. The Commission's intention was that liberalisation should be regulated in such a way as to ensure the continued provision of a universal service at a uniform tariff. Under the 1997 Directive, the provision of a universal service is protected by so-called reserved area limits in which a single universal provider can enjoy a monopoly. The 1997 reserved area limits included an upper weight limit of 350 grams and a price limit of five times the price of the fastest standard tariff for any item in the first weight step.[1] The 1997 Directive opened up about 3% on average of the postal revenues of public operators in the EC letters market providing universal services. The Commission's new proposal would reduce the weight limit to 50 grams and the price limit to two and a half times the fastest standard tariff for the first weight step. The Commission estimated that this would open up about 16% of the protected markets to competition. It proposed a further review between 2003 and 2007, leading to further liberalisation (undefined) from 2007 onwards. In our Report, we noted that the new Postal Services Commission (POSTCOM) had a mandate to come forward later this year with proposals for the further liberalisation of the UK postal services market, consistent with maintaining universal service. The Government told us that it had asked POSTCOM to advise on the reduction in limits for the restricted service which could be achieved without putting at risk the universal service at a uniform tariff. Pending that advice, the Government considered that the weight limit reduction should not go below 150 grams.

  1.3  In our Report, we recognised that this proposal raised sensitive political and social as well as commercial considerations and indicated that we were disposed to recommend a debate. We deferred a final decision until our sister Committee in the Lords had completed its enquiry into the Commission's proposal. The Lords Committee published its report on 18 December 2000.[2] We were also aware that the proposal would be discussed at the Telecommunications Council on 22 December. We asked the Minister to let us know the views of other Member States and to address a number of questions we raised. We also asked to see a copy of the Regulatory Impact Assessment.

The Government's response

  1.4  In his Supplementary Explanatory Memorandum of 8 December 2000, the Parliamentary Under-Secretary of State for Competitiveness at the Department of Trade and Industry (Mr Alan Johnson) responded to our request.

  1.5  The Minister confirmed that any further liberalisation of postal services would have no implication for the status of the Post Office as a public organisation. He noted that there was no correlation between post office ownership and liberalisation; for example, the Swedish and Finnish post offices which operate in fully liberalised markets continue in public ownership. He recalled that the Postal Services Act 2000 gave powers to the new Postal Services Commission to ensure the universal service and to license postal operators within a reserved area. This, he said, would ensure a level playing field between all universal service providers. His comments on our other questions are set out below.

"Cost of postal services for individual consumers. The Committee also noted that full liberalisation in Sweden, whilst not affecting the dominant position of the Swedish Post Office, has coincided with significant real increases in costs, particularly for domestic consumers (compared to a fall in real costs in the UK over the same period). It has to be noted that some of the increase in postal tariffs for consumers in Sweden arose from the introduction of 25% VAT on postal services. The Postal Services Commission is looking closely at the experiences of other countries, including Sweden, in determining its approach to liberalisation where its primary objective is to promote the interests of consumers and to maintain the universal service at a uniform tariff. They will also be looking at a price control regime for postal services in the UK, drawing on the experience of regulators of other utilities.

"Impact of reduction in reserved area on the universal service. The Committee also commented on oral evidence from the Postal Office to the Lords Committee which said that a weight reduction for the universal service limit to 50 grams would open up to competition about 30% of its business in volume and 40% in revenue, with a potential loss of revenue of about £350 million and expressed concern about the effect that might have on the discharge of its universal service obligation. It is because of these concerns that we are looking to the Postal Services Commission to advise on the best way forward within the UK market to ensure the scope and timing of liberalisation is such that consumers have the full benefits without the universal service being undermined.

"Compensation funds. The Committee commented that the Post Office did not consider the proposed use of compensation funds (to be paid for by competitors in the universal service area) would be practical. Current European legislation provides for licensing regimes outside the reserved area and allows for compensation funds to be introduced to support the universal postal service. However in the UK the market outside the reserved area is fully open to competition and the Government is not convinced that compensation funds will be practical in the UK postal market or an effective alternative to the mechanism of a reserved area.

