Documents considered by the Committee on 24 January 2018 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:

EU Emissions Trading System (ETS)

UK customs controls and the EU budget

VAT: e-commerce package

Services Directive notification procedure

The EU Civil Protection Mechanism: strengthening EU disaster management

Managing EU migration and security databases

Exchanging information on criminal convictions

Summary

Commission Work Programme 2018

Each year the Commission sets out its legislative and policy priorities for the year ahead giving an indication of the proposals likely to emerge over the following year. The fourth annual work programme of President Juncker’s Commission highlights 26 new key initiatives to complete the work of his ten strategic priorities. Unusually, the programme also includes eleven ‘Future of Europe’ initiatives launched with a 2025 perspective. The Commission Work Programme (CWP) remains important in setting out future legislation that might enter into effect after the UK has left the European Union, but during a transition period in which it may need to comply with and implement new EU law. Additionally, the forward-looking initiatives proposed will be an important indicator of the future priorities of a key partner of the UK as a third country. We are not recommending the CWP 2018 for a separate debate, but it may be that we recommend individual proposals arising from the CWP for debate when we consider them in more detail in the future.

Cleared; drawn to the attention of the relevant Committees.

EU Emissions Trading System (ETS)

The outstanding issue on these documents about long-term reform to the EU ETS and about aviation emissions specifically was an amendment made to protect the integrity of the EU ETS in the event of an abrupt UK exit from the EU. The Committee reports a satisfactory resolution, which should not have the detrimental outcome on operators that had originally been feared following the EU’s initial proposal.

Cleared; drawn to the attention of the Business, Energy and Industrial Strategy Committee.

2018 fishing quotas

The Committee reports that agreement to the 2018 fishing quotas was reached in December. The Fisheries Minister (George Eustice) is content with the outcome, considering it to be one which struck the right balance for the marine environment and coastal communities. He adds that no issues arose specific to the UK’s withdrawal from the EU.

Cleared; drawn to the attention of the Environment, Food and Rural Affairs Committee.

UK customs controls and the EU budget

A report published by the European Commission in July last year on the protection of the EU budget against fraud highlighted allegations that HM Revenue and Customs had systematically undervalued Chinese textile imports over a period of four years, leading to a loss of nearly €2 billion in customs duties. Following the General Election, the Committee retained the report under scrutiny pending further information from the Government about the scale of the problem, and its political and financial implications. The Chief Secretary to the Treasury has now written to the Committee, effectively recognising there was a problem but rejecting the EU’s estimate of the duty loss. The UK may still have to compensate the EU for the vast majority of any customs duties evaded, as such duties make up a significant component of each Member State’s contribution to the EU budget.

Separately, the European Court of Auditors has also published a report on customs controls on imports into the EU, which included an audit of HMRC’s practices to ensure the correct application of EU customs tariffs to imports. The auditors corroborated OLAF’s findings in relation to undervaluation of Chinese imports, but do not independently estimate the total losses in customs duties. They found that, in some instances, the UK was allowing imports of clothing to be cleared by customs with declared prices lower than the price of raw cotton. The Committee remains concerned about the financial implications of the dispute, as well as its consequences for future negotiations on a new UK-EU customs partnership after Brexit and any transitional period.

Cleared from scrutiny; drawn to the attention of the International Trade Committee, the Public Accounts Committee and the Treasury Committee; further information requested.

VAT: e-commerce package

The Member States have supported new EU legislation reforming the system of VAT on cross-border supplies of goods and services to consumers. The changes had the support of the Government, which nevertheless admits it compromised on the VAT treatment of distance sales of goods (which must in the future be accounted for in the EU country of the consumer in a wider range of circumstances than is currently the case, increasing burdens on businesses) because a key ask—simplifying VAT accounting for suppliers of electronic services such as online games or music—was achieved.

