Legally and politically important
Not cleared from scrutiny; further information requested
Proposal for a Regulation of the European Parliament and of the Council setting out the conditions and procedure by which the Commission may request undertakings and associations of undertakings to provide information in relation to the internal market and related areas
Articles 43(2), 91, 100, 114, 192, 194(2) and 337 of the Treaty on the Functioning of the European Union (TFEU); QMV
Business, Energy and Industrial Strategy
(38696), 8765/17 + ADDs 1–3, COM(17) 257
5.1The Single Market Strategy (published in 2015) noted that a number of barriers remained to the smooth functioning of the single market, including imperfect implementation of existing rules as well as a lack of enforcement—a key UK concern.
5.2Lack of relevant information can contribute to the failure to enforce EU rules properly. Although Member States are the Commission’s main source of information, they do not always have information related to the implementation and application of single market rules. Furthermore, in a cross-border context, a coordinated effort is often necessary. This entails requesting information from several Member States, which is difficult in practice. In some cases Member States choose not to share the data they collect with the European Commission.
5.3On 2 May 2017 to address these concerns, the Commission adopted a ‘compliance package’ of three proposals on enhancing the practical functioning of the single market. One of these introduces the single market information tool (SMIT). The aim of the SMIT is to provide the Commission with ‘additional fact-finding ability’, and to improve the enforcement of existing single market rules.
5.4The SMIT would provide the Commission with powers to request business-related information (such as cost structure, profits and pricing policy, employment contracts and product volumes sold) for the purposes of identifying serious problems with the application of Union law in the areas of the internal market, agriculture and fisheries, transport, environment and energy. The Regulation would grant the Commission the power to impose fines on non-cooperative undertakings.
5.5The Commission has offered assurances that the SMIT would be a measure of last resort and could only be used in the context of cross-border single market malfunction, and that its use would be subject to confidentiality requirements.
5.6On 10 July 2017 the Parliamentary Under-Secretary of State at the Department of Business, Energy and Industrial Strategy (Lord Prior) issued an Explanatory Memorandum setting out the Government’s position in relation to the proposal. He indicated that the Government supported in principle the Commission’s enforcement agenda, as it had repeatedly called on the Commission to prioritise enforcement, and “this tool could help them in strengthening their enforcement regime”. He also observed that the SMIT could be used to support evidence based policy-making by ensuring that the Commission can collect the data it needs to determine whether action was required.
5.7Despite supporting the broad thrust of the policy proposal, Lord Prior also identified a variety of aspects of the proposal where further clarification was felt to be necessary; these include its extensive scope; provisions around confidential information; the extent to which third country undertakings are covered; possible overlap with the Competition and Markets Authority; and how the procedural safeguards that apply to the SMIT, in order to ensure that it is used as a last resort, as intended, would work in practice.
5.8On 25 October 2017 the Minister provided the Committee with an update from the Working Groups, in which he provides extremely detailed information about the various aspects of the proposal which were unclear. For the most part, the information that has been provided appears to have addressed the Minister’s concerns; however, he reports that “a large number of Member States are highly sceptical of the proposal”, with significant concerns about the burden on business, adequate safeguards and the scope.
5.9The Minister also informs the Committee that the Council’s Legal Service produced an Opinion on 3 October which concluded that none of the seven proposed legal bases could support the proposed powers, and adds that Working Groups have shown there to be wide support for this position; indeed, 12 Member States have presented a non-paper supporting the Council Legal Service analysis and expressing doubts about the proposal’s added value. On this basis, the Minister concludes that it is currently “unclear how and whether progress can be made in Council on the proposal unless the Commission makes substantial changes to it”.
5.10The Single Market Information Tool (SMIT), along with other Compliance Package initiatives, attempts to tackle longstanding UK concerns about the enforcement of Single Market rules. The Government states that lack of sufficient data is one of the key obstacles to better enforcement of Single Market rules and that the SMIT “could help [the Commission] in strengthening their enforcement regime”.
5.11The Government has sought and received extensive clarifications in relation to various aspects of the proposal, including the provisions around confidential information, possible overlap with the Competition and Markets Authority, and the procedural safeguards that would apply to the SMIT, in order to ensure that it was used as a tool of last resort, as intended. We thank the Minister for relaying this information so thoroughly.
5.12On Brexit, the Government states that “it is possible, subject to the outcome of the withdrawal negotiations, that the proposal could still apply to UK businesses following our withdrawal from the EU”. The Minister has not yet received a comprehensive response regarding the extent to which third country undertakings operating in the Single Market would be captured by the proposal, but offers the initial assessment that the SMIT could apply to any company operating in the Single Market. The Commission has confirmed that it would have no powers to fine companies established outside the EEA for failing to provide information.
5.13We ask the Government to respond the following questions:
5.14We ask the Minister to respond to these questions in due course, and to provide any further clarification of the application of the SMIT to undertakings that are established in third countries (such as the UK, post-withdrawal), along with his next update from Council Working Groups. In the meantime we retain this proposal under scrutiny.
Proposal for a Regulation of the European Parliament and of the Council setting out the conditions and procedure by which the Commission may request undertakings and associations of undertakings to provide information in relation to the internal market and related areas: (38696), + ADDs 1–3, COM(17) 257.
