Memorandum submitted by Open Europe
This document focuses on the first two questions
posed by the Committee in its enquiry into the Annual Policy Review:
which of the proposed measures are significant and which might
raise questions about subsidiarity and proportionality?
Our analysis follows the structure of the Commission's
Environment and energy
Gas network and European Grid: to what extent
might these proposals imply a single regulator? To what extent
are problems with energy markets due to a lack of physical infrastructure
rather than due to dominant players in the market? How much would
an increase in interconnection cost and what would the benefits
be for the UK?
Oil stocks system and enhanced energy solidarity:
If this implies an increase in statutory reserve requirements
the cost could be quite substantial. The UK Government has resisted
increased requirements in the past. New obligations of energy
"solidarity" should be looked at carefully.
Energy competence in general: there are a number
of energy policies proposed here. Given the lack of such a competence
in the treaties at present, presumably such proposals would have
to involve the heavy use of Article 308 as a base.
The Global Climate Policy Alliance does not
appear to have been mentioned before by the Commission. Despite
rhetoric about "encouraging" developing countries to
"engage" with the issue, this proposal is likely to
raise a number of controversial issues. In particular, in the
section on the budgetary implications of the 2008 foreign policy
priorities, the Commission suggests that as well as spending 50m
on the GCPA, which will encourage both adaptation and emissions
mitigation, it also hopes that there will be "synergies from
the EDF"implying that aid funds may be diverted to,
or made conditional on GHG mitigation: a very controversial suggestion.
There might be similar concerns about the parallel suggestion
of a Global Energy Efficiency and Renewable Energy Fund.
Post 2012 responsibilities: The Policy Strategy
notes that 2008 will be the key year for the negotiation of a
post-Kyoto agreement, and international burden sharing agreements.
However, EU members will have already made commitments to 2020
in the autumn of 2007, when the division of the recently agreed
20% reduction commitment is negotiated. Because of their significance
Open Europe believes that the ESC and other Committees should
give those negotiations particular scrutiny.
Emissions controls on shipping; legislation
to reduce nitrogen oxide emissions from aviation; and legislation
on nuclear waste management are all almost certain to raise subsidiarity
questions and also questions of external competence.
Legislation on urban transport raises major
subsidiarity issues. Matthias Ruete, Director General, European
Commission, DG Transport commented recently that "For many
years, the issue of urban transport was kept hidden behind the
principle of subsidiarity. As a consequence, very little initiatives
and proposals were put forward by the EC for the last 10 years.
The time has come to change that attitude." Messages received
from politicians, representatives of the European Institutions,
local authorities and citizens call for actions at European level.
There are expectations from the EU while its real competences
are limited." We are not convinced that this is the case.
This year's green paper, (expected in September)
should give a clearer indication of what specific policies are
likely to be proposed. Transport Commissioner Jacques Barrot has
noted possible areas for intervention, such as regulation of urban
infrastructure use, pricing systems (such as an EU-wide policy
on congestion charging) and traffic management/ control systems.
Others have suggested harmonised standards for public transport.
Matthias Ruete, has said that "There will be opportunities
for a European policy to achieve harmonisation, better coordination
and cooperation at European level and to identify good ways for
financial support, and if and when necessary, new legislation.
We will repeal existing legislation or possibly introduce new
legislation regarding for example interoperability questions,
crossborder pursuit of traffic offenders, air quality, etc".
Barrot concluded that "Concerns about the
respect of the subsidiarity principle should not be in any way
a barrier to proposals for new initiatives." An EU-wide road
charging scheme as the eventual goal has been widely discussed,
and legislation on the interoperability of road pricing systems
suggests a move in this direction. This issue deserves scrutiny
Single Market review: The Policy Strategy mentions
that the Commission will review the EU's Financial Services Action
Plan, the implementation of which is now nearly complete. The
FSAP has proved extremely costlywe estimate costs of up
to £23bn in the UKwhilst the mooted benefits remain
uncertain given divergent implementation and enforcement between
member states. Given the significance of these costs we believe
these questions deserve a great deal of attention in ESC and other
We believe the Commission must be prepared to
radically overhaul the legislation passed under the Financial
Services Action Plan as part of the review.
