Documents considered by the Committee on 11 June 2014, including the following recommendations for debate: European Semester - European Scrutiny Committee Contents


1 European Semester

Committee's assessment Politically important
Committee's decisionFor debate in European Committee B, with other European Semester documents, before the June 2014 European Council

Document details(a) Draft Council Recommendation about the UK's 2014 national reform and convergence programmes

(b) Commission Communication about building growth in the EU

Legal base(a) Articles 121(2) and 148(4) TFEU; QMV

(b) —

DepartmentHM Treasury

Summary and Committee's conclusions

1.1 The European Semester is an EU-level framework for coordinating and assessing Member States' structural reforms and fiscal/budgetary policy and for monitoring and addressing macroeconomic imbalances. The Semester cycle begins with an Annual Growth Survey by the Commission, followed by a series of overarching and country specific documents from the Commission and culminating in examination of the overall and country-specific situations by the June European Council.

1.2 We considered the Annual Growth Survey and associated documents for the 2014 European Semester in December 2013 and recommended them for debate in European Committee B before consideration by the March European Council. The Government ignored this recommendation. So when, in April, we considered the next set of documents for this Semester we had no choice but to recommend that all these documents, together with the documents considered in this chapter and chapter 2 of this Report, be debated before the June European Council.

1.3 The present documents dealt with in this chapter concern a Communication in which the Commission takes stock of the 2014 European Semester to date and considers specific policy challenges at both EU and Member State level and a draft Council Recommendation addressed to the UK.

1.4 The reason we wished there to be two European Semester debates, one before the March European Council and the other before the June European Council, reflected the structure of the Semester cycle. We wished the first debate to be on the overarching introductory stage of the cycle, centred around the Annual Growth Survey, and the second to be on the detailed emerging conclusions of the cycle. However, given the Government's subversion of the House's scrutiny process, we now have no alternative but to recommend that all the documents relevant to the 2014 European Semester be debated in European Committee B and that this debate should take place before the June European Council.

1.5 Regrettably, because of the Government's failure in relation to our debate recommendations, Members in this debate will be faced with an unconscionable amount of paper. Nevertheless, we suggest that they might wish to explore, in addition to the opinions and recommendations specific to the UK:

  • the direction of EU economic and fiscal policies; and
  • the utility of the European Semester process.

Full details of the documents: (a) Draft Council Recommendation on the United Kingdom's 2014 national reform programme and delivering a Council opinion on the United Kingdom's 2014 convergence programme: (36103), 10522/14 + ADD 1, COM(14) 429; (b) Commission Communication: 2014 European Semester: Country-specific recommendations: Building growth: (36114), 10679/14, COM(14) 400.

Background

1.6 The European Semester is an EU-level framework for coordinating and assessing Member States' structural reforms and fiscal/budgetary policy and for monitoring and addressing macroeconomic imbalances. It attempts to exploit the synergies between these policy areas by aligning their reporting cycles, which would tie together consideration of National Reform Programmes (reports on progress and plans on structural reforms, under the Europe 2020 Strategy) and Stability and Convergence Programmes (reports on fiscal policy, under the Stability and Growth Pact).

1.7 The European Semester cycle begins with an Annual Growth Survey by the Commission, followed by a series of overarching and country specific documents from the Commission and culminating in examination of the overall and country-specific situations by the European Council.

1.8 The Annual Growth Survey for the present cycle was accompanied by a draft Joint Employment Report and a Commission Report: A single market for growth and jobs: an analysis of progress made and remaining obstacles in the Member States — contribution to the Annual Growth Survey 2014.

1.9 An element of the European Semester process is the Macroeconomic Imbalances Procedure (MIP). The MIP is a mechanism designed to identify and, if necessary, correct harmful macroeconomic imbalances across the EU, which were a key cause of the current sovereign debt crisis. It has a preventative and a corrective arm. Under the corrective arm, if the Commission considers that an excessive imbalance exists, it would propose, subject to Council approval by QMV, placing the Member State in an "Excessive Imbalances Procedure". This would involve more stringent requirements, which could, in the case of non-compliance by eurozone Member States, result in escalating sanctions up to and including a non-refundable fine of 0.1% of GDP. For non-eurozone countries non-compliance would not lead to sanctions, but it would be made public. The first stage of the MIP is publication by the Commission of an annual Alert Mechanism Report.

1.10 The centrepiece of the Alert Mechanism Report is the "scoreboard". Each Member State is assessed against a scoreboard comprising 11 macroeconomic indicators that monitor the potential development of problematic external and internal imbalances. In the Alert Mechanism Report for the 2014 European Semester the UK was said to have exceeded the thresholds for three of these indicators: general government debt, private sector debt and export market share. The 2014 Alert Mechanism Report identified 16 Member States as showing signs of potential macroeconomic imbalances: Belgium, Bulgaria, Croatia, Denmark, Spain, France, Germany, Italy, Hungary, Luxembourg, Malta, the Netherlands, Finland, Slovenia, Sweden and the UK.

1.11 We considered the three Annual Growth Survey documents and the Alert Mechanism Report for the 2014 European Semester in December 2013 and recommended them for debate in European Committee B before consideration by the relevant functional Councils ahead of the March European Council. Our intention was, as the Government knew, that these documents, the overarching introductory stage of the cycle, should be debated then, with a separate debate to follow later on documents concerning the detailed emerging conclusion of the cycle. However, the Government deliberately ignored our timing recommendation, thus consequentially breaching the House's Scrutiny Reserve Resolution of 17 November 1998.

1.12 In April we considered the Commission's Communication about the results of In-Depth Reviews (IDRs) into the 16 Member States identified in the 2014 Alert Mechanism as showing signs of potential macroeconomic imbalances, as well as on Ireland which had just completed its adjustment programme. Publication of the IDRs represents the second stage of the MIP. We also considered the Commission's In-Depth review of the UK.

1.13 We recalled that the Government has subverted the House's scrutiny process by its failure to meet our debate recommendation on the earlier documents. We said that, therefore, we had no choice but to recommend that those documents now be debated, in European Committee B, together with the two new documents and, once available, the draft Country-Specific Recommendations. We made clear that this debate should take place before the June European Council.

The documents

1.14 The Commission's Communication, document (b), takes stock of the 2014 European Semester to date and considers specific policy challenges at both EU and Member State level. It says that:

·  while progress is being made in a number of areas, there is no room for complacency as the recovery is still fragile and unevenly spread; and

·  while the economic recovery is gaining ground, there are challenges in the form of high public and private debt, and further challenges remain including the need to tackle youth unemployment and restore productivity and competitiveness, as these are vital to the EU's growth prospects.

1.15 The Commission assesses progress in each of the five priority areas identified by the 2014 Annual Growth Survey: pursuing differentiated, growth-friendly fiscal consolidation, restoring lending to the economy, promoting growth and competitiveness for today and tomorrow, tackling unemployment and the social consequences of the crisis and modernising public administration.

1.16 In terms of fiscal consolidation, the Commission:

·  considers that real progress is being made to reduce deficits across the EU;

·  notes that a number of Member States have exited from the Excessive Deficit Procedure;

·  highlights the importance of a well-functioning tax system; and

·  suggests that several Member States should shift the tax base away from labour to other sources, broaden the tax base and fight tax evasion.

1.17 With regard to restoring normal lending to the economy, the Commission:

·  notes that financial fragmentation considerably receded in the sovereign and corporate debt markets;

·  finds, however, that despite some normalisation in bank funding activities, financial fragmentation in the eurozone lending market continues to hurt small and medium sized enterprises;

·  says that several Members States had introduced policies to improve access to finance, including expanding loan guarantees and fostering alternative finance mechanisms; and

·  points to developments at EU level, such as the decision to create a Banking Union, noting the next frontier would be to build deeper capital markets.

1.18 In terms of growth and competitiveness, the Commission:

·  draws attention to the need for structural reforms to improve framework conditions for growth and jobs, particularly at times of high unemployment;

·  assesses progress as limited compared to 2013;

·  highlights the importance well-functioning services sectors play in economic growth, recognising their importance as a source of jobs and as an important input for productivity of an economy;

·  recognises that many opportunities can be opened up at both national and EU levels by completing the single market, particularly in service and ICT industries — high quality ICT, transport and energy networks are assessed as requiring improved infrastructure and interconnections;

·  notes that recent events have underlined the need for the EU to continue to reduce its dependence on external energy sources and to put in place a strong energy security strategy;

·  points to the role of innovation and research and development in generating added value; and

·  highlights the importance of an efficient competition framework in the EU economy for the functioning of markets in goods and services.

1.19 On the area of tackling unemployment and the social consequences of the crisis the Commission:

·  highlights the significant increases in long term unemployment in many countries in the EU, representing half of total unemployment on average;

·  says there has, however, been a reduction in the level of unemployment in some countries;

·  notes that nearly a quarter of the EU's population is now considered to be at risk of poverty or exclusion, with the main drivers of poverty noted as long-term unemployment, labour market segmentation and wage polarisation; and

·  notes against this background that many Member States have launched important reforms, including strengthening and improving the efficiency of active labour market policies.

1.20 Finally, the Commission considers the contribution that reforms to Member States' public administrations can make to growth, including by creating a favourable business environment, streaming tax collection systems and increasing the efficiency of public institutions such as the judiciary.

1.21 In its Staff Working Document which accompanies the draft Council Recommendation for the UK, document (a), the Commission assesses the state of implementation of the 2013 Country-Specific Recommendations (CSRs) and sets out its assessment of key economic policy challenges in the UK, on the basis of the 2014 Annual Growth Survey and the structural reform plans included in the 2014 National Reform Programme (NRP) and the 2013-14 Convergence Programme (CP).

1.22 The Commission:

·  notes the UK's economic growth and expects this to become firmly established with further GDP growth projected and the composition of growth expected to broaden;

·  considers that the UK has partially implemented its 2013 CSRs and particularly notes the actions taken to boost youth employment and the skills base;

·  highlights ongoing challenges in relation to the housing market and the need to increase the supply of housing;

·  considers that the NRP and CP set out policies that address most of the 2013 CSRs and Europe 2020 Strategy priorities;

·  recalls that the Government is continuing with its fiscal consolidation strategy as set out in the CP, with the deficit expected to fall more quickly than anticipated in previous CPs;

·  note, however, the debt ratio, though lower than previously estimated, is forecast to continue rising and peak in 2015-16;

·  notes that the UK Treaty/Stability and Growth Pact deficit is forecast to be 5% of GDP in 2014-15;

·  states that the overall tax system in the UK reflects the priorities of the Annual Growth Survey, with tax composition being relatively growth-friendly and the UK having a very competitive regime for the taxation of employment income;

·  notes the strong growth of housing demand and prices and indicates that additional actions are needed to further boost the supply of houses;

·  believes that there is a case to update the property value roll to reduce distortions in the tax system;

·  considers the labour market to be performing well overall, with the unemployment rate falling to 7.5% in 2013 from 7.9% in 2012;

·  notes, however, a shortage of workers with high quality vocational and technical skills;

·  notes, on policies aimed at addressing unemployment and labour market participation, that UK employment figures have continued to rise recently and points to the high level of labour market flexibility in the UK;

·  draws attention to skills gaps in the labour market, suggesting that the UK has too many low-skilled workers and not enough workers with high quality vocational or technical skills;

·  is concerned, despite the strong labour market performance, about the challenges facing young people getting into the labour market, although it notes the falls in youth unemployment and young people not in education, employment or training (NEETs) rates in 2012-13;

·  recognises the actions taken by the Government on the Work Programme and Youth Contract to address youth unemployment and the progress in launching more and higher quality apprenticeships;

·  considers the UK has made substantial progress in addressing the access to finance CSR from 2013;

·  notes that the Government is taking positive steps to ease funding constraints for the corporate sector;

·  considers the refocusing of the Funding for Lending Scheme towards corporate sector at the end of 2013 as an appropriate step;

·  recognises that some steps to boost competition in the banking sector have been taken with new 'challenger' banks commencing operation in recent years;

·  notes the introduction of Universal Credit and the potential for it to streamline the benefits system and improve work incentives, but highlights that its effectiveness will depend on implementation and support services;

·  says that its analysis suggests that the cost and quality of childcare provision is a potential barrier to second earners participating in the labour market, while recognising that the supply of childcare has increased in recent years, but costs remain high on an internationally comparable basis;

·  points, regarding infrastructure, to the UK's economy being dynamic and flexible overall, but with scope remaining to boost competitiveness;

·  notes the publication of the updated National Infrastructure Plan in December 2013, with its strategic approach to planning, funding, financing and the delivery of infrastructure; and

·  highlights risks around financing from the private sector and the need for high levels of regulatory certainty.

1.23 In the actual draft Council Recommendation for the UK the Commission suggests six CSRs for the period 2014-15. In the first the recommendation is that the UK should:

·  reinforce the budgetary strategy, endeavouring to correct the excessive deficit in a sustainable manner in line with the Council Recommendation under the Excessive Deficit Procedure;

·  pursue a differentiated, growth-friendly approach to fiscal tightening by prioritising capital expenditure;

·  give, in order to assist with fiscal consolidation, consideration to raising revenues through broadening the tax base; and

·  address structural bottlenecks related to infrastructure, skills mismatches and access to finance for SMEs to boost growth in the export of both goods and services.

1.24 The next CSR is that the UK should:

·  increase the transparency of the use and impact of macro-prudential regulation in respect of the housing sector by the Bank of England's Financial Policy Committee;

·  deploy appropriate measures to respond to the rapid increases in property prices in areas that account for a substantial share of economic growth in the UK, particularly London, for example by adjusting the Help to Buy 2 scheme and mitigate risks related to high mortgage indebtedness;

·  remove distortions in property taxation by regularly updating the valuation of property and reduce the regressivity of the band and rates within the council tax system; and

·  continue efforts to increase the supply of housing.

1.25 The third CSR is that the UK should:

·  maintain commitment to the Youth Contract, especially by improving skills that meet employer needs;

·  ensure employer engagement by placing emphasis on addressing skills mismatches through more advanced and higher level skills provision and furthering apprenticeship offers; and

·  reduce the number of young people with low basic skills.

1.26 The next CSR is that the UK should:

·  continue efforts to reduce child poverty in low-income households, by ensuring that the Universal Credit and other welfare reforms deliver adequate benefits with clear work incentives and support services; and

·  improve the availability of affordable quality childcare.

1.27 The fifth CSR is that the UK should:

·  continue efforts to improve the availability of bank and non-bank financing to SMEs;

·  ensure the effective functioning of the Business Bank; and

·  support an increased presence of challenger banks.

1.28 The final CSR is that the UK should:

·  follow up on the National Infrastructure Plan by increasing the predictability of the planning processes as well as providing clarity on funding commitments; and

·  ensure transparency and accountability by providing consistent and timely information on the implementation of the Plan.

The Government's view

1.29 In her Explanatory Memorandum of 10 June the Financial Secretary to the Treasury (Nicky Morgan) says first that:

·  the Government notes the Commission's Communication, document (b), and its focus on fiscal consolidation, promoting economic growth and employment and the five priority areas of the 2014 Annual Growth Survey;

·  it supports the Commission's finding that progress is being made with reducing deficits across the EU;

·  the Government notes that the UK economy is growing, that the deficit has already been reduced by more than a third as a percentage of GDP since its 2009-10 peak and by next year is expected to fall by a half and that over 1.7 million private sector jobs have been created; and

·  it considers that structural reforms at EU level are an essential complement to the reform efforts of individual Member States and welcomes the Commission's focus on the role of EU-level structural reforms such as regulatory reforms and strengthening the Single Market, particularly in services.

1.30 Turning to the draft Council Recommendation for the UK, document (a), the Minister says that:

·  the Government takes note of the Commission's suggested CSRs to the UK;

·  it notes the Commission recommends that the UK tackles its deficit, pursues ambitious labour market and structural reforms (including to the housing market) and prioritises investment in infrastructure — these exactly align with existing Government priorities;

·  the Government recognises the importance of increasing the supply of housing — the package of measures announced in the 2014 Budget and the 2013 Autumn Statement complements existing measures introduced to stimulate economic growth and support housing market stability;

·  for their part, the Devolved Administrations have also implemented a range of actions to increase housing supply;

·  the Government disagrees with the Commission's assessment of the Help to Buy: mortgage guarantee scheme and notes that latest figures show that the scheme is having the desired effect;

·  it also disagrees with the Commission's assessment that the Council Tax regime creates distortions in the wider housing market;

·  as the Devolved Administrations are responsible for control of this tax in their nations, their responses have also been sought — the Scottish Government is committed to consulting with others to develop options for a local tax later in this Parliament;

·  the Government notes the draft recommendation to continue to step up measures to address youth unemployment and improve skills for young people — it is committed to ensuring that young people stay attached to the labour market and engaged in society and has introduced the Youth Contract, the Work Programme and work experience through the Jobcentre Plus Offer and has also increased the number of apprenticeships available to young people;

·  it is disappointing that the Commission fails to recognise both the full range of Government action to improve skills, as well as the improving performance of the labour market, with falling unemployment (including youth unemployment and NEETS), and that this trend is amongst the strongest in the EU;

·  the Government is committed to incentivising work and reducing worklessness — in the 2014 Budget it confirmed an increase in the cap for Tax-Free Childcare costs against which parents can claim 20% support and in addition, all families eligible for Universal Credit should benefit from additional childcare support at 85% of their costs;

·  the Government recognises the ongoing importance of access to finance, particularly for SMEs;

·  it has already taken significant steps to increase the availability of finance for business, including by introducing the Funding for Lending Scheme in July 2012 and further extending the scheme to target SME lending in April 2013;

·  the Government has also announced additional funding for the Business Bank, which among other programmes will be launching a programme of wholesale guarantees for SME loans (the pilot for which was announced in the 2014 Budget); and

·  it notes the draft recommendation on infrastructure and draws attention to the Government's long term strategy to strengthen UK infrastructure and support growth in the economy, as set out in the updated National Infrastructure Plan published in December 2013 — this document reflected actions being taken by each of the Devolved Administrations in relation to infrastructure planning and investment within their devolved competence.

1.31 Finally, the Minister tells us that Ministers will be asked to approve the draft CSRs at the Employment and Social Protection Council on 19 June and at the ECOFIN Council on 20 June and that the European Council will endorse the CSRs on 26-27 June, before they return to the ECOFIN Council for formal adoption on 8 July.

Previous Committee Reports

None, but see: (35532) 15803/13 (35535) 16348/13: Twenty-seventh Report HC 83-xxiv (2013-14), chapter 3 (11 December 2013); (35533) 15808/13: Twenty-seventh Report HC 83-xxiv (2013-14), chapter 4 (11 December 2013); (35534) 16171/13: Twenty-eighth Report HC 83-xxv (2013-14), chapter 1 (18 December 2013) and (35855) 7413/14 (35858): Forty-sixth HC 83-xli (2013-14) chapter 1 (9 April 2014).


2 European Semester
Committee's assessment Politically important
Committee's decisionFor debate in European Committee B, with other European Semester documents, before the June 2014 European Council

Document details(a)-(aa) Draft Council Recommendations on Member States' national reform programmes and Council Opinions on their stability or convergence programmes: Belgium, Bulgaria, the Czech Republic, Denmark, Germany, Estonia, Ireland, Spain, France, Croatia, Italy, Latvia, Lithuania, Luxembourg, Hungary, Malta, the Netherlands, Austria, Poland, Portugal, Romania, Slovenia, Slovakia, Finland, Sweden

(bb) Draft Council Recommendation about broad guidelines for the economic policies of the Member States whose currency is the euro

Legal base(a)-(aa) Articles 121(2) and 148(4) TFEU; QMV

(bb) Articles 121(2) and 136 TFEU; —; QMV of eurozone Member States

DepartmentHM Treasury

Summary and Committee's conclusions

2.1 The European Semester is an EU-level framework for coordinating and assessing Member States' structural reforms and fiscal/budgetary policy and for monitoring and addressing macroeconomic imbalances. The Semester cycle begins with an Annual Growth Survey by the Commission, followed by a series of overarching and country specific documents from the Commission and culminating in examination of the overall and country-specific situations by the June European Council.

2.2 We considered the Annual Growth Survey and associated documents for the 2014 European Semester in December 2013 and recommended them for debate in European Committee B before consideration by the March European Council. The Government ignored this recommendation. So when, in April, we considered the next set of documents for this Semester we had no choice but to recommend that all these documents, together with the documents considered in this chapter and chapter 1 of this Report, be debated before the June European Council.

2.3 The present documents dealt with in this chapter concern draft Council Recommendations addressed to Member States other than the UK and a draft Council Recommendation addressed to eurozone Member States collectively.

2.4 The reason we wished there to be two European Semester debates, one before the March European Council and the other before the June European Council, reflected the structure of the Semester cycle. We wished the first debate to be on the overarching introductory stage of the cycle, centred around the Annual Growth Survey, and the second to be on the detailed emerging conclusions of the cycle. However, given the Government's subversion of the House's scrutiny process, we now have no alternative but to recommend that all the documents relevant to the 2014 European Semester be debated in European Committee B and that this debate should take place before the June European Council.

2.5 Regrettably, because of the Government's failure in relation to our debate recommendations, Members in this debate will be faced with an unconscionable amount of paper. Nevertheless, we suggest that they might wish to explore, in addition to the opinions and recommendations specific to the UK:

·  the direction of EU economic and fiscal policies; and

·  the utility of the European Semester process.

Full details of the documents: (a) Draft Council Recommendation on Belgium's 2014 national reform programme and delivering a Council opinion on Belgium's 2014 stability programme: (36072), 10459/14, COM(14) 402; (b) Draft Council Recommendation on Bulgaria's 2014 national reform programme and delivering a Council opinion on Bulgaria's 2014 convergence programme: (36073), 10462/14, COM(14) 403; (c) Draft Council Recommendation on the Czech Republic's 2014 national reform programme and delivering a Council opinion on the Czech Republic's 2014 convergence programme: (36074), 10464/14, COM(14) 404; (d) Draft Council Recommendation on Denmark's 2014 national reform programme and delivering a Council opinion on Denmark's 2014 convergence programme: (36075), 10466/14, COM(14) 405; (e) Draft Council Recommendation on Germany's 2014 national reform programme and delivering a Council opinion on Germany's 2014 stability programme: (36076), 10468/14, COM(14) 406; (f) Draft Council Recommendation on Estonia's 2014 national reform programme and delivering a Council opinion on Estonia's 2014 stability programme: (36077), 10471/14, COM(14) 407; (g) Draft Council Recommendation on Ireland's 2014 national reform programme and delivering a Council opinion on Ireland's 2014 stability programme: (36078), 10479/14, COM(14) 408; (h) Draft Council Recommendation on Spain's 2014 national reform programme and delivering a Council opinion on Spain's 2014 stability programme: (36079), 10481/14, COM(14) 410; (i) Draft Council Recommendation on France's 2014 national reform programme and delivering a Council opinion on France's 2014 stability programme: (36080), 10482/14, COM(14) 411; (j) Draft Council Recommendation on Croatia's 2014 national reform programme and delivering a Council opinion on Croatia's 2014 convergence programme: (36081), 10483/14, COM(14) 412; (k) Draft Council Recommendation on Italy's 2014 national reform programme and delivering a Council opinion on Italy's 2014 stability programme: (36082), 10484/14, COM(14) 413; (l) Draft Council Recommendation on Latvia's 2014 national reform programme and delivering a Council opinion on Latvia's 2014 stability programme: (36084), 10487/14, COM(14) 415; (m) Draft Council Recommendation on Lithuania's 2014 national reform programme and delivering a Council opinion on Lithuania's 2014 convergence programme: (36085), 10489/14, COM(14) 416; (n) Draft Council Recommendation on Luxembourg's 2014 national reform programme and delivering a Council opinion on Luxembourg's 2014 stability programme: (36087), 10491/14, COM(14) 417; (o) Draft Council Recommendation on Hungary's 2014 national reform programme and delivering a Council opinion on Hungary's 2014 convergence programme: (36088), 10493/14, COM(14) 418; (p) Draft Council Decision abrogating Decision 2010/407/EU on the existence of an excessive deficit in Denmark: (36090), 10497/14, COM(14) 434; (q) Draft Council Recommendation on Malta's 2014 national reform programme and delivering a Council opinion on Malta's 2014 stability programme: (36091), 10498/14, COM(14) 419; (r) Draft Council Recommendation on the Netherlands' 2014 national reform programme and delivering a Council opinion on the Netherlands' 2014 stability programme: (36093), 10500/14, COM(14) 420; (s) Draft Council Recommendation on Austria's 2014 national reform programme and delivering a Council opinion on Austria's 2014 stability programme: (36095), 10502/14, COM(14) 421; (t) Draft Council Recommendation on Poland's 2014 national reform programme and delivering a Council opinion on Poland's 2014 convergence programme: (36096), 10504/14, COM(14) 422; (v) Draft Council Recommendation on Portugal's 2014 national reform programme and delivering a Council opinion on Portugal's 2014 stability programme: (36097), 10505/14, COM(14) 423; (w) Draft Council Recommendation on Romania's 2014 national reform programme and delivering a Council opinion on Romania's 2014 convergence programme: (36098), 10510/14, COM(14) 424; (x) Draft Council Recommendation on Slovenia's 2014 national reform programme and delivering a Council opinion on Slovenia's 2014 stability programme: (36099), 10512/14, COM(14) 425; (y) Draft Council Recommendation on Slovakia's 2014 national reform programme and delivering a Council opinion on Slovakia's 2014 stability programme: (36100), 10515/14, COM(14) 426; (z) Draft Council Recommendation on Finland's 2014 national reform programme and delivering a Council opinion on Finland's 2014 stability programme: (36101), 10517/14, COM(14) 427; (aa) Draft Council Recommendation on Sweden's 2014 national reform programme and delivering a Council opinion on Sweden's 2014 convergence programme: (36102), 10519/14, COM(14) 428; (bb) Draft Council Recommendation on the implementation of the broad guidelines for the economic policies of the Member States whose currency is the euro: (36105), 10524/14, COM (401).

