Documents considered by the Committee on 4 June 2014, including the following recommendation for debate: Road Safety: eCall - European Scrutiny Committee Contents


1 Road safety: eCall

Committee's assessment Politically important
Committee's decisionCleared from scrutiny; debate recommendation of 30 April rescinded

Document detailsDraft Regulation concerning deployment of the eCall in-vehicle emergency call system
Legal baseArticle 114 TFEU; co-decision; QMV
DepartmentTransport

Summary and Committee's conclusions

1.1 eCall is a technology designed to send in-vehicle emergency calls using the EU-wide 112 emergency telephone number (which defaults to 999 in the UK) either automatically, in the event of an accident, or when activated manually. This draft Regulation seeks to create the type approval requirements for eCall devices and mandate their fitment to new types of passenger cars and light commercial vehicles from October 2015.

1.2 When we last considered the draft Regulation, in April, we heard that:

  • the Government had had some success in improving the text of the proposal in working group discussions, but there remained significant issues of concern for the UK; and
  • working group discussions were expected to continue during May, with a possible general approach at the Competitiveness Council on 26 May.

1.3 We recalled our earlier recognition that the Government would not be able to stymie this proposal and noted the improvements the Government had, to a greater or lesser degree of certainty, achieved. However, we were not convinced that the text that might be adopted as a general approach on 26 May was assuredly and sufficiently improved to warrant us clearing it from scrutiny, so that the Government might endorse such a general approach. So, given the constraints of the Parliamentary timetable, rather than waiting until the Government was able to inform us, as suggested, of further negotiations ahead of the Competitiveness Council, we recommended that the draft Regulation be debated in European Committee A. We suggested that during that debate Members could hear what developments had occurred and seek reassurance on assured positive outcomes.

1.4 We are told now that:

  • the Presidency, after some indecision, decided to seek agreement on a general approach on the draft Regulation, at the 26 May Competitiveness Council, which would include many of the improvements the Government had been seeking;
  • nevertheless, the Government is concerned that some details are still not right, and it remains opposed to the mandatory requirement for manufacturers to fit eCall devices to new vehicle types;
  • the Government therefore concluded that it should oppose the general approach, on the basis that although improvements in the text have been made, in principle it still opposes the measure, due to the limited benefits that would accrue to the UK, compared to the costs that would be incurred; and
  • due to the uncertainty of developments and the timing of Prorogation it had not been possible to schedule the debate we had recommended before the Competitiveness Council.

1.5 Given that this latest information is what we were seeking with our debate recommendation and that the Government voted against the general approach, we rescind the debate recommendation and clear the document from scrutiny.

Full details of the documents: Draft Regulation concerning type-approval requirements for the deployment of the eCall in-vehicle system and amending Directive 2007/46/EC; (35067); 11124/13; COM (13) 316.

Background

1.6 eCall is a technology designed to send in-vehicle emergency calls using the EU-wide 112 emergency telephone number (which defaults to 999 in the UK) either automatically, in the event of an accident, or when activated manually. In 2011 the Commission adopted a Recommendation, 2011/750/EU, that mobile network operators should ensure their networks are capable of carrying eCalls.[1]

1.7 This draft Regulation seeks to create the type approval requirements for eCall devices and mandate their fitment to new types of passenger cars and light commercial vehicles from October 2015. The proposal sets out obligations on manufacturers and Member States, the requirements for privacy and data protection for users, the vehicles to which it applies and the date of introduction.

1.8 The draft Regulation has been accompanied by a draft Decision, now adopted, which sought to ensure that all emergency call Public Safety Answering Points (PSAPs) are mandated to handle eCalls, when they are triggered, either automatically or when activated manually, in the event of an accident. The Commission wished to ensure that by 1 October 2015 that eCalls would be generated, transmitted and handled consistently across the EU, but the adopted Decision substituted the date of 1 October 2017.[2]

1.9 When we first considered these documents, in July 2013, we said that, whilst we recognised the potential value of the eCall system, we understood the Government's concern about obligatory aspects of its development. So, although we presumed that the Government expected that QMV would not allow it to stymie the draft Regulation, we asked to hear about its attempts during negotiations to mitigate the effects of the proposal itself, including in relation to data protection and privacy issues, and to obtain assurances about possible mitigation in subsequent delegated acts.

1.10 When we last considered the draft Regulation, in April, we heard that:

·  the Government had had some success in improving the text of the proposal in working group discussions, but there remained significant issues of concern for the UK;

·  working group discussions were expected to continue during May, with a possible general approach at the Competitiveness Council on 26 May;

·  negotiations on a possible second reading agreement would then take place with the new European Parliament; and

·  we would be informed of further negotiations ahead of the Competitiveness Council.

1.11 We recalled our earlier recognition that the Government would not be able to stymie this proposal and noted the improvements the Government had, to a greater or lesser degree of certainty, achieved. However, we were not convinced that the text that might be adopted as a general approach on 26 May was assuredly and sufficiently improved to warrant us clearing it from scrutiny, so that the Government might endorse such a general approach. So, given the constraints of the Parliamentary timetable, rather than waiting until the Government was able to inform us, as suggested, of further negotiations ahead of the Competitiveness Council, we recommended that the draft Regulation be debated in European Committee A. We suggested that during that debate Members could hear what developments had occurred and seek reassurance on assured positive outcomes on issues related to application to new vehicles only, exemptions for low volume and special purpose vehicles, the target date for fitment of eCall systems, use of third-party eCall, privacy and data protection and the use of delegated acts.

The Minister's letter of 29 May 2014

1.12 The Parliamentary Under-Secretary of State, Department for Transport (Stephen Hammond) says that since the Government's last report to us:

·  its discussions with the Presidency and its revised draft agenda indicated that it planned to schedule a progress report at the 26 May Competitiveness Council and would not seek a general approach;

·  there was, however, a further Council working group meeting on 7 May, at which the Presidency announced that it would submit the draft Regulation to the Competitiveness Council for agreement of a general approach;

·  the Government has, as noted previously, worked with other Member States to minimise the potential burdens on manufacturers and the potential cost to consumers and has achieved many of the improvements it proposed during the negotiations; and

·  the general approach will include these improvements.

1.13 The Minister continues that he can now confirm that:

·  the proposed Regulation would apply to new models of vehicle only, and not to models already on sale on the date of application;

·  it contains an exemption for low volume vehicles and the Government has achieved a partial exemption for special purpose vehicles (for example, motor caravans), which is applicable when it is most necessary, that is where an eCall system is not already fitted to the base vehicle;

·  the Government has succeeded in pushing back the date of application until three years after the adoption of the Regulation and obtaining permission for the continued provision of third-party (private) eCall;

·  with regard to the rules on privacy and data protection, text that the Government proposed has now been agreed, to prevent the collection and retention of vehicle location data — except that which is necessary to notify the emergency services of the vehicle's precise location and direction of travel;

·  this will prevent any tracking of the vehicle via the eCall device by third parties, contrary to allegations in recent press coverage;

·  the Commission has been granted delegated act powers to draft detailed specifications on exemptions and the type approval procedure, whilst detailed privacy specifications will instead be dealt with as implementing acts, where a vote from Member States will be needed to agree them; and

·  in addition, Member States have agreed that powers to adopt the delegated acts would be limited to five years rather than granted indefinitely.

1.14 The Minister then tells us that:

·  there has been continuing cross-government consideration of the UK's final negotiating and voting position;

·  during this process, the Government gave careful consideration to the position that it should take, noting that it appreciates the work that the Presidency has done to improve the technical details of the Regulation and welcomes the revisions made to the text;

·  nevertheless, the Government is concerned that some details are still not right, and it remains opposed to the mandatory requirement for manufacturers to fit eCall devices to new vehicle types; and

·  the Government therefore concluded that it should oppose the general approach, on the basis that although improvements in the text have been made, in principle it still opposes the measure, due to the limited benefits that would accrue to the UK, compared to the costs that would be incurred.

1.15 The Minister, recognising that we have shared many of the Government's concerns on this proposal and referring to our debate recommendation, says that:

·  he notes in particular that we made the recommendation because we were not convinced that the text was sufficiently improved to warrant clearing it from scrutiny to enable the Government to endorse a general approach;

·  he shares that view, but was not in a position to inform us earlier of the Government's voting intentions because these were still under discussion;

·  he hopes we now have the assurance we lacked previously;

·  he would have preferred to schedule the debate ahead of any general approach on the draft Regulation, but given the Presidency's changes of mind over its plans for the Competitiveness Council, the tight timetable ahead of Prorogation and the need to reach a Government position, it was not possible to schedule a debate prior to Prorogation.

1.16 Finally, the Minister says, on the assumption of an agreed general approach, that:

·  negotiations on a possible second reading agreement are likely to take place with the new European Parliament in the autumn; and

·  the Government will continue to work to minimise the impact of the proposal on UK businesses and consumers, as well as to protect the concessions it has already gained.

Previous Committee Reports

Twelfth Report HC 83-xii (2013-14), chapter 5 (17 July 2013), Thirty-ninth Report HC 83-xxxvi (2013-14), chapter 4 (12 March 2014) and Forty-seventh Report HC 83-xlii (2013-14), chapter 2 (30 April 2014)


2 Network Information Security across the EU
Committee's assessment Legally and politically important
Committee's decisionNot cleared from scrutiny; further information requested
Document detailsDraft Council Directive to ensure a high common level of network and information security across the European Union
Legal baseArticle 114 TFEU; ordinary legislative procedure; QMV
DepartmentBusiness, Innovation and Skills

Summary and Committee's conclusions

2.1 The proposed Directive aims to put measures in place in order to avert or minimise the risk of a major attack or technical failure of information and communication infrastructures (ICT) in Member States.

2.2 The Committee has been concerned from the outset about the need for a legislative approach at all and, thus, about the scope and prescriptive approach of the proposed Directive, as well as the Commission's proposed use of delegated acts throughout the Directive.[3]

2.3 The Minister now reports that the Greek Presidency has:

—  abandoned its ambition to seek a General Approach at the 6 June Telecoms Council, and will be producing a revised text to help the incoming Italian Presidency;

—  in the meantime has produced a "non-paper" outlining the principles that they believe could form the basis of a Council compromise position;

—  the paper was heavily influenced by an earlier UK paper, represents the UK's preferred position to a broad degree and offers a marked improvement on the Commission's original proposal; and

—  whilst there are still outstanding concerns for all Member States and the detail will need very careful consideration, Council was in broad agreement that a final compromise position could emerge from the principles outlined in the non-paper.

2.4 With regard to our question concerning which aspects of the proposed Directive would be subject to implementation via Delegated Acts, the Minister says:

    "The principles proposed by the Presidency do not envisage the use of any delegated act and, given the strength of feeling about this in Council, it would be surprising if they formed any part of an eventual Council position.

    "The European Parliament position has retained the use of a delegated act only in relation to the secure information sharing system in Article 9; the Presidency's non-paper suggests that the Council should push to delete this article altogether. This principle garnered wide-spread support from Member States, including the UK."

2.5 Against this background, we agree with the Minister that the direction of travel of this Directive is now much more acceptable to the UK. However, there are clearly hurdles yet to be over-come. As well as being kept closely updated on the future progress of this dossier, we also expect that, once it has been promulgated, the revised Directive will be deposited along with a further Explanatory Memorandum.

2.6 In the meantime, we shall continue to retain this draft Directive under scrutiny.

2.7 We also again draw this chapter of our Report to the attention of the Business, Innovation and Skills Committee.

Full details of the documents: Draft Directive of the European Parliament and of the Council concerning measures to ensure a high common level of network and information security across the Union (34685): 6342/13 + ADDs 1-2; COM (13) 48.

Background

2.8 The context to the proposed Directive is set out in the over-arching Joint Communication 6225/13, "Cybersecurity Strategy of the European Union: An Open, Safe and Secure Cyberspace", which we also considered at our meeting on 13 March 2013.[4]

The draft Directive

2.9 The draft Directive is fully summarised in our first 2013 Report.[5] In essence, it aims to ensure a high common level of network and information security (NIS): to put in place measures to avert or minimise the risk of a major attack or technical failure of information and communication infrastructures (ICT) in Member States. It includes:

—  obliging all Member States to produce a national cyber security strategy and establish contact points for information sharing and cyber incident handling;

—  mandating the establishment of "competent authority" and a Computer Emergency Response Team (CERT) in each Member State;

—  mandating information sharing between Member States, as well as establishing a pan-EU cooperation plan for handling for cyber incidents;

—  promoting good risk management practices by the private sector through the expanding the requirement currently applying only upon the telecoms sector of obligatory security breach disclosure to the finance, energy, transport and health sectors, as well as to "providers of internet society services"; and

—  encouraging the take up of cyber security standards, with possible harmonisation measures being taken by the Commission.

2.10 In his first update in April 2013, the Minister (Mr David Willetts) agreed that a certain degree of EU coordination was beneficial. But he noted that the Directive would require significant changes to UK law, and expressed a number of concerns. However, in the upcoming negotiations he appeared to be set not on resistance, but on damage limitation. So the Committee "tagged" its Report on the draft Directive to a debate on the over-arching Joint Communication on an EU Cybersecurity Strategy (which it was considering at the same time) — it being the first manifestation of that Strategy and, unlike it, highly prescriptive, notwithstanding the Minister's preference for, and the means open to the Commission to adopt, a non-legislative approach.[6] However, the debate focussed only on the Cybersecurity Strategy.[7]

2.11 The first of two updates from the Minister in 2014 contained some positive elements: a broad desire on the part of Member States to reduce the scope of the Directive and for more flexibility to determine which operators would fall under the scope of the reporting requirements; concerns regarding the inclusion of public administrations and information society service; many Member States wanting more flexibility around establishing a Computer Emergency Response Team (CERT), and clarity that it would be possible for existing bodies to perform the functions and tasks of the competent authority.

2.12 The Minister also reported some helpful elements in the European Parliament's text — though this was to some extent offset by the proposal to broaden the scope of the reporting requirements, and thus presumably to increase both the number of UK businesses that would be affected and the overall cost.

2.13 The Committee again asked the Minister why a legislative approach had been necessary at all.[8]

2.14 In his March response, he noted that insufficient Member States were prepared to reject a poorly prepared and inadequately justified Commission proposal. Even now — only a little over two months before the Presidency was aiming for agreement of a General Approach at the 6 June Telecoms Council — the lack of detail was such that the Minister could produce only a "best estimate" of the potential impact on UK business: in round figures, up to 23,000 UK businesses would have to find additional annual expenditure of £1-2 billion per annum. And the benefits were not yet clear. Some "very fundamental changes to the text" would be necessary for agreement on a General Approach.

2.15 Given the story so far, we noted that it might well be appropriate for the outcome of the negotiating process to be debated prior to this Council; and accordingly asked the Minister to provide his promised further update no later than Thursday 8 May (so that, if necessary, a debate could be arranged prior to the Whitsun recess). As well as dealing with the various uncertainties still surrounding the scope, costs and benefits of the proposed Directive, we asked to know precisely which aspects, if any, would be subject to implementation via delegated acts and, if so, why the Minister regarded them as consistent with the proper application of Article 290 TFEU. In the meantime, the Committee continued to retain the draft Directive under scrutiny, and drew the story thus far to the attention of the Business, Innovation and Skills Committee.[9]

2.16 In the meantime, we continued to retain the draft Directive under scrutiny.

The Minister's letter of 8 May 2014

2.17 The Minister says that, following pressure from the UK and other Member States, the Presidency has recognised that it would be too difficult to secure Council's agreement to a new text in this short timeframe, and instead:

—  intend to produce a progress report in advance of the Council meeting that outlines a number of common principles that have emerged from the Council deliberations; and

—  propose a redraft of the text of the proposal to help the incoming Italian Presidency (which, accordingly, will not be put to the 6 June Telecoms Council for agreement.

2.18 The Minister is sure that the Committee will "agree that this slower pace is to be welcomed". In the meantime, he says, the Presidency has produced a non-paper outlining the principles that they believe could form the basis of a Council compromise position.

2.19 The Minister continues as follows:

"This paper was heavily influenced by a paper provided to the Presidency by my officials, and represents the UK's preferred position to a broad degree and offers a marked improvement on the Commission's original proposal. The principles set out in the paper would generally provide Member States with much more flexibility in implementation of the Directive. I have attached this non-paper to my letter and as it is a 'limité' document, I would ask that you treat this in confidence. The main principles proposed in the paper are as follows:

  • "The definition of 'market operator' should be tied to common critical infrastructure sectors. There would need to be further discussion on criteria to allow Member States to then determine at a national level which individual operators make up these infrastructures.
  • "Member States should have sufficient flexibility to designate or maintain one or several competent authorities and there should be more flexibility regarding the requirements for a national Network and Information Strategy and a national Computer Emergency Response Team (CERT).
  • "There should be no requirement in the Directive for operational pan-EU cooperation: the directive should focus on policy/strategic cooperation instead.
  • "There should be no mandatory requirements for the sharing of information between Member States included in the Directive.
  • "The Directive should not specify requirements for an operational coordinated response to cyber crises but instead facilitate technical/practical cooperation amongst CERTs.
  • "The Directive should allow for both voluntary and mandatory reporting (mandatory reporting for cross-border incidents with a significant impact). Member States shall determine which incidents fall within scope of reporting requirements according to criteria set out in the Directive.

"This non-paper was examined at a working group on Monday 28 April and will be further discussed on 7 May. The initial response from Member States was that the document represented a balanced set of ideas that fully reflected the discussion to date in Council. Whilst there are still outstanding concerns for all Member States on the Directive and the detail will need very careful consideration, Council was in broad agreement that a final compromise position could emerge from the principles outlined in the non-paper. Most Member States also welcomed the fact that the Presidency no longer intended to prematurely push for a general approach in June."

2.20 With regard to our question concerning which aspects of the proposed Directive would be subject to implementation via delegated acts, the Minister says:

"Council has strongly and unilaterally opposed the inclusion of any delegated act in this Directive due to its sensitive nature. The principles proposed by the Presidency do not envisage the use of any delegated act and, given the strength of feeling about this in Council, it would be surprising if they formed any part of an eventual Council position.

"The European Parliament position has retained the use of a delegated act only in relation to the secure information sharing system in Article 9; the Presidency's non-paper suggests that the Council should push to delete this article altogether. This principle garnered wide-spread support from Member States, including the UK."

2.21 The Minister concludes thus:

"I hope that this letter provides you with the clarity and reassurance you were seeking over the progress of this Directive, and that you will agree with me that largely due to effective UK lobbying, the direction of travel of this Directive is now much more acceptable to the UK. I will of course keep you closely updated with the future progress of this dossier."

Previous Committee Reports

Thirty-fifth Report HC 86-xxxv (2012-13), chapter 6 (13 March 2013); Fortieth Report HC 86-xxxix (2012-13), chapter 4 (24 April 2013); Forty-fifth Report HC 83-xl (2013-14), chapter 2 (2 April 2014); also see (34680) 6225/13 Thirty-fifth Report HC 86-xxxv (2012-13), chapter 3 (13 March 2013).

3 Single-member private limited liability companies
Committee's assessment Legally important
Committee's decisionNot cleared from scrutiny; further information requested

Document detailsDraft Directive on single-member private limited liability companies
Legal baseArticle 50 TFEU; ordinary legislative procedure: QMV
DepartmentBusiness, Innovation and Skills

Summary and Committee's conclusions

3.1 This proposal seeks to assist small and medium sized enterprises (SMEs) carry out cross-border business by requiring Member States to establish single member private liability companies (SUPs) subject to standard and simplified rules for their formation and governance.

3.2 We ask the Minister for a further analysis of the suitability of Article 50 TFEU as a legal basis for this proposal in the light of the further consideration that is being undertaken by the Government.

3.3 We note that the Government:

·  supports the objective of allowing entrepreneurs, and in particular SMEs, to set up companies abroad more easily;

·  agrees with the Commission's subsidiarity arguments; and

·  does not consider that existing Directive 2009/102 helps to reduce the costs of setting up abroad for companies.

3.4 However it also asserts that there is no compelling evidence that the creation of the SUP form will achieve the desired objectives. This calls into question the need for this measure and, therefore its compliance with the principle of subsidiarity. Consequently, we ask the Government to provide further information, in the light of the intended consultations with stakeholders, on the anticipated impact of the proposal on UK SMEs wishing to carry out business in other Member States and on the scale of any possible adverse effect on domestic activity. In doing so it should also identify any specific provision which it considers either unnecessary to achieve the objectives of the proposal or which would have adverse consequences for UK businesses.

3.5 In the meantime we retain the document under scrutiny.

Full details of the documents: Proposal for a Directive on single member private liability companies, (35953) 8842/14, COM(2014) 212 + ADDs 1-5.

Background

3.6 Improving the business environment for all companies, is one of the main priorities of the EU's ten-year growth strategy, Europe 2020 — A strategy for smart, sustainable and inclusive growth.[10] According to the Commission, companies continue to find it costly and difficult to be active across borders and only a small number of small and medium sized enterprises (SMEs), which have an essential role to play in strengthening the EU economy, invests abroad. Directive 2009/102 seeks to facilitate cross-border activity by SMEs by requiring all Member States to allow companies to have a single shareholder and by regulating, in a limited fashion, the powers of a single shareholder.

3.7 In parallel the Commission proposed to address the costs of establishing a company abroad by its proposal for a European Private Company Statute (SPE)[11] a new legal form of company established at the European level and thus able to operate across all Member States. However that proposal required unanimity to be adopted and when it became clear that this was unlikely to be achieved the proposal was eventually withdrawn in 2013.[12]

3.8 Recognising the lack of progress in 2012 the Commission announced[13] that it would continue to explore the means to improve the administrative and regulatory framework in which SMEs operate in order to facilitate SMEs cross-border activities, provide them with simple, flexible and well-known rules across the EU and reduce the costs they are currently facing. At the time the Government indicated that given the prospect of continued disagreement on the proposal for a European Private Company (SPE), any new proposals on improving cross-border opportunities for SMEs should offer real opportunities for SMEs and envisaged working closely with the Commission in this respect.[14]

The Proposal

3.9 The key elements of the proposal are:

·  Member States would be required to provide in their national legislation a company law form for single-member private limited liability companies. It would have a common label — Societas Unius Personae (SUP). Member States would have the choice of how to introduce such a company form, e.g., by creating an additional form of single-member companies or by replacing an already existing form with SUP;

·  Member States would be obliged to allow for direct on-line registration of SUPs, without the need for a founder to travel to the country of registration for this purpose;

·  The proposal would provide for a standard template of articles of association, which would be identical across the EU, available in all EU languages and would contain the necessary elements to run a single-member private limited liability company. The use of the template of articles of association should be required if the SUP is registered electronically. If another form of registration is allowed by national law, the template does not have to be used, but the articles of association need to comply with the requirements of the Directive. The template would be brought forward under an EU implementing act after adoption of the Directive;

·  Protection for creditors would be ensured, through a balance sheet test and a solvency statement.

3.10 The proposal would also set out the rules and procedures applicable to SUPs:

·  An SUP would have full legal personality;

·  A sole member of an SUP would not be liable for any amount exceeding the subscribed share capital;

·  The sole member may exercise the powers of the general meeting of the company and decisions taken must be recorded in writing;

·  An SUP and its articles of association would be governed by the national law of the Member State where the SUP is registered;

·  An SUP may be incorporated by a natural or legal person (including another SUP);

·  An SUP may be formed as a new entity or by converting a company that already exists under another company form by following a conversion procedure prescribed by applicable national laws;

·  An SUP may be converted into another company form following the relevant procedure laid down by applicable national laws;

·  Any founder who is resident or who has a seat in the EU would be able to establish an SUP in another Member State electronically, without a need to travel to the country of registration (types of registration other than online will also be available);

·  Limited information and documentation only could be required for an SUP's registration, including its name, registered office address, business object, information about the founder and/or beneficial owner, and share capital;

·  An SUP would have only one issued share, which shall not be split, but which can be owned by more than one person (in which case, such persons will be regarded as one member in relation to the SUP, and act through a notified representative);

·  The share capital of an SUP must be at least €1 (or, if the Member State's currency is other than Euro, one unit of its currency). It must be fully paid and not be subject to a maximum value;

·  A distribution to the sole member may take place if the SUP satisfies a balance sheet test, demonstrating on the basis of the most recently adopted balance sheet that, after the proposed distribution, the remaining assets of the SUP will be sufficient to fully cover its liabilities. In addition, the management body of the SUP (comprising one or more directors) must provide a solvency statement to the sole member before any distribution is made, certifying that the SUP will be able to pay its debts as they fall due in the normal course of business in the year following the date of the proposed distribution.

The Government's Explanatory Memorandum of 1 May 2014

3.11 The Government is supportive of proposals which reduce the costs and burdens on companies, particularly SMEs. It therefore supports the overall objectives of this proposal to stimulate entrepreneurial activity by allowing entrepreneurs, and in particular SMEs, to set up companies abroad more easily, with the aim of stimulating growth, job creation and innovation in the EU.

3.12 It notes the Commission's assessment that SMEs produce 58% of EU GDP and account for 67% of all jobs in the private sector. They often find it costly and difficult to conduct business outside their own country, and only around 2% of all SMEs have a presence abroad in the form of a subsidiary, branch, or joint venture. This is in part because setting up a subsidiary (the legal form most commonly used by European SMEs) abroad is often burdensome due to conflicting company law requirements in national legislations across the EU. The Government then states that "As this is acknowledged as only part of the problem, there is no compelling evidence that the creation of the SUP form will achieve the desired objectives".

3.13 The practical impact of this Directive on domestic company forms is unclear. Whether or not SMEs are encouraged to set up subsidiaries, it is not a requirement for SUPs to be a subsidiary company. Therefore UK companies could convert to the SUP form and new companies could adopt the SUP form. It might be attractive for sole proprietors given the limited liability in the SUP form.

3.14 As the proposal for a single member private limited liability company is enabling legislation. Companies will not have to do anything unless they choose to transpose to the SUP form. The technical requirements of the process of registering a SUP as set out in the Directive, such as electronic incorporation, are currently available in the UK and do not raise any policy implications. Furthermore UK set up costs for private limited companies are already the lowest in the EU. Therefore it is not expected that the proposal would result in an increased number of foreign companies setting up in the UK, although there is the possibility that the UK may lose some of its advantage as a place to do business if the rest of Europe is brought into line with it.

3.15 The Government questions whether the proposed legal basis of Article 50 TFEU is suitable. This Article enables the EU to adopt measures to attain freedom of establishment. It notes that the Commission distinguishes this proposal from the SPE proposal, which had a legal basis of Article 352 TFEU, on the grounds that the SPE set up a supra-national legal form of company whereas this proposal requires a harmonised form of company to be made available in Member States' laws. This issue is being considered further.

3.16 It agrees the Commission's subsidiarity analysis, which is based on the following factors:

·  The cost for foreign founders of companies are likely to be more significant than for domestic founders. Also on-line registration is in practice only accessible to nationals or residents. This generates extra costs for foreign companies;

·  The simplification resulting from harmonised rules is theoretically possible to achieve by Member States acting individually, but this is highly unlikely.

3.17 In the Government's view Directive 2009/102 does not help reduce the cost of setting up abroad for companies as it does not address key issues such as formation, registration requirements, creditors' protection or minimum capital requirements.

3.18 The Government intends to consult with stakeholders on the impact of the proposal, both on the likelihood of setting up abroad and the impact on domestic activity.

Previous Reports

None.


4 Shareholder rights
Committee's assessment Legally important
Committee's decisionNot cleared from scrutiny; further information requested

Document detailsDirective amending Directive 2007/36 as regards the encouragement of long-term shareholder engagement and Directive 2013/34 as regards certain elements of the corporate governance statement
Legal baseArticles 50 and 114 TFEU; ordinary legislative procedure; QMV
DepartmentBusiness, Innovation and Skills

Summary and Committee's conclusions

4.1 This proposal amends the existing Shareholders' Rights Directive (2007/36) by introducing new provisions intended to facilitate the exercise of shareholders' rights, give them a greater say over directors' remuneration and increase transparency in respect of: the strategies of institutional investors and asset managers; the activities of proxy advisors; directors' remuneration; and related party transactions.

4.2 We note that the Government is broadly supportive of the objectives of this proposal which essentially matches UK law or existing codes of practice.

4.3 We share the Government's caution in regulating for matters currently covered by a voluntary code of practice and we therefore look forward to receiving the results of the Government's further consideration, in the light of stakeholder consultation, of the proposal to regulate in the areas presently covered by the UK stewardship code and the code of conduct for proxy advisors.  

4.4 We also look forward to receiving the results of the Government's further consideration of the provisions relating to charging by intermediaries, related party transactions and the power of the Commission to adopt subordinate legislation.  

4.5 In the meantime this document remains under scrutiny.

Full details of the documents: Proposal for a Directive amending Directive 2007/36/EC as regards the encouragement of long-term shareholder engagement and Directive 2013/34/EU as regards certain elements of the corporate governance statement (35957) 8847/14, COM(14) 213 + ADDs 1-3.

Background

4.6 The Commission's 2010 Communication "Europe 2020 - A strategy for smart, sustainable and inclusive growth"[15] raised the importance of a modern and efficient corporate governance structure for EU companies. In the Commission's view an effective corporate governance framework ensures that companies are well run, allowing them to become more competitive and sustainable in the long term.

4.7 This Communication was followed by a further one in 2012 on an "Action Plan: European company law and corporate governance - a modern legal framework for more engaged shareholders and sustainable companies"[16] which set out a roadmap for further action based on the objectives of enhancing transparency and engaging shareholders. It envisaged a revision of the existing Shareholder Rights Directive which had first introduced minimum standards on the exercise of shareholders rights in listed companies.

The Proposal

4.8 The proposal would amend the 2007 Directive by introducing requirements concerning -

·  identification of shareholders, the transmission of information and the exercise of shareholder rights through the intermediated investment chain;[17]

·  public transparency by institutional investors (such as life assurance companies and occupational pensions funds) of their investment strategies/mandates to asset managers;[18]

·  disclosure by asset managers of delivery of these investment strategies/mandates to their clients;

·  the transparency of the activities of proxy advisors;[19]

·  the transparency of reporting of company directors' remuneration and giving shareholders a "say on pay" through stronger voting powers; and

·  shareholder oversight on related party transactions, as they are defined in international accounting standards.

4.9 Further details of specific provisions are provided in the next section.

The Government's Explanatory Memorandum of 1 May 2014

4.10 The Government is broadly supportive of the objective to encourage long term shareholder engagement, accepts that a level playing field can at times prove beneficial but is mindful, firstly, of introducing overly prescriptive measures that would create a competitive disadvantage for European companies and, secondly, of creating mere compliance exercises that result in meaningless disclosure. On balance it believes that the proposal accords with the principle of subsidiarity.

4.11 Its views on the specific provisions are as follows:

Identification of shareholders, transmission of information and facilitation of exercise of shareholders rights, transparency on costs and third country intermediaries (new Articles 3a-3e)

4.12 The Commission proposes to introduce new requirements around identification of shareholders, specifically communication of information between the intermediaries and the company. The information provided should only be used to facilitate shareholder's rights. The proposal uses the definition of shareholder included in the current Shareholders' Rights Directive, namely the company or individual recognised as a shareholder under national law.

4.13 As drafted these measures should therefore have a very limited impact in the UK and would deliver negligible benefit. As the provision only requires legal shareholders to be identified, this will often only lead to a partial uncovering of the ownership chain in the UK. In UK law the shareholder is the person listed in the company's register of members. Where investment is through an intermediary it will often be the intermediary, rather than the end investor, which appears on the register and is the shareholder. UK law however includes provisions for companies to identify any other parties who hold an interest in their shares (Part 22 of the Companies Act 2006) which goes further than the provisions in the proposal with respect to identification of "shareholders". Similarly UK law includes provisions (Part 9 of the Companies Act) to facilitate the transmission of information to end investors and enable them to exercise rights as nominees of the "shareholder".

4.14 New Article 3d would require that Member States allow intermediaries to charge. Notwithstanding the limited application of these provisions with respect to the shareholders of listed companies, this provision carries the risk that fees may be introduced by UK intermediaries. In the UK intermediaries are currently required, under Part 22 of the Companies Act 2006, to provide this service without being explicitly allowed to charge, and are sanctioned when they do not comply. Allowing intermediaries to profit for providing this information is clearly counter to the objectives of the UK legislation and the Government will consider whether it would be preferable to ensure Member States' flexibility on this matter.

Transparency of institutional investors and asset managers (new Articles 3f-3h)

4.15 New Article 3f would require asset owners (institutional investors) and asset managers to develop and disclose annually a policy on shareholder engagement and their implementation of the policy. This must include a policy for dealing with conflicts of interest. Disclosure would include information about how and why votes have been cast at the general meetings of companies in which the investors hold shares.

4.16 These provisions would apply on a "comply or explain" basis: institutional investors and asset managers may decide not to develop an engagement policy or to disclose the implementation and results of their policy, but are required to give a clear and reasoned explanation as to why they have chosen not to do so.

4.17 New Article 3g would require institutional investors to disclose information on their investment strategy. Where they have chosen to invest through an asset manager they would be required to disclose the main elements of this arrangement.

4.18 New Article 3h would require asset managers to disclose to their clients, the institutional investors, on a half yearly basis, how they have implemented the investment strategy under these arrangements.

4.19 The Government is broadly supportive of the Commission's objectives in this part of the draft directive. It believes that improved transparency and dialogue between institutional investors and asset managers, including on the extent and nature of engagement with public companies is desirable. Whilst it is not possible to quantify this benefit the costs would be in the region of £16.5 million to £22 million if disclosure needed to be detailed, or £4.6 million to £7.1 million if disclosure was in the form of an aggregate overview.

4.20 The Kay Review of Equity Markets concluded that the development of good practice in this area was a necessary part of addressing misaligned incentives in the investment chain and promoting long-term value creation by companies. Good progress has been seen in this area in the UK investment industry, building on the principles set out in the UK Stewardship Code. While the provisions of this draft Directive are broadly aligned with these developments, the Government wishes to consider the proposed requirements in more detail. In particular it is concerned that the prescriptive nature of some of the requirements may undermine the development of flexible good practice, which take account of the varying investment approaches and the need to protect commercially sensitive information. It would be concerned if the directive instead encourages boilerplate disclosures and "tick-box" compliance and believe this would be contrary to the Commission's own objectives. It wants to consult carefully with relevant stakeholders, to ensure that this outcome is avoided.

Transparency of proxy advisors (new Article 3i)

4.21 A particular service provided by many proxy advisors is analysis of corporate disclosures of listed companies in order to inform investors' voting decisions. Their services may be provided on a commercial, not-for-profit or membership basis.

4.22 Increased transparency in the proxy advisory industry may be appropriate, particularly with regards to how they undertake their activities and how they manage conflicts of interests. However there are questions on some of the items for which transparency is required: the proxy's primary obligation remains to their investor clients. Again the Government has difficulty in quantifying the benefits of these provisions but assesses the burden at between £2,000 and £6,400 per proxy advisor.

4.23 At present proxy advisors are not regulated. With agreement from the European Commission, the European Securities and Markets Authority looked into the industry and published a report in 2013, encouraging proxy advisors to develop their own Code of Conduct. This was published in March 2014. While the provisions in the EU proposal are fairly similar to the Code of Conduct, the Government will be considering concerns expressed about the possible impacts of regulation on competition in the market.

Right to vote on remuneration policy, information to be provided in the remuneration report and the right to vote on the remuneration policy (new Articles 9a and 9b)

4.24 The Commission's proposal effectively translates the recently adopted UK legislation reforming the governance of company directors' remuneration across the EU. The Government agrees that remuneration should be proportionate to company performance, and aligned with shareholders' interests and long-term sustainable value creation. The Government therefore broadly welcomes these proposals which largely mirror recent UK legislation.

Right to vote on related party transactions (new Article 9c)

4.25 A related party transaction occurs when a company contracts with its directors or controlling shareholders. These have the potential to cause economic loss to a company and its minority shareholders by allowing the related party the opportunity to appropriate value belonging to the company. The issue is particularly relevant in concentrated ownership markets.

4.26 While there are some differences between the EU proposal and the existing mechanisms in place in the UK through the Listing Rule 11, which the Government will explore in more depth, the policy is broadly the same. One difference is the lack of exclusions currently in UK Listings Rules, which could potentially lead to the inclusion of many transactions outside the UK listing regime's related party regime into the new European related party regime. Another difference is the threshold level for a related party transaction, which in the EU proposal is set at 1% compared with the UK's 0.25%.  This provision is expected to increase the cost of reporting by £2,169 to £4,240 for each related party transaction, although it is at present uncertain as to how many transactions would need to be reported under these rules compared to those being reported under existing arrangements.

Subordinate legislation

4.27 The Government is considering the appropriateness of the provisions allowing the Commission to adopt detailed subordinate legislation by means of the implementing legislation procedure. The relevant provisions would enable the Commission to facilitate the exercise of shareholder right to vote when an intermediary is involved and prescribe a standardised form of remuneration report.

Previous Reports

None.

5 The Telecommunications Single Market
Committee's assessment Legally and politically important
Committee's decisionNot cleared from scrutiny; further information requested; Opinion sought from Culture, Media and Sport Committee

Document details(a)  Commission Communication on the telecommunications single market

(b)  Council Regulation laying down measures concerning the European single market for electronic communications and to achieve a Connected Continent

Legal base(a)  —

(b)  Article 114 TFEU; ordinary legislative procedure; QMV

DepartmentCulture, Media and Sport

Summary and Committee's conclusions

5.1 The Commission States 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. It states that decisive further action is needed to prevent any further decline in Europe's global position in this sector; considers what remaining barriers exist; and sets out measures that the Commission believes are needed to change the existing regulatory framework (last revised in 2009) in order to remedy the situation.

5.2 Recalling the conclusions of the 2013 Spring European Council, calling for measures to create a Single Telecoms Market as early as possible, the Commission published on 11 September 2013 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."

5.3 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".[20]

5.4 The Commission describes the legislative proposal in short as:

·  "Simplification of for companies;

·  "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;

·  "Standardised fixed access products, encourages more competition between more companies and facilitates increasing provision of pan-EU services;

·  "Protection of Open Internet, guarantees for net neutrality, innovation and consumer rights;

·  "Pushing roaming premiums out of the market through a carrot and stick approach to say goodbye to roaming premiums by 2016 or earlier;

·  "Consumer protection: plain language contracts, with more comparable information, and greater rights to switch provider or contract."[21]

5.5 The Minister's third update on the negotiations consists of five main sections: a general update on progress of the proposal; an examination of the major risks and opportunities to HMG's negotiating mandate; addressing issues raised by the Committee in its last Report not addressed elsewhere in his letter; and a forward look at the next milestones and possible outcomes.

5.6 The Minister paints an intriguing picture, of a continuing tussle between the UK and some other Member States who continue to press for a simplified Regulation, but who remain in the minority, and yet other Member States who are, as he puts it, adopting a filibustering strategy to further slow the progress of this package.

5.7 In any event, it would seem that there continues to be a real prospect of agreement on the eventual cessation of mobile roaming charges within the EU (though big differences remain on timing between the EP — December 2015; the majority of the Council — December 2016, because of the technical changes required to implement this; and Germany and Spain — December 2018). However, while this is to be welcomed, the Minister outlines two dangers to UK interests.

5.8 The first — regarding the management of spectrum within the EU — could, the Minister reports, "compromise the current existing balance of competence between Member States and the Commission". He hopes that this may be managed, via some modification of current governance structures and the Commission doing better with what it already has power to do, i.e. ensure that Member States who have yet to meet their existing obligations do so.

5.9 Secondly, the EP definition of "net neutrality",[22] which is "in direct opposition to HMG's current negotiating stance". The Minister's position is clear: he does not believe regulation to be the answer. Instead, he remains convinced that self-regulation and transparency of traffic management measures will be more effective in delivering an open internet; that any Regulation risks being too prescriptive, inflexible and may have unintended consequences, including higher consumer bills (as well as implications for the Government's work on child internet safety); and that it is difficult accurately to define many of the more technical terms in this area. An acceptable solution may, it seems, still be found: however, he already seems to be contemplating having to settle for a text that is "as workable as possible given the current state of the UK market and the existing self-regulatory approach".

5.10 Also, in the Minister's view (and that of industry and Ofcom), the single authorisation proposal [23] would increase the regulatory burdens on communications companies operating in the UK and lead to disputes between national regulatory authorities.

5.11 We hope that the Minister will be able to provide some reassurance on these issues after the June Telecoms Council. In the meantime, given the present position, we now consider the draft Regulation legally as well as politically important.

5.12 We are also drawing this chapter of our Report to the attention of the Culture, Media and Sport Committee, and ask for its Opinion on the issues that have arisen thus far.

5.13 In the meantime, we shall continue to retain the documents under scrutiny.

Full details of the documents: (a) Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions on the Telecommunications Single Market (35305) 13562/13, COM(13) 634; (b) draft Proposal for a Regulation of the European Parliament and of the Council laying down measures concerning the European single market for electronic communications and to achieve a Connected Continent, and amending Directives 2002/20/EC, 2002/21/EC and 2002/22/EC and Regulations (EC) No 1211/2009 and (EU) No 531/2012 (35304) 13555/13 + ADDs 1-2, COM(13) 627.

Background

5.14 The full background to the Commission Communication and this draft Regulation is set out in the first of our previous Reports; likewise the very detailed and helpful analysis of both documents by the Minister (Mr Edward Vaizey) in his Explanatory Memorandum of 10 October 2013.[24]

5.15 Most recently, in his second update after last December's Telecoms Council, the Minister reported that the package had made only limited headway. Notwithstanding insistent Commission pressure, Member States "were of a single mind regarding 'right not rushed' and thus flagging that the nominal deadline of 1 November 2014 was ambitious if all elements of the package remained". The "net neutrality" and "consumer protection" elements were those that gained most support from Council, whereas the "spectrum management" and "single authorisation" elements were roundly opposed. Further, Council indicated support for the cessation of mobile roaming charges, but not through the mechanism proposed in the Regulation.