The package of measures also aims to reduce the burden on businesses for cross-border VAT in the EU overall by allowing them to use the “Mini One Stop Shop” accounting mechanism, under which VAT due in another EU country for distance sales of goods or services would be paid domestically (after which the local tax authority remits it to their counterpart in another Member State). The new legislation will also abolish Low Value Consignment Relief, which allow EU consumers to import low-value goods from third countries without having to pay import VAT.

The Committee is of the view that important questions about the implications of the UK leaving the common VAT area after Brexit remain, and it is not yet clear whether the most fundamental reforms agreed as part of the e-commerce VAT package will apply to UK traders as any other third country business (which face additional barriers compared to EU businesses), or whether they will have a special status under any transitional arrangement or new UK-EU agreement on VAT.

Cleared from scrutiny; drawn to the attention of the Business, Energy and Industrial Strategy Committee and the Treasury Committee.

Services Directive notification procedure

The Government has responded to the Committee’s questions about the General Approach that was agreed by the Member States. While the proposal will continue to benefit UK businesses post-exit, the text weakens the Commission’s proposal: for example, insurance schemes have been excluded. Although the Government downplays these concerns, the weakening of the text may indicate that the EU27 have limited appetite for going further in areas covered by the Services Directive. Regarding the implications of EU exit for sectors covered by the Services Directive, the Government gives a mixed impression: market access to unregulated sectors (e.g. marketing) will be relatively unaffected, whereas there will be a greater impact on sectors for which more advanced frameworks exist at EU level (e.g. legal services). Although the Government provided extensive information regarding the proposal and its progress in Council, the Committee chose to retain it under scrutiny pending further information about how the Government proposes to treat the Provision of Services Regulation 2009, which implements the EU Services Directive.

Not cleared from scrutiny; further information requested.

Single Digital Gateway

A General Approach was agreed at the Competitiveness Council on 30 November which made the proposed Regulation significantly more flexible, in line with UK interests. On Brexit, the Regulation does not contain third country provisions, and the Gateway and national webpages will be less useful to UK citizens and businesses where they concern EEA law/rights that no longer apply to them. Nonetheless, the Gateway and national webpages will continue to benefit UK stakeholders by providing them with much useful information online and in English, some of which will apply equally to citizens and businesses of third countries. Under the phased implementation of the Regulation its more significant provisions will only take effect 3 and 5 years after its publication in the OJ, meaning they are unlikely to apply to the UK before it has left the EU and the transition period has ended. The Committee cleared the document from scrutiny, and urged the Government to proactively ensure that arrangements are put in place to ensure that stakeholders are provided with accurate and up-to-date information about any applicable rules and administrative procedures which relate to their cross-border activities within the EU27 at the moment of exit.

Cleared from scrutiny; drawn to the attention of the Business, Energy and Industrial Strategy Committee.

The EU Civil Protection Mechanism: strengthening EU disaster management

The EU Civil Protection Mechanism enables Member States to coordinate their response to natural and man-made disasters within and beyond the EU. It is funded until the end of 2020. The Commission considers that changes need to be made before then—in 2017 alone, the Mechanism was unable to respond to 7 (out of 17) requests for assistance to fight forest fires. The proposal seeks to enhance the capacity of the EU and Member States to respond to disasters and address capacity gaps in two ways: by increasing the incentives for Member States to “pre-commit” their own disaster response capacities to a voluntary pool (to be renamed the European Civil Protection Pool) so that these assets are more readily available in an emergency and (more controversially) by establishing a dedicated reserve of EU-acquired response capacities (rescEU) which would provide “a last resort capacity” capable of being mobilised at short notice. The Government notes that the Commission has failed to publish an Impact Assessment and that there is “no evidence” that rescEU would “significantly reduce deaths, damage and economic losses”. The Committee says it is unclear whether the Government considers that there are insufficient powers under the Treaties for the EU to develop its own disaster response capacities or that there would be no added value in the EU doing so. The Government is asked to clarify the basis of its objection (lack of competence or subsidiarity), to explain how the changes proposed by the Commission would affect the UK and to provide further information on the possible Brexit implications.