Background

2.6 The European Semester is an EU-level framework for coordinating and assessing Member States' structural reforms and fiscal/budgetary policy and for monitoring and addressing macroeconomic imbalances. It attempts to exploit the synergies between these policy areas by aligning their reporting cycles, which would tie together consideration of National Reform Programmes (reports on progress and plans on structural reforms, under the Europe 2020 Strategy) and Stability and Convergence Programmes (reports on fiscal policy, under the Stability and Growth Pact).

2.7 The European Semester cycle begins with an Annual Growth Survey by the Commission, followed by a series of overarching and country specific documents from the Commission and culminating in examination of the overall and country-specific situations by the European Council. Our scrutiny of previous documents issued for the 2014 European Semester is summarised in chapter 1 of this Report.

The documents

2.8 Documents (a)-(aa) are draft Council Recommendations to Member States other than the UK. Summaries of them follow.

2.9 For Austria the Commission suggests that it should reinforce the budgetary measures for 2014; strengthen the budgetary strategy in 2015 to ensure reaching the medium-term objective; ensure that the debt rule is met; further streamline fiscal relations between layers of government; improve the long-term sustainability of the pension system; monitor the implementation of recent reforms restricting access to early retirement; improve the cost effectiveness and sustainability of health care and long-term care services; reduce the high tax wedge on labour for low-income earners by shifting taxation to sources less detrimental to growth; reinforce measures to improve labour market prospects of people with a migrant background, women and older workers; improve educational outcomes in particular of young people with a migrant background; further improve strategic planning in higher education and enhance measures to reduce dropouts; remove excessive barriers for services providers; review whether restrictions on entry into and conduct in regulated professions are proportionate and justified by general interest; identify the reasons behind the low value of public contracts open to procurement under EU legislation; and substantially strengthen the resources of the Federal Competition Authority.

2.10 For Belgium the Commission suggests that it should reinforce the budgetary measures for 2014; significantly strengthen the budgetary strategy in 2015 to ensure the required adjustment towards the medium-term objective; pursue the planned annual structural adjustment; ensure a balanced contribution by all levels of government to the fulfilment of fiscal rules; improve the balance and fairness of the overall tax system; shift taxes away from labour towards more growth friendly bases; simplify the tax system; close loopholes; increase VAT efficiency; broaden tax bases; reduce tax expenditures and phase out environmentally harmful subsidies; contain future public expenditure growth relating to ageing; bring forward the reduction of early-exit possibilities; promote active ageing; align the statutory retirement age and career length requirements to changes in life expectancy and improve the cost effectiveness of public spending on long-term care; increase labour market participation; strengthen partnerships to provide early and tailor-made support to the young; continue the reform of the wage-setting system; strengthen competition in the retail sectors; remove excessive restrictions in services; promote innovation; pursue coordinated education and training policies; and ensure that the 2020 targets for reducing greenhouse gas emissions from non-ETS activities are met.

2.11 For Bulgaria the Commission suggests that it should reinforce the budgetary measures for 2014; strengthen the budgetary strategy in 2015; ensure the capacity of the new fiscal council to fulfil its mandate; implement a comprehensive tax strategy to strengthen tax collection, tackle the shadow economy and reduce compliance costs; adopt a long-term strategy for the pension system; tighten eligibility criteria and procedures for the allocation of invalidity pensions; ensure efficient provision of healthcare; improve the efficiency of the Employment Agency; extend the coverage and effectiveness of active labour market policies; reach out to non-registered young people in line with the objectives of a youth guarantee; improve the effective coverage of unemployment benefits and social assistance; adopt the School Education Act and pursue the reforms of vocational and higher education; strengthen the quality of vocational education and training institutions and improve access to life-long learning; step up efforts to improve access to quality inclusive pre-school and school education of disadvantaged children; continue to improve the business environment; improve the public procurement system; enhance the quality and independence of the judiciary and step up the fight against corruption; scale up the reform of the energy sector; and accelerate interconnector projects with neighbouring Member States and candidate countries and enhance the capacity to cope with disruptions.

2.12 For Croatia the Commission suggests that it should fully implement the budgetary measures adopted for 2014; reinforce the budgetary strategy; ensure that the structural adjustment effort is delivered; take measures to reinforce control over expenditure; carry out a thorough expenditure review; reinforce the budgetary planning process; ground in law the newly established Fiscal Policy Commission; present a concrete strategy to reform recurrent property taxation; initiate a process of reporting and reviewing of tax expenditures; improve tax compliance; reduce access to early retirement; ensure enforcement of tighter disability pensions assessments and controls; implement the second phase of the labour law reform; review the wage-setting system; strengthen the effectiveness and reach of active labour market policies; prioritise outreach to nonregistered people; implement measures to improve the labour market relevance and quality of education outcomes; strengthen the cost-effectiveness of the healthcare sector; review tax and benefits systems; strengthen the effectiveness and transparency of the social protection system; improve the effectiveness and adequacy of social assistance benefits; take further measures to improve the business environment; address the high level of fragmentation and overlapping responsibilities across various levels of government and at central government level between ministries and agencies; reinforce prevention of corruption in public administration and state-owned and state-controlled enterprises; strengthen transparency and efficiency of public procurement at both central and local levels; improve the quality and efficiency of the judicial system; and complement the 2014 European Central Bank's asset quality reviews and stress test exercises.

2.13 For the Czech Republic the Commission suggests that it should preserve a sound fiscal position in 2014; significantly strengthen the budgetary strategy in 2015; prioritise growth-enhancing expenditure to support the recovery and improve growth prospects; adopt and implement measures to strengthen the fiscal framework; introduce fiscal rules for local and regional governments and improve co-ordination between all layers of government; improve tax compliance; reduce the high level of taxation on labour; further reduce discrepancies in the tax treatment of employees and the self-employed; ensure the long-term sustainability of the public pension scheme; promote the employability of older workers; take measures to improve significantly the cost-effectiveness and governance of the healthcare sector; strengthen the efficiency and effectiveness of the public employment service; increase considerably the availability of affordable and quality childcare facilities and services; in compulsory education, make the teaching profession more attractive, implement a comprehensive evaluation framework and support schools and pupils with poor outcomes; increase the inclusiveness of education; accelerate the reform of regulated professions; step up the efforts to improve energy efficiency in the economy; adopt and implement a Civil Service Act that will ensure a stable, efficient and professional state administration service; speed up and substantially reinforce the fight against corruption; further improve the management of EU funds; and increase transparency of public procurement.

2.14 For Denmark the Commission suggests that it should continue to pursue a growth friendly fiscal policy and preserve a sound fiscal position; ensure that the medium-term budgetary objective continues to be adhered to; take further measures to improve the employability of people at the margins of the labour market; improve educational outcomes, in particular for young people with a migrant background, and the effectiveness of vocational training; facilitate the transition from education to the labour market; and increase efforts to remove barriers to entry and reduce regulatory burden with a view to increasing competition in the domestic services sector.

2.15 For Estonia the Commission suggests that it should reinforce the budgetary measures for 2014; in 2015, significantly strengthen the budgetary strategy; complement the budget rule with more binding multi-annual expenditure rules and continue to enhance the efficiency of public spending; improve incentives to work through measures targeted at low income earners; target activation efforts at those most distant from the labour market; increase the efficiency and cost-effectiveness of family policy while improving the availability and accessibility of childcare; deploy coordinated measures for fostering economic development and entrepreneurship in regions faced with high unemployment; improve skills and qualification levels by expanding life-long learning measures and systematically increasing participation in vocational education and training; and further intensify prioritisation and specialisation in the research and innovation systems and enhance cooperation between businesses and higher education and research institutions to contribute to international competitiveness.

2.16 For Finland the Commission suggests that it should reinforce the budgetary measures for 2014 in the light of the emerging gap relative to the medium-term objective; in 2015 and thereafter respect the medium-term objective as planned and ensure that the debt criterion is fulfilled; implement rapidly the reforms set out in the structural policy programme and government's spending limits and fiscal plan for 2015-18; ensure effective implementation of the on-going administrative reforms concerning municipal structure and social and healthcare services; improve the use of the full labour force potential in the labour market; improve the labour-market prospects of young people and the long-term unemployed; continue efforts to enhance competition in product and service markets; continue to boost Finland's capacity to deliver innovative products, services and high-growth companies and continue the diversification of industry; and step up the development of cross-border gas connection to Estonia.

2.17 For France the Commission suggests that it should reinforce the budgetary strategy; step up efforts to achieve efficiency gains across all sub-sectors of general government; take steps to reduce significantly the increase in social security spending as from 2015 as planned; set a clear timetable for the on-going decentralisation process; introduce a ceiling on the annual increase in local government tax revenue; take steps to tackle the increase in public expenditure on health; take additional measures when and where needed to bring the pension system into balance by 2020; ensure that the labour cost reduction resulting from the crédit d'imp¼t compétitivité emploi is sustained; take action to further lower employer social security contributions; further evaluate the economic impact of social security contribution exemptions; further reduce the cost of labour in a budget neutral way; simplify companies' administrative, fiscal and accounting rules; eliminate regulatory impediments to companies' growth; take steps to simplify and improve the efficiency of innovation policy; ensure that resources are focused on the most effective competitiveness poles; remove unjustified restrictions on the access to and exercise of regulated professions and reduce entry costs and promote competition in services; take further action to reduce the regulatory burden affecting the functioning of the retail sector; ensure that regulated gas and electricity tariffs for household customers are set at an appropriate level; strengthen electricity and gas interconnection capacity with Spain; reduce the tax burden on labour; step up efforts to simplify and increase the efficiency of the tax system; take further action to combat labour-market rigidity; take additional measures to reform the unemployment benefit system; step up counselling and training for older workers; pursue the modernisation of vocational education and training; take further actions to reduce educational inequalities; ensure that active labour market policies effectively support the most vulnerable groups; and improve the transition from school to work.

2.18 For Germany the Commission suggests that it should pursue growth-friendly fiscal policy and preserve a sound fiscal position; use the available scope for increased and more efficient public investment in infrastructure, education and research; improve the efficiency of the tax system; make additional efforts to increase the cost effectiveness of public spending on healthcare and long-term care; ensure the sustainability of the public pension system; complete the implementation of the debt brake consistently across all Länder; improve the design of fiscal relations between the federation, Länder and municipalities; improve conditions that further support domestic demand; when implementing the general minimum wage, monitor its impact on employment; improve the employability of workers; take measures to reduce fiscal disincentives to work and facilitate the transition from mini-jobs to forms of employment subject to full mandatory social security contributions; address regional shortages in the availability of fulltime childcare facilities and all-day schools, while improving their overall educational quality; keep the overall costs of transforming the energy system to a minimum; reinforce efforts to accelerate the expansion of the national and cross-border electricity and gas networks; step up close energy policy coordination with neighbouring countries; take more ambitious measures to further stimulate competition in the services sector; identify the reasons behind the low value of public contracts open to procurement under EU legislation; increase efforts to remove existing planning regulations which restrict new entries in the retail sector; take action to remove the remaining barriers to competition in the railway markets; and pursue consolidation efforts in the Landesbanken sector.

2.19 For Hungary the Commission suggests that it should reinforce the budgetary measures for 2014; in 2015, and thereafter, significantly strengthen the budgetary strategy; further enhance the binding nature of the medium-term budgetary framework; improve the transparency of public finances; help restore normal lending flows to the economy; adjust the financial transaction duty; investigate and remove obstacles to portfolio cleaning; further enhance financial regulation and supervision; ensure a stable, more balanced and streamlined corporate tax system; reduce the tax wedge for low-income earners; step up measures to improve tax compliance; strengthen well-targeted active labour market policy measures; put in place the planned youth mentoring network; review the public works scheme to evaluate its effectiveness; consider increasing the period of eligibility for unemployment benefits; improve the adequacy and coverage of social assistance while strengthening the link to activation; implement streamlined and integrated policy measures to reduce poverty significantly; stabilise the regulatory framework and foster market competition; take more ambitious steps to increase competition and transparency in public procurement; implement a national strategy on early school leaving prevention; put in place a systematic approach to reducing educational segregation and to promote inclusive mainstream education for disadvantaged groups, in particular Roma; support the transition between different stages of education and towards the labour market; implement a higher-education reform that enables greater tertiary attainment, particularly by disadvantaged students; review the impact of energy price regulation on incentives to invest and on competition in the electricity and gas markets; take further steps to ensure the autonomy of the national regulator in establishing network tariffs and conditions; take measures to increase energy efficiency; and further increase the sustainability of the transport system.

2.20 For Ireland the Commission suggests that it should fully implement the 2014 budget and ensure the correction of the excessive deficit in a sustainable manner by 2015; enhance the credibility of the fiscal adjustment strategy; make the government expenditure ceiling more binding; give consideration to raising revenues through broadening the tax base; enhance the growth and environmental friendliness of the tax system; advance the reform of the healthcare sector initiated under the Future Health strategic framework; pursue additional measures to reduce pharmaceutical spending; reform the financial management systems of the national health authority; pursue further improvements in active labour market policies; offer more workplace training; facilitate female labour market participation; develop further policy initiatives for the SME sector; advance initiatives to improve SME access to bank credit and non-bank finance; monitor banks' performance against the mortgage arrears restructuring targets; publish regular data on banks' SME loan portfolios in arrears to enhance transparency; develop a strategy to address distressed commercial real-estate exposures; establish a central credit registry; reduce the cost of legal proceedings and services and foster competition; take executive steps to ensure that the Legal Services Regulatory Authority is operational without delay and that it meets its obligations under the legislation; and improve data collection systems to enable quality and efficiency of judicial proceedings.

2.21 For Italy the Commission suggests that it should reinforce the budgetary measures for 2014; in 2015, significantly strengthen the budgetary strategy; carry out the ambitious privatisation plan; implement a growth-friendly fiscal adjustment; guarantee the independence and full operationalisation of the fiscal council; further shift the tax burden from productive factors to consumption, property and the environment; consider the alignment of excise duties on diesel to those on petrol and their indexation on inflation and remove environmentally harmful subsidies; implement the enabling law for tax reform; further improve tax compliance; pursue the fight against tax evasion; clarify competences at all levels of government; ensure better management of EU funds; further enhance the effectiveness of anti-corruption measures; monitor the impact of the reforms adopted to increase the efficiency of civil justice; reinforce the resilience of the banking sector and ensure its capacity to manage and dispose of impaired assets to revive lending to the real economy; foster non-bank access to finance for firms; continue to promote and monitor efficient corporate governance practices in the whole banking sector; evaluate the impact of the labour market and wage-setting reforms; work towards a comprehensive social protection for the unemployed; strengthen the link between active and passive labour market policies; adopt effective action to promote female employment; provide adequate services across the country to non-registered young people; improve the effectiveness of family support schemes; increase the use of work-based learning in upper secondary vocational education; ensure that public funding better rewards the quality of higher education and research; approve the pending legislation aimed at simplifying the regulatory environment for businesses and citizens; enhance the efficiency of public procurement; and ensure swift and full operationalisation of the Transport Authority.

2.22 For Latvia the Commission suggests that it should preserve a sound fiscal position in 2014 and strengthen the budgetary strategy as of 2015; pursue efforts to further reduce the tax burden on low-income earners; step up implementation of higher education reform; provide career guidance at all education levels; improve the quality of vocational education and training; take steps for a more integrated and comprehensive research system;  reform social assistance and its financing; increase coverage of active labour market policies; improve the cost-effectiveness, quality and accessibility of the health care system; accelerate the development of gas and electricity interconnections to neighbouring Member States; pursue efforts to further increase energy efficiency in transport, buildings and heating systems; complete judicial reforms; and step up public administration reforms.

2.23 For Lithuania the Commission suggests that it should reinforce the budgetary measures for 2014; in 2015, strengthen the budgetary strategy; further review the tax system and consider increasing those taxes that are least detrimental to growth; adopt and implement legislation on a comprehensive pension system reform; promote the employability of older workers; better target active labour market policy measures to the low-skilled and long-term unemployed; improve coverage and adequacy of unemployment benefits and link them to activation; address persistent skills mismatches; prioritise offering quality apprenticeships and strengthen partnership with the private sector; review the appropriateness of labour legislation; ensure adequate coverage of those most in need and continue to strengthen the links between cash social assistance and activation measures; complete the implementation of the reform of state-owned enterprises as planned; step up measures to improve the energy efficiency of buildings; and continue the development of cross-border connections to neighbouring Member States for both electricity and gas.

2.24 For Luxembourg the Commission suggests that it should preserve a sound fiscal position in 2014; significantly strengthen the budgetary strategy in 2015; strengthen fiscal governance; further broaden the tax base; curb age-related expenditure; reinforce efforts to increase the participation rate of older workers; speed up the adoption of structural measures to reform the wage indexation system; pursue the diversification of the structure of the economy; pursue efforts to reduce youth unemployment; accelerate implementation of the reform of general and vocational education; and develop a comprehensive framework and take concrete measures to meet the 2020 target for reducing greenhouse gas emissions from non-ETS activities.

2.25 For Malta the Commission suggests that it should correct the excessive deficit in a sustainable manner by 2014; in 2015, significantly strengthen the budgetary strategy; finalise the adoption of the Fiscal Responsibility Act; continue improving tax compliance and fighting tax evasion; step up the ongoing pension reform; continue policy efforts to address the labour-market relevance of education and training and improve basic skills attainment; further reduce early school leaving; further improve the labour-market participation of women; diversify the energy mix in the economy; continue efforts to increase the efficiency and reduce the length of public procurement procedures; encourage alternatives to debt-financing of companies; and increase the efficiency of the judicial system.

2.26 For the Netherlands the Commission suggests that it should reinforce the budgetary measures for 2014; in 2015, significantly strengthen the budgetary strategy; protect expenditure in areas directly relevant for growth; step up efforts to reform the housing market; monitor the effects of the social housing reforms; continue efforts to refocus social housing policies; implement reforms of the second pillar of the pension system; improve the employability of older workers; implement the envisaged reform in the area of long-term care; take further measures to enhance labour market participation; implement reforms of employment protection legislation and the unemployment benefit system; and allow for more differentiated wage increases.

2.27 For Poland the Commission suggests that it should reinforce the budgetary strategy; pursue an annual structural adjustment of 0.5% of GDP as a benchmark; minimise cuts in growth-enhancing investment, improve the targeting of social policies and the cost effectiveness of spending and the overall efficiency of the healthcare sector; broaden the tax base; improve tax compliance; establish an independent fiscal council; strengthen efforts to reduce youth unemployment; increase adult participation in lifelong learning; combat labour market segmentation;  continue efforts to increase female labour market participation; include farmers in the general pension system; phase out the special pension system for miners; underpin the general pension reform by stepping up efforts to promote the employability of older workers; improve the effectiveness of tax incentives in promoting research and development in the private sector; renew and extend energy generation capacity and improve efficiency in the whole energy chain; speed up and extend the development of the electricity grid; ensure effective implementation of railway investment projects; accelerate efforts to increase broadband coverage; improve waste management; take further steps to improve the business environment; step up efforts to reduce costs and time spent on tax compliance by businesses; and complete the ongoing reform aimed at facilitating access to regulated professions.

2.28 For Portugal the Commission suggests that it should fully implement the budgetary strategy for 2014; for 2015, rigorously implement the budgetary strategy as laid out in the Fiscal Strategy Document 2014; replace consolidation measures which the Constitutional Court considers unconstitutional by measures of similar size and quality as soon as possible; pursue the planned annual structural adjustment towards the medium-term objective; prioritise expenditure-based fiscal consolidation and increase further the efficiency and quality of public expenditure; maintain tight control of expenditure in central, regional and local administration; develop a durable solution to ensure the medium-term sustainability of the pensions system; control health care expenditure growth and proceed with hospital reform; continue to improve tax compliance and fight tax evasion; ensure a wage setting system that promotes the alignment of wages and productivity at sectoral and/or firm level; present proposals on firm-level opt-out arrangements from sectoral contracts agreed between employers and workers' representatives; pursue the ongoing reform of active labour market policies and Public Employment Services; address high youth unemployment; improve the quality and labour-market relevance of the education system; monitor banks' liquidity position and potential capital shortfalls; continue the assessment of the banks' recovery plans; implement a comprehensive strategy to reduce the corporate debt overhang and reinforce efforts to widen the range of financing alternatives; implement an early warning system to detect weak financial conditions of firms; implement the second and third package of measures in the energy sector; improve the cross-border integration of the energy networks; implement the comprehensive long-term transport plan; further improve the evaluation of the housing market; continue efforts to carry out further inventories of regulatory burdens; remove remaining restrictions in the professional services sector; eliminate payment delays by the public sector; continue to rationalise and modernise central, regional and local public administration; implement the reforms to enhance the efficiency of the judicial system and increase transparency; and set up a functionally independent central evaluation unit at government level.

2.29 For Romania the Commission suggests that it should implement the EU/IMF financial assistance programme; implement the budgetary strategy for 2014; significantly strengthen the budgetary effort to ensure reaching the medium-term objective in 2015; improve tax collection; reduce tax burden for low and middle-income earners; finalise the pension reform started in 2010; step up reforms in the health sector; increase efforts to curb informal payments; strengthen active labour-market measures and the capacity of the National Employment Agency; strengthen measures to promote the employability of older workers; establish clear guidelines for transparent minimum wage setting; increase the quality and access to vocational education and training, apprenticeships, tertiary education and of lifelong learning; ensure better access to early childhood education and care; increase the efficiency and effectiveness of social transfers; step up efforts to implement the envisaged measures to favour the integration of Roma in the labour market, increase school attendance and reduce early school leaving; step up efforts to strengthen the capacity of public administration; accelerate the absorption of EU funds; tackle persisting shortcomings in public procurement; continue to improve the quality and efficiency of the judicial system; fight corruption at all levels; ensure the effective implementation of court decisions; promote competition and efficiency in energy and transport industries; accelerate corporate governance reform of state-owned enterprises in the energy and transport sectors; improve and streamline energy efficiency policies; and improve the cross-border integration of energy networks.

2.30 For Slovakia the Commission suggests that it should reinforce the budgetary measures for 2014; in 2015, ensure the required adjustment of 0.1% of GDP towards the medium-term objective; thereafter, until the medium-term objective is achieved, pursue an annual structural adjustment of 0.5% of GDP as a benchmark; further strengthen the fiscal framework; improve the long term sustainability of public finance; improve the efficiency of the tax administration; link the basis for real-estate taxation to the market value of the property; more effectively address long-term unemployment; enhance the capacity of public employment services; effectively tackle youth unemployment by improving early intervention; improve incentives for women's employment; take measures to increase the quality of teaching in order to raise educational outcomes; reinforce the provision of work-based learning; improve the quality and relevance of the science base and implement plans; adopt systemic measures to improve access to high quality and inclusive pre-school and school education for marginalised communities; step up efforts to make the energy market function better; further develop interconnections with neighbouring countries, including with Ukraine, accordingly to the Memorandum of Understanding signed in April; take measures to increase the independence of the public service; adopt a strategy to improve the management of human resources in public administration; step up efforts to strengthen analytical capacity in key ministries; take steps to fight corruption and accelerate efforts to improve the efficiency and quality of the judicial system; introduce measures to improve business environment including for SMEs; and step up efforts to improve the efficiency of public procurement.

2.31 For Slovenia the Commission suggests that it should reinforce the budgetary strategy with specified structural measures; for 2014 and beyond ensure correction of the excessive deficit by 2015 through the achievement of the structural adjustment effort specified in the Council Recommendation under the Excessive Deficit Procedure; after the correction of the excessive deficit pursue a structural adjustment of at least 0.5% of GDP each year and launch a comprehensive review of expenditure; agree measures to ensure the sustainability of the and contain expenditure on long-term care by targeting benefits to those most in need; develop a comprehensive Social Agreement by the end of 2014, ensuring that wage developments, including the minimum wage, support competitiveness; continue the prompt implementation of restructuring plans of banks in receipt of state aid and the necessary consolidation of the banking sector; continue to implement the privatisations announced in 2013; finalise a corporate restructuring master plan by the end of 2014 and set up a central corporate restructuring task force monitoring and coordinating the overall restructuring process; reduce obstacles to doing business in key areas for economic development, rendering the country more attractive to foreign direct investment, particularly through accelerated liberalisation of regulated professions; and take effective measures to fight corruption, enhancing transparency and accountability.