5.16 Meanwhile, driven by the relevant Committees (ITRE: industry, trade and energy, and IMCO: Internal Market and Consumer Protection), the European Parliament (EP) have reached a position whereby they would be adopting a First Reading position before May's EP elections. The Minister summarised it thus:

·  "Supporting and amending: the spectrum management, net neutrality and consumer protections elements;

·  "Supporting: the cessation of mobile roaming prices but not through the mechanisms proposed in the Regulation; and

·  "Opposition (amendments that remove from the Regulation): single authorisation, wholesale access products, costs of international calls and changes to the BEREC chair."

5.17 This presented "a series of opportunities and one major risk to UK's current negotiating position": in essence, on the upside, the possibility of some form of agreement for a "simplified" Regulation that would be very much in the favour of consumers; would harmonise the "single authorisation" proposal but without being mandatory in nature; and would prevent the introduction of further Commission spectrum management functions — "but this will very much rely on Member States individually and collectively taking action that addresses Commission's concerns in this area".

5.18 The main current risk revolved around "net neutrality", where the Minister was isolated — continuing to favour long-established self-regulation as most appropriate for the UK, though recognising that this might not be true for all the other 27 national markets. Given the strong support for a regulation across the EP and the Council, the Minister and his officials had "begun to explore whether there are other options that will deliver the outcomes that the EP and Council are looking for in this area". Much remained open to negotiation: if the UK could show leadership by championing a "simplified" Regulation and help to achieve an agreement by the indicated deadline, there were many benefits to be gained, along with managing the perceived negative impacts of the proposal. His officials were currently testing the proposal before other Member States' positions became fixed and to identify if the EP could support such a proposal: reaction would "inform our on-going negotiating strategy", as Working Group negotiations (he hoped, at last) got underway.

5.19 Rather than report again after the June Telecoms Council meeting, the Committee asked the Minister to do so sooner, once the EP First Reading position had been established; and at that time, also to provide more about:

·  the prospects for and components of a "simplified" Regulation;

·  the contentious issue of "net neutrality" (what options had been explored with the Commission and EP, and what the consequences would be for UK interests if this aspect of the draft Regulation remained unmodified); and

·  the implications of whatever proposals were then in the ascendancy for the BEREC (the group of national regulators, such as Ofcom, which currently manages the telecoms regime, and which the Commission would like to bring "in house" and thus take over).

5.20 In the meantime, the documents remained under scrutiny.[25]

The Minister's letter of 16 May 2014

Update

The Minister begins by focussing on the outcomes of the EP First Reading:

"In effect, the EP accepted those amendments contained within the ITRE Report (which incorporated proposed changes from the IMCO Opinion) and no other amendments, with the specific exception of a series of amendments concerning net neutrality (the reasons for which are covered in the net neutrality section below).

"The main outcomes of this vote were (the Minister's emphasis):

·  "An agreement that leads to the cessation of mobile roaming charges by end-2015 (although not through the mechanism as contained in the proposed Regulation);

·  "Removal of the proposed authorisation process for telecoms operators but retention of the concept of a single harmonised notification process;

·  "That changes to consumer protection associated with the telecoms acquis would be brought about by amending the Universal Service directive rather than through the mechanism of an additional stand-alone Regulation, along with some changes to the original proposals;

·  "A more restrictive approach to this issue of net neutrality, through introducing a specific definition of "net neutrality" and a more restrictive approach to "specialised services" and "traffic management" than proposed by the ITRE Report;

·  "Support for the proposals that increase Commission oversight of spectrum award processes, along with an additional requirement for a minimum licence duration of 25 years for existing and future licences;

·  "A rejection of the proposed introduction of wholesale access broadband products for businesses;

·  "A rejection of the proposed changes to BEREC governance regarding the Chair; and

·  "On obligation placed on the Commission to review and propose changes to the existing Telecoms Framework (2009) by mid-2016 - with an extensive list of issues requiring addressing."

5.21 The Minister describes the outcome of this vote as "a series of opportunities and challenges to HMG's current negotiating mandate, as well as further reducing the probability of an agreement being reached by the end of 2014 as the views of Council and the EP further diverge", and covers these below thus:

    "The package was also again the focus of the March European Council where Conclusions noted the important role that the package could play in driving single market completion and growth. However, this focus by Council did not have any effect on the progression of discussions at Working Group level, which have been glacially slow at best and the first read-through is already well behind the Presidency's schedule ie that schedule indicated this would be completed in time for the Easter break and completion is now due end-May.

    "This slow progress is, in the main, driven by the agreed approach to exam the proposed Regulation 'Article by Article' — an inherently slower approach than that advocated by UK when asking for a 'Chapter by Chapter' approach. However, this approach adopted by the Presidency is a reflection of both the previously indicated prioritisation of the package, as well as those Member States favouring a slower approach being the overwhelming majority in Working Group. This slow progress is also being hampered by those Member States who have also adopted a filibustering strategy to further slow the progress of the package. As such, discussions at Working Group level are around half-way through the Regulation; spectrum is currently being considered and discussions on the consumer protection Articles that include both the issues of roaming and net neutrality have yet to take place.

    "In order to counteract this decelerating effect on progress, UK and Germany published a non-paper on the package following the Prime Minister and the German Chancellor giving joint speeches at a recent telecoms event in March 2014. This non-paper is attached as Annex A to this letter and this has begun to act as a point of nucleation [sic] for those Member States who are seeking agreement on a simplified Regulation. This activity does have the potential to sway the possible outcome of negotiations and I cover this in more detail below. However, its potential is currently limited as those Member States remain a small minority in Council and the Presidency is yet to agree to adopt the principle of a simplified Regulation. As such, there is some current activity focussed around trying to influence the neutral Member States, as well as encouraging the Presidency to adopt the strategy of developing a simplified Regulation. Success, or otherwise, of this initiative will become more apparent over the next two months or so as i.e. Working Group completes its first read-through in time for the Telecoms Council in early June 2014 and whether those Member States can achieve agreement at a more granular level.

OPPORTUNITIES

    "The current position of the EP and Council, along with a rapidly approaching deadline means that we are faced with two situations: a protracted negotiation of the full Regulation that will miss the indicated deadline of December 2014; or for a simplified Regulation to be agreed to same deadline.

    "Given that there is some agreement in principle between Council and Parliament around some of the elements of the Regulation, agreeing these to meet the deadline through delivering a simplified Regulation remains a viable outcome. Whilst those Member States who wish to see a simplified Regulation agreed remain in the minority in Council, the recent push by UK and Germany is gathering further support and there is a possibility that the balance may tip over during the Easter period in our favour. This will then require the Presidency to begin to push forward with a simplified Regulation. With the UK leading this work, it places us in a position to heavily influence the content of a simplified Regulation and shape it to suit our current negotiating mandate and address specific risks associated with the net neutrality and spectrum elements (both of which I cover in the risks section below).

    "Thus, whilst there remains a strong possibility that should a package may be eventually agreed, the current configuration of EP and Council means that those elements that were attractive to businesses — wholesale access products and a harmonised notification process — may be removed in order to reach an overall agreement and thus the outcome would be one that could be consider to be very consumer-centric.

    "Another opportunity presented by the current relative positions of the EP and Council could result in the eventual cessation of mobile roaming charges within the EU. Whilst Council has yet to formally discuss this specific issue at Working Group, it is clear that there is appetite in both Council and the EP to take action. The only real point of difference between Council and the EP is that of timing: EP indicating by December 2015 (a shift from an earlier position of 2014 as per the Digital Agenda for Europe) and Council currently favouring 2016 (a position based in the main on the technical changes necessary to achieve such a change). It is also worth noting that two large Member States — Spain and Germany — prefer a later date of 2018 but it is recognised that this would not be acceptable across the European institutions. I do not believe that the issue of timing is insurmountable and a compromise can be found as negotiations progress.

RISKS

    "I believe there are two major risks to HMG's desired outcomes based on the current positions of the European institutions.

    "The first is associated with the spectrum proposals in that the EP has formalised its support for the Commission's proposals, as well as adding to them. Whilst Council has reaffirmed its general opposition to the proposals, it is becoming increasingly clear that some form of action will need to be taken that addresses the Commission's concerns that does not compromise the current existing balance of competence between individual Member States and the Commission.

    "As part of its work to develop a simplified Regulation, UK is putting forward proposals that would further evolve the current governance structures and processes for the management of spectrum within the EU, as well as encouraging the Commission to exercise its existing powers to ensure that those Member States who have yet to meet existing obligation do so. This approach enjoys the general support of Council and this may be the mechanism by which wider agreement on the proposals can be reached without the noted further compromise of Member State sovereignty in this area.

    "I understand that the initial reaction by Ofcom to the proposal for extended licence durations is favourable and I am current considering policy advice on this issue before forming a formal position on same.

    "I remain optimistic that the risks associated with the spectrum element can be satisfactory managed to suit the current negotiating mandate and provide an overall positive outcome.

    "A second, and more serious risk, is the current situation regarding the proposals for net neutrality. To recap, the current negotiating mandate is to resist the introduction of regulation specific to net neutrality, whilst exploring the options around same.

    "I begin with noting that the outcome of the EP First Reading deal was not as expected i.e., in line with the recommendations put forward by the ITRE Report. This was, in the main, due to the ALDE (liberal) Group within the EP withdrawing its support for the content of the ITRE Report covering this issue after voting for its adoption, and then aligning itself with the positions previously adopted by the Socialists & Democrats and Green Groups by jointly putting forward a series of amendments. It was these amendments that were voted passed during the Plenary vote rather than those in the ITRE Report.

    "As noted above, the result is that the EP First Reading now contains a specific definition of "net neutrality", as well as a more restrictive approach to "specialised services" and "traffic management". This is in direct opposition to HMG's current negotiating stance and underlines the contentious nature of this issue as previously noted in the most recent Commons Committee Report.

    "I can confirm that I remain convinced that self-regulation and transparency of traffic management measures will be more effective in delivering an open internet than regulation and that any Regulation risks being too prescriptive, inflexible and may have unintended consequences, including higher consumer bills. Further, First Reading text includes amendments that may have implications for our work on child internet safety. I also remain of the view that it is difficult to accurately define many of the more technical terms used in this area.

    "Thus, whilst I do not believe regulation to be the answer, we are committed to working with the Commission and other Member States to ensure that the text produced in Council addresses as many of these issues as possible in order to manage the risks I identify above and taking into account that the introduction of regulation in this area enjoys broad support from the EP and Council. That said, the issue has yet to be fully discussed at Working Group level and so the situation may change but taking into account early indications of Member States' views in this area, we cannot rely on a change on the position from one where UK's remains relatively isolated in its opposition. It is worth noting that the issue of net neutrality is one that is covered by the UK and German initiative.

    "Further, HMG has also engaged with industry, through the Broadband Stakeholder Group (BSG), to accurately understand the impact of regulation in this area, for both content producers and communications providers alike. We will continue to work closely with industry and Ofcom to ensure that our input into negotiations is as influential as possible. Should the European institutions decide that Regulation is the only way forward and UK is unable to gain wider support for its self-regulatory stance, we should prepare to ensure that any adopted text is as workable as possible given the current state of the UK market and the existing self-regulatory approach."

ISSUES RAISED BY THE COMMITTEE'S PREVIOUS REPORT NOT COVERED ELSEWHERE

¾  Wholesale access products, including an explanation of the potential business benefits: the Minister says that the following supplements paragraphs 15-16 and 58-62 inclusive of his initial Explanatory Memorandum:

    "Wholesale access products are regulated products by which access to networks operated by companies having significant market power (SMP) — BT in the UK — must be offered to competing communications providers. The initial proposal covered three closely-specified types of virtual unbundled local access (VULA) products, which would then be standardised offerings across the EU. It was felt that businesses (outside the telecoms sector) often encounter difficulties when connecting across borders, in the main because of different specifications for such products in each Member States. As such, the provision of harmonised wholesale access products would enable businesses to simplify their connections and could help drive savings.

    "Whilst I believe that there is scope for the adoption of harmonised standards for these products - possibly under the aegis of BEREC - the harmonisation of regulated products across the EU would require a cumbersome amount of analysis (in the main to establish the relevant markets and the degrees of market power of the players in these markets) and may require the introduction of further regulation.

    "Thus, the level of savings indicated with the original proposal is doubtful and unproven and I believe it is worth noting at this point that the inclusion of this element within any agreed Regulation is now looking remote as it does not enjoy support from Council or the EP."

¾  further detail on the single authorisation proposal and how this could be developed into a harmonised non-mandatory notification process: as above, with reference to paragraphs 12 - 13 and 51 - 54 inclusive:

    "The single authorisation proposal is, in effect, in two parts: the first being the single authorisation itself; and the second being details of how electronic communications providers would notify the relevant national regulatory authorities before beginning to operate.

    "The proposal currently indicates that communications providers would need to only seek authorisation in one Member State (subject to the specified notification process) before being able to operate in all Member States.

    "However, the proposal also lays down a complex relationship between the national regulatory authority in the Member State in which the authorisation was obtained and the other Member States in which the provider operates. I am of the firm view that this would increase the regulatory burdens on industry and would likely lead to disputes between national regulatory authorities. In addition, there is a paucity of evidence that would drive action to be take in this way. This is a view supported by industry and Ofcom.

    "Furthermore, the proposal would be an administrative burden for communications companies operating in the UK since UK does not require any notification (in common with Denmark).

    "HMG believes that the best approach is to restrict the proposal to a harmonised notification process in order to address the current situation whereby, currently, there are 26 different notification processes — one for each of the Member States other than UK and Denmark — currently in operation. These notifications exist despite there being no obligation placed on Member States by the current Telecoms Framework to operate such a notification system outside of the general authorisation process as set out within the Authorisation directive.

    "Thus, HMG is proposing that Member States first consider what the minimum requirements for notification (if, indeed, a notification process is necessary) and this would be followed by adoption of a pan-EU simplified and standardised notification system, with BEREC playing a role in both development and management of the process.

    "This approach does have the potential benefit of reducing existing and managing future potential administrative and regulatory burdens for communication providers."

¾  further detail of the IMCO Opinion that was adopted end-January:

"For the sake of brevity and bearing in mind the IMCO Opinion covered some 30-plus pages, the following bullets provide a summary of the main points:

·  "The mechanism for adopting the changes should not be a stand-alone Regulation but an alteration of and addition to the existing consumer rights currently enshrined in the Universal Services directive;

·  "Contract duration & termination: deletion of the proposal allowing consumers to terminate their contract up to six months after entering into same and the remaining proposals made applicable to consumers only (rather than the wider 'end users' in the original proposal);            

·  "Bundles: unchanged;

·  "Broadband speeds: a change of wording from [speeds] "actually available" to an indication of speeds normally available and an expected minimum for both upload and download speeds;

·  "Net neutrality: a proposed redefinition of 'internet access service' and 'specialised service', along with a provision to ensure technology-neutrality regarding the device used to access the Internet and changes to the definition of, and application of 'traffic management'; and         

·  "Costs of international calls: a complete deletion of this element.

"I understand that the ITRE Committee agreed to incorporate the IMCO Opinion into their Report without change.

¾  BEREC and its future:

    "it is clear that the Commission's proposal regarding the appointment process of the Chair does not enjoy support from either Council and the EP and so is very likely to be dropped from any agreement. Whilst there are currently no further proposals for wider changes to BEREC, it should be anticipated that BEREC, its role and wider governance issues may very well be subject to review and proposed changes during the anticipated review of the existing Telecoms Framework (that included the Regulation establishing BEREC) that is due to start in the next two years or so. It should be recalled that the 2009 Framework proposals included the creation of a single pan-EU telecoms regulator under the auspices of the Commission. However, this was not supported by either Council or the EP, and with BEREC currently seen as a relatively new agency who has performed well thus far, whilst it remains a risk that the Commission may propose the creation of a pan-EU regulator once again in the medium term, these are likely to be once again rejected by Council and the EP.

NEXT STAGES

    "With the noted slow progress of discussion at Working Group level, the differences of views on spectrum and the potential divergence in views on net neutrality between Council and the EP, the most likely scenario is that this issue will be the subject of a Progress Report rather than a General Approach at the upcoming Telecoms Council on 6th June 2014.

    "I am aware that the Italian administration has indicated that they will make this package a priority under their Presidency when they take over on 1st July 2014, it may prove difficult for the Italians to make this the top priority with other issues seeking attention in the first part of their Presidency. As such, it very much remains the case that much depends on whether those Member States who wish to see some form of agreement remain in the minority and whether any existing momentum imparted by the joint UK-German initiative can be maintained over the Summer period in time for negotiations begin again in September 2014. It remains a possible outcome that no agreement, or action on roaming alone is the ultimate outcome of this proposal as the current deadline of reaching agreement by end-2014 fast approaches.

    "Therefore, unless there are any immediate issues that your committee would like me to address and bearing in mind I will be sending your committee a copy of my Pre- and Post-Council statements as per usual, I suggest that an appropriate time for my next update should be shortly after the Telecoms Council and as preparations to handover to the incoming Italian Presidency become firmer, i.e. mid-June 2014."

Previous Committee Reports

Thirty-fourth Report HC 83-xxxi (2013-14), chapter 2 (9 February 2014), Twenty-eighth Report HC 83-xxv (2013-14), chapter 4 (18 December 2013) and Eighteenth Report HC 83-xvii (2013-14), chapter 2 (16 October 2013).

6 Animal Cloning
Committee's assessment Legally and politically important
Committee's decisionNot cleared from scrutiny; further information requested

Document details(a) Draft Directive on the cloning of animals of the bovine, porcine, ovine, caprine and equine species kept and reproduced for farming purposes;

(b) Draft Directive on the placing on the market of food from animal clones

Legal base(a) Article 43(2) TFEU; co-decision; QMV

(b) Article 352(1) TFEU; consent; unanimity

DepartmentEnvironment, Food and Rural Affairs

Summary and Committee's conclusions

6.1 These two draft Directives respectively (a) prohibit the cloning of farmed animals and (b) address adverse consumer perceptions of food produced from animal clones by preventing its marketing within the EU (including through third country imports). However, they would continue to allow the use of reproductive material from clones for livestock breeding purposes, for scientific research into cloning and its use for the preservation of rare breeds or endangered species and for sporting or cultural events.

6.2 These documents have been considered on three previous occasions. We decided to recommend a Reasoned Opinion on document (b) which, following a debate on the floor of the House, was submitted to the EU institutions on 12 February. On 9 April we held an oral evidence session on the same document with the Parliamentary Under-Secretary of State for Farming, Food and Marine Environment[26] on the question of the Government's unsatisfactory approach to the choice of Article 352 TFEU as legal base. During that evidence session the Minister committed to providing us with detailed legal analysis (which we had requested in our Report of 5 February) on the choice of the Article 352 TFEU legal base which he now provides.

6.3 We thank the Minister for his response. We welcome his conclusion that "the conditions for Article 352 have not been met" and the reasoning that precedes that conclusion.

6.4 We are not, however, content with the approach outlined by the Minister to the question of subsidiarity compliance which we consider to be flawed for the following reasons.

6.5 There seems to be an unhelpful conflation by the Government of two distinct but concurrent avenues for challenging an EU legislative proposal: questioning the choice of legal base and the proposal's compliance with subsidiarity. We understand that the Article 352 legal base is conditioned by necessity for action and that if action is not necessary it will not comply with the principle of subsidiarity. But, particularly given that the House, together with other national chambers and Parliaments, has important rights of challenge under Protocol 2 in respect of subsidiarity, these avenues of challenge must not be elided.

6.6 It will not assist us, if, for the purposes of future provision of Explanatory Memoranda, the Government takes this unclear approach. We remind the Government that the House has only eight weeks in which to issue a Reasoned Opinion to the EU institutions where a proposal breaches subsidiarity. It is crucial to us that the Government's initial view of subsidiarity is not confused with other issues and is substantiated in sufficient clarity and specificity to assist us in meeting this deadline. Legal base (competence) and subsidiarity cannot (and should not) be treated as eliminatory stages in one overall test of the legality of a proposal.

6.7 The need for a separate assessment of subsidiarity compliance by the Government in an Explanatory Memoranda is set out in the Cabinet Office Guidance of August 2013, paragraph 3.2.10:

    "Care should be taken not to confuse subsidiarity with other legal and procedural issues, such as Treaty base, which should be covered elsewhere in the EM, or restrict consideration of subsidiarity to the question of competence…"

6.8 We refer the Minister to the three distinct grounds on which the House issued its Reasoned Opinion: that no legislative action was required in the first place (necessity), that the Commission has been pre-emptive and speculative in its assessment that Member State legislation would be divergent (relating to the first limb of the subsidiarity test) and that action at EU level would not better achieve the objectives of the proposal and would instead be disadvantageous (second limb of the test). The House deployed arguments on all three grounds cumulatively to present the case that subsidiarity had been breached. In recommending Reasoned Opinions, we will continue to deploy all appropriate arguments rather than to regard necessity as determinative.

6.9 We consider that the Minister's reference, by way of example, to the pre-Lisbon Court of Justice judgment in 1996 on the UK's challenge to the Working Time Directive is of little relevance to the question of post-Lisbon compliance with subsidiarity. This is because the Subsidiarity Protocol and, in particular Article 5, has since imposed new, additional and very specific requirements on EU institutions. Nor did that case concern subsidiarity assessment of a proposal based on the predecessor to Article 352 TFEU[27]—Article 235 of the Treaty establishing the Economic Community (TEC). Instead it concerned a very specific provision, Article 118 TEC, which placed a particular responsibility on the Council (and Member States) to achieve harmonisation measures on workplace health and safety and which relied on QMV (not unanimity). The Court seized on this responsibility as indicating that if the Council had decided to adopt the measure, the necessity of the measure could be inferred. That situation is hardly comparable to the present proposal based on Article 352 TFEU, subject to unanimity and yet to have the endorsement of Council adoption.

6.10 Even if there were any merit in the approach to subsidiarity suggested, it is not reassuring that the Government initially identified no problems with necessity in respect of the legal base in the present case and took an indifferent attitude to subsidiarity compliance. Had we not pursued our own subsidiarity assessment regardless, the House would not have been in the position to have issued the Reasoned Opinion that it did (and which the Minister now welcomes).[28]

6.11 We ask the Minister to note these concerns and because of the need for a consistent approach across Government on subsidiarity assessment, we also draw them to the attention of the Cabinet Office and the Foreign and Commonwealth Office.

6.12 We further ask the Minister to continue to keep us informed of the progress in the negotiation of both of the current documents. In the meantime, both documents will remain under scrutiny.

Full details of the documents: (a) Draft Directive on the cloning of animals of the bovine, porcine, ovine, caprine and equine species kept and reproduced for farming purposes (35688) 18152/13 + ADDs 1-2, COM(13) 892; (b) Draft Directive on the placing on the market of food from animal clones (35689) 18153/13 COM(13) 893.

Background

6.13 We set out in full the background to these proposals, a summary of their provisions and the Government's initial view on them in our Report of 22 January 2014.

Minister's letter of 8 May 2014

6.14 Given the importance we have attached to the issue of the Government's approach to the choice of Article 352 TFEU as the legal base for document (b), we now set out the Minister's letter in full:

"Following the oral evidence session on 9 April, you requested again, submission of our legal analysis of the use of Article 352 TFEU as the statutory base for the Commission's proposal on controls on the placing on the market of food from animal clones (18153-13). This is included below.

"I should also take the opportunity to correct an entirely unintended misunderstanding. During my evidence, I suggested that we had written to both the Commission and Council Legal Services seeking their own explanations of the legislative justification for the measure. In fact, at that point we had only issued verbal requests. However, I can confirm that this has been corrected in the interim with colleagues in UKREP writing on the Government's behalf. I can only apologise for this confusion.

"Turning now to our own legal analysis:

"The nature of Article 352

1.  Article 352 TFEU provides a power that can be used to fill the gap, where no specific provisions of the Treaty confer express or implied powers to act, if action by the Union is necessary to attain one of the objectives laid down by the Treaties.

2.  It provides a potentially wide and flexible legal basis that could extend to anything coming within EU competence, as defined by the tasks and activities in Articles 3 TEU and 3, 4 and 6 TFEU. However, Article 352 is not unlimited in its scope and cannot serve as a basis to extend EU competence.[29]

3.  The sensitivities around this power are reflected in the procedural requirements applied both at EU and national level. In addition, the Government takes scrutiny of any proposal under Article 352 very seriously, given the history of its predecessor provisions and the potential to extend EU action.

"The use of Article 352 in this case

4.  As Article 352 does not confer competence on the EU, the first step is to establish whether the measure is necessary to attain an EU objective found elsewhere in the Treaties.

5.  The objective of this measure is to address consumer perceptions about the use of food from animal clones. The Commission argue the measure is necessary to attain the objective of consumer protection referred to in Articles 4(2)(f) and 169 TFEU. The Commission accept the measure will not contribute to protecting the health, safety or economic interests of consumers, but rely on consumer concerns over animal welfare.[30]

6.  We would not agree that a measure like this aimed at addressing consumer perceptions can be categorised as necessary to protect consumers. The Committee has pointed to some reasons to support this, including: the fact that there are no health risks; animal welfare is addressed by existing measures; there is no cloning for food production taking place within the EU and little prospect of it; and no evidence of food products containing cloned material being imported into the Union. Even if consumer perception of animal suffering were to be accepted as contributing to consumer protection, we would agree with the Committee that the evidence is weak.

7.  In this case, the Treaty provides no express or implied power to act. As we have said, we do not see a justification in policy terms for this proposal and hence we agree that it is not necessary. We do not see the addressing of adverse consumer perceptions of food derived from clones as falling within one of the objectives laid down by the Treaties. There are no acknowledged human health risks related to material from cloned animals.

8.  In light of this, we would argue that the conditions for Article 352 have not been met.

"Subsidiarity

9.  In accordance with Article 5(1) TEU, the limits of Union competence are governed by the principle of conferral. The use of those competences is governed by the principles of subsidiarity and proportionality. It follows that where there is no Union competence, the question of whether a measure is compatible with the principle of subsidiarity does not arise.

10.  We have explained that in our view the proposal is not necessary to attain one of the objectives of the Union and this precedes the question of whether the objective concerned can be achieved by Member State action alone. If however the need for Union action were established, then in this case we would accept that the measure would likely be compatible with the principle of subsidiarity.[31] Insofar as we wish to argue against the necessity for any action here, we would do so in the context of legal base.

11.  This is not to say that where we have concerns over legal base, we would never raise concerns about subsidiarity. There may be cases where we would argue if Union competence were established, the measure would still be better carried out at national level. It is not the case here as the objections relate to the measure simply being unnecessary, because the action is pre-emptive or there are rules already in place at EU level.

"Unanimity

12.  Article 352 is subject to unanimity and thus the United Kingdom will have the option of a veto at the point the proposal comes to the Council for adoption. We have not yet though reached that point. This does not however mean that we do not need to conduct a thorough legal analysis. As we have said, it is important that all proposals under this legal base are subject to careful scrutiny. It does mean however, that we can be confident that no legal precedent can be set unless we agree with the proposal in both policy and legal terms.

13.  Our approach is to engage constructively in the negotiations to protect UK interests. We do not consider that suggesting now that we will exercise the veto in relation to this proposal, come what may, will help our cause in any way. Even in the context of unanimity, it is better to build some support for a position. In this case, it is especially important to remain an active player in the wider negotiations so that we can attempt to persuade others of our views. Otherwise, the political pressure for action is likely to manifest itself in other proposals in some shape or form. We therefore intend to work to achieve the best result for the UK, mindful of the need to ensure the EU acts within its competence."

Previous Committee Reports

Thirty-ninth Report HC 83-xxxvi (2013-14), chapter 2 (12 March 2014); Thirty-fifth Report HC 83-xxxii (2013-14) (5 February 2014); Thirty-first Report HC 83-xxviii (2013-14), chapter 3 (22 January 2014)


7 Regulation of medical devices
Committee's assessment Politically important
Committee's decisionNot cleared from scrutiny; further information requested

Document details(a) Draft Regulation on medical devices

(b) Draft Regulation on in vitro diagnostic medical devices

Legal base(Both) Articles 114 and 168(4)(c) TFEU; co-decision; QMV
DepartmentHealth

Summary and Committee's conclusions

7.1 These draft Regulations would repeal and replace three existing Directives which establish the EU regulatory framework for medical devices. The first — document (a) — applies to all types of medical devices, including implants. The second — document (b) — applies to in vitro diagnostic medical devices used to test samples derived from the human body. Both seek to introduce a more rigorous system for Member State supervision of "notified bodies" — bodies responsible for certifying that medical devices are safe for use — and to ensure greater transparency and accountability in relation to devices and their manufacturers.

7.2 The Government broadly welcomes the draft Regulations, subject to two concerns. First, it considers that the Commission's proposals to introduce additional pre-market scrutiny of higher risk devices by a central Committee of Member State experts would be ineffective and overly bureaucratic. Second, it questions the removal of an existing exemption for "in house" devices manufactured and used within the same health institution which would substantially increase costs within the NHS.

7.3 Our earlier Reports have summarised the main changes proposed by the Commission to the current EU regulatory framework, the outcome of a public consultation undertaken by the UK's Medicines and Healthcare products Regulatory Agency (MHRA), and the First Reading amendments agreed by the European Parliament. In this — our sixth report — on the draft Regulations, we set out the Government's latest progress report on negotiations and how it is seeking to enhance transparency and accountability within the proposed new regulatory framework.

7.4 We note that a satisfactory outcome appears to be in reach on maintaining an exemption for "in house" in vitro diagnostic medical devices. By contrast, Member States remain divided on the Commission's proposal for an additional tier of pre-market scrutiny for high risk medical devices, and the scrutiny mechanism proposed by the European Parliament would appear to be even more complex and costly. The Minister's letter describes the steps taken by the UK during negotiations to reach a compromise which addresses shortcomings in the current regulatory system without introducing a further layer of pre-market scrutiny. We would welcome further information on the type of changes that the Government considers would be acceptable, and an indication of how they have been received by the Commission and other Member States, once negotiations resume under the Italian Presidency.

7.5 We welcome the Government's efforts to increase transparency and look forward to hearing in the Minister's next progress report whether the Commission and Member States appear willing to accept the drafting changes proposed by the UK. Meanwhile, the draft Regulations remain under scrutiny.

Full details of the documents: (a) Draft Regulation on medical devices, and amending Directive 2001/83/EC, Regulation (EC) No. 1223/2009; (34294), 14493/12 + ADDs 1-5, COM(12) 542; and (b) Draft Regulation on in vitro diagnostic medical devices (34295), 14499/12, COM(12) 541.

Background

7.6 When we first considered the draft Regulations, in November 2012, we noted that the Science and Technology Committee had examined the existing regulatory framework for medical implants in the EU and the UK and recommended a number of improvements which sought to promote greater transparency and accountability, prioritise public health and patient safety, and establish more effective channels for communication and coordination amongst and between Member States and the Commission, whilst avoiding excessive or unwarranted centralisation at EU level.[32] With these objectives in mind, we sought further information from the Government on a number of issues, notably:

·  whether it accepted that there was a need for greater transparency and accountability in any new regulatory framework;

·  whether there was evidence to suggest that 'forum shopping' by device manufacturers (to obtain approval from a less rigorous notified body) was a problem within the EU;

·  whether the introduction of joint assessment teams and/or a new tier of pre-market scrutiny for certain high risk medical devices would help to iron out differences between notified bodies and increase transparency in the approval process;

·  whether more detailed guidance on clinical evaluations of medical devices would be helpful; and

·  whether the reporting of serious incidents by healthcare professional should be made mandatory.

7.7 The Government's comprehensive and helpful response was reproduced in our Thirty-second Report of Session 2012-13. We indicated that we were content with the way in which the Government intended to approach negotiations. We shared the Government's concern that the introduction of additional pre-market scrutiny of higher risk medical devices might delay patient access to new technologies and increase costs for manufacturers without delivering any significant benefits for patient safety. We noted that the Government's consultation of stakeholders revealed mixed views on the need to maintain an existing exemption for high risk in vitro diagnostic devices developed and used within a single health institution (so-called 'in-house' tests). We asked the Government to inform us of any significant developments in the negotiations, particularly on these two issues and those raised in our first Report on the draft Regulations. We also asked the Government to explain how it was seeking to enhance transparency and accountability within the approvals process for medical devices.

The Minister's letter of 16 May 2014

7.8 The Parliamentary Under-Secretary of State for Quality (Earl Howe) confirms that the European Parliament formally adopted its First Reading position on the draft Regulations at its plenary meeting on 2 April 2014. Whilst steady progress has been made in Council discussions, the Greek Presidency has not been able to secure agreement on a compromise text. The Minister continues:

"As such we are now looking to the Italian Presidency to take a firm grip on negotiations and steer Council towards a political agreement between Member States — we are realistically looking at late in 2014 before this is likely to happen. This means that trilogues with the EP are unlikely to start until the Latvian Presidency at the earliest."

7.9 The Minister reports some "positive signs" on the UK's priorities, including widespread agreement to extend the scope of the current 'in-house' exemption for high risk in vitro diagnostic devices to encompass all Class D devices, and "overwhelming rejection" of a proposal to introduce new provisions relating to genetic testing. He continues:

"On the UK's other main priority, pre-market scrutiny, there have been further discussions in Council but with little progress made towards a compromise position: Member States continue to be divided on whether an additional layer of pre-market scrutiny is needed. The UK has attempted to take steps towards a compromise by proposing a series of amendments, covering the quality of pre-market clinical evidence, placing greater controls on the use of approved devices and greater transparency in the pre-market process, aimed at answering criticisms about the current regulatory system without introducing further pre-market scrutiny. I will be happy to provide the Committee with further information about these proposals if it would be of value.

"The UK remains committed to finding a final agreement which strikes the appropriate balance between correcting the weaknesses whilst maintaining the strengths of the current EU system."

7.10 The Minister says that the UK "continues to speak up in favour of greater transparency", adding:

"Under the general provisions for confidentiality we have called for unambiguous wording which makes a clear distinction between information which should be made available and that which can be held as confidential.

"We have also identified a number of areas in the proposal where we feel that greater transparency will strengthen the regulatory system and have proactively suggested drafting changes to this end. These areas include:

·  making information publicly available about the resources that national authorities have available to implement and enforce the legislation;

·  ensuring information about audits of notified bodies is made public, particularly where a national authority does not agree with the outcome of a joint assessment;

·  pushing for a greater amount of information to be included in the pan-EU database on medical devices that will be available to the public; and

·  requiring manufacturers to provide more publicly-available information on their devices once they are on the market, including introducing a new concept of periodic safety updates."

7.11 The Minister notes that both draft Regulations will go to a Second Reading — thereby lengthening the decision-making process — and undertakes to provide further update on progress made during the forthcoming Italian Presidency.

Previous Committee Reports

Twenty-eighth Report HC 83-xxv (2013-14), chapter 7 (18 December 2013); Thirty-ninth Report HC 86-xxxviii (2012-13), chapter 4 (17 April 2013); Thirty-fifth Report HC 86-xxxv (2012-13), chapter 8 (13 March 2013); Thirty-second Report HC 86-xxxii (2012-13), chapter 2 (13 February 2013); Twentieth Report HC 86-xx (2012-13), chapter 10 (21 November 2012).


8 Aviation: remotely piloted aircraft systems
Committee's assessment Politically important
Committee's decisionNot cleared from scrutiny; further information requested
Document detailsCommission Communication: A new era for aviation: Opening the aviation market to the civil use of remotely piloted aircraft systems in a safe and sustainable manner
Legal base
DepartmentTransport

Summary and Committee's conclusions

8.1 In this Communication the Commission discusses how the civil use of remotely piloted aircraft systems (RPAS) might develop.

8.2 We have no issue with the broad thrust of this Communication and the Government's response to it.

8.3 However, the Minister (Mr Robert Goodwill) emphasises in his Explanatory Memorandum that this Communication is concerned with the civil use of RPAS. We note that the Commission cites the December 2013 European Council as calling "for action to enable the progressive integration of RPAS into civil airspace from 2016". We note also that the European Council did not explicitly refer to civil use and that its reference to "close synergies with the European Commission on regulation (for an initial RPAS integration into the European Aviation System by 2016)" was made in the context of "Enhancing the development of capabilities" in the Council's discussion of the Common Defence and Security Policy.[33]

8.4 So we ask the Minister whether the Government is clear that the Commission is not weakening the boundary between the EU's competence in relation to civil aviation and the competence of Member States in relation to military aviation. Meanwhile the document remains under scrutiny.

Full details of the documents: Commission Communication: A new era for aviation: Opening the aviation market to the civil use of remotely piloted aircraft systems in a safe and sustainable manner: (35949), 8777/14, COM(14) 207.

Background

8.5 The Commission launched a consultation, the Unmanned Aircraft Systems (UAS) Panel Process, at the Paris International Airshow in 2011 to contribute to producing a strategy for the development of civil applications of remotely piloted aircraft systems (RPAS) in the EU, leading to the integration of RPAS into everyday operational airspace. In October 2012 the Commission issued a Staff Working Paper, "Towards a European strategy for the development of civil applications of remotely piloted aircraft systems (RPAS)", which noted that the Commission would establish a European RPAS Steering Group, composed of representatives from key stakeholders (national authorities and industry).[34]

The document

8.6 The Commission says that this Communication on RPAS for civil use is a response to industry calls to remove the barriers to the introduction of RPAS in the single market. It says also that "The European Summit of 19 December 2013 called for action to enable the progressive integration of RPAS into civil airspace from 2016 onwards". The Communication sets out the Commission's views on how to address RPAS operation within an EU-level policy framework, which would enable the progressive development of the commercial RPAS market while safeguarding the public interest. It builds on developments emerging from the "Roadmap for the Integration of Civil Remotely Piloted Aircraft Systems", presented to the Commission in June 2013 by the European RPAS Steering Group. The Roadmap set out all the issues to be addressed and established a step by step approach to address them. There were three main themes: regulation, research and the social impact of RPAS.[35]

8.7 In discussing current operations the Commission notes that in the European Economic Area RPAS are being used support a range of activities, including precision farming, safety inspections of infrastructure, such as rail tracks, dams, dykes and power grids, and disaster operation relief. The Commission believes that the range of services offered by civil RPAS operators will increase and improve, especially when combined with other technologies, such as precision positioning as a result of Galileo and improved communications.

8.8 In discussing the RPAS emerging market the Commission says that:

·  the current market is dominated by the military, which is driving technology development and market expansion;

·  whilst a large number of potential applications have been identified for commercial and public safety use with the opportunity for significant cost savings, progress on the civilian side has been modest;

·  it is forecast that the worldwide RPAS market in terms of annual procurement and research and development is expected to grow from the current $5.2 billion to $11.6 billion in 2023;

·  currently the US dominates the market with nearly 70% of procurement and research and development; and

·  there are 1,708 different types of RPAS, 566 of which are in Europe, being developed or produced by 471 manufacturers worldwide, with 176 in Europe.

8.9 The Commission:

·  is concerned that the US and Israel have such a dominant position;

·  believes that it is imperative for the EU to take action to allow the European aeronautics industry to compete, particularly as new emerging markets, such as Brazil, China, India and Russia, are taking an increasing interest in this sector and have the potential to become strong competitors;

·  says that all of the growth is currently in the small unmanned aircraft market, with Japan and France both seeing huge increases in the number of approved operators;

·  believes this growth will translate into a substantial number of new jobs for the aeronautics and services industry, and quotes a US study predicting the creation of between 70,000 and 100,000 new jobs within the US RPAS sector; and

·  says that the European aeronautics industry is pushing both it and national governments to move more quickly and to do more to tap into this new emerging market, including the establishment of the enabling legal framework and new rules to allow operations within the European airspace system, whilst safeguarding the general public concerns about safety, privacy and security.

8.10 In discussing developing the potential of RPAS the Commission says that:

·  RPAS are considered to be aircraft and therefore are subject to the same aviation rules as manned aircraft;

·  there are, however, some significant differences to manned aircraft, the most notable being the absence of a pilot on board the aircraft — the pilot or operator is located at a control station on the ground;

·  despite this, RPAS have to operate to the same level of safety as manned aircraft;

·  this is challenging, since all of the current aviation rules were developed with the assumption that the pilot would be on the aircraft;

·  a key enabler therefore is developing an equivalent set of rules for airworthiness, personnel and operations that would allow the safe integration of RPAS with other airspace users;

·  in addition key technologies would need to be developed to provide sufficient confidence to the regulator that remotely piloted aircraft can detect and avoid other aircraft, technologies that would replace the pilot's ability to see other aircraft and take avoiding action (sense and avoid);

·  Commission ambitions for the proliferation of RPAS and associated technologies are hampered by the lack of an adequate regulatory framework;

·  in the absence of this, a number of Member States have started developing their own national regulation and guidance;

·  there is, however, a lack of consistency which has the potential to hamper growth and therefore the EU market is unlikely to emerge; and

·  the Commission is pushing for the integration of RPAS into EU airspace from 2016 onwards.

8.11 In relation to safe operation into non-segregated airspace the Commission:

·  notes that RPAS will have to achieve the same level of safety as today's manned aircraft, but regulation will need to take account of the wide variety of RPAS and operations, be proportionate to the risk and contain the administrative burden on both industry and national authorities;

·  suggests that regulation will evolve on a gradual basis, focusing on those areas where technology is most mature;

·  says that the European Aviation Safety Agency (EASA) is best placed to develop common rules;

·  notes that currently EASA is responsible for remotely piloted aircraft above 150kg and National Authorities for remotely piloted aircraft below 150kg;

·  proposes that all be brought under EASA's responsibility;

·  says that it will look at the regulatory preconditions to integrate RPAS into the airspace from 2016 onwards, including the scope and role of EASA; and

·  says that it will request EASA to develop the necessary opinions and possible Implementing Rules, based on international process, proportionate to the risk and subject to effective consultation.

8.12 The Commission notes that some of the enabling technologies have not been sufficiently developed to allow its aspirations for integration of RPAS into EU airspace from 2016 to happen. These include command and control (including spectrum allocation and management), sense and avoid (detect and avoid), security protection against physical, electronic or cyber attacks, contingency procedure (lost-link etc), decision capabilities and predictable behaviour in all phases of flight and human factors. The Commission plans to better co-ordinate research and development across all the above areas and believes that the SESAR (Single European Sky ATM (Air Traffic Management) Research) Joint Undertaking,[36] the research and development platform building the future air traffic management system of the Single European Sky, is best placed to achieve this.