Experience has shown that complex, pan-European
harmonising regulatory initiatives on this model present many
serious pitfalls. Future EU policy in financial services is likely
to focus on retail markets, with proposals for standardised rules
on savings and investments a strong possibility. Broadly speaking,
a number of large continental firms (such as BNPP, Allianz and
Axa) support an approach tending towards harmonisation, whilst
UK firms maintain doubts over harmonisation, preferring the EU
to focus on breaking down barriers to entry in other member states'
markets and promoting regulatory competition. They hold that there
is limited consumer demand for "cross-border" purchase
of retail financial services, and therefore little need for harmonised
rulesmarket integration has occurred, and will continue
to occur, on the basis of foreign acquisitions and setting up
Open Europe supports the latter approach, and
would emphasise the dangers of harmonisation in this area. This
danger has already been demonstrated by the Insurance Mediation
Directiveattempting to create a standardised rulebook for
sales of retail insurance products in Europewhich has generated
huge compliance costs (£400 million per year according to
the ABI) whilst not improving consumer protection. The currently
stalled Consumer Credit Directive risks creating similar problems.
There are now fears within the UK industry that EU policymakers
will return to harmonisation and repeat previous costly mistakes
without successfully unlocking the benefits of cross-border trade.
Common Corporate Tax Base: Tax Commissioner
Laszlo Kovacs has already said that the EU will push for a harmonised
corporate tax base in Europe by 2010. EU member states are deeply
divided over tax harmonisation, with 12 capitals in favour, five
to seven against and the rest remaining undecided. However, to
circumvent this lack of consensus, the Commission plans to use
the mechanism of "enhanced cooperation", which allows
at least eight member states to pursue and adopt policy which
may be opposed by others.
While in principle there is no reason why we
should object to this, close scrutiny will be essential to ensure
that any harmonisation of tax bases and accounting procedures
cannot be used as a "lever" to put pressure on non-participating
members to harmonise their tax rates.
The Common European Asylum System raises many
questions. Given that the system is intended to be in place by
2010, policy is marching a long way ahead of public awareness.
While the significance of these measures for the UK depends partly
on the UK's level of participation, it would be wrong to believe
that if we do not opt in it will not affect us. Free movement
across the Schengen space means that there are likely to be knock-on
effects even if the UK does not participate. Legislation on the
entry of seasonal workers and remunerated trainees will raise
New powers for the external borders agency:
The Commission's proposed migration "surveilance system"
is new and will deserve careful scrutiny.
The Commission proposes a "combined migration
and development agenda": this implies that aid will be made
conditional to some degree on reducing emigration, which is likely
to be controversial.
Education and research
The European Institute of Technology is moving
ahead despite criticism from, amongst others, the UK Government.
The Policy Strategy states that preparatory work will be carried
out in 2008. All of this will deserve careful scrutiny as it is
not clear what value the EIT is adding, even as a "decentralised"
institution working with existing universities.
Agriculture and fishing
Improved "enforcement" of the CFP
is interesting because it implies that the current, fundamentally
flawed, framework will stay in place. A more balanced approach
to enforcement would be welcomefor example UK Fisheries
Minister Ben Bradshaw has complained that the EU Commission is
allowing French fishermen to catch 40% more tuna than their quota
while penalising UK and Irish boats for going over their herring
and mackerel quotas. Scrutiny might usefully be applied to the
question of whether tougher "enforcement" of the current
system is likely to solve its obvious problems.
The Globalisation Adjustment Fund, initially
opposed by the UK, should be monitored carefully.
Defining Services of General Interest will be
hugely significant for public services.
Initiatives designed to prevent discrimination
outside the labour market seem, prima facie, to be likely to raise
serious questions about subsidiarity for obvious reasons. The
recent debate in the UK over the right of non-governmental adoption
agencies not to place children with homosexual couples is a good
example of the sort of controversial question that these proposed
measures might cover. It is not at all clear why such controversial
decisions should be made at European level, when their scope is
explicitly nothing to do with the labour market.
Measures aimed at "Reconciling family and
working life": The proposed measures to "enhance a better
reconciliation between family and professional life" could
easily lead to another attempt to remove the UK's opt-out from
the working week or further measures to restrict working time.
We believe that if the principle of subsidiarity is to have any
real meaning then this would not be an area for EU action. We
note that according to the British Government's own impact assessments
the Working Time Regulations have cost the UK economy £14.2
billion since 19998
and that the DTI has calculated that the UK's opt-out is worth
£9 billion annually. UK
businesses would be firmly opposed to any further EU regulation
of working time. It is curious that the EU Commissionwhich
is committed to a "better regulation" agendais
still pushing to stop workers from deciding how many hours they
want to work in a week.