"Views of other Member States. The Committee asked about the views of other Member States. Those generally in favour of the Commission's proposals or of even more rapid liberalisation are Finland, Sweden, Denmark, Germany, Netherlands, and Austria. Those that favour a more gradual approach are France, Greece, Luxembourg, Spain, Portugal, and Italy. Ireland and Belgium have been less specific in their views of the detail of the proposals."

  1.6  The Minister also enclosed a preliminary Regulatory Impact Assessment. This document reiterated that, whilst the Government accepted that a reduction of the reserved area limits to 150 grams in 2003 was unlikely to impact adversely on the universal service, it would want to have advice from the Postal Services Commission before going further. It noted that the Postal Services Commission was undertaking wide-ranging consultations with businesses and organisations, which were not yet complete.

  1.7  The Minister also wrote to us on 15 January 2001 about the outcome of the Telecommunications Council on 22 December. He says that:

"There was a substantive debate about how to reduce the limits to the reserved area for post. Discussion focused on Presidency proposals that sought to reconcile the original draft Directive from the Commission, the different views of Member States and the opinion of the European Parliament. One of the key areas of contention was whether it was possible to set now a date and timetable for full liberalisation of the postal market. The Presidency concluded that an agreement was not yet possible and discussions will therefore continue under the Swedish Presidency".


  1.8  In our earlier report, we noted the wide division of opinion on the Commission's proposal. In that connection, we note not only the views of a number of Member States but also that the European Parliament is very strongly opposed to the Commission's proposal to reduce the weight limit to 50 grams because of the perceived risk to the universal service and the potential social consequences (for example, putting at risk the maintenance of accessible and affordable services in rural areas). The EU's Economic and Social Committee reached a similar view. On the other hand, those Member States which have already embarked on liberalisation take a different view about the risk and support the Commission's approach. We note that it was not possible to reach agreement on various compromises at the Telecommunications Council, including a limit of 150 grams which the Government has told us it would regard as acceptable. The evidence submitted to our sister Committee in the Lords during their inquiry on this proposal showed a similar sharp division. At a more technical level, we are also aware of disagreements about the right approach to assessing the possible financial impact on traditional providers, such as the UK's Post Office, which could result from further liberalisation. The Government itself said to the Lords Committee in its evidence that it was unable to state what the financial impact would be on the Post Office of a reduction to 150 grams.

  1.9  Other areas of the Commission's proposal are also contentious — for example, its proposal relating to allowing operators providing "special services" to compete within the reserved area limits. The Post Office clearly thinks that this development would create a "Trojan horse" with the potential of undermining the provision of a universal service. We note that our sister Committee in the Lords did not share that view.

  1.10  We appreciate the problem facing the Government in reacting to the Commission's proposal, or possible compromises, when it is waiting for the comments of the Postal Services Commission, which we understand may not be available until later in the year. It will now be for the Swedish Presidency to take forward the discussions on the Commission's proposal. Sweden is a strong advocate of rapid liberalisation. We recognise that there will be strong views in the House as elsewhere over this proposal. In general, the Government has been a strong advocate of liberalisation in areas of traditional state provision, but we can understand why it has concerns about such a development in postal services. We note the importance the Government has attached, as part of its wider agenda, to maintenance of the rural sub-post office network and its commitment to the provision of universal banking services linked to that network. We accordingly recommend the proposal for debate in European Standing Committee C. Such a debate should help to ensure that the Government is aware of the range and strength of opinion on this subject. It will also provide an opportunity to explore some of the related issues, such as:

  • the right approach to be taken to costing the possible impact on the Post Office of any further liberalisation step (different approaches produce quite radically different outcomes);

  • the perceived risk in the Commission's proposal regarding special services; and

  • the arguments about the timing and procedure of any further liberalisation after 2003.








Council Decision setting up the Political and Security Committee.

Council Decision on the establishment of the EU Military Committee.

Council Decision on the establishment of the EU Military Staff.

