Documents considered by the Committee on 13 December 2017 Contents

Meeting Summary

The Committee looks at the significance of EU proposals and decides whether to clear the document from scrutiny or withhold clearance and ask questions of the Government. The Committee also has the power to recommend documents for debate.

Brexit-related issues

The Committee is now looking at documents in the light of the UK decision to withdraw from the EU. Issues are explored in greater detail in report chapters and, where appropriate, in the summaries below. The Committee notes that in the current week the following issues and questions have arisen in documents or in correspondence with Ministers:

Energy policy

The Committee takes note of the Government’s observation that the transposition deadline for some of the energy policy legislation considered will probably fall during the post-Brexit implementation period of around two years proposed by the Prime Minister, although no assumptions are made as to the arrangements that will apply during that period.

European System of Financial Supervision

The Committee requests more information from the Treasury about new EU proposals to give the European financial regulators more powers, and the implications of the Brexit transitional period for the powers of the UK’s domestic financial regulators under EU law.

Tax in the Digital Single Market:

Law enforcement—mutual recognition of freezing and confiscation orders


EU energy policy

We consider a number of documents relating to the future direction of EU energy policy, covering: electricity market design; renewable energy; energy efficiency; and governance. They include contentious proposals on future targets and on arrangements for co-operating and ensuring the smooth functioning of the market. With the exception of energy efficiency, where a progress report was considered, all of the other proposals were to be discussed at the Energy Council on 18 December. We waive the scrutiny reserve, allowing the Government to agree. In doing so, we signal our continued interest in the future energy relationship between the EU and the UK, noting the Government’s observation that the transposition deadline for some of the legislation will probably fall during the post-Brexit implementation period of around two years proposed by the Prime Minister. We expect the Government to continue to negotiate this package of legislation with EU exit in mind.

Not cleared; scrutiny waiver granted; further information requested.

The European Public Prosecutor’s Office (EPPO)

On 12 October, the proposed EPPO Regulation was finally adopted by the 20 Member States participating in the “enhanced cooperation”. This is the process by which, in default of unanimity and with European Council agreement, a group of at least 9 Member States can proceed with an initiative. The EPPO will be in charge of investigating and prosecuting offences in relation to defrauding of the EU budget.

As the UK is not participating in the EPPO, a situation unlikely to be reversed given Brexit and the need for a Referendum under the European Union Act 2011 to approve UK participation, this development is of limited significance. Following four years of close scrutiny, we therefore clear the two texts under scrutiny: the original Commission proposal and the Council Presidency text which has led to the adopted “enhanced cooperation” proposal.

However, despite the Government’s reassurances in its recent letter to us of 1 November, we seek final confirmation that there are no material implications for the UK: before exit and during any transition/implementation period as a non-participating Member State or for any post Brexit JHA cooperation with the EU as a third country.

Both texts cleared from scrutiny; further information requested.

Digital Single Market: Consumer contract rights relating to the online and offline sale of goods

The original proposed Directive on the online and distance sale of goods was presented in December 2015. It was aimed at breaking down barriers to cross-border online trade due to differing Member States’ contract law on matters such as quality of goods, remedies for defective goods and guarantees. Together with a parallel proposal on supply of digital content, it is key to the realisation of the Digital Single Market.

An amended proposal now supersedes the original proposal. Following calls from a majority of Member States and EP Committees, the amended proposal now extends to both online and offline sales of goods, reflecting the outcome of a REFIT (regulatory “fitness for purpose” review) of existing EU consumer law. The previous Government seemed concerned about the original proposal leading to different contractual rules for online and offline sales. The current Government now merely notes that the extension in scope is significant, covering over 90% more sales transactions across the EU than the original proposal. It would capture many businesses who do not sell online or at a distance and who may not enjoy single market benefits. The Government highlights points of divergence between the “maximum harmonisation” proposal (where more or less stringent national requirements cannot be maintained) and current UK law, mainly within the Consumer Rights Act 2015 (CRA). The potential loss of the UK consumer’s short term right to reject and be refunded for faulty goods is the chief concern of the Government. We follow up this concern, with reference to evidence given by stakeholders to the previous and current House of Lords EU Justice Sub Committee.

Assuming an exit day of 29 March 2019, the UK would not have to implement the proposed Directive as there is a two year transposition deadline. However, we question whether a transition/implementation period would alter this position and whether the UK might want to align with an adopted proposal in any case to facilitate a EU-UK trading relationship.

Amended proposal kept under scrutiny, though the original proposal is cleared; further information requested; drawn to the attention of the Business, Energy and Industrial Strategy Committee and the Justice Committee.

European System of Financial Supervision

The European Commission in September 2017 proposed substantial reforms of the functioning of the EU’s financial supervisory authorities (the ESAs) for the banking, insurance and investment industries. These reforms would expand the powers of the ESAs, in particular for the European Securities & Markets Authority (ESMA); alter their governance structures to make them ESAs more assertive vis-à-vis the Member States’ national financial regulators; and impose a new industry levy to fund their work.