Consular Protection: The Commission's green
paper from the end of November 2006 suggests that this proposal
is likely to be very controversial. It stated that "The Barnier
report suggested that all passports should have Article 20 EC
printed in them. In its report of 15 June 2006 to the European
Council, the Council Presidency asked the Member States to print
Article 20 EC in passports. The Commission considers that this
would be an effective way of reminding citizens of their rights."
It also suggested setting up common offices,
arguing that "Setting up common offices would help to streamline
functions and save on the fixed costs of the structures of Member
States' diplomatic and consular networks... these offices could
be housed in various representations or national embassies or
in just one, or they could share the Commission delegation."
It went on to say that "the EU consulates could take over
functions now controlled by member states, including issuing visas.
"In the long term, common offices could perform consular
functions, such as issuing visas or legalising documents."
Rights of the child
The policy strategy suggests, but does not explain,
a range of possible actions under the heading of the "rights
of the child." Measures which would involve the EU attempting
to regulate the internet or determine age limits on buying violent
computer games are likely to raise questions about subsidiarity
and also practicality.
Fighting organised crime and terrorism
Strengthening Eurojust: The Policy Strategy
talks about Eurojust both "investigating and prosecuting"
criminals. Eurojust President Michael Kennedy also recently argued
that: "Ultimately there should be some sort of operational
structure, giving powers to Eurojust to investigateor to
take part in investigationsand prosecute." Such
powers would raise significant subsidiarity questions. The phrase
"strengthening Eurojust" is often used as shorthand
for moves towards creating a European Public Prosecutor's office.
Commissioner Frattini recently said that this is an idea that
"needs to be explored".
The proposal for a European Public Prosecutor is unacceptable
for a number of reasons not least because it would act as a catalyst
for further harmonisation of member states' criminal law. The
creation of the position itself could create problems for common
A central fingerprint database. While we recognise
the value of police cooperation in Europe in helping to tackle
organised crime and trafficking, we have misgivings about drives
towards sharing intelligence across the EU such as the measures
involved in the Prum Treaty. There are currently few safeguards
in place to stop corrupt officials obtaining sensitive information
from other countries and virtually no way of checking that the
informationonce obtainedis used for legitimate purposes.
This poses a particular risk in respect of the two newest member
states, especially in the light of the concerns raised over the
independence of their judiciaries and police forces. We are particularly
wary about plans for a centralised database of fingerprints which
poses a number of civil liberties issuesnot least with
whom it would be shared; who would have access to it; what data
it would become compulsory for member states to collect to support
it; and what types of data might be merged (passport applications,
asylum applications, travel data, criminal data) and under what
system (hit or no hit etc).
A policy to tackle violent radicalisation could
be questioned on subsidiarity grounds. It is not clear why such
action need to be taken at European level.
The Doha round versus the "Competitiveness
agenda". The Communication notes that "the Union is
working hard to ensure the successful completion and implementation
of the Doha Development Round". We would question the level
of this "commitment", given the limited nature of the
EU offer. In particular, the "small print" of the EU's
offer blocks a really successful outcome at Doha through its special
conditions for so many `sensitive' products.
The Communication notes that this "will
be complemented by bilateral negotiations for a new generation
of free trade agreements with important emerging economies",
under which it plans to agree new Free Trade Agreements with India,
South Korea and the Association of Southeast Asian Nations (ASEAN).
A wider issue which deserves scrutiny is the
tension between a commitment to the multilateral approach and
the pursuit of bilateral deals with mid-income countries.
Failure to agree a substantial multilateral
deal is already leading to an explosion in the number of discriminatory
bilateral deals. These will not deliver anything like the benefits
of multilateral liberalisation, and could actually be damaging
for developing countries because of the "hub and spoke"
The deals with Korea and ASEAN undermine both
the EU's supposed commitment to multilateralism, and its supposed
commitment to a system of income based trade preferences. The
bilateral deals are likely to have a marginal effect on income
in the EU even if successful, but are likely to damage LDCs and
other low income countries, which would suffer preference erosion
without receiving any corresponding benefits. Given the EU's use
of preference erosion as an argument against radical multilateral
liberalisation, this is hypocritical in the extreme.