2.32 For Spain the Commission suggests that it should ensure correction of the excessive deficit by 2016 through achieving the structural adjustment as required by the Council recommendation under the Excessive Deficit Procedure; after achieving the correction of the excessive deficit, pursue a structural adjustment towards the medium-term objective of at least 0.5% each year; ensure that the new independent fiscal authority becomes fully operational as soon as possible and ensure a full implementation of the fiscal framework enforcement measures at all levels of government; by February 2015 carry a systematic review of expenditure at all levels of government to underpin the efficiency and quality of public spending; by the end of 2014 adapt a comprehensive tax reform to make the tax system simpler and more conducive to growth and job creation; complete the reform of the saving banks sector and the restructuring of state-owned savings banks in order to facilitate their return to private ownership; complete ongoing measures to widen SMEs access to finance; pursue new measures to reduce labour market segmentation including through reducing the number of contract types and continue regular monitoring of the labour market reforms; implement the 2013-2016 Youth Entrepreneurship and Employment Strategy and evaluate its effectiveness; implement the 2013-2016 National Action Plan on Social Inclusion and assess its effectiveness; ensure swift implementation of the Law on Market Unity and adopt an ambitious reform of professional services and of professional associations by the end of 2014; eliminate the deficit in the electricity system as of 2014; address the problem of insolvent toll motorways so as to minimise costs for the State; set up an independent observatory to contribute to the assessment of future major infrastructure projects by the end of 2014; and implement the recommendations of the committee for the reform of the public administration at all government levels.

2.33 For Sweden the Commission suggests that it should continue to pursue a growth-friendly fiscal policy and preserve a sound fiscal position; moderate household sector credit growth and private indebtedness; further improve the efficiency of the housing market; take appropriate measures to improve basic skills and facilitate the transition from education to the labour market; reinforce efforts to target labour market and education measures more effectively towards low-educated young people and people with a migrant background; and increase early intervention and outreach to young people unregistered with the public services.

2.34 The draft Council Recommendation for eurozone Member States collectively primarily covers the role of the Eurogroup in coordinating economic and fiscal policies across the eurozone, but also covers the financial sector, suggesting that the eurozone should ensure the resilience of the banking system, by taking the necessary action in the follow up of the asset quality review and the stress tests and by implementing the Banking Union, and deepening the Economic and Monetary Union.

The Government's view

2.35 In her Explanatory Memorandum of 9 June the Financial Secretary to the Treasury (Nicky Morgan) says that these draft Council Recommendations have no direct policy implications for the UK.

2.36 The Minister also comments that Member States which are to receive Council Recommendations and Opinions similar to the UK are: all Member States (fiscal policy); Germany, Italy, Slovakia, Spain, Sweden (property tax); Austria, the Czech Republic, Estonia, Germany, Ireland, Italy, Romania, Slovakia (child care), Belgium, Bulgaria, the Czech Republic, Croatia, Finland, Hungary, Ireland, Italy, Lithuania, Luxembourg, the Netherlands, Poland, Spain, Sweden (youth unemployment); Austria, Germany, the Netherlands, Sweden (housing policy); Austria, Croatia, Germany, Hungary, Ireland, Italy, Slovenia, Spain (banking sector).

Previous Committee Reports

None, but see: (35532) 15803/13 (35535) 16348/13: Twenty-seventh Report HC 83-xxiv (2013-14), chapter 3 (11 December 2013); (35533) 15808/13: Twenty-seventh Report HC 83-xxiv (2013-14), chapter 4 (11 December 2013); (35534) 16171/13: Twenty-eighth Report HC 83-xxv (2013-14), chapter 1 (18 December 2013) and (35855) 7413/14 (35858): Forty-sixth Report HC 83-xli (2013-14) chapter 1 (9 April 2014).


3 Driftnet fishing
Committee's assessment Politically important
Committee's decisionNot cleared from scrutiny; further information awaited

Document detailsDraft Regulation laying down a prohibition on driftnet fishing
Legal baseArticle 43(2) TFEU; co-decision; QMV
DepartmentEnvironment, Food and Rural Affairs

Summary and Committee's conclusions

3.1 This proposal would extend EU existing restrictions on driftnet fishing to prohibit the taking on board, or use of, any kind of driftnets in all EU waters as from 1 January 2015.

3.2 This proposal is intended to address perceived shortcomings in the EU's current arrangements for reducing by-catches of protected species resulting from driftnet fishing. However, we note the Government's reservations over how far the Commission's analysis reflects current UK practice as regards driftnet fishing, and whether the proposed ban will necessarily result in a better by-catch profile, as well as the suggestion that some sort of regional arrangement would be preferable to an EU-wide measure and more in line with the approach envisaged under the reformed Common Fisheries Policy for issues of this kind. In view of this, we propose to hold the document under scrutiny, pending further information on these points and on the outcome of the consultations which the Government intends to carry out within the UK.

Full details of the documents: Draft Regulation laying down a prohibition on driftnet fisheries, amending Council Regulations (EC) No. 850/98, (EC) No. 812/2004, (EC) No. 2187/2005, and (EC) No. 1967/2006 and repealing Council Regulation (EC) No. 894/97: (36020), 9934/14, COM(14) 265.

Background

3.3 According to the Commission, driftnet fishing has traditionally been carried out to catch small and medium sized pelagic species (notably herring and mackerel) mostly living in, or migrating through, coastal areas, but problems began to arise in the late 1970s and 1980s when driftnets with large mesh sizes and tens of kilometres long began to be used, resulting in a significant increase in mortality of protected species. As a result, the United Nations passed resolutions in the early 1990s calling for a moratorium on large-scale pelagic driftnet fishing on the High Seas, whilst the EU introduced in June 1992 a prohibition on the keeping on board, or use of, driftnets longer than 2.5 kilometres. Since 2002, all driftnets, whatever their size, are prohibited when intended for the capture of species[1] listed in Annex VIII of Council Regulation (EC) No. 894/97, and there is also a prohibition on the landing of such species which have been caught in driftnets.

The proposal

3.4 However, the Commission says that the existing rules — which do not specify gear characteristics or use — are easy to circumvent, and that this, combined with the possibility of keeping on board other fishing gears, including small scale driftnets, has made it possible for fishermen to use driftnets illegally to catch prohibited species, whilst declaring that they have been caught with other gear. It has therefore put forward this proposal which, on the basis of a precautionary approach, would prohibit the taking on board, or use of, any kind of driftnets in all EU waters as from 1 January 2015.

The Government's view

3.5 In his Explanatory Memorandum of 1 June 2014, the Parliamentary Under-Secretary of State at the Department for Environment, Food and Rural Affairs (George Eustice) says that the Commission's analysis underpinning the proposal does not readily relate to UK driftnet fisheries, where a large number of small-scale inshore fishermen use driftnets to fish for herring, bass, salmon and other species, which they work seasonally as a very important part of their fishing year and livelihoods.  He adds that, in contrast to those used on the high seas, most driftnet fisheries in the UK involve very short lengths of nets — typically 200m — which are drifted singly from a vessel targeting schooling fish and deployed only for a very short time: and he also points out that, for the waters around the UK, the main issues to arise have been on the current EU by-catch regulations for cetaceans, which target controls on bottom set gill and entanglement nets, rather than on driftnets per se.

3.6 The Minister observes that banning all driftnets in this context presupposes that the resulting move to alternative gears in these fisheries will present a better by-catch profile. He suggests that this is not necessarily the case, and that, whilst all metiers need on-going management measures to mitigate unwanted by-catches of cetacean and other protected species, a complete ban on driftnets is only one potential option, and he notes that the Commission has not explored alternatives. He further comments that monitoring and reporting of cetacean by-catches in UK fisheries suggests that a move from driftnets to alternative gillnet/trammel net fishing methods would not necessarily result in a lower overall cetacean by-catch.

3.7 The Minister also notes that:

·  whilst a recital to the proposal refers to driftnet fishing 'operating close to or at the water surface', driftnets can be used through any part of the water column and are frequently used to target ground fish as well as pelagic fish, and he says that this, together with references in the text of the proposal to ongoing enforcement and conservation difficulties in the Mediterranean Sea, calls into question whether UK driftnet fisheries — and indeed similar artisanal inshore driftnet fisheries in other Member States not targeting highly migratory pelagic species — are representative of the problems which the Commission is trying to address;

·  the reformed Common Fisheries Policy included regionalisation provisions to cover fisheries management scenarios such as this, where tailored approaches can be designed by working with fishermen to address specific fisheries through regional or domestic means where appropriate in inshore fisheries, so as to ensure that the right fisheries are monitored and appropriate mitigation action taken: this will deliver greater benefits in a more targeted way than EU blanket provisions; and

·  the UK would, however, be supportive of adequate measures to address the enforcement of the current prohibition on driftnetting for highly migratory species where this has been a problem, such as in the Mediterranean.

3.8 The Minister says that no formal impact assessment is planned at this stage, but that analysis of data from 2012 suggested a total of some 250 UK-registered vessels using driftnets (of which around 240 are under 10m) landed a total catch of 914 tonnes with a total value of £830,600. He also points out that the Commission's Explanatory Memorandum accompanying the proposal states that small scale driftnets represent 0.14% of the total value of UK landings in 2011, and that, whilst it recognises that the proposed ban may affect some of the vessels concerned, it considers the overall socio-economic impact to be "irrelevant" at national and sub-regional level. However, he says that, ideally, the impact would need to be disaggregated to port/community and fully understood before such a conclusion can be drawn, and that the actual impact will be determined by the availability — or lack of — viable alternative fishing methods for small vessels in local fisheries if a driftnet prohibition were to be imposed; the period between agreement and the implementation of any proposed ban; or the outcome of negotiations which are likely to involve seeking regional solutions rather than blanket measures.

3.9 The Minister concludes by saying that informal consultation is taking place with fishing industry representatives, non-Governmental organisations, and the UK fishing administrations in order to formulate a UK negotiating position, but he suggests that, given the European Parliament elections, and the current weight of business, the Commission's aim of completing negotiations by the end of the year is "challenging".

Previous Committee Reports

None.

4 A European Union maritime security strategy
Committee's assessment Politically important
Committee's decisionNot cleared from scrutiny; further information requested

Document detailsJoint Communication on elements of an EU Maritime Strategy
Legal base
DepartmentForeign and Commonwealth Office

Summary and Committee's conclusions

4.1 The Joint Communication (which is fully summarised in our previous Report) sets out the rationale for an EU Maritime Strategy (EU MSS) and proposes the development of a functional, cross-sectoral approach to maritime security in order to protect the EU's strategic maritime security interests against a broad range of threats and risks, with its focus on five areas: external action; maritime awareness, surveillance and information sharing; capability development and capacity building; risk management, protection of critical maritime infrastructure and crisis response; and maritime security research and innovation, education and training. An EU MSS would seek to make most efficient use of existing EU and national capabilities through increased co-ordination and co-operation of EU activities, the reduction of duplication by the European External Action Service (EEAS) and European Commission, and encouraging partnerships between EU Member States (EU MSS). The EU MSS would in turn inform a roadmap which would aim to incorporate maritime security considerations more widely across EU policies.

4.2 The Minister said that the Government supported the concept of an EU MSS. However, there were a number of areas where he would continue to seek assurance that the EU's strategy would remain complementary to the greater detail and focus of national strategies, such as the soon-to-be-published UK National Strategy for Maritime Security (NSMS). The EU MSS should also seek to reflect more fully other similar strategies, such as the NATO Alliance Maritime Strategy. Furthermore, while the introduction to the Joint Communication provided assurances of the need to avoid seeking new structures or legislation, some of the subsequent text in the Joint Communication appeared to contradict this principle. The EU MSS must not seek to undertake activity where the EU does not have competence. The Minister also noted a number of other specific concerns (see paragraphs 8.20-8.23 of our previous Report for details).

4.3 Going forward, the Minister said that he would continue to press for appropriate revisions to ensure that the planned EU MSS addressed his concerns and resulted "in a considered and relevant strategy that reduces duplication in current EU activity relating to maritime security and complements the UK's NSMS". The Greek Presidency was aiming for agreement of the EU MSS at the 26/27 June European Council.

4.4 In our Report of 30 April, we noted that — the Minister having raised sufficient areas of concern, in a sensitive area — a recommendation in due course that the proposed Strategy be debated prior to the June European Council might well be appropriate. In the first instance, however, we asked the Minister to write to us about whatever Strategy emerged from Working Party discussions, along with his assessment of the extent to which his concerns had been alleviated and the extent to which UK objectives would be served by it.

4.5 More generally, we asked the Minister to explain clearly what value such an EU MSS would add to the NATO Alliance Maritime Strategy to which he referred.

4.6 We noted the Minister's references to "assurances of the need to avoid seeking new structures or legislation" and to "some of the subsequent text in the Joint Communication [appearing] to contradict this principle". At this juncture, we were unaware (because the Minister was not specific) whether his concerns included the notions of the Commission and HR ensuring "a coordinated approach on maritime security issues in international fora such as the G8, the UN, IMO, ILO, NATO, the African Union and its sub-regional organisations, the Union for the Mediterranean, the Association of South East Asian Nations (ASEAN) and with third countries", and taking "initiatives on enhanced civil-military and cross-border cooperation for crisis response and contingency planning."[2] We asked the Minister to identify the text in question and clarify how it had been addressed in the Working Party process, and also to say what he thought of the two notions outlined above.

4.7 At that time, we asked the Minister also to:

·  elaborate on what he meant by "internal difficulties in agreeing a proposed Joint Communication between the European External Action Service (EEAS) and the European Commission"; and

·  explain what consultations had taken place on the Strategy with what the Commission/EEAS rightly recognised as "key players", i.e., the private sector and research establishments.

4.8 In the meantime, we retained the Joint Communication under scrutiny.

4.9 The Minister now says that language in the current draft of the Strategy:

—  explicitly states that it will "not create new structures, legislation or funds nor administrative burden and unnecessary processes";

—  mitigates satisfactorily the concern that the EU had ambitions to intervene in maritime border disputes between Member States;

—  no longer contains statements about mandatory standards for Privately Contracted Armed Security Guards (the UK supported the IMO's view that these standards should remain voluntary);

—  accepts the argument that the existing range of international exercises, particularly through NATO, is sufficient, with the result that language concerning the possibility of EU-flagged maritime exercises with third countries in the context of CSDP operations has been removed.

4.10 The Minister also explains that the focus of the NATO Alliance Maritime Strategy (AMS) is entirely on military aspects of security, while the EU MSS has a much broader focus; and says that, with a wide range of maritime interests, the UK stands to benefit from an appropriately tailored EU MSS that will establish the framework to address maritime security challenges through a broader range of activities and existing instruments. He also notes that the fact that both NATO and the EU have been able to work alongside each other to counter piracy in the Indian Ocean shows that, though there is some overlap with the NATO AMS, "confined to the relatively small, albeit important, area of military activity", this necessary overlap does not result in any duplication of NATO tasks or structures by the EU. The UK will, he says, continue to work as the EU MSS is developed to ensure that it remains complementary to the NATO AMS.

4.11 The Minister says that the EU operating in a coordinated approach on maritime security issues in international fora and with third countries, and taking initiatives on enhanced civil-military and cross-border cooperation for crisis response and contingency planning is in line with the Government's aim of seeing the EU operate in a comprehensive manner and should reduce the duplication and provide greater coherence between the Commission and EEAS.

4.12 Overall, he says, "the Strategy, in its current form, is consistent with the UK's maritime security objectives and we will continue to work with European and other international partners on this global issue".

4.13 Given these assurances, we are content to allow the Strategy to proceed to fruition (though the promised final update prior to the June General Affairs Council would nonetheless be welcome). We would, however, like the Minister to provide us with a copy of the version adopted by the European Council, along with his final assessment of the ways in which it meets UK interests, and confirmation that the language addressing his concerns has been retained.

4.14 In the meantime, we shall continue to retain the Joint Communication under scrutiny.

Full details of the document: Joint Communication: For an open and secure global maritime domain — Elements for a European Union maritime security strategy: (35857) 7537/14 JOIN(14) 9.

Background

4.15 In his Explanatory Memorandum of 4 April 2014, the Minister described an EU MSS as an implied task of the EU Integrated Maritime Policy, to which the UK was a signatory in 2007, whose potential value was further acknowledged in the November 2013 Foreign Affairs Council Conclusions on defence, and endorsed at the December 2013 European Council. A European Union Maritime Security Strategy (EU MSS) is described by the Minister as an implied task of the EU Integrated Maritime Policy, to which the UK was a signatory in 2007, whose potential value was further acknowledged in the November 2013 Foreign Affairs Council Conclusions on defence, and endorsed at the December 2013 European Council.

4.16 The Minister said that the UK, with its dependency on the maritime domain, would benefit from a streamlined and holistic EU approach to this issue. In addition to providing structure to the activities of the EU, this strategy could positively influence individual Member States' efforts. Some Member States are waiting for the publication of the EU MSS before developing their own Maritime Security Strategies. In contrast, the Government had already developed a soon-to-be-published National Strategy for Maritime Security (NSMS), which sets out threats and priorities in both the UK and international maritime domains; along with the UK's recent declaration of an Exclusive Economic Zone (EEZ), this meant that the UK was well-placed to shape the detail of a future EU MSS.

4.17 However, there were a number of areas where he would continue to seek assurance that the EU's strategy would remain complementary to the greater detail and focus of national strategies. The EU MSS should seek to reflect more fully other similar strategies, such as the NATO Alliance Maritime Strategy. Some of the subsequent text in the Joint Communication appears to contradict assurances in the introduction to the Joint Communication concerning the need to avoid seeking new structures or legislation, this principle. The Government continued to be clear on the UK's long standing position of not supporting new structures or legislation, and that the EU MSS must not seek to undertake activity where the EU did not have competence. There was, he said, widespread support from EU Member States for the principles highlighted in the Joint Communication and the need to work within existing structures and legislation, with: some calling for the strategy to be "operationalised" ahead of the June European Council; some feeling that the references to CSDP (Common Security and Defence Policy) could be strengthened, particularly the role of navies; and some wanting to see a clearer priority of geographic areas, particularly the Gulf of Guinea. He would continue to press for appropriate revisions to ensure that the planned EU MSS addressed his concerns and resulted "in a considered and relevant strategy that reduces duplication in current EU activity relating to maritime security and complements the UK's NSMS".

The Minister's letter of 15 May 2014

4.18 The Minister now says that the Strategy is "still being developed", with a view to being adopted at the June General Affairs Council before being sent to the European Council later that month.

4.19 He continues as follows:

    "Following the release of the Joint Communication, UK officials have remained fully engaged with the drafting of the EU Maritime Security Strategy (EU MSS). The latest version of the Strategy is attached. The negotiation process is ongoing and to date most of our concerns have been addressed, but we will need to monitor further changes closely. The main points to note are:

·  "The Joint Communication was ambiguous on the topic of new structures and legislation: page two stated that 'such a strategy would not seek to create new structures, programmes or legislation...' while page 11 contained a reference to '...building on existing capabilities and arrangements such as the Ship and Port Facility Security legislation...'. This disparity left a potential avenue to implement new legislation, even though the existing comprehensive EU Maritime Legislation (Regulation (EC) No. 725/2004 on enhancing ship and port facility security of 31 March 2004 and Directive 2005/65/EC on enhancing port security of 26 October 2005) is appropriate, robust and flexible. We therefore insisted that this point be reviewed. The current draft of the Strategy explicitly states that it will 'not create new structures, legislation or funds nor administrative burden and unnecessary processes'. We judge that this language is satisfactory but will monitor future drafts.

·  "The reference in the Joint Communication to 'territorial maritime disputes...between states' was not clear. In the current draft Strategy this has been removed from the threat section and 'the peaceful settlement of maritime disputes on the basis of international law' has been added under security interests. This mitigates satisfactorily the concern that the EU had ambitions to intervene in maritime border disputes between Member States.

·  "The Joint Communication contained statements about the mandatory standards for Privately Contracted Armed Security Guards (PCASPs). The UK supported the IMO's view that these standards should remain voluntary. The relevant language has been removed entirely from the Strategy.

·  "We had objected to the claim that EU-flagged maritime exercises should be planned with third countries in the context of CSDP operations. We argued that the existing range of international exercises, particularly through NATO, is sufficient. This argument was accepted and reference to EU-flagged exercises removed.

"To respond to the specific points in the ESC Report:

·  "The NATO Alliance Maritime Strategy (AMS) provides a conceptual framework for NATO's role in the maritime environment.  It sets out how maritime power could help resolve challenges facing the Alliance now and in the future and the roles that NATO maritime forces may have to undertake to contribute to the Alliance's defence and security. This includes contribution to four core tasks; Deterrence and Collective Defence, Crisis Management, Co-operative Security (Outreach through Partnerships, Dialogue and Cooperation) and Maritime Security (in the more narrowly defined military context). As such, its focus is entirely on military aspects of security.  In contrast, the EU MSS has a much broader remit covering all maritime security interests of the EU and its Member States. It addresses maritime security in the widest sense, in a way that the NATO AMS was never intended to.  Thus the UK, with a wide range of maritime interests, stands to benefit from an appropriately tailored EU MSS that will establish the framework to address maritime security challenges through a broader range of activities and existing instruments. There is some overlap with the NATO AMS but this is confined to the relatively small, albeit important, area of military activity. Our officials remain focussed on ensuring that this necessary overlap does not result in any duplication of NATO tasks or structures by the EU.  As an example, the fact that both NATO and the EU have been able to work alongside each other to counter piracy in the Indian Ocean shows that this can be done, but the UK will continue to work as the EU MSS is developed to ensure that it remains complementary to the NATO AMS.

·  "We agree that the EU should operate in 'a coordinated approach on maritime security issues in international fora such as the G8, the UN, IMO, ILO, NATO, the African Union and its sub-regional organisations, the Union for the Mediterranean, the Association of South East Asian Nations (ASEAN) and with third countries' and to take 'initiatives on enhanced civil-military and cross-border cooperation for crisis response and contingency planning'. This approach is in line with our aim to see the EU operate in a comprehensive manner and should reduce the duplication and provide greater coherence between the Commission and EEAS. We will continue to reinforce this point.

·  "The 'internal difficulties in agreeing a proposed Joint Communication between the European External Action Service (EEAS) and the European Commission' were due to the need to find a balance between the Commission's focus on prosperity and the EEAS' on security.

·  "EEAS and Commission consultations with 'key players' are still ongoing alongside the strategy development. This includes significant work by DG Research and Innovation on maritime issues and Deputy Secretary General Popowski, has had consultations with the International Chamber of Shipping in his capacity as Chairman of the Contact Group on Piracy off the Coast of Somalia."

4.20 Overall, the Minister says:

    "the Strategy, in its current form, is consistent with the UK's maritime security objectives and we will continue to work with European and other international partners on this global issue. I will provide a further update when the Strategy has been finalised and ahead of the General Affairs Council."

Previous Committee Reports

Forty-seventh report, HC 83-xlii (2013-14), chapter 8 (30 April 2014).


5 Financial services: securities financing transactions and resilience of credit institutions
Committee's assessment Legally and politically important
Committee's decisionNot cleared from scrutiny; further information requested

Document details(a) Draft Regulation to make securities financing transactions more transparent

(b) Draft Regulation to improve the resilience of credit institutions

(c) Impact assessment accompanying the draft Regulations

Legal base(a) and (b) Article 114 TFEU; co-decision; QMV

(c) —

DepartmentHM Treasury

Summary and Committee's conclusions

5.1 The Commission presented these two draft Regulations as complementary to each other. The first draft Regulation, document (a), is aimed at increasing transparency of certain transactions outside the regulated banking sector. With the draft Regulation, document (b), the Commission proposed structural measures to improve the resilience of EU credit institutions. The Commission's Staff Working Document, document (c), is its impact assessment for both the draft Regulations.

5.2 We are keeping these documents under scrutiny whilst awaiting developments in Council negotiations on a number of issues.

5.3 We are told now that the Government has identified Justice and Home Affairs (JHA) issues in both draft Regulations and has informed the Commission of its decision to opt-in to the measures.

5.4 We remind the Government that we do not accept its view that an opt-in choice exists irrespective of whether the Commission has chosen a JHA legal base for a proposal. If it believes there is a JHA issue it needs to seek a JHA legal base.

5.5 As for the substance of the draft Regulations we await news of how Council negotiations are developing and meanwhile the documents remain under scrutiny.

