Documents considered by the Committee on 30 March 2010 - European Scrutiny Committee Contents

4   Trade in services: compensatory adjustments under the General Agreement on Trade in Services



+ ADDs 1-17

COM(07) 154

Draft Council Decision on the conclusion of the relevant agreements under Article XXI GATS with Argentina, Australia, Brazil, Canada, China, the Separate customs territory of Taiwan, Penghu, Kinmen and Matsu (Chinese Taipei), Columbia, Cuba, Ecuador, Hong Kong China, India, Japan, Korea, New Zealand, the Philippines, Switzerland, and the United States on the necessary compensatory adjustments resulting from the accession of the Czech Republic, the Republic of Estonia, the Republic of Cyprus, the Republic of Latvia, the Republic of Lithuania, the Republic of Hungary, the Republic of Malta, the Republic of Austria, the Republic of Poland, the Republic of Slovenia, the Slovak Republic, the Republic of Finland, the Kingdom of Sweden to the European Union

Legal baseSee below
DepartmentBusiness, Innovation and Skills
Basis of considerationMinister's letters of 25 June 2007, 13 March 2009 and 23 March 2010
Previous Committee ReportHC 41-xxi (2006-07), chapter 12 (9 May 2007)

HC 19-xi (2008-09), chapter 7 (18 March 2009)

To be discussed in CouncilSee below
Committee's assessmentLegally important
Committee's decisionCleared (decision reported on 9 May 2007)


4.1  All Members of the World Trade Organisation (WTO) have entered into legal commitments under the WTO's General Agreement on Trade in Services (GATS) to guarantee a level of market access for service providers from other WTO members in certain specified sectors. Article XXI of GATS requires those WTO members wishing to vary or remove commitments to enter into consultations with other members which consider themselves adversely affected, with a view to offering appropriate compensation in the form of other commitments in other services sectors.

The current document

4.2  The enlargements of the Community to 15, and then 25, Members, and the need to bring the GATS commitments of those new Member States into line with the Community's existing commitments, meant that some of the commitments already entered into by those Member States had to be removed, and negotiations subsequently took place between the Community and the 17 WTO Members which claimed to be adversely affected. This draft Decision, which the Commission put forward in March 2007, seeks the Council's approval to the outcome of those negotiations.

4.3  We noted in our Report of 9 May 2007 that this was the first time that the GATS Article XXI process had been used, and the Community's approach in this case therefore set an important precedent. We were told that the UK supported the Commission's view that the Community should conclude a substantive package of compensation in order to demonstrate that WTO commitments cannot be withdrawn lightly, and regarded the outcome of these negotiations as balanced.

4.4  However, the Government also drew attention to the fact that the Commission had cited Articles 133(1) and (5)EC as the legal base for the draft Decision, and had effectively argued that it has exclusive competence in all areas covered by the Agreement, whereas the UK (and other Member States) considered that, where issues such as education are referred to, Article 133(6)EC provides that competence is shared, and that the common accord of Member States is required. It therefore took the view that, in such cases, Article 133(6) should be cited as an additional legal base, and that the Decision needed to notify the consent of the Member States to be bound by the Agreements in areas where they share (or have exclusive) competence.

4.5  Since the measures proposed did not in themselves appear to be controversial, we cleared the document, but we commented that we shared the Government's view that the matters covered by these measures were not all within the exclusive competence of the Community, and that accordingly Article 133(6) should also be cited as the legal base. On the assumption that the UK (along with other Member States) would be raising this issue, we asked the Government to let us know how this question of competence was resolved.

4.6  We subsequently received from the Government a letter of 25 June 2007, indicating that Articles 71 and 80(2)EC, together with Article 300(3)EC, should be included in addition to Article 133(6), as some of the measures in question related to transport. However, as these changes were being firmly resisted by the Commission, and required unanimity among Member States, which might not be forthcoming, we decided to await further developments before reporting to the House.

4.7  This was followed by a letter of 13 March 2009 saying that the Council had since agreed unanimously that the legal base should be extended to include Articles 71, 80(2), 133(6) and 300(3), but that, as mixed competence agreements such as this require Member States to complete their own internal procedures before ratification can take place, the draft Decision had yet to proceed beyond COREPER.

4.8  We were also told that the Commission had challenged the Council's action, and had asked the Court of Justice for a ruling. That was now awaited, but, in the meantime, the UK had intervened in support of the Council. In noting this further information in our Report of 18 March 2009, we said we would be interested to hear in due course the outcome of the Court's consideration.

Minister's letter of 23 March 2010

4.9  We have now received a letter of 23 March 2010 from the Minister for Trade, Investment and Small Business at the Department for Business, Innovation and Skills (Lord Davies of Abersoch). He says that the Court issued its Opinion on 30 November 2010, the day before the Treaty of Lisbon entered into force, noting that it had been asked to consider whether, under the terms of the (existing) Treaty, the Commission could enter into the EC-25 Agreements alone or whether Member States should also be parties in their own right. He says, that, in its Opinion, the Court agreed with the Council and the Member States

  • that the EC-25 Agreements were international agreements within the scope of Article 300 of the EC Treaty;
  • that practical considerations were not relevant to the question of Community competence;
  • that Agreements must be concluded jointly by the Community and the Member States if they contain provisions that fall within the specific sectors set out in Article 133(6) — it is not necessary for the agreement wholly or predominantly to deal with those sectors;
  • that the final paragraph of Article 133(6) acts as an exception to Article 133(5) and provides that agreements relating to trade in transport services do not form part of the Common Commercial Policy;
  • that the EC-25 Agreements contain substantive provisions relating to the sensitive service sectors listed in Article 133(6) and transport services; and
  • that, for these reasons, the EC-25 Agreements could not be concluded by the Community alone and needed to be concluded jointly with the Member States.

The Minister also points out, since the Treaty of Lisbon, which has made significant changes to the scope of the Common Commercial Policy, entered into force the day after the Court delivered its Opinion, the outcome has in some respects already been overtaken. He adds that the Commission is currently considering how to proceed in light of these changes, and that the Government will keep us updated on developments.


4.10  We are grateful to the Minister for this further information, and we have noted the latest position, which does not of course affect our earlier clearance of the proposal.

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