8.13 Turning to the security of RPAS operations the Commission:

·  recognises that RPAS has the potential to be used as a weapon and notes that the information needed to remotely control RPAS in a future air traffic system will need to communicated and shared in real time; and

·  suggests that, as a result, there is recognition of the need to put in place sufficient safeguards to address the security vulnerabilities in information and communication systems and that manufacturers and operators are required to take the appropriate action.

8.14 The Commission also addresses the protection of citizens' fundamental rights;

·  noting that public concerns about the potential intrusive nature of RPAS systems, with a growing concern about the invasion of privacy and the other fundamental rights, such as the right to a private and family life and the protection of personal data, particularly in the area of surveillance, mapping, monitoring and video recording; and

·  saying that there are well established laws already in place to protect these rights, but the Commission is keen to ensure that RPAS operators and applications comply with the rules.

The Government's view

8.15 In his Explanatory Memorandum of 6 May the Parliamentary Under-Secretary of State, Department for Transport (Mr Robert Goodwill), says that:

·  the Government welcomes the Communication, but considers that the Commission's plan for integration of RPAS into EU airspace from 2016 onwards is highly ambitious and unlikely to be achieved owing to the vast number of technology hurdles still to be overcome; and

·  it accepts that the current regulation is a barrier to growth, but there is a danger that heavy handed regulation would have the opposite effect to that intended.

8.16 The Minister continues his comments by first saying that:

·  there is a hint within the Communication that the Commission intends to address a complicating factor, arising from Regulation (EC) No. 216/2008, 'The Basic Regulation', establishing the EASA, according to which it is responsible for remotely piloted aircraft above 150kg and National Authorities for remotely piloted aircraft below 150kg;

·  the Commission believes that the 150kg distinction is not relevant to regulate this aviation segment and that coherence below and above 150kg must be ensured;

·  the Government expects that the Commission will propose an amendment to the Basic Regulation, which will include an amendment to remove the division of responsibility between EASA and National Authorities;

·  additionally it can also expect proposals for new Implementing Rules in areas where EASA already has competence on a licensing regime and pilot competence;

·  whilst in principle the Government sees the logic of the Commission's arguments there is a real danger that the full weight of regulation could be applied to the lighter end of the industry, killing it off or stifling growth before it has a chance to properly establish;

·  regulation must be proportionate to the activity and the Government will wish to ensure that this emerging sector is properly established with industry dictating the pace of regulation;

·  a more sensible solution in the near term would be for national civil aviation authorities to work closely together to harmonise rules for remotely piloted aircraft below 150kg; and

·  the Joint Authorities for Rulemaking on Unmanned Systems (JARUS), a group of national authorities aiming at drafting harmonised regulations for all aspect of RPAS, would seem best placed to do this — the UK has a strong voice in this forum.

8.17 Turning to the situation in the UK the Minister says that:

·  the UK has a healthy RPAS industry compared with the rest of Europe;

·  companies such as BAE Systems and Thales UK are seen as amongst the leading players within the EU market and see RPAS as important to the growth of their future aerospace business;

·  the UK is at the forefront of regulatory development — the Civil Aviation Authority (CAA)'s guidance for operations in the UK (CAP 722)[37] has been adopted by many other states across the globe and is one of the key documents being used by the Commission in taking this work forward;

·  at present, there is a steadily growing community of civilian RPAS operators within the UK, although all are working at the 'small unmanned aircraft' end of the scale and are flying at very short range, within the visual line of sight of the pilot — the majority of these are less than 7kg mass;

·  this type of operation, which has many parallels with recreational model flying, is viewed as being simpler, available and relatively affordable, hence it tends to attract individuals or organisations who have little or no previous aviation experience;

·  there are currently about 200 small unmanned aircraft operators flying with CAA permission in the UK, although the number is growing steadily;

·  whilst a very small number of these are police, fire or 'security' related, the vast majority are connected with either aerial photography or aerial surveying (both land and building/structures survey) applications;

·  activity at the larger end of the scale, where the 'flying' element of the system is of a size more comparable to a manned aircraft, is taking much longer to establish itself; and

·  this is directly related to solving the additional technical challenges associated with flight at greater distances and altitudes, in particular, the airworthiness requirements and the capability to avoid collisions. 

8.18 The Minister continues that:

·  in the UK, ASTRAEA (Autonomous Systems Technology Related Airborne Evaluation and Assessment) is a UK industry-led consortium focusing on the technologies, systems, facilities, procedures and regulations that will allow autonomous vehicles to operate safely and routinely in civil airspace over the UK;

·  the consortium comprises seven companies: AOS, BAE Systems, Cassidian, Cobham, QinetiQ, Rolls-Royce and Thales;

·  like the work of the Commission, ASTRAEA's aim is to enable the routine use of RPAS in all classes of airspace without the need for restrictive or specialised conditions of operation;

·  this will be achieved through the coordinated development and demonstration of key technologies and operating procedures required to open up the airspace to RPAS;

·  the project was co-funded by the Technology Strategy Board (the UK's innovation agency), the Welsh Assembly Government and Scottish Enterprise;

·  in April 2013, ASTRAEA conducted a first remotely piloted flight from Preston, Lancashire, to Inverness using an adapted Jetstream research aircraft;

·  the flight through shared UK airspace was staged in conjunction with NATS (the UK's En-Route Air Traffic Control Service provider) and used advanced sensors and on-board robotic systems to control the aircraft once in the air, with the pilot based at Warton, Lancashire;

·  through ASTRAEA, the UK has gained an important competitive edge over its EU competitors, both in the technologies being developed to support RPAS and in some of the difficult regulatory obstacles; and

·  the Government will seek to capitalise on the experiences derived from the ASTRAEA programme to both influence and shape EU regulation.

8.19 The Minister then says that:

·  the Government recognises that the full integration of all types of RPAS requires the development of appropriate regulations in three key areas: airworthiness, flight crew licensing and air operations;

·  these are essential pre-requisite safety requirements for insertion into the EU aviation system;

·  given the complexity of the task, the European RPAS Steering Group proposed to address it through a stepwise approach spanning over 15 years, with close coordination or research and development activities and the development of the necessary technologies;

·  additionally, the UK has one of the most capable RPAS test and evaluation facilities in the world, the West Wales UAS Environment centred around ParcAberporth on the Welsh coast, currently being used by the Ministry of Defence to develop its Watchkeeper programme;

·  this was developed to provide UK industry with the infrastructure to support development of the civil sector;

·  it is anticipated that this will be further enhanced with the reopening of Llanbedr Airfield, which will capable of launching larger RPAS systems into the same segregated airspace environment;

·  it is within this environment that the UK, both Government and industry, will be looking to demonstrate both the technology and the processes to support UK efforts to integrate RPAS into the UK and EU aviation system;

·  there has, however, been relatively little civil activity due to the lack of common and harmonised regulation;

·  the UK RPAS sector is frustrated by the lack of progress in developing airworthiness standards and the operational framework to capitalise on market opportunities;

·  the industry is reluctant to commit its resources on development of RPAS vehicles whilst the regulation is in such a flux; and

·  a cross-government working group on RPAS, involving departments across Whitehall, is working together to address this issues and how to maintain UK industry competitiveness in the EU and globally in this sector.

8.20 The Minister concludes that:

·  the Government therefore broadly supports this Commission initiative to develop a clear understanding of the issues and take a harmonised approach to addressing them across Europe and with other global regions through the International Civil Aviation Organisation;

·  it will seek, however, to ensure that any proposals for further regulation or new Implementing Rules are proportionate to the risk and does not cause additional barriers to growth in this sector; and

·  both Government, the CAA and industry are closely engaged in the various work streams involved in harmonising these requirements.

Previous Committee Reports

None.


9 Civil aviation: EU and Ukraine
Committee's assessment Politically important
Committee's decisionNot cleared from scrutiny; further information requested

Document details(a) Draft Council Decision on conclusion of an air services agreement with Ukraine

(b) Draft Council Decision on signature and provisional application of that agreement

Legal base(a) Articles 100(2) and 218(6)(a) TFEU; consent; QMV

(b) Articles 100(2) and 218(5) TFEU; —; QMV

DepartmentTransport

Summary and Committee's conclusions

9.1 For some years the EU has been establishing a common aviation area, known as the European Common Aviation Area (ECAA), with its near neighbours. Comprehensive air transport agreements with third countries provide for a single aviation market and alignment with EU legislation on such matters as safety and air traffic management and replace any bilateral agreements Member States may have with the third country concerned. In 2006 the Council gave the Commission a mandate to negotiate an agreement with Ukraine which would in effect expand the ECAA to include that country. The EU and Ukraine have successfully negotiated, and initialled on 28 November 2013, a comprehensive air transport agreement. The draft Council Decision, document (b), would allow EU signature of the Agreement and its provisional application pending its conclusion. The draft Council Decision, document (a), would be the act required of the EU, as a Contracting Party, to accept conclusion of the Agreement.

9.2 Following the Cordoba Agreement in 2006, Spain agreed to stop seeking the exclusion of Gibraltar airport from EU aviation legislation. However, in late 2012, Spain informed the Commission that it would once again be seeking Gibraltar's exclusion. In order to overcome this impasse, and to progress with this deal, a text has been included in the proposed Agreement, which the Government interprets as meaning that, in line with TFEU, Gibraltar is part of the EU and is thus included in this particular Agreement.

9.3 Whilst we have no problem with the substance of these proposals, we are concerned about the Gibraltar issue. We understand that Spain appears reluctant to accept the Agreement as it stands. So we are keeping the documents under scrutiny pending further information on the situation. If, however, the Presidency looks to be able to secure approval of the Agreement, with the continued inclusion of the present text on Gibraltar, and of the draft Council Decisions, without any additional recitals undermining the position of Gibraltar, we would not object to the Government voting for the proposals. We would, of course, expect to hear an account of such a vote.

Full details of the documents: (a) Draft Council Decision on the conclusion of a Common Aviation Area Agreement between the European Union and its Member States and Ukraine; 35983; 6587/14 + ADD 1; COM(14) 17 (b) Draft Council Decision on the signature, on behalf of the European Union, and provisional application of a Common Aviation Area Agreement between the European Union and its Member States and Ukraine; 35984; 8290/14 + ADD 1; COM(14) 18.

Background

9.4 For some years the EU has been establishing a common aviation area, known as the European Common Aviation Area (ECAA), with its near neighbours. Comprehensive air transport agreements with third countries provide for a single aviation market and alignment with EU legislation on such matters as safety and air traffic management and replace any bilateral agreements Member States may have with the third country concerned.

9.5 The current members of the ECAA, additional to the EU itself and its own Member States, are Albania, Bosnia and Herzegovina, Macedonia, Iceland, Montenegro, Norway, Serbia and Kosovo.

9.6 In 2006 the Council gave the Commission a mandate to negotiate an agreement with Ukraine which would in effect expand the ECAA to include that country.

The documents

9.7 The EU and Ukraine have successfully negotiated, and initialled on 28 November 2013, a comprehensive air transport agreement that in effect expands the ECAA to Ukraine. The Agreement covers not only access to the air transport markets of the Contracting Parties but the extensive alignment of Ukrainian aviation legislation with EU legislation and regulations on aviation safety, security and air traffic management, as well as on economic regulation, competition laws, environment and consumer protection. The Agreement envisages phased opening of market access between the EU and Ukraine, providing substantial opportunities for passengers and industry of both sides. The bilateral air services agreements between Member States and Ukraine will, in the most part, be superseded by this Agreement.

9.8 The draft Council Decision, document (b), would allow EU signature of the Agreement and its provisional application pending its conclusion. The draft Council Decision, document (a), would be the act required of the EU, as a Contracting Party, to accept conclusion of the Agreement. The other Contracting Parties, the Member States and Ukraine, would signify their acceptance through their individual constitutional processes for international agreements.

The Government's view

9.9 In his Explanatory Memorandum of 21 May the Parliamentary Under-Secretary of State, Department for Transport (Mr Robert Goodwill), first draws our attention to a potential problem concerning Gibraltar. He says:

    "Following the Cordoba Agreement in 2006, Spain agreed to stop seeking the exclusion of Gibraltar airport from EU aviation legislation. However, in late 2012, Spain informed the European Commission that it would once again be seeking Gibraltar's exclusion. The UK still stands by the Cordoba Agreement and believes that Gibraltar should be included in all EU aviation legislation.

    "In order to overcome this impasse, and to progress with this deal, the following text has been included in the proposed Agreement:

    (Article 2, Para 31) 'The application of this Agreement to Gibraltar airport is understood to be without prejudice to the respective legal positions of the Kingdom of Spain and the United Kingdom with regard to their dispute over sovereignty over the territory in which the airport is situated. Such application is determined by the application of Union legislation to Gibraltar airport. Ukraine shall be informed of the scope of that application.'

    "The UK's interpretation of this text, in line with TFEU, is that Gibraltar is part of the EU, and is thus included in this particular agreement."

9.10 Turning to the policy implications of the documents the Minister, noting that the Agreement would largely supersede the UK/Ukraine Air Services Agreement of 21 November 2011, says that:

·  the Government supports the objectives of fully liberal air transport agreements, based on reciprocal opening up of markets, a commitment to fair competition and increasing regulatory convergence;

·  the Agreement would deliver these objectives and would provide wider commercial opportunities for UK airlines that wish to operate to Ukraine; and

·  UK and EU aviation interests are aware of the Agreement and are supportive of it.

9.11 The Minister tells us that the Presidency may seek agreement on the draft Council Decisions at the Transport Council on 5 June.

Previous Committee Reports

None.


10 Citizens' dialogues
Committee's assessment Politically important
Committee's decisionNot cleared from scrutiny; further information requested

Document detailsCommission report: Citizens' dialogues as a contribution to developing a European public space
Legal base
DepartmentForeign and Commonwealth Office

Summary and Committee's conclusions

10.1 Citizens' dialogues have formed a central part of the 2013 European Year of Citizens. They are modelled on "town hall" meetings and are intended to provide a public forum for debate on European themes. At least one citizens' dialogue has taken place in each Member State. The UK dialogue, involving the Minister for Europe (Mr David Lidington) and the EU Vice-President and Justice Commissioner (Viviane Reding), was held in London in February 2014.

10.2 The Commission report provides an overview and assessment of the 51 citizens' dialogues held between September 2012 and March 2014 involving 22 (out of 28) EU Commissioners, alongside national, regional and local politicians and Members of the European Parliament. It says that the dialogues have a central role to play in rebuilding trust in the EU and in developing a European Public Space which is based on shared values while also taking into account national and regional perspectives. The report recommends continuing the dialogues beyond the European Parliament elections in May 2014 in order to bring "a truly European perspective to the debate with national constituencies" and to discuss "the bold changes required to build an even more democratic Union".[38]

10.3 The Government welcomes the opportunity for EU Commissioners to engage directly with members of the public, but considers that citizens' dialogues do not offer a durable solution to the problem of democratic legitimacy within the EU. In his Explanatory Memorandum, the Minister for Europe (Mr David Lidington) reiterated the Government's position that "the primary source of democratic legitimacy lies with the governments and parliaments of Member States", expressed support for a stronger role for national Parliaments in the EU's functioning as a means of increasing democratic legitimacy, and suggested that greater powers for national parliaments and better control of the Commission's agenda by national governments were needed to plug the democratic deficit.

10.4 We asked the Minister to explain what "greater powers" he would like national Parliaments to have; how he envisaged that national Governments should exercise "better control of the Commission's agenda"; whether the changes he advocated would necessitate Treaty revision, including some modification of the Commission's right of initiative; and how effective the changes were likely to be unless enshrined in the EU Treaties. In this, our second Report on citizens' dialogues, we set out the Minister's response.

10.5 The Minister reiterates in his letter that the Government sees national governments and national parliaments as "the real source of democratic legitimacy in the EU" and its view that they "embody the democratic spirit of a nation". This does not sit well with the fact that the Government's response to our Report on scrutiny reform, which included recommendations about the role of national parliaments, is now over four months overdue. We therefore ask the Government, first, when it will reply to our Report, and the reasons for the delay.

10.6 Second, on the specific points raised in the letter, we ask the Minister:

·  which "partners" it has been working with "to increase democratic legitimacy within the EU" and whether this includes "partners" in Parliament;

·  what consultation there has been with Parliament on the Government's proposals;

·  what thresholds the Government considers would be appropriate for issuing a yellow card, a late card and a red card; and

·  when and by whom a "Governance Manifesto" for the incoming Commission would be agreed, and what role national Parliaments would have in considering its content and implementation.

10.7 Meanwhile, the Commission report remains under scrutiny.

Full details of the documents: Commission Report: Citizens' dialogues as a contribution to developing a European public space (35935), 8428/14 + ADD 1, COM(14) 173

Background

10.8 The Commission's report on citizens' dialogues acknowledged that trust in governance and political leadership at both EU and national level has been severely damaged by the economic and financial crisis. It noted that, whilst there was widespread support for "EU values" based on democracy, the rule of law, human rights and equality, and a desire for EP elections to offer "competing political ideas" addressing "the main underlying themes of unity, democracy and solidarity", a significant majority of Europeans "feel that their voice is not being heard". The report concluded that citizens' dialogues had helped to give the EU institutions "a human face", enabled EU Commissioners and other politicians to gain fresh insights, and recommended that they should be continued beyond the May 2014 EP elections

The Minister's letter of 22 May 2014

10.9 The Minister for Europe (Mr David Lidington) provides further details on the Government's proposals "for making the European Union more democratically legitimate". He explains:

    "The Government considers that the real source of democratic legitimacy in the EU lies with national parliaments and national governments. It is to them that citizens turn in a crisis, and it is national parliaments and governments that embody the democratic spirit of a nation. We are working with partners to increase democratic legitimacy within the EU and as part of this have set out concrete proposals to give national parliaments greater powers:

·  Strengthening the yellow card system by extending the scope to include proportionality as well as subsidiarity; lowering the threshold at which a card is triggered; and, extending the scrutiny period from 8 to 12 weeks to give parliaments more time to issue a reasoned opinion;

·  Giving parliaments the opportunity to exercise these prerogatives after co-decision is complete through a late card as the Dutch have suggested;

·  Introducing a red card by which national parliaments working together could block Commission proposals;

·  Ensuring the Commission is more responsive to national parliaments' opinions in the political dialogue process. For example, the Dutch Tweede Kamer and the House of Lords have suggested a green card by which the Commission would propose new legislation, or amend or repeal existing legislation, if at least one third of national parliaments made a request to that effect.

    "The Government believes that these proposals can and should be delivered now through agreement with the Commission, and cemented in the Treaties when they are reopened.

    "We do not believe that proposals for a green card would require modification of the Commission's right of initiative. As with our other proposals, a green card could be delivered through agreement with the Commission. We are confident that the Commission would abide by any such public agreement it might make on how it would respond to communications from national parliaments and therefore see this as a way to strength the role of parliaments now, ahead of future revision of the Treaties. There is an analogy here with the European Parliament's 'own initiative' reports."

10.10 Turning to the role of national Governments in ensuring better control of the Commission's agenda, the Minister continues:

    "The UK supports national governments exercising their right through the European Council to 'define the general political direction and priorities' of the Union, as set out in Article 15(1) of the Treaty on European Union. The appointment of a new Commission offers an opportunity to do this more clearly than has been done in the past. The UK supports Dutch Foreign Minister Frans Timmermans' call for a 'Governance Manifesto' for the new Commission, which would lay out what Europe needs to focus on and what should be left to Member States in accordance with the principle of 'Europe where necessary, national where possible'."

10.11 The Minister alludes to a speech he gave at the European Policy Centre in Brussels on 13 May in which he argues that strengthening democratic legitimacy should be one of five priorities for the next Commission, the others being increasing competitiveness, tackling abuse of free movement, guaranteeing fairness for eurozone ins and outs, and reviewing energy policy in light of the situation in Ukraine.[39] He adds that the Government wants to "ensure stronger implementation of the decisions taken by the European Council by strengthening the General Affairs Council's role in taking forward European Council decisions".

Previous Committee Reports

Forty-eighth Report HC 83-xliii (2013-14), chapter 7 (7 May 2014).


11 Customs
Committee's assessment Legally and politically important
Committee's decisionNot cleared from scrutiny; further information awaited

Document detailsDraft Directive concerning customs infringements and sanctions
Legal baseArticle 33 TFEU; co-decision; QMV
DepartmentHM Revenue and Customs

Summary and Committee's conclusions

11.1 Currently, whilst customs legislation is completely harmonised across Member States, each is able to set its own sanctions for breaches of these rules. With this draft Directive, the Commission has proposed a single penalty regime for non-criminal infringements of customs legislation by individuals and legal persons. When we first considered this matter we said that clearly this draft Directive is, as it stands, very unattractive. We asked to know, once negotiations had advanced a little, what the prospects were for significantly improving the text and, if poor, what the Government's options were. In April we reported that the Government had identified a Justice and Home Affairs (JHA) opt-in issue within this draft Directive and that, although there was no JHA base cited for the proposal, it intended to opt into the Article, which in its view triggered the Opt-In Protocol. We observed that the Government had not adequately met our earlier request to let us know, once negotiations had advanced a little, what the prospects were for significantly improving the text and, if poor, what the Government's options were, given the apparent opposition to the proposal by the majority of Member States and asked that this should be rectified. The Minister now tells us that strong opposition by Member States means that the negotiations are stalled but may be resumed.

11.2 Although the opposition to this proposal remains strong we note that it may still be pursued by the Commission. So we keep the document under scrutiny and await the Minister's further report.

Full details of the documents: Draft Directive on the Union legal framework for customs infringements and sanctions (35670), 17949/13 + ADDs 1-4, COM(13) 884.

Background

11.3 Currently, whilst customs legislation is completely harmonised across Member States, each is able to set its own sanctions for breaches of these rules.

11.4 The UK imposes civil penalties ranging from £250 to £2,500 for breaches of customs regulations. Penalties can be mitigated by up to 100%. If HM Revenue and Customs or a Tribunal are satisfied that there is a reasonable excuse for the breach there is no penalty. There is a separate more severe penalty in circumstances where there has been a dishonest act for the purposes of evading duty. The penalty is up to 100% of the duty evaded or sought to be evaded. Mitigation is available but not reasonable excuse.

11.5 In December 2013, with this draft Directive, the Commission proposed a single penalty regime for non-criminal infringements of customs legislation by individuals and legal persons. For the UK this would mean replacement of both penalty regimes. When, in January, we considered this matter we said that, on the basis of what we had heard from the Government, clearly this draft Directive is, as it stands, very unattractive. We noted that, whilst the Government seemed willing to enter into negotiations on the proposal, we presumed that, given the attitude of the majority of Member States, it would be well placed to prevent its adoption if the text remained so unacceptable. We asked to know, once negotiations had advanced a little, what the prospects were for significantly improving the text and, if poor, what the Government's options were.

11.6 In April we reported that the Government had identified a Justice and Home Affairs (JHA) opt-in issue within this draft Directive and that, although there was no JHA base cited for the proposal, it intended to opt into the Article, which in its view triggered the Opt-In Protocol. We reminded the Government that we do not accept its contention that the Opt-In Protocol applies to measures that do not have a JHA legal base. As for the wider consideration of the draft Directive, we observed that the Government had not adequately meet our earlier request to let us know, once negotiations have advanced a little, what the prospects were for significantly improving the text and, if poor, what the Government's options were, given the apparent opposition to the proposal by the majority of Member States and asked that this should be rectified. Meanwhile the document remained under scrutiny.

The Minister's letter of 12 May 2014

11.7 The Financial Secretary to the Treasury (Nicky Morgan) now tells us of the latest developments in relation to the draft Directive, saying that:

·  negotiations have progressed very slowly in the face of the UK and other Member States raising a significant number of policy concerns;

·  these cover all aspects of the proposal, but the key ones are the linking of infringements to certain behaviours (that is, "strict liability", "negligence" and "intentional") and the imposition of both minima and maxima sanctions, given the predicted impact on Member States' legal systems and the restriction of their ability to impose custodial sentences;

·  to aid this debate, in conjunction with the German and Dutch administrations, on 10 April the Government submitted a letter to the Greek Presidency setting out in detail their concerns with the Commission proposal;[40]

·  the strength of opposition has persuaded the Greek Presidency to suspend the article-by-article discussion of this proposal temporarily while it considers its next steps; and

·  the Government, along with the Dutch and German administrations, has argued that the proposal should be withdrawn, though it understands that the Commission will seek further discussion on the proposal, the basis and timing of which is currently unclear.

11.8 The Minister concludes that she will keep us informed of developments.

Previous Committee Reports

Thirty-first Report HC 83-xxviii (2013-14), chapter 5 (22 January 2014) and Forty-sixth Report HC 83-xli (2013-14), chapter 8 (9 April 2014).


12 Financial services: Long-term financing, including crowdfunding
Committee's assessment Politically important
Committee's decisionNot cleared from scrutiny; further information requested

Document details(a) Commission Communication on long-term financing of the European economy

(b) Commission Communication: Unleashing the potential of crowdfunding in the European Union

Legal base
DepartmentHM Treasury

Summary and Committee's conclusions

12.1 In the first Communication the Commission discusses the need for long-term financing of the EU economy and suggests 31 actions it plans to take to promote such financing. In the second the Commission discusses the development and potential of crowdfunding (the funding of a project by raising money from a large number of people, typically through the internet)

12.2 Like the Government, we see the utility of the Communication on long-term financing. However, we note the Commission's statement about its draft Directive on occupational pension funds. Given the Government's general dissatisfaction with this proposal we should like to know what it thinks of the justification for it suggested by the Commission in this document.

12.3 As for the Communication on crowdfunding, we share the Government's view that there is value in developing understanding of its benefits and challenges. But we also share its concern that a case would need to be made for any EU level action on crowdfunding and that tax issues are properly dealt with by tax experts. Whilst we presume that the Government will ensure that the first point is fully addressed in the work proposed in relation to crowdfunding, we would wish to see the Government making the tax point to the Commission immediately. So, before considering the Communication further, we would like confirmation that the Government is indeed making this point to the Commission.

12.4 Meanwhile both documents remain under scrutiny.

Full details of the documents: (a) Commission Communication on long-term financing of the European economy: (35925), 8335/14 + ADD 1, COM(14) 168; (b) Commission Communication: Unleashing the potential of crowdfunding in the European Union: (35934), 8485/14, COM(14) 172

Background

12.5 In March 2013, in its Green Paper on the long-term financing of the EU economy,[41] the Commission set out for consultation a series of reflections and questions on the challenges facing the EU in addressing its large scale, long-term investment needs. In December 2013 a High Level Expert Group, established by the Economic and Finance Committee at the behest of the ECOFIN Council, published a report on SME and long-term infrastructure financing.[42] In January the Commission published a summary of the responses to the 2013 Green Paper.[43]

12.6 Crowdfunding is the funding of a project by raising money from a large number of people, typically nowadays through the internet. The Commission briefly touched on the possible role of crowdfunding in the 2013 Green Paper.

The document

12.7 The Commission's Communication on long-term financing, document (a), follows its 2013 Green Paper and the report from the High Level Expert Group on SME and long-term infrastructure financing. It suggests that long-term financing has some key features:

·  it finances productive growth supporting activities;

·  it is patient, in the sense that investors assess long term risks rather than short term price fluctuations, so acting in a counter-cyclical manner and promoting financial stability; and

·  it is engaged, as investors are more inclined to take longer term concerns, such as environmental, social and governance issues, into account when developing investment strategies.

12.8 The Commission outlines the reasons for addressing the need for long-term financing in the EU, asserting that:

·  infrastructure and SMEs are key contributors to sustainable growth — infrastructure through improving economic productivity, enabling growth and joining the single market together, while SMEs are a key driving force in creating employment and innovation;

·  the financial crisis created a climate of uncertainty and risk which affected both the demand and supply side of financing;

·  on the demand side this had been evidenced with the reduction in demand from SMEs for long-term financing, while on the supply side the crisis has increased risk aversion, resulting in a preference for liquidity, which alongside bank deleveraging has affected the economic financing of long maturities; and

·  the EU needs to address these issues in order to promote economic growth and competitiveness through a more stable and secure financial sector.

12.9 The Commission recognises that wider work is being carried out in international fora (G20 and OECD) on long-term financing. But for the EU it presents a set of action points (totalling 31, many of which are linked or have the same goals), which through a range of responses and initiatives, aim to develop and diversify how long term investment is financed.

12.10 The actions proposed in the Communication are categorised under the Commission's six themes, as follows. The Commission says it will:

Mobilising private sources of long-term financing

·  prepare reports on the appropriateness of the Capital Requirements Regulation (CRR) requirements relating to long-term financing by 2014 and 2015;

·  take the fullest account, in the preparation of its Delegated Act on a liquidity coverage ratio (expected in the first half of 2014) and the final calibration of a net stable funding ratio, of the need not to unduly restrict long term financing by banks — in addition, full advantage should be taken of the monitoring period in the CRR to adjust and address potential unintended consequences of the new liquidity rules for long-term investment;

·  adopt in September 2014 by the latest a Delegated Act for Solvency II (the Directive 2009/138/EC on the taking-up and pursuit of the business of insurance and reinsurance), including a number of incentives to stimulate long-term investment by insurers;

·  issue a comprehensive Call for Advice to the European Insurance and Occupational Pensions Authority in the second half of 2014, with the objective of creating a single market for personal pensions and thus potentially mobilising more personal pension savings for long-term financing;

·  undertake by the end of 2014 a study of possible market failures and other shortcomings regarding cross-border flows of savings, including an overview of national savings account models and an assessment of the opportunity of introducing an EU savings account;

Making better use of public finance

·  issue in 2014 a Communication regarding promotional banks to provide guidance on general principles, governance and transparency, as key drivers to ensure investor confidence and favourable funding conditions, supervision and regulatory aspects and the role of National Promotional Banks (NPBs) in co-investing and delivering EU budget funds to support EU policy priorities for 2020 and beyond;

·  encourage and monitor the cooperation of NPBs with the European investment Bank (EIB)/European Investment Fund and possibly other multilateral development, banks as requested by the June 2013 European Council, and report to the December 2014 European Council;

·  publish a report on promoting better coordination and cooperation among existing national credit export schemes;

Developing European capital markets

·  provide that its Delegated Act under the Markets in Financial Instruments Directive (MiFID) II will ensure that the requirements for SME growth markets minimise the administrative burden for issuers on these markets, while maintaining high levels of investor protection — these requirements include the minimum proportion of SME issuers on these markets, appropriate criteria for admission to trading, information to investors and financial reporting;

·  undertake a study on whether, following the improvements introduced by MiFID II for non-equity securities, further measures are necessary to enable the creation of a liquid and transparent secondary market for the trading of corporate bonds in the EU;

·  assess the implications and effects of the rules of the Prospectus Directive by the end of 2015 — this will include in particular an assessment of the proportionate disclosure regime for SME issuers and companies with reduced market capitalisation;

·  explore whether the eligibility criteria for investments by Undertakings for Collective Investments in Transferable Securities could be extended to securities listed on SME growth markets that display certain liquidity characteristics, in view of the implementation of the MiFID II framework — the issue of whether European Long-Term Investment Funds (ELTIFs) should also be able to invest in listed SMEs is a key issue currently debated in the context of the Commission's ELTIF proposal, which includes non-listed SMEs as part of the asset classes that would be eligible for an ELTIF investment;[44]

·  work on the differentiation of "high" quality securitisation products with a view to ensuring coherence across financial sectors and exploring a possible preferential regulatory treatment compatible with prudential principles, will consider introducing this approach in relevant EU legislation across financial sectors and will take into account possible future increases in the liquidity of a number of securitisation products following further differentiation and standardisation;

·  work with the international standards setters, in particular the Basel Committee and the International Organisation of Securities Commissions, to develop and implement global standards especially on rules on risk retention, high quality standardisation and transparency to ensure consistency and avoid regulatory arbitrage;

·  review the covered bonds treatment in the CRR by the end of 2014 with a view to building the basis for an integrated EU covered bond market — the review will consider credit quality, eligible collateral and transparency and could also explore strengthening supervision, enforceability of preferential rights and bankruptcy segregation aspects;

·  launch a study, taking into account the findings of that review, on the merits of introducing an EU framework for covered bonds;

·  conduct by the end of 2014 a study to map out the private placement markets in the EU against other locations/practices, analyse their key success drivers and develop policy recommendations on how this success can be replicated more widely in the EU — potential risks will also be assessed, since private placement markets are by definition less transparent than public capital markets and are highly illiquid and the study will build on the public consultation and the impact assessment carried out in 2007/2008;[45]

Improving SMEs access to financing

·  undertake in 2014 a mapping of the EU and national legislation and practices affecting the availability of SME credit information, with a view to considering possible EU approaches to the credit scoring industry and assessing the feasibility of harmonising/increasing the comparability of SME data across the EU;

·  revive the dialogue between banks and SMEs with the aim of improving financial literacy of SMEs, particularly with regards to feedback provided by banks on loan applications, and will also assess best practices on helping SMEs to access capital markets;

Attracting private finance to infrastructure

·  evaluate in 2014 the feasibility of voluntarily making available, where possible by way of a single portal, existing information on infrastructure investment plans and projects by national, regional and municipal authorities;

·  evaluate in 2014 the feasibility and practical arrangements of collecting and, where possible, making available comprehensive and standardised credit statistics on infrastructure debt within a single access point — this exercise would support the work done in the Financial Stability Board and the G20 context and could involve the EIB, the European Bank for Reconstruction and Development, NPBs and institutional investors;

Enhancing the overall environment for sustainable finance

·  consider a proposal for the revision of the Shareholder Rights Directive to better align long-term interests of institutional investors, asset managers and companies;

·  assess in 2014, under the European Parliament Pilot Project on "Promotion of Employee Ownership and Participation", (Employee Share Ownership (ESO) across the EU with a view to identifying problems with cross-border implementation of Employee Financial Participation (EFP)/ESO schemes and formulating possible EU actions to promote EFP and in particular ESO;

·  consider a Recommendation aimed at improving the quality of corporate governance reporting, a report on incentives for institutional investors and asset managers to take better account of environmental (for example carbon footprint and climate risks), social and governance information in their investment decisions and a study on fiduciary duties and sustainability;

·  consider, in the framework of its endorsement of the revised International Financial Reporting Standard (IFRS) 9, whether the use of fair value in that standard is appropriate, in particular regarding long term investing business models;

·  invite the International Accounting Standards Board to give due consideration to the effect of its decisions on the investment horizons of investors both in specific relevant projects and in its development of the Conceptual Framework, paying particular attention to the reintroduction of the concept of prudence;

·  explore, in its evaluation of the International Accounting Standards Regulation, with stakeholders in the course of 2014 the appropriateness of the endorsement criteria, taking account of Europe's long-term financing needs;

·  launch a consultation in 2014 to examine the case for a simplified accounting standard for the consolidated financial statements of listed SMEs and the usefulness of a complete self-standing accounting standard for non-listed SMEs to supplement the Accounting Directive;

·  continue, through country specific recommendations in the European Semester process, to incentivise equity investment in particular for Member States with high debt bias in corporate taxation;

·  review, as provided for in its Recommendation of March 2014 on best practice principles to enable the early restructuring of viable enterprises and to allow bankrupt entrepreneurs to have a second chance, implementation of the Recommendation and possible additional measures; and

·  publish in 2014 a report on the law applicable to third party aspects of the assignment of claims.

12.11 In this document the Commission draws specific attention, in the context of long-term investment, to its concurrent draft Directive on occupational pension funds[46] and its Communication on crowdfunding, document (b). On the draft Directive the Commission says that it "could contribute to more long-term investment by occupational pension funds by limiting the possibilities for Member States to restrict certain types of long-term investment".

12.12 In the Communication on crowdfunding, document (b), the Commission outlines the various forms, potential benefits and challenges of crowdfunding, noting that Member States are taking a variety of approaches from guidance to regulatory action to address concerns with crowdfunding and to facilitate this form of investment. It proposes actions with the aim of developing a common understanding of these benefits and challenges to help to guide future action at the EU level.

12.13 The Commission says that:

·  to get a better common understanding of how crowdfunding fits in to the wider financial system it will carry out a study in 2014;

·  it will also explore the potential of crowdfunding to support research and innovation and will reflect on the role which tax incentives could play in relation to crowdfunding for research and development innovation;

·  it will establish an expert group, the European Crowdfunding Stakeholder Forum, including representatives from national authorities and other interested groups;

·  the Forum's purpose will be to raise awareness, provide information and training to businesses and individuals using crowdfunding platforms, promote best practice and identify any other issues that may need attention;

·  the Forum will also provide advice to the Commission on the effectiveness of the national regulatory frameworks and look to explore the potential for a EU 'quality label' to build trust in the sector;

·  the Commission will hold regulatory workshops to look to identify differences in national approaches that might hinder the effective working of the single market and assess if regulatory intervention is needed at an EU level; and

·  consideration should also be given to channelling public funds, co-invested with private funds, through crowdfunding platforms.

The Government's view

12.14 In her Explanatory Memorandum of 9 May on the Communication concerning long-term financing, document (a), the Economic Secretary to the Treasury (Andrea Leadsom) says that the Government welcomes this document. She comments that:

·  it provides an opportunity to further develop the EU's focus on addressing its long-term investment needs;

·  this is particularly important for supporting sustainable EU growth;

·  the Government believes that a number of areas mentioned in the Communication, should be considered further, for example developing EU capital markets through nurturing private placements and ensuring high quality securitisation;

·  it believes, furthermore, that there are a number of other areas not identified in the document, which could provide opportunities to address the EU's long-term financing needs — these include public services debentures and long-term home loans;

·  the Government agrees with the assessment in the Communication that there is a strong case to diversify sources of long-term financing of the economy and to move away from the over-reliance on bank lending;

·  it is particularly keen to explore whether further regulatory changes can be made to improve access to capital markets for SMEs; and

·  this might include exploring ways to reform regulation, to make it easier for SMEs to raise finance, whilst maintaining investor protection, and investigating the development of non-traditional sources of finance.

12.15 In her Explanatory Memorandum of 17 April on the Communication about crowdfunding, document (b), the Minister comments that:

·  the Government is of the view that given the nascent nature of crowdfunding industries within the EU and the diversity of arrangements that exist for regulating them, there is value in developing understanding of the benefits and challenges of crowdfunding;

·  the European Crowdfunding Stakeholder Forum could be a useful forum to develop this understanding and to discuss best practice and issues in the crowdfunding industry — the Government would be a part of this Forum;

·  at this stage, however, the case for action at an EU level including an EU 'quality label', rather than allowing Member States to adopt their own approaches to the regulation of crowdfunding, has not been made; and

·  in the UK the Financial Conduct Authority introduced a new regulatory regime for crowdfunding on 1 April that aims to balance consumer protection with the need to allow the industry to develop and grow.

12.16 The Minister, noting that the Commission says that it will conduct a study into the role tax incentives could play in supporting research and innovation through crowdfunding, continues that the Government opposes the inclusion of tax measures in non-tax proposals. She says that this is because tax is a sovereign issue and that tax matters should be discussed by tax experts in the ECOFIN Council context and be decided by unanimity.

Previous Committee Reports

None.


13 Financial services: occupational pension funds
Committee's assessment Legally and politically important
Committee's decisionNot cleared from scrutiny; letter to be sent to the Commission, the European Parliament and the Council as part of political dialogue

Document detailsDraft Directive on the activities and supervision of institutions for occupational retirement provision (recast)
Legal baseArticles 53, 62 and 114(1) TFEU; co-decision; QMV
DepartmentHM Treasury

Summary and Committee's conclusions

13.1 Institutions for Occupational Retirement Provision, or IORPs, more commonly known as occupational pension funds, are collective schemes which manage financial assets on behalf of employers in order to provide retirement benefits for their employees. There are around 125,000 such schemes operating within the EU, managing assets of around £2 trillion (€2.5 trillion) for around 75 million beneficiaries. The vast majority of these schemes are located in just four Member States: Germany, the Republic of Ireland, the Netherlands and the United Kingdom. Occupational pension funds do not play a significant part in pension provision outside of these four Member States.

13.2 The IORP Directive, Directive 2003/41/EC, sets out a minimum harmonisation framework for occupational pension schemes and their supervision, including rules which oblige occupational pension funds to invest their assets prudently, in the best interest of members and beneficiaries.

13.3 At its first consideration of this proposal the Committee noted the Government's significant subsidiarity concerns and decided that it would consider these further with a view to raising a possible subsidiarity objection with the EU institutions as a matter of political dialogue. It was not possible to meet the eight week deadline for a reasoned opinion prescribed by the Subsidiarity Protocol[47] due to prorogation of Parliament. The Committee also asked the Minister (Andrea Leadsom) for further information on the Government's efforts to halt this proposal.

13.4 We do not consider that the proposal complies with the principle of subsidiarity. As it was not possible for the House to issue a reasoned opinion within the deadline prescribed by the Subsidiarity Protocol we propose to inform the Commission, the European Parliament and the Council of our objections as part of political dialogue, using the reasons set out in the Annex.

13.5 In the meantime we retain the document under scrutiny pending a response from the Government to our previous request for information.

Full details of the documents: Draft Directive on the activities and supervision of institutions for occupational retirement provision (recast), (35944), 8633/14, COM(14) 167 + Adds 1-5.

Background

13.6 The Commission's general objective in making this proposal is to facilitate the development of occupational retirement savings, making them safer and more sustainable; and to reinforce the role of occupational retirement funds as institutional investors in the EU's real economy. To achieve this it identifies four specific objectives:

·  The removal of remaining prudential barriers for cross-border IORPs.

·  The achievement of good governance and risk management.

·  The provision of clear and relevant information to members and beneficiaries.

·  The provision of the necessary tools for supervisors to enable them to effectively supervise IORPs.

13.7 Further details of the proposal are set out in our previous Report.

Previous Committee Reports

Fiftieth Report HC 83-xlv (2013-14), chapter 6 (14 May 2014).

Annex: Letter to the Presidents of the European Commission, European Parliament and Council

1. The European Scrutiny Committee of the UK House of Commons has considered the Commission's proposal for a Directive on the activities and supervision of institutions for occupational retirement provision. The proposal is in the form of a recast of Directive 2003/41, but in reality it would create a significantly higher level of harmonisation and introduce substantial new provisions.