Full details of the documents: (a) Draft Regulation on reporting and transparency of securities financing transactions: (35780), 6020/14 + ADD 1, COM(14) 40; (b) Draft Regulation on structural measures improving the resilience of EU credit institutions: (35781), 6022/14 + ADDs 1-4, COM(14) 43; (c) Commission Staff Working Document: Impact Assessment accompanying the draft Regulation on structural measures improving the resilience of EU credit institutions and the draft Regulation on reporting and transparency of securities financing transactions: (35829), 6860/14 + ADDs 1-3, SWD(14) 30.

Background

5.6 Shadow banking can be described as non-bank credit activity conducted by entities that are outside the regulated system, for example accepting funding with deposit-like characteristics, performing maturity and/or liquidity transformation, undergoing credit risk transfer and using direct or indirect financial leverage.

5.7 In March 2012 the Commission published a Green Paper to launch a consultation on shadow banking, in which it called for responses, particularly to 15 questions it posed, by the end of May 2012. We reported the Government's response in June 2012.[3] In September the Commission followed up its Green Paper with a Communication summarising work it had undertaken so far and setting out possible further actions in this area, including legislative proposals.[4]

5.8 The Liikanen Report or "Report of the European Commission's High-level Expert Group on Bank Structural Reform" (the Liikanen Group) is a set of recommendations published in October 2012 by a group of experts led by Erkki Liikanen, governor of the Bank of Finland and European Central Bank (ECB) council member. The Group's mandate was to determine whether structural reforms of EU banks would strengthen financial stability, improve efficiency and consumer protection in addition to the regulatory reform of the EU bank sector. The Group recommended actions in five areas, including mandatory separation of proprietary trading and other high-risk trading and strengthening bank governance and control of banks.[5]

The documents

5.9 The Commission presented the two draft Regulations as complementary to each other. The first draft Regulation, document (a), is aimed at increasing transparency of certain transactions outside the regulated banking sector. The purpose of this proposal is to prevent banks from attempting to circumvent the rules contained within the other draft Regulation by shifting parts of their activities to the less-regulated shadow banking sector. It provides a set of measures aiming to enhance regulators' and investors' understanding of securities financing transactions. These transactions have been a source of contagion, leverage and procyclicality during the financial crisis and were identified in the Commission's Communication on shadow banking as needing better monitoring.

5.10 With the draft Regulation, document (b), the Commission proposed, in response to the Liikanen Report, structural measures to improve the resilience of EU credit institutions. There are two main elements to the present draft Regulation:

·  a ban on proprietary trading by certain categories of credit institution; and

·  a requirement for competent authorities to review credit institutions falling into certain categories and to determine whether to require them to separate their deposit taking activities from their trading activities.

5.11 The Commission's Staff Working Document, document (c), is its impact assessment for both the draft Regulations.

5.12 When we considered both these proposals, in March, we said of the first, document (a), concerning securities financing transactions, that it appeared that, if this draft Regulation were enacted in the way the Government wished, it would be useful in making the securities financing transactions aspect of shadow banking more transparent. So we looked forward to hearing what progress the Government was making in Council working group discussion on the issues which had been mentioned to us.

5.13 As for the second proposal, document (b), concerning resilience of credit institutions, we said that whilst the draft Regulation, if adopted, might have some moderate benefit for the UK, we noted the various issues for the UK, including some legal ones, which had been highlighted to us. So before considering this proposal further we wished also to hear about the Government's progress in addressing these issues in Council working group discussions.

5.14 Meanwhile the documents remained under scrutiny.

The Minister's letter of 2 June 2014

5.15 The Government believes that the UK's JHA opt-in protocol is triggered when a proposal contains JHA content, irrespective of the legal base the Commission has chosen for it. The Economic Secretary to the Treasury (Andrea Leadsom), reminding us of this view, tells us that the Government has identified that certain measures included in the draft Regulations engage the UK's JHA protocol and has decided to opt-in to them.

5.16 The Minister explains that:

·  the measures considered were Article 20(3) of the draft Regulation concerning securities financing transactions, document (a), and Article 28(3) of the draft Regulation concerning resilience of credit institutions, document (b);

·  both proposals include similar provisions requiring Member States which laid down criminal sanctions for breaches of some elements of the proposals to share specific information about criminal investigations with authorities in other Member States and with the European Supervisory Authorities;

·  the Government found that these measures engaged the UK's protocol;

·  the deadline to notify the Commission of its opt-in decision was 19 May;

·  after the Government reached its position on this matter it informed the Commission of its decision to opt-in to the highlighted measures in both proposals; and

·  this decision was taken because exchanging information about specific criminal investigations could be helpful for regulators in enforcing the Regulations.

5.17 The Minister adds that she regrets that the late identification of JHA issues and work required to develop a firm position did not allow for the Government's enhanced JHA scrutiny obligations to be carried out in this instance.

Previous Committee Report

Thirty-eighth report, HC 83-xxxv (2013-14), chapter 5 and chapter 6 (5 March 2014).


6 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

6.1 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.[6] 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.

6.2 The draft Directive is a Title V (EU criminal law) measure and is subject to the UK's Title V opt-in Protocol. By contrast, 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.[7]

6.3 In our earlier Reports, we 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. We have also 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.

6.4 In this, our sixth Report on the proposals, we set out the response of the Minister for Crime Prevention (Norman Baker) to the questions raised in our Forty-fourth Report of 26 March which asked him to:

·  explain the practical utility and effect of the Schengen Protocol, given that the Commission and Council do not accept that it applies to either instrument and are not implementing the procedures set out in Article 5 of the Protocol following notification of the UK's Schengen "opt-out";

·  share with us the outcome of any assessment provided by the Council Legal Service on the correct legal base for the draft Regulation; and

·  provide a summary of the main changes being sought by the European Parliament and the Government's position on them.

6.5 We note that "the final content and legal base of the draft Regulation is yet to be agreed and remains a matter of some concern for many Member States". Given the significance of the legal base in determining whether the draft Regulation should be considered an internal market or a criminal law measure, and the consequences for the application of the Schengen opt-out or Title V opt-in Protocols, it is particularly disappointing that the Council Legal Service has not yet provided a legal opinion. We ask the Government to continue to urge it to do so and to share with us the outcome of its legal assessment.

6.6 The Minister describes the changes proposed by the European Parliament as "helpful, but not sufficient to mitigate our concern that these proposals fetter the UK's legislative freedom" because the UK "would still need to effectively seek approval from the EU" to introduce unilateral control measures for new psychoactive substances. We ask the Minister, in providing his next update, to explain what procedural requirements would apply to national control measures communicated to the Commission under the European Parliament's proposals. Meanwhile, the draft Regulation and draft Directive remain under scrutiny and we look forward to receiving further progress reports.

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 and previous scrutiny

6.7 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.

6.8 The Commission considers that the 2005 Council Decision establishing the existing EU regulatory framework for new psychoactive substances is inadequate on the grounds that: it is too reactive, following rather than anticipating developments in the market; it lacks the flexibility to respond quickly to changes in the chemical composition of new psychoactive substances; and it only provides for criminal sanctions even though lighter risk management options might be beneficial in some cases. The Commission also highlights the risk that divergent national approaches to new psychoactive substances may impede their legitimate use (for example, for commercial, industrial or scientific research and development purposes) or divert trade in harmful substances from one Member State to another, thereby fragmenting the internal market.

6.9 The Government argues that the draft Regulation, like the draft Directive, should cite a Title V (criminal law) legal base on the grounds that trade in new psychoactive substances is "overwhelmingly illicit" and that the aim and content of the proposal falls within the scope of Article 83(1) of the Treaty on the Functioning of the European Union (TFEU) because it concerns an area of "particularly serious crime with a cross-border dimension". It also considers that both measures build on the Schengen acquis and are therefore subject to the UK's Schengen opt-out Protocol. We have questioned the basis for this assertion and noted that the UK appears to be alone in regarding the proposals as Schengen-building measures. The Government nevertheless notified its decision to opt out of both proposals in January. It told us in March that the Council and Commission do not accept that the draft Regulation is a Schengen-building measure and, as a result, had not followed the procedures set out in the Schengen Protocol following notification of the UK's opt-out, but added:

    "Nevertheless, we do not consider the Schengen Protocol to be deprived of effect simply by virtue of the draft Regulation's failure to recognise that it builds upon the Schengen acquis. Other Member States do, of course, share many of our concerns about the scope of the measure, legal basis, and its impact on national ability to control harmful drugs, and we expect the measure to evolve significantly before adoption."[8]

6.10 We asked the Government to explain what practical utility and effect the Schengen Protocol has in this case and noted that, if its application were not accepted by the Commission and other Member States, the UK would be automatically bound by the draft Regulation unless it were amended to cite a Title V legal base, thereby bringing the UK's Title V opt-in into play. We also noted that the UK and other Member States were pressing the Council Legal Service to produce a written opinion on the legal base for the draft Regulation and asked the Government, if it succeeded in obtaining an opinion, to share with us the outcome of the legal assessment. Finally, we sought further information on the main changes being sought by the European Parliament to the draft Regulation and draft Directive and the Government's position on them.

The Minister's letter of 3 June 2014

6.11 The Minister (Norman Baker) comments first on the application of the Schengen and Title V Protocols, and the determination of the correct legal base for the draft Regulation:

    "Our position is that we consider our Schengen opt-out to have been invoked, and that we have opted out. The fact that the UK alone considers the Protocol to apply in this case does not mean that the Protocol is deprived of effect. It is too early to speculate about what our approach to the Regulation will be upon adoption, as it is clear that the draft Regulation is likely to be subject to significant changes during the negotiation process. We will take a final view about our position in relation to the Regulation once it has been adopted. At this early stage any conclusion that the Protocol has no effect will be premature.

    "You also queried the ability of the UK to assert our opt-in under the Justice and Home Affairs (JHA) Protocol if the draft Regulation's Article 114 (internal market) legal base is not amended to a Title V legal base. The Schengen Protocol takes precedence over the JHA Protocol. There is, therefore, no need to rely on the JHA Opt-in. Separately, we continue to take the view that the content of this measure is JHA, and therefore the measure should also have a Title V legal base.

    "The final content and legal base of the draft Regulation is yet to be agreed and remains a matter of some concern for many Member States. The UK is one of a significant number of like-minded Member States within the Council who are challenging the core objectives and form of the draft Regulation. This collaborative work with our key European partners may lead to fundamental changes, including to the legal base.

    "I share your interest in the Council Legal Service's written opinion on the legal base of the draft proposals. Unfortunately, they have not yet provided that opinion."

6.12 Turning to the first reading position agreed by the European Parliament, the Minister continues:

    "There were two key amendments to the draft Regulation from a UK perspective. The first reinforced the ability of Member States to take more stringent measures at national level action above any controls mandated at EU level. The second seeks to strengthen the information sharing mechanism. Our assessment is that these changes are helpful, but not sufficient to mitigate our concerns that these proposals fetter the UK's legislative freedom to respond to the complex challenges posed by new psychoactive substances. This is because the UK would still need to effectively seek approval from the EU to control such substances unilaterally. The European Parliament's vote does not prejudice the Council's ongoing scrutiny of these proposals, and we will continue to negotiate substantive changes."

6.13 The Minister concludes with an update on recent discussions within the Council's Horizontal Drugs Group. He says these have returned to "first principles" and adds:

    "In effect, the discussions on textual amendments have been put on hold. I will write when there is material progress."

Previous Committee Reports

First Report HC 219-i (2014-15), chapter 15 (4 June 2014); 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).


7 Competition Policy 2013
Committee's assessment Politically important
Committee's decisionCleared from scrutiny

Document detailsCommission Report on Competition Policy 2013
Legal base
DepartmentBusiness, Innovation and Skills

Summary and Committee's conclusions

7.1 Each year, the Commission produces a report on its competition activities in the preceding calendar year. This document relates to 2013.

7.2 The introduction to the report says that there have been encouraging signs in 2013 that a genuine economic recovery is underway in Europe, and that boosting competitiveness across the EU is paramount if the core policy objective of securing smart, sustainable and inclusive growth is to be achieved, with all instruments of competition policy having a part to play. It also says that competition policy is part and parcel of the wider conditions required for innovation to flourish; that it fosters competition in a global context; underpins a modern industrial policy; and is a necessary counterpart of Single Market regulation. The report then goes on to give a non-exhaustive overview of Commission activities, with a particular focus on its various policy levers (cartel investigations, merger control, state aid, with particular reference to the financial and energy sectors, the digital economy, and international co-operation). The Government sees it as a useful round up of the Commission's competition policy work, which has no policy implications in itself.

7.3 For the reasons set out by the Commission, competition policy is an important area of EU activity. Consequently, although we are clearing this document — which gives a comprehensive account of ongoing activity and developments in 2013 — we think it right, as with previous such reports, to draw it to the attention of the House.

Full details of the documents: Commission Report on Competition Policy 2013: (36017), 9878/14ADD 1, COM(14) 269.

The current document

7.4 The report comments in more detail on the following areas of activity.

Action against cartels

7.5 The report highlights the importance that competiveness plays for European companies, and the key role of strong enforcement against cartels. In particular, it says that it has been focusing its efforts on suppliers of car parts (where five cartelists were fined a total of €141.7 million), on the financial services sector (where eight banks were fined a total of €1.7 billion for participating in cartels in markets for financial derivatives), and on the food sector: in addition, it sent a Statement of Objections to a number of suppliers of smart-card chips for their alleged participation in a cartel. More generally, the Commission comments that investigations of this nature are important, as cartels can fragment the internal market and impede the ability of industry to adjust to market conditions, thereby affecting not just the market involved, but potentially the wider economy as well.

Antitrust enforcement and merger control

7.6 The report notes that Council Regulation (EC) No. 1/2003 — the main instrument for enforcing Articles 101 and 102 TFEU — came into force in May 2004, and allows both the Commission and National Competition Authorities to apply EU antitrust rules to agreements and practices which affect trade between Member State, as well as seeing the creation of the European Competition Network for the coherent application of common rules. It says that, since the introduction of the Regulation, it has made 120 decisions relating to competition, whilst National Competition Authorities have investigated 1,600 cases with more than 600 decisions.

7.7 The report comments that the Commission put forward in 2013 a draft Directive allowing consumers and businesses to claim for damages when they have been subject to an infringement of competition law, and that this has two key aims — to remove barriers which claimants face when making a claim for damages, and to improve the balance between public enforcement and private claims, thereby improving the overall effect of the competition regime. It also notes that it published at the same time a Recommendation that all Member States should introduce a collective redress mechanism, and that it adopted a package of reforms to the merger regime, most notably a Notice on Simplified Procedure, aimed at reducing regulatory burdens for businesses.

State Aid

7.8 The report highlights the role which state aid can play in influencing internal markets, and the Commission's priority of promoting public spending on growth oriented policies. It notes that it adopted in June 2013 new Regional Aid Guidelines, aimed at increasing competitiveness by targeting areas where there are gaps, and that State Aid guidelines were also revised for broadband and access to finance for small and medium sized enterprises. Alongside this, the Commission says that it has consulted on, and is in the process of revising, the guidelines for firms which are in temporary difficulty and for research and development and innovation, and that it is revising the guidelines for energy and the environment, with a view to meeting the challenges which Member States will face in investing in energy in the coming decades.

The financial sector

7.9 The Commission says that it has attempted to reduce systemic risks and to increase the transparency of the financial markets. In particular, it passed the European Market Infrastructure Regulation which requires standardised derivative contracts to be centrally cleared so that companies which exchange trade should not be disadvantaged by the anti-competitive behaviour of others, and it says that this initiative has been cemented by a Statement of Objections issued in July 2013 into credit default swaps, as a result of which it has reached a preliminary conclusion that the 14 parties involved may have coordinated their behaviour, thereby breaching antitrust rules. In addition, it has concluded its antitrust investigations into Libor, Euribor and Tibor benchmark rates, and proposed in September 2013 a draft Regulation to restore confidence in these benchmarks.

7.10 In addition, the report:

·  explains that state aid rules for the banking sector effectively determined how Member States responded to threats of financial instability and supported their financial institutions, that these rules were revised in a Banking Communication, and that they have formed the basis of several decisions on bank restructuring in Member States;

·  notes that during 2013 the Commission, together with the International Monetary Fund and the European Central Bank, provided financial assistance to some Member States;

·  highlights the Commission's enforcement and regulatory efforts in the payments area, notably its antitrust investigation into the standardisation process for payments over the internet carried out by the European Payments Council (EPC), which it was concerned could exclude non-bank internet providers from the e-payments market;

·  highlights how the revised Payments Services Directive would allow other companies to compete with banks in internet and card payments, adding that, as it nevertheless believes that the market is still fragmented and that interchange fees vary widely, it has proposed the adoption of the interchange fees Regulation.

Energy

7.11 The report notes that energy plays a crucial role in the economy, and that its costs have an impact on economic activity, adding that it is one of the sectors which will benefit most from the completion of the single market. It highlights the three key challenges as being the EU's increasing dependence on imported energy, increasing energy prices, and the lack of investment, and it comments that there is a broad consensus as to what is required to tackle these, adding that, although EU energy legislation has contributed to the dismantling of legal monopolies and the harmonisation of rules, competition policy can help to ensure that companies do not maintain or reinstate barriers to competition.

7.12 The Commission also suggests that its antitrust enforcement actions in 2013 have, or will, contribute to curbing energy prices, there being several on-going investigations, including those into crude oil, refined oil products and biofuel sectors.

The digital economy and digital agenda for Europe

7.13 The report highlights that, whilst the basic principles and objectives of competition policy remain the same across all sectors, a number of features are specific to the digital economy, including the pace of technological change, and the speed of change in business models and sources of revenue. It says that, in order to ensure that the market operates effectively, it is reviewing its antitrust policy framework on technology-transfer agreements, and has been using its antitrust powers to investigate whether Google has abused its position in the market.

7.14 The Commission also believes that completing the single market for electronic communications would benefit the EU, and notes that it adopted in September 2013 a legislative package (Connected Continent: Building a Telecoms Single Market). The report also notes a number of specific areas of competition and anti-trust enforcement work

International cooperation

7.15 The report highlights the extent to which globalisation calls for closer cooperation between competition authorities, and that the Commission has therefore continued to engage in dialogues with authorities from other jurisdictions, including negotiations with the US on a Transatlantic Trade and Investment Partnership Agreement, and with Japan on a Free Trade Agreement, both of which include provisions relating to competition. In addition, it says that a Memorandum of Understanding for Cooperation has been signed with India in relation to competition, a cooperation agreement has been signed with Switzerland, and a similar agreement is being discussed with Canada.

Dialogue with the other institutions

7.16 The report highlights the continuing dialogue between the Commission and the European Parliament and its Economic and Monetary Affairs (ECON) Committee. It notes that the Parliament has in recent years raised concerns about the subject of fines for competition infringements, and that it was formally consulted on State Aid Modernisation.

The Government's view

7.17 In her Explanatory Memorandum of 2 June 2014, the Minister for Employment Relations, Consumer and Postal affairs (Jenny Willott) notes that this report looks back at the main activities of the Commission in 2013 on competition issues, and thus has no policy implications in itself. However, she says that it is welcome as a useful round up of the Commission's competition policy work during the year in question.

Previous Committee Reports

None.


8 Effective, accessible and resilient health systems
Committee's assessment Politically important
Committee's decisionCleared from scrutiny

Document detailsCommission Communication on effective, accessible and resilient health systems
Legal base
DepartmentHealth

Summary and Committee's conclusions

8.1 Despite significant differences in the organisation, delivery and financing of Member States' health systems, the Commission suggests that they are all built on common values — universality, access to good quality care, equity and solidarity — and face common challenges to their future sustainability. In this Communication, the Commission, whilst acknowledging that primary responsibility for health systems rests with Member States, describes action undertaken at EU level to enhance cooperation, make healthcare more accessible, and strengthen the effectiveness and resilience of health systems. It also suggests ways in which the EU can develop existing initiatives to support Member States in achieving cost-effective and fiscally sustainable health systems.

8.2 We note the Minister's view that the Communication largely refers to existing areas of EU work, which are in line with UK policy, to ensure that health systems are effective, accessible and resilient, and that the document has no immediate policy implications. The Minister nevertheless expresses caution with regard to some areas of future EU work described in the Communication and has made clear to the Commission that cooperation should continue to take place on a voluntary basis and "be driven by and responsive to the needs and priorities of Member States". We endorse this sentiment. We trust that the Minister will monitor developments carefully to ensure that the constraints on EU action set out in Article 168 of the Treaty on the Functioning of the European Union are respected and that any EU action in the health field has clear "added value" and is consistent with the principles of subsidiarity and proportionality.

8.3 We are content to clear the Communication from scrutiny but draw it to the attention of the Health Committee.

Full details of the document: Commission Communication on effective, accessible and resilient health systems: (35966), 8997/14, COM(14) 215.

Background

8.4 The European Union has limited competence for public health. Article 168 of the Treaty on the Function of the European Union (TFEU) stipulates that EU action shall "complement" national policies and that any action taken by the EU shall:

    "respect the responsibilities of the Member States for the definition of their health policy and for the organisation and delivery of health services and medical care. The responsibilities of the Member States shall include the management of health services and medical care and the allocation of the resources assigned to them."

8.5 Article 168 TFEU expressly encourages cooperation between Member States "to improve the complementarity of their health services in cross-border areas" and envisages a role for the Commission in promoting the coordination of policies, "in particular initiatives aiming at the establishment of guidelines and indicators, the organisation of exchange of best practice, and the preparation of the necessary elements for periodic monitoring and evaluation".

8.6 In 2011, the European Parliament and Council adopted a Directive on cross-border healthcare which Member States were required to implement by October 2013.[9] The Directive seeks to clarify the right of patients to receive (and be reimbursed for) healthcare in another Member State and is largely based on principles elaborated by the Court of Justice in a series of judgments concerning the application of EU Treaty provisions on the freedom to provide and receive services. The Directive is one example of growing interaction between Member States' healthcare systems and the extension of patient choice beyond national borders.[10] It also includes provisions to enhance cooperation in the diagnosis and treatment of rare diseases and to establish voluntary networks on eHealth (the use of IT in healthcare systems) and health technology assessments.

The Commission Communication

8.7 The Communication describes the common challenges facing national health systems — the increasing cost of healthcare, an ageing population, shortages of health professionals, and health inequalities — at a time of economic crisis and limited financial resources. The Commission suggests that these common challenges, as well as the growing interdependence of health systems resulting from the mobility of patients and healthcare professionals, underline the need for closer cooperation. In its Annual Growth Survey for 2014, the Commission highlighted the importance of the healthcare sector in tackling the social consequences of the economic crisis and in generating jobs and economic prosperity, whilst also calling for greater efficiency and financial sustainability of healthcare systems. The Communication reviews the action already taken by the EU to help Member States improve the effectiveness and resilience of their healthcare systems and make healthcare more accessible. It also considers how the EU can build on existing initiatives to support Member States in achieving these objectives.

STRENGTHENING THE EFFECTIVENESS OF HEALTH SYSTEMS

8.8 The Communication defines effectiveness in terms of the ability of different health systems to produce positive health outcomes. It highlights four areas in which comparative information is available: late foetal or early neonatal mortality; avoidable premature deaths; communicable diseases; and cancer screening. The Commission notes "large variations between Member States" in these areas and in overall life expectancy, but adds that health outcomes are "multi-dimensional and difficult to define" and that comparability and reliability of data remain a challenge. It says that it has supported the development of "European health core indicators" to monitor the health of the population and the performance of health systems. In addition, the EU's advisory Social Protection Committee (on which Member States and the Commission are represented) has developed a joint assessment framework on health which operates as "a first-step screening device to detect possible issues in Member States' health systems", and funding from EU R&D programmes has been made available to develop indicators and methodologies to assess the performance of health systems.[11]

8.9 Building on these initiatives, the Commission says it will:

·  develop tools and methodologies to support Member States in using health systems performance assessments, including through EU-funded research on measures and indicators, the definition of criteria and procedures for selecting priority areas for assessment, better reporting systems, and stronger cooperation with the World Health Organisation and the OECD;

·  publish its second report on the implementation of the Council Recommendation on patient safety and discuss with Member States the need for further action to improve patient safety — the Commission suggests, based on a recent public consultation — that there is "a high interest in developing a broader EU agenda to address the issues that impact on quality in healthcare";[12] and

·  launch a public consultation on the integration of health and social care.

MAKING HEALTH SYSTEMS MORE ACCESSIBLE

8.10 The Communication suggests that a number of factors have a bearing on access to healthcare. They include depth of coverage (there are variations between Member States in the types of healthcare treatments that are publicly funded), affordability (some healthcare systems require a contribution towards treatment), and availability (healthcare may be too remote for those living in rural areas or waiting times too long). In addition, lack of transparency or too much complexity in the organisation and management of health systems may impede access.

8.11 The Commission highlights progress made through engaging with the pharmaceutical industry on the pricing of medicines to improve patient access. It calls for further cooperation to increase transparency in the pricing of medicines and further reflection on the means by which cost-containment measures can be implemented without reducing access to medicines. The Commission also says that it will:

·  support Member States' efforts to improve workforce planning in the health sector, based on common tools, indicators and guidelines to avoid future shortages or skills mismatches; and

·  monitor implementation of the 2011 Directive on cross-border healthcare (in particular, the concept of "undue delay" which underpins the right to receive treatment in another Member State) and encourage participation in European reference networks to share knowledge on rare diseases.