Legal base: Article 28(1) EU and Article 207 EC
Department: Foreign and Commonwealth Office
Basis of consideration: Minister's letter of 19 January and EMs of 22 January
Previous Committee Report: None
Discussed in Council: 7-9 December 2000
Committee's assessment: Politically important
Committee's decision: For debate on the Floor of the House (with the Presidency Report on Common European Security and Defence Policy)


  2.1  On 9 February 2000, we cleared three draft Council Decisions establishing the three interim bodies associated with strengthening the Common European Security and Defence Policy (CESDP).[3] These three bodies, the interim Political and Security Committee, the interim Military Body and the interim Military Staff, were established in March 2000.

Presidency Report on Strengthening the CESDP

  2.2  On 28 November 2000, the Minister of State at the Foreign and Commonwealth Office (Mr Keith Vaz) submitted an Explanatory Memorandum on a draft of this Presidency report which included draft texts on the establishment of the three bodies. We cleared it on 29 November.[4] The Presidency Report was agreed at the Nice European Council.[5]

The Minister's letter

  2.3  The Minister wrote on 19 January saying that there had been pressure for swift implementation and that the Swedish Presidency was aiming to get agreement at the 22 January General Affairs Council on three Decisions establishing the three bodies. These are be known as the Political and Security Committee (PSC), the European Union Military Committee (EUMC) and the European Union Military Staff (EUMS).

  2.4   The Minister says that:

"The Government is eager to support the strengthening of the common foreign and security policy and the common European security and defence policy. These draft Decisions reflect the objectives of what was originally a United Kingdom initiative, and the Government welcome them. I hope you will understand therefore that the Government will find it difficult to argue in isolation against the adoption of the Decisions for the length of time normally needed for Parliamentary scrutiny, and, since the legal base of the Decisions provides for them to be agreed by simple majority, that is therefore best to agree it at this month's General Affairs Council."

The Council Decisions

  2.5  The Minister notes in his letter that the Presidency report included detailed recommendations on the role and functions that the bodies might take on in their permanent form. These roles and functions, defined in the annexes to the Decisions, which implement them, are taken from the Presidency report. The Minister describes them and comments on them as follows:

The Council Decision on the Political and Security Committee

"This Decision creates the Political and Security Committee, replacing the Interim Political and Security Committee, as the main forum for the preparation of advice to the General Affairs Council on common foreign and security policy matters."

  2.6  It makes clear that the Committee:

"—  will deal with all aspects of the common foreign and security policy, including the common European security and defence policy;

"—  will draw up opinions for the Council to help define policy;

"—  provide guidelines to other Committees on matters falling within the common foreign and security policy issues;

"—  receive the opinions and recommendations of the Military Committee and the Committee for Civilian Aspects of Crisis Management; and

"—  take responsibility, under the auspices of the Council, for the political direction of the development of military capabilities.

"In the event of a crisis, the Committee will examine all the options which may be considered as the European Union's response, and propose to the Council the political objectives to be pursued by the European Union and recommend a cohesive set of options aimed at contributing to the settlement of the crisis. The Committee will also exercise the political control and strategic direction of the European Union's military response to a crisis.

"The draft Treaty of Nice envisages a new legal basis for the Political and Security Committee, and for the Committee to take relevant decisions on the political control and strategic direction of a crisis management operation. This provision will not enter into force until the draft Treaty of Nice has been ratified by all Member States".

Council Decision on the European Union Military Committee (EUMC)

  2.7  The Decision provides for the mission and functions of the Committee to be those defined in Annex IV to the Presidency report, which is attached to the Decision. Its mission is to provide the PSC "with military advice and recommendations on all military matters within the EU. It exercises military direction of all military activities within the EU framework." This includes military direction to the European Union Military Staff (EUMS).

  2.8  The EUMC is to be "the source of military advice based on consensus". The Decision states that "It is the forum for military consultation and co-operation between the EU Member States in the field of conflict prevention and crisis management."

  2.9  The EUMC will act within guidelines from the PSC, particularly with regard to a number of its functions specified in the Annex. These include the EU's military relationship with non-EU European NATO Members, the other candidates for accession to the EU, other states and other organisations, including NATO.

  2.10  The Decision will enter into force from the date of its adoption but will be applicable from the date at which the Chairman is appointed by the Council.