2. The Committee has formed the view that this proposal fails to meet the requirements of subsidiarity. It would have recommended to the House of Commons that a reasoned opinion should be issued. However due to the fact that the House of Commons did not sit between 15 May and 3 June it would not have been possible for it to consider such recommendation before the 30 May deadline. We are therefore pursuing our objections to the proposal by way of political dialogue.

3. The reasons for our subsidiarity objections are as follows.

4. As stated in the Commission's explanatory memorandum, the general objective of this proposal is to facilitate the development of occupational retirement savings, making them safer and more sustainable; and to reinforce the role of occupational retirement funds as institutional investors in the EU's real economy. To achieve this four specific objectives are identified:

a)  The removal of remaining prudential barriers for cross-border IORPs (institutions for occupational retirement provisions).

b)  The achievement of good governance and risk management.

c)  The provision of clear and relevant information to members and beneficiaries.

d)  The provision of the necessary tools for supervisors to enable them to effectively supervise IORPs.

5. The point of departure for consideration of subsidiarity is that the onus of proving that the subsidiarity principle has been met rests with the Commission. The Commission's explanatory memorandum which, in the Committee's view, should contain the subsidiarity justification is particularly poor in this respect. It comprises an assertion of EU added value and statement that the proposal does not call into question the prerogative of member States for the organisation of their pension systems.

6. As the Committee has made clear in its earlier reasoned opinions, it does not consider it appropriate for the Commission to rely on its impact assessment for the subsidiarity justification required by Article 5 of Protocol 2[48] as this is not available in all language versions.

7. However, even accepting recourse to the impact assessment, the Committee notes the reservations of the Commission's own Impact Assessment Board. This Board carries out a central quality control and support function working under the authority of the Commission President, independent of the policy making department. In principle, a positive opinion is needed from the Board for an initiative to be tabled for adoption by the Commission. The Commission's explanatory memorandum records that this Board provided a negative opinion on the Commission's Impact Assessment[49] including in relation to the subsidiarity justification. Whilst the Commission indicate that they have subsequently re-written parts of the Impact Assessment, including on subsidiarity, there is no indication that there has been a re-assessment.[50] Our understanding is that this impact assessment has not, in fact, re-submitted to the Board and has not received a positive opinion from it.

8. As the Commission acknowledges,[51] Member States retain full responsibility for the organisation of their pension systems, including occupational pensions. Therefore occupational pensions can quite properly be organised in different ways to suit the diverse nature of the social and labour laws across the Member States. That this is so is evidenced by the very diverse role that occupational pensions play in overall pension provision. The overwhelming majority of IORPs and funds under management are located in just four Member States, Germany, Ireland, the Netherlands and the United Kingdom.

9. In its impact assessment the Commission includes a table[52] showing, for each Member State the share of occupational and statutory funded pensions in total gross theoretical replacement rates in 2006 and 2046. From this it can be deduced that these two types of pension form a relatively low proportion of overall pension provision across 16 Member States for whom data was available.[53]

10. The Commission assert that there is potential for expansion of occupational pensions in other Member States given the pressures on state schemes. However, based on this same table, both these types of pensions are still projected to form significantly less than 50% of pension provision as far into the future as 2046.

11. From this general context the Committee concludes that the effectiveness of EU action in achieving its general objective is limited because —

a)  there is legitimate diversity between Member States as to how they organise their pension systems, including the organisation of occupational pensions, which is likely to persist; and

b)  occupational pension schemes will remain, for a significant number of years, the concern of just a few Member States.

12. Turning to the specific objectives set out in the explanatory memorandum; in relation to the first (removal of remaining prudential barriers for cross-border IORPs), it is notable that there is at present little demand for cross-border provision of occupational pensions. The Commission indicates that in June 2012 there were only 84 cross-border IORPs representing only 0.1% of the total of those with more than 100 members. It assesses the potential for cross-border expansion by reference to the fact that about 10% of life assurance business is cross-border. Life assurance is, however much broader in its purposes than occupational pensions and less tied to the diverse organisation of national pension provision.

13. That cross-border expansion of occupational pension provision is possible at present is demonstrated by the fact that several Member States have adopted legislation aimed at positioning themselves as locations of choice for cross-border IORPs.[54] The Commission cites the examples, at Annex E of its impact assessment, to support the proposition that establishing cross-border IORPs can be a burdensome task and projects are therefore often abandoned. However the Impact Assessment Board has indicated[55] that the anecdotal evidence provided in this Annex is confusing and sometimes illustrates obstacles to the establishment of cross-border IORPs that are not relevant (e.g. language barriers).

14. The remaining specific objectives (good governance and risk management, clear and relevant information, the necessary tools for supervisors) aim at improvement of the management and operation of IORPs whether or not they are involved in cross-border provision. In fact, as indicated above there is at present very little cross-border dimension and limited scope for expansion.

15. However Member States, particularly those few with significant IORPs, can effectively regulate occupational IORPs. That is the case in the UK, which has a strong system of regulation underpinned by a compensation scheme in the event of a sponsoring employer's insolvency leading to a shortfall in a scheme's funds. In fact pension deficits have been considerably reduced. Indeed, it is in Member States' interest to achieve this given the importance of a sustainable occupation pensions system both to national treasuries and their own citizens.

16. The evidence put forward by the Commission to support greater regulation does not, in the opinion of the Committee, outweigh the extra administrative costs involved in the proposal. For the UK these have been estimated at by the National Association of Pension Funds as comprising a one-off adjustment of £328 million and ongoing additional costs of around £7.5 million a year. The Commission's estimate is that employers will face a one-off cost to adjust to the new regime in the order of €22 per member/beneficiary and a higher recurrent administrative burden of €0.27 to €0.80 per member/beneficiary per year; with defined contribution schemes facing additional costs of €2 to €3 per member per year to reflect the costs of the depository. The Committee regards the estimated potential benefits to employees of €55 to €140 as uncertain, at best.

17. The Commission's impact assessment[56] seeks to define problems with occupational pension schemes and their causes. The Committee does not accept that these matters provide adequate justification for EU action. We have the following comments on specific issues raised:

·  The fact that some IORPs have failed is not surprising given the financial crisis they have passed through. Even so, the UK deficit, for example, has been considerably reduced. In any event the trend away from defined benefit to defined contribution schemes reduces the overall risk attaching to occupational pension schemes.

·  Variations in returns can be attributed as much to differences in investment rules and policies as bad governance.

·  The fact that some pensions have been cut and the fact that there is a diversity in the level of charges are not, in themselves, evidence of poor information. It is not surprising that the Impact Assessment Board concluded that "it is currently difficult to see why a standardised pension benefit statement would be more effective than personalised information providing clear and relevant information". In the Committee's view this is still the case. The one concrete example cited by the Commission in respect of the Irish market is tentative in indicating that the evidence "suggests" that the impact of pension charges is not "necessarily" understood by the saver.

·  A general lack of understanding by individuals of their financial situation and a lack of pension provision does not translate directly into a need for further regulation of IORPs.

18. In its impact assessment, the Commission also assesses EU added value by six criteria that overwhelmingly relate to the cross-border dimension.[57] However EU added value relating to the cross-border dimension of occupational pensions is limited for the reasons already stated. One area of added value which is not primarily linked to the cross-border dimension of occupational pension schemes is the need to avoid regulatory arbitrage between financial services sectors. However this matter is directly connected to the diverse role played by occupational pensions in different Member States and therefore a matter of Member States responsibility. The fact that the Commission perceives a gap between the regulation of occupational pension schemes and micro-prudential regulations of other sectors is not in itself justification for micro-prudential regulation of occupational pension schemes.

19. Finally the Committee is of the view that the objective of reinforcing the role of IORPs as institutional investors in the EU's real economy is tangential at best to the fundamental objective of facilitating the development of occupational retirement savings and as such does not justify EU level action.

20. The European Scrutiny Committee therefore considers that the objectives of this proposal, both general and specific, can be sufficiently achieved by the Member States; and that EU action is not required because of the scale or effects of the proposed action.


14 Reforming Europol
Committee's assessment Legally and politically important
Committee's decisionNot cleared from scrutiny; further information requested

Document detailsDraft Regulation on the European Agency for Law Enforcement Cooperation and Training (Europol)
Legal baseArticles 88 and 87(2)(b) TFEU; co-decision; QMV
DepartmentHome Office

Summary and Committee's conclusions

14.1 The Lisbon Treaty requires Europol to be established on the basis of a Regulation, adopted by the Council and the European Parliament, setting out its structure, operation, field of action and tasks, and including (for the first time) provision for scrutiny of its activities by the European Parliament, together with national Parliaments. The draft Regulation seeks to satisfy this requirement and to meet the objective endorsed by the European Council in 2009 of establishing Europol as "a hub for information exchange between the law enforcement authorities of the Member States, a service provider and a platform for law enforcement services".[58]

14.2 The draft Regulation is subject to the UK's Title V (justice and home affairs) opt-in. Although the Government has decided not to opt in, and so will not have a vote, it continues to play an active part in negotiations and to seek changes which will enable it to recommend opting in once the draft Regulation has been adopted. The Government is keen to secure changes to two provisions, in particular. The first concerns an obligation to share data with Europol; the second, a presumption that Member States will comply with a request by Europol to initiate a criminal investigation. The Government considers that both provisions would have implications for the operational independence of the UK's law enforcement authorities.

14.3 The Government's opt-in decision was debated on the floor of the House on 15 July 2013. The Opinion of the Home Affairs Committee on the proposed arrangements for parliamentary scrutiny of Europol is set out in our Twenty-ninth Report of 8 January 2014. This — our seventh Report on the draft Regulation — responds to the latest update from the Minister for Modern Slavery and Organised Crime (Karen Bradley).

14.4 We thank the Minister for her progress report on negotiations. We agree with her assessment that the changes proposed in the latest Council text (and reflected in the First Reading amendments agreed by the European Parliament) concerning the provision of information to Europol and the initiation of a criminal investigation at the behest of Europol are a significant improvement on the Commission's original proposal and appear substantially to address the Government's concern to preserve the operational independence of UK law enforcement authorities.

14.5 We note that the Minister shares some of the concerns we have expressed regarding the provisions on parliamentary scrutiny contained in Article 53 of the draft Regulation, whilst suggesting that "it is for national Parliaments (working with the EP) to decide on the most appropriate process". Our views, as well as the Opinion of the Home Affairs Committee, are set out in our Twenty-ninth Report, agreed on 8 January, which also includes a legal opinion explaining why we consider that national Parliaments cannot be the subject of binding obligations under the EU Treaties or EU secondary legislation, such as the draft Regulation. In the spirit of political dialogue, our conclusions were sent to the President of the Council, the Commissioner for Home Affairs, and the Chair and Rapporteur of the European Parliament's LIBE Committee which has taken the lead in proposing far-reaching changes to the provisions on Parliamentary scrutiny contained in the Commission's original proposal. It is disappointing that the changes proposed do not appear to have taken any account of our concerns.

14.6 The Minister also alludes to discussions on parliamentary scrutiny of Europol which took place at the Speakers' Conference held in Vilnius in April. We regret that the Conference was apparently unable to make further headway on this issue, or re-iterate its earlier support for an inter-parliamentary body organised within the framework of existing inter-parliamentary structures. The Conclusions of the Speakers' Conference do, however, make reference to Article 9 of Protocol No.1 to the EU Treaties on the Role of National Parliaments which makes clear that "the European Parliament and national Parliaments shall together determine the organisation and promotion of effective and regular inter-parliamentary cooperation within the Union".[59]

14.7 We do not see how the creation of a specialised Joint Parliamentary Scrutiny Group, as advocated by the European Parliament, is consistent with the principle of joint determination set out in Article 9 of Protocol No.1. First, at an operational level, it is clear that the European Parliament (through the LIBE Committee) would have a dominant role in organising parliamentary scrutiny of Europol, not least because it has given itself sole responsibility to convene and host meetings of the Joint Parliamentary Scrutiny Group. Second, it is not evident how national parliaments can bring influence to bear on negotiations, other than by means of political dialogue, since they are accorded no formal role in negotiating or agreeing the terms on which the Joint Parliamentary Scrutiny Group would be established and operate. It is crucial, therefore, that Member State Governments are willing to defend the interests of national parliaments and ensure that their views carry some weight in the negotiations.

14.8 We note that the UK will not be able to vote on the Council general approach — a vital step in determining the Council's negotiating position with the European Parliament once trilogue discussions commence. It seems, nevertheless, that the UK has been able to influence negotiations within the Council on the "key conditions" that will affect its post-adoption opt-in decision. We therefore ask the Minister for an assurance that the Government will use what influence it has to achieve an outcome on parliamentary scrutiny of Europol which reflects the will of national parliaments and is in line with the views set out in our Twenty-ninth Report. A satisfactory outcome on this issue will be a key factor in our consideration of any recommendation for a post-adoption opt-in. We also ask the Minister to press for the publication of the text of the Council's agreed general approach at the earliest opportunity and to deposit if for scrutiny so that we are able to consider and comment on it before trilogue negotiations begin.

14.9 We note that "detailed and constructive discussions" are taking place on the UK's 2014 opt-out decision and are sufficiently advanced for the Minister to declare that "there is no need for there to be an operational gap" between opting out of pre-Lisbon police and criminal justice measures and rejoining Europol and the remaining measures set out in Command Paper 8671. As negotiations appear to be proceeding apace, we ask the Minister to provide a formal update on the progress made to date.

Full details of the document: Draft Regulation on the European Union Agency for Law Enforcement Cooperation and Training (Europol) and repealing Decisions 2009/371/JHA and 2005/681/JHA (34843), 8229/13, COM(13) 173 + ADDs 1-6.

Background and previous scrutiny

14.10 Our earlier Reports provide a detailed overview of the draft Regulation and the Government's response to the questions we have raised.

14.11 Negotiations on the draft Europol Regulation coincide with separate negotiations arising from the Government's decision to opt out (with effect from 1 December 2014) of around 130 pre-Lisbon EU police and criminal justice measures and to seek to rejoin 35 of them, including a 2009 Council Decision establishing the current basis for cooperation with Europol.[60] Opting back into the 2009 Decision will provide a temporary stop-gap to secure continued UK participation in Europol beyond December 2014. The Government accepts that participation in the new Regulation (by means of a decision to opt in post-adoption) will be necessary if the UK is to remain in Europol in the longer term.

14.12 Progress on the Government's proposal to rejoin the current 2009 Europol Council Decision will clearly be of some importance in avoiding any operational gap in existing cooperation between Europol and UK law enforcement authorities, pending the adoption of the new Regulation and the Government's decision on whether or not to opt in. We have made clear elsewhere that the Government should seek a mandate from the House to guide its negotiations on the measures subject to the UK's 2014 block opt-out decision that it proposes to rejoin.[61] In light of the Government's commitment to engage fully with Parliament on this matter, we have asked the Government to tell us whether negotiations on the 2009 Europol Council Decision have begun and, if not, when they are expected to do so.

14.13 The Government has told us that it would be premature to embark on a detailed consideration of whether, and on what terms, the UK would be able to cooperate with Europol in the event that it is unable to opt back into the 2009 Decision and/or to secure the changes needed to opt into the draft Regulation once it has been adopted. Given the uncertainty inherent in any negotiating process, the risk of an operational gap in the UK's cooperation with Europol after 1 December 2014 cannot be discounted and the questions we have raised about the basis for future UK cooperation with Europol can no longer be dismissed as "hypothetical".[62] We have continued to urge the Government to provide an assessment of the scope for future UK cooperation with Europol outside the framework established by the 2009 Council Decision or that proposed in the draft Regulation.

The Minister's letter of 15 May 2014

14.14 The Minister for Modern Slavery and Organised Crime (Karen Bradley) first reminds us of the Government's pre-conditions for participation in the draft Regulation once it has been adopted:

    "These were that the Regulation does not empower Europol to direct national law enforcement agencies to initiate investigations and that it does not require those agencies to share data that conflicts with national security."

14.15 She notes that a number of Member States share the UK's concerns and that good progress has been made in securing improvements to the Commission's original proposal. The Minister continues:

    "On the power of Europol to request investigations, our primary concern has been that the requirement to give reasons where declining to initiate an investigation — a requirement that exists in the current Europol Decision — when taken with several changes to the text used in the Council Decision, raised a risk that the European Court of Justice (ECJ) could take the view that Member States are required to initiate investigations in some circumstances and could be challenged when they refuse to do so; for example, where they fail to give reasons or when the reasons provided are judged to be inadequate. We were also concerned that the inclusion of wording stating that "the National Units shall inform Europol without delay of the initiation of the investigation" appeared to suggest an obligation upon Member States. That text has now been removed and replaced with wording, which, when taken with the rest of the Article, would seem to pre-suppose no element of obligation and the ability to turn down the request — this is therefore a significant improvement."

14.16 The Minister also welcomes improvements to the provisions on sharing data with Europol:

    "In particular, an exemption in relation to sharing data with Europol where doing so could conflict with national security interests has been re-introduced to the text at our request and with the support of a number of other Member States. In addition, the latest text removes wording requiring Member States to share copies of bilateral or multilateral exchanges (with other Member States) with Europol."

14.17 Whilst "pleased with the direction of travel" of negotiations, the Minister adds:

    "We are not yet fully satisfied and feel the text could be clearer still in order to further reduce the scope for an unhelpful interpretation of these provisions by the European Court of Justice. As such, we will seek further improvements to these articles during the remainder of Council negotiations and then in the trilogue process with the European Parliament."

14.18 The Government will seek improvements in the following areas:

    "On the issue of Europol receiving personal data from private parties, while not perfect, the Council text on this issue is now much improved from the Commission's original proposal insofar as it would now seem to introduce an obligation on Europol to provide any such data to the relevant National Unit before substantive processing, with the National Unit then defining the purpose for which Europol may undertake further data processing. The new text would therefore seem to alleviate our concern that Europol would be able to effectively bypass National Units in processing such data.

    "Another issue which has been the subject of considerable debate during negotiations in the Council has been that of data protection supervision of Europol. As you will be aware, under the existing Council Decision, data protection supervision of Europol's activities is carried out by the Joint Supervisory Body (JSB). However, the Commission has proposed that under the new arrangements this role should fall to the European Data Protection Supervisor (EDPS). We remain to be convinced that this is [the] best approach as JSB supervision has worked quite well until now. If the EDPS is to take on the role, we would want to see its powers clearly defined in order to ensure that it does not adversely interfere with operational matters, and we would also want assurances that existing law enforcement expertise would be transferred across to the EDPS from the JSB. I will keep you updated on how these discussions progress."

14.19 Turning to scrutiny of Europol's activities by the European Parliament, together with national parliaments, the Minister reiterates the Government's view that the provisions of the draft Regulation should not be "overly prescriptive in order to retain flexibility", but adds:

    "As I have said before, ultimately I feel it is for national Parliaments (working with the EP) to decide on the most appropriate process. I am aware that Lord Hannay recently engaged with the EP's LIBE Committee on this matter and I understand that the Deputy Speaker of the House of Commons was due to take part in a discussion on this issue at the Conference of Parliamentary Speakers in Vilnius last month."

14.20 The Minister indicates that the Presidency is keen to secure a "general approach" at the Justice and Home Affairs Council in June. She suggests that this timetable may be "ambitious" as a number of Member States have significant concerns regarding the data protection provisions of the draft Regulation.

14.21 Meanwhile, the Minister notes that the European Parliament has concluded its first reading of the draft Regulation.[63] She adds:

    "The text is helpful for the Government in a number of areas, and particularly on those matters that we have identified as key conditions for opting in post-adoption.

    "In my view the text at Article 7(5) on the sharing of data by law enforcement agencies represents a clear improvement over the original Commission proposal. In particular, I am pleased with the 'on their own initiative' text, which would seem to put greater power in the hands of the Member States. The language around 'respond[ing] to Europol's requests for information' would also seem to be preferable to the previous text, which simply said Member States provide Europol with information 'without delay'.

    "Similarly, the text at Article 6(3) on initiating investigations is an improvement over the original Commission proposal. The first reading EP text reads: 'Member States shall give such requests due consideration and shall, through their National Units, inform Europol without delay whether an investigation will be initiated'. The 'due consideration' wording is in line with the current Council Decision and is helpful in our view as it presupposes that there is no obligation on Member States to initiate investigations.

    "Moving on to other matters, on data protection the EP text does not challenge the transferring over of data protection supervision from the JSB to the EDPS. Indeed, I understand that when the matter was put to a vote in the LIBE Committee and the EP plenary there was a very significant majority in favour of EDPS oversight. As previously mentioned, if data protection oversight is to move over to the EDPS we would want to see its powers clearly defined and we would also want assurances on the retention of existing law enforcement expertise."

14.22 The Minister notes that the EP has proposed "quite substantial changes" to the provisions on parliamentary scrutiny of Europol "adding a significant amount of detail, including proposing the setting up of a joint 'Parliamentary Scrutiny Unit' between the EP and national parliaments." She continues:

    "I feel these changes go too far in detailing the precise form parliamentary scrutiny of Europol should take. I am also concerned that the form of scrutiny proposed is so intrusive that it would risk interfering with the operational independence of the organisation. I understand the Scrutiny Committees may share some of these concerns."

14.23 Finally, the Minister confirms that "detailed and constructive discussions" are taking place with the Commission and other Member States on the UK's 2014 block opt-out decision, including the list of 35 measures that the Government wishes to rejoin. She does not accept that there is a need for an assessment of the scope for future UK cooperation with Europol outside the framework established by the 2009 Council Decision or that proposed in the draft Regulation, adding:

    "This remains a hypothetical question at this stage as we remain fully engaged in negotiations. I am clear that there is no need for there to be an operational gap between the UK opting out on the 1 December and formally rejoining measures. Other Member States are supportive of the UK's position and are keen for this matter to be concluded in a timely and orderly fashion."

14.24 The Minister undertakes to provide further progress reports on the negotiations.

Previous Committee Reports

Thirty-third Report HC 83-xxx (2013-14), chapter 9 (29 January 2014); Twenty-ninth Report HC 83-xxvi (2013-14), chapter 11 (8 January 2014); Thirteenth Report HC 83-xiii (2013-14), chapter 21 (4 September 2013); Eleventh Report HC 83-xi (2013-14) (10 July 2013); Seventh Report HC 83-vii (2013-14), chapter 1 (26 June 2013); Third report HC 83-iii (2013-14), chapter 1 (21 May 2013).


15 Regulation of new psychoactive substances
Committee's assessment Legally and politically important
Committee's decisionNot cleared from scrutiny; further information requested

Document details(a) Draft Regulation on new psychoactive substances (b) Draft Directive amending Framework Decision 2004/575/JHA laying down minimum provisions on the constituent elements of criminal acts and penalties in the field of illicit drug trafficking as regards the definition of drug
Legal base(a) Article 114 TFEU; co-decision; QMV

(b) Article 83(1) TFEU; co-decision; QMV

DepartmentHome Office

Summary and Committee's conclusions

15.1 Psychoactive substances — often referred to as "legal highs" — affect the central nervous system and functioning of the brain, inducing changes in mood, perception and behaviour similar to those associated with the consumption of illicit drugs. Whilst their composition and effects are often unclear, they can be toxic, addictive, damaging to health and carry longer-term social risks, not least because of the involvement of organised crime groups in their distribution. The market in new psychoactive substances is highly adaptable, responding rapidly to the imposition of new drug controls.

15.2 A Council Decision adopted in 2005 ("the 2005 Council Decision") established a mechanism for the exchange of information on new psychoactive substances, risk assessments, and the introduction of EU-wide control measures and criminal penalties.[64] Document (a) — the draft Regulation — would repeal and replace the 2005 Council Decision and establish a new framework for EU-wide regulation of new psychoactive substances which present moderate or severe health, social and safety risks, whilst providing for the free circulation of those which present low, or no, risks. Document (b) — the draft Directive — is the instrument through which Member States would implement criminal sanctions for the highest risk substances.

15.3 The draft Directive is a Title V (EU criminal law) measure and is subject to the UK's Title V opt-in Protocol. The draft Regulation cites an internal market legal base, largely on the strength of the Commission's assertion that there is a significant legitimate trade in new psychoactive substances for commercial, medicinal or research purposes. The Government disputes this, describing the trade as "overwhelmingly illicit". It considers that the draft Regulation (like the draft Directive) should cite a Title V criminal law legal base. It also argues that both proposals build on provisions of the 1990 Schengen Implementing Convention and are therefore subject to the UK's Schengen opt-out Protocol. The Government confirmed in January 2014 that it had notified the Council of its decision to opt out of the draft Regulation and the draft Directive.[65]

15.4 In our earlier Reports, we have sought further information from the Government on a number of issues, including the appropriate legal base for the draft Regulation and the application of the Schengen Protocol which, if accepted by the Commission and other Member States, would allow the UK to opt out of both proposals. We also reviewed the draft Regulation and Directive for compliance with the principle of subsidiarity and concluded that the regulatory framework proposed by the Commission would fetter Member State action to an unacceptable degree. Our draft Reasoned Opinion was debated and agreed to by the House of Commons on 11 November 2013. In this, our fifth Report on the proposals, we set out the Commission's response to the Reasoned Opinion.

15.5 We welcome the Commission's detailed response to the House of Commons Reasoned Opinion and its acknowledgment that "a Member State is better placed than the Union to address risks that are restricted to its national territory and that, in the case of a geographically contained risk, national action is more suitable". The Commission nevertheless disagrees with our conclusion that the draft Regulation and Directive would unduly fetter Member State action.

15.6 We consider that the Commission response overstates the scope for action at Member State level. As our Reasoned Opinion noted, the existing regulatory framework recognises the legitimacy of different regulatory approaches at national level and expressly provides that the 2005 Council Decision shall not "prevent a Member State from maintaining or introducing on its territory any national control measure it deems appropriate once a new psychoactive substance has been identified by a Member State". It gives primacy to action at Member State level, backed up where necessary by an EU-wide risk assessment which may lead to the adoption of EU-wide control measures and penalties. Significantly, in taking action at national level, Member States are not constrained by a need to establish whether or not the risk of harm is "geographically contained". By contrast, under the new regulatory framework proposed by the Commission, action at Member State level appears to be perceived primarily as a barrier to free movement and is only permissible "insofar as the Union has not adopted measures to subject a new psychoactive substance to market restriction" under the draft Regulation.[66]

15.7 We do not accept, as the Commission response suggests, that we have ruled out the possibility of any action at EU level. Rather, we have questioned whether the free movement of new psychoactive substances should be the underlying rationale for EU action, given the undoubted risk some substances present to the health and well-being of those who use them, as well as broader public safety concerns arising from the involvement of organised criminals. We see considerable value in the exchange of information on new psychoactive substances, the sharing of expertise and the joint commissioning of risk assessments. However, Member States must retain their existing, unfettered flexibility to take action to protect public health and safety where they consider that more stringent measures are required at national level than are envisaged at EU level. We consider that this principle should be enshrined in the draft Regulation, as is already the case for the existing mechanism established by the 2005 Council Decision.

15.8 Turning to other matters raised during our scrutiny of these proposals, we note that the UK and some other Member States have pressed the Council Legal Service to produce a written opinion on the appropriate legal base for the draft Regulation. We wait to hear whether they have succeeded and, if so, have asked the Government to share with us the outcome of the legal assessment. We have also asked the Government to explain what practical utility and effect the Schengen Protocol has in relation to the Commission proposals, given that the Council and Commission do not accept that it applies, and are not implementing the procedures set out in Article 5 of the Protocol following notification of the UK's "opt-out".

15.9 Finally, we understand that the European Parliament agreed its first reading position in April. We look forward to receiving a summary of the main changes sought by the European Parliament and the Government's position on them. Meanwhile, the draft Regulation and draft Directive remain under scrutiny.

Full details of the documents: (a) Draft Regulation on new psychoactive substances (35324), 13857/13 + ADDs 1-2, COM(13) 619; (b) Draft Directive amending Framework Decision 2004/575/JHA of 25 October 2004 laying down minimum provisions on the constituent elements of criminal acts and penalties in the field of illicit drug trafficking as regards the definition of drug (35325), 13865/13 + ADDs 1-2, COM(13) 618.

Background

15.10 Our Nineteenth Report of 23 October 2013 sets out the draft Reasoned Opinion which was agreed to by the House of Commons. Whilst recognising that there was considerable potential for cross-border trade in new psychoactive substances and a risk that divergent national approaches might displace the health and social harms associated with their use from one Member State to another, or hinder legitimate trade, the Reasoned Opinion concluded that the draft Regulation and Directive would fetter Member State action to an unacceptable degree.

15.11 The Reasoned Opinion noted the Commission's acknowledgment in its Impact Assessment that trade in new psychoactive substances for legitimate purposes was difficult to quantify as no comprehensive market information is available.[67] Given this uncertainty, as well as the known risks associated with their recreational use, the Reasoned Opinion questioned whether new psychoactive substances should be treated in the same way as other tradable commodities within the internal market. It suggested that divergent national rules, cited by the Commission as an obstacle to legitimate trade, were more often likely to reflect differing cultural and societal attitudes towards the regulation of drugs and psychoactive substances and were an important component of national strategies to manage and control drug use. The Reasoned Opinion also noted that the existing regulatory framework, set out in the 2005 Council Decision, recognised the legitimacy of different regulatory approaches at national level and expressly provided that the introduction of EU control measures should not "prevent a Member State from maintaining or introducing on its territory any national control measure it deems appropriate once a new psychoactive substance has been identified by a Member State".[68]

15.12 The Reasoned Opinion noted that there was little analysis in the Commission's explanatory memorandum and Impact Assessment of the scope for Member States to act unilaterally, under Article 114(4) and (5) TFEU, when faced with evidence of social or health harms which exceeded the level of risk identified by the Commission when implementing market restrictions. It seemed clear, however, that there would be far less flexibility under the draft Regulation and Directive than currently exists under the 2005 Council Decision. Moreover, the Commission had failed to produce sufficient evidence of disruption to legitimate trade, or displacement of the harmful effects of new psychoactive substances, to warrant market intervention on the scale envisaged in the proposed measures or the imposition of additional constraints on Member States' freedom of action. The Reasoned Opinion concluded that the first limb of the subsidiarity test — that the proposed action cannot be sufficiently achieved by Member States — had not been met.

The letter of 13 March 2014 from the Vice-President of the European Commission

15.13 In his formal response to the House of Commons Reasoned Opinion, the Vice-President of the European Commission (Mr Maros Šefèoviè) makes clear that the Commission disagrees with the assessment of the House of Commons that the proposals do not comply with the principle of subsidiarity. We reproduce the substance of his response in full:

    "The Commission's proposals are based on the acknowledgement that a Member State is better placed than the Union to address risks that are restricted to its national territory and that, in the case of a geographically contained risk national action is more suitable.

    "National action can be sufficient in the case of substances whose risks are confined to the boundaries of one Member State and which do not spread further within the internal market. That is why the Commission's proposals would enable Member State action to address a national, regional or local problem concerning new psychoactive substances. They allow Union action to complement national action on new psychoactive substances only where a substances poses Union-wide risks. Under the Commission's proposals, action would only be taken at the EU level if a substance poses problems in several Member States and when the health, social and safety risks that it poses give rise to 'concerns across the Union'.

    "There is a very strong case for taking action at the EU level to address the frequent emergence and the rapid spread of new psychoactive substances in the internal market. Since 1997, when the first EU instrument addressing new psychoactive substances was introduced, Member States have detected and shared information at EU level on more than 300 new psychoactive substances. In 2012 alone 73 new substances were detected across the EU. And in 2013 more than one new substance has been reported every week. Around 80% of the substances were reported by more than one Member State, which reveals the cross-border nature of the problem. Of these, 10 substances were subjected to control and criminal sanctions across the EU, because they posed Union-wide risks and national action alone could not effectively reduce their availability. In all cases, a scientific assessment showed that the risks were not confined to a specific country, but spread across the Union, causing severe health problems, including death, in several Member States. Consuming new psychoactive substances can be fatal. For instance, the substance 5-IT has reportedly killed 24 people in different EU Member States in just five months. Dealing effectively with these substances is a problem that requires a European response.

    "If Member States were to act individually in these cases, with no possibility to take EU-level action as the House of Commons seems to prefer, the death toll would have been higher. This is because Member States acting individually cannot reduce their availability effectively and sustainably in the internal market — as the trade in such substances would move to neighbouring countries — and cannot protect legitimate trade across the internal market — since disparate national responses cause fragmentation and obstacles to trade. Furthermore, trade in these harmful substances would have been displaced to countries less equipped to detect or withdraw them from the market rapidly.

    "Furthermore, the exchange of information on such substances alerts national authorities to potential public health problems, the risk assessment enables the pooling of scientific resources from across the Union, helping produce the evidence necessary to develop effective responses, and the swift adoption of EU-wide market withdrawal measures reduces the availability of harmful substances across the entire internal market, avoiding the emergence of safe havens. EU-level action on new psychoactive substances has clear added-value.

    "The Commission is convinced that, in compliance with the principle of subsidiarity, the proposals provide flexibility to the Member States. First, national, regional or local problems would be dealt with only by the Member States affected. Second, Member States are free to act in relation to any substance, until the Union has taken a decision. These would be taken in accordance with a procedure in which the agreement of a qualified majority of Member States is necessary. Third, under the Commission's proposals, EU-level restriction measures would only be introduced on substances that pose moderate or severe risks across the Union. Member States would remain competent to act in relation to low-risk substances.

    "Unlike the House of Commons, the Commission believes that there is sufficient evidence of disruption to legitimate trade and of displacement of the harmful effects of new psychoactive substances to justify the proposed action. New psychoactive substances circulate freely in the internal market, until and unless Member States or the Union subject them to restriction measures.

    "The Impact Assessment [SWD(2013) 319] accompanying the proposals shows that divergent national restriction measures cause obstacles to trade, market fragmentation, uneven level playing field, legal uncertainty for economic operators and, more broadly, difficulties for companies operating across the internal market or globally. These measures can also hamper research, thus hindering the development of legitimate uses of new psychoactive substances, for medical and therapeutic purposes, for instance. The three case studies presented in the Impact Assessment report — the substances GBL, 4-DBO and mCPP — illustrate the negative consequences of unilateral national measures on legitimate trade. Information from business and civil society organisations consulted during the preparation of the proposals supports these arguments.

    "Moreover, in its Conclusions on new psychoactive substances of December 2011, the Council underlined 'the necessity to ensure the protection of public health against the new threats posed by these substances, whilst avoiding the negative impact on the freedom of legal trade in industrial products and the development and availability of medicines'.

    "The Commission considers that the proposals comply with the principle of subsidiarity and fulfil the procedural requirements set out in Protocol No. 2 of the Treaty on the Functioning of the European Union on the application of the principles of subsidiarity and proportionality. The explanatory memoranda, the recitals and the articles of the proposals, as well as the Impact Assessment, contain detailed statements that allow national Parliaments and citizens to appraise the compliance of these proposals with the principles of subsidiarity and proportionality.

    "The Commission hopes that these comments address the concerns raised by the House of Commons in the Reasoned Opinions and looks forward to continuing our dialogue."

Previous Committee Reports

Forty-fourth Report HC 83-xxxix (2013-14), chapter 7 (26 March 2014); Thirty-first Report HC 83-xxviii (2013-14), chapter 7 (22 January 2014); Twenty-sixth Report HC 83-xxiii (2013-14), chapter 11 (4 December 2013); Nineteenth Report HC 83-xviii (2013-14), chapter 8 (23 October 2013).


16 Task Force for the Mediterranean
Committee's assessment Politically important
Committee's decisionNot cleared from scrutiny; further information requested

Document detailsCommission Communication on the work of the Task Force Mediterranean
Legal base
DepartmentHome Office

Summary and Committee's conclusions

16.1 The Task Force for the Mediterranean was established by the Justice and Home Affairs Council in the aftermath of the death at sea of more than 300 migrants off the coast of the Italian island of Lampedusa in October 2013. It brings together the expertise of the Commission, Member States, the European External Action Service and relevant EU Agencies (notably, Frontex, the European Asylum Support Office, Europol, the Fundamental Rights Agency and the European Maritime Safety Agency) with a view to identifying a range of actions to prevent further loss of life at sea. These actions are set out in the Commission Communication and are based on the principles of prevention, protection, solidarity and fair sharing of responsibility. They encompass: cooperation with third (non-EU) countries; regional protection, resettlement and legal avenues for migration to the EU; people smuggling, human trafficking and organised crime; border surveillance and the control of maritime borders; and assistance to Member States experiencing high levels of migration.

16.2 The Government considers that the Communication contains "a sensible and coherent set of actions" but has expressed reservations about some of the Task Force proposals concerning legal migration, the relocation and resettlement of refugees, and the possibility of developing new forms of "protected entry" to the EU. The Government has indicated that it has particular expertise to offer in developing information and awareness-raising campaigns in countries of origin and transit to deter potential migrants from embarking on hazardous journeys to the EU.

16.3 In this, our third Report, on the Task Force proposals, we provide further details on the contribution the Government proposes to make, as well as its assessment of the impact of UK-led information campaigns in raising awareness of the risks associated with illegal immigration and in deterring illegal immigration.

16.4 The conclusions of the March Justice and Home Affairs (JHA) Council underline the importance of increased engagement with third countries to deter illegal immigration and identify information campaigns as one of the priority areas for action. Whilst planning appears to be underway for information campaigns in countries on the West and East African migration routes, we agree with the Minister that clear timeframes are needed to ensure that the political momentum which led to the establishment of the Task Force is maintained and that the actions agreed are carried out effectively and expeditiously.

16.5 We note that the Commission has been invited to present a comprehensive report on the implementation of the actions set out in its Communication on the Task Force for the Mediterranean at the next JHA Council in June. Although we have no further questions on the content of the Communication, we wish to retain it under scrutiny until we have received a further report after the June JHA Council setting out the Government's assessment of the progress made in implementing the Task Force proposals and its evaluation of the "added value" provided by the Task Force.

Full details of the document: Commission Communication on the work of the Task Force Mediterranean (35625), 17398/13, COM(13) 869

Background

16.6 Our earlier Reports describe the actions developed by the Task Force to address the causes of migration, combat people smuggling and human trafficking, and enhance maritime border surveillance and controls, whilst at the same time ensuring an appropriate humanitarian response to those in need of international protection.

16.7 We noted that the European Council Conclusions agreed last December had sought to give political impetus to the work of the Task Force, but that Justice and Home Affairs Ministers had been more cautious, recognising that not all of the actions proposed could be supported in equal measure by all Member States. We underlined the need for careful monitoring of the work of the Task Force to ensure that it did not stray into areas of competence best exercised by Member State. We also asked for further information on the UK's contribution, including details on communications work already undertaken by the Government and its assessment of the impact it has had in deterring illegal immigration.

The Minister's letter of 19 May 2014

16.8 The Minister for Immigration and Security (James Brokenshire) describes pilot communication projects undertaken by the UK in West Africa, the Middle East and South Asia which involve "local NGOs, religious leaders, and other credible individuals and organisations within target communities". He continues:

    "Our implementing partners have ensured communications have been adapted to each context. In communities where literacy levels are low, such as Afghanistan and Pakistan, word of mouth has been the primary means of information exchange. In other contexts like Iraqi Kurdistan where the economy is booming, our communications efforts have championed and celebrated the opportunities and benefits to young people of building their futures at home.

    "Early findings and feedback from our pilot projects indicate that they have raised awareness and changed perceptions within target communities about the realities and risks of illegal migration. However, it is important to note that measuring the outcomes and impact of communications work is inherently difficult. We are actively exploring how better processes might be developed to verify the extent to which communications efforts translate into revised or abandoned migration plans."

16.9 The Minister explains that, in addition to ongoing bilateral work with third countries, the UK is also working with EU partners to take forward the actions agreed by the Task Force for the Mediterranean, including the proposed information campaigns. He adds:

    "To date, we have shared the UK's experience in the development of information campaigns targeting potential migrants both in countries of origin and transit with the Commission and the European External Action Service, and we are now considering possible concrete contributions to new campaigns proposed for West and East African routes."

16.10 The Minister notes that, at the March Justice and Home Affairs Council, the European Asylum Support Office and FRONTEX provided an update on recent trends at the EU's external borders, as well as asylum pressures, with a particular focus on developments in Syria. He continues:

    "The UK, supported by some other Member States, called for clear timeframes to be put in place for ensuring that the actions agreed under Task Force Mediterranean were carried out. The UK reiterated its commitment to support information campaigns in countries of origin or transit, to dissuade individuals from travelling illegally to the EU. Some other Member States called for more assistance for Member States facing migratory pressures."

Previous Committee Reports

Forty-first Report HC 83-xxxviii (2013-14), chapter 10 (19 March 2014); Thirty-seventh Report HC-xxxiv (2013-14), chapter 13 (26 February 2014); Thirty-fourth Report HC-xxxi (2013-14), chapter 7 (5 February 2014).


17 EU return policy
Committee's assessment Politically important
Committee's decisionNot cleared from scrutiny; further information requested

Document detailsCommission Communication on EU return policy
Legal base
DepartmentHome Office

Summary and Committee's conclusions

17.1 The principal purpose of this Commission Communication is to assess Member States' application of a 2008 Directive ("the EU Return Directive") establishing common standards and procedures for the return or removal of third country nationals who do not have a right to enter or stay in the territory of an EU Member State. It also considers the evolution and impact of EU return policy in recent years and identifies areas for future EU action.

17.2 The UK does not participate in the EU Return Directive and is not bound by its provisions, but does take part, on a case-by-case basis, in other EU instruments which are intended to help Member States tackle irregular migration. It also takes part in joint return operations coordinated by FRONTEX, the EU Agency for the Management of Operational Cooperation at the External Borders.

17.3 The Government has expressed concern about three proposals for future EU action:

·  the publication of a Handbook on Returns;

·  the launch of a project to pilot a post-return monitoring mechanism; and

·  the introduction of a requirement for independent monitors to accompany every joint return operation coordinated by FRONTEX.

17.4 We sought further information on each of these concerns.

17.5 We thank the Minister for his letter. We note that the UK has participated in 16 FRONTEX joint return flights since 2010 which have returned 313 individuals. The raw figures do not, however, indicate how significant a role FRONTEX joint operations play in the return of third country migrants from the UK to their countries of origin or transit. We therefore reiterate our request for an indication of the proportion of migrants returned from the UK by these means, rather than by purely domestic return flights.