IMPROVING THE RESILIENCE OF HEALTH SYSTEMS

8.12 The Communication suggests that a number of "resilience factors" are essential to ensure that health systems are sustainable in the long-term. These include stable funding mechanisms, sound risk-adjustment methods, good governance, reliable information flows to support evidence-based decision-making, accurate costing of healthcare services, and a highly qualified and appropriately staffed healthcare workforce. The Commission considers that there is "an urgent need for further investigation into resilience factors for health systems", noting that not all have coped well with the challenges presented by the economic crisis. It envisages a role for the EU in sharing best practice and in supporting Member States through:

·  enhancing cooperation on health technology assessments to avoid duplication of work at national level;

·  exploring the possibility of establishing a European research infrastructure consortium to improve the flow of health information; and

·  developing effective and interoperable telemedicine services.

The Minister's Explanatory Memorandum of 6 May 2014

8.13 The Parliamentary Under-Secretary of State for Public Health (Jane Ellison) notes that there is frequent interaction between health systems and considers that there is "added value" in strengthening cooperation between them. She accepts that there is a role for the EU in certain areas, such as the exchange of best practice, and that the areas of existing work in which the Commission is involved (as described in the Communication) are in line with UK policy. She adds:

    "However, it remains important that work to support voluntary co-operation, for example in the area of Health Technology Assessment (HTA), continues to be driven by and responsive to the needs and priorities of Member States."[13]

8.14 The Minister comments on each of the areas in which the Commission proposes future work. Turning first to health systems performance assessments (HSPA), she observes:

    "The Council of Health Ministers invited Member States to use HSPA for policy making, accountability and transparency. Health system performance is measured in England through the three Outcomes Frameworks (NHS, Public Health and Adult Social Care). International comparisons help us to measure progress but comparability of data can be problematic due to differences between health systems, funding systems and methods of data collection. Collaboration with Member States and with international organisations to improve comparability of data is therefore welcome, although not at the expense of the UK's flexibility to set our own measurements or resulting in duplication of other data measurements such as those collected by OECD. While increased emphasis on HSPA in the future may add weight to a case to regulate certain data collections which are currently voluntary, the UK is working with the Commission and other Member States to manage this risk and discuss where we see added value at an EU level. For example, the UK is participating in a Member State peer review of HSPA in Belgium in May 2014."

8.15 The Minister expects the Commission's second report on the implementation of the Council Recommendation on patient safety to identify the UK as "one of the leading countries on patient safety in the EU" and adds:

    "We will consider carefully the proposals from the Commission's second report when it is published but believe that they will be broadly in line with policy across the UK to promote patient safety and quality of health services. As such, we are supportive of the Commission discussing further action on patient safety."

8.16 The Minister welcomes collaborative work with other Member States on quality of care, particularly in light of the Francis Inquiry into failures of care at the Mid-Staffordshire NHS Foundation Trust. She continues:

    "Other Member States' healthcare systems are also potential sources of learning on quality of care, and we would welcome measures that made it easier to do this, while avoiding duplication of existing work.  In particular, DH [the Department of Health] will continue our partnership working with the European Observatory on Health Systems and Policies, which provides useful opportunities to learn from evidence and best practice on quality healthcare in other countries."

8.17 The Minister considers that the consultation launched by the Commission on the integration of health and social care has no policy implications for the UK as the Government is committed to promoting a system of integrated care.

8.18 The Minister endorses the analysis in the Communication on the accessibility of healthcare and the need to reduce health inequalities. Whilst access to NHS services is based on clinical need, not an individual's ability to pay, the Minister acknowledges that inequalities in access remain. She continues:

    "We have introduced new legal duties which call on NHS Commissioners at national and local level to have regard to the need to reduce inequalities in access and outcomes from health services for patients. We measure the performance of the NHS and public health using the NHS and Public Health Outcomes Frameworks.  While these frameworks mainly focus on outcomes they do include a small number of access measures, and good access would underpin achievement on a range of the outcomes measures too. This work on the duties — and also the outcomes frameworks — is likely to represent best practice that will be of value to other Member States."

8.19 The Minister adds that the work undertaken by the Commission:

    "is in line with earlier proposals set out in Solidarity in Health, the Commission's health inequalities Communication (2009), which also highlighted the importance of access issues as a factor in health inequalities and the need to share information and promote best practice across the EU."

8.20 The Minister supports cooperation on workforce planning in the health sector, adding:

    "The DH [Department of Health] and the Centre for Workforce Intelligence participate in the Joint Action on Health Workforce Planning and Forecasting. This Joint Action seeks to develop tools for Member States to use so that they are able, where they wish, to develop improved workforce planning practices. This work is not intended to lead to any formal structures (such as an "observatory") or any compulsion to adopt mechanisms or processes.

    "The UK will benefit from better information on future health needs and skills of the health workforce, patterns of mobility, and learning and improvements to workforce planning methods, if all countries are able to improve the performance of their health systems in this respect. Improvements to staffing and planning may impact positively on "health tourism" and the care of UK nationals in the EEA."

8.21 The Ministers says that the UK has implemented "almost all aspects" of the 2011 Directive on cross-border healthcare and will "complete the process shortly". She continues:

    "There is currently no formal platform at EU level to construct partnerships on healthcare and take advantage of potential synergies and economies of scale. Participation in the European Reference Networks is voluntary. European Reference Networks are being established to support Europe-wide cooperation on highly specialised healthcare (mainly focused on rare and very rare conditions) between providers and centres of expertise. Their creation will increase information sharing and access to treatments and will be of interest for leading NHS providers of specialised services who wish to develop new, or consolidate existing, peer links with organisations elsewhere in Europe."

8.22 The Minister notes that the Commission is keen to advance work on jointly-produced Health Technology Assessments (HTA), as a means of reducing duplication at national level, and to develop a "more ambitious and stable structure" for cooperation. She adds:

    "While the Government supports voluntary co-operation among national HTA bodies, we believe that HTA activity is strongly determined by the characteristics and priorities of individual health systems. Any EU activity needs to respect this fact, to focus clearly on voluntary co-operation and information sharing, and to be responsive to the needs of individual Member States' own HTA arrangements."

8.23 The Minister explains that participation in the proposed European Research Infrastructure Consortium on health information will be voluntary, but that the costs are not yet known. She continues:

    "The UK supports improved coordination of health information initiatives but is awaiting the results of the scoping stage before deciding whether to take part in this initiative."

8.24 Finally, the Minister indicates that she welcomes the opportunity to work on a voluntary basis with other Member States on eHealth, adding that:

    "England, Scotland, Wales and Northern Ireland all have eHealth strategies in place within their respective countries and are engaged through various connections with the eHealth agenda in Europe."

8.25 As the Communication is a largely descriptive document, the Minister does not expect any discussion at Council level.

Previous Committee Reports

None.


9 The EU and the Central African Republic
Committee's assessment Legally and politically important
Committee's decisionCleared from scrutiny
Document detailsRestrictive measures against certain persons engaging in, or providing support for, acts that undermine the peace, stability or security of the Central African Republic (CAR)
Legal baseArticle 215 TFEU; QMV
DepartmentForeign and Commonwealth Office

Summary and Committee's conclusions

9.1 Council Decision 2013/798/CFSP imposed a year-long arms embargo on the direct or indirect supply, sale or transfer to the Central African Republic (CAR) of arms and related materiel, including weapons and ammunition, military vehicles, paramilitary equipment and spare parts related to military activities, in line with UNSCR 2127 (2013) of 5 December 2013, which the United Nations Security Council (UNSC) adopted in response to the deteriorating situation in the CAR.

9.2 On 28 January 2014, the UNSC adopted Resolution 2134 (2014), which extended and clarified the arms embargo imposed by UNSCR 2127 (2013) and introduced a travel ban on, and provided for the freezing of funds and economic resources of, certain persons engaging in, or providing support for, acts that undermine the peace, stability or security of the Central African Republic.

9.3 Council Decision 2014/125/CFSP of 10 March 2014 amended Council Decision 2013/798/CFSP, to reflect the changes that UNSCR 2134 (2014) introduced; the Regulation accompanying it enables the embargo, travel ban and asset freeze measures in the UNSCR and Council Decision to be implemented.

9.4 France was playing a prominent role in this process: the focus was on specific individuals with Séléka (the mainly Muslim rebel coalition that took power by force in March 2013) or anti-balaka (i.e., anti-machete; mainly Christian armed groups who had been linked to atrocities against Muslim communities) links, although no specific listings had yet been proposed.

9.5 The Committee cleared the draft Council Decision from scrutiny on 26 February. But the Minister for Europe (Mr David Lidington) noted that France was "aware that for the UK to agree any names for listing, there is a need for strong underlying evidence that can be defended in a UK court of law"; the UK had the right to veto any nominations at the UN sanctions committee stage, and would do so if evidence was lacking; he expected France to "propose listings and share supporting evidence with us in the coming weeks".

9.6 The Committee therefore retained the Council Regulation under scrutiny until the Minister was able to provide the key components: the names of those to be listed and the justification.

9.7 The draft Council Implementing Decision and Council Implementing Regulation now presented for scrutiny complete the process begun in February, which includes "populating" the Annex to the earlier Council Regulation with the names of those affected by the travel ban and asset freeze. The Minister outlines in detail who the three individuals concerned are and why have been "listed".

9.8 We now clear the Council Regulation, Council Implementing Decision and Council Implementing Regulation from scrutiny.

Full details of the documents:

(a) Council Regulation concerning restrictive measures in view of the situation in the Central African Republic: (35671), 6282/14 + ADD 1, JOIN(14) 5 (b) Council Implementing Decision implementing Decision 2013/798/CFSP concerning restrictive measures against the Central African Republic (36065), —: (c) Council Implementing Regulation implementing Article 17(1) of Council Regulation (EU) No. 224/2014 concerning restrictive measures in view of the situation in the Central African Republic (36066) —:.

Background

9.9 On 23 December 2013, the EU Council adopted Decision 2013/798/CFSP concerning restrictive measures against the Central African Republic (CAR) providing for an arms embargo, in accordance with UNSCR 2127 (2013) of 5 December 2013. The Committee cleared this Council Decision and reported the background and the government's views to the House on 8 January 2014.[14]

9.10 On 28 January 2014, the UN Security Council:

—  extended the mandate of the United Nations Integrated Peacebuilding Office in the Central African Republic (BINUCA) for one year;

—  reinforced and updated BINUCA's mandate to assist in the transitional political process, and to help with conflict prevention, humanitarian assistance, extension of State authority, stabilization of the security situation, and the promotion and protection of human rights;

—  authorized the European Union to deploy an operation in the Central African Republic, and authorized that operation to take all necessary measures, within the limits of its capacities and areas of deployment from its initial deployment and for a period of six months from the declaration of its full operational capacity; [15]

—  decided that, for an initial period of one year, all UN Member States would take the necessary measures to prevent the entry into or transit through their territories of individuals designated by the relevant UN Sanctions Committee, provided that nothing would oblige a State to refuse its own nationals entry into its territory;

—   also decided that all Member States would freeze without delay all funds, other financial assets and economic resources within their territories that were either owned or controlled, directly or indirectly, by individuals or entities designated by the Sanctions Committee, by others acting on their behalf or by entities owned or controlled by them"[16]

9.11 With his Explanatory Memorandum of 19 February 2014, the Minister for Europe (Mr David Lidington) submitted for scrutiny:

—  a draft Council Decision to amend Decision 2013/798/CFSP, to reflect the changes that UNSCR 2134 (2014) introduced; and

—  a draft Regulation, enabling the embargo, travel ban and asset freeze measures set out in the Council Decision to be put in place.

9.12 The Minister said that:

—  the arms embargo, introduced under UNSCR 2127 (2013), therefore played a logical step in reducing access to weapons that had undoubtedly played a negative role in the situation in the CAR, with violence occurring across much of the country; however, policing of the lengthy and porous CAR borders was minimal, and tightening the embargo under the new Council Decision, and the supporting Regulation in question, thus sought to mitigate further the risk of arms entering the country;

—  a successful political process, leading to an inclusive, constitutional, and effective government, was vital to the medium and long term future of the CAR; the introduction of asset freeze and travel ban measures would therefore be used to target individuals who engage in, or provide support for, acts that undermined the peace, stability or security of the CAR;

—  France was looking to target specific individuals with Séléka (the mainly Muslim rebel coalition that took power by force in March 2013) or anti-balaka (i.e., anti-machete; mainly Christian armed groups who had been linked to atrocities against Muslim communities) links, although no specific listings had yet been proposed;

—  France was "aware that for the UK to agree any names for listing, there is a need for strong underlying evidence that can be defended in a UK court of law. The UK has the right to veto any nominations at the UN sanctions committee stage, and will do so if evidence is lacking";

—  he expected France to "propose listings and share supporting evidence with us in the coming weeks;

—  in the meantime, it was "worth noting that the threat of restrictive measures that UNSCR 2134 (2014), and ultimately this regulation, impose already sends a powerful and timely political signal; which we hope will work somewhat to deter further violence and instability in the country".

9.13 The Minister concluded by saying that Council Decision and Regulation were due to be adopted by COREPER[17] in the week commencing 3 March 2014; at which point, the Council Decision and Regulation would be implemented into EU law and be legally binding in all Member States.

9.14 No questions arose on the draft Council Decision, which we therefore cleared from scrutiny.

9.15 We were, however, concerned that we are being asked to clear a Council Regulation that was incomplete, in that precisely who was to be subject to it was yet to be decided — which, as the Minister noted, was crucial. The Council Regulation could be properly adopted until the UN Sanctions Committee had agreed to whom it should apply. We therefore continued to retain it under scrutiny until the Minister was able to provide a draft that contained those names.

9.16 On a point of detail, pace COREPER, our understanding was that no draft legislation was finalised until it had been adopted by the Council (c.f. the Minister's remarks at 9.7 above); we therefore asked the Minister to confirm that this was his understanding also.

The draft Council Implementing Decision and draft Council Implementing Regulation

9.17 In his Explanatory Memorandum of 6 June 2014, the Minister recalls that the asset freeze and travel ban measures are designed to target individuals who engage in, or provide support for, acts that undermine the peace, stability or security of the CAR, by restricting their freedom of movement and limiting their financial capability to fund further violence or acts that contribute to instability; and says that three individuals, who meet these criteria and have been listed with restrictive measures under UNSCR 2134 (2014), are now due to be listed by the EU via the attached Council Decision and supporting Regulation.

9.19 He continues as follows:

    "The first individual is Francois Yangouvanda BOZIZE, who is being targeted for providing financial and material support to militiamen who work to destabilize the ongoing transition in the CAR and bring him back to power. François Bozizé, in liaison with his supporters, encouraged the attack of 5 December 2013 on Bangui by anti-Balaka forces, which left over 700 people dead. Since then, he has continued to run destabilization operations and to federate the anti-balakas militias, in order to maintain tensions in the capital of CAR. Bozizé also tried to reorganise many elements from the Central African Armed Forces, who dispersed into the countryside after the coup d'état, and has called on his militia to pursue atrocities against the current regime and CAR Islamists.

    "The second individual is Nourredine ADAM, who is being targeted due to his role as both a General and the President of the Central PJCC, one of the armed rebel groups of the Séléka; he was also the military coordinator of the ex-Séléka during offensives in the former rebellion in the CAR between early December 2012 and March 2013. Without Noureddine's involvement, the Séléka would likely have been unable to wrest power from former CAR President François Bozizé. He now clearly urges his forces to resist injunctions of the transitional government and of the military leaders of the African-led International Support Mission in the Central African Republic (MISCA) and directs operations against Christian neighbourhoods, with significant provisions of support and direction to the ex-Séléka operating in CAR. ADAM also used the now-defunct CAR intelligence service as his personal political police, carrying out many arbitrary arrests, acts of torture and summary executions. Lastly, in early 2013, he played an important role in the ex-Séléka's financing networks, travelling to Saudi Arabia, Qatar and the United Arab Emirates to collect funds for the former rebellion and operated as a facilitator for a Chadian diamond-trafficking ring operating between the CAR and Chad.

    "The third individual is Levy YAKETE, who, on 17 December 2013, became the political coordinator of the newly formed People's Resistance Movement for Reforming of the Central African Republic anti-Balaka rebel group and has been directly involved in decisions that have undermined peace, stability and security in the CAR. Yakete is accused of ordering the arrest of people connected to the Séléka, calling for attacks on people who do not support President Bozizé and recruiting young militiamen to attack those hostile to the regime with machetes. Having remained in the entourage of François Bozizé after March 2013, he joined the Front for the Return to Constitutional Order in CAR, which aimed to return the deposed president to power by whatever means necessary. In late summer 2013, he travelled to Cameroon and Benin, where he attempted to recruit people to fight against the Séléka. In September 2013, he tried to regain control over operations led by pro-Bozizé fighters in towns and villages near to Bossangoa. Yakete is also suspected of promoting the distribution of machetes to young unemployed Christians to facilitate their attacks on Muslims."

9.20 With regard to the question of when Council Decisions, Council Regulations, Council Implementing Decisions and Council Implementing Regulations are implemented into EU law and thus legally binding in all Member States, the Minister says:

    "this happens at the point of adoption at Council; in this case adoption is planned for the Foreign Affairs Council on 23 June 2014."

Previous Committee Reports:

(a) (35812) —; (35671) 6282/14 + ADD 1, JOIN(14) 5: Thirty-seventh report: HC 83-xxxiv (2013-14), chapter 8 (26 February 2014); also see (35672) —: Twenty-ninth report: HC 83-xxvi (2013-14), chapter 18 (8 January 2014); (b) and (c): None.


10 The EU and Georgia: the EU and Moldova
Committee's assessment Legally and politically important
Committee's decisionCleared from scrutiny (by Resolution of the House on 10 June 2014; further information requested
Document details(a)  Association Agreement with Georgia

(b)  Association Agreement with Moldova

Legal baseArticles 217, 218(5), Article 218(7) and 218(8) TFEU; unanimity
DepartmentForeign and Commonwealth Office

Summary and Committee's conclusions

10.1 Relations between the EU and Georgia and the EU and Moldova are currently based, respectively, on 1999 and 1998 Partnership and Cooperation Agreements. The proposed Association Agreements (AA) would deepen and broaden the political and economic relationship, with a Deep and Comprehensive Free Trade Area (DCFTA) as a key part: support and encourage reform in both countries, bring them closer to EU norms, and provide gradual access to parts of the EU Internal Market. The Agreements were initialled at the Vilnius Eastern Partnership Summit in November 2013.

10.2 When first submitted in early April, the Minister for Europe (Mr David Lidington) outlined a range of legal uncertainties, with the like of which the Committee was familiar from other recent PCAs (see paragraphs 1.4-1.6 of our most recent previous Report for details).[18] The Minister said he would "be guided by the agreement reached on Ukraine and the opinions the Committees expressed during that process". As with the similar Ukraine AA, he would seek to reduce the scope of provisional application significantly through negotiations in the Council Working Group, and "consider entering Minute Statements as necessary to further clarify the UK position".

10.3 The Committee's initial observations and questions and the Minister's initial response are set out in the first part of our most recent previous Report (see paragraphs 1.7-1.19 for details). Helpful as it was, it was incomplete, particularly with regard to the scope of provisional application; that was the focus of the Minister's further response (see paragraphs 1.25-1.27 of our most recent Report for details).[19]

10.4 That response still did not specify those areas of the Agreements where the Member States are exercising their competence and those where the EU is exercising its competence (the Committee having asked him to provide the results of the Government's analysis of which obligations under the Association Agreements are assumed by which party). Given the bearing of such an analysis on the legal issues surrounding provisional application of the Agreements and the exercise of the UK opt-in, we continued to ask the Minister to provide us with this information.

10.5 With regard to provisional application, each Agreement provides for the EU to decide which parts of the Agreement are to be provisionally applied. We were concerned that the EU should not be taking the decision to apply provisionally any element of the Agreements in respect of which the Member States are exercising competence.

10.6 With regard to the UK opt-in, we noted that the Minister assessed that it would be difficult to secure a Title V legal basis for any element of the Agreements. Our consistent position is that in the absence of a formal Title V legal basis to an EU instrument, the UK opt-in is not engaged.

10.7 With regard to the political components, the Minister had clarified what activities would be included in the section on Political Dialogue and Reform regarding domestic reform. He also noted that provisional application had not been proposed regarding the articles on the fight against terrorism. His explanation of what "the possible regional consequences" were of early signature and provisional application of the Moldova AA, to which he had previously said he would need to remain "alert", appeared to relate the same sort of pressures that had been applied to Ukraine by Russia, particularly regarding energy supply.

10.8 With regard to CFSP content more broadly, however, his explanation of how provisional application of Articles 7 (conflict prevention and crisis management); 8 (regional stability) and (on Georgia) 9 (peaceful conflict resolution) did not "go beyond the arrangements on Ukraine" was less clear. Likewise what it was in the EEAS's proposals that the Government was "considering … very carefully", and why. Nor was it clear what the "specific circumstances applicable to both countries" were that the Minister referred to with respect to the exercise of EU competence, or what precedent might otherwise be set. Moreover, whether the Government's caveats would be accepted and accordingly reinforced by a Joint Declaration by the Council, Commission and High Representative remained an open question.

10.9 The Minister also referred to the need for a further Declaration as his sine qua non for accepting provisional application of Article 2, on General Principles, in both AAs, making clear that it "is necessary to enable the EU to take appropriate measures in the event partner states fail to fulfil their commitments, and is without prejudice to the division of competences between the Union and the Member States". Given the content of Article 2, it was again not clear to us what the Minister's thought process was, and why a yet-to-be-agreed Joint Declaration was required.

10.10 In other circumstances, we would have continued to hold the draft Council Decisions under scrutiny, pending clarification of the areas outlined immediately above. But with the Council Decisions due to be adopted by the 23 June Foreign Affairs Council, the then imminent prorogation recess and the ten working days that the Government has said that it requires to organise such debates, we had no choice but to recommend that these Council Decisions be debated in European Committee B.

10.11 Our hope was that, then, the Minister would be able to supply these further clarifications, and thus a full understanding of what provisional application of the CSDP content is to consist of: how it was to be circumscribed so as to ensure that EU competence was properly applied, that Member States' competences were not infringed or otherwise compromised, and that no unwelcome precedents were set. In order to be sure, we therefore asked the Minister to provide us, and the Library of the House, with a copy of the final versions of the draft Council Decisions, and of the Declarations by which he set considerable store, before that debate.

10.12 The Minister's further letters of 2 and 4 June (see paragraphs 10.13-10.14 below) go much of the way in dealing with the issues outlined above and in our previous Reports. But it is too late for them to be reported to the House so that Members can make use of them in the debate — which, the Minister then told us in a further letter of 5 June, was to take place on 9 June. Since the Minister will have known that we would have reported this information to the House on 11 June and the Foreign Affairs Council is not taking place until 23 June, we can see no reason why it was necessary to do this, particularly as it thereby effectively undermined the scrutiny process.

10.13 With regard to the Minister's responses, the EU should only exercise competence and provisionally apply those elements of these Agreements where it has exclusive competence. Conversely, Member States should exercise competence in their own right in respect of matters which are either exclusive to them or where competence is shared, and thus potentially exercisable by either the Member States or the EU.

10.14 The overall progress of negotiations as outlined in the Minister's letter appears consistent with the achievement of this objective, with the exceptions of those elements of the Agreements in respect of which declarations have been negotiated.

10.15 However, doubt is raised by the statement from the Minister that the Government agrees with the Committee that the EU should not be taking the decision to apply provisionally any elements of the Agreements in respect of which the Member States are exercising "exclusive competence".

10.16 We therefore ask the Minister to confirm that, with the exception of those elements covered by declarations, he is satisfied that the EU will be entering into these Agreements, and provisionally applying them, only to the extent that it has exclusive competence, leaving Member States to act in matters of shared competence.

10.17 We note the declarations that the Government has negotiated are declarations in respect of provisions that it accepts are either not matters of exclusive EU competence, or are matters where the EU is provisionally applying matters where Member States have competence. Whilst these declarations alleviate our concerns, they cannot entirely remove them. They may assist in preventing these matters becoming unhelpful precedents: but they are not legally binding.

10.18 In respect of the Government's assertion that the UK opt-in applies to certain aspects of these Agreements, the clarifications provided by the Minster as to the exercise of competence mean that this issue only arises in relation to re-admission and mode 4 services.[20] The Minister has now indicated a wish to opt into both. The Committee, however, remains of the view that the opt-in will not apply (and therefore the provisions automatically apply to the UK) unless the proposals are given a Title V legal basis, which the Government has failed to secure.