Council Decision on the European Union Military Staff (EUMS)

  2.11  The EUMS will be formed from military personnel seconded from Member States to the General Secretariat of the Council. Its mission and functions are those defined in Annex IV to the Presidency report, which is attached to the Decision. Its mission is:

".... to perform 'early warning, situation assessment and strategic planning for Petersberg tasks including identification of European national and multinational forces' and to implement policies and decisions as directed by the European Union Military Committee (EUMC)".

Its role is to support the EUMC "over the full range of Petersberg tasks, for all cases of EU-led operations, whether or not the EU draws on NATO assets and capabilities".

  2.12  The EUMS is to take into account the need

"to ensure coherence with NATO's Defence Planning Process (DPP) and the Planning and Review Process (PARP) of the Partnership for Peace (PfP) in accordance with agreed procedures".

  2.13  The Decision will apply as from a date established by the Secretary General/High Representative, and in principle before the end of June 2001.

The Government's view

  2.14  The Minister says that the Government supports all three proposals. He makes the point that the establishment of these bodies does not imply that the European Union has acquired a military operating capability. The Presidency report made it clear that a separate Council decision would be required for the EU to declare itself operational in this area. He adds:

"To this end, Nice also tasked the Swedish Presidency to pursue discussions with NATO with a view to establishing the permanent arrangements between the EU and NATO".

  2.15  On the PSC the Minister comments that this "will help to give the EU the extra capacity it needs in order to conduct a comprehensive and responsive foreign policy". He says that the Government has argued for some time for the creation of a permanent committee based in Brussels to act as the primary forum for preparation of advice to Ministers on common foreign and security policy matters.

  2.16  The Minister comments that the EU Chiefs of Defence Staff are likely to make their recommendation for the first Chairman of the EUMC in late March 2001, with a Council decision to follow in April or May.

  2.17  As for the EUMS, the Minister says that, as he noted in his Explanatory Memorandum on the Presidency report, the Government considers that the EU needs a small, permanent military secretariat staff to provide the link between the EU Military Committee and the military resources available to the EU, from Member States and from NATO.


  2.18  The provisions of these Decisions were, substantially, agreed at the Nice European Council, when it accepted the Presidency's report on strengthening the Common European Security and Defence Policy. We considered that report on 29 November, on the basis of unofficial texts and an Explanatory Memorandum and letter from the Minister, both dated 28 November. He told us that the documents would be deposited once they were available in their final form. They were published on 4 December but the Government has yet to make them available to us. We ask it now to do so, under cover of a letter from the Minister in which he informs us in general terms of what action is to be taken to follow up on the section of the report dealing with arrangements concerning non-EU European NATO members and other EU candidate countries[6] and to follow up on Annex VII on Standing Arrangements for Consultation and Co-operation between the EU and NATO.

  2.19  The Minister explained in his letter of 28 November that endorsement of the report at Nice would represent political agreement to the proposals. It would be followed up by proposals for Council Decisions to put the content of the report into effect. These Decisions were adopted on 22 January, without us having any further opportunity to consider them. We understand that the Government had not expected such swift action by the Swedish Presidency.

  2.20  We accept that the Decisions implement proposals which we were given an opportunity to consider before endorsement at Nice. We regret, however, that there was no opportunity for them to be debated. We ask the Minister to be more alert in future to the requirements of the House and to keep a closer watch on fast-moving issues, such as those in the area of Common Foreign and Security Policy, informing this Committee at an earlier stage of significant proposals, if necessary only in outline before even unofficial texts are available.

  2.21  We now recommend that these documents be debated on the Floor of the House, together with the Presidency report on strengthening the Common European Security and Defence Policy, which on 29 November we recommended for debate in European Standing Committee B.

1  E.g. in the UK, five times the postage cost for a letter sent first class. Back

2  The Further Liberalisation of Community Postal Services: Report of the Select Committee on the European Union; HL Paper 6 (2000-01). Back

3  (20931) -; (20932) -; (20933) - ; see HC 23-viii (1999-2000), paragraph 18 (9 February 2000).  Back

4  (21826) - ; see HC 23-xxxi (1999-2000), paragraph 3 (29 November 2000). Back

5  Press Release: Brussels (04-12-2000) - Nr. 14056/2/0. Back

6  Pages 34 to 37 refer. Back

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