17.6 The Minister acknowledges that the practicability of requiring independent monitors to accompany every joint return operation coordinated by FRONTEX is essentially a capacity issue. We would also like him to address the question of principle, namely whether the Government would support the mandatory presence of independent monitors for all FRONTEX joint return operations if resources were to be made available from existing EU funding programmes to develop the necessary capacity, and whether the Government would consider this to be a worthwhile use of EU funds.

17.7 Pending the Minister's reply, the Communication remains under scrutiny.

Full details of the document: Commission Communication on EU return policy: (35922), 8415/14; COM(14) 199

Background

17.8 Although the UK does not participate in the EU Return Directive, it is a party to certain EU Readmission Agreements with third (non-EU) countries and takes part in EU funding programmes to support the return and reintegration of third country nationals, as well as policy initiatives developed within the framework of the EU's Global Approach to Migration and Mobility which promote enhanced cooperation and dialogue with non-EU countries of origin and transit. Our Forty-seventh Report, agreed on 30 April, summarises the content of the Commission Communication and the Government's response.

17.9 The Government questioned the need for an EU Handbook on Returns on the grounds that it would be more likely to focus on the rights of the individual than action by Member States to tackle abuse. It dismissed the proposal to launch a project to pilot a post-return monitoring mechanism as impractical and inappropriate, and suggested that the introduction of a requirement for independent monitors to accompany every joint return operation coordinated by FRONTEX could delay or prevent returns.

17.10 Whilst acknowledging that the UK is in a different position from most other Member States in that it is not bound by the EU Return Directive, we noted that some of the actions proposed in the Communication were nevertheless likely to affect the UK because of its involvement in joint return operations coordinated by FRONTEX. We asked the Government whether its reservations about the content of a Handbook on Returns stemmed from a concern that it would apply not only to returns effected under the EU Return Directive, but also to returns effected by the UK through joint operations coordinated by FRONTEX or on a purely bilateral basis.

17.11 We also asked the Government to provide some indication of the value (with accompanying data) that it attaches to UK participation in FRONTEX joint return operations and to substantiate its concerns about the practical impact of requiring the involvement of independent monitors in all such operations. Finally, we noted that the proposed pilot post-return monitoring mechanism dated back to an earlier Commission Communication on EU Readmission Agreements published in 2011. We asked whether any pilot projects have already been launched and, if so, what effect they have had in safeguarding the human rights of returnees.

The Minister's letter of 13 May 2014

17.12 Turning first to the proposed Handbook on Returns, the Minister for Immigration and Security (James Brokenshire) notes:

    "We do not participate in the EU Returns Directive and would not be directly affected by an EU Handbook where guidelines relate to the Directive. We would still be able to conduct bilateral returns according to our own policy and procedures. Our participation in some joint returns operations coordinated by FRONTEX could potentially be affected; for example, the suggestion for a requirement to have an independent returns monitor on every returns flight. However, our concern stems more from our view that there is already sufficient harmonisation on policy and procedures on return and that future work in this area would benefit more from practical cooperation."

17.13 The Minister notes that the UK conducted more enforced returns in 2013 than any other Member State and sees "real benefit in sharing our experience of chartering returns flights". He continues:

    "There is provision in the FRONTEX Regulation for limited UK participation in joint EU returns operations and we play an active role in the FRONTEX management board. Since 2010, we have participated in 16 FRONTEX joint returns flights which have returned 313 individuals.

    "In terms of a requirement for an independent monitor on all returns flights, we believe that this could cause delay to or the cancellation of an operation if a monitor were unavailable. Experience to date with independent bodies used for UK domestic charter flights has shown that they are unable to monitor every return flight due to capacity issues. While we can continue our domestic returns flights if a monitor is unavailable, this would not be the case if a specific requirement was put in place for FRONTEX joint operations."

17.14 Finally, the Minister says he is not aware of any pilot projects launched by the Commission on post-return monitoring.

Previous Committee Reports

Forty-seventh Report HC 83-xlii (2013-14), chapter 13 (30 April 2014).


18 Hague Convention (Choice of Court Agreements)
Committee's assessment Legally important
Committee's decisionNot cleared from scrutiny; further information requested

Document detailsCouncil Decision on EU approval of the Hague Convention on Choice of Court Agreements
Legal baseArticle 81(2) in conjunction with the first subparagraph of Article 218(6) TFEU; consent; QMV
DepartmentJustice

Summary and Committee's conclusions

18.1 The 2005 Hague Convention on Choice of Court Agreements was signed by the EU on 1 April 2009 on the basis of the Council Decision 2009/397/EC.[69] Its main purpose is to increase legal certainty for parties involved in international "business-to-business" contracts (and thereby promote international trade) by providing uniform rules which ensure that exclusive "choice of court" agreements are respected and that judgments issued by so designated courts can be recognised and enforced in the courts of other Contracting Parties.

18.2 The Convention takes precedence over the jurisdiction rules of Brussels I[70] (which governs choice of court agreements and recognition and enforcement of judgments within the EU) except if both parties are EU residents or come from third states, not Contracting Parties to the Convention. So, should an American company and German company choose an Italian court, the Hague Convention prevails. However, if a UK company and German company choose an Italian court, Brussels I prevails. The Commission says that this reduction in the scope of Brussels I is an acceptable trade-off for the increased legal certainty and autonomy that will benefit EU companies engaged in trade with third country parties. The Convention also overrides Brussels I rules on recognition and enforcement unless the court that delivered the judgment and the court in which recognition and enforcement is sought are within the EU.

18.3 The Government, although largely content with the proposed Decision, told us in March that it wanted to explore the exclusion of insurance contracts from the Decision. It also sought to assert the UK's right to opt into the Decision "notwithstanding exclusive external competence on the part of the European Union" and to notify its decision by 2 May.

18.4 We thank the Minister for his update and note that the Government has decided to opt into the proposed Decision. We support the Government's continuing efforts to preserve the applicability of the opt-in in the Recitals to the document and, note that with stakeholder support, it is endeavouring to secure the inclusion of all insurance contracts (and not just reinsurance contracts) or at least some form of qualified application.

18.5 We request that, in due course, the Minister inform us of progress on these two issues and, in particular, whether there will be consistency, especially between the Brussels 1 rules and the proposed Decision, should insurance (and not reinsurance) contracts be excluded from the latter's provisions. We also look forward to receiving the impact checklist. In the meantime, we hold the document under scrutiny.

Full details of the documents: Proposal for a Council Decision on the approval on behalf of the European Union of the Hague Convention of 30 June 2005 on Choice of Court Agreements (35776) 5445/14 + ADD 1, COM(14) 46.

Background and previous scrutiny

18.6 In our Forty-fourth Report we welcomed the increased legal certainty arising from the EU's approval of the Convention, though asked for a better explanation from the Government as to the relationship between the Convention and Brussels I. We also concluded that whilst we had no doubt that the EU has exclusive external competence to act in this instance since the approval of the Convention will affect EU internal rules (Brussels I), we had in the past questioned whether the UK's opt-in rights applied in such circumstances. We recognised that more recently we had become more persuaded they might. We therefore asked the Government to endeavour to protect UK opt-in rights by means of appropriate wording in recital 8 of the proposal and to report on progress. We also asked the Government to notify us of its eventual opt-in decision and of any progress on the insurance exclusion, including the outcome of consultation on that.

The Minister's letter of 14 May 2014

18.7 The Parliamentary Under-Secretary of State for Justice (Mr Shailesh Vara) now responds, saying:

    "The Government has taken the decision that the UK should opt into this proposal and notified the Council accordingly on 30 April.

    "I am grateful for the Committee's endorsement of the Government's view that the increased legal certainty we expect the Convention to bring will be beneficial.

    "You asked for greater clarity as to the relationship between the Convention and the Brussels I Regulation. The Regulation sets out rules to determine which country's courts have jurisdiction in a cross-border civil or commercial dispute within the EU. It provides a number of default rules dealing with proceedings covering various different areas of business, such as employment contracts, contracts involving consumers, and insurance contracts. These jurisdictional rules are based to a large extent on the domicile of the defendant, although there are rules designed to benefit weaker parties such as consumers. However it also provides that jurisdiction might be determined in accordance with an agreement made between the parties as to which court should have jurisdiction. These rules govern jurisdiction in disputes involving courts in the EU. But the Regulation places no obligation on EU courts to decline jurisdiction where an agreement between the parties specifies a jurisdiction outside the EU.

    "The Convention will deal specifically with choice of court agreements and will oblige courts in all participating countries to refuse to hear a case where a valid choice of court agreement specified a different court. That will provide much more legal certainty, and therefore a more satisfactory regime in relation to such agreements. I hope that provides the detail that you wished to see.

    "The Committee agrees that this proposal attracts exclusive EU external competence. We are, as you ask, aiming in negotiations to preserve the UK's position as regards the applicability of the opt-in. However, in the face of disagreement from the Commission and some Member States, we have not yet been able to secure a change to the recital dealing with UK participation. Our efforts will continue.

    "As to the proposed exception relating to insurance, we expect a new version of the text, which we will need to study carefully, to emerge shortly. The Commission has accepted that this should make clear that the exception should not apply to contracts concerning reinsurance. Our stakeholders in the insurance industry have indicated that this will be very helpful, although the preference remains that the Convention should apply to all contracts of insurance other than those already excluded by the Convention - notably consumer contracts. However there is some opposition to removing the exception altogether. We will continue to negotiate on this point and to work with our stakeholders on how, if the exception must remain, it might be mitigated.

    "I had hoped to include with this letter the impact checklist promised in the Explanatory Memorandum, but it is still being finalised. We will provide it to your Committee shortly."

Previous Committee Reports

Forty-fourth Report HC 83-xxxix (2013-14), chapter 8 (26 March 2014).


19 EU Charter of Fundamental Rights
Committee's assessment Legally and politically important
Committee's decision(a) Not cleared from scrutiny; further information requested; (b) Cleared from scrutiny

Document details(a) 2013 Report on the application of the EU Charter of Fundamental Rights (the Charter); (b) 2012 Report on the Charter
Legal base
DepartmentJustice

Summary and Committee's conclusions

19.1 These two reports comprise the Commission's review of the application of the Charter within the EU (including by the national courts of Member States) for the year 2012 (document (b)) and 2013 (document (a)) respectively. We have considered document (b) on three previous occasions but even though the Government has responded to our requests for further information we have kept the document under scrutiny since it was within the scope of our inquiry into the application of the Charter in the UK. We published our Report "The application of the EU Charter of Fundamental Rights in the UK: a state of confusion"[71] on 26 March 2014 and the Commission published its 2013 Report, the fourth annual report (document (a)) on 14 April.

19.2 As document (b), the 2012 Report, has now been superseded by the 2013 Report and the questions we raised in our previous Reports on the document have been answered by the Government and addressed in our Report on the Charter we now clear it from scrutiny.

19.3 We have the following questions for the Secretary of State arising from the 2013 report (document (a)):

a)  The report provides evidence of the increasing EU practice of placing Charter rights on a legislative footing (for example, the procedural rights package). We note that the Commission calls this giving "concrete effect" to the Charter. Does the Minister consider that the increased transparency and deployability of particular Charter Rights through legislative action augments the impact of those rights in the UK and other Member States?

b)  Annex 1 to the report indicates increased public awareness of Charter rights by EU citizens, increased references to the Charter by EU courts and (compared with 2011) by national courts in preliminary ruling requests. Can the Minister confirm whether these upwards trends, together with the fact that primary legislation which conflicts with Charter rights (when engaged) must be disapplied, have translated into an increase in Charter-related litigation in the UK since 2011? If so, can he comment on the consequences of this expansion in litigation, particularly in terms of the impact on businesses (as employers), taxpayers, national security and public safety?

c)  Whilst we note the Government's position on Article 35 of the Free Movement Directive 2004/38, we would question the definitive nature of its assertion that "therefore, free movement rights can also be restricted in the event of abuse". We invite the Minister to comment on the requirement that any measures taken by a Member State in reliance on Article 35 are to be subject to the procedural rights set out in Article 30 and 31 of the Directive and the principle of proportionality. We ask the Minister to consider, in his response, the decisive role played by the procedural obligation in Article 30, coupled with Article 47 of the Charter, in the CJEU decision in ZZ v Home Secretary and how this suggests that Member States do not have the unrestricted licence to act that the Minister asserts; and

d)  The Commission concludes that the Fransson judgment has helped to further define the Charter's application in Member States although this case law is "still evolving and likely to be continuously refined". Some have a more narrow view of that judgment as a case decided on its own facts; a view shared with us by the Minister's legal adviser during the Minister's evidence session as part of our Charter Inquiry and by the German Constitutional Court. Does the Minister consider that there is insufficient legal certainty as to when the Charter applies in Member States, given the different views of the Fransson judgment and the developing nature of the relevant case law?

19.4 Pending a response from the Minister to those questions, we retain document (a) under scrutiny.

Full details of the documents: (a) 2013 Commission Report on the application of the EU Charter of Fundamental Rights (35971) 9042/14 + ADDs 1-3, COM(14) 224; (b) 2012 Commission Report on the application of the EU Charter of Fundamental Rights (34916) 9297/13 + ADDs 1-10, COM(13) 271.

Background

19.5 As part of its strategy on the effective implementation of the Charter, the Commission publishes an annual report on its application in the EU. The background to the Charter and our scrutiny of previous annual Commission reports on the application of the Charter are set out in our Sixth Report.[72]

The documents

2012 annual report - document (b)

19.6 A summary of document (b), the 2012 annual report, appears in our Sixth Report.

2013 ANNUAL REPORT - DOCUMENT (A)

Evidential basis of the report

19.7 Document (a) is accompanied by two Staff Working Documents (SWDs):

·  Annexes 1 and 2 (two parts of the same SWD, ADDs 1-2) provide further detail and examples of action of the EU institutions that relates to individual rights contained in the Charter. They also set out data on enquiries received from the general public on the Charter, references to the Charter in litigation and data gathered by the Fundamental Rights Agency. The Commission says that these annexes serve to illustrate the "concrete problems faced by individuals"; and

·  Annex 3 (ADD 3), "Report on progress on equality between women and men in 2013", records progress achieved in implementing the 2010-2015 Strategy for equality between women and men in key areas of gender equality, such as economic independence, equal pay, equality in decision making and gender based violence. It also identifies some areas where further work is needed.

19.8 In a press release publicising the report released on 14 April,[73] the Commission, summarising some of the information set out in Annexes 1 and 2, says:

    "The European Union Courts have increasingly referred to the Charter in their decisions and have further clarified its applicability. The number of decisions of EU Courts (Court of Justice, General Court and Civil Service Tribunal) quoting the Charter in their reasoning went from 43 in 2011 to 87 in 2012. In 2013, 114 decisions quoted the EU Charter, which is almost three times the number of cases of 2011 (see Annex 2).

    "Likewise, national courts have also increasingly referred to the Charter when addressing questions to the Court of Justice (preliminary rulings): in 2012, such references rose by 65% as compared to 2011, from 27 to 41. In 2013 the number of referrals remained at 41, the same as in 2012."

    "Increasing public references to the Charter have led to an improved awareness of the Charter: In 2013, the Commission received almost 4000 letters from the general public regarding fundamental rights issues. Of these, only 31% concerned situations which entirely fell outside EU competence (against 69% in 2010 and 42% in 2012). This shows that the Commission's efforts to raise awareness of how and where the Charter applies are paying off. The Commission also received over 900 questions from the European Parliament and around 120 petitions."

Application of Charter in Member States

19.9 The body of the report first identifies recent cases where the CJEU held that the Charter was not applicable to Member State action, most notably in the case of Pringle.[74]

19.10 The Commission then sets out three situations, supported by case examples, in which it says it is clear that the Charter does apply:

·  Member State legislative activity and judicial and administrative practices when fulfilling obligations under EU law (referring to the case of ZZ in which the CJEU held that a person has the right to be informed of the basis for a decision to refuse entry into a Member State, in this case the UK, under the derogations from the Free Movement Directive of public health, public security or public policy, as the protection of national security cannot deny the right to a fair hearing; Article 47 of the Charter engaged);

·  a Member State's exercise of a discretion that is vested in it by EU law (referring to the case of Kaveh Puid in which the Court confirmed that a Member State must not transfer an asylum-seeker to the Member State initially identified as responsible if there was substantial grounds for believing there was a real risk that the applicant would face inhuman or degrading treatment; Article 4 of the Charter engaged); and

·  national measures linked to the disbursement of EU funds under shared management (referring to the case of Blanka Soukupova where the CJEU held that in providing early retirement support for elderly farmers, Member States must ensure equal treatment between men and women; Articles 20, 21(1) and 23 engaged).

19.11 The report also provides a lengthy explanation of the key judgment in Akerberg Fransson, where the CJEU found that the "fundamental rights guaranteed by the Charter must … be complied with where national legislation falls within the scope of European Union law." In particular, the Commission explores in some depth the CJEU's reasoning for finding a link between the national legislation providing for administrative penalties and criminal proceedings in respect of VAT evasion and EU law such that the former "falls within the scope of EU law" (triggering the application Article 50 of the Charter — the principle that a person should not be punished twice for the same offence).

Charter compliance by EU institutions

19.12 The report also provides examples of cases where the CJEU scrutinised the EU institutions' compliance with the Charter: the Kadi II case, which concerned the procedural rights of people suspected of association with terrorism; the Besselink case, which concerns the right of access to documents; and the Melloni case, which reviewed the compatibility of the Framework Decision on the European Arrest Warrant with fundamental rights.

Legislative action to promote effective implementation of the Charter

19.13 The report acknowledges that the Charter is primarily directed at the EU institutions. It gives an account of steps taken by the EU institutions to respect and promote fundamental rights, including through legislation.

19.14 The report examines three different areas of legislative action: legislative proposals, legislation adopted and inter-institutional negotiations.

19.15 In terms of new legislative proposals, the Commission highlights proposals which aim to protect rights already enshrined in the Charter by putting them on a specific legislative footing. A prime example of this is the Procedural Rights package. This consisted primarily of the three Directives on presumption of innocence and the right to be present at trial, on procedural safeguards for children and on provisional legal aid for those involved in criminal proceedings and legal aid for EAW proceedings. The Commission comments:

    "The need for criminal law measures to be grounded in strong EU-wide standards for procedural rights and victims' rights, in line with the Charter, is central to strengthening the principle of mutual trust on which judicial cooperation is based."

19.16 It also mentions the proposed:

·  Anti-Money Laundering Directive (protection for professional legal privilege);

·  Directive on facilitating the exercise of rights conferred on workers in the context of freedom of movement for workers by providing a means of effective redress at national level (reflecting Article 47 of the Charter);

·  Financial Benchmarks Regulation (taking account of the protection of personal data, Article 8, the right to freedom of expression, Article 11, and the freedom to conduct a business , Article 16); and

·   Directive to address the gender imbalances in boards of directors in private listed companies (reflecting Article 23 of the Charter).

19.17 As for legislation adopted, the Commission highlights the:

·  Directive on the right of access to a lawyer (reflecting Articles 47 and 48 of the Charter);

·  Directives on Asylum Procedures and Reception Conditions (between them covering Articles 1, 4, 6, 7, 18, 19, 21, 24 and 47);

·  Regulation on mutual recognition of protection measures in civil matters, for example, restraining orders (which takes into account Article 21 of the Charter, providing protection against discrimination on a wide range of grounds); and

·  recasting of the Dublin Regulation - which sets out the rules for determining the Member State responsible for examining an application for asylum when one has been lodged in another Member State. This now provides an effective remedy to applicants on appeals against transfer decisions and reduces the risk of refoulement. The report states that that the recast Dublin Regulation incorporates the CJEU's case law on when an asylum seeker should not be sent to the Member State responsible for determining his or her application.

19.18 In terms of inter-institutional dialogue, the Commission mentions the right to protection of personal data (Article 8) in the context of the European Parliament LIBE Committee's support for the Commission's proposed General Data Protection Regulation, following this year's Snowden revelations about mass surveillance of electronic communications across the EU. It also mentions negotiations between the institutions on the draft Insolvency Proceedings Regulation which will modernise the rules on cross-border insolvency. This promotes the freedom to conduct a business (Article 16) but the impact on creditors' right to a remedy (Article 47) and property (Article 17) were "thoroughly considered".

Other action to promote effective implementation of the Charter

19.19 The Commission also mentions other measures taken to promote fundamental rights such as ongoing work on Roma integration, notably the Council Recommendation adopted unanimously in December 2013. It also refers to the Recommendation on the recent European elections which aimed to promote the right to vote, set out in Article 39 of the Charter.

19.20 The report describes the action taken by the Commission to ensure Member States adhere to EU legislation in relation to fundamental rights, including following up infringement proceedings against Hungary (on compulsory retirement measures for the judiciary) and Austria (on the lack of independence of the data protection supervisory authority).

19.21 Finally, the report recognises that individuals may have recourse to national remedies and the European Court of Human Rights so there are no gaps in the framework for the protection of fundamental rights. It also acknowledges that the CJEU has been asked to give an opinion on the draft agreement on EU accession to the European Convention on Human Rights.

Commission's conclusions

19.22 The Commission's conclusions are that in 2013:

·  The CJEU dealt with a large number of cases concerning the Charter's applicability at national level and that the Fransson judgment helped to further define the Charter's application in Member States although this case law is "still evolving and likely to be continuously refined";

·  National judges are important because they ensure individuals obtain full redress where their fundamental rights "within the scope of EU law" are breached;

·  The impact of proposed EU legislation on fundamental rights needs to be carefully considered throughout the legislative procedure, but particularly at the state of "elaborating final compromise solutions";

·  The review by the CJEU of EU legal acts for breaches of fundamental rights, also extends to Member States where they implement EU law, but "Outside that area, Member States apply their own national fundamental rights systems. This is a clear and deliberate choice made by the Member States when designing the Charter and the Treaty"; and

·  EU institutions must not only respect the Charter but actively promote a fundamental rights culture (support for which is indicated by the volume of correspondence received by the Commission in 2013 from the public on fundamental rights).

The Government's Explanatory Memorandum of 7 May 2014

19.23 The Secretary of State for Justice (Chris Grayling) explains the focus and scope of the Government's view on the report:

    "The Government welcomes monitoring of the application of the Charter in the EU as it advocates the principle of holding EU institutions to account for respect of fundamental rights. The report provides a measured and factual analysis of EU action in this area.

    "The report and annexes make reference to a number of EU actions which engage rights and principles in the Charter. This explanatory memorandum focuses on the information in the annual report itself and sets out the Government's position on a number of areas. However, it does not provide a comprehensive Government response on each of individual measures, proposals and communications referred to in the report. Neither, given the timeframe, does it attempt to provide a Government position on the examples in the annexes. Therefore where not reference has been made to a particular proposal this should not be read to imply that the Government agrees. The Government's position with regard to the each measure will be reflected as part of the scrutiny process on them individually. The Government stands ready to respond to any queries the committees may have on particular measures covered in the report and annexes."

19.24 The Minister then addresses the substance of the report as it concerns the Charter:

    "The Commission acknowledges that the Charter is primarily directed to EU institutions, and applies to Member States only where they are implementing EU law. The Government agrees with this position and notes the recent case law where the CJEU has found the Charter did not apply to Member States. The Government accepts that the Charter was applicable to the Member States' action in the cases of ZZ, Kaveh Puid and Blanka Soukupova, although it does not necessarily agree with the distinction drawn in the report between the three situations they illustrate.

    "The Government considers that the development of a systematic and transparent analysis to determine whether a Member States is implementing EU law is essential. In this respect the Government notes that the report sets out a non-exhaustive list of factors examined by the CJEU in considering whether domestic legislation implements the Charter. The same factors are reaffirmed in the recent Siragusa judgment.

    "The comments made by Vice President Reding envisaging the Charter being applicable without the need for a clear link to EU law do not reflect the steps taken towards a more systematic analysis being developed by the courts and set out in the annual report. The Government would not support any proposal to remove the limitation on the application of the Charter set out in Article 51 thereof."

19.25 He comments on the report's references to the role of the ECHR:

    "The Government notes that the report implies that a draft agreement on the EU's accession has been 'finalised.' It is recognised that the Lisbon Treaty places an obligation on the EU to accede to the ECHR, however the Government wishes to clarify that a draft agreement for the EU's accession to the ECHR has been agreed only at negotiator level and remains subject to a number of political and procedural steps. It is currently being considered by the CJEU for its compatibility with the EU Treaties. Accession will be subject to detailed Parliamentary scrutiny before any package is finalised."

19.26 The Minister also addresses references to other EU actions in the report.

Mutual recognition of protection measures in civil matters

19.27 The Minister says that:

    "The Government notes the references to action on victim's rights through the Regulation on mutual recognition of protection measures in civil matters. The report does not mention the related Directive dealing with the same issues when they arise related to criminal matters. Together these measures offer the prospect of establishing an effective regime for the recognition and enforcement of protective orders made in one Member State when the person at risk travels to another Member State. However, neither measure is yet in place and stand to be introduced in January 2015. It is therefore too early to tell how practical and useful these instruments prove to be."

Data Protection Package

19.28 The Minister notes the references to the general data regulation, saying:

    "The Government supports EU data protection legislation that protects the civil liberties of individuals, while allowing for public protection and economic growth and innovation. It notes these should be achieved in tandem, not at the expense of one or the other. However, the UK supports a general Directive rather than a Regulation. This would provide consistency across Member States where it is beneficial, but would give Member States flexibility to transpose the legislation with regard to their national traditions and practices."

Free Movement Directive (2004/38)

19.29 Referring to this Directive which the report references, and the fact that it allows Member States to restrict freedom of movement of EU citizens on grounds of public policy, public security or public health, the Minister says that it should be noted that other provisions in the Directive:

    "confer powers on Member States to take measures to tackle abuse of rights and fraud. Article 35 of the Directive provides that 'Member States may adopt the necessary measures to refuse, terminate or withdraw any right conferred by this Directive in the case of abuse of rights or fraud, such as marriages of convenience.' Therefore, free movement rights can also be restricted in the event of abuse. The right to move and reside freely can additionally be restricted when the individual EU citizen concerned does not, or no longer meets the conditions EU law attaches to freedom of movement. The Government believes that freedom of movement is an important principle of the EU but its function is not unqualified. The concern is to the impact on welfare systems and public services where such abuse may arise."

Dublin Regulation

19.30 The Minister notes that the UK:

    "did not opt into and so is not bound, by the provisions of the recast Directives on Asylum Procedures or Reception Conditions. By contrast, the UK did opt into and is bound by the terms of the new Dublin III Regulation, which determines which single state is responsible for examining an asylum claim and so plays a vital role in tackling the abuse of national asylum systems by those seeking to move between European States before seeking protection or making multiple asylum claims as they do so. The Government acknowledges that Article 3(2) in the recast Regulation reflects principles of the CJEU's case law (NS and others v the UK C-411/10) providing for an asylum seeker not to be sent to another Member State if there is a serious risk of violation of their fundamental rights, at the same time noting that this is limited to the risk of inhuman or degrading treatment within the meaning of Article 4 of the Charter in the responsible State and not fundamental rights generally."

Equality between women and men

19.31 The Minister welcomes the "helpful analysis" in the report on progress on equality between women and men and "notes that the UK has made significant progress in these areas".

Previous Committee Reports

(a) None (b) Thirty-third Report HC 83-xxx (2013-14), chapter 10 (29 January 2014); Thirteenth Report HC 83-xiii (2013-14), chapter 25 (4 September 2013); Sixth Report HC 83-vi (2013-14), chapter 6 (19 June 2013).


20 Access to published works for the visually impaired
Committee's assessment Legally and politically important
Committee's decisionCleared from scrutiny; further information requested

Document detailsDraft Council Decision on the signing, on behalf of the European Union, of the World Intellectual Property Organisation Treaty to Facilitate Access to Published Works for Persons who are Blind, Visually Impaired, or otherwise Print Disabled
Legal baseArticles 114, 207 and 218(5) TFEU; QMV
DepartmentBusiness, Innovation and Skills

Summary and Committee's conclusions

20.1 This proposal would enable the EU to sign, on behalf of the EU, the World Intellectual Property Organisation ("WIPO") Treaty to Facilitate Access to Published Works for Persons who are Blind, Visually Impaired, or otherwise Print Disabled adopted in Marrakesh on 26 June 2013 (the "Marrakesh Treaty").

20.2 The policy behind the Marrakesh Treaty has been generally welcomed, but EU participation gives rise to legal issues.

20.3 As this proposal has now been adopted by qualified majority in the face of a contrary vote by the UK we now clear this matter.

20.4 Whilst the policy behind the Marrakesh Treaty has been generally welcomed, we are concerned that the legal difficulties arising from the EU's involvement have not been successfully resolved.

20.5 We therefore ask the Minister to indicate whether the UK will be challenging the legal basis before the Court of Justice and, if not, whether there are any further international treaties in contemplation where the use of Article 207 in this Decision constitutes an unhelpful precedent.

20.6 We also ask —

·  whether, to the Government's knowledge, the Commission is considering challenging the signature of this Treaty by some Member States in their own right, and

·  for an explanation of the legal consequences of some, but not all, Member States signing this Treaty in their own right; whether these can be resolved before the conclusion of the Treaty by the EU and its ratification by Member States; and if so how.

20.7 We are disappointed that the Decision for the EU to sign this Treaty gives no indication of the extent of the exercise of competence their respective competence by the EU or the Member States despite our previous request. We ask the Minister to assure us if he will seek to remedy this omission when a proposal is tabled for the conclusion of this Treaty by the EU; and if so how?

Full details of the documents: Draft Council Decision on the signing, on behalf of the European Union, of the World Intellectual Property Organisation Treaty to Facilitate Access to Published Works for Persons who are Blind, Visually Impaired, or otherwise Print Disabled: (35710) 5076/14, COM(13) 926 + ADD 1.

Background

20.8 This proposal would enable the EU to sign, on behalf of the EU, the Marrakesh Treaty. As set out in more detail in our previous report[75] this Treaty seeks to achieve its objectives through the international harmonisation of copyright exceptions (acts that do not need the permission of the copyright owner) for visually impaired or otherwise print-disabled people so that accessible versions of copyright works (for example, Braille versions of books) can be legally produced under certain conditions without infringing copyright. The Marrakesh Treaty also provides, in certain circumstances, for the import and export of accessible copies.

20.9 The Treaty is the first multilateral treaty in the field of copyright exceptions. It is seen by many commentators as an historic agreement and an important step forward for the rights of disabled people around the world.

20.10 The UK signed the Marrakesh Treaty at the WIPO Conference on 28 June. The Treaty will come into force following ratification by 20 WIPO member states. As at 30 April 2014 there have been no ratifications, but 64 of WIPO's 187 members have signed the Treaty.

20.11 Our earlier Report drew this proposal to the attention of the House as being the first multilateral treaty on copyright exceptions and one that also has a humanitarian element. We asked the Minister to write back explaining further on the Government's doubt that the proposal should have a common commercial policy (Article 207 TFEU) legal basis and asked for transparency as to the exercise of competences by the EU and the Member States by a statement being annexed to the Decision detailing where the EU and the Member States were, respectively, exercising competence. The Committee was taking into account the fact that the common commercial policy is a matter of exclusive EU competence, with the result that, to the extent that any part of the Marrakesh Treaty falls within the EU's common commercial policy, only the EU can sign it and Member States are prohibited from doing so. To the extent that the Treaty does not fall within the EU's exclusive competence Member States are able to sign it.

The Minister's letter of 15 April 2014

20.12 The Minister (Viscount Younger of Leckie) now reports that the proposal was adopted on 14 April 2014 by qualified majority. The UK voted against adoption because the proposal retained the Article 207 legal basis. The UK also filed a minute statement stating why it voted against and highlighting that the UK did not consider this matter to be an area of exclusive EU competence. Poland acted similarly. Other Member States, whilst expressing unease at the Article 207 legal basis were able to accept it provided that they were nevertheless permitted to sign the Treaty in their own right in addition to the EU. Seven Member States, including France and Germany, made a declaration to this end.

20.13 As far as transparency is concerned the Minister draws a parallel with the Beijing Treaty on audiovisual performances. Like the Decision on the signing of the Beijing Treaty the recitals to the Marrakesh Treaty indicate that the Treaty is signed by the Union only "as regards matters falling within the Union's competence".

Previous Committee Reports

Forty-fourth Report HC 83-xxxix (2013-14), chapter 5 (26 March 2014).


21 Internet Governance
Committee's assessment Politically important
Committee's decisionCleared from scrutiny

Document detailsCommission Communication: Internet policy and governance: Europe's role in shaping the future of Internet Governance
Legal base
DepartmentCulture, Media and Sport

Summary and Committee's conclusions

21.1 A 2009 Commission Communication on Internet Governance sought to argue the case for greater government involvement. The previous and present Ministers (Lord Carter and Stephen Timms; Mr Edward Vaizey) eventually saw this off — the main danger being those (Russia, China and the G77) who were seeking to shift the centre of gravity from ICANN (the Internet Corporation for Assigned Names and Numbers, formed in 1998 by the US Administration; a not-for-profit public-benefit corporation with participants from all over the world) to the ITU (International Telecommunications Union).

21.2 This further Commission Communication builds on the 2009 Communication. It does not call for any new international legal instrument. Instead, it focuses on the main areas of current debate, namely "the development of Internet governance principles, cooperative frameworks and core Internet functions": it makes proposals on how to strengthen the current multi-stakeholder model, and looks ahead to some of the key issues that must be addressed in the context of Internet governance in the future — "namely the strong interplay between technical norms and Internet policy, the key challenges in rebuilding trust, and conflicts of jurisdictions and laws". Many of the issues presented would, the Commission says, be the subject of further specific consultations with stakeholders.

21.3 More immediately, however, we noted the continuing danger to the current "bottom up, multi-stakeholder approach", and asked the Minister to: explain his apparent indifference to proposed further work that the Commission was planning to undertake; and for his comments on key forthcoming international gatherings, and the approach that he would be taking, at a time when the future governance of the Internet appeared to be at a critical cross-road.

21.4 The Minister says that as soon as the Commission informs him of their plans, he will take a view on how best the UK should participate; notes that the UK plays a very active role in discussions about internet governance; and assure the Committee that he and his officials will continue to do so.

21.5 The Minister also notes that the relevant US government agency has made it clear that it will not accept any successor to ICANN that involves a government-led or inter-governmental organisation solution; and says that, during the 50th ICANN meeting in London in June, he will host and chair a High Level meeting ICT Ministers from around the world, which will be an opportunity to consider how this discussion moves forward.

21.6 With regard to the key 2014 international meetings, the Minister notes that:

—  UK Government representatives at the Global Multi-stakeholder meeting on the Future of Internet Governance (NETmundial) in Sao Paulo in April stressed the importance of getting the transition of ICANN right; and that he believes that the statements from NETmundial are "a very positive development" and "demonstrate that we are winning the argument for a multi-stakeholder model of internet governance";

—  that, at the October ITU Plenipotentiary Conference in Korea, he is "expecting a push from countries such as Saudi Arabia, Russia, China and Iran for the ITU to play a greater role in Internet governance going forward", but proposes "with other like-minded nations to resist any expanded remit for the ITU in Internet governance and cybersecurity".

21.7 Given these clarifications, we now clear the Commission Communication.

21.8 We are content for interested Members to pursue the questions that may arise regarding the future development of Internet Governance through the many means at their disposal.

21.9 With that thought in mind, we are also drawing this chapter of our Report to the attention of the Culture, Media and Sport Committee.

Full details of the document: Commission Communication: Internet policy and governance: Europe's role in shaping the future of Internet Governance: (35811), 6460/14, COM(14) 72.

Background

21.10 The Communication concentrates on seven issues:

—  a principles-based approach to Internet governance;

—  a cooperative governance framework on global Internet issues;

—  further strengthening the current multi-stakeholder process for Internet governance;

—  technical norms shaping of the Internet;

—  building confidence in the governance and use of the Internet; and

—  looking at conflicts of jurisdictions and laws with regard to the global use of the Internet.

21.11 It was broadly welcomed by the Minister, who said:

    "The internet has been so successful because of its multi-stakeholder model of governance and Europe should continue to support that model. We need to be cautious about defining too rigidly the role of public authorities. There is a risk that attempts to codify exact roles and responsibilities will lead to an inflexible structure which is unable to respond effectively to emerging challenges and opportunities and which will stifle the dynamism and innovation of the internet. The UK strongly agrees that issues-based dialogue is the right approach and we do not need to identify or create new bodies to deal with internet issues."

21.12 Given the importance of workshops that the Commission was proposing to organise on technical norms shaping the Internet, and its proposed in-depth review of the risks of conflicts of laws and jurisdictions arising on the Internet and assessment of options for action, including possible legislative initiatives, we asked the Minister to explain why he was apparently not planning a more active UK involvement in these important processes.

21.13 Secondly, we were puzzled by the lack of comment by the Minister on two important international meetings that would take place in 2014 and which the Commission highlighted. Though he and the Commission might now share a benign common vision, it seemed that others, and especially Russia, continued to have a different, and possibly malign, vision: shifting control of the internet away from ICANN to the International Telecommunication Union, and again seeking to make use of a new definition of "cyber-terrorism" that would exploit the exception for such activity from the ITU's basic charter guarantees freedom of access to the internet.[76]

21.14 Moreover, since writing his Explanatory Memorandum, the US Department of Commerce had announced that it planned to end its long-running contract with ICANN, which is set to expire next year, and stated that it looked "forward to ICANN convening stakeholders across the global Internet community to craft an appropriate transition plan".[77] While this might lead to the continuation of the sort of internationalisation of Internet core functions and organisations that the Commission (and presumably the Minister) would welcome, it could well take a different, and unwelcome, direction: we accordingly asked for the Minister's comments on these forthcoming international gatherings, and the approach that he would be taking, at a time when the future governance of the Internet appeared to be at a critical cross-road.

21.15 In the meantime, we retained the Commission Communication under scrutiny.

21.16 We also drew this chapter of our Report to the attention of the Culture, Media and Sport Committee.[78]

The Minister's letter of 14 May 2014

21.17 With regard to why the Government is not planning a more active involvement in the proposed EU Commission workshops on technical norms shaping the Internet, and with its proposed in-depth review of risks of conflict of laws and jurisdictions arising on the Internet, the Minister says:

    "The answer is simply that we have so far received no information from the Commission about this work and — so far as we are aware — the Commission has not yet begun planning it. We will take a view on how best the UK should participate as soon as the Commission informs us of their plans. The Government plays a very active role in discussions about internet governance and I can assure you we will continue to do so."

21.18 With regard to ICANN, the Minister confirms US Government plans to transfer its responsibility for the internet's domain name system to an international, multi-stakeholder process, and that its National Telecommunications and Information Agency (NTIA) has asked ICANN, as the IANA (Internet Assigned Numbers Authority) Internet technical functions coordinator, to convene a multi-stakeholder process to develop a proposal for transition.

21.19 The Minister continues as follows:

    "NTIA has established a clear framework to guide discussion and communicated to ICANN that the transition proposal must have broad community support and address the following four principles:

·  "support and enhance the multi-stakeholder model;

·  "maintain the security, stability, and resiliency of the Internet Domain Names System (DNS);

·  "meet the needs and expectation of the global customers and partners of the IANA services; and

·  "maintain openness of the Internet.

    "In addition, NTIA stated that it would not accept a proposal that replaces the NTIA role with a government-led or inter-governmental organisation solution. The contract between NTIA and ICANN is set to expire in September 2015 but could be extended if the transition plan is not completed by then."

21.20 The Minister says that the Government has welcomed this announcement:

    "We agree that these are important questions for the future stability and robustness of the internet and we believe that proposals for a new model need to be carefully considered. During the 50th ICANN meeting which will be taking place in London in June, we will host a High Level Governmental meeting, which I will chair. This will be an opportunity for ICT Ministers from around the world to consider how this discussion moves forward."

21.21 Concerning the other international meetings in 2014, the Minister says that the Global Multi-stakeholder meeting on the Future of Internet Governance (NETmundial) was hosted by the Brazilian government in Sao Paulo on 23-24 April, where the UK was represented:

    "There was strong support for the multi-stakeholder model and human rights online. This was encapsulated in the final statement which was divided into a set of non-binding high level principles on Internet governance and an Internet governance roadmap. The UK Government representatives at this meeting stressed the importance of getting the transition of ICANN right.

    "We believe that the statements from NETmundial are a very positive development and they demonstrate that we are winning the argument for a multi-stakeholder model of internet governance. It was significant that while some BRIC countries (notably Russia) criticised the organisation and outcome of the conference, other countries such as Brazil, demonstrated firm commitment to the multi-stakeholder model. Other important meetings coming up with regard to Internet governance include the ongoing review process for the World Summit on the Information Society (WSIS). WSIS was held under the auspices of the United Nations in 2003 and 2005 and it confirmed the multi-stakeholder model of Internet governance and set out a series of Action Lines, particularly aimed at promoting the development of ICT infrastructure and services in developing and less developed countries. The WSIS process is due to be reviewed in 2015 and we are currently discussing the modalities for this review at the UN in New York."

21.22 Regarding the International Telecommunication Union Plenipotentiary Conference in Busan, Republic of Korea, in October, the Minister says:

    "We will be expecting a push from countries such as Saudi Arabia, Russia, China and Iran for the ITU to play a greater role in Internet governance going forward. We propose with other like-minded nations to resist any expanded remit for the ITU in Internet governance and cybersecurity."

Previous Committee Reports

Forty-fourth Report HC 83-xxxix (2013-14), chapter 6 (26 March 2014); also see (30708) 11222/09: Sixteenth Report HC 428-xiv (2010-11), chapter 7 (26 January 2011), Third Report HC 428-iii (2010-11), chapter 2 (13 October 2010), Thirteenth Report HC 5-xii (2009-10), chapter 1 (3 March 2010) and Twenty-seventh Report HC 19-xxv (2008-09), chapter 1 (21 July 2009).


22 Tourism
Committee's assessment Politically important
Committee's decisionCleared from scrutiny

Document details(a)  Draft Council Recommendation on European Tourism Quality Principles

(b)  Commission Communication: A European Strategy for more Growth and Jobs in Coastal and Maritime Tourism

Legal base(a)  Articles 195 and 292 TFEU; QMV

(b)  —

DepartmentCulture, Media and Sport

Summary and Committee's conclusions

22.1 The Lisbon Treaty conferred a new power on the EU to promote the competitiveness of the tourism sector. EU measures are intended to complement Member State action by encouraging the creation of a favourable environment for business, promoting cooperation between Member States, and facilitating the exchange of best practice. A Commission Communication published in 2010 proposed a new framework for tourism in the EU, underpinned by a number of actions, including the development of a strategy on sustainable coastal and maritime tourism and a European 'Qualité Tourisme' brand to increase consumer confidence and recognise high standards of service.