10.19 All in all, it is difficult to escape the conclusion that, in order to comply with what the Council regards as a political imperative — which in itself is not entirely uncontroversial — chances have been taken with important legal considerations that have not been necessary in other such, but less politically-driven, Association Agreements. We can but hope that the devices upon which the Minister places such reliance prove to be the safeguards that he maintains they will be.

Full details of the documents:

(a)  Draft Council Decision on the signing and provisional application of the Association Agreement between the European Union and the European Atomic Energy Community and their Member States and Georgia: (35897) 7941/14 + ADDs 1-13 COM(14) 148. (b) Draft Council Decision on the conclusion of the Association Agreement between the European Union and the European Atomic Energy Community and their Member States and Georgia: (35898), 7942/14 + ADDs 1-13 COM(14) 149; Draft Council Decision on the signing and provisional application of the Association Agreement between the European Union and the European Atomic Energy Community and their Member States and Moldova: (c) Draft Council Decision on the conclusion of the Association Agreement between the European Union and the European Atomic Energy Community and their Member States and Moldova: (35895), 7944/14 + ADDs 1-14, COM(14) 146.

Background

10.20 The three main components — Political Dialogue and Reform, the Deep and Comprehensive Free Trade Area (DCFTA) and Economic Cooperation and Other Cooperation Policies — were summarised in each case by the Minister in his Explanatory Memoranda of 28 March 2014. Likewise the reasons why: the respective governments were anxious for signature and provisional application as soon as possible, the EU had brought this forward to June 2014, and the Government strongly supported these developments (see our first previous Report for details).[21]

The Minister's letters of 2 and 4 June 2014

10.21 The Minister's first letter covers the following areas thus:

"EXERCISE OF COMPETENCE

"Firstly, [the] Committee requested clarity on those areas of the Association Agreements (AA) with Georgia and Moldova where Member States are exercising their competence and those where the EU is exercising its competence. Broadly, the European Commission is keen to identify each area in which they judge the EU is exercising its competence, in order to put forward those elements of the Agreements for provisional application. The Government agrees with the Committee that the EU should not be taking the decision to apply provisionally any elements of the Agreements in respect of which the Member States are exercising exclusive competence. My officials acted in line with this principle when negotiating to narrow the scope of provisional application on Georgia and Moldova. It is my judgment that the final scope of provisional application for these Agreements — outlined in my letter of 2 May — correlates with the areas of the Agreement in which the EU is exercising competence. There are some caveats to this, which I deal with below.

"TITLE I - GENERAL PRINCIPLES

"My concern on Article 2 - General Principles - was that some aspects of this Article were areas in which Member States should exercise competence. For example, the Article mentions international obligations of the parties to Agreements under the UN, Council of Europe and OSCE. The Member States of the European Union are parties to these international organisations; the European Union is generally not. Another example is the fight against the proliferation of weapons of mass destruction. This is an area generally of Member State competence.

"The EEAS, Commission and other members of the Council were nevertheless keen to agree the provisional application of this Article. The reasoning was that the Article makes clear the standards to which Georgia and Moldova will be held in terms of democratic principles, human rights and fundamental freedoms. The provisional application of this Article means that the European Union can invoke "appropriate measures in case of non-fulfilment of these obligations" (as per Article 422 for Georgia and Article 455 for Moldova) should either country waiver in their commitment to the important obligations outlined in Article 2,

"My officials have now secured the joint declaration by the Council, Commission and High Representative mentioned in my letter of 2 May. With regards to Article 2 of the Agreements, this joint declaration says:

"The provisional application of the General Principles set down in Article 2 of the Association Agreement is necessary to enable the EU to take appropriate measures in accordance with Article 422/455 in the event that Georgia / the Republic of Moldova fails to fulfil its commitments and is without prejudice to the division of competences between the Union and the Member States on the matters referred to therein."

"I am satisfied that this joint declaration clarifies our position on the provisional application of Article 2 and safeguards division of competences between the Union and the Member States.

"TITLE II - COMMON FOREIGN AND SECURITY POLICY

"Where agreements contain provisions concerning political dialogue and cooperation — as with Title II in the Georgia and Moldova Agreements — the UK has tended to argue that the Member States rather than the EU should act in relation to those matters. Where matters fall within Common Foreign and Security Policy (CFSP), Member States have a policy choice as to whether it should be the EU that acts under the CFSP, or whether it should be the Member States that act in their own right. In general, the UK prefers Member States to act in areas such as those outlined in Title II of these Agreements. In addition, the Government argued that the scope of provisional application should extend no further than was the case in the Ukraine AA agreed last autumn.

"On this occasion, the UK concluded that there was a strong political case for the EU to apply provisionally the aforementioned Articles, as it would send a positive signal to both countries in addition to continuing bilateral support, particularly as both countries have protracted conflicts on their territory. In the case of Articles 7, 8 and (on Georgia) 9, there were no similar Articles in the Ukraine agreement of autumn 2013, as at the time there was no conflict within Ukraine's borders. The joint declaration we secured clearly sets out that the exercise of competence by the EU, in respect of these provisions and in the specific cases of Moldova and Georgia, does not represent a precedent. This therefore continues to safeguard the UK's position for future similar third country Agreements, where we may wish to argue that similar provisions concerning political dialogue and cooperation should be assumed by Member States rather than the European Union.

"My officials have now secured the joint declaration by the Council, Commission and High Representative mentioned in my letter of 2 May. The joint declaration for Georgia AA with regards to the provisional application of Articles 7, 8 and 9 is:

'The provisional application of the Articles 7, 8 and 9 of the Association Agreement is without prejudice to the division of competences between the Union and the Member States on the matters referred to therein, and takes into account the specific circumstances of Georgia and the political importance in the case of Georgia of the provisions related to conflict prevention, crisis management, regional stability and peaceful conflict resolution.'

"The joint declaration by the Council, the Commission and the High Representative for the Moldova AA with regards to the provisional application of Articles 7 and 8 is:

'The provisional application of the Articles 7 and 8 of the Association Agreement is without prejudice to the division of competences between the Union and the Member States on the matters referred to therein, and takes into account the specific circumstances of the Republic of Moldova and the political importance in the case of the Republic of Moldova of the provisions related to conflict prevention, crisis management and regional stability.'

"TITLE III - JUSTICE AND HOME AFFAIRS CONTENT

    "As set out in my letter of 2 May, the Government has agreed to the provisional application of articles concerning the rule of law (Article 12 in the Georgia AA and Article 13 in the Moldova AA) because making progress in this area is important in both countries. We have secured a joint declaration for these articles in order to clarify that the EU does not have exclusive competence over wider issues such as independence of the judiciary, access to justice and the right to a fair trial. These are matters that we consider to fall under Title V TFEU. As already stated above, the joint declaration will therefore continue to safeguard the UK's position for future similar third country Agreements.

"The joint declaration by the Council, the Commission and the High Representative for the Georgia AA with respect to Article 12 and Moldova AA with respect to Article 13 is:

'The reference to cooperation in [Article 12/Article 13] of the Association Agreement does not constitute an exercise by the European Union of competence pursuant to Title V of Part III of the Treaty on the Functioning of the European Union.'

10.22 The Minister provides, in his second letter, a further update on the Government's approach to the Justice and Home Affairs (JHA) opt-in aspects of the signature, provisional application and conclusion of the Association Agreements, as follows:

"The Government has taken the Committee's view into account when making its decision. I can now confirm that the UK will opt into the provisions of the AA which relate to re-admission and Mode 4 (trade in services) obligations.

"When making this decision, the Government took into consideration that the UK already participates in the existing re-admission agreements between the EU and Georgia/Moldova and as such it is appropriate that we now opt-into the new provisions which require the EU on one part, and Georgia/Moldova on the other part, to ensure the full implementation of those agreements.

"As regards the Mode 4 provisions, the Government's position remains that these provisions fall within the scope of the UK's JHA opt-in. Those provisions are in line with the EU's Doha round offer to the World Trade Organisation and are subject to rigorous safeguards, including minimum skills levels. We are therefore content to opt-into these provisions.

"As mentioned in my letter of 2 May, the Government is content for the provisional application of provisions relating to re-admission in both Agreements. These are Article 15 with respect to Moldova and Article 16 with respect to Georgia.

"With respect to these articles, my officials have continuously pushed for the citation of relevant Title V legal bases and the splitting of the Council Decisions into JHA and non-JHA decisions during negotiations in Brussels. I regret to inform the Committee that we did not secure these aims. However, in the absence of the citation of the relevant Title V legal bases, we will register our dissatisfaction through a minute statement. It will make clear that the UK has opted-into the relevant JHA provisions and that we consider the relevant Title V legal bases should have been cited in respect of the provisions related to re-admission."

Previous Committee Reports

(a) and (b): Fiftieth report: HC 83-xlv (2013-14), chapter 1 (14 May 2014); Forty-sixth report: HC 83-xli (2013-14), chapter 7 (9 April 2014) and Forty-seventh report: HC 83-xlii (2013-14), chapter 9 (30 April 2014); (c) and (d): Fiftieth report: HC 83-xlv (2013-14), chapter 1 (14 May 2014); Forty-sixth report: HC 83-xli (2013-14), chapter 6 (9 April 2014) and Forty-seventh report: HC 83- xlii (2013-14), chapter 9 (30 April 2014).


11 EU Special Representative (EUSR) in Afghanistan
Committee's assessment Politically important
Committee's decisionCleared from scrutiny
Document detailsMandate extension of the EU Special Representative (EUSR) in Afghanistan
Legal baseArticles 28, 31(2) and 33 TEU; QMV
DepartmentForeign and Commonwealth Office

Summary and Committee's conclusions

11.1 The EU established a Special Representative for Afghanistan in 2002. The mandate focuses on enhancing EU effectiveness and visibility in Afghanistan. It aims to contribute to the strengthening of democracy, rule of law, good governance, civilian capacity building, economic growth and respect for human rights in Afghanistan.[22]

11.2 Since 22 July 2013, the EUSR has been Ambassador Skjold Mellbin — a senior Danish diplomat with more than 25 years of experience, most recently as the Danish Special Representative for Afghanistan and Pakistan; who, in his diplomatic career, had focused extensively on relations with Asia, with ambassadorial postings in Tokyo and Kabul, and with a strong background in the fields of both security policy and development cooperation. At that time, the Minister for Europe (Mr David Lidington) said:

    "Ambassador Skjold Mellbin will take over as EUSR at a critical point in the security and political transition in Afghanistan. The UK welcomes him as a very credible and well-qualified candidate for this role. The EUSR will be important in trying to deliver a stable and secure Afghanistan, in line with the aims of the UK Government and wider international community. We anticipate that Ambassador Skjold Mellbin will discharge this role effectively."

11.3 This draft Council Decision would authorise the extension of his mandate until February 2015. The proposed mandate does not alter the work of the EUSR substantially over the next eight months but does propose some additional responsibilities, specifically the delivery of the implementation of a new EU strategy. The EUSR role will continue to be a "double-hatted" position, heading the EU Delegation and promoting the work of the Union.

11.4 The Minister's "performance report" on Ambassador Skjold Mellbin over the past year is, as he puts it, encouraging — especially as he envisages an important role for him in supporting the current Government through transition and working with the new Government to shape their priorities, and in delivering the outcomes of the NATO Summit and Afghan Development Conference later this year.

11.5 The Minister also looks ahead to a new EU strategy, focussing on promoting peace and stability in the region, reinforcing democracy, encouraging economic development and the rule of law and a yet-to-be-signed EU-Afghan Cooperation Agreement on Partnership and Development (CAPD) — in the implementation of either of which the EUSR would be heavily involved. But much uncertainty surrounds them both.

11.6 From separate correspondence, the Minister has said that he will be writing to the Committee shortly with an update on the work underway in Brussels to agree a strategy, with a view to its being ready for endorsement later this year; we look forward to receiving it shortly.

11.7 In that correspondence, the Minister also noted that he does not expect the CAPD, upon which he says little progress has been made with the current Afghan Government, to be finalised with the new Government until towards the end of year, when he would deposit the draft Council Decisions to sign and conclude the CAPD with Afghanistan for parliamentary scrutiny in the normal way, when drafts become available.

11.8 We take this opportunity to note our expectation that the over-arching Strategy — which will plainly be the framework for all EU work in Afghanistan for the foreseeable future — ought also to be deposited for scrutiny before adoption.

11.9 Though the Minister does not say so, there is a further uncertainty: the stand-off between the Council and the High Representative of the Union for Foreign Affairs and Security Policy (HR) about whether, post-Lisbon, the EUSR as a "concept" is to be continued or (as the HR, Baroness Ashton, 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. The Government's position — which we endorse — is 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.[23]

11.10 The EUSR in Afghanistan (and all his counterparts) are accordingly "holding the fort", pending the resumption of discussions when the next HR is appointed in November; hence the shortened mandate.

11.11 In the meantime, we clear this Council Decision.

Full details of the document: Council Decision extending the mandate of the European Union Special Representative in Afghanistan: (36033), —;.

Background

11.12 EU Special Representatives (EUSRs) are appointed to represent Common Foreign and Security Policy where the Council agrees that an additional EU presence on the ground is needed to deliver the political objectives of the Union. They are established under Article 33 TEU and are appointed by the Council. Their purpose is to represent the EU in troubled regions and countries and to play an active part in promoting the interests and the policies of the EU.

11.13 An EUSR is appointed by Council through the legal act of a Council Decision (formerly a Joint Action). They carry out their duties under the authority and operational direction of the High Representative of the Union for Foreign Affairs and Security Policy (HR; Baroness Catherine Ashton). Each is financed out of the CFSP budget. In addition, Member States also contribute regularly through, e.g., seconding some of the EUSR's staff members.

The Minister's Explanatory Memorandum of 5 June 2014

11.14 In his Explanatory Memorandum, the Minister for Europe (Mr David Lidington) says that, although the proposed mandate does not make substantial changes and focuses on enhancing the EU's visibility and role in Afghanistan over the next eight months, it does introduce some additional responsibilities for the EUSR, "specifically to contribute to the delivery and implementation of a new EU strategy for Afghanistan."

11.15 The Minister comments as follows:

    "The UK supports the work of the EUSR in Afghanistan. He works closely with the UK and other international partners to ensure a cohesive approach in delivering the international community's priorities in Afghanistan, including by regularly chairing a meeting of EU Heads of Mission. His work and support for shared UK and EU objectives has been encouraging. The EUSR has played significant role in devising the international community's approach to the recent Presidential elections, a strong voice on human rights and security sector reform and an influential partner when dealing with senior members of the Afghan Government.

    "It remains a challenging time for Afghanistan. The country is in the midst of a complex political transition and despite important progress over the last 12 months, security still remains a challenge and the economic situation fragile. Over the next 8 months, the EUSR will play an important role in supporting the current Government through transition and working with the new Government to shape their priorities. In this respect, the NATO Summit and Afghan Development Conference later this year will be important milestones. The EUSR will be a key factor in delivering the agreed outcomes.

    "Over the next 8 months, we will be pressing the EUSR on the need to move at pace to build strong relationships with the new Government and focus on the priorities set by the UK and wider international community. The proposed mandate does not alter the work of the EUSR radically over the next 8 months but it does propose some additional responsibilities, specifically the delivery of the implementation of a new EU strategy. The EUSR role will continue to be a 'double-hatted' position, heading the EU Delegation and promoting the work of the Union.

    "The EU Foreign Affairs Council agreed in January via Council Conclusions the broad principles on which a new EU strategy should be focused. Alongside overseeing the Union's political dialogue with Afghanistan, we expect the new EU strategy when agreed to dictate the day to day activities of the EUSR. The strategy is likely to focus on promoting peace and stability in the region, reinforcing democracy, encouraging economic development and the rule of law. There is of course the EU-Afghan Cooperation Agreement on Partnership and Development, which the Afghans are yet to sign. If agreed in the next 8 months, we would expect the EUSR to be heavily involved in the implementation of this agreement.

    "Afghanistan remains an important foreign policy priority for the UK. As we enter a crucial period in Afghanistan's history, the EUSR will be important in seeking to deliver a stable and secure Afghanistan. It is important that we, alongside the international community, protect the gains made over the last 12 years. The EU, through the work of the EUSR and its long-term financial commitment, continues to be a critical actor in supporting our objectives."

11.16 With regard to the Financial Implications, the Minister says that:

—  the EEAS has submitted a draft budget for consideration by Member States, covering the eight month period:

    "The proposed budget for 2014/15 is €3,760,000. The budget previously agreed for the period 2013/14 (over 12 months) was €6,585,000. This represents total savings for spend on EUSR Afghanistan of €2,825,000, approximately 43%. Based on a 12 month projection, it represents savings of approximately 15%, a welcomed reduction";

—  the reduction outlined above is:

    "primarily due to savings found in running and security costs, specifically those associated with securing the compound and EU personnel. With old contracts coming to an end, the EEAS have revised their estimates on the resources needed over the next 8 months. I will provide the Committee with the final figures once available."

The Minister's letter of 12 May 2014

11.17 The Minister says:

    "The Foreign Affairs Council discussion on Afghanistan, originally scheduled for December 2013, took place on 20 January 2014. The Foreign Secretary attended for the UK. He took the opportunity to remind the Council about the importance of the EU continuing to engage in Afghanistan post 2014 and the need to have clear priorities and realistic deliverables for any future strategy. The Council invited the High Representative and the Commission to present a proposal for a strategy by the end of 2016. The Council agreed that any strategy should encompass a comprehensive approach, the commitments identified in the Tokyo Mutual Accountability Framework, and the CAPD (as currently drafted).[24] The Council agreed that the strategy should be ready for endorsement later this year. I will be writing to the Committee shortly with an update on the work underway in Brussels to agree a strategy and attach the January Conclusions for your reference.[25]

    "In relation to the CAPD between the EU and Afghanistan, the situation remains broadly the same. As set out in my previous letters of 21 November 2013 and 2 February 2012, the CAPD has still not been signed and little progress has been made in reaching final agreement with the Government of Afghanistan. As set out in my previous correspondence, the EU is, however, seeking to conclude negotiations by the end of 2014. However, as you will no doubt be aware, Afghanistan recently held elections and a political transition is now underway. It is likely that any final agreement on the CAPD will need to be finalised with a new Government, towards the end of year. Despite this, our lobbying of the current Government continues. The Foreign Affairs Council in January called on the Government of Afghanistan to move forward and finalise the agreement. We will seek to deposit the draft Council Decisions to sign and conclude the CAPD with Afghanistan for parliamentary scrutiny in the normal way, when drafts become available."

Previous Committee Reports: None; but see (35053) —: Ninth report: HC 83-ix (2013-14), chapter 16 (10 July 2013); (35128) —: Ninth report: HC 83-ix (2013-14), chapter 20 (10 July 2013).


12 The EU's Special Representative (EUSR) to Bosnia and Herzegovina
Committee's assessment Politically important
Committee's decisionCleared from scrutiny

Document detailsCouncil Decision amending Decision 2011/426/CFSP appointing the European Union Special Representative in Bosnia and Herzegovina
Legal baseArticle 114 TFEU; ordinary legislative procedure; QMV
DepartmentForeign and Commonwealth Office

Summary and Committee's conclusions

12.1 Council Decision 2011/426/CFSP appointed Peter Sorensen as the EU's Special Representative (EUSR) to Bosnia and Herzegovina (BiH) with a mandate until 30 June 2015, and established a budget from 1 September 2011 until 30 June 2012. Council Decision 2012/330/CFSP extended the budget until 30 June 2013. Council Decision 2013/351/CFSP then extended the budget until 30 June 2014.

12.2 The new Council Decision establishes a budget from 1 July 2014 to 30 June 2015 of €5.25 million (a small decrease on the previous budget of €5.285 million), and covers the existing tasks of the EUSR for the next 12 month period.

12.3 The April 2014 Foreign Affairs Council Conclusions to which the Minister for Europe (Mr David Lidington) refers begin thus:

    "1. The Council reaffirms its unequivocal commitment to the territorial integrity of Bosnia and Herzegovina as a sovereign and united country. The Council also reiterates its unequivocal commitment to Bosnia and Herzegovina's EU perspective. In this regard, it condemns as unacceptable secessionist and divisive rhetoric and ideas.

    "2. In line with its conclusions of December 2013, the Council recalls its serious concern that the EU integration process in Bosnia and Herzegovina (BiH) has stalled due to the lack of political will on the part of the BiH politicians and the continued use of divisive rhetoric. As other countries of the region make progress, Bosnia and Herzegovina is lagging behind.

    "3.The Council heard the public protests and calls by BiH citizens to improve the social and economic situation in the country. All BiH citizens, including the younger generation, need to be given new opportunities. It strongly urges the BiH institutions and elected leaders to reach out to the people, engage with civil society and provide responsible and immediate answers to their legitimate concerns. The Council emphasizes that it is the collective responsibility of all BiH political leaders. Ahead of the general elections in October 2014, more needs to be done, not less."[26]

12.4 These paragraphs illustrate all too clearly the challenges facing the EUSR (and the OHR) over the next 12 months. We look forward to hearing from the Minister about the extent to which they have been overcome when he next submits the EUSR mandate for scrutiny.

12.5 In the meantime, we now clear this Council Decision.

Full details of the documents: Council Decision amending Decision 2011/426/CFSP appointing the European Union Special Representative in Bosnia and Herzegovina: (36036) —.

Background

12.6 The internationally brokered Dayton Agreement ended the 1992-1995 war in BiH. It established BiH as a state comprising two Entities, each with a high degree of autonomy: the Republika Srpska (RS) and the Federation (FBiH). It also designated the Office of the High Representative (OHR) to oversee the implementation of the civilian aspects of the Peace Agreement on behalf of the international community and coordinate the activities of the civilian organisations operating in BiH.

12.7 The Peace Implementation Council (PIC) — 55 countries and international organisations that sponsor and direct the peace implementation process — oversees all this. The PIC Steering Board nominates the HR; the UN Security Council (which approved the Dayton Agreement and the deployment of international troops in BiH) then endorses the nomination. The Steering Board also provides the HR with political guidance. The Steering Board members are Canada, France, Germany, Italy, Japan, Russia, United Kingdom, United States, the Presidency of the European Union, the European Commission, and the Organisation of the Islamic Conference (OIC), which is represented by Turkey. In Sarajevo, the HR chairs weekly meetings of the Ambassadors to BiH of the Steering Board members. In addition, the Steering Board meets at the level of political directors three times a year. From the outset the HR was "double-hatted" as EUSR.

12.8 The longstanding goal has always been for BiH to work its way towards European accession. But things have not gone according to plan. The BiH authorities need to deliver five objectives (well established, approved by the PIC SB and all previously recognized by BiH authorities as obligations) revolving around creating a sustainable, multi-ethnic, democratic, law-based State, and fulfil two conditions — signing of a BiH Stabilisation and Association Agreement, and a positive assessment of the situation in BiH by the PIC SB based on full compliance with the Dayton Agreement. Delivery or fulfilment of these "Five Objectives and Two Conditions" has, however, proved elusive.

12.9 On 1 September 2011 Peter Sorensen was appointed EUSR to Bosnia and Herzegovina (BiH). He was appointed also Head of the EU Delegation in BiH, in a double-hatted role. Previously the EUSR position had been double-hatted with the High Representative role in BiH. This was decoupled on 1 September 2011 when the mandate of the EUSR was transferred from Valentin Inzko (who remains High Representative) to Peter Sorensen. Sorensen will continue in the roles of EUSR and EU Head of Delegation.

12.10 The mandate of the EUSR is to:

·  offer the Union's advice and facilitate the political process;

·  ensure consistency and coherence of Union action;

·  facilitate progress on political, economic and European priorities;

·  monitor and advise the executive and legislative authorities at all levels of government in BiH and liaise with BiH authorities and political parties;

·  ensure the implementation of the Union's efforts in the whole range of activities in the field of the rule of law and the security sector reform promote overall Union coordination of, and give local political direction to Union efforts in tackling organised crime and corruption, and in this context, provide the HR and the Commission with assessments and advice as necessary;

·  without prejudice to the military chain of command, offer the EU Force Commander political guidance on military issues with a local political dimension, in particular concerning sensitive operations, relations with local authorities and with the local media. Consult with the EU Force Commander before taking political action that may have an impact on the security situation;

·  coordinate and implement the Union's communication efforts on EU issues towards the public in BiH;

·  promote the process of EU integration through targeted public diplomacy and EU outreach activities designed to ensure a broader understanding and support from the BiH public on EU related matters, including by means of engagement of local civil society actors;

·  contribute to the development and consolidation of respect for human rights and fundamental freedoms in BiH, in accordance with the EU human rights policy and EU Guidelines on Human Rights;

·  engage with relevant BiH authorities on their full cooperation with the International Criminal Tribunal for the former Yugoslavia (ICTY);

·  in line with the EU integration process, advise, assist, facilitate and monitor political dialogue on the necessary constitutional changes;

·  maintain close contacts and consultations with the High Representative in Bosnia and Herzegovina and other relevant international organisations working in the country;

·  provide advice to the High Representative as necessary concerning natural or legal persons on whom restrictive measures could be imposed in view of the situation in BiH; and

·  without prejudice to the applicable chains of command, help to ensure that all Union instruments in the field are applied coherently to attain the Union's policy objectives.