Not cleared from scrutiny; further information requested; drawn to the attention of the Public Administration and Constitutional Affairs Committee.

EU participation in Council of Europe Convention and Additional Protocol on the prevention of terrorism

The Government confirms that it has decided not to participate in Council Decisions authorising the EU to conclude (ratify) a Council of Europe Convention and Additional Protocol on the Prevention of Terrorism. It considers that there would be “no added value in doing so” as the UK is “fully compliant” with the Council of Europe instruments. The Government intends the UK to “ratify at the earliest opportunity” but makes clear that its immediate priority is to review counter-terrorism powers and legislation following the terror attacks in the UK last year.

Cleared from scrutiny; drawn to the attention of the Home Affairs Committee.

Managing EU migration and security databases

A new EU Agency—eu-LISA—was established in 2012 to manage three EU information systems dealing with asylum, border management and law enforcement. The EU is developing a number of new EU information systems in these areas. The proposed Regulation would make eu-LISA responsible for managing these new systems. The Government has decided to participate in the proposal even though the UK does not take part in all of the systems that eu-LISA will manage. The Government sets out its aspiration for a post-exit treaty with the EU on security, law enforcement and criminal justice cooperation but says it would be “wrong” to speculate about continued UK participation in individual measures, such as eu-LISA and the information systems it manages. The Committee challenges the Government’s reticence, noting that the European Council expects the UK to “provide further clarity on its position” before agreeing Guidelines in March on the framework for the future EU/UK relationship. We ask whether the new security treaty the Government intends to seek post-exit could overcome the limitations on third country participation set out in the proposed Regulation (only countries associated with the Schengen free movement area).

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.

Exchanging information on criminal convictions

The Council has agreed a general approach on two proposals which seek to improve the operation of the European Criminal Records Information System—ECRIS. The UK participates fully in ECRIS and has opted into the latest proposals. The texts agreed by the Council include some changes on third country access to information held in a new information system—ECRIS-TCN—which will contain information on third country nationals convicted in the EU. They also push the implementation deadline beyond the date on which the UK is expected to leave the EU. The Committee asks the Government to clarify the likely impact of the changes on the UK and to explain how they will affect the Government’s preparations for implementing the legislation.

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: EU Emissions Trading System [(a) Proposed Directive (C), (b) Proposed Regulation (C)]; VAT: e-commerce package [Proposed Directive (C), (b) Proposed Implementing Regulation (C), (c) Proposed Regulation (C)], Single Digital Gateway [Proposed Regulation (C)]

Environment, Food and Rural Affairs Committee: 2018 Fishing catch quotas [Proposed Regulation (C)]; Fisheries Discard Plans [Delegated Regulations (C)]

Committee on Exiting the EU: Managing EU migration and security databases [Proposed Regulation (NC)]; Exchanging information on criminal convictions[(a) Proposed Directive (NC), (b) Proposed Regulation (NC)]

Home Affairs Select Committee: EU Participation in Council of Europe Convention and Additional Protocol on the Prevention of Terrorism [Proposed Decisions (C)]; Managing EU migration and security databases [Proposed Regulation (NC)]; Exchanging information on criminal convictions[(a) Proposed Directive (NC), (b) Proposed Regulation (NC)]

International Trade Committee: UK Customs Controls and the EU Budget [(a) Report (C), (b) Special Report (C)]

Justice Committee: Exchanging information on criminal convictions[(a) Proposed Directive (NC), (b) Proposed Regulation (NC)]; Managing EU migration and security databases [Proposed Regulation (NC)]

Political and Constitutional Affairs Committee: The EU Civil Protection Mechanism: strengthening EU disaster management [(a) Communication (C), (b) Proposed Decision (NC)]

Public Accounts Committee: UK Customs Controls and the EU Budget [(a) Report (C), (b) Special Report (C)]

Treasury Committee: UK Customs Controls and the EU Budget [(a) Report (C), In addition, the Commission Work Programme 2018 has been brought to the attention of relevant Select Committees, (b) Special Report (C)]





29 January 2018