22.2 The draft Council Recommendation — document (a) — establishes a set of European Tourism Quality Principles to be applied on a voluntary basis by organisations providing tourism services directly to the public. They cover such matters as training, consumer satisfaction, cleaning and maintenance, and the provision of information. The Commission considers that EU action is necessary to address fragmentation in the development and application of quality standards across the EU, to enhance the visibility and consistency of services provided to consumers, and to create a comparative advantage for the numerous SMEs operating in the tourist sector. Member States are invited to "coordinate, monitor and promote the application of the Principles" and to cooperate with the Commission on "awareness-raising and promotional activities" and in assessing whether the Principles are being applied consistently.

22.3 The Communication — document (b) — sets out a Strategy to realise the potential of coastal and maritime tourism to deliver sustainable growth and jobs in the EU. It identifies the obstacles and challenges facing this part of the tourist sector and proposes a number of actions to be taken by the Commission, ranging from better data collection, promotional and communication campaigns and trans-national or inter-regional partnerships to the recognition of qualifications, more effective use of technology and innovation, and support for eco-tourism. Member States, regional and local authorities, and the tourist industry are encouraged to use a variety of EU funding instruments to support initiatives promoting sustainable growth and jobs in coastal and maritime tourism.

22.4 We noted that the Communication and draft Recommendation, although not legally binding, created an expectation that Member States would play an active part in implementing the actions proposed. We were therefore surprised by the assessment provided by the Minister for Sport, Tourism and Equalities (Mrs Helen Grant) that neither document had any legal, policy or financial implications for the UK. We suggested that the Quality Principles contained in the draft Recommendation were so basic as to make it difficult to discern any "added value" or comparative advantage for providers of tourism services within the EU, and that stakeholders had expressed diverse and divergent views on their content. We asked the Minister to explain whether and how the Quality Principles would add value to existing quality schemes across the EU; whether the Government supported the draft Recommendation; and how it proposed to "coordinate, monitor and promote" the application of the Principles within the UK. We also asked the Minister to indicate whether the actions proposed in the Communication were consistent with existing policies and practices in the UK, or whether additional effort and investment would be needed to support their implementation.

22.5 The Minister has submitted a new Explanatory Memorandum on the Commission Communication providing more detailed information on its policy implications. In this, our second Report on the Commission proposals, we set out the Government's more comprehensive assessment and its response to the questions we raised in our earlier Report.

22.6 We thank the Minister for submitting a new and more comprehensive Explanatory Memorandum on the Commission Communication which demonstrates how the action proposed at EU level would complement similar policy initiatives being implemented in the UK. We note that, this time, the Minister provides a much clearer indication of the views of the Devolved Administrations. We expect similar care to be taken in future Explanatory Memoranda which concern areas of policy which have been devolved.

22.7 The Minister expects that the Conclusions to be adopted by the General Affairs Council later this month on an Integrated Maritime Policy will only include a "short, non-substantive" reference to the Communication and that the UK will not be required to take any action that would run counter to existing policy or practice or have significant resource implications. We are content, on this basis, to clear the Communication from scrutiny but expect the Government to resist any language that would imply an obligation to act or encroach on areas of Member State competence.

22.8 Turning to the draft Recommendation, we understand that the text originally proposed by the Commission will not be put forward for adoption, although it is not clear whether the opposition expressed by Member States stems from their resistance to any EU action in relation to European Tourism Quality Principles or their perception that the action proposed is inadequate. We agree to clear the draft Recommendation from scrutiny on the clear understanding that any revised text produced by the Commission will be submitted for scrutiny.

Full details of the documents: (a) Draft Council Recommendation on European Tourism Quality Principles: (35821), 6872/14, COM(14) 85; (b) Commission Communication: A European Strategy for more Growth and Jobs in Coastal and Maritime Tourism: (35822), 6875/14, COM(14) 86.

Background

22.9 Our Forty-first Report of 19 March 2014 summarises the content of the draft Recommendation and the Commission Communication. Whilst making clear that the Government had expressed strong opposition to the introduction of a voluntary or mandatory quality label — an idea mooted in the Commission's 2010 Communication on tourism — the Minister indicated that the draft Recommendation was "in line with the UK's stated preferences" as it did not propose "a quality label or any mandatory requirements".[79]

22.10 The Communication reflects the political priority attached by the Greek Presidency to the role of the maritime economy in promoting sustainable growth and supporting economic recovery.

The Minister's letter and Explanatory Memorandum of 29 May 2014

22.11 The Secretary of State for Culture, Media and Sport and Minister for Equalities (Sajid Javid) tells us that the draft Recommendation was removed from the agenda for the Competitiveness Council on 26 May, following opposition from the UK and many other Member States. He considers that the proposal adds no value to quality schemes already in place in the UK and notes that the Commission has failed to produce an Impact Assessment. Whilst the Commission continues to urge Member States to "find common ground" on European Tourism Quality Principles, it is not yet clear how the Commission intends to amend its proposal or whether it will be taken forward by the forthcoming Italian Presidency. The Minister recognises that the Government will need to "expand our arguments on the policy implications" of introducing any new European Tourism Quality Principles but suggests, meanwhile, that "we should return to the concerns you raised once any new proposal is submitted by the Commission".

22.12 Turning to the Communication, the Minister refers to the detailed assessment contained in his Explanatory Memorandum (which replaces the earlier version submitted in March) and concludes that:

    "much of what is proposed through the Communication is consistent with existing policies and practice in the UK.

    "Overall, I feel that the pan-European aspects of the proposal offer little commercial benefit to an island nation with a mature tourism product. So, given the voluntary nature of the Communication, we do not need to take them forward if they run contrary to our approach or if we feel by taking them forward, it may have resource implications."

22.13 The Minister's Explanatory Memorandum provides further information on the synergies between the Communication and UK policies and practice. He highlights:

·  the Government's Coastal Communities Fund which provides funding to support the sustainable economic development of the UK's coastal communities;

·  "People 1st" and other initiatives which are developing skills within the tourism sector to ensure world-class standards of service;

·  the work of the Marine Management Organisation in promoting integrated coastal management and maritime spatial planning as a means of ensuring sustainable development — the Minister cites the examples of the Wales Coastal Path, the Causeway and Mourne Coastal Routes in Northern Ireland, and the Scottish National Marine Plan;

·  the development of innovative activity-based holidays, such as the English Heritage "dive trails" project to create trails for historic wreck sites; and

·  continuing work across all tourism sectors to improve accessibility, including the development by Visit Scotland of an Accessible Tourism on-line training package and Access Statement for individual businesses which will be an important legacy of the 2014 Glasgow Commonwealth Games.

22.14 The Minister considers that there are already sufficient synergies between businesses operating in sea basins, highlighting the work of the National Coastal Tourism Academy in disseminating best practice and implementing the Seaside Resorts Action Plan. He notes that the Scottish Government has expressed particular interest from the Island Councils in Shetland, Orkney and Comhairle nan Eilean Siar in collaborating with the Commission on means of improving island connectivity and accessibility, and in designing innovative tourism strategies for remote islands. The Scottish Government would also welcome the opportunity to work with the Commission to promote a pan-European dialogue between cruise operators, ports and other coastal tourism stakeholders — Scotland is the market leader in the UK for in-bound cruise tourism — and to discuss the re-use and sharing of maritime infrastructure, as well as the use of renewable energy sources. By contrast, the Scottish Government has expressed "a strong caveat" regarding Commission proposals concerning qualification requirements for professional yacht skippers and safety requirements for nautical tourism equipment on the grounds that EU action might impose "an unnecessary and additional regulatory burden".[80]

22.15 The Minister suggests that the Commission's proposal to include national or regional coastal and maritime tourism strategies within Operational Programmes for a variety of EU funding programmes (particularly European Structural and Investment Funds) "probably go[es] too far".[81] He adds, however, that strategies developed by Local Enterprise Partnerships to implement EU Structural and Investment Funds are likely to include the tourism sector if they have coastal or estuarine areas within their boundaries.

22.16 The Minister expects the General affairs Council to agree Conclusions on an Integrated Maritime Policy at its meeting on 24 June. He continues:

    "These Conclusions will cover a wide range of policy areas but within them there will be a short, non-substantive 'welcoming' or 'noting' of this Communication."

Previous Committee Reports

Forty-first Report HC 83-xxxviii (2013-14), chapter 3 (19 March 2014).


23 Radio Spectrum Policy Programme
Committee's assessment Politically important
Committee's decisionCleared from scrutiny

Document detailsCommission Report
Legal base
DepartmentCulture, Media and Sport

Summary and Committee's conclusions

23.1 Given the growing importance of the radio spectrum as a natural resource for the information society, and building on the progress made under the Radio Spectrum Decision (676/2002/EC), in 2012 the European Union established a Radio Spectrum Policy Programme (RSPP) to define key policy objectives and set up general principles for managing radio spectrum in the internal market.

23.2 The three main goals of the EU's Radio Spectrum Policy are to:

·  harmonise spectrum access conditions to enable interoperability and economies of scale for wireless equipment;

·  work towards a more efficient use of spectrum; and

·  improve the availability of information about the current use, future plans for use and availability of spectrum.

23.3 This document is the first report on implementation of the measures adopted under the RSPP, including those on spectrum inventory, wireless broadband and spectrum sharing, and incorporates the Commission's annual report on the Radio Spectrum Decision (RSD). The Report also considers progress made under the RSPP against other EU policies.

23.4 The Report recognises the successes of the RSPP, in terms of setting goals for spectrum release for wireless broadband, making available harmonised spectrum resources in the internal market, helping to foster innovation and completion through more efficient spectrum use and a positive example of good working relationships between the Commission and Member States.

23.5 The Commission also sets out what it sees as the RSPP's shortcomings and appropriate remedies: a lack of precision in the regulatory principles, requiring the concrete legislative measures proposed as part of the Connected Continent package;[82] legal certainty on common timing and duration of spectrum assignments; a need to step up the coordination efforts being made under the strategic guidance of the RSPP and the successful technical implementation through the Radio Spectrum Decision, by strengthening the coordination of authorisations within Europe.

23.6 The Report makes no new policy or legislative proposals as such. However, when discussing the subsidiarity aspects, the Minister comments not so much on this Report per se as on the "Connected Continent" proposals that the Report sees as a remedy to perceived shortcomings of the RSPP. This is dealt with more substantially elsewhere in this Report, where we consider both the relevant Commission Communication and the Minister's latest update on the negotiations on a consequential Council Regulation "laying down measures concerning the European single market for electronic communications and to achieve a Connected Continent".

23.7 In that update, the Minister says the proposals regarding spectrum management "compromise the current existing balance of competence between Member States and the Commission", and expresses the hope that this may be managed, via some modification of current governance structures and the Commission doing better what it already has power to do, i.e., ensure that Member States who have yet to meet their existing obligations do so. Here, the Minister not only maintains that the Government is not alone in adopting this position, but goes further, in saying that the Council is unanimous in its opposition. However, he again suggests the same sort of compromise, viz:

    "the UK Government recognises that the Commission has raised a number of concerns that will need addressing in the longer term and is working closely with Ofcom in putting forward alternative proposals that, in the main, focus on changes to the existing governance structure rather than further regulatory changes."

23.8 We await a further update on the negotiations following the June Telecoms Council meeting. In that update, we ask the Minister to clarify what the concerns are "that will need addressing in the longer term"; what further changes to the existing governance structure have been put forward; and what the prospects then are for securing Commission and EP agreement to them, thereby safeguarding the existing balance of competence between Member States and the Commission.

23.9 In the meantime, we clear this Commission Report, which we are drawing to the attention of the Culture, Media and Sport Committee.

Full details of the document: Commission Report on the implementation of the Radio Spectrum Policy Programme: (35979), 9175/14, COM(14) 228.

Background

23.10 On its "What is Radio Spectrum Policy?" web page, the Commission explains that all wireless technologies must transmit and receive information via the radio spectrum, and that such transmissions can be used for a range of different purposes:

    "However, in order to ensure that competing applications for radio spectrum do not interfere with each other's operations, it is essential to coordinate the use of frequencies and properly regulate both nationally and internationally.

    "Maximising the economic benefits of the single European market needs coordination on a European scale: to harmonise spectrum access rules across borders. The overall aim of the EU's Radio Spectrum Policy is therefore to coordinate the approach to radio spectrum management across the Union to foster modernised spectrum management, ensuring Europe gets the most benefit from its use of this finite resource, both now and in the future."

23.11 The Commission says that the three main goals are to:

—  harmonise spectrum access conditions to enable interoperability and economies of scale for wireless equipment;

—  work towards a more efficient use of spectrum; and

—  improve the availability of information about the current use, future plans for use and availability of spectrum.[83]

23.12 Against this background, Decision 243/2012/EU established a multiannual radio spectrum policy programme (the RSPP), which provides that the Commission has to report on the activities developed and the measures adopted under the RSPP by April 2014. Reporting obligations on the harmonised use of radio spectrum are also contained in Article 9 of Decision 676/2002/EC2 (the Radio Spectrum Decision). The Commission says that this report therefore "merges these obligations into one concise report".

23.13 The Commission notes that, pursuant to the Radio Spectrum Decision and the RSPP, it has adopted implementing decisions in the following specific EU policy areas: the Digital Agenda for Europe; the Single European Sky; and Maritime and Land Transport. The Commission notes that it is continuing its work on spectrum policy with the Radio Spectrum Committee (RSC),[84] the Radio Spectrum Policy Group (RSPG)[85] and the European Conference of Postal and Telecommunications Administrations (CEPT).

23.14 The report focuses on three areas: spectrum inventory, wireless broadband services, and shared use. In his Explanatory Memorandum of 14 May 2014, the Minister for Culture, Communications and Creative Industries at the Department for Culture, Media and Sport (Mr Edward Vaizey) helpfully summarises the key features of the Report as follows:

"SECTION 2: THE EU'S RADIO SPECTRUM POLICY PROGRAMME

"Section 2.1 reports that the Commission adopted Implementing Decision 2013/195/EU in April 2013 requiring Member States to upload data on spectrum use to the European Frequency Information Service (EFIS). The Commission will report separately to the European Parliament and Council on the spectrum inventory in mid-2014.

"Section 2.2 reports on the RSPP target of a total of 1200MHz of spectrum allocated for wireless broadband use by 2015, noting that studies are being carried out in cooperation with Member States to consider suitable bands. This section also reports on implementation of the 800MHz band for electronic communications services and lists derogations granted to Member States in meeting these obligations. The report considers that the RSPP has not sufficiently stimulated a single market that leads to converged licencing conditions, network integration, or uniform roll-out of wireless broadband across Member States.

"Section 2.3 reports that the Commission is encouraging sharing and efficient use of spectrum by harmonising frequency bands authorised for licenced and unlicenced use. It is noted that the technical annex to European Commission Decision 2006/771/EC on Short Range Devices (SRD) has been updated five times since its adoption in 2006, most recently to broaden the range of SRD categories to facilitate harmonised sharing environments.

"The Commission has issued the CEPT a mandate to consider the extension of Radio LAN use (including Wi-Fi) in the 5GHz band. It is currently unclear whether such an extension will be feasible or the conditions under which any authorisation would operate. The Report also notes the identification of the 2.3GHz band as a candidate for wireless broadband services and the need to ensure incumbent services enjoy adequate protection.

"Section 2.4 reports the lack of a common position across Member States on the use of ICT infrastructure for smart grids and smart meters, and on spectrum authorisations for these purposes. The Commission is also undertaking a study on how 'mission critical' services can be provided for specific sectors over commercial mobile networks.

"SECTION 3: THE RADIO SPECTRUM DECISION

"This section reports that all measures proposed to the Radio Spectrum Committee (RSC) for voting received a positive opinion. These are listed in Annex 1 to the Report.

"SECTION 4: CONCLUSIONS

"This section concludes that the RSPP has been successful in promoting efficient spectrum use and enabling innovation in wireless technologies. It is suggested that the RSPP is limited by the generality of the regulatory principles it establishes and that while Member States set the specific conditions and authorisations for spectrum, there will continue to be substantial fragmentation of internal markets and insufficient cross-border integration of networks. The Commission will issue a final report on the RSPP at the end of 2015."

23.15 The Minister then comments on the question of Subsidiarity:

"The Commission is publishing this Report in accordance with its reporting requirements under EU law. The Report does not contain any new legislative proposals. The stated aim of the RSPP is that there be greater consistency in regulation across Europe — the Report details progress towards this aim. The Commission urges further action in the form of the Connected Continent package, which does propose new legislative measures. The UK Government opposes the spectrum proposals (which are covered in detail in the related EM 13562/13 and 13555/13 + ADDs 1-2) and is not alone in adopting this position; indeed, Council is unanimous in its opposition. However, the UK Government recognises that the Commission has raised a number of concerns that will need addressing in the longer term and is working closely with Ofcom in putting forward alternative proposals that, in the main, focus on changes to the existing governance structure rather than further regulatory changes."

The Government's Explanatory Memorandum of 14 May

23.16 The Minister comments as follows:

    "The UK Spectrum Strategy published on 10 March 2014 presents UK Government policy positions on many of the areas covered by the RSPP.[86]

    "The UK has provided information for EFIS. This inventory is aligned with UK Government policy to produce a single public sector spectrum database and to encourage efficient spectrum management and use as set out in the UK Spectrum Strategy.

    "The UK Government is committed to releasing 500MHz of sub-5GHz spectrum from public sector use by 2020 through the Public Sector Spectrum Release Programme. This includes spectrum in the 2.3GHz and 3.4GHz bands that was previously used by the public sector. The UK has successfully allocated the 800MHz band for 4th generation mobile services by competitive auction, and mobile network operators have started to operate services in this band. The 700MHz band is also being considered for clearance to allow European and international harmonisation of this band for mobile broadband.

    "The UK Spectrum Strategy emphasises UK Government support for increased sharing of spectrum, including licenced access sharing between public and private sector users, though this will require adequate protections for incumbent services as well as an appropriate evidence base to support such authorisations. The UK Spectrum Strategy also supports authorisations for unlicensed access where this is feasible and recognises the significance of Dynamic Spectrum Access technologies.

    "The UK has therefore made substantial progress against the 1200MHz RSPP goal (which was largely arbitrary) and continues to pursue further releases and sharing opportunities.

    "The UK Government is committed to enhancing energy security and integration of low carbon technologies through greater monitoring and control of energy networks and the Smart Grid Forum's Vision and Routemap sets out how smart technologies will deliver cost-saving efficiencies, give consumers greater control over their energy use, support jobs and growth, increase energy security and enable integration of low carbon technologies.

    "The UK Government agrees that the RSPP represents an important strategic framework for implementing Union spectrum policy and achieving broader spectrum policy aims across Member States. The UK Government considers that Member States should continue to manage spectrum use and set authorisations and specific usage conditions, and therefore opposes the Connected Continent proposals which the Report sees as a remedy to perceived shortcomings of the RSPP (see Subsidiarity section above)."

Previous Committee Reports

None, but see: (35305), 13562/13 and (35304), 13555/13, at chapter 5 of this Report.


24 Transport: road haulage
Committee's assessment Politically important
Committee's decisionCleared

Document detailsCommission Report on the EU road transport market
Legal base
DepartmentTransport

Summary and Committee's conclusions

24.1 The EU has a body of legislation related to the single market in road transport covering a variety of matters. This includes Regulation (EC) No. 1071/2009, which governs admission to, and the pursuit of, the occupation of road transport operator and Regulation (EC) No. 1072/2009 which applies to the international carriage of goods by road for journeys carried out within the EU. In this Report the Commission reviews the state of the road transport market in the EU, particularly in relation to cabotage, and says that it will propose amendment of Regulation (EC) No. 1071/2009 and Regulation (EC) No. 1072/2009.

24.2 Whilst clearing this document we note the reservations the Government has about the justifications the Commission adumbrates for future legislative proposals. So we would expect to see much better argumentation from the Commission when it presents draft legislation on these matters.

Full details of the documents: Commission Report on the state of the Union road transport market: (35978), 9143/14, COM(14) 222.

Background

24.3 The EU has a body of legislation related to the single market in road transport covering a variety of matters. Regulation (EC) No. 1071/2009 governs admission to, and the pursuit of, the occupation of road transport operator. Regulation (EC) No. 1072/2009 applies to the international carriage of goods by road for hire or reward for journeys carried out within the EU, and includes rules on cabotage, in this case that is carriage of goods wholly within one Member State by a vehicle from another Member State. The Commission was required by Regulation (EC) No. 1072/2009 to publish a report into the state of the road transport market in the EU.

The document

24.4 The Commission meets that requirement with this Report, which evaluates road haulage activity, company structures, costs drivers in the sector, effectiveness of enforcement controls, social dimensions such as working conditions and other regulatory elements that impact on the road haulage sector.

24.5 In covering a wide range of issues the Commission:

·  assesses modal shares of road, rail, and water freight within the EU and the market share of national and international road traffic;

·  says that 32% of road haulage was international and 68% national over the EU27 in 2012 and that of the 68% cabotage was said to be 1%;

·  notes that cross trade (international road transport conducted by an operator not based in the origin or destination state) has grown by about 50% between 2004 and 2012; and

·  says that Germany and France have most cabotage, with 39% and 29% of all EU cabotage taking place in those respective markets — next is Italy with 6%, then the UK and Belgium at 5% each.

24.6 Given that the market share of own account haulage is stated as 15% of the total, the balance of commercial haulage, 85%, is the main focus of the Report. (Own account in UK accounts for about 45% of all operators). The Commission notes that the own account haulage part of the market is not accessible to operators in the cabotage market.

24.7 The Commission then discusses:

·  company structure and employment;

·  developments in labour and vehicle productivity, particularly for the latter empty running;

·  developments in labour and fuel costs and other cost drivers such as one-off charges relating to establishment of an undertaking, including purchase and registration of vehicles, periodic taxes on ownership or circulation of vehicles and taxes deriving from the use of vehicles, including income tax and time- or distance-based road charges;

·  enforcement of Regulation (EC) No. 1071/2009 and Regulation (EC) No. 1072/2009, particularly in relation to the use of "letterbox companies"[87] and perceived inconsistency in the cabotage rules in Member States;

·  future amendment of the two Regulations under the Regulatory Fitness and Performance Programme (REFIT), which aims at "making EU law clearer and reducing regulatory burden";[88]

·  the social dimension of the road haulage sector, including working conditions, the ageing cohort of drivers and the greater technological sophistication of the sector; and

·  other regulatory developments — road charging, vehicle specifications, road safety and fuel taxation.

24.8 The Commission draws a number of Conclusions in the Report:

·  there is inconsistency in establishment (licensing) and cabotage rules, which suggests a case for harmonisation in respect of rules of establishment and cabotage, as a means to limit "unlawful out-flagging" and reducing empty running, and provisions to ensure uniform application of market access rules and clarity;

·  it will propose amendment of Regulation (EC) No. 1071/2009 and Regulation (EC) No. 1072/2009;

·  there will be a shortage of drivers and working conditions for drivers "remain difficult";

·  companies must reduce empty running to deal with driver shortages;

·  there is increasing convergence in terms of road haulage costs through the EU and this is driving hauliers to compete on efficiency and quality; and

·  there is convergence in legislative requirements and increasing cooperation between Member States, that will continue to reduce the risk to road safety that competitive pressure could create if the road haulage market was opened further.

The Government's view

24.9 In his Explanatory Memorandum of 6 May the Parliamentary Under-Secretary of State, Department for Transport (Stephen Hammond), says that the Government welcomes the opportunity this Report provides for consideration of the Commission's plans for future proposals. He notes that the Commission is signposting a number of planned legislative proposals, including changes to cabotage rules, the rules relating to how operators are licensed in Member States, some element of harmonisation of penalties for offences and targets at Member State level for minimum numbers of roadside inspections of goods. But, the Minister comments:

·  in many areas of the Report the Commission only provides partial information rather than a complete picture;

·  for example, the low margins for operators and fierce competition that exists in the road haulage sector are not present in the Report;

·  a number of statements are made that do not appear to be supported by evidence; and

·  as a result of this the Government has concerns that the policy conclusions embedded in the Report may be incorrect.

24.10 In relation to cabotage the Minister says that:

·  it seems likely that future Commission proposals will be looking to remove or modify the limits on the number of journeys allowed within the cabotage rules by hauliers from other Member States (currently three trips) and perhaps extend the amount of time allowed for such operations (currently seven days);

·  there are minor elements of the current rules, in place since May 2010, which industry has pointed out as open to interpretation at a Member State level;

·  one is the requirement (or not) for key documents to be available for inspection at the roadside (some Member States allow transit documents for the domestic trips to be provided from head offices, others demand that those documents are available on board the vehicle, some such as the UK take a more flexible approach);

·  the other is how trip numbers are measured if the vehicle is undertaking multiple drops or multiple deliveries (some say each collection or delivery is a separate trip, others including the UK allow multiple collections or multiple deliveries but not both to be counted as single trips);

·  for operators it would be helpful if the rules around these areas were clarified throughout the EU;

·  the justifications underpinning an apparent desire for more significant changes to the three trips in seven days rules in the Report relate to claimed gains in productivity and reductions in empty running; and

·  putting aside whether or not relaxation of the cabotage rules is desirable in other ways, the Government considers that the Commission has not included sufficient evidence to reach that conclusion.

24.11 The Minister continues that:

·  in the Commission's discussion of productivity, "low" productivity is not defined nor is it clear how this low status is derived;

·  it also says that opening the market up to international competition could be expected to produce productivity gains "similar" to 15%;

·  as there is, however, international competition both through cabotage and the right of companies to establish in any Member State, as well as a high level of existing competition in the road haulage market, the claim of a potential 15% productivity improvement is questionable;

·  the Commission implies that high rates of empty running for vehicles from other Member States is caused by the current cabotage rules but provides little analysis of any other factors that may contribute to higher empty running rates for such vehicles — this is a significant omission;

·  the Commission does highlight reduced empty running of goods vehicles over the last years "thanks to … slowly increasing efficiency in organising transport activities";

·  it does not refer to any other factor — however one significant change that is likely to have had an impact is the greater certainty over cabotage rights since May 2010;

·  prior to the 2010 change each Member State had its own interpretation and this resulted in high levels of uncertainty for operators throughout the EU; and

·  the 2010 rules provided clarity and allowed operators to embed cabotage activities into their logistics planning — it appears the 2010 changes have had some success.

24.12 The Minister comments further that, even though cabotage is now a right for hauliers, many choose not to undertake cabotage after international journeys and that other factors that influence operators' decisions to undertake cabotage or reduce empty running by picking up extra loads include:

·  the ability of domestic operators to deploy resources more effectively due to closeness to the market;

·  poor backload/spot rates;

·  managers believing that chasing backload/spot traffic is a sub-optimal use of prime high quality vehicles (which is the case in international road haulage as the Commission highlights);

·  complexity for managers to control resources at long distance;

·  just-in-time core contracts;

·  remoteness of decision makers in transport companies from potential clients;

·  inability to meet client expectations at short notice reliably;

·  inability to plan best routes with sub-optimal local knowledge;

·  payment terms, credit control and payment issues;

·  language;

·  compliance with drivers' hours rules;

·  trade imbalances; and

·  seasonal factors (such as harvest/perishable transport).

24.13 Finally on cabotage the Minister says that:

·  The Government is unaware of any detailed research done by the Commission to understand what factors operators take into account when making decisions whether to undertake cabotage or not;

·  advice from trade bodies is that the cabotage rules are no longer a major factor in making decisions to collect back loads or not;

·  some Member States are claiming that the cabotage rules have resulted in major problems with drivers and vehicles working remotely from the home market for many months at a time;

·  they are concerned about drivers' working conditions (having to live in truck cabs for extended periods) and the compliance with rest periods; and

·  these impacts have not been seen on the same scale in the UK in respect of cabotage (although similar enforcement problems are becoming apparent in respect of compliance with the Combined Transport Directive, Council Directive 92/106/EEC).

24.14 The Minister, noting that there is a significant gap between the Commission's desire for liberalisation of the market and of many Member States' concerns over effective enforcement and working conditions, tells us that:

·  these concerns were expressed by a number of Member States in a letter to the Commission in December 2013 about the workings of the current rules;

·  there is, therefore, significant uncertainty over what the Commission will finally propose;

·  the Government's position is that supporting road safety is essential and effective enforcement is important to achieve this — appropriate clarification will help industry and enforcement bodies work more efficiently;

·  there is much less clarity over any planned proposals from the Commission over the rules relating to how operators are licensed (establishment) in Member States;

·  the long-term aim of the Commission is to create a single traffic area for the EU, but it does not indicate what proposals will be made;

·  the Commission talks about dealing with flagging out and letter box companies and this may imply tighter regulation in this area — but it is not clear;

·  the Commission refers to some element of harmonisation of penalties for offences committed by vehicle operators — again its plans are unclear, but any formal proposals may raise Justice and Home Affairs issues for the UK;

·  the final area where future Commission action is highlighted is for targets at Member State level for minimum numbers of roadside inspections of goods vehicles;

·  the case is, however, not made for imposing a minimum target for the number of inspections;

·  Member States are already required to risk-rate operators so that enforcement action such as roadside inspection is targeted towards higher risk operators and low risk operators can work with far less chance of disruption to their working day;

·  given that broad EU level targets exist in the Roadside Inspection Directive, Directive 2014/47/EU, and Member States are obliged to undertake an appropriate number of inspections in line with those targets, the Government is unsure that there is a demonstrated need for further intervention;

·  the Commission is already aware of the broad policy position of the UK in this area, which is to support road safety through effective regulation while ensuring the burdens on businesses regulated are proportionate and justified; and

·  the Government will continue to discuss issues with the Commission with a view to influencing any legislative proposals.

Previous Committee Reports

None.


25 Maritime cabotage
Committee's assessment Politically important
Committee's decisionCleared from scrutiny

Document details(a) Commission Report on maritime cabotage during 2001-10 in the EU

(b) Commission Communication giving guidance on the freedom to provide maritime cabotage in the EU

Legal base
DepartmentTransport

Summary and Committee's conclusions

25.1 Council Regulation (EEC) No. 3577/92 sets out the principle of freedom to provide maritime cabotage services in the EU (and the other countries of the European Economic Area (EEA)). "Maritime cabotage" covers all mainland and island freight and passenger services between two ports in a single Member State. The Regulation requires the Commission to report every two years on its implementation, suggesting, if necessary, amendments to the legislation. The Commission Report, document (a), concerns implementation of freedom of cabotage within the EEA during the period 2001-2010. It is based on material from independent consultants, consultations with interested parties and questionnaire responses from Member States. The Report covers Court of Justice case-law and legislative developments in EEA Member States, market developments, employment and consultation with maritime administrations and other parties. In its Communication, document (b), the Commission provides new interpretative guidance, in response to questions raised by some Member States, and updating previous guidance in line with subsequent legislation and Court of Justice case-law. The Commission highlights the interpretations on manning, duration of public service contracts and contracts for small island services as the most significant.

25.2 These documents do not raise any difficult issues for the UK. But, whilst clearing them from scrutiny, we draw them to the attention of the House as illustrative of the relevance of Council Regulation (EEC) No. 3577/92 for the UK, particularly for the Scottish islands.

Full details of the documents: (a) Commission Report: Fifth Report from the Commission to the Council on the implementation of Council Regulation (EEC) No. 3577/92 applying the principle of freedom to provide services to maritime cabotage (2001-2010): (35998), 9556/14 + ADD 1, COM(14) 231; (b) Commission Communication on the interpretation of Council Regulation (EEC) No. 3577/92 applying the principle of freedom to provide services to maritime transport within Member States (maritime cabotage): (35999), 9557/14, COM(14) 232.

Background

25.3 Council Regulation (EEC) No. 3577/92 sets out the principle of freedom to provide maritime cabotage services in the EU (and the other countries of the European Economic Area (EEA)). "Maritime cabotage" covers all mainland and island freight and passenger services between two ports in a single Member State.

25.4 The Regulation requires the Commission to report every two years on its implementation, suggesting, if necessary, amendments to the legislation. However the last, fourth, Report was published in 2002.

The documents

25.5 The Commission Report, document (a), concerns implementation of freedom of cabotage within the EEA during the period 2001-2010. The Commission explains that it is the fifth periodic report since the Regulation was made in 1992, a decision having been made following consultation to cover the period 2001-10 in a single report. It is based on material from independent consultants, consultations with interested parties and questionnaire responses from Member States.

25.6 In the first chapter the Commission:

·  presents an update on Court of Justice case-law and legislative developments in EEA Member States;

·  notes, in particular, that Greece (which had enjoyed prolonged derogations) has now adopted laws giving effect to the Regulation and maritime cabotage more widely;

·  explains the treatment of 'second register' vessels by certain Member States;

·  describes manning restrictions (allowed for vessels below 650 gross tons and those engaged in island cabotage under certain conditions); and

·  discusses public service obligations and contracts, with details of relevant legislative changes in Greece, Spain and France.

25.7 With the second chapter the Commission discusses market developments and mentions data problems it encountered. Despite these difficulties the Commission says that it was possible to identify a general increase in cabotage activity until 2007, with a decline from 2008 (particularly in Greece and Italy) attributable to the economic crisis. Table 1 in the chapter presents Eurostat data for the total volume of freight cabotage (irrespective of flag or domicile of vessel), confirming that the UK's is the largest such market. Table 2 presents figures for passengers, confirming Greece, Italy and Spain as the largest markets in this sphere.

25.8 The third chapter concerns a brief discussion of employment. A shortage of data confines the discussion to Finland, Portugal, Spain and Malta. The fourth Chapter covers consultation with maritime administrations and other parties. From the findings, the Commission acknowledges that liberalization of cabotage has not led to any significant increase in the number of shipowners interested in providing cabotage services.

25.9 In its conclusions the Commission:

·  notes that penetration of cabotage markets by flags of other nationalities has increased more in freight than in passenger services; and

·  finds overall a modest but positive impact, with some acceleration of the modernization of fleets under pressure of wider competition.

25.10 The Addendum contains six annexes tabulating information on national particularities as follows: legislative developments, rules on manning, public service obligations and contracts, overall views of cabotage and vessel registration, types of freight transported and foreign flag penetration (for which there is very limited data).

25.11 In its Communication, document (b), the Commission provides new interpretative guidance, in response to questions raised by some Member States, and updating previous guidance in line with subsequent legislation and Court of Justice case-law. The Commission highlights the interpretations on manning, duration of public service contracts and contracts for small island services as the most significant. It is clear that it does not seek to encroach on the Court's jurisdiction nor to pre-judge state aid decisions. There is a recognition that public service contracts of longer than six years may be justified, provided that they are justified by objective criteria and do not lead to 'market foreclosure'. The Commission concludes that liberalization of cabotage in accordance with the 1992 Regulation has been largely achieved and that the Regulation is fit for purpose as it stands.

25.12 The key clarifications provided by these guidelines may be summarised as follows:

·  public services contracts for maritime transport services to islands with a duration of up to 12 years (previously six years) may be allowable provided they are justified by objective criteria;

·  clarification that a peninsula linked to the mainland by road or rail is not an "island" and public service contracts may not be entered into in relation to routes between a peninsula and the mainland;

·  public services contracts for maritime transport services to islands must comply with the Services of General Economic Interest package of state aid instruments (introduced by the Commission in 2012) and, in particular, there must be a determination that maritime transport services provided by undertakings would be inadequate if left to market forces alone;

·  public service contracts for maritime transport services to islands will, where applicable, be required to comply with the provisions of the Procurement Directive and the recently-enacted Concessions Directive, but only when these Directives are implemented into domestic law (by 18 April 2016 at the latest, prospectively earlier);

·  clarification that the tender period should be of appropriate and reasonable length as too short a period may favour the incumbent; and

·  the definition of "small island" (a public services contract for services to small islands may not require a formal tender) has been extended to encompass islands where the total number of passengers is 300,000 or fewer a year.

The Government's view

25.13 In his Explanatory Memorandum of 19 May the Parliamentary Under-Secretary of State, Department for Transport (Stephen Hammond), says that there are no immediate policy implications for the UK in these documents and that the Government remains committed to an open economy, with a fully competitive shipping sector, and full compliance with Council Regulation (EEC) No. 3577/92.

25.14 The Minister tells us that:

·  within the UK cabotage has long been generally permitted, indeed pre-dating the 1992 Regulation and potentially extending to non-EEA shipping;

·  this freedom is, however, still used only to a relatively limited extent, even though the Commission identifies the UK as the largest cabotage market for cargo traffic (Greece being the largest for passengers);

·  the exercise of cabotage rights by UK-based ship operators wholly within other Member States also remains relatively limited, but, so far as the Government is aware, this is mainly because of limited demand rather than legal or institutional barriers that contravene the Regulation;

·  the documents present no particular cause for concern in relation to the impact of cabotage operations on UK-based domestic operators and no new concerns in relation to access by UK-based operators to other Member State domestic shipping routes;

·  the Commission recognizes that public service contracts of longer than six years may be justified — the Scottish Government, with the support of the Government, has been pressing the Commission on this point for some time;

·  so this a welcome relaxation from the standpoint of Scottish ferry public service contracts, where the limitation to six years has sometimes been considered a deterrent to efficient investment decisions and to attracting a wider range of bidders for contracts;

·  the Scottish Government will consider in due course whether advantage may be taken of this provision for any of its ferry contracts;

·  encouraging simplification of procedures for small island services is broadly to be welcomed as a proportionate deregulatory measure;

·  the preamble to the Report, document (a), implies that the requirement to report biennially has now effectively been waived by consent of the Member States — the Commission says that it intends to report again, not later than 2018, "only in the case of significant developments" and to cover establishment of cabotage liberalization in Croatia, which has a temporary exemption until 31 December 2014; and

·  the Government sees no reason to object to the Commission's proposed course, even if it is not strictly compliant with the Regulation — it does not appear likely that more frequent reports by the Commission would yield much useful fresh information.

Previous Committee Reports

None.


26 The EU and the Horn of Africa: Regional Maritime Capacity Building
Committee's assessment Politically important
Committee's decisionCleared from scrutiny; further information requested (decision reported on 6 November 2013)
Document detailsEU Mission on Regional Maritime Capacity Building in the Horn of Africa (EUCAP NESTOR)
Legal baseArticles 28, 42 (4) and 43 (2) TEU; unanimity
DepartmentForeign and Commonwealth Office

Summary and Committee's conclusions

26.1 EUCAP Nestor is a civilian-led Common Security and Defence Policy (CSDP) mission, launched in July 2012, as part of the EU's Comprehensive Approach to tackling insecurity in the Horn of Africa. Its aim is to enhance maritime and related rule of law capacity in Djibouti, Kenya, Seychelles, Tanzania and Somalia. It has a two-year mandate, with a budget of €35 million. Thus far, EUCAP Nestor has failed to make any discernible impact. Nonetheless, in November — when the Committee agreed to a second year of the mission only because it would otherwise have run out of money — the Minister for Europe (Mr David Lidington) said that his officials would be "engaging closely with NESTOR's strategic review", and would "ensure that the mission is tightly focused and that the resources it requires are constrained, well-managed and used effectively". He also undertook to keep Parliament informed of developments.

26.2 At that time, the Committee observed that in also saying that "we need to persevere with this for some years to achieve the results we need", the ground was being laid for what had originally been conceived as a time-limited exercise with clear deliverables and an exit strategy becoming one that was becoming open-ended, and this statement seemed to prejudge the outcome of a strategic review due later in 2013 or early 2014.

26.3 The Committee has been in discussion with the Minister on several fronts about the "upstream" scrutiny of CSDP activity, so that the House has more than the opportunity to scrutinise what are essentially faits accomplis. In this case, we were advised in April that, following an EEAS[89] Strategic Review, a further Council Decision would be presented on the eve of the mandate expiry, recommending that a mission under ineffective leadership that had made no discernible impact should be extended because there were "few credible alternatives".

26.4 In the Committee's estimation there was at least one: to recognise that, no matter how compelling the context, and no matter how frustrating the reality, those at the receiving end were simply unable to play their part; and that the most effective course of action was therefore to cut one's losses — in short, in the absence of evidence to the contrary, was a further two years not throwing good money after bad?

26.5 We said that we were not prepared to wait a further three months, until the draft Council Decision was submitted for scrutiny, and asked instead that the Minister should provide forthwith an unclassified summary of the Strategic Review,[90] outlining precisely what "a reinvigorated focus on Somalia in three clear phases" consisted of; how much it was likely to cost and if the budget would be annual and performance-reviewed before a second tranche was authorised; and, on the back of his assessment of the various partners' capabilities and approach, why he believed that, under its present leadership, EUCAP Nestor was likely to be any more effective than it had been hitherto — including how effectiveness would now be measured and what sort of mid-term review would be carried out.

26.6 Pace the Minister (c.f. paragraph 26.19 below), because of the limité privacy marking, we were not aware of any of the Strategic Review's recommendations other than a further two-year mandate extension. Though we had hoped for a swifter response, we now have a much clearer idea. As might be expected, they seem sensible and, insofar as the UK was instrumental in making them so, the Minister and his officials are to be commended. Nonetheless, any number of doubts continue to arise.

26.7 The Minister says that the UK's counter-piracy goals are "ensuring countries in the Horn of Africa are able to police their own waters and hold pirates to justice after international naval forces depart". There is an all-too-familiar ring to a lack of progress being "due to insufficient mission planning and logistical support" (c.f. Mali and Niger/the Sahel). And given the lack of progress thus far and the nature of the local environment (where, as recently as 24 May, Islamist militants from the al-Shabab movement attacked the Somali parliament in Mogadishu, leaving at least ten people dead)[91] it is hard to see how this objective is to be achieved if EUCAP Nestor is to be its keystone, notwithstanding its re-focussing on Somalia, the increasing scrutiny of Member States, "a better strategic vision supplied by the three phase approach" and an OPLAN that will be "far more objective-driven than the last" and the Six Monthly Reports will be "more impact-focused rather than output focused".