The Minister's Explanatory Memorandum of 2 June 2014

12.11 The Minister recalls that in March 2011, the EU agreed a strategy for BiH: in broad terms, an enhanced EU presence in BiH, led by the EUSR, with a focus on moving BiH towards its EU future; the three conditions for BiH's Stabilisation and Association Agreement (SAA) to come into force; and retaining what he describes as the important safeguards of the executive civilian mandate of the OHR and the military executive mandate of the EU's peacekeeping troops in Operation EUFOR Althea.

12.12 The Minister continues as follows:

    "Following the appointment of Peter Sorensen as EUSR on 1 September 2011, the EUSR has strengthened the EU's visibility and political impact in BiH, taking the lead in supporting BiH in EU-related matters. Sorensen is a respected and trusted interlocutor who carries real weight with key Bosnian politicians from all three constituent parties (Bosniak, Bosnian Serb and Bosnian Croat). We believe the EUSR mandate remains critical to galvanising BiH's leaders into making the reforms needed to allow them to submit a credible application for candidate status."

12.13 The Minister notes that the mandate for the EUSR for the period 1 July 2014 to 30 June 2015 will continue as set out in the original Council Decision of 11 September 2011.

    "The UK maintains support for the original Council Decision to strengthen the EU presence in BiH. We believe it is important to maintain a balance of incentives and deterrents to encourage EU-related reforms, whilst retaining international safeguards such as the OHR and EUFOR Operation Althea's executive mandate.

    "April's Foreign Affairs Council (FAC) Conclusions[27] acknowledged a need for a reinvigorated EU push in BiH, aimed at addressing the population's legitimate concerns through a broadened EU agenda. Immediate efforts will include initiatives to support BiH institutions in identifying socio-economic reforms in order to reinvigorate the economy and spur the creation of jobs in the short to mid-term. A reinvigorated approach will also include an increase in outreach activities to the BiH population, in particular in the months preceding October's general elections. The EUSR's Office leads on outreach activities."

12.14 The Minister explains that the amended Council Decision will establish a budget for the EUSR for the next 12 months of €5.25 million, which he notes is a small decrease on the previous budget of €5.285 million; and "covers activities centred around the EU's renewed push in BiH in line with April's FAC Conclusions, as well as messaging and communication activities in the pre-election period".

12.15 He notes that funding for the common costs of the EUSR is met from the CFSP budget. The UK contributes to the EU budget as a whole, not to individual programmes within it.

12.16 He also says:

    "We commend the EUSR's Office for their prioritisation which has been reflected in savings to the overall budget. Their finding savings in the context of the EU's renewed push in BiH, and the expected increase in activity that this will bring, demonstrates effective prioritisation of activity in areas that are of most importance and in which the EUSR can add most value. We also expect considerable messaging and communication activities in the pre-election period, which is reflected in the budget. The UK has challenged the EUSR to justify the activities and spend in the proposed budget. We will of course continue to ensure that negotiations on the budget are fully cogniscent of HMG's policy of opposing any overall increase in the EU's Common Foreign and Security Policy (CFSP) budget and ensure value for money for the UK taxpayer."

12.17 With regard to the relationship between the EUSR and the OHR, the Minister says:

    "In line with the EU strategy adopted in March 2011, the EU presence has, to date, coexisted successfully with the High Representative. The UK will continue to insist that the Office of the High Representative (OHR) remain in place (or is potentially "off-shored" - located outside BiH with the High Representative's executive powers retained if the security situation becomes sufficiently stable) until the set of five conditions and two objectives (known as the '5+2') agreed by the international community for the closure of the OHR are met. The Peace Implementation Council (PIC) will continue to review progress against these '5+2' at its regular meetings. Approval of the EUSR budget does not prejudice a future PIC decision regarding closure of the OHR. Both the OHR and EUSR continue to work together effectively on the ground and focus on complementary tasks."

Previous Committee Reports

None; but see (35032) —: Seventh report: HC 83-vii (2013-14), chapter 12 (26 June 2013); also see (33960) —: Fourth report: HC 86-iv (2012-13), chapter 23 (14 June 2012) and (34725) —: HC 86-xxxiv (2012-13), chapter 12 (13 March 2013): also (32951) —: Thirty-fourth report: HC 428-xxxii (2010-12), chapter 17 (6 July 2011); (32579) —: Twenty-second report: HC 428-xx (2010-12), chapter 8 (16 March 2011); and (31844), (31856-66) and (31884) —: First report: HC 428-i (2010-12), chapter 66 (8 September 2010).


13 Money laundering and terrorist financing
Committee's assessment Politically important
Committee's decisionCleared from scrutiny; further information requested
Document details(a) Draft Regulation about information accompanying transfers of funds

(b) Draft Directive about preventing use of the financial system for money laundering and terrorist financing

(c) European Central Bank Opinion on the two legislative proposals

Legal base(a)-(b) Article 114 TFEU; co-decision; QMV

(c) —

DepartmentHM Treasury

Summary and Committee's conclusions

13.1 The EU has in place legislation to prevent money laundering and terrorist financing, the Third Money Laundering Directive (MLD) and the Wire Transfer Regulation. This draft Directive and draft Regulation are to revise and replace the Third MLD and the Wire Transfer Regulation, to reflect changes made to the international standards on anti-money laundering and counter terrorist financing as set by the intergovernmental organisation, Financial Action Task Force. The European Central Bank Opinion is supportive of both proposals and did not highlight any areas of real concern.

13.2 When we last considered these proposals, in May, we were not convinced that there was sufficient certainty about a successful resolution of the matters of concern for the UK. So we were not prepared to give the scrutiny waiver, to enable the Government to concur in a general approach, requested of us. Instead we asked to hear about developments during the next following weeks. We also recalled an outstanding question on a possible Title V (Justice and Home Affairs) legal base for the draft Directive.

13.3 The Government now gives us more certain assurance of the security of the improvements to the proposals it has achieved. So we now clear the documents, but the Government is requested to return to us as a matter of urgency if there is significant unravelling of the improvements before a general approach is adopted.

13.4 As for the JHA issue the Government is well aware that we do not accept its view that there is an opt-in option for proposals with a non-JHA legal base. In that connection we ask the Government to confirm that its comment that it will consider itself bound by the new Directive, despite not opting in, until such a time as the Court of Justice were to strike down the measure, means that it intends to challenge the measure before the Court.

Full details of the documents: (a) Draft Regulation on information accompanying transfers of funds: (34681), 6230/13 + ADDs 1-2, COM(13) 44; (b) Draft Directive on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing: (34682), 6231/13 + ADDs 1-2, COM(13) 45; (c) European Central Bank Opinion on a draft Directive on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing and on a draft Regulation on information accompanying transfers of funds: (34950), 9968/13 (CON/2013/32).

Background

13.5 The EU has in place legislation to prevent money laundering and terrorist financing, currently Directive 2005/60/EC (Third Money Laundering Directive or Third MLD) and Council Regulation 1781/2006 (the Wire Transfer Regulation). The draft Directive, document (b), and the draft Regulation, document (a), are to revise and replace the Third MLD and the Wire Transfer Regulation, to reflect changes made to the international standards on anti-money laundering and counter terrorist financing as set by the intergovernmental organisation, Financial Action Task Force (FATF).[28] The European Central Bank (ECB) issued this Opinion, document (c), on the draft Directive and the draft Regulation. The ECB is supportive of both proposals and did not highlight any areas of real concern.

13.6 When we last considered these proposals, in May, we noted both that progress towards meeting the UK's needs was being made and that the Greek Presidency might succeed in moving for a Council general approach during the recent Prorogation. However we were not convinced that there was sufficient certainty about a successful resolution of the matters of concern for the UK. So we were not prepared to give the scrutiny waiver requested of us. Instead we asked to hear about developments during the following weeks. We also recalled that we still awaited confirmation that, if the Government secured agreement to an additional, Title V, legal base for the draft Directive, the three month period for consideration of an opt-in would begin. Meanwhile the documents remained under scrutiny.

The Minister's letter of 10 June 2014

13.7 The Commercial Secretary to the Treasury (Lord Deighton) reports now that:

·  agreement has not yet been reached, but the Presidency is on track to complete its stated aim of reaching general approach by the end of the month;

·  following extensive discussions between Member States and the Presidency over the last few days, a new version of the Directive (in line with the information provided to us previously) is to be put to Coreper on 18 June;

·  the Government's policy of close engagement with the Commission, Presidency and other Member States has meant that it is broadly content with recent progress and would look to support this version of the proposal as a basis for trilogue discussions with the European Parliament; and

·  this follows the European Parliament having already adopted first reading positions on both the Directive and the Regulation ahead of the end of its last session.

13.8 The Minister elaborates further on several issues. First, on the draft Directive, he says that:

·  on beneficial ownership, negotiations to date have secured nuanced differential treatment of companies and trusts;

·  positive and explicit reference is made to central and public registries as a prime example of an acceptable mechanism for storing and accessing company beneficial ownership information;

·  at the same time, more flexibility is granted over the handling of trust beneficial ownership;

·  this nuanced asymmetry in treatment is in line with UK objectives;

·  on other issues, the latest compromise text is "in a good place" on risk-based exemption for the gambling sector and supra-national risk assessment;

·  the Commission will not issue legally binding measures on the back of the latter and the Government has also secured language that ensures that Member States' experts would be involved in the assessment process;

·  significant progress has been made with respect to the exemption of e-money products from certain customer due diligence measure; and

·  the Government has successfully secured a hard-won compromise whereby reloadable e-money instruments under a certain threshold may also benefit from the derogation.

13.9 On cooperation between Financial Intelligence Units (FIUs) the Minister tells us that:

·  the Government now takes the view that one of the predominant purposes of the measure is cooperation against criminal activity, particularly terrorist financing, which it considers to be Justice and Home Affairs (JHA) cooperation;

·  on that basis, and in line with the recently reviewed Government policy on the application of the JHA opt-in, announced to us earlier this month, the Government considers that despite not asserting the opt-in, and not opting in, the UK would be bound by this measure if it were to be adopted without a Title V legal base;

·  it recognises now that it should therefore have asserted the opt-in at the beginning of negotiations and provided us with an opportunity to give an opinion on whether the UK should opt in, in line with standard practice;

·  the Government did not do so as it did not identify the content as being JHA in nature at an early stage, (the Minister apologises that the Government did not provide us with an opportunity to consider the opt-in in relation to these proposals);

·  the Government has sought to negotiate the addition of a Title V legal base, or to split out the content into a separate measure with a Title V legal base, to make it clear that this is JHA content;

·  however it can no longer expect to achieve these aims before the proposal is put to the Council for a general approach by the end of the Greek Presidency; and

·  the Government will therefore consider itself bound by this measure on adoption, despite not opting in, until such a time as the Court of Justice were to strike down the measure.

13.10 Turning to the draft Regulation the Minister continues that negotiations have progressed well and there is now consensus among Member States, along the lines of previous updates for us, that the text is acceptable in its present form, including on the issue of the threshold, which has been maintained at €1,000 (£823).

13.11 The Minister concludes that he hopes we are able to clear the documents from, or waive, scrutiny to allow the Government to support a general approach on the proposals, on which it has secured a number of positive outcomes. He adds that he would write to us as a matter of urgency, if there were any significant movement ahead of a general approach.

Previous Committee Reports

(a)-(b) Thirty-five report: HC 86-xxxv (2012-13), chapter 14 (13 March 2013), Twenty-seventh report: HC 83-xxv (2013-14), chapter 11 (18 December 2013), Forty-first report: HC 83-xxxviii (2013-14), chapter 8 (19 March 2014) and Fiftieth report: HC 83-xlv (2013-14), chapter 4 (14 May 2014) (c) Seventh report: HC 83-vii (2013-14), chapter 8 (26 June 2013), Twenty-eighth report: HC 83-xxv (2013-14), chapter 11 (18 December 2013), Forty-first report: HC 83-xxxviii (2013-14), chapter 8 (19 March 2014) and Fiftieth report: HC 83-xlv (2013-14), chapter 4 (14 May 2014).


14 Financial services: bank accounts
Committee's assessment Legally and politically important
Committee's decisionCleared

Document detailsDraft Directive to improve consumers' experience of bank accounts in the EU and enhance the integration of the EU bank account market
Legal baseArticle 114 TFEU; co-decision; QMV
DepartmentHM Treasury

Summary and Committee's conclusions

14.1 This draft Directive had provisions to improve:

·  comparability of fees on bank accounts;

·  the ease with which consumers switch accounts; and

·  access to basic bank accounts.

14.2 The aim was to improve consumers' experience of bank accounts in the EU and enhance the integration of the EU bank account market.

14.3 We have considered this proposal three times previously, hearing of the Government's six key priorities for improving the draft. The Government now reports success in achieving five of these priorities and failure to achieve one, although managing to ameliorate the impact of the provision concerned. The Government tells us that, although it abstained, on scrutiny grounds, from voting for the final agreed text, it believes that text is a good outcome for the UK.

14.4 Given the relatively good outcome of this proposal, and having no further questions, we now clear the document.

Full details of the documents: Draft Directive on the comparability of fees related to payment accounts, payment account switching and access to payment accounts with basic features: (34942), 9788/13 + ADDs 1-2, COM(13) 266.

Background

14.5 In May 2013 the Commission presented, in the context of the Single Market Act (not, despite its title, legislation, but a policy manifesto), this draft Directive with provisions to improve:

·  comparability of fees on bank accounts;

·  the ease with which consumers switch accounts; and

·  access to basic bank accounts.

14.6 The aim was to improve consumers' experience of bank accounts in the EU and enhance the integration of the EU bank account market.

14.7 The draft Directive had three key elements. First, it would provide that:

·  Member States should provide a list of the most common bank account services subject to a fee at national level;

·  the European Banking Authority would have a role in helping to develop guidelines to assist in this process;

·  the Commission would then be able to set out a list of EU standard terminology (and definitions) common to the majority of Member States — this information would be given to consumers prior to taking on a bank account;

·  Member States should establish a voluntary accreditation scheme for websites comparing fees charged by providers, in order to simplify the comparison of services and fees offered by banks;

·  account providers would issue the customer with a statement of all fees incurred on their payment account, on at least an annual basis; and

·  account providers would have to inform consumers if they were buying a "packaged account" and if it was possible to buy the account separately to the additional product or service — if so, providers would then be required to disclose what the costs and fees for each would be.

14.8 Secondly, the proposed Directive included provisions to improve payment account switching across the EU:

·  setting out minimum standards aimed to facilitate payment account switching within Member States and across the EU; and

·  providing that customers would not incur a financial loss due to mistakes made during the switching process.

14.9 Thirdly, the draft Directive:

·  would introduce a right of access to a basic account for all EU consumers, regardless of their place of residence;

·  specifies the characteristics of a basic account, such as the freedom for money to be added to the account and for direct debits; and

·  would require Member States to raise public awareness of basic accounts.

14.10 We have considered this proposal three times previously and have heard of a number of Government concerns, including one of subsidiarity. The latter point was dealt with in our Report of 17 July 2013. When we last considered the matter we heard that:

·  there had been significant pressure from the European Parliament to conclude negotiation of this proposal ahead of the elections in the spring;

·  under this pressure the Lithuanian Presidency pushed through an agreement on a general approach just before Christmas 2013;

·  this met five of the Government's priorities and on the sixth priority, relating to comparison websites, the Government had ensured that the general approach would have a limited impact;

·  given the proposal remained under scrutiny, the Government abstained from voting at COREPER; and

·  the Presidency concluded, however, that a general approach was agreed and proceeded to trilogue discussions.

14.11 We were asked, given that there was likely to be pressure for an agreement in the coming months, whether we were content to grant scrutiny clearance. However, we were not clear whether, if the proposal were not still under scrutiny, the Government would have been satisfied enough with the Presidency text to support the Council's general approach. Nor was it clear to us how secure the Government expected the improvements it had gained in Council negotiations to be during the trilogues. So, rather than clearing the proposal from scrutiny, we said we would await a further report on how the trilogues were developing before considering the matter again. Meanwhile the document remains under scrutiny.

The Minister's letter of 31 May

14.12 The Economic Secretary to the Treasury (Andrea Leadsom), reminding us that there has been significant pressure from the European Parliament to conclude this Directive ahead of the EU elections on 22 May, reports that:

·  trilogue negotiations started early in the New Year and a provisional text was agreed at the final trilogue on 20 March;

·  the Presidency then took the draft Directive to COREPER on 4 April, where the Council agreed the final text;

·  the European Parliament also held a plenary vote on the draft Directive and agreed the final text on 15 April;

·  given that the proposal remained under scrutiny and that not all the priorities the Government had raised with us were achieved, the UK abstained from voting at COREPER; and

·  following political agreement the Directive is now undergoing a process to identify technical, non-substantive changes to the text before final agreement is sought.

14.13 Saying that the Government wanted to seek to ensure that the Directive avoided putting unnecessary burdens on industry and achieved the right outcome for UK consumers, the Minister says that the Government believes the final agreed text is a good outcome for the UK and that it achieved the following against the UK's priorities:

·  it preserved the Council's position on the definition of 'payment account' and keeping it in line with UK 'current accounts';

·  it ensured that the switching proposals in the Directive relate to domestic switching only and that cross border switching, as initially proposed, has been removed — instead, banks will need to undertake a small number of basic actions when a consumer opens an account in another Member State, all of which they do already;

·  recognition was secured for existing Member State arrangements for domestic switching, such as the UK's Current Account Switching Service, which will be able to proceed as previously designed;

·  recognition was secured for existing non-legislative arrangements for basic bank accounts in Member States, such as the UK's agreement;

·  banks and building societies will be able to refuse applications for basic bank accounts for legitimate reasons, including to meet anti-fraud and anti-money laundering requirements; and

·  even though the Government was unable to block the inclusion of comparison websites in the Directive, it has achieved a result that will involve negligible impacts and burdens for the UK market.

Previous Committee Reports

Fifth Report, HC 83-v (2013-14), chapter 9 (12 June 2013), Twelfth Report, HC 83-xii (2013-14), chapter 8 (17 July 2013) and Thirty-seventh Report, HC 83-xxxiv (2013-14), chapter 10 (26 February 2014).


15 Financial services: long term investment funds
Committee's assessment Politically important
Committee's decisionCleared from scrutiny
Document detailsDraft Regulation on European long-term investment funds
Legal baseArticle 114 TFEU; co-decision; QMV
DepartmentHM Treasury

Summary and Committee's conclusions

15.1 This draft Regulation would create an optional framework that would permit firms already authorised under the Alternative Investment Fund Managers Directive (AIFMD) to establish and manage an investment fund and market it under the name "European Long Term Investment Fund" (ELTIF). When we considered this matter previously we heard that whilst the Government did not believe that there was much in this proposal for UK firms, it did not think it would lead to any detriment for them. However we noted various matters, which, if addressed, would improve the proposal. So before considering the draft Regulation again we asked to hear about progress in Council working group consideration of these matters.

15.2 Given that the Minister does not report any adverse changes to the text and does note some minor improvements, we now clear the document from scrutiny.

Full details of the documents: Draft Regulation on European long-term investment funds: (35168), 12044/13 + ADDs 1-2, COM(13) 462.

Background

15.3 This draft Regulation would create an optional framework that would permit firms already authorised under the Alternative Investment Fund Managers Directive (AIFMD) to establish and manage an investment fund and market it under the name "European Long Term Investment Fund" (ELTIF). An ELTIF would be established in a European Economic Area (EEA) state and would have to be authorised by the competent authority of the jurisdiction in which it was established. The fund manager would have to apply to the ELTIF's competent authority for approval to manage the fund. This authorisation would be separate from the AIFMD authorisation of the firm managing the ELTIF.

15.4 When we considered this matter in September 2013 we heard that whilst the Government did not believe that there was much in this proposal for UK firms, it did not think it would lead to any detriment for them. However we noted various matters, in relation to appropriateness for retail, investment restrictions and supervision and enforcement, which, if addressed, would improve the proposal. So before considering the draft Regulation again we asked to hear about progress in Council working group consideration of these matters. Meanwhile the document remained under scrutiny.

The Minister's letter of 7 June 2014

15.5 The Economic Secretary for the Treasury (Andrea Leadsom) writes to update us on the progress of this proposal in the Council, saying that:

·  the Council has met at working level to discuss the draft Regulation on a number of occasions over the last few months;

·  the draft text is "currently in a positive place"; and

·  the Greek Presidency is planning on holding further meetings this month and has indicated that it hopes to reach a General Approach before the end of its term.

15.6 Turning to the points we had noted might, if addressed, improve the proposal the Minister tells us first, in relation to retail participation, that:

·  the major contentious issue has been whether or not such a long term product can be suitable for retail investors;

·  the Commission's rationale for creating a retail scheme is that there are many institutional investors whose investment mandate requires that they may only invest in retail suitable products, including many defined contribution pension funds;

·  the Government broadly agrees with this view — a majority of Member States have argued, however, that a long term fund with no redemptions can never be suitable for retail investors;

·  whilst the compromise text still allows marketing to retail investors, it is likely that future iterations will restrict this to certain semi-professional or high net worth investors defined by those able to make a minimum subscription of a certain amount, similar to European Venture Capital Funds or European Social Entrepreneurship Funds;

·  the Government has spoken with UK firms that are interested in the opportunities that ELTIF could offer;

·  they agree with the Commission's proposition of a retail product with institutional investors in mind;

·  some believe that it would still be possible for them to make a workable product if the investor base were restricted by a minimum investment threshold though the benefits would be diminished as it would be a clear statement that it is not genuinely a retail suitable product;

·  in the Government's view, the compromise that has been reached is acceptable due to the limited impact it would have in practice;

·  a closed ended fund with no redemptions can be suitable for some retail investors as part of a diversified portfolio in the context of an advised sale, particularly where the fund is structured as an investment company admitted to trading on a regulated market; and

·  in this case funds would operate similarly to an investment trust or a venture capital trust where secondary trading can compensate for a lack of redemption, or where investment is being made as part of a self-invested pension where there would be no redemptions in any case.

15.7 With regard to cross border supervision and enforcement where an ELTIF is authorised in one jurisdiction and the manager in another, the Minister says that:

·  the Commission has said that its intention is that this should follow the same model as exists for funds authorised under the Undertakings for Collective Investment in Transferable Securities Directive, as the Government had hoped; and

·  it expects words to this effect to be added to the text.

15.8 The Minister then tells us that eligible investment rules have changed little from the original proposal. She explains that:

·  a number of Member States argued that ELTIFs should not be able to make loans, which they would be permitted to do under the proposal, and say that this represents shadow banking;

·  the Government does not agree with this assessment;

·  ELTIFs as they are envisaged would be established for a fixed life with no redemption and would not be able to make loans that exceed their lifecycle — therefore there is no maturity transformation;

·  furthermore ELTIFs would be restricted from using leverage and would be lending their own capital;

·  the Government does not agree that there would be any shadow banking risk;

·  restricting the ability of ELTIFs to lend would be very damaging, as the majority of investment in infrastructure is made by way of loans;

·  the text therefore currently still allows for an ELTIF to make 100% of investment by way of loans;

·  in order to ensure investment on infrastructure, whilst excluding certain speculative investments such as wine, art, or vintage cars, there is general agreement in the Council to include a suitable definition of "real asset" as an eligible investment, however the precise formulation of this definition is yet to be determined;

·  the text still does not allow for a fund of fund structure; and

·  some firms interested in establishing ELTIFs have argued that it could be more efficient to structure themselves as a fund of funds when looking to invest in a range of assets across different markets, however on further discussion they agree that this is a secondary issue and the Government agrees.

15.9 The Minister concludes that the Government would look to support the Regulation as currently drafted.

Previous Committee Report

Fourteenth Report HC 83-xiv (2013-14), chapter 14 (11 September 2013).


16 Financial services: credit rating agencies
Committee's assessment Politically important
Committee's decisionCleared
Document detailsCommission Report about the feasibility of a network for smaller credit rating agencies
Legal base
DepartmentHM Treasury

Summary and Committee's conclusions

16.1 In its proposal for a third Credit Rating Agency Regulation (CRA III), which came into force on 20 June 2013, the Commission aimed to further increase competition in the CRA market. Therefore, pursuant to that Regulation, the Commission has published this report on the feasibility of a network of smaller CRAs in the EU. The Commission:

·  assesses whether a network of smaller CRAs could contribute to the strengthening of such CRAs, facilitating their growth to become more competitive market players;

·  proposes a regulatory dialogue with smaller CRAs;

·  recommends that a full assessment of the feasibility to establish a more integrated network of smaller CRAs be carried out within the medium to long term, when the overall impact of CRA III can be effectively analysed; and

·  says that, following this assessment, it may consider a legislative proposal, if deemed necessary.

16.2 The Government comments that it is supportive of measures to improve competition in the CRA market, but they must be thought through carefully and be subject to a thorough cost-benefit analysis to protect against any unintended consequences. It says that, given that the Commission might at a later stage define measures in order to create the regulatory framework for networks to function effectively, the Government would need to give further consideration to the matter if and when such measures were defined.