5.15The Minister summarises the main provisions of the Regulation as follows:
5.16The Minister indicates that the Government is supportive of the Commission’s enforcement agenda, and that the SMIT could assist in achieving it:
“The Government supports, in principle, the Commission’s enforcement agenda as set out in the 2015 Single Market Strategy. The Commission has cited lack of sufficient and reliable data as one of the key obstacles to better enforcement of Single Market rules. The UK has repeatedly called on the Commission to prioritise enforcement and this tool could help them in strengthening their enforcement regime. The Government also recognises that the SMIT could be used to support evidence based policy-making by ensuring that the Commission can collect the data it needs to determine whether action is required and how best to design future policy.”
5.17The Minister also identifies a number of areas in which the Government will seek further information. He notes that:
“The scope of the proposal is extensive, giving the Commission powers to request information concerning the internal market (the free movement of goods, persons, services and capital) but also in the areas of agriculture and fisheries (excluding the conservation of marine biological resources), transport, environment and energy. We will be seeking clarification on the Commission’s justification for this extensive scope.”
5.18The Minister also “welcomes the inclusion of measures to protect confidential information, although the terms and scope of the exemptions will need to be examined carefully”.
5.19He suggests that the extent to which the SMIT covers Third Country undertakings needs to be clarified:
“In practice, the proposal will extend the power of the Commission to request potentially sensitive information from undertakings or associations of undertakings operating from within the Single Market. The current drafting does not explicitly exclude Third Country undertakings operating in the Single Market. The Government will seek to clarify the Commission’s intention.”
5.20The Minister also suggests that greater clarity is needed about the conditions that must be met for the SMIT to be used, possible overlap with the Competition and Markets Authority, and how the safeguards that apply to the SMIT would work in practice:
“The proposal is not clear on the details of the conditions that must be met before the SMIT can be used and how the safeguards would work in practice. The UK Competition and Markets Authority (CMA) already collects a significant amount of information, so we would want to ensure this information was not requested twice. It is a Government priority to ensure that sufficient safeguards are in place so that the SMIT is only used when absolutely necessary and that the proposal is framed in such a way as to minimise the burden it places on businesses. The Government, therefore, will seek clarification from the Commission at the earliest opportunity and negotiate for appropriate amendments to this effect if required.”
5.21The Minister says that the proposed legal bases will impact on the voting procedures used in both the Council and the European Parliament:
“The legal basis are Articles 43(2), 91, 100, 114, 192, 194(2) and 337 of the Treaty on the Functioning of the European Union (TFEU). There is a question of compatibility of these legal bases, which will impact on the parliamentary and voting procedures and we will raise his in the course of negotiations.”
5.22He adds that:
“Different Parliamentary procedures apply under the various Articles. Ordinary Legislative Procedure applies under Articles 43(2), 91, 100, 114, 192 and 194(2), whereas Article 337 does not provide for European Parliament involvement.”
5.23The Minister also indicates that the proposal will interact with the CMA’s competition authority role, without providing further detail about the nature of this interaction:
“Given the cross-cutting nature of this proposal, this will need to be explored further. In particular, we need to consider the interaction with the Competition and Market Authority’s investigatory powers.”
5.24The Minister accepts that the proposal is in line with the principle of subsidiarity, and acknowledges that “the SMIT would be an exceptional ‘last resort’ tool; Member States shall remain the first channel source for such data collection”. However, he adds that:”there is a question of proportionality in terms of the precise circumstances in which information can be obtained and this will be explored in negotiations”.
5.25The Minister writes that:
“The Commission estimates that the annual Union-wide cost of the proposal ranges between €0.37m (£0.32m) and €0.61m (£0.53m) for businesses, and between €0.12m (£0.10m) and €0.43m (£0.38m) for the Commission. There is no cost for Member States. Since the UK CMA already collects a significant amount of information, it can be assumed that instances where SMIT would be used to request information from UK businesses would be limited. Costs incurred by UK business would therefore be towards the lower end of the spectrum.
“According to the Commission, the expected benefits of the proposal range from €50m (£43.68) to €6bn (£5.24m) for enforcement cases and around €9bn (£7.86m) and more in cases where firm-level information collected is used for informing legislative initiatives, with a high likelihood that they will materialise.”
5.26The Minister states that:
“It is possible, subject to the outcome of the withdrawal negotiations, that the proposal could still apply to UK businesses following our withdrawal from the EU. Throughout negotiations, we will continue to consider the proposal in light of our possible future relationship with the EU.”
5.27The Department’s analysis deems it unlikely that any changes to UK legislation would be required if the Regulation were to enter into force prior to the UK leaving the EU.
5.28On 25 October 2017 the Minister provided the Committee with an update on progress in Council Working Groups as well as detailed information regarding various technical aspects of the proposed SMIT. The Minister states that Working Groups have made it clear that “a large number of Member States are highly sceptical of the proposal”, with significant concerns about the burden on business, adequate safeguards and the scope. He says that the Council’s Legal Service produced an Opinion on 3 October which concluded that none of the seven proposed legal bases could support the proposed powers, and adds that Working Groups have shown there to be wide support for this position. 12 Member States have presented a non-paper supporting the Council Legal Service analysis and expressing doubts about the proposal’s added value. On this basis, the Minister concludes that it is currently “unclear how and whether progress can be made in Council on the proposal unless the Commission makes substantial changes to it”.
5.29The Minister also offered extremely detailed technical updates regarding the following aspects of the proposal:
5.30The full detail of the Minister’s analysis can be accessed through DEXEU’s online portal for EU documents.
36 £1 = €1.08728
20 November 2017