26.8 The Minister says that the UK "has helped improve mission effectiveness by making Nestor engage more with the Federal Government of Somalia, ensuring coherence of activities and political buy-in". Inadequate political buy-in is a familiar refrain in other mission contexts: in all the circumstances, how genuinely credible a counter-party the Somali authorities will be able to be must remain an open question.

26.9 Phase One of the "three phased approach" is detailed and specific. Phase Two would seem to pre-suppose that, by then, a range of presently non-existent local facilities (e.g., police services stationed along the coast, maritime or coastal police forces, coast guards or port police; prosecutors and judges; specialized capacities to police coastal areas,) will have been established. Phase Three is, at present, no more than one sentence. It is therefore important that the Council Decision that we now await should include a provision that any decision to move from Phase One to Two is made by the PSC and is, as the Minister says, "subject to completion of Phase One activities and the implementation of adequate security measures".

26.10 We should also be grateful if, when he submits the Council Decision for scrutiny, the Minister would also:

—  clarify what expenditure has amounted to over the past two years, and what this has been spent on and achieved; and

—  say why he believes that, given the manifest challenges, the local state authorities will be able to provide EUCAP Nestor with the necessary buy-in that has been lacking thus far.

26.11 In the meantime, we are drawing this further information to the attention of the House because of the importance of the issues at stake.

Full details of the documents: Draft Council Decision amending Council Decision 2012/389/CFSP on the European Union Mission on Regional Maritime Capacity Building in the Horn of Africa (EUCAP NESTOR): (35429) —.

Background

26.12 We considered what became Council Decision 2012/389/CFSP at our meeting on 25 April 2012. The Report of that meeting contains the full background to the establishment of EUCAP Nestor, including activation of the EU Operations Centre for the Horn of Africa and the extension of the mandate and area of operation of EUNAVFOR ATALANTA.

26.13 Operationally, we endorsed the importance that the Minister attached to the mission remaining focused on delivering its specified objectives effectively, and his underlining of the time-limited, two-year mandate and defined exit strategy. But we cautioned against the wording that the Minister used to define it — that it "will no longer be required once its host countries have adopted more effective legal and policing counter-piracy techniques" — leading to pressure towards making it somewhat more open-ended. The unanimity required for any extension would, we hoped, be an adequate safeguard.

26.14 A later Council Decision extended the 12 month budget by four months to 15 November 2013 (i.e. the first 16 months of the mandate). The Minister said that up to 6 June Nestor had spent only €3.385 million of its €22.88 million first year budget. Although the Minister did not say so, we presumed that the four-month extension had been chosen with a further review in mind. We therefore made it clear that, come November, we expected the Minister to be able to demonstrate that the mission had a reasonable prospect of achieving its objectives, and spending the remaining 85% of its budget effectively: or to be explaining how the mission was to be scaled down so that its objectives were more realistic and capable of timely and cost-effective realisation.

26.15 The most recent Council Decision approved a budget of €12 million for the final eight months of the mission's mandate (16 November 2013-15 July 2014). The Minister noted that the budget thus far would still not have been fully spent by mid-November. The mission had not yet delivered any significant results. Reductions in the volume of piracy were mostly attributable to the military counter-piracy missions in the Horn — ATALANTA, CTF 151, and Ocean Shield — improved application of Best Management self-protection measures by the shipping industry, the utilisation of privately contracted armed personnel, and perhaps to improvements in government in Somalia, albeit from a very low base. However, the Minister said:

    "it is not sustainable to maintain fleets in the Horn indefinitely. Doing so is hugely expensive. Nor can we accept indefinitely the additional costs which piracy and efforts to counter it impose on global trade in the form of lost goods, delays to shipping, ransoms paid and additional security. A sustainable solution to piracy can only result from measures taken by Indian Ocean states to police their waters, combat, arrest and prosecute pirates and address the root causes of piracy, which are chiefly poverty and lawlessness in Somalia.

    "So the case for an operation such as NESTOR, which costs roundly one thousandth of EU and NATO military programmes, remains intact.

    "The mission has, however, had difficulty delivering readily the results we wish for. Kenya and Tanzania remain only arms-length participants in the mission's work. These states have not agreed formal partnership arrangements with the Mission, though the mission has engaged with them, for example by hosting counter-piracy events in Nairobi. We hope that Kenya and Tanzania will become more involved with NESTOR in future; that is certainly the intention of the EEAS and the Head of Mission."

26.16 The Committee cleared this Council Decision because EUCAP Nestor would otherwise have run out of money. At that time, the Committee observed that in saying that "we need to persevere with this for some years to achieve the results we need", the Minister appeared to be laying the ground for what had originally been conceived as a time-limited exercise with clear deliverables and an exit strategy becoming one that was becoming open-ended, and this statement seemed to prejudge the outcome of the strategic review.

26.17 The Minister wrote in April 2014 to say that, following an EEAS Strategic Review, a new, two-year mandate was to be tabled for consideration in Council in late June. The international naval missions were expected to remain in the Indian Ocean until December 2016 but support for continued efforts thereafter was less certain. It had therefore been assessed that there might only be a two-year window "to build a more sustainable solution through efforts, such as Nestor, to build and mentor regional institutions". In the meantime, he noted that:

—  Nestor was widely seen as underperforming;

—  there had been little effect in Somalia — the main area of need; this "relates in part to an inability to influence the Somali strategic approach and security constraints"; and

—  the newly (July 2013) appointed Head of Mission "has recognised that improvements are needed [but] … has made limited progress".

26.18 However, he argued:

    "given the range of tasks and expertise required to enhance the maritime capacity of Somalia to tackle the land-based factors that enable piracy to continue, there are few credible alternatives to Nestor."

26.19 The Minister noted that, being a limité document, the EEAS Strategic Review "cannot be published, nor can it be reported on in any way which would bring detail contained in the document into the public domain". All that he was prepared to say was:

    "The EEAS recognised the shortcomings of the mission in their Review and recommended a reinvigorated focus on Somalia in three clear phases. Negotiations in Brussels are ongoing. Member States broadly support the Review's recommendations. In addition to supporting the recommendations, the Government will continue to press for increased attention on core Somali-focused objectives and measurable outcomes for regular review."

26.20 In November, the Minister had also said that his officials would be "engaging closely with NESTOR's strategic review", and would "ensure that the mission is tightly focused and that the resources it requires are constrained, well-managed and used effectively". He had also undertaken to keep Parliament informed of developments. His letter was thus disappointing.

26.21 As he was aware, we had been in discussion with him on several fronts about the "upstream" scrutiny of CSDP activity, so that the House has more than the opportunity to scrutinise what is essentially a fait accompli — in this case, a Council Decision on the eve of the mandate expiry, recommending that a mission under ineffective leadership that has made no discernible impact should be extended because there are "few credible alternatives". In our estimation there was at least one: to recognise that, no matter how compelling the context, and no matter how frustrating the reality, those at the receiving end simply cannot play their part; and that the most effective course of action is therefore to cut one's losses. In short, in the absence of evidence to the contrary, was a further two years not throwing good money after bad?

26.22 We said that we were not prepared to wait a further three months, and asked instead that the Minister should provide forthwith an unclassified summary of the Strategic Review, outlining precisely what "a reinvigorated focus on Somalia in three clear phases" consisted of; how much it was likely to cost and if the budget would be annual and performance-reviewed before a second tranche was authorised; and, on the back of his assessment of the various partners' capabilities and approach, why he believed that, under its present leadership, EUCAP Nestor was likely to be any more effective than it had been hitherto — including how effectiveness would now be measured and what sort of mid-term review would be carried out.

The Minister's letter of 22 May 2013

26.23 The Minister begins thus:

    "UK-led pressure to ensure Nestor increases operations inside Somalia and delivers against measurable and meaningful objectives, coupled with close oversight, lead us to judge that Nestor should be more effective in the future. Furthermore, Nestor's capacity-building objectives remain relevant to the UK's counter-piracy goals of ensuring countries in the Horn of Africa are able to police their own waters and hold pirates to justice after international naval forces depart."

26.24 The Minister then continues as follows:

    "As you will recall [sic], the main recommendations of the Review are to extend the mandate by two years to July 2016 to:

a)  "Continue regional maritime capacity building in each host country, for example through coast guard training, but with a focus on Somalia. UK interventions have ensured that Nestor is more tightly focussed on Somalia, thereby concentrating EU resources where piracy poses the greatest threat to UK trade and security. Diverting resources from the large Operational Headquarters in Djibouti to Somalia should provide the funds required to increase deployment in Somalia;

b)  "Open the mandate to co-operation with regional organisations. The UK successfully achieved stronger recommendations in the Review to allow Nestor to increase cooperation with regional organisations, such as the UN Office on Drugs and Crime (UNODC), the UN Development Programme (UNDP) and INTERPOL. NESTOR will benefit from deploying with these international organisations that have adequate security;

c)  "Deploy a Liaison Officer to EUDel in Yemen. The UK has tempered the Review's original recommendations for Nestor to deploy more fully inside Yemen, to preserve a focus on Somalia. PSC[92] will decide whether the mission will expand further into Yemen following the Liaison Officer's work. We will work to ensure that any future activity is aligned with UK objectives and does not detract from the mission's activities in Somalia;

d)  "Support law enforcement in coastal areas through a three-phased approach;

e)  "Work with Somalia's federal authorities. The UK has helped improve mission effectiveness by making Nestor engage more with the Federal Government of Somalia, ensuring coherence of activities and political buy-in;

f)  "Work with Operation ATALANTA and EEAS to analyse piracy networks and their enabling environment and develop options to address piracy operations.

26.25 Turning to EUCAP Nestor's limited impact to date on building the capacity of states in the Horn of Africa to tackle piracy, the Minister says:

    "This lack of progress was initially due to insufficient mission planning and logistical support, and continued due to the mission's difficulty operating inside Somalia. However, the mission appears to be improving now the new Head of Mission is bedded in, in addition to the increasing scrutiny of Member States and the wider International Community.

    "Since I last wrote, the Head of Mission has made good progress towards establishing a permanent presence in Somalia. This presence increases the efficacy of the mission by providing a base for capacity building activities and by enhancing access to local actors, which increases support for the mission. Nestor now has an office in Hargeisa, Somaliland, from which it runs police training and legal drafting activities, and has deployed a security team to prepare to open a field office on the Somali coast by July. Furthermore, the mission now also operates from the UN compound in Bosaso, on the northern coast of Somalia. All offices are run by EU national mission members.

    "In summary, a combination of the shift in focus to Somalia, an improved security platform, a better strategic vision supplied by the three phase approach (detailed below), and the increasing scrutiny of member states, increases the likelihood that the mission will deliver as it shifts its focus to Somalia."

26.26 With regard to the Committee's request for a clear explanation of "a reinvigorated focus on Somalia in three clear phases", the Minister says:

    "The forthcoming OPLAN will detail the criteria for the mission to move from one phase to the next phase. The Government will push for this decision to be made at PSC, subject to the completion of Phase One activities and the implementation of adequate security measures. I will update the Committees on progress at that stage. Further details on the phases follows:

"Phase One

a)  "Develop further security and risk mitigation options to allow deployment throughout key areas in Somalia.

b)  "Develop options on how to reduce the operation of piracy networks (currently based in areas of Puntland and Galmudug). This work should take place in close cooperation with Operation ATALANTA to allow analysis of piracy networks and their enabling environment.

c)  "Develop jointly with Somali authorities conceptual plans on law enforcement in coastal areas, including possible future police structures at federal level;

d)  "Continue strategic and legal advice on maritime security frameworks (with the Somali Federal Government, Somaliland and Puntland), re-affirming the focus on piracy (and law enforcement capacity in coastal areas).

e)  "Provide strategic advice to Ministries of Interior and Police Commissioners, in conjunction with EU developmental support to rule of law.

f)  "Work jointly with Interpol to enhance access of Somali law enforcement to INTERPOL's intelligence sharing system, and thereby increase the ability to cooperate with international law enforcement.

"Phase Two

a)  "Support to entities in charge of law enforcement in coastal areas such as police services stationed along the coast, maritime or coastal police forces, coast guards or port police. Concrete activities could comprise advice, mentoring and limited equipment, in close cooperation with UNODC and UNDP, and UNSOM (the UN Mission in Somalia).

b)  "Possible actions in the justice-related aspects of the fight against piracy could include:

·  "providing security for key personnel testifying against pirates and prosecuting pirates, for example providing a safe court room, and training in personal protection;

·  "prosecutors and judges training/capacity building (with UNODC, UNDP); mentoring of investigations and prosecutions of suspected pirates and their leaders (with INTERPOL).

c)  "Targeted training of specialized capacities to police coastal areas.

"Phase Three

a)  "Evaluating, mentoring and monitoring the people who have been trained."

26.27 The Minister then responds as follows to the Committee's queries regarding the cost of the mission and the UK's ability to review its performance

    "Nestor has a budget of €11.9 million per annum, to which the UK makes an assessed contribution of approximately £2,250,000 by virtue of being an EU Member State. We are pressing for the budget to remain the same at €11.9 million for the 12 months from July and will apprise the committee of any change. The budget would be annual.

    "There would be several opportunities to review the effectiveness of the mission before the budget comes up for renewal again, after July 2014: the Six Monthly Report, which serves as a mid-term review, is heavily scrutinised and any concerns can be addressed through PSC. For example, the UK intervened to highlight the requirements for a realistic appraisal of the mission and the development of a plan to achieve objectives when Nestor's Head of Mission presented the report to PSC. As a result, the forthcoming OPLAN will address these concerns and will be far more objective-driven than the last. Additionally, due to Member State pressure, the Six Monthly Reports will be more impact focused rather than output focused, as they have been in the past. The second year budget will go through RELEX, at which point it can be reviewed and officials can raise any issues."

26.28 The Minister concludes by undertaking to "keep the committee updated on Nestor's mandate renewal, including progress on the budget and mission performance".

Previous Committee Reports

Forty-sixth Report HC 83-xli (2013-14), chapter 14 (9 April 2014) and Twenty-second Report HC 83-xx (2012-13), chapter 23 (6 November 2013); also see (33835) —: Sixty-fourth Report HC 428-lviii (2010-12), chapter 11 (25 April 2012) and (35109) —: Eighth Report HC 83-viii (2013-14), chapter 22 (3 July 2013); and (33741) —: Fifty-ninth Report HC 428-liv (2010-12), chapter 13 (14 March 2012) and (33759) —: Sixtieth Report HC 428-lv (2010-12), chapter 8 (21 March 2012).


27 EU Special Representative for the Middle East Peace Process and wider EUSR issues
Committee's assessment Politically important
Committee's decisionCleared from scrutiny; further information requested (reported to the House on 15 January 2014, 26 February 2014 and 30 April 2014); further information requested
Document detailsCouncil Decision extending the mandate of the European Union Special Representative for the Middle East Peace Process
Legal baseArticles 28, 31(2) and 33 TEU; QMV
DepartmentForeign and Commonwealth Office

Summary and Committee's conclusions

27.1 While EU Heads of Delegation are responsible for relations with a single country, EU Special Representative (EUSR) tackle specific issues, conflict areas or regions of countries. They answer directly to the High Representative of the Union for Foreign Affairs and Security Policy (HR; currently Baroness Ashton). But they are appointed by the EU Council, who determine each mandate, budget and job holder. There are currently 11 EUSRs.

27.2 Though the starting point was the Council Decision ending this mandate (see our previous Report for details), it plays into the much wider issue of whether, post-Lisbon, the EUSR as a "concept" is to be continued or (as the EU High Representative has proposed) absorbed into the EEAS — the consequence being that Member States would no longer be able to approve the mandate of what are effectively the Council's special envoys to a variety of trouble spots affecting EU and national interests, or the job holder.

27.3 As our previous Report relates, this mandate and then that of the EUSR to Central Asia have been taken over by the EEAS pro tem: but the final decision has been put off until a new HR is in post (from 1 November) and virtually all the mandates come up for renewal next February. In the meantime, the Minister responded to questions posed by the Committee at the end of February (which included how the decision on this mandate affected the EU's participation in the Middle East Peace Process at this critical juncture), and the process of revising the 2007 EUSR Guidelines on appointments, remuneration etc.

27.4 The Committee endorsed what the Minister for Europe (Mr David Lidington) has said thus far about the need for Member States to retain at least their present degree of control over the establishment of each position, the mandate and the job-holder. Once a new HR has been appointed, we asked him to write with his proposals regarding the February 2015 round of mandate renewals and his assessment of the likely way forward for the EUSR concept as a whole. But in the first instance, we also asked him to:

—  ensure that revised EUSR Guidelines (which had finally emerged, but which remained limité) were deposited forthwith; and

—  to say when the proposed successor to Mr Philippe Lefort would be submitted for scrutiny (which, given the wider ramifications of the Ukraine crisis, including the proposed Association Agreements with Georgia and Moldova, was likely to be even more significant than hitherto).

27.5 We commend the Minister for having persuaded the EEAS to lift the limité restriction on the revised EUSR Guidelines. We see no reason why this should not become standard practice as soon as the circumstances warranting this restriction no longer apply (c.f. paragraph 27.17 below).

27.6 The Government's position is now crystal clear: Member States must retain at least their present degree of control over the establishment of each position, the mandate and the job-holder. For ease of reference, we set out what this consists of in the Annex to this chapter of our Report, as described in the revised EUSR guidelines.

27.7 As we noted in our previous Report, on 9 April the HR announced that she had decided to appoint Janos Herman, a senior EEAS official (previously Head of the EU Delegation to Norway, as well as former Hungarian State Secretary of Foreign Affairs and Ambassador to NATO) as Special Envoy to Central Asia with the task of ensuring continued EU high-level engagement in the region, for a six-month period, starting from April 2014.

27.8 Then, on 8 May, the HR announced that she had appointed Bernardino León as her personal Special Envoy for Libya. The statement continued thus:

    "Mr Leon will facilitate, coordinate and enhance the EU's actions in support of the Libyan people at a critical juncture for the country. An experienced Spanish diplomat with wide-ranging experience in the region, Mr Leon has devoted most of his career to the Arab world. He has been since June 2011 the EU Special Representative for the Southern Mediterranean region, and previously Secretary-General at the Spanish Prime Minister's Office as well as Sherpa for the G20.

    "Catherine Ashton said: 'With his extensive experience and knowledge of the region, Bernardino León is ideally placed for this challenging task. I am confident that, with this reinforced engagement, we will be more effective in supporting Libya in its transition to a democratic society that fulfils the aspirations of its people. The European Union remains committed to playing a key role in this process and to strengthening our partnership with Libya in these challenging times.'"[93]

27.9 The situation, thus, is that one key mandate — to the Middle East Peace Process —has been terminated and, now, two key mandates — to Central Asia and the Southern Mediterranean — have been set aside; and, in the meantime, the HR has effectively replaced all three with her own Special Envoys. In the latter two cases, this would appear to be without discussion with the Council and contrary to the arrangement whereby the bone of contention between her and the Council would be set on one side until her successor has been appointed. It is therefore not surprising that the Minister says that he and like-minded Member States "have highlighted the need for greater transparency in the EUSR process and requested a discussion on the future of the EUSRs for MEPP, Southern Mediterranean and Central Asia in the near future". We would like the Minister to write to us when this discussion has taken place and to tell us what the outcome is.

27.10 We also continue to await a draft Council Decision on the appointment of Mr Lefort's successor as EUSR for the South Caucasus and the Crisis in Georgia.

Full details of the document: Council Decision extending the mandate of the European Union Special Representative for the Middle East Peace Process: (35701) —.

Background

27.11 We have reported on a series of previous occasions developments both with regard to particular mandates and in general. A summary of the key points follows. With regard to the rescinding of the EUSR/MEPP mandate, the Minister said that initial criticism from Member States had softened as the alternative — his roles and responsibilities being taken forward by EEAS Deputy Secretary-General, Helga Schmidt, with the proviso that the matter would be kept under review — became clear.

27.12 Then, referring to the HR's assurance of 27 January to Member States that she would not replace any EUSR resigning between now and the end of her own mandate, in order not to deprive her successor (who will take office on 1 November 2014) of the right of initiative for new appointments, the Minister said that she had, however, agreed to renew the mandates of all remaining EUSRs from their expiry in June 2014 until February 2015 — with the exception of the EUSR for Bosnia, whose mandate runs until June 2015.

27.13 With regard to the EUSR for Central Asia, Patricia Flor, and the EUSR for the South Caucasus and the Crisis in Georgia, Philippe Lefort, the Minister noted that:

—  a senior member of the EEAS would be appointed to cover the EUSR for Central Asia role until the next High Representative took office; while this solution would not allow the same degree of Council oversight as with a new EUSR, it would at least allow a degree of continuity until a permanent decision could be made; and

—   Baroness Ashton had agreed exceptionally to identify without delay a replacement for the EUSR for the South Caucasus and the Crisis in Georgia, with a mandate until February 2015 to coincide with the other EUSR appointments.

27.14 With regard to "what, more generally, is going on, not just with the guidelines … but with regard to the basic issue of their role and to whom they will continue to be responsible", the Minister said that it was "no secret that Baroness Ashton advocates a full transfer of EUSRs and their associated resources, currently under the Common Foreign and Security Policy budget, into the EEAS". During early discussions on the Review of the 2007 Guidelines, the UK had argued successfully, with others, for the removal of references to any future transfer of responsibilities; however, this issue would re-emerge during the 2015 budget negotiations, and so it would be necessary "to engage early on with the next High Representative on the future of the EUSR system — and on how and why EUSRs should be deployed."

27.15 The Minister elaborated upon his position in a separate letter to our counterparts in the Lords, the main points of which were:

—  the Government did not support a full transfer of EUSRs and their associated resources into the EEAS, as this would diminish the control Member States have over this important tool for delivering the Common Foreign and Security Policy (CFSP);

—  being funded from the CFSP budget meant that the Council retained control over how EUSRs were deployed, and their budgets;

—  however, as UK officials had set out during discussions on the 2013 Review of the EEAS, the Government wanted to explore measures that fell short of full integration and would reduce running costs compared to the current system (e.g., a shared services centre to provide logistical, procurement and administrative support for all CSDP missions and EUSRs, as long as this could be achieved within the existing EEAS legal framework).

27.16 Regarding the revised Guidelines, the Committee has been in a sustained discussion with the Minister about unclassified EU documents that are — as in this instance — nonetheless marked limité. Though the Minister did not do so on this occasion, he normally accompanies the provision of such limité documents with a caveat to the effect that they are being provided to the Committee under arrangements agreed between the Government and the Committee for the sharing of limité EU documents, i.e., they cannot be published, nor be reported on in any way which would bring detail contained in the document into the public domain. As the Minister was aware from discussions with him, this makes it very difficult, in a document-based process such as this House's, for the Committee to engage in key aspects of the scrutiny process other than on his and the Council secretariat's terms — in this instance, for example, to respond to the Minister's invitation to "agree [that the revised Guidelines] … represent a significant improvement on the 2007 version". Or, of course, to pursue any questions that might arise from our reading of the document in question. There were also two further ironies: first, we were never provided with the 2007 Guidelines; and, secondly, they are unclassified.

27.17 During our discussions, the Minister has told the Committee that the decision to mark a document limité "is a matter for the EU," and is applied:

—  where the untimely public disclosure could adversely affect the Council's decision making processes;

—  when they refer to legal opinion or contain specific views expressed by a Member State; and

—  where they contain proposals which are provisional in nature and which are evolving.

27.18 The Minister has also sought to argue on occasion that limité documents are "meant for limited distribution, internal to the Council and its members".

27.19 None of the considerations in paragraph 27.12 applied in this instance; nor could the revised Guidelines be reasonably regarded as "meant for limited distribution, internal to the Council and its members", any more than were their 2007 predecessors. On the contrary: now that the revision has been completed, the revised Guidelines should likewise be in the public domain, and forthwith. We therefore asked the Minister immediately to authorise us to treat the revised Guidelines as an unclassified document, while he arranged for this process (which we knew from previous experience moved at a pace of its own devising) to be formally completed.

27.20 As of now, we could rely only on what the Minister told us about improvements to the 2007 Guidelines. Even so, cost-wise, EUSR's would be earning around €175,000 per annum plus allowances. Unsurprisingly, we endorsed all that the Minister said about the need for Member States to retain at least their present degree of control over the establishment of each position, the mandate and the job-holder. Once a new HR had been appointed, we asked the Minister to write to us with his proposals regarding the February 2015 "renewal" round and his assessment of the likely way forward for the EUSR concept as a whole. For now, we asked when the proposed successor to Mr Lefort would be submitted for scrutiny: given the wider ramifications of the Ukraine crisis, including the proposed Association Agreements with Georgia and Moldova, this role was likely to be even more significant than hitherto.

The Minister's letter of 15 May 2014

27.21 The Minister says that he raised the Committee's concerns with the Council Secretariat, who:

"told us that the Guidelines were classified during the negotiation so as not to adversely affect the Council's decision making process. However, they agreed to de-classify the Guidelines now that negotiations have concluded."

27.22 The Minister encloses a copy of the now-public Guidelines, and notes that they are also available on the European Council website.

27.23 He continues as follows:

    "I agree entirely with the Committee's assertion that, although the situation has improved following UK success in securing a reduction in salary of €29,028 per year per EUSR for all future appointments, given the overall costs Member States must retain at least their present degree of control over the establishment of each position, the mandate and the job-holder.

    "I agree with the Committee that the role of EUSR for the South Caucasus and Crisis in Georgia is a vital one at this time. This is why Baroness Ashton excluded this position from her current policy of not replacing EUSRs that resign before her successor takes office. I understand that the EEAS is still considering possible candidates to replace Mr Lefort."

27.24 The Minister then says:

    "The Committee will wish to be aware that on 28 April, Baroness Ashton advised Member States that, as previously agreed, mandates for all existing EUSRs would be extended until the end of February 2015. We will deposit the new mandates and budgets in due course, and, as requested, I will write to the Committee towards the turn of the year with an update of handling the February 2015 mandate renewals. However, Baroness Ashton added that the EUSR for the Southern Mediterranean, Bernardino Leon, had resigned from his position for personal reasons. He has since been appointed as Baroness Ashton's Special Adviser on Libya. The UK and like-minded Member States have highlighted the need for greater transparency in the EUSR process and requested a discussion on the future of the EUSRs for MEPP, Southern Mediterranean and Central Asia in the near future."

Previous Committee Reports

Forty-seventh Report HC 83-xlii (2013-14), chapter 22 (30 April 2014); Thirty-seventh Report HC 83-xxxiv (2013-14), chapter 19 (26 February 2014) and Thirtieth Report HC 83-xxvii (2013-14), chapter 10 (15 January 2014); also see (35061) —: Seventh Report HC 83-vii (2013-14), chapter 15 (26 June 2013); also see (32601) — and (32982) —: Fifty-second Report HC 428-xlvii (2010-12), chapter 23 (18 January 2012), Fortieth Report HC 428-xxxv (2010-12), chapter 4 (7 September 2011), Thirty-seventh Report HC 428-xxxiii (2010-12), chapter 5 (13 July 2011) and Twenty-eighth Report HC 428-xxvi (2010-12), chapter 4 (11 May 2011).

Annex: Key elements of the revised EUSR Guidelines

"B.  APPOINTMENT AND MANDATE

"1.   Political context

"EUSRs, assisted by the EEAS, and acting in support of and in close coordination with the Council and the HR, should contribute to the unity, consistency and effectiveness of the Union's external action and representation. They should help ensure that all Union instruments and Member States' actions are engaged consistently to attain the Union's policy objectives. In particular, they should contribute to improving the effectiveness of the EU's response to crisis situations, and to the implementation of the EU's strategic policies.

"2.   Procedure

"Where it considers that the political context so requires, the Council may invite the HR to present a proposal for the appointment of an EUSR with a mandate in relation to a particular policy issue. Following the presentation of a proposal for an EUSR, the Political and Security Committee (PSC) will assess the proposal and may then invite the competent Council Working Parties to examine the mandate, with a view to its adoption by the Council.

"The Foreign Relations Counsellors Working Party (RELEX) will assess the legal, institutional and financial aspects of the mandate, in particular with a view to ensuring consistency of EUSR mandates, and will finalise the draft legal act for adoption by the Council.

"Following an agreement in principle on appointing an EUSR, the HR will invite the Member States via the PSC to propose candidates. Member States are encouraged to propose more female candidates. The HR, assisted by the European External Action Service (EEAS), will organise the selection process, during which the Member States will be kept informed, and will submit a recommendation to the PSC regarding the nomination of the EUSR. If the PSC gives its political endorsement to that recommendation, the Council will formally adopt the decision appointing and mandating the EUSR. New and existing mandates and budgets should be proposed in sufficient time to allow Member States both to find suitable candidates and to carry out their national scrutiny procedures.

"EUSR mandates generally have a thematic focus, relating to a cross-cutting issue, and/or a geographic focus, in particular mandates covering specific regions.

"In exceptional cases a Head of an EU Delegation has also been appointed as an EUSR.

"C.  STRUCTURE OF THE COUNCIL DECISION AND DURATION OF MANDATE

"The Council Decision appointing an EUSR will cover the following elements:

—  "scope, policy objectives of the EUSR's mandate and the EUSR's tasks, including where appropriate standard language to cover horizontal issues;

—  "appointment of the EUSR;

—  "respective roles of the HR and the PSC;

—  "duration of the mandate;

—  "criteria and modalities for reporting to the relevant EU institutions and bodies;

—  "co-ordination and liaison in Brussels and in the field;

—  "appropriate indicators for assessing the achievement of objectives;

—  "evaluation and review of the implementation of the mandate;

—  "financial aspects (in particular financial reference amount and accountability);

—  "constitution and composition of the EUSR's team;

—  "privileges and immunities for the EUSR and his/her staff;

—  "security related aspects.

"As a general rule, an EUSR should be appointed for a period of 12 months while his/her total tenure of office should not exceed 4 years. Consideration should be given to harmonising, where possible, the dates of expiry of EUSRs' mandates, whilst taking into account the timing of specific events related to the mandate.

"D.  OPERATIONAL PRINCIPLES

"1.  Role of the HR and PSC

"The PSC will act as the primary point of contact within the Council and provide political direction and strategic guidance to the EUSR within the framework of the mandate. The HR should give the necessary operational direction to the EUSR. In accordance with Article 33 TEU, the EUSR carries out his/her mandate under the authority of the HR."


28 Ukraine and Russia: EU restrictive measures
Committee's assessment Politically important
Committee's decisionCleared from scrutiny; relevant to the debate on the floor of the House on Council Decision 2014/145/CFSP and Council Regulation (EU) No. 269/2014 (decision reported to the House on 26 March)

Document detailsRestrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine
Legal baseArticle 29 TEU; unanimity and Article 215 TFEU; QMV
DepartmentForeign and Commonwealth Office

Summary and Committee's conclusions

28.1 These instruments enact the fourth and fifth "rounds" of EU restrictive measures in response to the Ukraine-Russia crisis, and respond to further adverse developments in April and May in eastern Ukraine.

28.2 The first, enacted on 28 April, designates an additional 15 individuals under the Ukraine sanctions regime for actions that "undermine or threaten the territorial integrity, sovereignty and independence of Ukraine".

28.3 The second, enacted on 12 May 2014, followed agreement by EU Foreign Ministers to list an additional 13 individuals, as well as two entities; and to expand the designation criteria, enabling the EU to include individuals that support (and not just undertake) activities that "undermine or threaten the territorial integrity, sovereignty and independence of Ukraine"; entities in Crimea or Sevastopol that have been unlawfully expropriated; and legal persons, entities or bodies that benefit from such expropriation

28.4 Although these measures have been in the public domain for some weeks, we insisted that they be deposited so that they could inform the debate on this crisis that we have already recommended should be held on the floor of the House. We find it deplorable that — having made that recommendation as long ago as 26 March and despite our urging the Government on 30 April, to arrange it before the prorogation — it has yet to take place.

28.5 Notwithstanding that request, the Government instead chose to make a statement on 13 May. As one Member put it at the end of the debate, on a Point of Order

"there is a regrettable tendency by Government now to have more and more statements on big Foreign Office issues, such as Ukraine, and fewer and fewer debates."[94]

28.6 We again urge the Government to schedule this debate forthwith.

28.7 We are also drawing this chapter of our Report to the attention of the Foreign Affairs Committee.

28.8 In the circumstances outlined by him, we do not object to the Minister having over-ridden scrutiny, and now clear the Council Implementing Regulation, Council Decision and Council Regulation.

Full details of the documents: Council Implementing Regulation (EU) No. 433/2014 of 28 April 2014 implementing Regulation (EU) No.269/2014 concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine: (36030), —. Council Decision 2014/265/CFSP of 12 May 2014 amending Decision 2014/145/CFSP concerning restrictive measures in respect of action undermining or threatening the territorial integrity, sovereignty and independence of Ukraine: (36028), —. Council Regulation (EU) No. 476/2014 of 12 May 2014 amending Regulation (EU) No. 269/2014 concerning restrictive measures in respect of action undermining or threatening the territorial integrity, sovereignty and independence of Ukraine: (36029), —.

Background

28.9 On 5 March 2014, the EU adopted sanctions focused on the freezing and recovery of misappropriated Ukrainian state funds, targeting 18 persons identified as responsible for such misappropriation and freezing their assets within the European Union.

28.10 In the absence of de-escalatory steps by the Russian Federation, on 17 March the EU adopted the first set of restrictive measures against persons responsible for actions which undermine or threaten the territorial integrity, sovereignty and independence of Ukraine as well as persons and entities associated with them. In this regard, 21 persons were identified and targeted with a travel ban and a freeze of their assets within the EU.

28.11 On 21 March the EU strengthened its sanctions in this regard with additional measures against a further 12 individuals. The EU also strongly condemned the holding of an illegal "referendum" in Crimea on joining the Russian Federation, and does not recognise the "referendum" or its outcome.

28.12 Following the 14 April Foreign Affairs Council, the EU called on Russia to repudiate lawless acts in eastern Ukraine and pull back its troops from the Ukrainian border. In the light of the latest events, the Council also decided to expand the list of those subject to assets freeze and visa bans. EU High Representative/Vice President (HRVP) Baroness Ashton underlined:

    "Free and fair Presidential elections on 25 May are the best way to express the will of the citizens, as is the process of constitutional reform. We will continue to support the efforts to stabilise the situation in Ukraine economically, financially and politically."

28.13 She added:

    "We will also continue our diplomatic engagement to try to deescalate the crisis and stabilise the situation. It is crucial that Russia and Ukraine engage in a meaningful dialogue to find a political solution and we are ready to participate in the efforts to start this dialogue." [95]

28.14 HR/VP Ashton participated in a meeting between the European Union, the United States, Ukraine and Russia in Geneva on 17 April to discuss the crisis in Ukraine. In a joint statement issued following the meeting, it was agreed, inter alia, that all sides must refrain from violence, intimidation or provocative actions; that all illegal armed groups must be disarmed and illegally occupied buildings and public places vacated with amnesty granted to those who did so; that the OSCE Special Monitoring Mission should play a leading role in implementation of these de-escalatory measures and that the constitutional process announced by the Ukrainian authorities would be inclusive, transparent and accountable.

28.15 G7 leaders on 26 April welcomed the positive steps taken by Ukraine to meet its commitments under the Geneva accord, including work towards constitutional reform and decentralisation, the proposal of an amnesty law for those leaving seized buildings and supporting the work of the OSCE, noting the restraint used in dealing with armed bands illegally occupying government buildings and forming illegal checkpoints. In contrast, Russia's lack of concrete actions in support of the Geneva accord was noted along with continued escalation of tensions through rhetoric and ongoing military manoeuvres on the Ukraine's border.[96]

28.16 In line with the G7 statement and as agreed at the 14 April Foreign Affairs Council, on 28 April the EU expanded the list of persons subject to targeted sanctions for actions undermining Ukraine's territorial integrity sovereignty and independence, with travel bans and asset freezes on a further 15 individuals.[97]

Council Implementing Regulation (EU) No. 433/2014 of 28 April 2014

28.17 Council Implementing Regulation (EU) No. 433/2014 of 28 April 2014 designates an additional 15 individuals under the Ukraine sanctions regime for actions which "undermine or threaten the territorial integrity, sovereignty and independence of Ukraine".

The Government's view

28.18 In his first Explanatory Memorandum of 20 May 2014, the Minister for Europe (Mr David Lidington) notes that the 14 April 2014 Council Conclusions stated that the Council condemned "actions taken by armed individuals in cities of Eastern Ukraine" and decided to "expand[ing] the list of those subject to assets freeze and visa ban".

28.19 The Minister lists the 15 individuals, and notes that unclassified statements of reasons explaining why they have been designated are included in the Annex of the Council Implementing Regulation:

1.  Dmitry Nikolayevich KOZAK

2.  Oleg Yeygenyvich BELAVENTSEV

3.  Oleg Genrikhovic SAVELYEV

4.  Sergei Ivanovich MENYAILO

5.  Olga Fedorovna KOVATIDI

6.  Ludmila Ivanovna SHEVETSOVA

7.  Sergei Ivanovich NEVEROV

8.  Igor Dmitrievich SERGUN

9.  Valery Vasilevich GERASIMOV

10.  German PROKOPIV

11.  Valeriy BOLOTOV

12.  Andriy PURGIN

13.  Denys PUSHYLIN

14.  Tsyplakov Sergey GENNADEVICH

15.  Igor STRELKOV

28.20 The Minister says that the Government supported the Council response to ongoing unrest in Ukraine, the list of individuals comprising both Russians involved in the illegal annexation of Crimea (e.g. KOZAK, BELAVENTSEV, SAVELYEV) as well as individuals involved in unrest in Crimea itself or in Eastern Ukraine (e.g. PROKOPIV, BOLOTOV, PURGIN).

Council Decision 2014/265/CFSP of 12 May 2014 amending Decision 2014/145/CFSP, and Council Regulation (EU) No. 476/2014 of 12 May 2014 amending Regulation (EU) No. 269/2014, concerning restrictive measures in respect of action undermining or threatening the territorial integrity, sovereignty and independence of Ukraine

28.21 At the 12 May Foreign Affairs Council, EU Foreign Ministers agreed to list an additional 13 individuals under Ukraine restrictive measures, as well as two entities. The designation criteria were also expanded. [98]

The Government's view

28.22 In his second Explanatory Memorandum of 20 May, the Minister notes that 12 May Foreign Affairs Council concluded that, "due to the 'absence of any steps towards de-escalation', the EU should both 'expand the criteria' for designation and 'add a new group of individuals and entities to the list' of designations".

28.23 He continues as follows:

"In line with the Council Conclusions quoted above, the Council Decision builds on the previous designation criteria, expanding it so that it reads (additional language in bold):

"(1) In view of the gravity of the situation in Ukraine, the restrictions on admission and the freezing of funds and economic resources should apply to natural persons responsible for, actively supporting or implementing, actions or policies which undermine or threaten the territorial integrity, sovereignty and independence of Ukraine, or stability or security in Ukraine, or which obstruct the work of international organisations in Ukraine, and natural or legal persons, entities or bodies associated with them, or legal persons, entities or bodies in Crimea or Sevastopol whose ownership has been transferred contrary to Ukrainian law, or legal persons, entities or bodies which have benefited from such a transfer. The beneficiaries of the transfer of ownership are to be understood as legal persons, entities or bodies that have become the owners of assets transferred contrary to Ukrainian law following the annexation of Crimea and Sevastopol."

"This expansion of the criteria means that the EU can now list several new categories of individuals and entities, namely:

¾  "Individuals that support certain actions/policies (as detailed above);

¾  "Entities in Crimea or Sevastopol that have been unlawfully expropriated;

¾  "Legal persons, entities or bodies that benefit from such expropriation.

"In addition to this considerable expansion to the criteria, the EU listed 13 individuals, bringing the total number of individuals listed to 61 (in addition to 22 individuals listed for misappropriation of state assets). The most recent 13 individuals listed are:

1. Vyacheslav Viktorovich VOLODIN

2. Vladimir SHAMANOV

3. Vladimir Nikolaevich PLIGIN

4. Petr Grigorievich JAROSH

5. Oleg Grigorievich KOZURYA

6. Viacheslav PONOMARIOV

7. Igor Mykolaiovych BEZLER

8. Igor KAKIDZYANOV

9. Oleg TSARIOV

10. Roman LYAGIN

11. Aleksandr MALYKHIN

12. Natalia Vladimirovna POKLONSKAYA

13. Igor Sergeievich SHEVCHENKO

"The EU Regulation contains statements of reasons for each individual, explaining why they have been listed under Ukraine restrictive measures. All thirteen individuals were listed for "actively supporting or implementing, actions or policies which undermine or threaten the territorial integrity, sovereignty and independence of Ukraine". The first three individuals on the list (VOLODIN, SHAMANOV and PLIGIN) are different to the majority of the individuals on the list. VOLODIN and PLIGIN are Russian government officials whilst SHAMANOV is Commander of the Russian Airborne Troops. The additional ten individuals on the list are based in Crimea/Eastern Ukraine. The UK chose to support the EU Council's decision to list this group of individuals as it was felt it represented a balanced response to the ongoing crisis, targeting both Russian decision-makers and individuals responsible for ongoing unrest.

    "Additionally, the EU listed two entities — Chernomorneftgaz and Feodosia, two energy companies that have been expropriated since the illegal annexation of Crimea. This is the first time the EU has listed entities. The UK chose to support the EU Council's decision to list these two entities in response to the crisis which, as the Foreign Secretary said in Parliament on 13 May 2014, Russia has taken no practical steps towards deescalating.

28.24 Apparently picking up on points made in our Report of 2 April concerning an exchange between the Prime Minister and the Leader of the Opposition on 26 March, following the 20-21 March European Council, about differences between the EU's measures and those taken by the US, the Minister says:

    "There is a large degree of overlap between the categories of names and the individuals sanctioned by the EU and US. However the US has its own process for deciding on which individuals to list and we should not be surprised that the EU list and US list are not identical. In particular, the US has chosen to designate private individuals that do not hold a formal government position, but are believed to be close to President Putin (e.g. Yuri Valentinovich KOVALCHUK or Gennady TIMCHENKO). However, at EU level the current designation criteria agreed by the EU Council does not permit the EU to list individuals such as KOVALCHUK or TIMCHENKO unless there is evidence to indicate they are "actively supporting or implementing, actions or policies which undermine or threaten the territorial integrity, sovereignty and independence of Ukraine". Expansion of this criteria to enable designations of this type is viewed by the EU Council as a measure that would only be taken after further escalation.