16.3 Whilst clearing this document we note approvingly the caution of both the Commission and the Government in relation to the feasibility of a network of smaller CRAs.

Full details of the documents: Commission Report on the feasibility of a network of smaller credit rating agencies: (36001), 9586/14 + ADD 1, COM (14) 248.

Background

16.4 In its proposal for a third Credit Rating Agency Regulation (CRA III), which came into force on 20 June 2013,[29] the Commission aimed to further increase competition in the CRA market.

The document

16.5 Therefore, pursuant to Article 39b(3) of CRA III, the Commission has published this report on the feasibility of a network of smaller CRAs in the EU. The Commission:

·  assesses whether a network of smaller CRAs could contribute to the strengthening of such CRAs, facilitating their growth to become more competitive market players;

·  proposes a regulatory dialogue with smaller CRAs;

·  recommends that a full assessment of the feasibility to establish a more integrated network of smaller CRAs be carried out within the medium to long term, when the overall impact of CRA III can be effectively analysed; and

·  says that, following this assessment, it may consider a legislative proposal, if deemed necessary.

16.6 The accompanying Commission Staff Working Document is a technical document, of which the key aspects are:

·  provision of data on the CRAs market;

·  description of the situation of smaller CRAs in the EU and the US; and

·  description of potential barriers of entry and growth for smaller CRAs in the EU and legislative measures under CRA3 to tackle these barriers.

The Government's view

16.7 In her Explanatory Memorandum of 3 June the Economic Secretary to the Treasury (Andrea Leadsom) says that the Government is supportive of measures to improve competition in the CRA market, but they must be thought through carefully and be subject to a thorough cost-benefit analysis to protect against any unintended consequences.

16.8 The Minister explains that:

·  since the introduction of the CRA Regulation in 2009, a number of smaller CRAs have emerged in the EU, operating with a clear focus on specific industry sectors (for example, the insurance industry), financial market segments (for example, municipal bonds) or specific geographical areas, thus responding to specialised market needs;

·  the impact assessment accompanying the draft of CRA III made an initial analysis on the potential impact of the creation of a network of smaller CRAs on competition in the CRA market;

·  it concluded, based on a stakeholder consultation, that there is some support for the creation of such a network;

·  the present report identifies an integrated network and a cooperative network as two types of networks that could be developed;

·  the Commission points out that there are multiple market obstacles in creating a network of smaller CRAs, which is in line with the Government's view;

·  for example, the establishment of such a network where approval of the EU is required could be seen as distorting competition;

·  furthermore, such networks are difficult to establish, particularly given very few CRAs operate in some specific sub-sectors — this could result in cases where the network would only consist of one CRA;

·  the Government also believes that rating methodologies would likely not be particularly compatible between CRAs and it would be wary of the potential for causing harmonisation of rating methodologies, which could further exacerbate procyclicality of credit ratings;

·  the stakeholder consultation revealed that there is no support and ownership among industry representatives to establish any form of network of smaller CRAs;

·  smaller CRAs appear more interested in a structured dialogue or forum with the Commission to discuss the state of the CRA market and regulation, in particular, issues affecting smaller CRAs;

·  therefore the Commission suggests the establishment of a regulatory dialogue as the most proportionate solution in the short term;

·  the Government believes this type of stakeholder engagement is a positive step as it informs the Commission of issues affecting smaller CRAs, which it could then take into account when considering future legislative proposals; and

·  given that the Commission might at a later stage define measures in order to create the regulatory framework for networks to function effectively, the Government would need to give further consideration to the matter if and when such measures were defined.

Previous Committee Report

None.


17 EU Budget: the UK correction
Committee's assessment Politically important
Committee's decisionCleared from scrutiny; further information requested
Document detailsCommission working document about the calculation of the UK's budgetary rebate
Legal base
DepartmentHM Treasury

Summary and Committee's conclusions

17.1 The Own Resources Decision (ORD) for the 2014-20 period was adopted by the Council on 26 May and will come into retrospective effect from 1 January, once ratified by all the Member States. For the UK this will be by means of the passage of a European Union (Finance) Bill. Articles 4 and 5 of the ORD outline the method for calculating and financing the UK abatement. This document, the Commission's working methods paper, provides the technical detail concerning the calculation, financing and budgeting of the UK abatement.

17.2 The Government comments that this document ensures that:

·  the changes to the ORD resulting from the February 2013 European Council Conclusions on the Multiannual Financial Framework for 2014-20 are correctly reflected in the calculation of the UK abatement; and

·  any expenditure materialising from the SRM is excluded from the calculation of the UK abatement.

17.3 Whilst clearing this document, we draw it to the attention of the House for the assurance it gives in relation to maintenance of the UK abatement. However, we note that the Government appeared to make no attempt to allow parliamentary scrutiny of the document before its acceptance by the Council on 26 May. Although this is a relatively low-key and highly technical document, this should not have happened and we ask for an undertaking from the Minister that it will not happen again.

Full details of the documents: Commission working document on calculation, financing, payment and entry in the budget of the correction of budgetary imbalances in favour of the United Kingdom ("the UK correction") in accordance with Articles 4 and 5 of Council Decision 2014/xxx/EU, Euratom on the system of own resources of the European Union: (36018), 9858/14, COM(14) 271.

Background

17.4 An abatement of the UK's contribution to the EU Budget, first agreed by the 1984 Fontainebleau European Council, has been in existence since 1985.

17.5 The Own Resources Decision (ORD) for the 2014-20 period, Council Decision 2014/xxx/EU/Euratom, was adopted by the Council on 26 May and will come into retrospective effect from 1 January, once ratified by all the Member States.[30] (For the UK this will be by means of the passage of a European Union (Finance) Bill.) Articles 4 and 5 of the ORD outline the method for calculating and financing the UK abatement.

The document

17.6 This document, also referred to as the Commission's working methods paper (WMP), provides the technical detail concerning the calculation, financing and budgeting of the UK abatement. It sets out:

·  calculation of the amount of the correction for a given year;

·  its financing in the following year;

·  definitions of budgetary aggregates; and

·  entry of the correction in the EU Budget.

17.7 The document contains a number of changes to the 2007-13 version of the Commission's technical paper, which reflect the agreed changes to the 2007-13 ORD as result of the February 2013 European Council Conclusions on the financing of the 2014-20 Multiannual Financial Framework (MFF). The updated document will be applied retrospectively from 1 January, but will only come into force once the new ORD itself comes into force. The first calculation that the new document would be applied to would be the UK abatement for 2014, to be budgeted in 2015.

17.8 The new WMP also addresses the issue of the treatment of payments to finance any EU Budget expenditure related to the Banking Union's Single Resolution Mechanism (SRM), for which the UK would be fully reimbursed, in the context of the abatement calculation. The document has provisions whereby if such expenditure were to materialise it would be excluded from the calculation of the UK abatement. This ensures that the UK abatement would not be affected as a result of such expenditure, so avoiding a permanent impact on the UK contributions to the EU Budget.

The Government's view

17.9 In her Explanatory Memorandum of 4 June the Financial Secretary to the Treasury (Nicky Morgan) comments that this document ensures that:

·  the changes to the ORD resulting from the February 2013 European Council Conclusions are correctly reflected in the calculation of the UK abatement; and

·  any expenditure materialising from the SRM is excluded from the calculation of the UK abatement.

17.10 The Minister elaborates that:

·  the Government has been very clear since the start of negotiations on the 2014-20 MFF that it would protect the abatement;

·  this, along with no new taxes to fund the EU Budget, is one of the UK red lines on the financing of the EU Budget;

·  the Government believes that the new ORD accurately reflects the February and June 2013 European Council deals on the 2014-20 MFF that it negotiated;

·  the 2014-20 ORD retains the current mechanism for the UK abatement and the way it is financed by the other Member States;

·  several time-limited transitional provisions in the abatement text have been deleted, as they expired at the end of 2013 — these were fully expected and are correctly reflected in the new Commission document;

·  in addition to the expected changes flowing from the previous government's agreement in 2005 to "disapply" the UK abatement on non-agricultural spending in new Member States, the document also contains minor amendments to exclude any SRM-related expenditure, and the UK's (temporary) contribution to it, from the abatement calculation;

·  this is because, although the UK would initially contribute to any SRM-related EU Budget expenditure, its contributions towards the SRM-related expenditure would eventually be reimbursed under Article 12 of the Intergovernmental Agreement on the functioning of the Single Resolution Fund;

·  this means that any SRM-related EU Budget expenditure would not have a permanent impact on the UK contributions to the EU Budget; and

·  changes to the present Commission document on that aspect make sense and represent a fair and simple adjustment to ensure that the abatement is not affected by EU spend that the UK does not contribute to.

17.11 Finally the Minister tells us that:

    "Own resources legislative proposals were formally adopted by the (COMPET) Council of 26 May, where the updated Commission working document was finalised in line with past practice and the provisions set out in the adopted ORD."

Previous Committee Reports

None.

18 Establishing the EU's position within the International Labour Organisation
Committee's assessment Legally and politically important
Committee's decisionCleared from scrutiny

Document detailsDraft Council Decision on the position to be adopted on behalf of the European Union at the 103rd session of the International Labour Conference concerning a Recommendation to supplement the Forced Labour Convention no. 29, 1930
Legal baseArticles 82(2), 83(1), 153 and 218(9) TFEU; QMV

The UK's Title V opt-in applies

DepartmentHome Office

Summary and Committee's conclusions

18.1 The Forced Labour Convention was agreed by the General Conference of the International Labour Organisation (ILO) in 1930 and has been ratified by all EU Member States. Its purpose is to "suppress the use of forced or compulsory labour in all its forms within the shortest possible period". Recent ILO estimates indicate that at least 20.9 million people worldwide are victims of forced labour. One of the tasks of the ILO General Conference commencing in May 2014 is to consider the need for a further standard-setting measure to supplement the Convention and address significant implementation gaps. Any new measure is likely to contain some provisions which fall within EU competence, and others which remain a national competence.

18.2 As membership of the ILO is only open to States, the EU participates at meetings of its General Conference as an observer, without voting rights. The purpose of the draft Decision is to establish the position to be taken by the EU, acting through its Member States, at the ILO General Conference.

18.3 We considered the draft Decision shortly before the General Conference was due to begin and agreed with the Government's assessment that it raised complex legal issues. We sought further information on the Government's position on the legal base for EU action and the division of competences between the EU and Member States. We concluded that, given the number of outstanding issues and the lack of time to resolve them, the Government should not opt into the draft Decision.

18.4 In this, our second Report on the draft Decision, we set out the Government's response to our earlier Report.

18.5 We thank the Minister for providing us with copies of the revised Presidency proposals. Whilst it is a matter of regret that the proposals bear a limité marking and cannot be deposited in Parliament or their content made public, they have assisted our consideration of the complex legal issues raised by the draft Decision.

18.6 We endorse the Government's decision not to opt into the draft Decision (or the revised Presidency proposals), given continuing uncertainty as to the legal base for EU action and the nature and extent of the EU's competence to act. We note that the concerns expressed by the UK within the Council working group leading negotiations are shared by other Member States and that the Commission has had to abandon its attempt to establish the EU's position at the ILO General Conference by means of one or more legally binding Decisions. We welcome this outcome. As there is no longer any prospect of the draft Decision being adopted, we are content to clear it from scrutiny. We do so in the knowledge that many of the legal issues raised in this case are likely to recur in the future and wish to make the following observations on the Minister's letter.

18.7 First, whilst we share the Government's reservations about the use of Article 218(9) TFEU for the reasons set out in our earlier Report, we question the Minister's assertion that there are no other suitable legal bases within the EU Treaties on which to base EU action, as well as her reluctance to "speculate as to where competence would lie if the [ILO] Recommendation took a different form, or generated substantive legal effects".

18.8 Second, we accept that the principle of subsidiarity does not apply to areas of exclusive EU competence. We note that the Minister relies on Article 3(2) TFEU to substantiate the Government's position that the EU lacks exclusive competence in relation to any matters covered by the ILO Recommendation. This Treaty Article provides that the EU has "exclusive competence for the conclusion of an international agreement when its conclusion is provided for in a legislative act of the Union or is necessary to enable the Union to exercise its internal competence, or in so far as its conclusion may affect common rules or alter their scope". As the Government considers that an ILO Recommendation has no legal effect, the Minister argues that it cannot "affect common rules or alter their scope". We take a less sanguine view than the Minister. We think that the requirement that an international agreement "may affect common rules" does not establish a particularly high threshold for conferring exclusive competence.

Full details of the documents: Draft Council Decision on the position to be adopted on behalf of the European Union at the 103rd session of the International Labour Conference concerning a Recommendation to supplement the Forced Labour Convention no. 29, 1930, of the International Labour Organisation: (35961), 8988/14, COM(14) 239.

Background and previous scrutiny

18.9 The International Labour Organisation (ILO) was established in 1919. The Preamble to the ILO's founding Constitution expresses the belief that "universal and lasting peace can only be established if it is based upon social justice". Decisions are taken at the ILO's General Conference and may take the form of international Conventions or Recommendations. In the case of a Recommendation, Article 19(6) of the ILO Constitution provides that it is to be "communicated to all members for their consideration with a view to effect being giving to it by national legislation or otherwise". Members undertake to bring the Recommendation to the attention of their competent national authorities and to inform the Director-General of the ILO of the action they have taken to implement it in national law and practice.

18.10 One of the tasks of the ILO General Conference meeting taking place from the 28 May to 12 June is to consider the need for a Recommendation and/or Protocol to supplement the Forced Labour Convention. A Protocol creates obligations which are binding in international law. By contrast, a Recommendation has no binding force and is intended to guide national policy, legislation and practice. The draft Decision only concerns the content of a possible ILO Recommendation, as a separate procedure applies to the negotiation of a Protocol.[31]

18.11 Our Fiftieth Report, agreed on 14 May 2014, describes the draft Decision — which consists of one Article requiring Member States to "act jointly in the interest of the Union" and support the approval of the ILO Recommendation — and the Government's position. The Government raised significant concerns regarding the EU's competence to act and the justification for EU action. On the former, the Government noted that the draft Decision failed to differentiate between areas of EU and Member State competence and indicated that it would press for a clear delineation of competences. It questioned whether an ILO Recommendation constituted "an act having legal effect" — an essential prerequisite for EU action based on Article 218(9) of the Treaty on the Functioning of the European Union (TFEU) — thus raising doubts as to the legal base for EU action. The Government also considered that the Commission had failed to demonstrate a need for EU action, as there was "no reason why the Member States acting together centrally could not agree a position in relation to the ILO Recommendation", and that the draft Decision was inconsistent with the principle of subsidiarity.

18.12 We drew attention to the important interplay between the ILO Recommendation and Protocol — both of which were to be considered at the ILO General Conference — and highlighted what we consider to be an anomaly in the current system of Parliamentary scrutiny which exempts from deposit (and scrutiny) negotiating mandates for international agreements. We expressed sympathy for the Government's concerns regarding the proposed use of Article 218(9) TFEU as the procedural legal base for the draft Decision and requested further information on two issues:

·  the outcome of the Government's analysis of the effect of an ILO Recommendation — in particular, whether it constituted an "act having legal effects" within the meaning of Article 218(9) TFEU — and its implications for the citation of an Article 218(9) legal base for the draft Decision; and

·  whether the Government agreed with the opinion of the Advocate General in Case C-399/12 that Article 218(9) TFEU may not be cited as a legal base in relation to an instrument — in this case a draft Decision — establishing the EU's position within an international organisation of which the EU is not a member.

18.13 We asked the Government to comment on the appropriateness of the three substantive legal bases cited in the draft Decision — Articles 82(2), 83(1) and 153 TFEU —and to indicate whether additional or more specific legal bases should also be included. We suggested that the draft Decision should be split into two separate instruments, one relating to the social policy aspects of the draft ILO Recommendation (which would bind all Member States), the other the justice and home affairs elements in which not all Member States are bound to participate.

18.14 We agreed that there should be a clear delineation of competences and asked the Government to identify those elements of the proposed ILO Recommendation which fall within the EU's exclusive competence, those which are shared between Member States and the EU, and those which remain "sole national competences". We also requested a full explanation of the outcome of negotiations on the draft Decision and the position taken by the Government, particularly in determining whether or not to opt in.

The Minister's letter of 3 June 2014

18.15 The Minister for Modern Slavery and Organised Crime (Karen Bradley) sets out the progress made in Council working group discussions on the draft Decision. She explains that the UK was one of a number of Member States raising concerns about the legal base for EU action and the EU's competence to act. In response, the Greek Presidency proposed splitting the draft Decision into three separate instruments:

·  a draft Decision dealing with matters other than justice and home affairs (JHA);

·  a draft Decision covering "JHA content which the EU institutions believe does not engage the UK's opt-in (judicial cooperation in relation to human trafficking and victims of crime)"; and

·  a draft Decision covering "JHA content which the EU institutions accept engages the UK's JHA opt-in (immigration)".

18.16 Although not explained in the Minister's letter, we understand that the distinction between the second and third instruments — which both contain JHA content — is that the former covers areas in which the EU purports to exercise exclusive competence, whereas the latter remains an area of shared competence. The view of the Commission, which the Government disputes, is that the UK's Title V (justice and home affairs) opt-in does not apply to measures which are within the EU's exclusive competence by virtue of pre-existing EU rules (in this case, Directives on trafficking in human beings and on victims of crime) which bind the UK.

18.17 The Minister encloses copies of the revised proposals put forward by the Presidency but, as they are marked limité, they have not been formally deposited in Parliament and we are unable to make their content public. The Minister notes, however, that all three draft Decisions cite Article 218(9) TFEU as one of their legal bases and adds:

    "I remain of the view that Article 218(9) is not an appropriate legal base and am pleased that the Committee shares the Government's concerns here. We agree that the draft ILO Recommendation would not constitute an 'act having legal effects' as it only requires ILO Member States to consider giving the Recommendation effect and report back to the ILO. We also agree with the view set out in the Advocate General's opinion in Case C-399/12 (cited in your Report), that Article 218(9) only applies where the EU is a member of the relevant organisation, which is not the case here.

    "In the absence of any other suitable legal base within the Treaties, the Government considers that Council Conclusions would be a more appropriate vehicle to determine the approach to be taken by the Union. It follows that it is not necessary to speculate as to whether additional substantive legal bases should be cited in the Council Decision, as the Government does not consider that there should be such a decision at all."

18.18 The Minister suggests that there is a further reason for doubting that Council Decisions are appropriate in this case — the lack of EU exclusive external competence in relation to the Recommendation. She continues:

    "Under Article 3(2) TFEU, the EU has exclusive competence where an agreement may 'affect common rules or alter their scope'. Given that the Recommendation does not have legal effect, it cannot 'affect common rules or alter their scope', and therefore cannot engage the exclusive external competence of the EU. We do not consider it to be necessary to speculate as to where the competence would lie if the Recommendation took a different form, or generated substantive legal effects. In relation to international agreements, where there is no exclusive EU competence, the Government takes the view that UK should negotiate on our own behalf, provided it acts consistently with EU law.

    "The Government therefore do not believe that there is a case for a legally binding Council Decision setting out how Member States should vote at the ILO Conference. It should be sufficient for Member States simply to coordinate their positions as necessary at the ILO conference, ensuring consistency where appropriate with EU law. At most, we could accept non-legally binding Council Conclusions setting out objectives in relation to the Recommendation."

18.19 Finally, the Minister notes that concerns relating to the legal base for the proposals and the EU's competence to act meant that no progress was made in negotiations:

    "COREPER considered the Council Decisions on the Recommendation on 23 May, and blocked adoption of these proposals. They will not now be adopted ahead of the ILO Conference that started on 28 May, and therefore will not be taken forward as they were specific to this Conference."

18.20 The Minister adds that the UK did not opt into the proposals for the reasons set out in her letter.

18.21 Turning to the concern we expressed in our earlier Report that our inability to scrutinise a proposed ILO Protocol being considered in parallel to the draft Recommendation meant that we had only a partial and incomplete picture of the discussions taking place at the General Conference, the Minister notes:

    "I appreciate this concern but, as you are aware, negotiating mandates are invariably marked 'restreint' in order to avoid bringing them into the public domain and undermining the EU's negotiating position. They are not depositable for scrutiny."

18.22 She adds, however, that the Presidency has proposed a similar approach in relation to the draft Council Decision establishing the EU's negotiating mandate for the draft ILO Protocol — it, too, would be split into three separate instruments. She continues:

    "We raised similar concerns during the negotiations on that Decision with the same levels of support amongst Member States. I do not consider that any of the proposals in the draft Protocol engage the EU's exclusive external competence. The Protocol as drafted imposes only minimum standards, or general obligations to take "effective measures" against forced labour. These measures would not in themselves require changes to the rules that the EU has already agreed in this area. They therefore would not affect those rules or alter their scope, as required by Article 3(2) TFEU. Therefore, Council Decisions establishing a negotiating mandate for the EU are not necessary. COREPER also blocked the adoption of Council Decisions in relation to the Protocol."

Previous Committee Report

Fiftieth Report, HC 83-xlv (2013-14), chapter 9 (14 May 2014).


1   These include tuna, marlin, swordfish, dolphins, sharks and cephalopods (octopus and squid). Back

2   JOIN(14) 9, p.8. Back

3   (33781) 7988/12: see HC 428-lviii (2010-12), chapter 6 (25 April 2012) and HC 86-vi (2012-13), chapter 12 (27 June 2012). Back

4   (35297) 13426/13: see HC 83-xx (2013-14), chapter 24 (6 November 2013). Back

5   See http://ec.europa.eu/internal_market/bank/docs/high-level_expert_group/report_en.pdf.

 Back

6   Council Decision 2005/387/JHA, OJ No. L 127, 20.05.2005. Back

7   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

8   Letter of 19 March 2014 from the Minister for Crime Prevention (Norman Baker) to the Chair of the European Scrutiny Committee. Back

9   Directive 2011/24/EU on the application of patients' rights in cross-border healthcare, OJ No. L 88, 04.04.2011. Back

10   See our earlier Reports on Council document 11038/2/10 Rev 2; (32390); HC 428-xvi (2010-11), chapter 13 (9 February 2011) and HC 428-xii (2010-11), chapter 5 (12 January 2011). Back

11   See p.7 of the Communication. Back

12   See p.13 of the Communication. Back

13   See the section on Subsidiarity in the Minister's Explanatory Memorandum. Back

14   (35672) -: HC 83-xxvi (2013-14), chapter 18 (8 January 2014). Back

15   For the Committee's consideration of the Council Decision establishing this mission, see (35747) -: HC 83-xxxi (2013-14), chapter 14 (5 February 2014). Back

16   See https://www.un.org/News/Press/docs/2014/sc11264.doc.htm for the full text of the press notice, and of UNSCR.

 Back

17   COREPER, from French Comité des représentants permanents, is the Committee of Permanent Representatives in the European Union, made up of the head or deputy head of mission from the EU member states in Brussels. Its job is to prepare the agenda for the ministerial Council meetings; it may also take some procedural decisions. It oversees and coordinates the work of some 250 committees and working parties made up of civil servants from the member states who work on issues at the technical level to be discussed later by COREPER and the Council. It is chaired by the Presidency of the Council of the European Union. There are in fact two committees: COREPER I consists of deputy heads of mission and deals largely with social and economic issues; COREPER II consists of heads of mission (Ambassador Extraordinary and Plenipotentiary) and deals largely with political, financial and foreign policy issues. Back

18   See HC 83-xlv (2013-14), chapter 1 (14 May 2014). Back

19   IbidBack

20   Article 16 and 88-92 of the Georgia Agreement; Articles 15 and 214-218 of the Moldova Agreement.  Back

21   See HC 83-xli (2013-14), chapters 6 and 7 (9 April 2014). Back

22   For the full background to this mandate, see (35054) -; our earlier Report of 26 June 2013 and those mandates referred to therein: HC 83-vii (2013-14), chapter 6 (26 June 2013). Back

23   For the full background to this issue, see our Report of 4 June 2014: HC 219-i (2014-15), chapter 27. Back

24   The EU-Afghan Cooperation Agreement on Partnership and Development. Back

25   See pp.11-14 at http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/EN/foraff/140673.pdf. Back

26   See p.11 at http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/EN/foraff/142228.pdf. Back

27   See pp.11 and 12 at http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/EN/foraff/142228.pdf. Back

28   See http://www.fatf-gafi.org/pages/aboutus/. Back

29   Regulation (EU) No. 462/2013, OJ No. L 146, 31.5.2013, p.1. Back

30   See http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ecofin/142914.pdf. Back

31   The Commission will seek a separate mandate from the Council to negotiate the terms of the Protocol. These negotiating mandates are usually classified as limité or restreint and are not deposited for scrutiny. If a Protocol is agreed, the draft Decisions authorising the EU to sign and conclude (ratify) it will be subject to scrutiny. Back


 
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