The UK’s withdrawal from the EU has driven these proposed reforms, at least in part. There are concerns that UK financial services firms might try to establish “letter box” entities in the EU, servicing EU-based clients from the UK without substantially moving their operations to an organisation within the Single Market as required by EU law. This, the Commission argues, increases the need for stronger ESAs which can ensure that all Member State regulators apply the EU’s regulatory requirements for “third country” firms in the same way.

The Explanatory Memorandum from the Government about the proposals contained virtually no substantive assessment of the proposed changes. It does not reflect on the implications of the proposals for the UK financial services industry after Brexit, or during the “implementation period” after March 2019 during which the UK would remain subject to EU law but without formal political representation within the EU institutions and bodies, including the ESAs. We therefore retain the proposals under scrutiny and ask the Minister to provide further information, particularly as regards the position and powers of the European Supervisory Authorities in the UK during any post-Brexit transitional period.

Not cleared from scrutiny; further information requested; drawn to the attention of the Treasury Committee.

Vehicle type approval

Trilogue negotiations have concluded on a proposed regulation on vehicle type approval processes and market surveillance of motor vehicles—the EU’s regulatory response to the Volkswagen emissions scandal. A last-minute attempt by Germany and some other Member States to limit the ability of the Commission to audit Member State type approval authorities was rejected. The key provisions of the proposal remain intact and the Government considers the final deal a positive step towards restoring trust in the type approval system. A summary of the effects of the final text is provided at the end of the chapter. We clear the file from scrutiny in advance of COREPER in mid-December and the Council of Ministers soon thereafter, on the condition that scrutiny of the implications of Brexit for vehicle type approval processes continues through other files.

Cleared from scrutiny.

A fair and efficient tax system in the Digital Single Market

This non-legislative Communication outlines the Commission’s concern that features of digital economy firms allow them to pay lower levels of corporate tax than traditional business models, and that action should be taken to prevent the erosion of Member States’ tax bases. The Commission expresses a preference for a global solution, but also indicates that it is likely to propose EU legislation in 2018. A shortlist of somewhat underdeveloped ‘temporary interventions’ is provided. Council Conclusions regarding the Communication were agreed on 5 December, and broadly support the Commission’s approach. Member States prefer a global approach, but also call on the Commission to assess its shortlist of possible interventions and to bring forward proposals in early 2018. However, concerted EU-level action is likely to prove challenging given that unanimity voting would apply to any proposal. We ask for further information about the proposals as well as the implications of Brexit for taxing the digital economy.

Not cleared from scrutiny; further information requested.

Proceeds of crime: mutual recognition of freezing and confiscation orders

The Government has opted into a proposed Regulation which would provide for court orders issued in one Member State for the freezing and confiscation of the proceeds of crime to be recognised and enforced in another. It considers that the proposal is “highly unlikely to take effect” before the UK leaves the EU but that opting in would “signal our commitment to cooperation in this important area”. Writing four days ahead of the Justice and Home Affairs Council on 7/8 December, the Security Minister (Mr Ben Wallace) asks the Committee to clear the proposal from scrutiny or grant a scrutiny waiver so that the Government can agree a “general approach”. We make clear that the Minister should have written earlier and that his letter does not provide the information previously requested on the Government’s expectations for future cooperation with the EU on this and other EU law enforcement and criminal justice measures, the role of the Court of Justice of the European Union, and possible transitional arrangements.

Not cleared from scrutiny; further information requested; drawn to the attention of the Home Affairs Committee, the Justice Committee and the Committee on Exiting the European Union.

Documents drawn to the attention of select committees:

(‘NC’ indicates document is ‘not cleared’ from scrutiny; ‘C’ indicates document is ‘cleared’)

Business, Energy and Industrial Strategy Committee: Energy Union Governance [Proposed Regulation (NC)]; EU Renewable Energy Directive [Proposed Directive (NC)]; Digital Single Market: Consumer contract rights for the online and offline sale of goods [(a) Proposed Directive (C), (b) Amended Proposed Directive (NC)]; EU Electricity Market Design [(a) and (b) Proposed Regulations (NC), (c) Proposed Directive (NC)]; Energy Efficiency Directive [Proposed Directive (NC)]

Defence Committee: Operation SOPHIA [Council Decision (C)]

Exiting the European Union Committee: Proceeds of crime: mutual recognition of freezing and confiscation [Proposed Regulation (NC)]

Foreign Affairs Committee: Operation SOPHIA [Council Decision (C)]

Home Affairs Committee: Proceeds of crime: mutual recognition of freezing and confiscation [Proposed Regulation (NC)]

International Trade Committee: Trade defence actions against the EU [Commission Report (C)]; Comprehensive and Enhanced Partnership Agreement with Armenia [(a) and (b) Proposed Decisions (C), (c) Recommended Decision (C)]

Justice Committee: Digital Single Market: Consumer contract rights for the online and offline sale of goods [(a) Proposed Directive (C), (b) Amended Proposed Directive (NC)]; Proceeds of crime: mutual recognition of freezing and confiscation [Proposed Regulation (NC)]

Treasury Committee: European System of Financial Supervision [(a) Proposed Regulation, (b) Proposed Directive, (c) Amended Proposed Regulation (NC)]

15 December 2017