    "Both the EU and US have the opportunity to add to their lists, if necessary, in the coming weeks and months. The UK will seek to complement US measures."

28.25 The Minister explains the over-ride of scrutiny on both occasions thus:

    "it was not possible to adhere to the usual parliamentary scrutiny procedures. This was due to two factors: the need to avoid asset flight, meaning the list of individuals could not be disclosed in an unclassified document in advance of their designation, and the speed at which events in Ukraine have developed, requiring a rapid response from the EU Council."

Previous Committee Reports

None: but see (35905) — and (35906) — : Forty-seventh Report HC 83-xlii (2013-14), chapter 23 (30 April 2014) and Forty-fifth Report HC 83-xl (2013-14), chapter 5 (2 April 2014); also see (35880) — and (35881) —: Forty-third Report HC 83-xxxix (2013-14), chapter 3 (26 March 2014) and (35848) — and (35849) —: Fortieth Report HC 83-xxxvii (2013-14), chapter 1 (12 March 2014).


29 EU Special Representative for Human Rights
Committee's assessment Politically important
Committee's decisionCleared from scrutiny

Document detailsCouncil Decision extending the mandate of the European Union Special Representative for Human Rights
Legal baseArticle 31 and 33 TEU;QMV
DepartmentForeign and Commonwealth Office

Summary and Committee's conclusions

29.1 The office of the European Union Special Representative for Human Rights (the EUSR) was established by Council Decision 2012/440/CFSP of 25 July 2012. Mr Stavros Lambrinidis, a former Foreign Minister of Greece, assumed the role on 1 September 2012. He acts under the authority of the EU High Representative for Foreign Affairs and Security Policy (the HR), Baroness Ashton. He is mandated to contribute to the implementation of the EU's external human rights policy, to enhance dialogue with governments in third countries and contribute to better coherence and consistency of the Union's policies and actions on human rights.

29.2 The EUSR's current mandate runs until 30 June 2014. In June last year when we scrutinised and cleared a draft Council Decision to amend the budget of the EUSR's office for the remaining year of his mandate, the Government was supportive of Mr Lambridinis' fulfilment of his mandate. This draft Council Decision proposes to extend his mandate from 1 July 2014 to 28 February 2015.

29.3 We recognise the Government's efforts to retain, for a longer period than anticipated, an EUSR whom it perceives to be effective and sympathetic to UK human rights priorities in foreign affairs and to ensure some continuity during the transition from the current High Representative for Foreign Affairs to her successor.

29.4 We also welcome the budgetary restraint reflected in the reduced eight month budget for the office of the EUSR which compares very favourably with the budget increase agreed last year for the year 2013-14.

29.5 We note that in the context of that budget increase we asked the Government in our Seventh Report of 2013-14 to ensure that the EUSR activities represented good value for money, respected the competence of Member States in the external representation of EU human rights policy and did not duplicate Council of Europe work. The Minister has addressed the first two of those questions. However, we would expect to hear from him before the mandate extension is agreed by Member States should there be any potential duplication with the work of the Council of Europe.

29.6 We now clear the draft Council Decision from scrutiny.

Full details of the documents: Council Decision extending the mandate of the European Union Special Representative for Human Rights: (36035), OTNYR.

Background and previous scrutiny

29.7 When the office of the EUSR was first established by Council Decision 2012/440/CFSP of 25 July 2012, we recommended that document for debate on the floor of the House (together with the Action Plan on Human Rights and Democracy[99] and Joint Communication from the Commission and EU High Representative for Foreign Affairs and Security Policy entitled "Human rights and democracy at the heart of EU external action — towards a more effective approach").[100] Our debate recommendation reflected the fact that whilst there were at that time ten EU Special Representatives (EUSRs) in different countries and regions of the world, promoting the EU's policies and interests in these areas, the proposed EUSR for human rights represented the first thematic appointment.

29.8 On the second occasion that we considered the role of the EUSR for human rights, the proposed Council Decision was to approve an increase in the EUSR budget for 2013-14. After hearing from the Government how it had managed to achieve a reduced increase from that initially proposed and how it was satisfied with Mr Lambridinis' fulfilment of this role we cleared that draft Council Decision from scrutiny on 26 June 2013 on the condition that the Government:

    "would continue to monitor the activities of the EUSR with the aim of ensuring that:

—  they represent good value for money;

—  there is no duplication of Council of Europe work; and

—  the EUSR continues to respect the competences of Member States in the external representation of EU human rights policy."

The document

29.9 The current document simply reproduces the existing mandate of the EUSR, notes that it is due to expire on 30 June 2014 and proposes to extend it for a further period of eight months.

The Government's Explanatory Memorandum of 30 May 2014

29.10 The Minister for Europe (David Lidington) says:

    "Lambrinidis has performed well as EUSR and we would like to see him continue to play that role for another eight months.

    "Lambrinidis has travelled judiciously, that is to say when useful and not too much. In general he has taken an active and assertive approach which we applaud. He has been repeatedly willing to visit the countries we would prioritise and deliver difficult messages, to give examples:
    • When he visited Moscow in October, the Embassy commended his "strong showing", an assessment that was shared by EU colleagues.
    • Similarly following a recent visit to Burma, our Ambassador reported that he engaged successfully with the Government regarding its treatment of Muslim citizens.
    • Similarly during a visit to Egypt earlier this year, Lambrinidis urged his interlocutors to work towards consensus where possible.

    "Lambrinidis has also shown a willingness to pursue aspects of human rights on which the UK places particular stress. He hosted a roundtable on business and human rights - one of the UK's thematic priorities - in China, which is of course a country of human rights concern.

    "He has also taken pains to stay close to the UK. He visited London for talks with the Foreign Secretary on 27 May during which he reported back on his most recent activities and set out his plans for his next mandate, if approved by Council. He will return to the UK in June to lend his support to the Global Summit to End Sexual Violence in Conflict.

    "From a UK perspective, it is pleasing that Lambrinidis understands that the EU could work better and is able to offer suggestions for improvement. His view is that the human rights action plan could be improved and that the EU also needs to get better at promoting Freedom of Religion and Belief and Freedom of Expression. Both of these topics are priorities for this Government.

    "For all of these reasons, my assessment is that a further eight month mandate for Lambrinidis will be good value for the UK: delivering substantial impact on countries and issues that matter to us at a modest cost to the UK.

    "It has not been easy to obtain this outcome. On 27 January Baroness Ashton told Member States that where mandates ended on or before 30 June 2014, she would only renew them to 31 December 2014. The UK and others argued strongly that it was unrealistic to expect the next High Representative, due to take office on 1 November, to make proposals on EUSRs immediately on taking office, without encroaching on the scope for scrutiny, including by the UK's Parliament. We highlighted that EUSRs could provide continuity through the change-over of High Representative and proposed that, at the least, mandates should be renewed until spring 2015. Baroness Ashton subsequently agreed to extend all EUSR mandates expiring this year until February 2015. We will engage early with the next High Representative on the future of Special Representatives.

    "Baroness Ashton's intention is to leave it to her successor to make decisions about EUSRs beyond February 2015, when the mandate considered here expires. What approach is taken depends on the personality and opinions of the next High Representative. We will of course stay close to the process and exert influence upon it."

29.11 Turning to the financial implications of the proposed extension of the EUSR's mandate, the Minister provides a table (see the annex to this Report) comparing the EUSR budget for the year 2013-14 of €837,000 (funded from Heading 4 of the EU Budget, covering the EU's external spend) and the proposed eight month budget of €550,000. He comments that "it is positive and sensible" that the Commission has proposed a lesser figure than the eight month pro rata sum of €558,000.

29.12 In terms of the timing of the agreement and adoption of the current document, the Minister says that the EEAS will seek to adopt the Council Decision before 30 June 2014 to ensure continuity of service.

Previous Committee Reports

None: but see (35044) —: Seventh Report HC 83-vii (2013-14), chapter 13 (26 June 2013); and (33955) —: Fifth Report HC 86-v (2012-13), chapter 2 (20 June 2012).

Annex

The breakdown of the proposed eight month pro-rata budget, compared with that for 2013-14:
Budget heading
Current budget

(12 months)
Proposed budget

(8 months)
1. Personnel costs 473,546337,075
2. Missions182,630 121,895
3. Running expenditure 155,74074,411
4. Capital expenditure 2,870890
5. Representation6,000 5,600
Sub-total (1-5) 820,786539,871
Contingencies 16,21410,129
Total837,000 550,000



30 Financial management
Committee's assessmentPolitically important
Committee's decisionCleared from scrutiny

Document detailsAnnual Report of the European Anti-Fraud Office
Legal base
DepartmentHM Treasury

Summary and Committee's conclusions

30.1 The European Anti-Fraud Office (OLAF)'s mission is threefold: to protect the financial interests of the EU by investigating fraud, corruption and any other illegal activities, to detect and investigate serious matters relating to the discharge of professional duties by staff of the EU institutions and bodies that could result in disciplinary or criminal proceedings and to support the Commission in the development and implementation of fraud prevention and detection policies. This is OLAF's fourteenth annual report on its activities. It summarises OLAF's activities and progress during 2013 and is supported by case studies and statistical tables. In the report OLAF sets out its structure and processes, summarises its operational activities in 2013, places a special focus on its continued fight against tobacco smuggling, sets out the Supervisory Committee's mandate to monitor OLAF's investigative function in order to reinforce its independence, discusses its data protection activity, reports its activities in relation to EU policy making, notes the resources available to it in 2013 and sets out its outlook for 2014 and beyond.

30.2 We note the Government's relative satisfaction with the work of OLAF in 2013 and its hopes for OLAF's future activity following the new Regulation, which governs it. However, whilst clearing the document we draw it to the attention of the House for the strong support OLAF evinces for establishing a European Public Prosecutor's Office and the Government's continued opposition to this proposal, which we continue to second.

Full details of the documents: Fourteenth Report of the European Anti-Fraud Office covering the period from 1 January to 31 December 2013: 36000, 9308/14, —.

Background

30.3 The European Anti-Fraud Office (OLAF)'s mission is threefold: to protect the financial interests of the EU by investigating fraud, corruption and any other illegal activities, to detect and investigate serious matters relating to the discharge of professional duties by staff of the EU institutions and bodies that could result in disciplinary or criminal proceedings and to support the Commission in the development and implementation of fraud prevention and detection policies.

The document

30.4 This is OLAF's fourteenth annual report on its activities. It summarises OLAF's activities and progress during 2013 and is supported by case studies and statistical tables. This report is the first full one following the major reorganisation of OLAF in 2012, which was aimed at improving the overall efficiency of its investigative activity. According to OLAF, evidence suggests that the reorganisation has started to yield results that enhance its ability to step up the fight against fraud, to deal with more incoming information and to reduce the overall duration of its investigations.

30.5 In addition to setting out its structure and processes, OLAF summarises its operational activities in 2013, saying that:

·  it received the highest amount of incoming information in 2013 (1,294), two-thirds of which came from private sources;

·  this shows the sustained confidence in its investigative capacities;'

·  Member States provided 17% less information compared with 2012 — the largest amount of incoming information concerned the structural funds sector, followed by agricultural funds and EU staff;

·  the average duration of the selection phase for considering whether to pursue a case fell from 6.8 months in 2012 to 1.8 months, two months below the set maximum target;

·  293 cases were completed during the year with the average duration of investigations falling from 23.6 months in 2012 to 21.8 months in 2013;

·  this improvement is a reflection of its focus on improving the efficiency of its investigations and of reducing the overall duration of investigating its cases;

·  a total of 484 investigations cases were ongoing at the end of 2013, with the highest number recorded for the structural funds sector (149 compared with 134 in 2012), followed by agricultural funds (82 compared with 59 in 2012) and external aid (80 compared with 106 in 2012);

·  in 2013 OLAF issued 353 recommendations for further actions to be taken — the highest number for five years and 77% more than in 2012;

·  of these, financial recommendations made up the majority (233) with €402.8 million (£332 million) recommended for recovery by competent authorities, compared with €284 million (£234 million) in 2012;

·  by sector, structural funds represented the highest amount at €112 million (£92 million), followed by external aid at €100 million (£82 million) and customs and trade at €85 million (£70 million);

·  OLAF is currently monitoring a total of 1,267 recommendations, from 2013 and previous years;

·  a total of €117.05 million (£96 million) was recovered in total as a result of OLAF's recommendations, with the highest amount recorded for customs fraud at €77 million (£72 million), followed by structural funds at €33.7 million (£28.5 million) and agricultural funds at €3.2 million (£2.6 million);

·  the results of actions taken by Member States following OLAF's recommendations between 2006 and 2013 have resulted in some positive results;

·  the different judicial handling of its recommendations by the Member States and the need to further speed up judicial decisions are, however, justification for the proposed European Public Prosecutor's Office (EPPO); and

·  at the end of 2013, OLAF had 484 ongoing investigations and coordination cases.

30.6 OLAF places a special focus on its continued fight against tobacco smuggling, which causes huge annual losses, estimated at €10 billion (£8.2 billion to the EU and Member States' budgets. It notes that its work in this area has focused on:

·  conducting investigations and coordinating Member States' investigative activities, including through support with tracking and tracing information;

·  coordinating several Joint Customs Operations, which have contributed to seizures of significant amounts of cigarettes in the EU; and

·  contributing to development of the Protocol to Eliminate Illicit Trade in Tobacco Products, the first Protocol to the Framework Convention on Tobacco Control, and to implementation of policy and legal instruments such as the Tobacco Products Directive and the Commission's 2013 Communication on cigarette smuggling and participating in negotiation and implementation of agreements with the four major tobacco manufacturers.

30.7 OLAF sets out the Supervisory Committee's mandate to monitor OLAF's investigative function in order to reinforce its independence, as in Regulation (EU, EURATOM) No 883/2013, saying that:

·  new working arrangements that cover how information is shared between OLAF and its Supervisory Committee were agreed following the entry into force of the Regulation; and

·  in 2013, the Supervisory Committee delivered two Opinions, related to OLAF's Preliminary Draft Budget for 2014 and establishment of an internal procedure for complaints.

30.8 Noting that 2013 was the tenth anniversary of the appointment of the European Data Protection Supervisor (EDPS), responsible for overseeing the implementation of data protection requirements in the EU, OLAF says that:

·  its Data Protection Officer and its controllers have collaborated extensively with the EDPS; and

·  as a result, data protection has permeated every aspect of OLAF's work with a system for data protection compliance based on the principle of accountability in place.

30.9 In relation to policy making OLAF reports that it has been actively engaged in:

·  providing substantial technical support to the Commission on the July 2013 draft Regulation concerning establishment of an EPPO;

·  adopting new Guidelines on Investigation Procedures for OLAF staff following the entry into force of Regulation (EU, EURATOM) No 883/2013 on 1 October 2013;

·  concluding a number of cooperation and working arrangements, particularly with Europol and Eurojust to reinforce their cooperation and information exchange;

·  restructuring the Advisory Committee for the Coordination of Fraud Prevention and its working parties to provide a clearer overview of activities and relations with the Member States' authorities, including legislative and policy issues and general issues of investigative cooperation — on the requirement to designate an
Anti-Fraud Coordination Service (AFCOS), all Member States are expected to have complied by the end of 2014;

·  negotiating the new Hercule III Regulation on an anti-fraud programme for the 2014-2020 programming period, which entered into force in January 2014 with a budget of €104.9 million (£86 million), 70% of which will be spent on technical assistance actions, and on the continuation of the Pericles programme (against counterfeiting of the euro), also concluded in 2013, with a budget allocation of €7.3 million (£6 million); and

·  implementation of the Commission's Anti-Fraud Strategy, with priority actions such as the inclusion of OLAF's investigative competence in the Commission's proposals on spending programmes for the programming period 2014-2020 and the new rules on public procurement and concession contracts which entered into force in April.

30.10 OLAF notes that the resources available to it in 2013 were an administrative budget of €57.7 million (£47.5 million) and 440 personnel, with 350 of those dedicated to activities related to its investigative functions.

30.11 Finally, OLAF's outlook for 2014 and beyond states its plan to continue its active involvement in investigation activities and policy initiatives linked to its mandate, to improve cooperation with its partners, as priority, and to continue to actively support the negotiations on the Commission's legislative proposal on an EPPO.

The Minister's Explanatory Memorandum of 21 May 2014

30.12 The Financial Secretary to the Treasury (Nicky Morgan) affirming that the Government takes the management of EU funds seriously and supports the work undertaken by OLAF to combat fraud against the EU budget, says that:

·  the Government welcomes the reforms to OLAF following Regulation (EU, EURATOM) No 883/2013 coming into force in October 2013;

·  although the Government is encouraged by the modest improvements reported, including a reduction in the duration of cases, and by the increase in incoming information to OLAF, it is of the view that more needs to be done by all concerned to reduce the level of fraud;

·  to further improve the identification of suspected fraud, the Government will continue to push for a greater focus by the Commission and Member States on fraud prevention; and

·  on the requirement to designate an antifraud coordination service, the Government has recently notified OLAF of its designation of an AFCOS contact point.

30.13 The Minister comments, finally, that the Government notes OLAF's views and active involvement in supporting the Commission's EPPO proposal, but remains of the view that an EPPO is not the only or right solution to the multi-jurisdictional prosecution of crimes against the EU budget.

Previous Committee Reports

None.


31 Protecting the Euro against counterfeiting — the Pericles 2020 programme
Committee's assessment Legally important
Committee's decisionCleared from scrutiny

Document details(a) Draft Regulation establishing the Pericles 2020 programme

(b) Draft Regulation extending the Pericles 2020 programme to non-participating Member States

Legal base(a) Article 133 TFEU; co-decision; QMV

(b) Article 352 TFEU; unanimity; EP consent

DepartmentHome Office

Summary and Committee's conclusions

31.1 The "Pericles" programme was established by the Council in 2001 to provide a dedicated source of EU funding to support Member States' efforts to protect the euro against counterfeiting, primarily through specialised, multidisciplinary training and the exchange of personnel.

31.2 The first draft Regulation — document (a) — would establish the successor "Pericles 2020" programme, providing continuity of support for the new funding period from 2014-20. It is based on Article 133 of the Treaty on the Functioning of the European Union (TFEU) which only applies to Member States participating in the single currency. The UK is therefore excluded from taking part in the adoption of the first draft Regulation. The purpose of the second draft Regulation — document (b) — is to extend participation in the Pericles 2020 programme to non-euro Member States. As it is based on Article 352 TFEU and is subject to section 8 of the European Union Act 2011, the Government may only consent to be bound following approval by an Act of Parliament, unless the draft Regulation falls within one of the exemptions set out in section 8(6) of the 2011 Act.

31.3 The Government expressed support for the continuation of the Pericles programme and UK participation in its successor, but indicated that it would only be in a position to determine whether any of the exemptions in section 8(6) of the 2011 Act applied following the conclusion of negotiations. We considered that the way in which the Government interpreted and applied the exemptions was of sufficient importance to keep the documents under scrutiny, and asked to be informed of the Government's position on the need for primary legislation as soon as it had come to a view on the matter. In this, our third Report, we set out the Government's position on the application of section 8 of the 2011 Act to document (b) — the draft Regulation extending participation in the Pericles 2020 programme to non-euro Member States.

31.4 We note that the draft Regulation establishing the Pericles 2020 programme — document (a) — has now been adopted but that the UK and other non-euro Member States will not be able to participate until the second draft Regulation — document (b) — has also been adopted.

31.5 We are grateful to the Minister for clarifying that none of the statutory exemptions in section 8(6) of the European Union Act 2011 applies and that an Act of Parliament will be required before the Government may vote for the draft Regulation extending the Pericles 2020 programme to Member States not participating in the euro — document (b). Whilst we are now content to clear both draft Regulations from scrutiny, we ask the Minister to indicate when the Parliamentary stages for authorising the Government to support the adoption of document (b) are expected to be completed.

Full details of the documents: (a) Draft Regulation establishing an exchange, assistance and training programme for the protection of the euro against counterfeiting (the "Pericles 2020" programme): (33582), 18938/11 + ADDs 1-2, COM(11) 913; (b) Draft Council Regulation extending to non-participating Member States the application of Regulation (EU) no …/2012 establishing an exchange, assistance and training programme for the protection of the euro against counterfeiting (the "Pericles 2020" programme): (33575), 18939/11, COM(11) 910.

Background

31.6 The draft Regulation establishing the Pericles 2020 programme — document (a) — was formally adopted in March 2014.[101] As that Regulation only applies to Member States that have adopted the euro as their currency, the UK had no vote and is not bound by its provisions. The draft Regulation — document (b) — extending the Pericles 2020 programme to non-euro Member States requires unanimity within the Council. The Government initially indicated that it might press for the inclusion of a Title V (justice and home affairs) legal base on the grounds that the purpose of the Pericles 2020 programme is to help combat fraud and counterfeiting of the euro and that it could be considered a crime prevention measure. Following further analysis, the Government accepted that the legal bases proposed by the Commission for both draft Regulations were appropriate.

31.7 Whilst making clear that it would only be able to determine whether the second draft Regulation — document (b) — fell within the scope of the exemptions set out in section 8(6) of the European Union Act 2011 once negotiations had concluded, the Government suggested that the exemptions contained in section 8(6)(a) and (b) were the most likely to apply. These are intended to cover a measure which is "equivalent" to one previously adopted under Article 352 TFEU, or which would "prolong or renew" such a measure.

31.8 We concluded that both exemptions were likely to be too narrow to apply to document (b) — the draft Regulation extending the Pericles 2020 programme to non-euro Member States — but held both proposals under scrutiny pending clarification of the Government's position.

The Minister's letter of 15 May 2014

31.9 The Minister for Modern Slavery and Organised Crime (Karen Bradley) apologises for the delay in providing the information we requested, noting that a letter written by her predecessor in June 2013 did not reach us. She continues:

    "After examination of the issues surrounding the legal base on which this measure is brought forward, and the implications under the European Union Act 2011, I can confirm that the Government concluded that primary legislation will be required to support this measure."

Previous Committee Reports

Second Report HC 86-ii (2012-13), chapter 12 (16 May 2012); Fifty-sixth Report HC 428-li (2010-12), chapter 9 (22 February 2012).


32 Report on the application of the Brussels IIa Regulation
Committee's assessment Legally important
Committee's decisionCleared from scrutiny

Document detailsCommunication on the application of the Brussels IIa Regulation
Legal baseNot applicable
DepartmentMinistry of Justice

Summary and Committee's conclusions

32.1 The Brussels IIa Regulation is described by the Government as "the foundation instrument in the area of EU family law". It deals with how cross-border divorce (and similar proceedings, such as legal separation and annulment) and proceedings concerning parental responsibility should be dealt with as regards which Member State's court should have jurisdiction, and the recognition[102] and enforcement of judgments in other Member States.

32.2 The Commission Communication examines how the Brussels IIa Regulation has operated as a prelude to a public consultation and possible future amending legislation. It concludes that the Regulation has been a well-functioning instrument but identifies certain areas which could be improved.

Text of conclusions

32.3 Like the Government we note the importance of facilitating the speedy resolution of EU cross-border family disputes. Given that practitioners have expressed some concerns concerning the operation of the operation of the Brussels IIa Regulation (Regulation 2201/2003) we support the process of examining it and consulting on how it might be improved.

32.4 We clear this document from scrutiny and ask the Minister to supply us with any response the Government makes to the Commission's formal consultation.

32.5 Should this exercise result in a formal proposal for amendment of the existing Regulation we will give it careful scrutiny.

Full details of the documents: Report from the Commission on the application of Regulation 2201/2003 concerning jurisdiction and the recognition and enforcement of judgments in matrimonial matters and in the matters of parental responsibility, repealing Regulation 1347/2000: (35977), 9111/14, COM(14) 225.

Background

32.6 Regulation 2201/2003, known as the Brussels IIa Regulation, establishes rules for the conduct of proceedings with a cross-border dimension concerning

·  divorce, separation or annulment (but not the related financial proceedings), and

·  parental responsibility (but not child maintenance).

32.7 It prescribes which court should have jurisdiction and the procedures for recognition and enforcement of judgements. It does not deal with the question of which law should be applied by the court which has jurisdiction. In respect of issues of parental responsibility it complements the Hague Convention of 25 October 1980 on the civil aspects of child abduction which applies in all Member States and many third countries.

The Commission's Report

32.8 This is the first Report by the Commission on the application of the Brussels IIa Regulation. Its overall conclusion is that the Regulation is a well-functioning instrument. However it identifies a number of areas where it believes that its operation could be improved:

·  In matrimonial matters, the lack of hierarchical grounds of jurisdiction may encourage one spouse to rush to court to ensure that the law applied will best safeguard his or her interests over the other. This could have the effect of complicating efforts to reconcile and discourage mediation.

·  The possibility of spouses being able to agree a choice of court.

·  Difficulties in the application of the rules on prorogation[103] or transfer of jurisdiction in matters of parental responsibility both in terms of the conditions that should be met and inadequate communication between the relevant courts.

·  Uncertainty about how courts should apply provisional measures in matters of child abduction and questions of interpretation of the lis pendens rule[104] which is meant to avoid parallel proceedings in different Member States.

·  Where non-EU countries are involved, the absence of uniform jurisdictional rules in both matrimonial and parental responsibility matters may result in citizens of EU countries having unequal access to justice and that situations could arise in which neither a Member State nor a third country has jurisdiction over a matter.

·  The absence of provisions on forum necessitatis (whereby the court of a Member State can obtain jurisdiction from a third country because of an exceptional circumstance such as war) and on determining in which cases courts can decline jurisdiction in favour of a third country.

·  In the area of recognition and enforcement there remains a need for a judgment or order from one Member State to be declared enforceable in another Member State (the exequatur procedure) before it can be enforced. Inconsistent policies and divergent rules or interpretations of the Regulation between Member States, including in the area of a child being given the opportunity to be heard, can create problems leading to delays and costly procedures. In addition exequatur could be abolished to other parts of the Regulation, subject to the establishment of necessary safeguards.

·  Whilst the role played by the Central Authorities in each Member State is important, the Regulation's provisions on cooperation may not be sufficiently specific in some areas, such as: the obligation to collect and exchange information on the situation of the child; and assistance provided to holders of parental responsibility seeking enforcement of access rights judgments.

·  The introduction of a common, uniform procedure in relation to the placement of children in institutional or foster care in another Member State would enable a swifter and more efficient application of the relevant provisions.

32.9 In the light of the issues raised in this report the Commission has initiated a public consultation which runs until 18 July 2014.

The Government's Explanatory Memorandum of 12 May 2014

32.10 The Government recognises the importance of this Regulation in cross-border family matters and welcomes the opportunity the Commission's consultation brings to evaluate its application. It notes that the Commission has not as yet made any specific recommendations for the future direction of the Regulation and in considering its own response to the consultation it will want to consider the views of UK stakeholders. Therefore it has not reached a final position on any of the points raised. However, it has some initial views.

32.11 The Government is aware from contacts with practitioners that there are concerns about the Regulation's jurisdiction provisions, particularly in relation to the "rush to court" in matrimonial matters in an attempt by one or other of the parties to secure a favourable jurisdiction.

32.12 The Government is a strong supporter of ensuring that there is speedy resolution of EU cross-border family disputes. It follows that it agrees that, where the Regulation applies, action should be taken (a) to improve the enforcement and recognition of judgments and orders, (b) to facilitate greater cooperation between the Central Authorities and (c) to resolve problems regarding the placement of children in institutional or foster care in another Member State. However it will want to ensure that effective safeguards are in place before exequatur can be abolished where it exists. It will also want any minimum standards that are proposed to relate to EU cross-border disputes only and that they properly respect the different legal systems and traditions of Member States — in particular that judges retain discretion to hear the views of a child in appropriate cases only.

Previous Committee Reports

None.





1   (33146) 14070/11 + ADDs 1-5: see HC 428-xxxvii (2010-12), chapter 16 (12 October 2011). Back

2   (35076) 11159/13: see HC 83-xii (2013-14), chapter 5 (17 July 2013) and HC 83-xxxvi (2013-14), chapter 4 (12 March 2014). Back

3   DELEGATED ACTS: the Treaty of Lisbon creates a new category of legal act: delegated acts. The legislator delegates the power to adopt acts amending non-essential elements of a legislative act to the Commission. For example, delegated acts may specify certain technical details or they may consist of a subsequent amendment to certain elements of a legislative act. The legislator can therefore concentrate on policy direction and objectives without entering into overly technical debates. However, this delegation of power has strict limits. In effect, only the Commission can be authorised to adopt delegated acts. Furthermore, the legislator sets the conditions under which this delegation may be implemented. Article 290 of the Treaty on the Functioning of the EU specifies that the Council and the Parliament may revoke a delegation or limit its duration.

IMPLEMENTING ACTS: Moreover, the Treaty of Lisbon strengthens the implementing powers of the Commission. The implementation of European law on Member States' territories is, as a matter of principle, the responsibility of Member States. However, certain European measures require uniform implementation across the EU. Therefore, in these cases, the Commission is authorised to adopt implementing acts relating to the implementation of such measures. Until the entry into force of the Treaty of Lisbon, implementing power was held by the Council, which delegated the adoption of implementing acts to the Commission. From now on, Article 291 of the Treaty on the Functioning of the EU recognises the competence of principle of the Commission. Therefore, European measures which require uniform implementation in the Member States directly authorise the Commission to adopt implementing acts.

At the same time, the Treaty of Lisbon increases the powers of the Parliament with regard to monitoring the implementing powers of the Commission. The modalities of this monitoring were previously determined by the Council. From now on, these modalities shall be adopted by the ordinary legislative procedure, within which the Parliament is on an equal footing with the Council.

See /legislation_summaries/institutional_affairs/treaties/lisbon_treaty/ai0032_en.htm.for full information. Back

4   See (34680) 6225/13: HC 86-xxxv (2012-13), chapter 3 (13 March 2013). Back

5   See HC 86-xxxv (2012-13), chapter 6 (13 March 2013). Back

6   See HC 86-xxxix (2012-13), chapter 4 (24 April 2013). Back

7   The record of the debate is available at http://www.publications.parliament.uk/pa/cm201314/cmgeneral/euro/130708/130708s01.htm

(Gen Co Deb, European Committee B, 8 July 2013, cols. 3-12). Back

8   See HC 83-xl (2013-14), chapter 2 (2 April 2014) for further detail. Back

9   See HC 86-xxxix (2012-13), chapter 4 (24 April 2013) for further detail. Back

10   COM (2010) 2020. Back

11   COM (2008) 396. Back

12   COM (2013) 685. Back

13   Communication on an Action Plan: European company law and corporate governance - a modern legal framework for more engaged shareholders and sustainable companies. COM (2012) 740. Back

14   (34559) 17817/12: see HC 86-xxxi (2012-13), chapter 8 (6 February 2013). Back

15   COM (2010) 2020. Back

16   COM (2012) 740. Back

17   Intermediaries would be defined as a company resident in the EU which maintains securities accounts for clients. Back

18   Asset managers are providing portfolio management services to institutional investors. Back

19   Proxy advisors provide recommendations to shareholders on the exercise of their voting rights. Back

20   See http://ec.europa.eu/digital-agenda/en/connected-continent-single-telecom-market-growth-jobs. Back

21   See http://ec.europa.eu/digital-agenda/en/connected-continent-legislative-package. Back

22   Net neutrality is the principle that Internet service providers and governments should treat all data on the Internet equally, not discriminating or charging differentially by user, content, site, platform, application, type of attached equipment, and modes of communication. Proponents often see net neutrality as an important component of an open internet, where policies such as equal treatment of data and open web standards allow those on the internet to easily communicate and conduct business without interference from a third party. Back

23   The current proposal is that communications providers would need to only seek authorisation in one Member State (subject to the specified notification process) before being able to operate in all Member States. Back

24   See HC 83-xvii (2013-14), chapter 2 (16 October 2013). Back

25   HC 83-xxxi (2013-14), chapter 2 (5 February 2014). Back

26   Oral evidence taken on 9 April, HC 1226 (2013-14). Back

27   Article 235 of the Treaty establishing the Economic Community. Back

28   Gen Co Deb, European Standing Committee A, 11 February 2014, col. 16. The Minister said "I congratulate the European Standing Committee on bringing the matter forward and submitting the Reasoned Opinion". Back

29   See Declaration (No. 42) on Article 352 TFEU and Opinion 2/94. The Court held that the predecessor to Article 352 TFEU did not provide a legal basis for the EU to accede to the ECHR because accession would have fundamental institutional implications for the Union. Back

30   Animal Welfare is not an objective of the Union but under Article 13 TFEU is to be integrated into agriculture, fisheries, transport, internal market, research and technological development and space policies. Back

31   For example see Case C-84/94 United Kingdom v Council (Working time Directive), para 55. The argument for subsidiarity was rejected because that argument concerned 'the need for Community action, which has already been examined in [assessing the choice of legal base]'. Back

32   Fifth Report from the Science and Technology Committee, 2012-13, Regulation of medical implants in the EU and the UK, HC 163. Back

33   See http://www.consilium.europa.eu/uedocs/cms_Data/docs/pressdata/en/ec/140245.pdf. Back

34   (34236) 13438/12: see HC 86-xviii (2012-13), chapter 16 (31 October 2012). Back

35   See http://ec.europa.eu/enterprise/sectors/aerospace/files/rpas-roadmap_en.pdf. Back

36   See http://ec.europa.eu/transport/modes/air/sesar/sesar_undertaking_en.htm. Back

37   See http://www.caa.co.uk/docs/33/cap722.pdf. Back

38   See p.15 of the Commission report. Back

39   See https://www.gov.uk/government/speeches/priorities-of-the-next-european-commission-a-british-perspective. Back

40   For the letter see http://europeanmemorandum.cabinetoffice.gov.uk/. Back

41   (34835) 8398/13 + ADD 1: see HC 83-iii (2013-14), chapter 12 (21 May 2013) and HC 83-xiii (2013-14), chapter 53 (4 September 2013). Back

42   See http://europa.eu/efc/working_groups/hleg_report_2013.pdf. Back

43   See http://ec.europa.eu/internal_market/consultations/2013/long-term-financing/docs/summary-of-responses_en.pdf. Back

44   (35168) 12044/13 + ADDs 1-2: see HC 83-xiv (2013-14), chapter 14 (11 September 2013). Back

45   See http://ec.europa.eu/internal_market/investment/private_placement/index_en.htm. Back

46   (35944) 8633/14 + ADDs 1-5: see chapter 13 of this Report. Back

47   Article 6 of the Protocol on the application of the principles of subsidiarity and proportionality. Back

48   On the application of the principles of subsidiarity and proportionality. Back

49   Report of 6 November 2013. Back

50   Section 2.1.2 of the Commission's Impact Assessment. The Impact Assessment Board's own website does not record any positive opinion on this proposal:

http://ec.europa.eu/smart-regulation/impact/ia_carried_out/cia_2014_en.htm#empl. Back

51   Section 3 Executive Summary of Impact Assessment. Back

52   Fig 2. Back

53   In 2006 these forms of pensions formed over 50% of the share only in the Netherlands and Ireland. In 10 Member States it was nil. Back

54   Section 1 of the Commission's explanatory memorandum. Back

55   There is no indication in section 2.1.2. of the Commission's Impact Assessment that this Annex has been revised. Back

56   Section 3.3. Back

57   (i) remove obstacles to cross-border activities; (ii) ensure a higher EU-wide minimum level of consumer protection; (iii) take into account positive externalities arising from scale economies, risk diversification and innovation inherent to cross-border activity; (iv) avoid regulatory arbitrage between financial services sectors; (v) avoid regulatory arbitrage between MSs; and (vi) take into account interests of cross-border workers. Back

58   See p.2 of the Commission's explanatory memorandum accompanying the draft Regulation. Back

59   The Conclusions are available on the IPEX (Inter-parliamentary EU Information Exchange) website: http://www.ipex.eu/IPEXL-WEB/euspeakers/getspeakers.do. Back

60   See Appendix: Government response and our Twenty-first Report HC 683 (2013-14), The UK's block opt-out of pre-Lisbon criminal law and policing measuresBack

61   See HC 683 (2013-14). Back

62   See the Minister's letter of 18 July 2013, reported in HC 83-xiii (2013-14), chapter 21 (4 September 2013). Back

63   See http://www.europarl.europa.eu/sides/getDoc.do?type=TA&language=EN&reference=P7-TA-2014-0121. Back

64   Council Decision 2005/387/JHA, OJ No. L 127, 20.05.2005. Back

65   See letter of 13 January 2014 from the Minister for Crime Prevention (Norman Baker) to the Chair of the European Scrutiny Committee and his Written Ministerial Statement of the same date (HC Deb, col. 22WS). Back

66   See Article 4 of the draft Regulation. Back

67   See pp. 18-22 of ADD 1. Back

68   Article 9(3) of Council Decision 2005/387/JHA. Back

69   OJ No. L 133, 29.5.2009, p.1, also available from:

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:133:0001:0013:EN:PDF. Back

70   Council Regulation No. 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters. This was recast by Regulation No. 1215/2012 of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial mattersBack

71   Forty-third Report HC 979 (2013-14,) 26 March 2014, The application of the EU Charter of Fundamental Rights in the UK: a state of confusionBack

72   HC 83-vi (2013-14), chapter 6 (19 June 2013). Back

73   http://europa.eu/rapid/press-release_IP-14-422_en.htm. Back

74   In Case C-370/12, Pringle v the Government of Ireland, the Irish Court sought the CJEUs opinion on whether the European Stability Mechanism Treaty (ESMT) constituted a violation of the right to effective judicial protection under the Charter. This was a concern because the establishment of the European Stability Mechanism (ESM) outside the EU legal order might be seen as placing the ESM beyond the duties imposed by the Charter. As the Union did not have a specific competence to establish the ESM, the CJEU held the ESM Members were not implementing Union law when they established the ESM and that they were, therefore, acting outside of the scope of the Charter. Hence, the principle of effective judicial protection could not preclude the Member States from concluding and ratifying the ESMT. Back

75   See paras 5.8-5.20. Back

76   See Putin's masterplan in The Spectator of 22 February 2014. Back

77   Lawrence E. Strickling, assistant secretary of commerce for communications and information, as cited in The Washington Post of 14 March at http://www.washingtonpost.com/business/technology/us-to-relinquish-remaining-control-over-the-internet/2014/03/14/0c7472d0-abb5-11e3-adbc-888c8010c799_story.html. Back

78   See HC 83-xxxix (2013-14), chapter 6 (26 March 2014). Back

79   See para 16 of the Minister's Explanatory Memorandum on the draft Recommendation. Back

80   See para 22 of the Minister's EM on the Commission Communication. Back

81   See para 23 of the Minister's EM on the Commission Communication. Back

82   These establish a set of common spectrum authorisation principles and criteria coupled with a formal time-limited mechanism for peer review of national plans with a view to ensure best practice. See Commission Communication COM(2013) 634 on the Telecommunications Single Market. Back

83   See http://ec.europa.eu/digital-agenda/en/what-radio-spectrum-policy for full information on the EU's Radio Spectrum Policy. Back

84   The RSC is responsible for specific technical measures required to implement the broader Radio Spectrum Policy, and is composed of Member State representatives and chaired by the European Commission. Back

85   The RSPG is a high-level advisory group of the Member States and the Commission. In addition, representatives of the EEA countries, the candidate countries, the European Parliament, the European Conference of Postal and Telecommunications Administrations (CEPT) and the European Telecommunications Standardisation Institute (ETSI) attend as observers. Back

86   Available at https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/287994/UK_Spectrum_Strategy_FINAL.pdf.  Back

87   Broadly where core administration functions occur in another Member State rather than in the Member State where the operator and its vehicles are licensed, which can be called outflaggingBack

88   See http://ec.europa.eu/smart-regulation/refit/index_en.htm.  Back

89   European External Action Service (EEAS). Back

90   The Review was, the Minister noted, a limité document that "cannot be published, nor can it be reported on in any way which would bring detail contained in the document into the public domain". Back

91   See http://www.bbc.co.uk/news/world-africa-27554498 for further detail and background. Back

92   Political and Security Committee (PSC): The committee of ambassador-level officials from national delegations who, by virtue of article 38 TEU, under the authority of the High Representative for Foreign Affairs and Security Policy (HR) and the Council, monitor the international situation in areas covered by the CFSP and exercise political control and strategic direction of crisis management operations, as set out in article 43 TEU. The chair is nominated by the HR. Back

93   See http://www.eu-un.europa.eu/articles/en/article_15000_en.htm.  Back

94   See http://www.publications.parliament.uk/pa/cm201314/cmhansrd/cm140513/debtext/140513-0001.htm#14051361000100 (HC Deb, 13 May 2014, cols. 575-580 for the Ministerial statement and col. 591 on the Point of Order). Back

95   See http://eeas.europa.eu/statements/docs/2014/140414_02_en.pdf. Back

96   See https://www.gov.uk/government/news/g7-leaders-statement-on-ukraine-april-2014. Back

97   For full information on EU-Ukraine relations, see the EEAS 29 April 2014 Fact Sheet at http://eeas.europa.eu/statements/docs/2014/140429_04_en.pdf. Back

98   See http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/EN/foraff/142563.pdf, pp. 6-10 for the full Council Conclusions. Back

99   (33955) -: HC 86-v (2012-13), chapter 2 (20 June 2012). Back

100   (33578) -: HC 86-v (2012-13), chapter 1 (20 June 2012) and HC 86-ii (2012-13), chapter 11 (16 May 2012). Back

101   OJ No. L 103, 05.04.2014. Back

102   Recognition of a judgement involves the court of one Member State accepting the decision of another in relevant, but different, proceedings. Back

103   Article 12 confers jurisdiction on a court for matters of parental responsibility if it is dealing with divorce (or similar proceedings) and (a) at least one of the spouses has parental responsibility, or (b) the spouses or holders of parental responsibility agree and it is in the best interests of the child. Back

104   Under this rule proceedings brought in the court of one Member State after proceedings have already been brought in in the court of another should be stayed to allow the court to which proceedings were first brought to determine whether or not it has jurisdiction. Back


 
previous page contents next page


© Parliamentary copyright 2014
Prepared 20 June 2014