Economic Partnership Agreements: 1 Jan 2008
is the deadline for the entry into force of Economic Partnership
Agreements (EPAs) which are very significant and deserve more
The basic goal of EPAs is for African, Caribbean
and Pacific (ACP) countries to form themselves into six regional
blocs which will liberalise trade both amongst themselves and
with respect to the EU. The Commission hopes that the EPA regions
will agree to form a common external tariff. EPAs are scheduled
to be finalised by the end of 2007. The Commission has refused
to rule out increasing tariffs on non-LDC ACP countries should
they fail to sign an EPA by the end of the year.
Many ACP ministers are concerned that developing
countries will be compelled to liberalise trade in goods and services
too much, too fast, the main risk being the effect of rapidly
opening up trade to the EU. There are fears that ACP exporters
will not significantly increase their exports to the EU, while
European exporters largely increase their shares on the ACP markets,
meaning that ACP countries will undergo major trade imbalances,
drops in industrial output and job losses. By imposing an external
timetable for liberalisation the EU risks undermining rather than
boosting support for free trade.
Whilst the EU argues that the new regime will
help to foster regional integration, and increase "south-south"
trade, aiding the integration of developing countries in the global
economy, the opposite could be the reality. The Overseas Development
Institute argues that, "If regional partners do not have
identical tariffs towards the EU the effect will be to give new
impetus to maintaining border controls between themto intercept
European goods entering an EPA state with a low tariff and being
transhipped to one with a high tariff." 
The Communication says that the European Development
Fund will "strive for synergies" with the EPAs. Making
EU aid conditional on the acceptance of EPAs would be controversial.
Several developing country governments see the current shape of
the negotiations as the worst of both worlds: the EU will not
agree formal aid commitments within the EPAs, but is threatening
to make future aid conditional on the degree to which countries
accept the EU's negotiating objectives.
The "Better regulation" agenda deserves
further scrutiny as it appears to be having little effect so far.
In 2004 the EU Commission pledged to build "a
bonfire of red tape" as it announced its new Better Regulation
programme. Industry Commissioner Gunter Verheugen said that "cutting
red tape" would be his "personal trademark." In
spite of this fine sounding rhetoric there has been little in
the way of results on the ground.
Verheugen said that he wants to slay the public
perception that Brussels is "a bureaucratic monster whose
tentacles leave no village untouched," by repealing or simplifying
1,500 pieces of existing EU legislation over three years. But
the results have been disappointing. 
In late September 2005, the EU Commission announced
that it had decided to withdraw 68 pending proposals for legislation.
However, on close inspection, it is clear that this was not the
"bonfire of the diktats" it was purported to be. Most
of the 68 bills concerned were already obsolete, or had been pending
for years. 27 of them, for example, were over five years old,
and 22 of them concerned the association agreements signed with
the ten new member countries, which all became defunct when they
joined the EU last year. Many of the other regulations are to
be rewritten and will return in one form or another.
The next step in the EU Commission's campaign
against over-regulation was announced in October 2005. It said
it had turned its attention to the 85,000 pages of EU legislation
already in existence and said that it aimed to reduce the damage
this does to the competitiveness of European businesses, by repealing
or recasting 222 pieces of legislation. But
again, on close inspection the reality is disappointing. Only
eight directives or regulations are definitely going to be repealed
and not replaced with other regulations, and the Commission is
actually proposing to introduce a new regulation which will apply
to small firms. This will make very little impact on the mountain
of existing EU regulation. Such was the resistance to reform within
the Commission itself that only 50 of the directives intended
to be rewritten or repealed had been completed by the end of 2006.
Given that Commissioner Verheugen has said that
the administrative burden of EU regulation alone costs the EU
economy over 600 billion a year, the Commission's approach
is not commensurate to the scale of the problem. Rather than focusing
on redrafting and consolidating regulations the Commission needs
to focus on repealing rather than simply consolidating legislation.
8 British Chambers of Commerce, Burdens Barometer 2007. Back
Sunday Express, 9 February 2004. Back
Seminar, 16 April 2007. Back
EUobserver, 17 April 2007. Back
Overseas Development Institute Briefing Paper 4 (June 2006). Back
26 October 2006, Financial Times. Back
A Strategic review of Better Regulation in the European Union,
14 November 2006. Back